Labor Economics
7th Edition
ISBN: 9780078021886
Author: George J Borjas
Publisher: McGraw-Hill Education
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Chapter 4, Problem 1RQ
To determine
Expert Solution & Answer
Explanation of Solution
Producer surplus in a labor market is an advantage taken by the producer due to the variations in the value of marginal product of the labor and the value of total product. Producer surplus is represented by the area above the competitive wage and below the
Figure 1 shows equilibrium in a competitive labor market. In this figure, employment is measured on the horizontal axis and the wage rate in dollars is measured on the vertical axis. The triangle P, which is above the wage rate and under the demand curve, gives the producer surplus and the triangle Q, which is above the supply curve and under the wage rate gives the worker surplus.
Economics Concept Introduction
Producer surplus: Producer surplus in a labor market is an advantage taken by the producer due to the variations in the value of marginal product of the labor and the value of total product.
Worker surplus: Worker surplus refers to the difference between the competitive wage that is earned by the worker and the opportunity cost of workers’ time.
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5. Supply and Demand. The graph below shows supply and demand curves for
annual medical office visits. Using this graph, answer the questions below.
P↑
$180
$150
$120
$90
$60
$30
4
8
12 16 20 24 28 32 36
a. If the market were free from government regulation, what would be the
equilibrium price and quantity?
b. Calculate total expenditures on office visits with this equilibrium price and quantity.
c. If the government subsidized office visits and required that all consumers were to
pay $30 per visit no matter what the actual cost, how many visits would consumers
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d. What payment per visit would doctors require in order to supply that quantity of
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4. The table below shows the labor requirements for Mr. and Mrs.
Howell for pineapples and coconuts. Which is the most accurate
statement?
A. Mrs. Howell has a comparative advantage in coconuts and the
opportunity cost of 1 coconut for Mrs. Howell is 4 pineapples
B. Mrs. Howell has a comparative advantage in pineapples and the
opportunity cost of 1 pineapple for Mrs. Howell is .25 coconuts.
C. Mr. Howell has a comparative advantage in pineapples and the
opportunity cost of 1 pineapple is 1 coconut.
D. Mr. Howell has a comparative advantage in both pineapples and
coconuts and should specialize in pineapples.
Labor Requirements for Pineapples and Coconuts
1 Pineapple
1 Coconut
Mr. Howell
1 hour
1 hour
Mrs. Howell
1/2 hour
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