Review Questions

1.
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What is the principal feature of a competitive industry?
2.
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What is the law of one price? Does it imply that all workers are predicted to earn the same wages?
3.
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How does a reduction in the payroll tax affect the demand for labor? What is the predicted effect of this change on the labor-market equilibrium?
4.
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What is the fundamental difference between a job attribute like the dusty and polluted working conditions inherent in mining coal and a fringe benefit?
5.
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Explain why the fringe benefit model predicts that, in the absence of tax complications, wages and benefits are predicted to lie along a straight line that has a slope of −1.

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