Suppose the supply curve of physicists is given by w= 10 + 5E, while the demand curve is given by w= 50 – 3E.

Calculate the equilibrium wage and employment level.

Suppose now that the demand for physicists increases to w= 70 – 3E. Assume the market is subject to cobwebs.

Calculate the wage and employment level in each round as the wage and employment levels adjust to the demand shock.

(Recall that each round occurs on the demand curve – when the firm posts a wage and hires workers).

What is the new equilibrium wage and employment level?

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

answer; encouraging the development of innovations by firms attempting to break a monopoly; (creative destruction)