ECON Chapter 10

Tucker Corporation sells its products for $5.00. Tucker's industrial engineers have informed management that hiring one additional worker will increase output by five units per hour. Tucker should hire the additional worker only if the wage rate is:

$25.00 or less per hour.

Troll Corporation sells dolls for $10.00 each in a market that is perfectly competitive. Increasing the number of workers from 100 to 101 would cause output to rise from 500 to 550 dolls per day. The marginal revenue product for the 101st worker is:

$500

2 major problems with poverty line

1.) percentages give no indication of how poor the people included are (a person with an income $1 below the poverty line counts and so does a personal whose income is $5000 below) 2.) the poverty rate is computed using a family's cash income from all sources to the poverty line. It does not include noncash transfers (in-kind transfers)

The official poverty rate for all persons declined sharply between 1959 and:

1970

In the United States, approximately what percentage of the total income is earned by the highest 5 percent of the families?

20 percent

In the United States since 1970, the poverty rate for blacks has been about:

3 times the poverty rate for whites

Comparable worth

A controversial public policy aimed at eliminating labor market pay inequities. This is the principle that employees who work for the same employer must be paid the same wage when their jobs, even if different, require similar education, experience and responsibility. A nonmarket wage-setting process is used to evaluate and compensate jobs according to point scores assigned to different jobs. Aims to fix, for example, the fact that jobs dominated by women are undervalued compared to jobs dominated by men.

Demand Curve for Labor

A curve showing the different quantities of labor employers are willing to hire at different wage rates in s given time period, ceteris paribus. It is equal to the marginal revenue product of labor. Downward-sloping: as the wage rate falls, the firm will hire more workers per day. Decrease in wage rate > Increase in the quantity of labor an employer hires

Supply Curve of Labor

A curve showing the different quantities of labor workers are willing to offer employers at different wage rates in a given period, ceteris paribus. Summing the individual supply curves of labor in a given industry provides the market supply curve of labor. Upward-sloping curve: As wage rate rises, more workers are willing to supply their labor. Increase in wage rate > Increase in quantity of labor willing to work.

Absolute Poverty

A dollar figure that represents some level of income per year required to purchase some minimum amount of goods and services essential to meeting a person's or a family's basic needs.

Wage taker

A firm that pays the market-determined wage rate regardless of the quantity of labor it employs. For this reason, the labor supply is represented by a horizontal line at the equilibrium wage rate.

Relative Poverty

A level of income that places a person or family in the lowest, say, 20 percent of all persons or families receiving incomes.

Marginal product of labor

Additional output from hiring another unit of labor. Consistent with the law of diminishing returns, the marginal product falls as the firm hires more workers.

Antipoverty Programs

Cash transfer programs, Social security, Unemployment compensation, Temporary assistance to needy families (TANF), In-Kind Transfers, Medicare, Medicaid, Food stamps, Housing assistance

Discrimination raises the average wage of members of one group of workers in spite of laws that require equal pay for all workers.

False

Medicaid and food stamps are:

Forms of in-kind assistance

In-Kind Transfers

Government payments in the form of gods and services, rather than cash, including such government programs as food stamps, Medicaid and housing

Which of the following are not counted when we compare a family's income to the poverty line?

In-kind transfers such as food stamps, Medicaid, and public housing.

Division of total annual income among families

Measured by the distribution of family money income, the richest families became a little richer and the rest of the groups a little poorer in recent decades.

Distribution of income

One function of labor markets is to determine how wages and salaries are divided among members of society. Here we study the For Whom question is detail. There is an unequal distribution of income among families. Families headed by a college graduate fare better than those headed by an individual with less education. Families headed by a male generally earn more than families headed by a female.

Which of the following government programs provides recipients with unrestricted cash payments?

TANF

Human Capital

The accumulation of education, training, experience and health that enables a worker to enter an occupation and be productive. Explains the difference in supply of less skilled workers vs more skilled workers. Less human capital is required to be a carpenter than a physician. Therefore, many people are qualified for sch work, and the supply of carpenters is larger than the supply of physicians.

Derived Demand

The demand for labor and other factors of production that depends on the consumer demand for the final goods and services the factors produce. If consumers are not willing to purchase products requiring electronic components, there is no MRP, and firms will hire no workers to make electronic components for them. On the other hand, if customer demand for bank teller machines soars, the price of units rises and the MRP of firms in the electronic components industry rises. The result is a rightward shift in the market demand curve for labor.

If the initial wage rate is higher than the MRP...

The firm will hire no workers because the cost is more than any worker's contribution to total revenue (MRP).

Marginal revenue product (MRP)

The increase in a firm's total revenue resulting from hiring an additional unit of labor or other variable resource. A firm will convert the marginal product into dollars by calculating the marginal revenue product. So, marginal revenue product is the dollar value of worker productivity.

Poverty line

The level of income below which a person or a family is considered to be poor. Established the the U.S. government in 1964. yy

Labor unions

The perfectly competitive model does not apply to workers who belong to unions. Unions use three basic strategies to raise wages: 1.) Increase the demand for labor 2.) Decrease the supply of labor 3.) Exert power to force employers to pay a wage rate above the equilibrium wage rate.

Collective bargaining

The process of negotiating labor contracts between the union and management concerning wages and working conditions. A way of raise the wage rate above the equilibrium level.

In a perfectly competitive labor market...

There are: - many sellers and buyers of labor services - wages and salaries determined by the intersection of the demand for labor and the supply of labor

A perfectly competitive firm's marginal revenue product is equal to the marginal product of its labor times the price of its product.

This concept expressed as a formula: MRP = P * MP

Featherbedding

Union forces the firm to hire more workers than are required or to impose work rules that reduce output per worker. A method for unions to increase wages.

Why does a cardiologist make a much higher wage than a server in a restaurant?

Wage differentials are determined by the demand and supply curves in labor markets for these two occupations. In this case, the equilibrium wage rate for cardiologists greatly exceeds the equilibrium wage rate for servers.

Featherbedding allows unions to increase wages by:

increasing firms' demand for labor.

Production function

labor input and total output

Consider a law that limits women's access to certain "dangerous" occupations like coal mining and military combat service. Such a law would likely reduce women's wages because:

labor supply in female-intensive occupations would increase.

In a competitive labor market

no single worker can set his or her wage above the equilibrium wage

One reason the supply of carpenters is greater than the supply of physicians is because:

of differences in human capital.

For a perfectly competitive firm, marginal revenue product is equal to:

price times marginal product.

An unequal distribution of income guarantees that...

some persons or families will occupy in relative terms the bottom rung of the income ladder.

A competitive labor market determines

the firm's equilibrium wage

Statistics on families below the poverty line may be overstated because:

the income levels used to measure poverty do not include in-kind transfers.

In a perfectly competitive market, wage rates are determined by

the interaction of labor supply and demand.

A firm hires additional workers up to the point where...

the marginal revenue product (MRP) equals the wage rate.

Equilibrium wage rate occurs where

the quantity of workers demanded equals the wage rate.