Economics chap 17

Question 1

Assumptions of labor:

Answer 1

We assume people can move into and out of work easily and employers can ‘hire and fire’ workers when they need to.
Employers and employees operate in a perfectly competitive market

Question 2

Production function

Answer 2

illustrates the relationship between the quantity of inputs used and the quantity of output of a good

Question 3

Marginal product of labour

Answer 3

is the increase in the amount of output from an additional unit of labour

Question 4

Diminishing marginal product

Answer 4

refers to the property whereby the marginal product of an input declines as the quantity of the input increases

Question 5

Diminishing Marginal Product of Labour

Answer 5

As the number of workers increases, the marginal product of labour declines
The production function becomes flatter as the number of workers rises

Question 6

The value of the marginal product

Answer 6

is the marginal product of the input multiplied by the market price of the output.
It diminishes as the number of workers rises because the market price of the good is constant

Question 7

How to maximize profit

Answer 7

the competitive, profit-maximising firm hires workers up to the point where the value of the marginal product of labour equals the wage

Question 8

What Causes the Labour Demand Curve to Shift

Answer 8

1.Output price
A change in the price of the product:
An increase raises the value of the marginal product of labour and increases the demand for labour.
A decrease lowers the value of the marginal product of labour and decreases the demand for labour.
2.Technological change
Technological advance raises the marginal product of labour, which in turn raises the value of the marginal product of labour

Question 9

Trade-off Between Work and Leisure

Answer 9

Therefore, as the wage increases, so does the opportunity cost of leisure
The labour supply curve shows how individuals respond to changes in the wage in terms of the labour-leisure trade-off

Question 10

How do Wages Affect the Labour Supply?

Answer 10

When the wage rises, leisure becomes relatively more expensive
However, when wage rises, purchasing power is increased. This causes the employee to want more leisure

Question 11

Income effect vs substitution effect(wages)

Answer 11

If the substitution effect is greater than the income effect, the employee will work more hours if her wage rises, resulting in an upward-sloping labour supply curve.
If the income effect is greater than the substitution effect, the employee will increase leisure and work fewer hours if her wage rises. This results in a backward-bending labour supply curve

Question 12

Equilibrium In The Labour Market

Answer 12

Labour supply and labour demand determine the equilibrium wage
profit maximizing
p x mPL=W

Question 13

An increase in the supply of labour:

Answer 13

1.Results in a surplus of labour.
2.Puts downward pressure on wages.
3.Makes it profitable for firms to hire more workers.
4.Results in diminishing marginal product.
5.Lowers the value of the marginal product.
6.Gives a new equilibrium

Question 14

An increase in the demand for labour:

Answer 14

1.Makes it profitable for firms to hire more workers.
2.Puts upward pressure on wages.
3.Raises the value of the marginal product.
4.Gives a new equilibrium.

Question 15

Marxist Labour Theory

Answer 15

Goods have use value (value of use to the consumer) and value of exchange (ratio of exchange between different goods)

Question 16

Socially necessary time

Answer 16

The socially necessary time is the average labour contribution workers makes to production

Question 17

Dead labour vs Live labour

Answer 17

Dead labour used in the past to produce capital goods and raw materials used in the production of a good.
Live labour is utilised in the production of the good itself.
The wage that labour receives should reflect its value
Surplus value is exploited by owners of factors of production (bourgeois) and means that labour (proletariat) does not earn the full value of the work that they provide because they do not receive the value of exchange.

Question 18

Feminist Economics and the Labour Market

Answer 18

Feminist economists criticise the neo-classical theory of the labour market.
The neo-classical model treats all labour as the same and well-being is defined as a direct contribution to the GDP.
Feminists suggest that the labour market is primarily male oriented.
The labour market theory does not recognise the value of non-market labour activity such as raising a family.
The neo-classical model stresses the trade-off between work and leisure
Market power in the labour market might assist in explaining why mostly women are paid less than men and why women face barriers to career progression

Question 19

Feminist Economics and the Labour Market

Answer 19

Neo-classical theory focuses on a clear choice between work and leisure. Feminists argue that the choice is not that simple for many who also work at home raising the family

Question 20

Societal norms and approaches to research by ‘mainstream’ economics lead to outcomes and policies which mean:

Answer 20

Opportunities for women in the labour market and the wages they earn, are likely to be less than those available to males.
Challenging these norms will result in a fairer outcome for women.

Question 21

Definition of a monopsony

Answer 21

a market with a single buyer
A monopsony is in many ways similar to a monopoly.
A monopsony employer will take into account the fact that the supply curve for labour represents the average cost of labour
The monopsony will employ fewer workers by reducing the number of jobs available
Pays lower wage rate and increases its profits.
Reduce economic activity below socially optimal level, distorts outcomes and causes deadweight loss

Question 22

Wage Differentials

Answer 22

Wages are governed by labour supply and labour demand.
Labour demand reflects the marginal productivity of labour.
In equilibrium, each worker is paid the value of his or her marginal contribution to the economy’s production of goods and services

Question 23

Wage Differentials(causes)

Answer 23

1.Compensating differentials
2.Human capital
3.Ability, effort, and chance
4.Signalling
5.The superstar phenomenon

Question 24

Compensating Differentials

Answer 24

Compensating differential refers to a difference in wages that arises from non-monetary characteristics of different jobs
1.Coal miners are paid more than others with similar levels of education.
2.Night shift workers are paid more than day shift workers.
3.University professors are paid less than lawyers and doctors.

Question 25

Human Capital

Answer 25

Human capital is the accumulation of investments in people, such as education and on-the-job training
Firms are willing to pay more for highly educated workers because highly educated workers have higher marginal products

Question 26

Human Capital(feminist economists)

Answer 26

Feminist economists argue that the neo-classical model assumes women choose to not invest as much in education or have less experience or training opportunities compared to men

Question 27

People differ in their(ability ,effort, chance):

Answer 27

1.Physical and mental attributes. This will affect their productivity level and therefore their wage.
2.Level of work effort. Those who work hard are more productive and earn a higher wage

Question 28

Alternative View of Education: Signaling

Answer 28

Firms use educational attainment as a way of sorting between high-ability and low-ability workers

Question 29

The Superstar Phenomenon

Answer 29

Superstars arise in markets that exhibit the following characteristics:
1.Every customer in the market wants to enjoy the good supplied by the best producer.
2.The good is produced with a technology that makes it possible for the best producer to supply every customer at a low cost

Question 30

Above-Equilibrium Wages: Minimum-Wage Laws, Unions, and Efficiency Wages

Answer 30

Why are some workers’ wages set above the level that brings supply and demand into equilibrium?
1.Minimum wage laws.
2.Market power of labour unions.
3.Efficiency wages

Question 31

Minimum Wage Laws

Answer 31

The market for labour looks like any other market:
The equilibrium price is the wage and equilibrium quantity is the labour hired.
If the minimum wage is above the equilibrium wage in the labour market, a surplus of labour will develop (unemployment)
The minimum wage will be a binding constraint only in markets where equilibrium wages are low.
the more elastic demand curve for labour the higher the level of unemployment

Question 32

Living wage

Answer 32

hourly rate set independently, based on an estimation of minimum household needs which provide an ‘acceptable’ standard of living

Question 33

The Market Power of Unions

Answer 33

Unions often raise wages above the level that would prevail without a union.
A union is a worker association that bargains with employers over wages and working conditions.
A strike refers to the organised withdrawal of labour from a firm by a union

Question 34

Efficiency wages

Answer 34

holds that a firm can find it profitable to pay high wages because doing so increases the productivity of its workers

High wages may:
1.Reduce worker turnover (hiring & training new workers).
2.Increase worker effort.
3.Raise the quality of workers that apply for jobs at the firm.

Question 35

Discrimination definition

Answer 35

Discrimination occurs when the marketplace offers different opportunities to similar individuals who differ only by race, ethnic group, sex, age, or other personal characteristics

Question 36

Measuring Labour Market Discrimination(feminist economists)

Answer 36

Feminist economists argue that wage differences are often due to the institutional and societal norms that exist in many economies

Question 37

Discrimination by Employers

Answer 37

Firms that do not discriminate:
Tend to replace firms that discriminate.
Will be more profitable than those firms that do discriminate.
Competitive markets tend to limit the impact of discrimination on wages

Question 38

Discrimination by Customers and Governments

Answer 38

Customer preferences
In some instances, a firm may discriminate on the basis that it perceives its customers have particular preferences.
Government policies
If the government mandates discriminatory practices, then the wage differentials between the groups will continue to exist.

Question 39

Becker’s Employer Taste Model

Answer 39

People may have a ‘taste’ for only working with certain groups of people.
Those outside this accepted group may end up being disadvantaged as a result

Question 40

Capital definition

Answer 40

Capital refers to the equipment and structures used to produce goods and services
The economy’s capital represents the accumulation of goods produced in the past that are being used in the present to produce new goods and services

Question 41

Other Factors Of Production: Land And Capital

Answer 41

Prices of Land and Capital.
The purchase price is what a person pays to own a factor of production indefinitely.
The rental price is what a person pays to use a factor of production for a limited period of time.
The rental price of land and the rental price of capital are determined by supply and demand.
The firm increases the quantity hired until the value of the factor’s marginal product equals the factor’s price.

Question 42

Equilibrium in the Markets for Land and Capital

Answer 42

Each factor’s rental price must equal the value of its marginal product.
They each earn the value of their marginal contribution to the production process

Question 43

Linkages among the Factors of Production

Answer 43

slide 57

Question 44

Economic rent

Answer 44

is the amount a factor of production earns over and above its transfer earnings
If economic rent exists for any factor of production, the government could, in theory, tax a portion of that rent without affecting the employment of that factor in a particular use.

Question 45

Transfer earnings

Answer 45

to the minimum payment required to keep a factor of production in its current use
opportunity cost of the factor being employed in its current use