Module 11 (Problem Set & Vocabulary)
In what sense do employers who discriminate pay an economic penalty?
The employers face higher costs, lower profit and eventual elimination from the market.
What is the difference between the marginal product of labor and the marginal revenue product of labor for a firm in a perfectly competitive market?
The marginal revenue product of labor is equal to the marginal product of labor multiplied by the product price.
Assume that both the goods and the labor market are perfectly competitive. If at equilibrium, the marginal cost faced by a firm is $6 and the marginal product of the last unit of labor hired by the firm is 2 units, the market wage rate must be:
$12.
The condition to decide on the optimal amount of leisure is that:
the marginal benefit of leisure should be equal to the wage rate.
How can we measure the opportunity cost of leisure? The opportunity cost of leisure is
the wage rate
In the case of leisure, the substitution effect implies that:
when the price of leisure increases, people will work more.
If the marginal product of a worker is 10 units and each unit of the good is sold for $5, the value of marginal product of the worker is:
$50.
Assume that both the goods and the labor market are perfectly competitive. If at equilibrium, the marginal cost faced by a firm is $3 and the market wage rate is $6, the marginal product of the last unit of labor hired by the firm must be:
2 units.
If the value of marginal product of a worker is $20 and the market price of the good he produces is $5, his marginal product is:
4 units.
Which of the following factors shifts the labor supply curve?
A change in population, a change in alternatives available in other labor markers, a change in demographics
Which of the factors listed below does NOT cause the demand curve for labor to shift?
A change in wage
Which of the following is likely to lead to a left shift in the demand curve for labor in the petroleum extraction industry?
An increase in the price of cars
Labor union
An organization of employees that has a legal right to bargain with employers about wages and working conditions.
Why is the supply curve of labor usually upward sloping?
As the wage decreases, the opportunity cost of leisure decreases, causing individuals to devote less time to working.
Define economic discrimination.
Economic discrimination is paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race.
Compensating differentials
Higher wages that compensate workers for unpleasant aspects of a job.
Factors of production
Labor, capital, natural resources, and other inputs used to produce good and services.
Which of the following statements is true?
Lower wages are normally offered for jobs with better amenities.
Bloomswood Hotel is situated in Forkland, a picturesque town in the mountain region of a country. Allen Grabos works as a gourmet chef at the hotel that caters mostly to tourists. In a conversation with his wife, Delia Grabos, Allen claims that he is underpaid. The hotel makes up to $500,000 per year but his annual salary is only around $28,000 a year. Delia, however, is of the opinion that since new hotels and inns are expected to open in Forkland, the salaries paid to hotel staff in the area should increase. Although new hotels and inns did open up, the wages of the hotel staff did not increase as much as anticipated. Which of the following, if true, can best explain this outcome?
Many people from the nearby towns moved to Forkland in search of job opportunities.
If wages increase, will worker supply more labor?
Only if the substitution effect is larger than the income effect.
Human capital
The accumulated knowledge and skills that workers acquire from formal training and education or from life experiences.
Marginal product of labor
The additional output a firm produces as a result of hiring one more worker.
Marginal revenue product of labor (MRP or MRPL)
The change in a firm's revenue as a result of hiring one more worker.
Derived demand
The demand for a factor of production; it depends on the demand for the good the factor produces.
Ceteris paribus, which of the following is likely to happen if an industry introduces labor-saving technology in production?
There will be a decrease in both the wage rate and the employment levels in the industry.
What is a compensating differential? Give an example. A compensating differential is
When higher wages are paid to compensate a worker for unpleasant aspects of job, such as when worker are paid higher wages for dangerous work.
Through the 2016 season, Nick Saban's record as the head football coach at the University of Alabama was 119 wins and 19 losses. The $11.125 million salary the university paid him in 2017 was the highest received by any college football coach. Yet ESPN commentator Scott Van Pelt argued, "Alabama is still getting a bargain in Nick Saban, and I guarantee you that they know that." Is it possible that Saban might be underpaid?
Yes. Saban's marginal product might not be greater than other successful football coaches, but Saban's marginal revenue product is substantially higher because revenue generated from winning at Alabama is much greater.
The substitution effect of a wage increase
causes a worker to supple a larger quantity of labor, and the income effect causes a worker to supply a smaller quantity of labor.
The economic penalty is not enough to eliminate discrimination because of the presence of all of the following except:
compensating differentials.
Sanitary engineers may earn higher wages than receptionists
due to compensating differentials because the work of sanitary engineers is dirty and unpleasant. due to differences in productivity. due to discrimination.
Why are there superstar basketball players but no superstar plumbers? There are superstar basketball players but not superstar plumbers
due to technological advances that have increased the number of viewers for basketball games.
Many economists have attempted to measure the effects of economic discrimination on wages. What have they concluded? One of their conclusions is that
most of the differences in wages are due to factors other than discrimination.
If the value of marginal product of a worker is $40 and the marginal product of the worker is 8 units, the market price of the good he produces is:
$5.
Economic discrimination
The practice of paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race or gender.
As the income of an individual increases, he can afford more leisure. This refers to the ________ of a wage increase.
income effect.
It is difficult to estimate how much of the gap between what men and women are paid is due to discrimination because
there are many other factors that influence wage differences.
These individual choices can result in differences between how much men and women are paid because
they will result in differences in experience and skill over time.
Lawrence Katz, an economist at Harvard, was quoted in a newspaper article as arguing that differences between the incomes of male physicians and female physicians "are largely explained by individual choices." He also noted that discrimination could account for part of the gap "though it isn't clear how much." When Katz used the phrase "individual choices," he meant that female physicians may
work fewer hours or take time off for child care.
An employer discriminating against Asian workers is an example of:
taste-based discrimination.
Is the fact that one group in the population has higher earnings than other groups evidence of economic discrimination?
No. Differences in earnings between groups could be due to worker productivity. No. Differences in earnings between groups could be due to worker preferences.
As the wage increases,
the demand for labor curve does not shift, but the quantity demanded of labor decreases.
Head coaches in college football are typically paid more than college professors. How can supply and demand analysis explain this wage differential? College football coaches often earn more than college professors because
the marginal revenue product of football coaches is higher.
