An economic model suggests that for every additional year of ...

[LaDunn]

An economic model suggests that for every additional year of education, the future wages increase by 5 percent.
 
  If Richard, with 12 years of education, earns 20 per hour, how much will he earn per hour if he decides to undertake four additional years of education?

Question 2

If there is excess demand in a perfectly competitive market, does the government need to intervene to restore the equilibrium price and quantity?
 
  What will be an ideal response?

[Heffejeff]

Answer to Question 1

The model suggests that if Richard earns 20 per hour, an additional year of education will increase his hourly wages to 1.05  20. Therefore, four additional years of education will increase his hourly wage to 1.05  1.05  1.05  1.05  20 or 24.31 per hour.

Answer to Question 2

No, in a perfectly competitive market, no government intervention is required to restore equilibrium as equilibrium is automatically restored. A situation of excess demand occurs when the market price is below the equilibrium price. Because quantity demanded exceeds quantity supplied in the market, some consumers will be willing to pay higher prices to buy goods. This will act as an incentive for suppliers to supply more, eliminating the shortage in the market.

[LaDunn]

Excellent

[mochi09]

Thanks for the timely response, appreciate it