Exam 3

Question 1

Labor Market

Answer 1

the market for workers

Question 2

Value of the marginal product of labor:

Answer 2

output price*marginal product of labor

Question 3

The firm will hire workers until:

Answer 3

Vmpl=wage

Question 4

What can shift Ld (3):

Answer 4

1. change in output price (p up, Ld up)
2. Change in technology (better tech, Ld up)
3. the supply of other factors of production (supply up, Ld up)

Question 5

Ls (labor supply):

Answer 5

tradeoff between working and leisure

Question 6

Personal Level:

Answer 6

how many hours you are willing to work at the current wage

Question 7

Substitution Effect

Answer 7

as wage goes up, work more hours (higher opportunity cost of not working)

Question 8

Income Effect

Answer 8

as wage goes up, work less hours (make same money with less hours

Question 9

What determines the shape of the labor supply curve? (3)

Answer 9

1. How much you want to work
2. characteristics of the job
3. other sources of income

Question 10

Market level

Answer 10

how many people are willing to work at the current wage

Question 11

What can shift labor supply (3):

Answer 11

1. change in tastes (how much you want to work)
2. changes in alternative opportunities
3. Immigration (Ls increases)

Question 12

Why are people paid different amounts? (3)

Answer 12

1. skills and education
2. Characteristics of the job
3. Discrimination

Question 13

Non-monetary aspects of a job (4):

Answer 13

1. how risky it is
2. how often they have to travel
3. hours worked/time of day or year
4. dirty vs. clean job

Question 14

Discrimination exists only in:

Answer 14

non-competitive markets

Question 15

Discrimination factors (3):

Answer 15

Age
Gender
Race

Question 16

Why are wages sometimes set above equilibrium? (3)

Answer 16

1. Minimum Wage
2. Unions
3. Efficiency Wages

Question 17

A minimum wage is essentially a labor:

Answer 17

price floor

Question 18

Unions

Answer 18

use collective bargaining to negotiate with management

Question 19

“Insider-Outsider”, Unions

Answer 19

unions benefit those in them but may harm those out of them

Question 20

Firms use efficiency wages to (4):

Answer 20

1. Increase effort/ prevent shirking
2. prevent workers from unionizing
3. prevent workers from leaving
4. attract the best workers

Question 21

Welfare Economics

Answer 21

how resource allocation affects people’s well-being

Question 22

Market failure

Answer 22

allocation of goods is not socially efficient

Question 23

Externalities

Answer 23

when an uninvolved bystander receives a benefit or a cost and is not compensated for it

Question 24

Private Benefits help_____, Social Benefits help______

Answer 24

those in the market; everyone

Question 25

Social efficiency when:

Answer 25

MSB=MSC

Question 26

How to correct an externality (2):

Answer 26

1. manipulate quantity (cap-and-trade) | 2. manipulate price (tax)

Question 27

Coase Theorem

Answer 27

if private parties can bargain at no cost, they can correct externalities on their own (e.g. assigning property rights)

Question 28

Excludability

Answer 28

firms can exclude those who don't pay

Question 29

Rivalry in Consumption

Answer 29

how much are costumers "competing" for consumption of a good

Question 30

4 types of goods:

Answer 30

Private goods Club goods Common Resources Public goods

Question 31

Private good

Answer 31

high excludability; high rivalry (e.g. shirt)

Question 32

Club Good

Answer 32

high excludability; low rivalry (e.g. toll roads, public trans.) *can be candidates for natural monopoly

Question 33

Common Resource

Answer 33

low excludability; high rivalry (e.g. the commons, open fishing waters) *"overuse" problems, thinking only of private benefit

Question 34

Public Goods

Answer 34

low excludability; low rivalry (e.e. national defense, non-toll roads, police) *usually a case for government provision

Question 35

"Free-rider" problem

Answer 35

people won't have an incentive to pay for public goods, people value goods differently

Question 36

2 ways to approach free-rider problem

Answer 36

1. Flat rate (those with high willingness to pay make out well) 2. everyone pays willingness to pay (ineffective/impossible)

Question 37

Asymmetric Information

Answer 37

some people have more info than others

Question 38

Hidden Action (principal-agent problem)

Answer 38

principal cannot perfectly monitor the agent, agent doesn't work hard all the time

Question 39

Hidden Characteristics

Answer 39

can't know everything about a person or product

Question 40

"Bounded Rationality"

Answer 40

people are not purely rational beings, nor are their decisions totally arbitrary; lead-in to behavioral economics

Question 41

Behavioral Economic examples 1-4

Answer 41

1. People are bad statisticians 2. People respond to vivid memories 3. People latch onto "anchors" 4. People respond differently when questions are rephrased

Question 42

Behavioral Economic examples 5-7

Answer 42

5. People trust information with accessibility 6. People have misconceptions of chance 7. People look for "representatives" in information

Question 43

Prospect Theory

Answer 43

people feel worse about a loss than they do better about a gain