The U.S. Bureau of Labor Statistics reports that the average salary for postsecondary economics teachers in the Raleigh-Durham-Chapel Hill metropolitan area, which has many top universities, rose to $105,200 (based on a 52-week work year) in 2003. According to the Wall Street Journal (Timothy Aeppel, "Economists Gain Star Power," February 22, 2005, A2), the salary increase resulted from an outward shift in the demand curve for academic economists due to the increased popularity of the economics major, while the supply curve of Ph.D. economists did not shift.
a. If this explanation is correct, what is the short-run price elasticity of supply of academic economists?
b. If these salaries are expected to remain high, will more people enter doctoral programs in economics? How would such entry affect the longrun price elasticity of supply? V