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Author Question: If the income effect of a wage increase equals the substitution effect, the labor supply curve is ... (Read 117 times)

cabate

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on: Jun 29, 2018
If the income effect of a wage increase equals the substitution effect, the labor supply curve is horizontal at the equilibrium wage.
 
  Indicate whether the statement is true or false

Question 2

Debbie makes porcelain plates in her home and sells them to the Opus gallery. She spent 400 last month on supplies and made 50 plates. She sold the plates to the gallery at 25 per plate. The gallery sells all the plates for 40 each.
 
  For all of the 50 plates, what is Debbie's total value added? For all the 50 plates, what is the gallery's total value added?
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laurnthompson

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Reply #1 on: Jun 29, 2018
Answer to Question 1

FALSE

Answer to Question 2

To determine Debbie's value added, we must find the additional market value she gives to the plates. For each plate, this is the difference between the price she charges the gallery and the cost of her raw materials. Her cost per plate is 400/50 or 8. Her value added per plate is 25 - 8 or 17. Her total value added for all 50 plates is 17  50 or 850. The gallery's value added per plate is 40 - 25 = 15. The total value added of the gallery for all 50 plates is 50  15 = 750.


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