ECON Module 3 Exam
Discrimination may be based on....
- Gender - Race - Ethnicity - Sexual orientation - Religion - Disability - Social class
Why does the demand for labor slope downward?
- If the wage is too high, employers hire fewer employees and sell fewer goods. - If the wage is low, employers stay open longer hours and sell more goods. - It is the law of demand applied to the labor market.
Why does the supply of laborslope upward?
- If the wage is too low, employees prefer to take other jobs - If the wage is high, employees flock to the high-wage job -It is the law of supply applied to the labor market.
What 4 things shift labor demand?
1) Changes in demand for your product 2) Changes in the price of capital 3) Better management and productivity gains 4) Non-wage benefits, subsidies, and taxes
What are 4 things that can shift the market labor supply curve?
1) Changing wages in other occupations 2) Changing number of potential workers 3) Changing benefits of not working 4) Non-wage benefits, subsidies, and income taxes
How do employers get their workers to do more with less?
1) Ensure workers have the right skills for the job2 ) Motivate staff with incentives 3) Shape corporate culture 4) Offer the right benefits package 5) Attract and retain better workers
What is the three step process for forecasting the effects of changing market conditions?
1) Is the labor supply or labor demand curve(or both) shifting?2) Is the shift an increase or a decrease? 3) How will wages and the number of jobs change in the new equilibrium?
What are the three reasons market labor supply slopes upward?
1) New people may be induced to enter the workforce as the wage rises 2) Existing workers may put in more hours as the wage rises 3) Some people may switch occupations to those with higher wages
Why is redistribution costly?
1. administrative costs. 2. higher taxes, which reduce the incentive to work. 3. benefit reductions, which reduce the incentive to work. 4. tax avoidance, evasion, and fraud
Which of the following taxes is regressive? Raj pays a 10% tax on the first $10,000 he earns plus a _____ tax on any additional income.
5%
Monopsony power
A business using its bargaining power as a major buyer of labor to pay lower prices, including lower wages
Minimum wage as a price floor
A form of price floor that push the wage above equilibrium
Natural monopoly
A market in which it is cheapest for a single business to service the market (water, gas, electricity, etc.)
monopolistic competition
A market structure in which barriers to entry are low and many firms compete by selling similar, but not identical, products.
Permanent income
A person's average lifetime income
Prejudice
A preconceived bias against a group that is not based on reason or experience
Progressive tax
A tax where those with more income tend to pay a higher share of their income in taxes
Human captial
Accumulated knowledge and skills
What is collusion?
Agreements between sellers to increase their market power
Wealth
All assets (including your savings, car, house, etc.) that you currently have
Poverty line
An income level below which a family is defined to be in poverty
According to diminishing marginal utility, which of the following people would gain the lowest marginal benefit from an extra $100 of income?
Ariana, an actress with an annual household income of $1,500,000
Table: Income Distribution in Four Countries provides recent data from the World Bank on the distribution of income in four countries. Based on the data, the country with the distribution of income that is closest to equal is:
Bangladesh.
Average cost
Cost per unit, calculated as your firm's total costs (including fixed and variable costs) divided by the quantity produced
_________ __________ occurs because the demand for labor isderived from the demand for the stuff labor makes
Derived demand
Equation for discount effect
Discount effect = ΔP×Q
Economic profit equation
Economic profit = Total revenue - Explicit costs - Implicit costs
Economic profit
Economic profit accounts for both explicit financial costs and implicit opportunity costs
equality-efficiency trade-off
Efforts to equalize the distribution of income raise total well-being. But tax and redistribution programs are costly because they distort incentives, thereby reducing work effort
What does it mean that safety net programs are means-tested?
Eligibility is based on income and sometimes wealth
Efficiency wage
Employers pay workers more to make them more productive
Rational Rule for Exit
Exit the market if you expect to earn a negative economic profit, which occurs if price is less than average cost
What is social security?
Federal social insurance policy created in 1935; Provides retirement benefits, survivor benefits and disability coverage for workers, their spouses and their dependents
_____________ __________ is the quantity demand from your firm
Firm demand
Social insurance
Government-provided insurance against bad outcomes such as unemployment, illness, disability, or outliving your savings
Which graph shows the scenario where the substitution effect dominates labor supply decisions?
Graph A (individual supply labor positive slope)
The Rational Rule for Employers
Hire more workers if the marginal revenue product is greater than (or equal to) the wage.
What is meant by "the substitution effect"?
If you can replace labor with capital, your need for workers will fall
Switching costs
Impediments that make it costly for customers to switch to buying from another business.
Which of the following is NOT one of the four key reasons that the government provides in-kind benefits rather than cash benefits?
In-kind benefits give the recipient the greatest flexibility to choose what matters most.
What is the "income effect"?
Increase in wage is like an increase in income that increases the demand for leisure and so it reduces work hours
What is the "substitution effect" as it relates to individual labor supply?
Increase in wage is like an increase inthe opportunity cost of leisure that causes an individual tosubstitute away from leisure (unpaid time) to paid work time
_____________ __________ is the quantity demanded by a single buyer
Individual demand
What impact has technology had on the difference between the income of the best engineers and that of good engineers?
It has increased the gap in income significantly.
Relative poverty
Judges poverty relative to the material living standards of your contemporary society
Absolute poverty
Judges the adequacy of resources relative to an absolute standard of living
Implicit bias
Judgments shaped by the unconscious attribution of particular qualities to specific groups
Anti-collusion laws
Laws that prevent businesses from agreeing not tocompete
Does having more competitors lead to more or less market power?
Less market power
The marginal revenue product of labor is equal to:
MPL × P.
Marginal revenue equation
MR = P − ΔP×Q
___________ __________ is the quantity demanded across all firms.
Market demand
_____ using specific business practices that increase a seller's market power and excludes other sellers is illegal under U.S. law.
Monopolizing
Supply and demand with minimum wage
More supply than demand, causing a surplus of labor
In which market structure do the actions of a rival have a significant impact on your operations?
Oligopoly
Which of the following is NOT a strategy used by a company to "lock-in" customers to ensure demand for its product?
Pressuring the government to require a license for entry into the market
Profit margin
Price - average cost
How can a company's hiring manager attract workers who are motivated to advance in their field?
Provide training.
Average revenue
Revenue per unit, calculated as total revenue divided by the quantity supplied
Occupational licenses
Set education and training required for a job
Job-specific skills
Skills that are only useful in a job with one particular employer
General skills
Skills that are useful to many employers
FICA taxes
Social Security & Medicare taxes
_________ leads to the end of some jobs and the birth of others.
Technology
Besides salary, what is a tool used to help retain employees?
The ENTIRE compensation package
Social safety net
The cash assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution
perfect competition
The degree of competition in which there are many sellers in a market and none is large enough to dictate the price of a product
Extrinsic motivation
The desire to do something for its external reward, such as higher pay
Intrinsic motivation
The desire to do something for the enjoyment of the activity itself
Compensating differential
The differences in wages required to offset the desirable or undesirable aspects of a job
What is the discount effect?
The discount effect is the revenue loss from cutting the price on all the units sold
Monopoly
The exclusive possession or control of the supply or trade in a commodity or service.
Intergenerational mobility
The extent to which the economic status of children is independent of the economic status of their parents
Which of the following would shift the labor supply curve?
The government increases its provision of childcare services.
Short-run business decisions
The horizon over which the production capacity and the number and type of competitors you face cannot change.
Long-run business decisions
The horizon over which you or your rivals may expand or contract production capacity and new rivals may enter the market or existing firms may exit
Minimum wage (definition)
The lowest hourly wage that employers can pay
Income
The money you receive in a period of time (typically a year)
Poverty rate
The percentage of people whose family income is below the poverty line
Imperfect competition
The situation of facing at least some competitors and/or selling products that differ at least a little from those of competitors.
Discrimination
The treating of people differently based on characteristics (unrelated to workplace productivity)
Mario's company definitely has economic losses in which of the following situations?
Total costs exceed total revenue.
Average cost equation
Total costs/quantity
Accounting profit
Total revenue less out-of-pocket financial costs
Average revenue equation
Total revenue/quantity = price
________ are a good counterbalance to monopsony power.
Unions
Statistical discrimination
Using observations about the average characteristics of a group to make inferences about an individual
What is the price of labor?
Wages
What is meant by "the scale effect"?
When the price of capital declines, you can produce output more cheaply, so you need more workers to produce more things
Which of the following is a negative result of redistributing income toward equality?
Work incentives are reduced.
The Rational Rule for Workers
Work one more hour as long as the wage is at least as large as the marginal benefit of another hour of leisure
Alena manages a small theme park. She hires one more custodian at $450 per week, and her park is cleaner and more attractive. As a result of this improvement, ticket sales rise by 40 tickets per week. Tickets sell for $12. Use the Rational Rule for Employers to determine if hiring the extra custodian was a good move.
Yes, it was a good move because it added more to revenue than to cost.
Rational Rule for Entry
You should enter a market if you expect to earn a positive economic profit, which occurs when price exceeds average cost
Which tax is regressive? Arturo pays an 8% tax on the first $9,000 he earns plus _____ tax on any additional income.
a 5%
When it is hard to monitor worker productivity, employers often pay:
a higher wage.
A market with a large number of sellers and a high level of product differentiation is known as
a monopolistically competitive market.
Oligopoly
a state of limited competition, in which a market is shared by a small number of producers or sellers.
The toothpaste aisle at a large store that sells personal care products contains many versions of toothpaste produced by a small number of sellers. This indicates that toothpaste producers are engaging in _____ to _____.
brand proliferation; deter new entrants
Why does an employer's labor demand curve slope downward?
diminishing marginal product
Labor demand is downward-sloping because of...
diminishing marginal product.
Which of the following is consistent with the view that "fairness" means equality of outcomes?
equal incomes
Minimum wage laws raise the wage above....
equilibrium
As output rises, average fixed costs:
fall.
The two main types of implicit opportunity costs are:
forgone wages and forgone interest.
When new sellers enter a market, existing sellers will:
have less market power.
Compensating differentials lead to:
higher salaries for more unpleasant jobs
Employers look for __________ ___________ when trying to determine which workers are likely to be more productive.
human capital
The accumulated knowledge and skills that make a worker more productive are known as:
human capital.
Most businesses operate in __________ ____________ market.
imperfectly competitive
When the definition of poverty focuses on relative poverty, a person is in poverty if the household income is:
in the bottom 10% of household incomes in the nation.
Higher wages create an incentive to...
invest in capital.
Callie's firm uses a proprietary and complicated production process to ensure product quality. Her workers are carefully trained in this process as soon as they are hired. Callie thereby:
invests in job-specific skills.
If a seller can create switching costs for its product, then:
it is difficult or costly for customers to switch to another seller of the product.
If a company incurs expenses to start providing childcare at work so that employees can have lunch with their preschool children, the company's demand curve for labor will shift to the
left because employees are more expensive to the firm.
Employees will be motivated to work hard and try to help their employer succeed if the company:
lives up to a core set of ideals that workers identify with.
The higher the level of market power among the sellers in a market, the _____ when the Rational Rule for Sellers is applied.
lower the market output
Competition leads to ______ prices and a _______ quantity.
lower; higher
The _____________ _____________ ___ __________ is the extra production that occurs from hiring an extra worker
marginal product of labor
The _____________ _____________ ___ __________ measures the marginal revenue from hiring an extra worker
marginal revenue product
If the demand for Ono Yo's organic frozen yogurt increases, then the _____ Ono Yo's workers will _____.
marginal revenue product of; increase
In a competitive labor market, the employers pay the ________ __________.
market wage
Which structure has the most market power?
monopoly
The strong incentive of sellers to deter the entry of new sellers is a major reason that:
most markets are imperfectly competitive.
When a company has market power, it is _____ in its market.
not a price-taker
Barriers to entry
obstacles that make it difficult for new firms to enter
The Rational Rule for Workers is to work
one more hour as long as the wage is at least as large as the marginal benefit of another hour of leisure.
Intergenerational mobility measures inequality of....
opportunity
Inequality of income, wealth, and spending measure...
outcomes
Linking your workers' earnings to their performance is called:
pay-for-performance.
Which structure has the least market power?
perfect competition
What type of relationship exists between the level of a company's market power and the price that its owner is able to charge for its product?
positive
A preconceived bias against a group that's not based on reason or experience is known as:
prejudice.
When buyers in a market have market power, then the
product price is lower.
Sellers try to avoid the entry of new rivals through the use of demand-side strategies. These demand-side strategies do NOT include:
raising the market demand for the product.
Studies of the minimum wage indicate that minimum wage laws _____ employment opportunities for low-skilled workers, but there is less agreement regarding _____.
reduce; the amount of the reduction
Which of the following is NOT a cost of the redistribution of income?
reduced marginal benefits to extra income
Monopsony power _________ wages.
reduces
Your degree acts as a ________ to employers
signal
When firms in a market with free entry and exit experience economic losses, then:
some sellers will exit the market, reducing average seller losses.
Government social insurance programs are funded by:
taxes and fees that are assessed on workers and employers specifically for each program.
Marginal revenue
the addition to total revenueyou get from selling one more unit
Labor demand is equal to...
the marginal revenue product of labor.
Wage Elasticity of Labor Supply is...
the responsiveness in hours worked to a change in the wage.
The Rational Rule for Employers implies that they keep hiring until
the wage equals the marginal revenue product of the last worker hired.
Free entry occurs when...
there are no factors making it particularly difficult or costly for a business to enter or exit an industry.
In a perfectly competitive labor market, employers will not pay less than the market wage because at a wage below the equilibrium
they would not be able to hire anyone.
According to the Rational Rule for Sellers, the manager of this company should choose to produce _____ of output and charge a price of _____.
two units; $450
One of the market failures caused by market power is
underproduction.
Jobs with __________ attributes pay more
undesirable
The surplus in the labor market is referred to as...
unemployment.
Unions boost the _____ of their members
wages
There is much more inequality in ________ than __________
wealth; income
free entry pushes economic profits down to ___ in the long run
zero
