Employee subsidies will be most effective at raising the effective wage of the poor when
A) demand for labor is elastic.
B) supply for labor is inelastic.
C) both A and B
D) neither A nor B

Question

Quizplus · Accepted Answer

Employee subsidies will be most effective at raising the effective wage of the poor when both the demand for labor is elastic and the supply of labor is inelastic. This is because an elastic demand for labor means that employers are more responsive to changes in wage rates, potentially hiring more workers if the effective cost of labor decreases due to subsidies. An inelastic supply of labor means that the quantity of labor supplied does not change much with wage changes, helping to ensure that the subsidy translates into higher effective wages for workers rather than simply drawing more workers into the market, which could dilute the effect of the subsidy.

Employee Subsidies Will Be Most Effective at Raising the Effective