Asked by Alyssa Hirschy on Apr 24, 2024
Verified
Refer to Scenario 14.4. Suppose that a pollution tax is imposed on each unit of a firm's output. The number of workers hired:
A) will decrease.
B) will increase.
C) will not change.
D) will change in an indeterminate fashion.
Pollution Tax
A levy imposed on the emission or discharge of pollutants, intended to internalize the externality costs of pollution.
Workers Hired
The number of individuals employed by a company or organization for the purpose of performing specific jobs.
Product Market
A platform where end products or services are made available to individuals, businesses, and governmental agencies.
- Analyze the impact of taxes, subsidies, and changes in product prices on labor demand, wages, and employment levels in monopsonistic markets.
Verified Answer
ZK
Zybrea KnightMay 02, 2024
Final Answer :
A
Explanation :
When a pollution tax is imposed on each unit of a firm's output, the cost of production increases. As a result, the marginal cost of production increases, causing a shift in the total product curve to the left. This leads to a decrease in the marginal product of labor, causing a decrease in the demand for labor. As a monopsonist in the labor market, John's firm has market power to set wages lower than the marginal revenue product of labor. Therefore, with the decrease in the demand for labor, John's firm can lower wages further and still hire the same number of workers as before. However, with lower wages, some workers may choose to work for other firms that offer better wages, leading to a decrease in the number of workers hired by John's firm. Hence, the number of workers hired will decrease.
Learning Objectives
- Analyze the impact of taxes, subsidies, and changes in product prices on labor demand, wages, and employment levels in monopsonistic markets.