Microeconomics

Union shop

A company in which new employees must join a union within a stated time period.

Oligopoly

A market structure in which a few large firms dominate a market

negative market feedback

A tendency for a good or service to fall out of favor with more consumers because other consumers have stopped purchasing the item.

Unions

An association of workers, formed to bargain for better working conditions and higher wages.

Congress and labor unions

Congress can set what is inbounds and what is outbounds for unions

1935 National Labor Relations Act

Prohibited unfair labor practices by management and protected unions. to protect the rights of employees and employers, to encourage collective bargaining, and to curtail certain private sector labor and management practices, which can harm the general welfare of workers, businesses and the U.S. economy

Rationale for cartel and seeds of its doom

Rationale to raise prices, we don't get as much profit but over the long run, it's more profitable. How to get prices to go up? Less output in the market Companies can't do this, it's illegal (cartels are illegal in US obvi) OPEC, organization of petroleum exporting countries

Unions and labor productivity

If a union worker is fifty percent more productive than a non-union worker, unit labor costs are the same. Higher Productivity offsets higher union pay.

If workers become more productive

If they become more productive it shifts demand to right, less productive shifts demand to left

Herfindahl index

Industry 1: concentration ratio=96% -1 firm w/ 93% of sales, and then 7 firms w/ 1% of sales HI=8656

Enforcing a cartel agreement

Keep # of firms small, more firms, harder to get cartel agreement Homogeneous product, more similar the product, easier to make cartel Need to easily be able to observe prices Can't have large changes in price (little variation)

In the short run, a firm operating as a monopolistic competitor will produce to the point at which

MR=MC

Concentration ratios

Monopolies have 100% (could also be for firms w/ 25% each) Can often misrepresent how competitive an industry is =top four firms % Herfindahl Index

Wage rates are determined by

supply and demand

Marginal revenue product of labor

the change in total revenue due to a one-unit increase in labor input, holding other inputs fixed

One way to view the cost structure of monopolistic competition is to say that the cost of product differentiation is equal to

the difference between the cost of production for a monopolistically competitive firm in an open market and the minimum average total cost.

An increase in product price implies that

the firms demand for labor increases

A geometric representation of the distribution of income is referred to as

the lorenz curve

A concentration ratio gives

the sales of the four largest firms in the industry divided by the sales of the 8 largest firms

Marginal productivity

the value of the output of the last worker hired by a company

The demand for computers increases. As a result

the wage rate increases in the industry and the quantity supplied of workers increases

A cartel will break down more easily if

there are many entrants in the industry.

Because there are low barriers to entry in a monopolistically competitive market

there are many firms in the industry

If three firms of similar sizes join to form a cartel, then it is most likely that

they will charge a common higher market price

If five firms of similar sizes join to form a cartel, then it is most likely that

they will collectively produce less than before.

Horizontal merger occurs when

two firms producing a similar product merge

The marginal factor cost of a monopsonist is

upward sloping and rises faster than the supply curve.

The monopsonistic exploitation of labor refers to

workers being paid a wage less than their marginal revenue product

Economic discrimination exists when

workers with the same marginal revenue products are paid different wages.

Which of the following is NOT a characteristic of the demand curve faced by a firm in a monopolistically competitive market?

The firm will produce where the demand curve is inelastic

Unions and wages

Through collective bargaining, unions negotiate the wages that employers will pay. Unions ask for a higher wage than the equilibrium wage Unions increase wages

Strategic behavior and game theory

Two or more individuals/companies/nations compete for certain payoffs that depend on the strategy of the others

Unions in the US

Unions and people in the United States do everything to give them a bad name

Wage rates will

Wage rates make workers work more hours than when the wage rates are high

Economies of scale

are commonplace and often a barrier to entry in oligopolistic industries

The labor market in professional baseball is an example of

bilateral monopoly

Long-run equilibrium is characterized by zero profits in

both perfect competition and monopolistic competition

Derived demand

business demand that ultimately comes from the demand for consumer goods

In the short run, a monopolistically competitive firm

can earn positive, negative, or zero economic profits

Which of the following is LEAST likely to be an outcome of a cartel as compared to the situation before the cartel was formed?

cartel members make fewer profits

Since Social Security is a pay-as-you-go program, the funds for the people retiring today

come from those of us working today and in the future

A Lorenz curve that is perfectly straight

complete income equality

When oligopolistic companies engage in collusion, the companies are involved in a

cooperative game

A good with qualities that consumers lack the experience to assess without assistance is called

credence good

A Lorenz curve measures the

cumaltive percentage of money income

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.

Featherbedding

deliberately limit production or retain excess staff in (a business) in order to create jobs or prevent unemployment, typically as a result of a union contract.

Trust Betray Trust 2 yr/2 yr 10 yr/1yr Betray 1yr/10yr 5yr/5yr

dominant strategy to betray partner if they each follow self interest-5 yrs if cooperated-2 yrs can do same thing with business

Why oligopoly occurs

economies of scale, barriers to entry, mergers

If a goal of a nation's residents is to increase marginal productivity, they should increase

expenditures on education

All of the following shift the labor demand curve EXCEPT changes in

fringe benefits offered to employees.

All of the following contribute to income inequality EXCEPT

government transfer programs.

Under monopsony, marginal factor cost is

greater than the wage rate.

Hiring Rule

hire until MFCι=MRPι. this is optimal level of labour

The labor supply curve faced by an individual firm in a perfectly competitive market is

horizontal

Relative poverty refers to

how a family's income compares to the incomes of those around them.

Suppose an industry is composed of 10 firms. Each firm's share of total sales in the industry is 10 percent. If two of the firms merge, then the four-firm concentration ratio in the industry will

increase.

network effects

increases in the value of a product to each user, including existing users, as the total number of users rises

Collective bargaining

is bargaining between unions and management.

Compared with a firm in a perfectly competitive market, the demand curve faced by a monopolistically competitive firm is

more elastic

If monopolistically competitive firms earn short-run economic profits, we expect to see

new firms enter the industry, which shifts the demand curves of the existing firms to the left until firms earn zero economic profits.

When decisions are guided strictly by short-run gains, this is known as

oppurtunistic behavior

For the monopolistically competitive firm, in both the short run and the long run

price will exceed marginal cost

Featherbedding is the term for

any practice that forces employers to use more labor than they would otherwise

A local utility is an example of

monopoly

MRP

"Why am I hiring workers?" You're hiring workers to make what you're selling The demand for workers is derived from what the workers produce Demand for workers is going to be changed depending on MRP Price of output and productivity change the demand for the workers

Herfindahl index

% of sales in each firms, square each, then add together

Price leadership model example

Beer example about raising prices If more competitive market, they don't match prices, they keep them low American Airlines leader in prices Bag fee example All other airlines followed

Why Cartel agreements usually break down

Example OPEC, not good at keeping the amount of oil in market regulated Oil barrel price cheap now, but much higher when OPEC had more control As soon as someone wants to compete/cheat, it falls apart Also, entry into market

Which of the following is NOT correct regarding the status of U.S. labor unions?

Global trade has increased the number of union members in the United States

Strike

Nonviolent refusal to continue to work until a problem is resolved.

Oligopoly Characteristics

Small # of firms Interdependent/joint pricing Barriers to entry Product may be differentiate of standardized Ex. Cars, cereal, cell phone companies,

Economic benefits and cost of labor unions

Sometimes unions can be good sometimes Unions can be bad

Deregulation

The lifting of government restrictions on business, industry, and professional activities.

Price Leadership Model

a form of oligopoly in which one dominant firm sets prices and all the smaller firms in the industry follow its pricing policy

Cartel

a formal organization of producers that agree to coordinate prices and production

Prisoner's Dilemma

a game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off

Which of the following is NOT a feature of a monopolistically competitive market?

a homogeneous product

A bilateral monopoly

a market in which there is a single seller (monopoly) and a single buyer (monopsony)

In a perfectly competitive industry, an individual firm faces

a perfectly elastic labor supply curve

positive market feedback

a tendency for a good or service to come into favor with additional consumers because other consumers have chosen to buy the item

public sector unions

a trade union which primarily represents the interests of employees within public sector or governmental organizations

If the goal of the union is to maximize member income, then

a wage rate will be set at the point at which marginal revenue equal zero

A dominant strategy is one that

always yields the highest benefit regardless of what the other players do

Which of the following will not cause the marginal revenue product of labor curve for a firm to shift?

an increase in the wage rate

The Knights of Labor was

an organization of both unskilled and skilled workers that pushed for an eight-hour workday and equal pay for men and women.

The additional cost associated with hiring one additional unit of some factor input, such as labor, is referred to as

marginal factor cost

The goal of a cartel is to

maximize industry profits

Concentration ratios

measure the percentage of industry sales accounted for by the "X" largest firms