ECON 202
The Patient Protection and Affordable Care Act (ACA) requires all employers with at least 50 full-time equivalent workers to offer health insurance to their full-time employees or pay a fine of up to $2,000 per employee. Some people have argued that ACA will lower employment. This problem looks at an important issue in this debate. Part 2 Suppose the government passes a law that requires firms to offer health insurance to their workers. The cost of the insurance is equal to $2 for each hour an employee works. How will this law affect firms' demand for labor?
Demand for labor will shift down by $2.
Complete the following table by identifying the two types of technological change. (Use LST for labor-saving technology or LCT for labor-complementary technology.)
GPS= LCT Radio frequency identification tags = LST
An example of a progressive tax is the __________.
Income Tax
How would you depict the trade-off between equity and efficiency on a
Inequality on one axis and social surplus on the other with a positively-sloped function.
At this price, the transacted level of the product is _______ units
Q2
Reservation value
Reservation value is the price at which a trading partner is indifferent between making the trade and not doing so.
An example of a regressive tax is the ___________.
Social security Tax
Social surplus
Social surplus is the sum of consumer surplus and producer surplus.
or a long time, your firm has been paying its workers a wage of $20 per hour and your employees have been happy to work 40 hours per week at this wage. Business is suddenly booming and your firm would really like your workers to agree to a 50-hour work week in order to meet this new demand for your product. You are considering two strategies. Strategy 1 You would raise the wage for all hours worked from $20 per hour to $22 per hour. Strategy 2 You would leave the wage for the first 40 hours per week at $20 but offer $30 per hour for hours worked above 40 hours (that is, you would offer time-and-a-half for overtime). Both strategies have the same cost of $1,100 if a worker chooses to work 50 hours. Which strategy is more likely to lead your employees to agree to a 50-hour work week? Part 2
Strategy 2, because the MC of not working increases significantly after 40 hours of work.
Now suppose workers consider a dollar of health insurance paid by firms to be worth less than $2 in wages. How will this law affect the equilibrium quantity of labor in this labor market? How will it affect the equilibrium wage in this industry?
The equilibrium wage and quantity both decline, with the wage declining less than in the previous case where workers consider the insurance to be the equivalent of $2 in wages.
Free exit
There is free exit from an industry when exit is unfettered by any special legal or technical barriers.
The European Union banned certain pesticides for two years after studies found links between the use of these insecticides and a decline in the bee population. In particular, research has shown that the use of imidacloprid, clothianidin, and thiamethoxam on flowering crops have adversely affected the honeybee population in North America and Europe. Part 2 Consider the private market for these pesticides shown in the graph on the right. It shows the equilibrium level of pesticides that will
This outcome is not socially efficient. supply curve shifts left and up and the point goes on a new equilibrium This outcome is socially efficient.
A production function shows
the number of workers employed and the corresponding output levels that will be produced.
A government would want to be on this curve where ___________.
there is no correct answer to this question, as the answer depends on a government's value judgments.
Tax incidence refers to ____________.
Who bears the burden of a tax
Which of the following is not an externality?
Jordan has lung cancer from smoking cigarettes.
An example of a proportional tax is the ___________.
Medicare Tax
Is the entire burden of the tax always borne by those on whom it is imposed?
Not necessarily since the burden of the tax depends on price elasticity
When the firm's VMPL is plotted in a diagram with the quantity of labor measured along the horizontal axis, the resulting curve will be_________and constitutes the firm's_________
downward sloping demand curve for labor
According to your graph, the equilibrium wage_________and the equilibrium quantity___________
falls stays the same
Because this firm is competitive and has no control over its product's price, the declining values for VMPL are a result of diminishing
marginal productivity
A non-market price imposition is a
price control
The Coase Theorem states that
private bargaining will result in an efficient allocation of resources.
The primary types of tax systems are ___________. (Check all that apply.) Part 2
progressive tax systems. regressive tax systems. proportional tax systems.
Given that there are costs involved with government intervention in an economy, governments still choose to intervene in markets to
reduce poverty
In the figure on the right, the imposition of price PC results in a _______ in the market. Part 3 If the imposed price PC were removed, market forces would rectify the mismatch between quantity demanded and quantity supplied by pushing the price _________. Part 4 This price adjustment would eliminate the mismatch by _________- market participants to change their behavior.
shortage upward incentivizing
Jones and Smith live in the same apartment building. Jones loves to play his opera recordings so loudly that Smith can hear them. Smith hates opera. Jones receives $100 worth of benefits from his music and Smith suffers $60 worth of damages.
should be jones will pay $0 to Smith Negative externality Jones will pay $60 to Smith negative externality
According to the Law of Diminishing Returns
the marginal productivity of an additional unit of labor eventually decreases as the quantity of labor increases.
Social surplus is the ____________.
total value from trade in a market
If you are the only buyer, and you know that the lowest ask price is $3, should you accept this offer?
Both A and C are correct. A. Yes, since you will gain $8. B. Yes, accepting an offer from any other seller will reduce your surplus.
The figure on the right displays the market for video game consoles, where nine buyers are interacting with nine sellers.
$500, 5 $2000 $1800 $1800 Maximize
imagine you are a buyer in a double oral auction with a reservation value of $11 and there is a seller asking for $5.
$6
The value of marginal product of labor (VMPL
A and C only given by the marginal product of labor times the price of the firm's output. the contribution of an additional worker to a firm's revenues.
The Coase Theorem will will breakdown when ____________. (select all that apply)
A.transaction costs become high.Your answer is correct.B.there are a large number of agents.Your answer is correct.C.when property rights are not clearly defined
How do labor-saving technologies differ from labor-complementary technologies?
All of the above Labor-saving technologies result in lower wages and less employment, while labor-complementary technologies result in higher wages and more employment. B. Labor-saving technologies substitute for existing labor inputs, while labor-complementary technologies augment existing labor inputs. C. Labor-saving technologies decrease the marginal product of labor, while labor-complementary technologies increase the marginal product of labor.
How does the labor-leisure trade-off determine the supply of labor?
An increase in the wage rate is an increase in the opportunity cost of leisure, and can therefore be expected to reduce the amount of leisure one wishes to consume. Choosing less leisure is equivalent to supplying more labor, thus yielding a positive relationship between the wage rate and the amount of labor supplied.
Pareto efficient
An outcome is Pareto efficient if no individual can be made better off without making someone else worse off.
Since this market is prevented from attaining equilibrium, the result is a deadweight loss, which is measured by area
C+E
Constant returns to scale
Constant returns to scale exist when ATC does not change as the quantity produced changes.
The diagram on the right shows the demand and supply for jeans. Calculate consumer surplus, producer surplus, and social surplus in this market.
Consumer surplus is $1000 (Enter your response to the nearest dollar.) Part 2 Producer surplus is $1500 (Enter your response to the nearest dollar.) Part 3 Social surplus is $2500(Enter your response to the nearest dollar.)
Diseconomies of scale
Diseconomies of scale occur when ATC rises as the quantity produced increases.
Economies of scale
Economies of scale occur when ATC falls as the quantity produced increases.
Exit
Exit is a long-run decision to leave the market.
Free entry
There is free entry into an industry when entry is unfettered by any special legal or technical barriers.
When economists speak of a deadweight loss, they are referring to a _________ in _____________ caused by a market distortion.
a decrease, social surplus
Social surplus is maximized when the ___________.
all of the above.
Which of the following is a cost associated with government intervention in an economic system?
bureaucracies
When the VMPL is plotted in a diagram with the number of workers measured along the horizontal axis, the resulting curve (connecting the plotted points) is the firm's
demand for labor
