LATEST ECONOMICS FOR MANAGERS- CREATING
MARKETS 2024/2025
Imagine there are currently 80,000 lawyers in the market. Approximately what is the short-run
equilibrium salary paid to lawyers?
$280,000
$160,000
$100,000
$30,000: $100,000
At a price of $100,000, firms demand 80,000 lawyers. This answer can be found by looking at the
80,000 mark on the quantity axis and then moving up to where the demand curve "intersects"
the 80,000 quantity mark. In the short-run, the supply curve can be thought of as a straight
vertical line at 80,000.
In the previous example, what will happen to the market for recent law school graduates in the
long-run?
Less students will enter law school and thus the quantity of lawyers will decrease in the long-run.
Firms will eventually raise salaries to the point where 80,000 students are willing to enter law
school.
Since the market is in short-run equilibrium, neither salaries nor the quantity of lawyers will
change.: Less students will enter law school and thus the quantity of lawyers will decrease in the
long-run.
In order for there to be 80,000 lawyers in equilibrium, firms would have to be willing to pay
$280,000 salaries which they are not willing to do. Thus there is an excess supply of lawyers and
the number of students entering law school will decrease.
,LATEST ECONOMICS FOR MANAGERS- CREATING
MARKETS 2024/2025
From the last question we know that the number of students entering law school will decrease
from 80,000. Given that there are 80,000 new law student graduates in the market, approximatel
ill enter law
how many new students w 80,000 new
nly 35,000
school this year (round to the nearest 5,000)?: Currently there are law school graduates,
resulting in a wage of $100,000. At this wage, o
new law school graduates are supplied. In this example, that means that only 35,000 prospective
law students will enter law school.
Which of the following is likely to increase unemployment the most?
A law implements a minimum wage under the market equilibrium wage and
the labor supply is elastic.
A law implements a minimum wage under the market equilibrium wage and the labor supply is
inelastic.
A law implements a minimum wage above the market equilibrium wage and the labor supply is
elastic.
A law implements a minimum wage above the market equilibrium wage and the labor supply is
inelastic.: A law implements a minimum wage above the market equilibrium wage and the labor
supply is elastic.
An elastic supply of labor means that an increase in wages will result in a larger increase in the
number of hours employees want to work. This would make a price floor (minimum wage) more
likely to lead to a surplus of labor and unemployment.
The graph below depicts a price floor on the sale of electrician services. Which region or regions
represent producer revenues?
Producer revenues are given by D + E + F. Producer revenues are given by A.
Producer revenues are given by B + C + D + E.
, LATEST ECONOMICS FOR MANAGERS- CREATING
MARKETS 2024/2025
Producer revenues are given by B + D + E + F: Producer revenues B + D + E + F.
The revenue earned can be calculated by multiplying the quantity sold by the price, which in this
case gives the tall rectangle made by B + D + E + F. The height of
the rectangle represents the price, and the width of the rectangle represents the quantity sold.
Consumers bear more of the incidence of a tax when supply is:
more elastic.
less elastic.: more elastic.
When the supply curve is less steep, or more elastic, firms are more sensitive to the price change
caused by the tax, and as a result are able to adjust quantity supplied accordingly. Thus firms wi
end up "paying" a smaller portion of the tax and consumers will bear more of the incidence of the
tax.
Firms bear more of the incidence of a tax when demand is: more elastic.
less elastic.: more elastic.
When the demand curve is less steep, or more elastic, consumers are more sensitive to the price
change caused by the tax, and as a result are able to adjust quantity demanded accordingly.
Thus consumers will end up "paying" a smaller portion of the tax and firms will bear more of the
incidence of the tax.
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