chapter 10 Flashcards
Law of Diminishing Returns
For any particular plant size, as more labor is used, the extra output that an employee can produce declines, at some point.
Value marginal product
The price of the output multiplied by the marginal product of the employee
- True, False, Explain: The employer will hire an extra employee if his/her Marginal Product is positive.
- True, False, Explain: The employer will hire an extra employee if his/her Marginal Product is positive.
What is the average wage in the US
About $20/hour
How much in benefits does the average employee earn per hour
about $10 per hour
True, false, explain: The demand for labor slopes downward because the wage rises as more labor is hired.
False: The demand for labor is the VMP curve, which slopes downward because MP slopes downward–that is, because of the Law of Diminishing Returns
Labor supply depends on:
the value of the alternative uses of people’s time
True, false, explain: The labor supply curve gets its shape from the Law of Diminishing Returns.
False. The labor supply curve gets its shape from the alternative value of the employee’s time, and is greatly influenced by the principle of optimal arrangement
True, false, explain: At any wage, the employee is willing to work for all the hours that the employer will offer
False. At any wage there is a particular amount of labor supplied. That will only be equal to the amount of labor demanded at the equilibrium wage.
- What effect do social welfare programs have on the supply, demand, wages, and employment?
Social welfare programs lower the supply of labor, causing wages to rise and lower employment.
- When the government places a tax on an employer for each hour that a laborer works, what effect will this have on labor supply, demand, wages, and employment?
Labor demand will fall, lowering wages and lowering employment.
more capital in a country…
is good for labor because it makes labor more productive
According to Bastiat, in the long run, who receives the benefits of a mechanical innovation by James Goodfellow?
the public
- True, false, explain: The Italian labor market is less free than the U. S. labor market.
True. Italian employers can be forced to retain employees that they want to fire. Under proposed legislation, the employer could opt to pay 1/2 a year’s salary to fire an employee.
Human capital
Training and education
screening theory
says that education and training may be valuable to the individual, not because the training increases productivity, but because it points out which employees will be good
human capital theory
says that education makes a worker more productive
make work fallacy
the idea that jobs have value, regardless of whether the labor actually creates value
Why would Bastiat differ from Marx, who would say that a machine that replaces a worker results in an unemployed worker?
Bastiat notes that there is an unemployed worker, but also that the amount of money saved by efficiency is also unemployed, and is available to support another job.
Who does Bastiat say receives the benefit from a technological improvement?
In the short run the innovator benefits. In the long run, as more people adopt the improvement, consumers benefit as competition lowers prices.
True, false, explain: The age of railroads resulted in high unemployment rates as many transportation workers lost jobs.
False: More jobs were created as transportation costs fell. These jobs were not limited to building railroads, but in all kinds of manufacture and trade.
What are the effects of minimum wage laws? Explain.
Minimum wage laws result in more workers willing to work, but less workers being hired, causing unemployment.
Why does Bastiat say that demobilizing troops will not result in unemployment? -
Because for every unemployed soldier there is an “unemployed paycheck” that the taxpayers retain and then spend, which increases employment.
How does Bastiat say that those who suffer from make work fallacy can increase the “national profit?”
Drafting the entire male population into the army
Why would the BLS establishment survey give different results than the household survey?
The establishment survey asked employers about payrolls, but does not include contractors or other self-employed people.
Who is NOT in the civilian non-institutional population?
People 15 and under, in the military, or in an institution
How many hours does one have to work to be considered employed?
One for pay or profit, during the previous week, or 15, unpaid, in a family business
Who is considered unemployed?
Those who do not have a job, but made specific active efforts to find a job in the previous 4 weeks
What is the definition/formula for the unemployment rate?
Unemployed / (Employed + Unemployed)
What unemployment rates are considered “high?”
over 5.5%
What was the highest unemployment rate in the Great Depression?
24%
What are some types of people who are in the CNIP, but not in the labor force?
Stay-at-home parents, retired, some students, bums.
What is a major cause of teen unemployment today?
large increases in the minimum wage.
- Define the Labor Force Participation Rate. What does it tell us?
LF / CNIP–how many are interested in working
What are the trends in the LFPR?
The LFPR is down for both men and women. It has fallen for men for decades, but was climbing for women until the 2009 recession.
Discouraged worker.
No job. Looked during the prior year, but not during the prior 4 weeks. Neither unemployed or employed.
What is U-6? How large was it in February 2013?
An unemployment rate that counts discouraged workers and involuntarily part-time workers. 14.3%.
- Why does the media pay attention to “new claims for unemployment insurance?” What is the problem with the measure?
It is weekly. After a while, benefits run out for more and more unemployed, so claims can fall, though the economy is not improving.
What is frictional unemployment? Does is show a dysfunction in the economy?
Happens because people change jobs or enter the labor force. It is natural and likely rises in good times as people advance.
We reach our potential GDP when
the labor market is in equilibrium
What is structural unemployment? Does it show a dysfunction in the economy?
Happens because the skills needed to hold good jobs change over time due to technology and trade. A healthy economy must be moving–which will leave some people behind, but overall creates more/better jobs than it destroys.
What is cyclical unemployment? Does it reveal a dysfunction in the economy?
Arises due to the business cycle/recessions. It reveals a problem with the economy. However, given that there must be many coordinated failures, it is likely that government, the best coordinator, is at the root of it.
True, false, explain: We say we have “full employment” only if the unemployment rate is zero.
False. Full employment means no cyclical unemployment At full employment, the unemployment rate is about 5.5%
What is true about the production possibilities frontier if we have a surplus of labor?
A surplus of labor is unemployment–which means we must be below the PPF
What did Keynes say about labor markets that was different than classical economists?
He said labor surpluses can last a long time because wages refuse to fall.
What two reasons did Keynes give for wages refusing to fall?
Labor contracts which prevent employers from cutting wages. Workers mistaking nominal wage cuts that come with deflation for real wage cuts, which lead them to quit and look for better jobs–which do not exist.
Keynes’ theory has a problem in that people do not respond to incentives. Explain.
People out of work will not take a nominal pay cut in order to get a job. They will continue looking for a higher paying job for years, even though none are available.
What did Keynes say was a problem for the economy?
workers mistake nominal wage cuts for real wage cuts and labor contracts.
