1. True/false/ambiguous (35 points total) For each of the following, indicate whether the statement is true, false, or ambiguous, and briefly explain your answer. If your answer depends on any assumptions, state them clearly. Use graphs or equations to illustrate your answer whenever it is helpful.
a. The theory of labor supply can explain why rising real wages over the latter half of the 20th century led to increases in women's employment, because the increase in the wage makes the opportunity cost of not working higher, leading women to choose to work.
b. In a competitive labor market, workers are wage takers, but the wage will still decline if many workers increase their labor supply.
c. When firms use two inputs, labor and capital, an inelastic demand for the product firms produce implies that labor demand will be more elastic.
d. Because they create competition between workers, competitive labor markets can lead to workers earning a wage lower than the value the value they place on their time.
e. Because the income tax reduces the effective wage workers earn, a higher income tax rate causes people to work less.
f. An increase in the minimum wage doesn't necessarily raise a firm's cost of production because firms can respond to the higher minimum wage by substituting away from labor and towards other inputs.
g. The Obama administration enacted a federal stimulus that spend nearly $800 billion dollars to increase employment and reduce unemployment. The fact that the unemployment rate is now at about the same level as it was before the stimulus demonstrates that the stimulus failed.