Labour Market Equilibrium Part 2 Flashcards
Can different indifference curves cross?
Yes
What does a steep indifference curve mean?
The steeper the curve the more risk averse - more dislike for risk
If B is the cost of providing a safe job. We assume that B>0.
If B>W does the firm offer a safe/dangerous job?
The firm offers dangerous job (D=1)
If B is the cost of providing a safe job. Benefit is lower wage.
We assume that B>0.
If B<W does the firm offer a safe/dangerous job?
The firm offers a safe job (D=0)
As w changes what else changes?
The number of firms providing safe jobs
Can Isoprofit for different firms different firms intersect?
Yes
Iso-profit curve properties
- Iso-profit curves are upward sloping
- Firms want low wage and high risk
- Iso-Profit curves are concave
What do iso-profit curves show?
all the risk-wage combinations that yield the same profit
Why are iso-profit curves upward sloping?
It cost money to produce safety
Why do firms want low wage and high risk
firms want to be in lower right part of graph
Why are Iso-Profit curves concave
Law of diminishing marginal returns for safety
What does the hedonic wage show?
the market price for an attribute e.g., risk
- individuals have a trade-off: probability of injury or death for higher wages
What is the value of a statistical life?
what workers would pay, on average, to save one life
If the value of a statistical life is €6 million euro and cost is €5 million, should the government require airbags?
Yes they should as benefit is €6 million > cost is €5 million.
-> Benefit>Cost
