Symbols: Q = Number of Workers Demanded; W = Wage

question 210

Multiple Choice

Symbols: Q = number of workers demanded; W = wage rate; and VTP = value of the cumulative total product (output) of the particular number of workers. Assumptions: (1) The current wage in Zinnia is $20, and the current wage in Marigold is $12; (2) full employment exists in both countries. If migration is costless and unimpeded, the combined value of total product in the two countries will

• A)decline from $62 to $36.
• B)decline from $120 to $70.
• C)increase from $36 to $62.
• D)increase from $62 to $70.

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Definitions:

Price Remains The Same

A condition where the cost of a good or service does not change over a period of time.

Substitution Bias

Substitution bias occurs in inflation measurement and refers to the tendency of consumers to change their purchasing habits away from goods that have increased in price to cheaper alternatives, which is not always fully captured by price indexes.

CPI

The Consumer Price Index, which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Consumer Substitution

The tendency of consumers to switch from one good to another in response to changes in relative prices, keeping their level of satisfaction or utility constant.