Chapter 10 Notes Flashcards
State the 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.
Define 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.
False. The employer will hire an employee if the value of the marginal product is greater than the cost of having the employee.
What is the average wage in the US?
About $20/hour
How much in benefits does the average employee earn per hour?
About $10/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
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
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.
Define: Human capital
Training and education
What is the difference between screening theory and human capital theory?
Human capital theory says education makes a worker more productive. Screening theory says that education only points out which workers are already productive, but does not improve their productivity.
True, false, explain: Capital, in no way, helps labor.
Capital makes labor more productive, which increases the demand for labor.
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.
