In an Economy with Flexible Prices, Competitive Factor Markets and Fixed

question 3

Essay

In an economy with flexible prices, competitive factor markets and fixed supplies of the factors of production, graphically illustrate the impact of an advance in technology that greatly improves the productivity of capital, ceteris paribus. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and the terminal equilibrium values. Explain in words how the equilibrium values change.

Evaluate the burden of tax shifting and tax incidence in various economic scenarios.

Understand the concept of elasticity in labor markets and its relevance to tax incidence and employer behavior.

Distinguish between different types of taxes (income, sales, excise) and their implications for taxpayers at various income levels.

Recognize the influence of taxes on labor market equilibrium, including employment levels and wage rates.

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Definitions:

Tradable Pollution Rights

An environmental policy approach allowing companies to buy or sell the right to emit a certain amount of pollutants, aiming to reduce overall emissions cost-effectively.

International Competition

Involves the rivalry between entities from different countries in various fields such as sports, business, technology, and education, aiming to establish supremacy or achieve a particular goal on a global scale.

Subsidies

Financial support provided by governments to organizations, businesses, or individuals, often to support economic activities deemed beneficial or necessary.

Basic Economic Needs

Fundamental requirements including food, shelter, and clothing that must be met to sustain life and health.