Econ exam 3

income

A flow measure reflecting the funds received by individuals or businesses over a specific period

wealth

A measure of an individual's or family's assets, net of liabilities, at a given time

marketable or tradable permits

A regulatory body sets a maximum allowable quantity allowed, typically called the cap, and issues permits granting the right to pollute a certain amount.----- these can be bought and sold hence- cap and trade

Rawls maximum principle

A society should maximize the welfare of the least well-off individual. Suggests that some people are born unlucky into poor households, and therefore income redistribution would make society more equitable

Emission taxes

A tax on every unit of pollution produced to achieve the socially efficient outcome

nonrivalry

Consumption by one does not reduce that good's or service's utility to others.

Which statement(s) is(are) true? I. A major source of income inequality in the United States stems from differences in education levels. II. Differences in the number of earners in a household is not a source of income inequality in the United States. III. Differences in spending habits is a major factor in explaining income inequality.

I only

Which of these is(are) true? I. The tragedy of the commons is MOST associated with pure private goods. II. Highway congestion is an example of the tragedy of the commons because a new driver fails to consider the external costs of his using the road. III. The tragedy of the commons is NOT an example of market failure.

II only

the coase theorem

In the presence of an externality, if transaction costs are small, the resulting allocation of resources will be efficient regardless of the initial allocation of property rights.

dual labor market hypothesis

Labor market is split into primary and secondary sectors.

Most major league baseball players tend to earn wages:

Less than their marginal revenue product

market failure

Occurs when a market outcome does not provide the socially optimal level of output. or The incentives of politicians and government bureaucrats are not in line with the public interest

industrial agglomeration

Occurs when firms locate close to one another to take advantage of external economies of scale.

nonexcludability

Once a good or service is provided, it is not possible to exclude others from enjoying it.

The supply of investable funds is positively sloped because

students use the lowest-cost funds first.

the market supply curve

tends to slope upward bc higher wage rates will draw more people in a given market

income deficit

the difference between the poverty threshold and a family's income

Government failure occurs when:

the incentives of government policymakers are not aligned with the public interest.

All of these are classified as functional distributions of income, EXCEPT:

transfer payments.

Suppose that all people within a given age group have the same earnings profile and that the percentage of the population in each age category is the same. The distribution of income at any point in time will be:

unequal, because incomes differ by age.

In the United States:

wealth distribution is less equal than income distribution.

The basic difference between income and wealth is that

wealth reflects the accumulated assets of a lifetime and income is what is earned in one year.

From 1960 to 1973, poverty rates in the United States:

were cut in half.

Why the individual labor supply curve is backward bending

when one gets paid more they have more leisure time and money to spend, therefore will work less amount of time

insider-outsider theory

workers are separated into union and nonunion sectors

If the supply of labor decreases, which of the following events will occur?

The wage rate will increase and firms will decrease employment to the point where MRP equals the new wage rate.

The demand for investment in human capital slopes down because:

There are diminishing returns to more education, More time in school leaves less time to earn money

For competitive firms, profits are maximized when labor is hired to the point where:

VALUE OF THE MARGINAL REVENUE PRODUCT, VMPL = wage rate

new factors causing poverty

Wages have not kept up with rising costs., Technological changes and globalization have changed employment opportunities, Health costs are rising, Rise of single parent families.

income effect

Workers choose fewer hours when wages rise and more hours when wages fall.

substitution effect

Workers choose more hours as wages rise (opportunity cost of leisure rises).

economic discrimination & result

Workers of equal ability and productivity are paid different wages or are otherwise discriminated against. RESULT: MEMBERS OF DIFFERENT GROUPS ARE SEGREGATED INTO DIFFERENT OCCUPATIONS.

unions

are associations of employees that bargain with employers over the terms and conditions of work.

positive externality

benefits to others outside of the market

Public goods represent a market failure because

by their very nature they are nonexcludable and nonrival which makes it difficult for the private sector to supply them profitably.

labor demand shifters

change in product demand: ^demand ^price= shift MRP right change in productivity: ^productivity ^MPP= shift MRP right change in price of other inputs

If the income distribution becomes more equitable, the Lorenz curve moves _____ the line of equal distribution of income and the Gini coefficient _____.

closer to; declines

Government requirements that automobile companies improve gasoline mileage every year is an example of:

command and control policies.

negative externality

costs to others outside of the market

We assume that when a firm hires additional workers, the marginal physical product of labor will:

decrease because each worker now has less capital and other resources to work with.

causes of market failure include

externalities, existence of public goods, common property resources

As a result, of adverse selection problems in the health insurance market, it is likely that over time ________ .

fewer healthy people will be insured

Which of these is the MOST significant determinant of income disparity in the United States?

individual investment in human capital

how to read Lorenz curve

more bowed the lorenz curve the more income inequality there is

The elasticity of demand for cucumbers is -3 while the elasticity of demand for salt is -0.2. Thus, ceteris paribus, the demand for labor to pick cucumbers will be _____ compared to the demand for labor to mine salt.

more elastic

industrial union

represents all workers employed in a specific industry

closed shop

only union members are hired

supply of land is...

perfectly inelastic, ( rent) is determined completely by demand

emission taxes AKA

pigouvian taxes

the value of the marginal product of labor is the marginal product of labor multiplied by the

price of the item the firm produces

trademark

protects company names and logos

industrialdesigns

protects designs and products

patent

protects inventions

copywright

protects, writings, music and other creative works

two-earner households

raise of overall household income

Gini coefficient

ratio of area A to the other areas (A+B) the more unequal the income distribution the greateris area A and the greater is the Gini coeffient

If the proceeds from a Pigouvian tax are used to income tax rates, then efficiency in both markets.

reduce; increases

Suppose that a law passes that causes working conditions throughout the economy to improve. The labor supply curve should shift _____ and the number of workers available at any given wage rate will _____.

right; increase

If a negative externality exists in a market, the marginal:

social cost exceeds the marginal private cost.

If the marginal abatement costs outweigh the marginal benefits of the pollution abatement:

society is better off if emissions are increased.

solutions to common property resource problems

1) Establishing private property rights 2) Using government policy to restrict access to the common resource 3) Informal organizations that restrict each user's benefits from the resource

limitations to Becker's theory

1. Adjustment costs of firing unproductive workers and hiring new workers can be high. 2. Women may be less mobile than men and less willing to accommodate employer's demands (such as travel). 3. Women may continue to choose more flexible career paths that do not penalize extended absences from the labor market.

traditional cause of poverty

1. Lack of human capital 2. Mental or physical disability 3. Drug addiction (not a cause of poverty, poverty is a cause of addiction) 4. Unwillingness to work or apathy toward work 5. Refusal to relocate for work

benefits of unions

1. higher wages and job benefits through collective bargaining. 2. greater job security against arbitrary or vindictive decisions by management.

shifters of supply of labor

1. non wage income (inheritance, lottery, stocks) 2. demographics (labor force) 3. nonwage aspects of job (safety) 4. wages in other jobs

An equal distribution of income would yield a Lorenz curve that was a

45‐degree line between 0 and 100%.

Any society bound by a contract calling for an income distribution that would maximize the well‐being of the worst‐off member of society would allow for inequality if that inequality

B) had the effect of improving the lot of the very poor.

If the marginal damage caused by a certain type of pollution is $100 billion and the marginal cost of abatement is $180 billion, then:

B) society would be better off if emissions were increased.

Which of these is a significant reason why an individual would demonstrate no upward income mobility?

C) physical disability

An increase in technology will cause a marginal revenue product of labor curve to

C) shift to the right.

rate of return approach

Calculates the interest rate needed for an investment to break even.

present value approach

Calculates the present value of future income streams from an investment

Which statement does NOT explain the Coase theorem?

D) It states that efficient results will occur if both parties share the property rights equally.

environmental policy

Deals with the incentives faced by policymakers who wish to align public interests with business interests.

causes of income inequality

Differences in human capital, as high -paying jobs require much more education and skills than before

why is healthcare so expensive?

Doctors are paid for doing more high-tech interventions, especially more intensive/expensive interventions. Insured consumers demand more than they would if they were paying full price.

command and control

Government specifies the required outcome and the process by which it is to be achieved.

investment in human capital

Human capital investments such as education and training lead to more job opportunities and greater potential earnings.

Which of these statements is(are) true? I. The official U.S. poverty threshold for an individual is an income of roughly $30 per day. II. The World Bank and other agencies define poverty as incomes of less than $20 per day. III. An individual in the United States with an income of $20 per day is defined to be in poverty by U.S. standards.

I and III only

_____ is when the consumption of a good or service by one person does not reduce the utility of that good or service to others.

Nonrivalry

union shop

Nonunion workers can be hired but must join the union within a specified time.

agency shop

Nonunion workers may be hired but must pay union dues for its services.

Vaccinating people against a communicable disease such as influenza not only reduces the chances that the person vaccinated will catch the disease but also reduces the probability that an epidemic of the disease will occur. Which of the following statements is true?

Reducing the chances that the person vaccinated will catch the disease is a private benefit while reducing the probability of an influenza epidemic is a social benefit.

Which of the following is true regarding the tragedy of the commons?

The activity that leads to the tragedy of the commons is individually rational but collectively inefficient.

MPPL is the Marginal Physical Product of Labor:

The additional output from adding one more worker.

human capital theory

The more one discounts the future (values the present more than the future), the less one will invest in human capital.

Everything else held constant, there has been a decrease in the wage differential between men and women. A possible explanation for this could be:

a decrease in the demand for male-dominated jobs and an increase in the demand for female- dominated jobs.

craft union

a union made of all workers of the same specific craft

The price of reducing emissions is called the:

abatement cost.

Which of these is NOT a cause of income inequality?

an increase in the number of manufacturing jobs

notices principle

it would be unjust to redistribute wealth when it is earned through hard work and innovation. Justice requires protecting property rights to ensure people are rewarded for their hard work.

job crowding hypothesis

jobs are separated into predominantly male and female jobs

physical capital

land, labor, capital, ideas

A perfectly competitive firm will hire workers up to the quantity at which the wage rate equals the:

marginal revenue product of labor.

The income deficit:

measures how far below the poverty threshold a household's income lies.

costs of a union

membership dues, costs of strikes (lost wages), loss of some individual flexibility.