Micro-Economics
In Exhibit 14, the marginal factor cost of the eighth employee is
a. $21. b. $13. c. $14. d. $23. e. $112.
What happens to the MP of labor when the market price of the good produced increases?
a. Stays the same b. Decreases proportional to price c. Increases proportional to price d. Falls because quantity demanded falls
If the labor market shown in Exhibit 13 is competitive, the wage rate and number of workers employed will be determined at point
a. A. b. B. c. C. d. D. e. F
If the labor market shown in Exhibit 13 is a monopsony, the wage rate and number of workers employed will be determined at point
a. A. b. B. c. C. d. D. e. F.
Which of the following statements is true?
a. Derived demand for labor depends on the demand for the product labor produces. b. Unions can either increase demand or decrease the supply of labor. c. Investment in human capital is expected to increase the demand for those workers. d. All the answers above are correct
Which of the following states has the largest union membership measured as the percentage of civilian employees in unions?
a. Illinois b. Michigan c. New York d. New Mexico
unions use three basic strategies:
(1) increase the demand for labor, (2) decrease the supply of labor, and (3) exert power to force employers to pay a wage rate above the equilibrium wage rate.
In which of the following years did the U.S. have the highest percentage of its labor force unionized?
a. 1970 b. 2016 c. 1930 d. 1945
Union Collective Bargaining Causes a Wage Rate Increase
A union exerts its power through collective bargaining. Instead of the competitive wage rate of $210 at point E, firms in the industry avoid a strike by agreeing in a labor contract to $280 per day. The effect is to artificially create a labor surplus (unemployment) of 20,000 workers at the negotiated wage.
A Union Causes an Increase in the Demand Curve for Labor
A union shifts the demand curve for labor rightward from D1 to D2 to by featherbedding or other devices. As a result, the equilibrium wage rate increases from $210 per day at point E1 to $280 per day at point E2, and employment rises from 30,000 to 40,000 workers.
A Union Causes a Decrease in the Supply Curve of Labor
A union shifts the supply curve of labor leftward from S1 to S2 by restricting union membership or by using other techniques. As a result, the equilibrium wage rate rises from $210 per day at point E1 to $280 per day at point E2 , and the number of workers hired falls from 40,000 to 30,000.
Where Should Toyota Build the Factory?At Toyota, the top management wants to build a new factory in the United States, but they are worried that unions could make wage demands that would prevent the factory from being profitable. As a result, management wants to build the factory in the state with the lowest unionization rate. Which of the seven states listed in Exhibit 10 should be home to the new factory?
Among the seven states listed in Exhibit 10, South Carolina has the lowest unionization rate at only 1.6 percent. If you said that Toyota should build its new plant in South Carolina to maximize its profits
U.S. Union Membership, 1930-2016
As a percentage of nonfarm workers, union membership in the United States grew rapidly during the decade 1935-1945. Since its peak in 1945, union membership as a percentage of the labor force has fallen to about the level not seen since the early 1930s.
Factors Causing Changes in Labor Demand and Labor Supply
Changes in labor demand Changes in labor supply 1. Union 1. Unions 2. Prices of sub inputs 2. Demographics trends 3. Technology 3. Expectations of future income 4. Demand of final products 4. Changes in immigration laws 5. Marginal product of labor 5. Edu and training
Monopsony
Monopsony is a labor market in which a single firm hires labor. Because the monopsonist faces the market supply curve of labor and each worker is paid the same wage, changes in total wage cost exceed the wage rate necessary to hire each additional worker. As a result, the marginal factor cost (MFC) of labor curve, which measures changes in total wage cost per worker, lies above the supply curve of labor. The monopsonist's wage rate and quantity of labor are determined where the MFC equals MRP. Since at this point the worker's MRP is greater than the wage paid, the monopsonist exploits workers.
How does a human capital investment in education increase your lifetime earnings?
Students investing in education are increasing their human capital. As a student's human capital increases, his or her marginal product and MRP increase as well. At a given product price, firms find it profitable to hire the better-educated worker and pay higher wages.
Assume the Grand Slam Baseball Store sells $100 worth of baseball cards each day, with 1 employee operating the store. The owner decides to hire a second worker, and the 2 workers together sell $150 worth of baseball cards. What is the second worker's marginal revenue product (MRP)? If the price per card sold is $5, what is the second worker's marginal product (MP)?
The MRP of the second worker is this person's contribution to total revenue, which is $50 ($150 − $100). Because MRP = P x MP and MP = MRP/P, the second worker's marginal product (MP) is 10 ($50/$5).
The market supply curve of labor is upward sloping, but the supply curve of labor for a single firm is horizontal. Explain why.
The firm in a perfectly competitive labor market is a price taker. Because a single firm buys the labor of a relatively small portion of workers in an industry, it can hire additional workers and not drive up the wage rate. For the industry, however, all firms must offer higher wages to attract workers from other industries.
Alan Jones owns a company that sells life insurance. When he employs 10 salespersons, his firm sells $200,000 worth of contracts per week, and when he employs 11 salespersons, total revenue is $210,000. The marginal revenue product of the 11th salesperson is
a. $410,000. b. $20,000. c. $10,000. d. $210,000.
Suppose a firm can hire 100 workers at $8.00 per hour but must pay $8.05 per hour to hire 101 workers. Marginal factor cost (MFC) for the 101st worker is approximately equal to
a. $8.00. b. $13.05. c. $8.05. d. $13.00
In Exhibit 12, how many thousands of workers are the firms willing to hire?
a. 10 b. 25 c. 20 d. 15
A Monopsonist Determines Its Wage Rate
The monopsonist, General Griffin's, faces the industry upward-sloping supply curve of labor in the small town of Plainsville. As the wage rate rises, all workers must be paid the same higher wage. As a result, the change in total wage cost [marginal factor cost in column (4)] exceeds the wage paid to the last worker [column (1)]. The MFC curve therefore lies above the supply curve of labor. The demand curve for labor is the marginal revenue product (MRP), or the worth to the monopsonist of each worker it hires. The intersection of the MFC and MRP curves at point E determines that General Griffin's hires 2 workers per hour. Because this firm has a monopsony in the Plainsville labor market, it can pay $6 per hour at point B on the supply curve of labor, which is enough to attract 2 workers. However, the worker is exploited because the MRP at point E for the second worker is $12 per hour and the wage rate is only $6. In a competitive labor market, the equilibrium would be at point C, and General Griffin's would pay a higher wage and employ more workers.
Consider this statement: "Workers demand jobs, and employers supply jobs." Do you agree or disagree?
This statement is incorrect. Workers supply their labor to employers. Demand refers to the quantity of labor employers hire at various wage rates based on the marginal revenue product of labor.
Union Membership for Selected States, 2016
Union membership as a percentage of the civilian labor force is above average in New York, California, and the mid-western industrial states. In contrast, the percentage of the workforce that is unionized is below average in the southern states and in the western states that do not border the Pacific Ocean.
In Exhibit 14, the marginal factor cost of the tenth employee is
a. $21. b. $19. c. $23. d. $25.
A technological advance that increases the productivity of teachers can be expected to have what effects on the equilibrium labor market for teachers?
a. Wages and quantity of labor will remain the same. b. Wages will rise, and quantity of labor will rise. c. Wages will fall, and quantity of labor will fall. d. Wages will fall, and quantity of labor will rise. e. Wages will rise, and quantity of labor will fall.
A union can influence the equilibrium wage rate by
a. collective bargaining. b. featherbedding. c. lobbying for legislation to reduce immigration. d. doing all of the above.
The demand for labor is
a. derived demand. b. featherbedding demand. c. marginal utility demand. d. All of the answers above are correct.
A monopsonist's marginal factor cost (MFC) curve lies above its supply curve because the firm must
a. lower the factor price to hire more. b. increase the factor price to hire more. c. increase the price of its product to sell more. d. lower the product price to sell more
A technological advance that increases labor productivity will
a. lower wages. b. decrease the supply of labor as fewer workers are needed. c. decrease the demand for labor as fewer workers are needed. d. increase the demand for labor as MP rises. e. decrease the demand for labor as MP falls
In Exhibit 12, when the marginal revenue product is $20, firms should
a. pay a wage above $15 to its workers. b. stop hiring. c. continue hiring. d. start firing.
A union can influence the demand for labor by
a. requiring union fees. b. raising union fees. c. using effective advertising that convinces customers to buy the "union label." d. doing all of the above.
In a perfectly competitive labor market, the optimal hiring rule is to employ labor up to the point where
a. wage = MP. b. wage = MRP. c. wage = MR. d. wage = MFC.
Which of the following is true for a monopsonist?
a. wage = MRP b. wage < MFC c. wage > TWC d. wage > MFC e. wage = MFC
Monopsony
is a labor market in which a single firm hires laborBecause the monopsonist can hire additional workers only by raising the wage rate for all workers, the marginal factor cost exceeds the wage rate.
Marginal revenue product (MRP)
is determined by a worker's contribution to a firm's total revenue. Algebraically, the marginal revenue product equals the price of the product times the worker's marginal product: . MRP = P x MP
Human capital
is the accumulated investment people make in education, training, experience, and a level of good health that makes them more productive. One explanation for earnings differences is differences in human capital.
Derived demand
is the demand for labor and other factors of production that depends on the consumer demand for the goods and services the factors produce. Changes in consumer demand for a product cause changes in the demand for labor and for other resources used to make the product.
Collective bargaining
is the process through which a union and management negotiate a labor contract.
Demand Curve for Labor
shows the quantities of labor a firm is willing to hire at different prices of labor. The marginal revenue product (MRP) of labor curve is the firm's demand curve for labor. Summing individual firm's demand for labor curves gives the market demand curve for labor.
Supply Curve of Labor
shows the quantities of workers willing to work at different prices of labor. The market supply curve of labor is derived by adding the individual supply curves of labor.
