Question

5. In Chapter 9 of your text, complete Exercise #3 found on page 321. Suppose that you observe that the wages for accountants in your town have gone up and that the number of accountants employed has also gone up. Which one of the following conditions could explain this? Illustrate your answer with a graph and explain in a brief paragraph. a) Businesses are failing, reducing the need for accountants. b) Many accountants are leaving the field in order to train to become financial analysts instead. c) A rash of business scandals has increased the demand for auditing services performed by accountants. d) The local university has just graduated an unusually large group of accountants.

Answer 1

Since, the wages for accountants and number of accountants employed both have gone up it implies that it must have been due to the increase in the demand for the accountants. Of all the following events, one event has led to this increasing demand for accountants. This event is that a rash of business scandals has increased the demand for auditing services performed by the accountants. So the demand for accountants at the given wage rates increase.

Therefore option c is correct.

Increase in the demand for accountants in the face of an unchanged supply of accountants will lead to an excess demand of accountants at the ongoing initial wage rate. This will lead to an increase in the wage rate for accountants and an increase in the number of accountants employed. This is shown in the diagram below. The labour demand curve shifts to the right. Wage rate increases from W1 to W2 and employment of accountants increases from N1 to N2.

wages s - (E2 W2 个 Wi - E 1 - - 1 - 1 1 - - - D NN Number of Auountants Employed