Question

Basil wishes to start a landscaping company, selling plants and landscaping services to new residents of New England Manor, a subdivision that is developing south of Tampa, Florida.

What types of resources are available for the firm to hire? Give examples of each type of resource.

How are the prices of the resources determined?

Basil can employ several workers to dig the necessary holes and ditches on his clients’ land or purchase a single specialized back-hoe and hire only one operator to dig these holes and ditches. Explain how he should make his decision.

How is the “product flow” from Basil’s company converted to the “money flow” in the Circular Flow Model?

1. Explain the role labor’s productivity plays in wage determination in the competitive labor market. If productivity increases, what happens to wages and why?
2. 
   
3. What is meant by the term “compensating wage differentials?”
4. 
   
5. Why is the demand for labor called a “derived demand.”

Answer 1

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