Final Exam
Factors that Shift the Labor Supply
1. Demographic changes 2. Non-money aspects of jobs 3. Wages in alternative jobs 4. Non-wage income
In 2015, what percentage of total U.S. income did corporate profits represent?
14.3%
Taft-Hartley Act (1947)
Also called the Labor Management Relations Act. This act was Congress' response to the abuse of power. Outlawed closed shops; prohibited unions' unfair labor practices, and forced unions to bargain in good faith.
Which of the following factors would shift the market labor supply curve to the right ?
An increase in minimum age for retirement benefits
Age Discrimination in Employment Act of 1967
Bans age discrimination for jobs unless age is related to job performance
Which of the following best describes income mobility in the United States?
Families can move to a higher or to a lower quintile.
Lorenz Curve
Graph showing how much the actual distribution of income differs from an equal distribution slide 10 chapter 15
Which of the following statements illustrates why climate change is more difficult to mitigate than some other environmental problems?
Greenhouse gas emissions are a global negative externality
Agglomeration
Grouping together of many firms from the same industry in a single area for collective or cooperative use of infrastructure and sharing of labor resources.
immigration laws tighten , what likely would happen to wages in the employment market ?
Higher wages , lower employment
Benefits of union membership
Higher wages / better benefits Greater job security
Nonwage Aspects of Jobs
If employers can manage to increase the pleasantness, safety, or status of a job, labor supply will increase.
Labor's Share of Total Production Costs
If labor's share of total costs is small, the demand for labor will tend to be rather inelastic.
Some experts suggest that if there were no immigration, the United States population would not be growing. The average age in the United States is increasing. What is the likely effect of increased immigration and an aging population on society's income distribution?
Immigration and the aging of the population both tend to decrease average household income.
How would stricter child labor laws affect the labor supply of a developing country where child labor is common?
It would cause the market labor supply curve to shift left
segmented labor markets
Labor markets split into separate parts. This leads to different wages paid to different sectors even though both markets are highly competitive.
Optimal Provision of Public Goods
Marginal Benefit = marginal cost
free rider
a person who receives the benefit of a good but avoids paying for it
Job Crowding
Occupations are broken into predominantly male and female
Someone promises to pay you $500 in 2 years . Interest Rate = 5% What are you willing to accept today instead of $500 in 2 years ?
PV=$500/ {( 1+.05) squared } = $453.51 ( today )
The supply of land is inelastic or elastic ?
Perfectly inelastic Slide 6 - chapter 12
Market-based policies
Policies that rely on allowing markets to work more freely and providing incentives for enterprise and initiative
Gary Becker (1930-2014)
Probably the most influential microeconomist of the 20th century. Applied the economic theory of maximizing agents to topics once on the margin of economics, such as discrimination, crime, families and even drug use.
the primary market consists of
STABLE JOBS
Job Crowding Theory
Slide 23
physical network
The Internet is a(n) _______ made up of wires, cables, satellites, and rules for exchanging information between computers connected to the network.
marginal physical product of labor
The additional output a firm receives from employing an added unit of labor calculated as the change in output divided by the change in labor, or ΔQ ÷ ΔL
Joe and Susan's kids like to play outside. But they don't always put their toys away and tend to leave basketballs, Frisbees, and other items in Pat's yard. Pat finds this highly annoying. What is the origin and who is affected by this externality?
The externality of littering the neighborhood with toys originates from consumers, Joe and Susan's kids, and the impact is taken by a consumer, Pat.
What would a person be willing to pay today for a $1,000 payment to be received 2 years from now if the going interest rate is 5%?
The formula to determine the present value (PV) of a future payment is PV = X/(1 + i)n, so the equation is PV = $1,000/(1 + 0.05)2 = $1000/(1.05)2 = $1,000/1.1025 = $907.02.
Which of the following statements is true of environmental policy?
The higher the discount rate placed on a decision, the lower the future value for coming generations.
Externalities
The impact on third parties of some transaction between others in which the third parties are not involved. An external cost (or negative externality) harms the third parties, whereas external benefits (positive externalities) result in gains to them.
nonexcludability
The inability to keep nonpayers (free riders) from obtaining benefits from a certain good; a characteristic of a public good.
Suppose you get a raise at work and decide to work fewer hours as a result. What is happening?
The income effect is dominating your labor versus leisure decision.
What is the internal rate of return for an investment that costs $20,000 today but will return $25,000 in one year?
The internal rate of return is 25%. PV = [ΣXn/(1 + i)n] −C. PV = $25,000/(1 + i)1 − $20,000.
Ease of Input Substitutability
The more difficult it is to substitute capital for labor, the more inelastic the demand for labor will be.
Elasticity of Demand for the Product
The more price elastic the demand for a product, the greater the elasticity of demand for labor.
ratio of income to poverty
The ratio of family income to the poverty threshold. Families with ratios below 0.5 are considered severely poor, families with ratios between 0.5 and 1.0 are considered poor, and those families with ratios between 1.0 and 1.25 are considered near poor.
What is the socially optimal level of pollution?
The socially optimal level of pollution is the point where marginal damages equal marginal abatement costs.
asymmetric information
a situation in which one party to an economic transaction has less information than the other party
Marginal Revenue Product
The value of another worker to the firm MRPL = MPPL × MR
Leisure
all activities that do not involve paid work, including caring for children, doing household chores, and activities that are truly leisurely.
Demographic changes
altering the number of qualified people available for work. example change in population
Industrial Union
an association of all workers in the same industry, regardless of the job each worker performs. Ex. auto workers
In the fictitious country of Amelia, the wage earners in each quintile earn 20% of total income. What would be the shape of the Lorenz curve for Amelia?
an upward-sloping straight line
A virtuous cycle begins
at the tipping point
teaser strategies
attractive upfront deals used as an incentive to entice new customers into a network
positive externalities
by-products of consumption or production that benefit third parties
rate of return approach
calculates the interest rate needed for an investment to break even summing up all of the different payments and subtracting cost from PV Slide 16
Present Value approach
calculates the present value of future income streams from an investment
profit maximization in a labor firm
When wage is equal to VMP
closed shop
Workers must belong to the union before they can be hired.
In 2007, the Wall Street Journal reported on a dispute in Bend, Oregon. Susan Taylor decided to hang her laundry out to dry on a clothesline. Neighbors said it was unsightly. Susan said she was saving energy. Could the Coase theorem work in this case?
Yes, if transaction costs are minimal. The Coase theorem states that if transaction costs are minimal, a bargain struck between the beneficiaries and victims of externalities will be efficient from a resource allocation perspective.
negative externalities
a cost imposed without compensation on third parties by the production or consumption of sellers or buyers. Example: a manufacturer dumps toxic chemicals into a river, killing the fish sought by sports fishers; an external cost or a spillover cost
lock-in strategy.
a firm raises switching costs for its customers, making it less attractive for them to leave the network
switching costs
costs that make customers reluctant to switch to another product or service
value of the marginal product
defined as VMPL = MPPL × P because MR = P
A_____ Gini coefficient indicates a more unequal income distribution.
higher
Those on the political left would argue that:
income and wealth redistribution is the chief means of reducing poverty.
You get a raise from $10 to $15 per hour but you work less . Is income or substitution effect stronger ?
income effect
According to the data in the text, the difference in mean earnings between males and females
increases at higher degree levels. In dollar terms (not percentage terms), the difference in mean earnings between males and females increases at higher degree levels.
The number of workers hired will be smallest when
is both a monopolist and monopsonist
why is zero pollution not the best outcome for the socially optimal level ?
its expensive to clean up all of the pollution
Which of the following is a common property resource ?
jogging trail
Rawls Maximin principle
justice requires maximizing the benefits going to society's most disadvantaged group
antitrust laws
laws that prevent monopolies and promote competition and fairness
A supply curve that incorporates only the private costs of production when negative externalities exist would
lie below and to the right of the supply curve that incorporates both the private and social costs
Which direction does network effect shift both Dp and Ds ?
to the right
Which of the following is a market-based environmental policy?
refunding 5 cents for returning glass bottles
command-and-control policy
regulatory strategy where government sets a requirement and then enforces individual and corporate actions to be consistent with meeting the requirement.
Craft union
union made up of skilled workers in a specific trade or industry ex. air traffic controllers
Which part of the network demand curve are network effects strongest ?
upward sloping part
Demand for labor will be MORE elastic
when the share of total production costs attributed to labor is higher
In competitive labor markets, firms have no preference for one employee over another because
workers are considered homogeneous, and labor is treated as a homogeneous commodity.
Income effect
working less (and consuming more leisure) as wages rise is known as the income effect.
Global equity
rich countries have to make the biggest sacrifice while poor countries will receive the biggest benefit from efforts to reduce the impact of global warming
The supply of land is perfectly inelastic. When demand for land rises, rent
rises
Virtuous Cycle
system that improves over time
Marginal factor cost
the added cost associated with hiring one more unit of labor.
External Benefit
the difference between Dp and Ds
income deficit
the difference between the poverty threshold and a family's income
Dual Labor Market
the division of the labor market into two segments: the primary and secondary labor markets
ody's neighbor decides to raise goats and sell their milk to mothers whose babies are allergic to cow's milk. Cody soon finds out that goat farms have a pretty bad odor. In this case:
the externality originates from the producer.
Which of the following is NOT a factor that affects the elasticity of demand for labor?
the income of workers in the industry
Elasticity Demand for Labor
the percentage change in the quantity of labor demanded (QL) divided by the percentage change in the wage rate (W).
Those on the political right would argue that
the poor benefit from growth just as much as anyone else.
Net Present Value
the present value of current and future benefits minus the present value of current and future costs Slide 15
Coase Theorem
the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
A $1,000 face value bond sells for $970. Which of the following must be TRUE? Please choose the correct answer from the following choices, and then select the submit answer button.
the yield is greater than the coupon rate. A bond sells for a discount (less than its face value) if the yield is higher than the coupon rate.
Civil Rights Act of 1964
outlawed discrimination based on race, color, religion, sex, or national origin
Americans with Disabilities Act of 1990
A law passed in 1990 that requires employers and public facilities to make "reasonable accommodations" for people with disabilities and prohibits discrimination against these individuals in employment.
A risk-averse investor would want to buy a bond with which of the following ratings?
AAA This rating indicates the bond is a safe investment.
A network expansion in a small network with fixed capacity results in:
As the network expands, demand increases because the value to existing and new users increases
Which of the following best describes the difference between A.M. radio and satellite radio?
Both are nonrival but A.M. radio is nonexclusive
How does population growth affect labor supply?
It causes the market labor supply curve to shift right
How does increased labor force participation affect labor supply?
It causes the market labor supply curve to shift right.
Marginal revenue product of capital
The change in a firm's revenue as a result of employing one more unit of capital, such as a machine Slide 12
Abatement costs
The costs of reducing emissions The cost of cleaning up
Core users
consumers who network effect dominates the price effect xbox may cost more but you would still prefer to use it over playstation
The slope of the network demand curve slopes upward at
lower quantities
Which of the following is not a market-based environmental policy?
mandating that coal-fired plants install scrubbers to clean emissions This is an example of a command and control policy. These policies include setting standards and issuing regulations, which are then enforced by the legal and regulatory system.
MPPL
marginal physical product of labor additional output of adding one more worker
sustainable development
people of the present generation are able to meet their needs without harming the needs of future generations
Interconnection
physical linking of networks to another network's essential facilities
The United States economy is increasingly oriented toward _____ industries, making investment in human capital more important than ever.
service
agency shop
Employees are not required to join the union, but must pay dues to compensate the union for its services.
Equal Pay Act of 1963
Legislation that requires employers to pay men and women equal pay for equal work
Market Labor Supply Curve
Upward sloping - higher wages attract more workers Slide 8
Demand for Labor is derived from
demand for your product and how productive your laborers are
Executive order 11246
established affirmative action
Bundling Strategy
grouping several products together to be sold as a single unit at a reduced price, rather than individually
Essential Facilities
inputs that are needed to produce a product or to allow a person to consume a product
Nozick's Argument
it would be unjust to redistribute wealth when it is earned through hard work and innovation
common property resources
land, raw materials, and capital non excludable but rival Ex. public beach
A new cellular company has just completed its cell phone towers. Which of the following is it likely to experience?
large economies of scale
If people begin to discount the future more (in other words, have a higher interest rate in their present value formula), this would cause a _____ shift of the _____ curve in the market for investment in human capital.
leftward; supply The more people discount the future, the less they will invest in human capital.
Labor unions
legal associations of employees that bargain with employers over terms and conditions of work, including wages, benefits, and working conditions. They use strikes and threats of strikes, as well as other tactics, to try to achieve their goals.
The market equilibrium price for a public good is where
marginal cost equals the vertical summation of individual demands.
The demand for labor is equal to the value of the _____ for competitive firms.
marginal product of labor
Which of the following protect scientific ideas? Please choose the correct answer from the following choices, and then select the submit answer button.
patents Patents protect ideas and inventions.
Which of the following best describes a news website that has a pay wall, where users pay a subscription fee to access articles?
public good with exclusions
Supply of Labor
represents the time an individual is willing to work—the labor the individual is willing to supply—at various wage rates.
Pigouvian Tax
taxes designed to reduce external costs
Pigouvian tax
taxes designed to reduce external costs
The external benefit of a consumer joining a network is graphically illustrated as the
vertical distance between the private and social demand curves.
The Gini coefficient for the country of Amelia was 0.23 before a system of taxation and transfer payments to the poor was initiated. What could be the likely Gini coefficient after this program was put in place?
0.19 A system of taxation of the wealthy and transfer payments to the poor would cause the Gini coefficient to decrease.
Gini Coefficient
A measure of income inequality within a population, ranging from zero for complete equality, to one if one person has all the income.
union shop
A provision found in some collective bargaining agreements requiring all employees of a business to join the union within a short period
social network
A series of social relationships that links a person directly to others, and through them indirectly to still more people.
Virtual Network
A software-based network that exists between devices on a physical network
Industry standard
An industry standard is a common format used, for example, in televisions and digital recorders, or in software programs.
Backward-Bending Supply Curve of Labor
At first higher wages gives higher labor but midpoint it starts to decline First - substitution effect , then income effect kicks in Slide 7
Nonwage Income
Changes in income from sources other than working (such as income from a trust) will change the supply of labor.
Which of the following does NOT generate a positive externality ?
Checking your email during class
Which of the following statements is incorrect?
Income is a stock variable and wealth is a flow variable. Income is a flow variable and wealth is a stock variable. You can be wealthy with low income if you do not work and your assets are in low-yielding certificates of deposit. Alternately, you can have little wealth yet a high income, like a rookie professional ball player who earns a seven-figure salary but has not yet accumulated assets.
Costs f Union membership
Membership dues Costs of Strikes Lose some individual flexibility
How much should be paid for an annuity that pays $35,000 per year forever at a market interest rate of 8%?
Present value (PV) is determined by dividing the annual income by the interest rate. PV = X/i. The equation is PV = $35,000/0.08 = $437,500.
Elinor Ostrom
Professor who showed that many commonly held resources can be managed effectively at the community level or by user institutions; self regulation by resource users can prevent the tragedy of the commons
Wagner Act (1935)
Prohibited firing workers because of union membership or union activities
Employment Non-Discrimination Act
Proposed anti-discrimination laws regarding sexual orientation and gender identity that have been discussed and reintroduced but never passed.
Screening is
Screening, or signaling, is the argument that higher education simply lets employers know that the prospective employee is intelligent and trainable and potentially has the discipline to be a good employee.
insider-outsider theory
Separated b/w union and non union workers
non rivalry
Situation existing where consumption by one person does not affect the consumption of all others
Which costs are included in switching costs?
Switching costs do include both monetary and nonmonetary costs.
The United Nations reports data on income distribution for different countries as a ratio of the income of the richest 10% to the income of the poorest 10%. If the ratio for Japan is 4.5 and the ratio for the United States is 15.9,
The distribution of income is more equal in Japan.
What happens to the marginal benefit from abatement as the environment becomes cleaner?
The marginal benefit of abatement decreases as the environment becomes cleaner, since the gains from an ever-cleaner environment have diminishing marginal returns.
What is the shape of the market labor supply curve?
The market labor supply curve is represented by an upward-sloping line because as wage rates increase, the number of workers increases.
Assume that the market price in a small network with fixed capacity is $6. What happens to the market price when there is a network expansion?
The market price rises above $6.
With a system of tradable pollution permits and only two firms
The price for pollution permits in a competitive market will be at the point where the quantity supplied of permits for one firm will be equal to the quantity demanded for permits from the other firm.
tipping point
The tipping point is the quantity from which network effects are strong enough to support the network.
The Network Effect - Metcalfe's Law
The value of networked system grows as the user population increases. Examples include Amazon, Mapmyrun, Pandora, Spotify, Waze, etc.
substitution effect
When wages rise, people tend to substitute work in place of leisure because the opportunity cost of leisure grows.
Wages in Alternative Jobs
When worker skills in one industry are readily transferable to other jobs or industries, the wages paid in those other markets will affect wage rates and the labor supply in the first industry.
economic discrimination
When workers of equal ability are paid different wages or in any other way discriminated against because of race, color, religion, gender, age, national origin, sexual orientation, or disability.
optimal level of pollution
Where marginal benefit of abatement = marginal damage ( intersect )
What is a bond's yield?
Yield is the annual return to a bond measured as a percentage of the current price of a bond.
The cost of car = $20,000 Value next year = $25,000 You plan on selling next year , at what interest rate will you break even ? ( Rate of return approach )
[$25,000 / (1+i) ] - $20,000 = 0 i = ?
external benefit (positive externality)
a benefit of an activity received by people other than those who pursue the activity shifts demand curve up and to the right slide 11 ( chapter 13)
Vicious cycle
a chain of events in which one negative event causes another negative event
Industry Standards
a common format that is used , for example in televisions , DVR
What does an increase in demand lead to in a non-network market?
a lower price
network externality
a situation in which the usefulness of a product increases with the number of consumers who use it
cost-benefit analysis
a study that compares the costs and benefits to society of providing a public good
Which of the following best describes cod fisheries off the coast of Nova Scotia?
common property resource
In countries like the United States, the government taxes the wealthier residents and transfers some of that money to the poorer residents through programs such as welfare. This system of taxing and transfer payments causes the Lorenz curve to:
bend closer to the 45-degree line.
positive externalities
benefits created by a public good that are shared by the primary consumer of the good and by society more generally
The demand for human capital investment is:
negatively related to the interest cost of borrowed funds.
Public good exhibits
non rivalry and non excludability
generational equity
the striking of a balance between the needs and interests of members of different generations