chap 14 3
When wages and work conditions are agreed upon by business owners and workers, the process is called?
Collective bargaining
The image below shows what?
Distribution of income among groups of people.
What are some reasons why a certain degree of inequality of income would be expected in a market economy?
Education Age Personal preferences
Wages are what?
Income that results from labor input
What is the the image below?
Lorenz Curve
How has the inequality of income changed in the U.S. economy since the late 1970s?
The income inequality has grown larger since the 1970's.
The labor ________ curve(s) will shift ________ if there is an increase in productivity or an increase in the demand for the final product.
demand : right
Other things being equal, a __________ supply of workers tends to __________ real wages.
larger; decrease
A Lorenz curve graphic shows:
what perfect equality of the income distribution looks like compared to the actual income distribution.
This table shows the quantity demanded and supplied in the labor market for driving city buses in the town of Unionville, where all the bus drivers belong to a union. What would the equilibrium wage and quantity be in this market if no union existed?
$18 per hour, 8,000 bus drivers
Paddy has lots of cousins. With a family reunion in the near future, Paddy decides to collect income information for himself and all his cousins. He obtains the following data points: $52,000, $22,000, $92,000, $8,000, $118,000, $62,000, $38,000, $14,000, $132,000, $46,000, $26,000, $96,000, $54,000, $110,000, $80,000. The share of income received by the second-to-bottom quintile of this income distribution is
11.6%
Imagine an economy of 10 individuals. Their annual incomes are reported below. Approximately what percentage of this economy's income is held by the poorest 40% of the population?
18.6
A group of 10 golfing buddies have the following annual incomes: $32,000, $12,000, $56,000, $120,000, $10,000, $38,000, $70,000, $16,000, $20,000, $24,000. The share of income received by the bottom quintile of this income distribution is
5.5%
Classify the following pollution-control policies as command-and-control or market incentive based:
A state emissions tax on the quantity of carbon emitted by each firm. Market incentive based b. The federal government requires domestic auto companies to improve car emissions by 2020. Command and control c. The EPA sets national standards for water quality. Command and control d. A city sells permits to firms that allow them to emit a specified quantity of pollution. Market incentive based e. The federal government pays fishermen to preserve salmon. Market incentive based
A group of 10 people have the following annual incomes: $24,000, $18,000, $50,000, $100,000, $12,000, $36,000, $80,000, $10,000, $24,000, $16,000. Calculate the share of total income received by each quintile of this income distribution. Do the top and bottom quintiles in this distribution have a greater or larger share of total income than the top and bottom quintiles of the U.S. income distribution?
A useful first step is to rank the households by income, from lowest to highest. Then, since there are 10 households total, the bottom quintile will be the bottom two households, the second quintile will be the third and fourth households, and so on up to the top quintile. Dividing the population by 2 and put it into quintiles. Add the two lowest incomes together and divide by the next quintile. Take the income for the quintile divided by the total times 100.
Which of the following will NOT result in a leftward shift of the market demand curve for labor?
An increase in immigration An increase in the wage rate
On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be?
Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate.
What economic effects might immigration have on the countries of immigrant origin?
Brain drain is the emigration of highly trained or intelligent people from a particular country. Remittances are a portion of wages back to country of origin
To minimize the cost of producing a given level of output in the long run, a firm must:
Follow the marginal decision rule and equate the ratio of marginal product to price for all factors of production.
What can government do to encourage the development of new technology?
Intellectual property rights Funding of research and development Tax breaks for research and development
Does a gap between the average earnings of men and women, or between whites and blacks, prove that employers are discriminating in the labor market? Explain briefly.
It does not prove it because it depends on a variety of discrimination.
Have levels of immigration to the United States been relatively high or low in recent years? Explain.
It has increased in recent years
Would you expect the presence of labor unions to lead to higher or lower pay for worker-members? Would you expect a higher or lower quantity of workers hired by those employers? Explain briefly
It would let union workers to have higher wages because they are a part of the labor union. The employer would hire less employees due to the higher wage.
What economic effects does immigration generally on immigrants themselves?
Large economical gain Wage ratio increases Countries of origin
A group of 10 golfing buddies have the following annual incomes: $32,000, $12,000, $56,000, $120,000, $10,000, $38,000, $70,000, $16,000, $20,000, $24,000. The share of income received by the bottom quintile of this income distribution is
NOT 7.5%, 9.5%
Name two public goods and explain why they are public goods
National defense/ Fire department Relies on nonexcludable and nonrivalrous
Are markets always in equilibrium?
No, but if there is no outside interference, they tend to move toward equilibrium.
Are positive externalities reflected in market demand curves? Why or why not?
No. A market demand curve reflects only the private benefits of those who are consuming the product. Positive externalities are benefits that spill over to third parties, so they create social benefits and are not captured by a market or private benefit demand curve. They are reflected in the social demand curve and shift it right for greater production
What is the difference between poverty and income inequality?
Poverty is the falling below a certain level of income. Income inequality is when one group receives a disproportionate share of total income or wealth than others.
What is the difference between private costs and social costs?
Social costs are costs that include both the private costs incurred by firms and also additional costs incurred by third parties outside the production process, like costs of pollution. Private costs are costs that includes internal costs incurred for inputs, labor, rent, and depreciation
Which of the following best describes the line of perfect income inequality in a Lorenz curve?
The line of perfect income inequality is at 0 degrees, because one person has all the wealth.
As the extent of environmental protection expands, would you expect marginal costs of environmental protection to rise or fall? Why or why not?
The marginal costs exceed the marginal benefits. At this level of environmental protection, society is not allocating resources efficiently because too many resources are being given up to reduce pollution.
The supply and demand conditions for a manufacturing firm are given in Table 12.5. The third column represents a supply curve without taking the social cost of pollution into account. The fourth column represents the supply curve when the firm is required to take the social cost of pollution into account. Identify the equilibrium before the social cost of production is included and after the social cost of production is included:
The original equilibrium (before the external social cost of pollution is taken into account) is where the private supply curve crosses the demand curve. This original equilibrium is at a price of $15 and a quantity of 440. After taking into account the additional external cost of pollution, the production becomes more costly, and the supply curve shifts up. The new equilibrium will be at a price of $30 and a quantity of 410. The supply curve would be shifted to the left because the price increases.
Imagine an economy of 10 individuals. Their annual incomes are reported below. Imagine that $100 of Oprah's income is transferred to Anna. What is true?
The poorest 20% of the population's income share grows from about 5.0% to about 6.8%. The richest 20% of the population's income share falls from about 32.2% to about 30.5%.
How does the poverty trap discourage people from working?
The poverty trap discourages people from working because they will be guaranteed an amount every month that they are able to use, whereas they would have to work to earn a little more.
Imagine an economy of 10 individuals. Their annual incomes are reported below. Imagine that $100 of Oprah's income is transferred to Anna. What is true?
The richest 20% of the population's income share falls from about 32.2% to about 30.5%. The poorest 20% of the population's income share grows from about 5.0% to about 6.8%.
Explain two categories of economic effects that immigration to the U.S. can have on the U.S. economy.
Wages/competition Wages decrease, Immigration increases Draw on System Not paying as much into the system as paying out *** Taxes increases more than government benefits
Table 15.6 shows the quantity demanded and supplied in the labor market for driving city buses in the town of Unionville, where all the bus drivers belong to a union.
What would the equilibrium wage and quantity be in this market if no union existed? The equilibrium wage would be $18 with a quantity of 8,000 QD & QS. Assume that the union has enough negotiating power to raise the wage to $4 per hour higher than it would otherwise be. Is there now excess demand or excess supply of labor? This would raise the wage to $22 with a quantity demanded of 4,000 while having a quantity of supply of 10,000. Therefore it would create a excess supply of labor or surplus of labor
If a country had perfect income equality what would the Lorenz curve look like?
When the line moves closer to the 45 degree line, it means that the country has a more perfect income equality.
From an economic perspective, is it sound policy to pursue a goal of zero pollution? Why or why not?
Zero pollution is not a reasonable goal. At the socially optimal quantity, the amount of pollution will be positive. The social optimum involves the correct balance between the social marginal benefits and social marginal costs, taking all of the relevant costs into consideration. But since most industrial processes involve at least some pollution, it will usually not be possible to push pollution to zero
The supply curve of textbooks (which are produced using paper made from trees) will shift to the left in response to:
a sharp increase in the demand for and construction of wood-frame homes.
The imposition of a price ceiling on a market often results in:
a shortage
Describe how each of these changes is likely to affect poverty and inequality:
a. Incomes rise for low-income and high-income workers, but rise more for the high-income earners. Poverty falls, inequality rises b. Incomes fall for low-income and high-income workers, but fall more for high-income earners. Poverty rises, inequality falls.
Identify the following situations as an example of a negative or a positive externality:
a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds Positive externality b. Your neighbor paints his house a hideous color. Negative externality c. Investments in private education raise your country's standard of living. Positive externality d. Trash dumped upstream flows downstream right past your home. Negative externality e. Your roommate is a smoker, but you are a nonsmoker Negative externality
Which of the following results in a rightward shift of the market demand curve for labor?
an increase in demand for the firm's product
Given that labor and capital are the only two factors of production for a given firm. If the price of labor rises, the firm will shift to a factor mix that uses more ________ ; as a result, we say that the firm is becoming more________.
capital : capital intensive
Negotiations between unions and a firm or firms is called ________ .
collective bargaining
Suppose that the government implements a new policy that provides free skills training to all low-skilled workers, which makes them more productive and turns them into high-skilled workers. This will ________ the supply of low-skilled workers and ________ the supply of high-skilled workers.
decrease : increase
A Lorenz curve refers to a graphic illustration of the cumulative share of population on the ________ and the cumulative percentage of total income received on the ________ .
horizontal axis : vertical axis
A Lorenz curve shows:
how a population's total income is distributed among its members.
Which of the following will not result in a leftward shift of the market demand curve for labor?
increase in wage rate
Improvements in the productivity of labor will tend to:
increase wages
If the demand for software engineers __________ slower than does supply, then wages of software engineers will __________.
increases; fall
A situation of ________ arises when one group receives a higher share of total income or wealth than others.
inequality
Incomes are received from several sources. Of the following, which is the largest?
labor
A ________ is an organization of workers that negotiates with employers as a group over wages and working conditions.
labor union
Other things being equal, a ________ supply of workers tends to put ________ pressure on real wages.
larger : downward
Suppose that new high-technology farming equipment is developed. These new machines are substitutes for low-income workers such as farm laborers, but they are complements for high-income workers such as farm technicians and farm owners. This new technology will shift the demand curve for low-income workers to the ________ while shifting the demand curve for high-income workers to the ________.
left : right
Suppose that new high-technology farming equipment is developed. These new machines are substitutes for low-income workers such as farm laborers, but they are complements for high-income workers such as farm technicians and farm owners. This new technology will shift the demand curve for low-income workers to the ________ while shifting the demand curve for high-income workers to the ________.
left ; right
A market in which there is only one buyer of a good, service, or factor of production is called a
monopsony
Incomes rise for low-income and high-income workers, but rise more for the high-income earners. How will this change affect income inequality?
poverty falls, inequality rises
When reference is made to the ________, it means the specific amount of income needed for a basic standard of living.
poverty line
The "law of supply" functions in labor markets; that is, a higher __________ for labor leads to a higher quantity of labor supplied.
price
A straightforward example of a _______________, often used for simplicity, is the interest rate.
rate of return
A higher wage has an income and a substitution effect. Based on the ________, a higher wage for labor leads to a higher quantity of labor supplied.
substitution effect
As the _____________ complement for high-skill labor becomes cheaper, the demand curve for high-skill labor will shift to the right.
technology
Many cooks view butter and margarine to be substitutes. If the price of butter rises, then in the market for margarine:
the equilibrium price will rise, and the equilibrium quantity will fall.
Whenever there is a shortage at a particular price, the quantity sold at that price will equal:
the quantity demanded at that price.
When consumers and businesses have greater confidence that they will be able to repay in the future, _______________________.
the quantity demanded of financial capital at any given interest rate will shift to the right.
If incomes rise for both low-income and high-income workers, but rise less for the high-income workers,
then poverty will fall and inequality will fall.
If a rise in incomes is the same proportion for both low-income and high-income workers,
then poverty will fall and inequality will remainunchanged
If a rise in incomes for both low-income and high-income workers is higher for the high-income workers,
then poverty will fall and inequality will rise
Many states do have ____________, which impose an upper limit on the interest rate that lenders can charge.
usury laws
In which of the following pairs of terms are both items incomes earned for factors of production?
wages and interest
If labor demand is downward sloping and labor supply is upward sloping, then when labor demand rises faster than labor supply, it is expected that real wages __________.
will increase
