Author Question: Refer to Figure 6-6. As price falls from PA to PB, the quantity demanded increases most along D1; ... (Read 52 times)

cmoore54 · **on:** Jun 29, 2018

Refer to Figure 6-6. As price falls from PA to PB, the quantity demanded increases most along D1; therefore

A) D1 is more elastic than D2 or D3 B) D1 is more inelastic than D2 or D3.
C) D1 is elastic at PA but inelastic at PB. D) D1 is unit elastic.

Question 2

Denmark has high marginal tax rates and offers its citizens generous unemployment benefits and other welfare payments. While the unemployment rate in Denmark is relatively low, the proportion of people who are not in the labor force is quite high.

After accounting for factors like the average age of the population, what else do you think could explain this?

dreamfighter72 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A

Answer to Question 2

Denmark's generous unemployment benefits are likely to reduce the opportunity cost of leisure. Even if Danish citizens lose wages from not working, this price of leisure is reduced by the welfare payments that they receive. Since the opportunity cost (and price) of leisure is low, workers may choose to consume more leisure and will be willing to supply fewer hours of work. This could explain why the proportion of people who are not in the labor force in Denmark is high.
See http://www.nytimes.com/2013/04/21/world/europe/danes-rethink-a-welfare-state-ample-to-a-fault.html?pagewanted=all&_r=0