Exam 3 Flashcards
Labor Market
the market for workers
Value of the marginal product of labor:
output price*marginal product of labor
The firm will hire workers until:
Vmpl=wage
What can shift Ld (3):
- change in output price (p up, Ld up)
- Change in technology (better tech, Ld up)
- the supply of other factors of production (supply up, Ld up)
Ls (labor supply):
tradeoff between working and leisure
Personal Level:
how many hours you are willing to work at the current wage
Substitution Effect
as wage goes up, work more hours (higher opportunity cost of not working)
Income Effect
as wage goes up, work less hours (make same money with less hours
What determines the shape of the labor supply curve? (3)
- How much you want to work
- characteristics of the job
- other sources of income
Market level
how many people are willing to work at the current wage
What can shift labor supply (3):
- change in tastes (how much you want to work)
- changes in alternative opportunities
- Immigration (Ls increases)
Why are people paid different amounts? (3)
- skills and education
- Characteristics of the job
- Discrimination
Non-monetary aspects of a job (4):
- how risky it is
- how often they have to travel
- hours worked/time of day or year
- dirty vs. clean job
Discrimination exists only in:
non-competitive markets
Discrimination factors (3):
Age
Gender
Race
Why are wages sometimes set above equilibrium? (3)
- Minimum Wage
- Unions
- Efficiency Wages
A minimum wage is essentially a labor:
price floor
Unions
use collective bargaining to negotiate with management
“Insider-Outsider”, Unions
unions benefit those in them but may harm those out of them
Firms use efficiency wages to (4):
- Increase effort/ prevent shirking
- prevent workers from unionizing
- prevent workers from leaving
- attract the best workers
Welfare Economics
how resource allocation affects people’s well-being
Market failure
allocation of goods is not socially efficient
Externalities
when an uninvolved bystander receives a benefit or a cost and is not compensated for it
Private Benefits help_____, Social Benefits help______
those in the market; everyone
Social efficiency when:
MSB=MSC
How to correct an externality (2):
- manipulate quantity (cap-and-trade)
2. manipulate price (tax)
Coase Theorem
if private parties can bargain at no cost, they can correct externalities on their own (e.g. assigning property rights)
Excludability
firms can exclude those who don’t pay
Rivalry in Consumption
how much are costumers “competing” for consumption of a good
4 types of goods:
Private goods
Club goods
Common Resources
Public goods
Private good
high excludability; high rivalry (e.g. shirt)
Club Good
high excludability; low rivalry (e.g. toll roads, public trans.) *can be candidates for natural monopoly
Common Resource
low excludability; high rivalry (e.g. the commons, open fishing waters) *“overuse” problems, thinking only of private benefit
Public Goods
low excludability; low rivalry (e.e. national defense, non-toll roads, police) *usually a case for government provision
“Free-rider” problem
people won’t have an incentive to pay for public goods, people value goods differently
2 ways to approach free-rider problem
- Flat rate (those with high willingness to pay make out well)
- everyone pays willingness to pay (ineffective/impossible)
Asymmetric Information
some people have more info than others
Hidden Action (principal-agent problem)
principal cannot perfectly monitor the agent, agent doesn’t work hard all the time
Hidden Characteristics
can’t know everything about a person or product
“Bounded Rationality”
people are not purely rational beings, nor are their decisions totally arbitrary; lead-in to behavioral economics
Behavioral Economic examples 1-4
- People are bad statisticians
- People respond to vivid memories
- People latch onto “anchors”
- People respond differently when questions are rephrased
Behavioral Economic examples 5-7
- People trust information with accessibility
- People have misconceptions of chance
- People look for “representatives” in information
Prospect Theory
people feel worse about a loss than they do better about a gain
