ECO 204 Week 2

ECO 204 Week 2 Quiz

Discussion Questions

Many states provide firms with an investment tax credit that effectively reduces the price of capital. In theory, these credits are designed to stimulate new investment and thus create jobs. Critics have argued that if there are strong factor substitution effects, these subsidies could reduce employment in the state. Explain their argument. How does this affect the labor market?

In an effort to reduce their total costs, many companies are now replacing paychecks with payroll cards, which are stored-value cards onto which the companies can download employees wages and salaries electronically. If the only factor of production that a company varies in the short run is the number of hours worked by people on its payroll, would shifting from paychecks to payroll cards reduce the firms total fixed costs or its total variable costs?