Module 4 Problem Set

1.

1. 5
2. $800, 4
3. 4

2.

1. More poorly educated immigrants in the country will affect the low-skilled labor market by shifting the supply curve to the right which will lower the equilibrium wage.
2. When we ship low-skilled jobs overseas, the demand curve in the low-skilled labor market will shift left causing the equilibrium wage to decrease.
3. Increasing the availability of training programs will have the effect of shifting the supply curve in the high-skilled labor market to the right, lowering the equilibrium wage.

3.

1. The budget line will shift outward.
2. The budget line will rotate inward from the top, becoming flatter.
3. The budget line will rotate outward from the bottom, becoming flatter.

4.

5.

1. It is not a good idea for Abe to pay Bill a set salary when he doesn't know how much the farm will produce because Bill may not work his hardest knowing that his salary is not tied to his effort. 
2. This economic problem is known as moral hazard.
3. If Abe had a way to monitor Bill's efforts, this would discourage Bill from committing moral hazard. In addition, linking his salary to his effort or production would encourage Bill to work his hardest. I think an incentive bonus at the end of the year dependent on that year's revenue would be the most efficient way for Abe to ensure that Bill works his hardest.