lecture 18

Question 1

what are the different approaches for labor markets?

Answer 1

• market power arguments
• efficiency wages arguments (firms need to offer wages that incentivize workers to exert effort)
• supply and demand framework

Question 2

explain labor markets by the supply and demand framework?

Answer 2

• demand side → firms that want to use labor input in production functions and are profit maximizing
• supply side → workers choosing how much to work given wages and preferences

Question 3

At what levels can we talk about labor markets?

Answer 3

• market for labor in the whole economy
• market fot labor for a particular occupation or industry
• market for workers with particular characteristics

Question 4

explain the minimun wage as a price floor in the labor market of autoworkers

Answer 4

• minimun wage that is above the equilibrium level
• minimum wage is like a price floor
• it will raise the wage of workers who remain employed
• we would expect increased unemploymet among autoworkers
• minimum wage does not seem to cause unemployment

Question 5

Are there other frameworks for labor markets that might be better at explaining of what causes unemployment?

Answer 5

• a country’s supply curve is upward sloping to capture the notion of rising opportunity cost
• Assume: the world demand and the world supply at that worl relative price is perfectly elastic
• free trade → a country puts no barriers to international trade
• protection → a country puts limits on trade
  trade policy → a country’s policies toward trade

Question 6

when does a country exports goods?

Answer 6

• when Pworld > P1, the quantity produced by domestic firms will be greater in an open economy (with trade) than in an closed economy (no trade)
• At Pworld, Qs > Qd. The difference is the quantity of the good that will be exported to other countries

Question 7

when does a country imports goods?

Answer 7

• when Pworld < P1, the quantity produced by domestic firms will be smaller in an open economy (with trade) than in a closed economy (no trade)
• A Pworld, Qs < Qd. The difference is the quantity of the good that will be imported from other countries

Question 8

What are the employment effects of trade if the country imports goods in some industry?

Answer 8

• decrease in production leads to less employment in the industry that competes with imports
• more generally, when a country goes from no trade to free trade, it will produce less of the good it imports and more of the good it exports
• employment will tend to fall in the import industry and rise in the export industry

Question 9

what do trades tend to do in terms of jobs?

Answer 9

• trade tends to rearrange jobs, rather than raise or lower emplyment overall
• but the rearrangement can be very painful for workers who lose their jobs (and who may not have the skills needed to move to the industries where jobs are available)

Question 10

what are the employment effects of trade?

Answer 10

• the negative effect on employment due to trade in the markets of goods and services that we import can lead a country to try to protect the domestic industry

Question 11

what are the methods of protecting domestic production?

Answer 11

• tariff → a tax on imports
• quota → a limit on the number of imports
• subsidies for domestic production