Lecture 8,9 Minimum Wage

Question 1

Short run

Answer 1

one or more fixed inputs

Question 2

profit maximization in short run

Answer 2

vmpl = price x mp = wage

Question 3

Long-run

Answer 3

all inputs adjustable

Question 4

cost-minimizing decision

Answer 4

MPL/MPK = -w/c

Question 5

Scale Effect when wage Falls

Answer 5

The firm takes advantage of the lower price oflabor by expanding production, using more labor AND more capital.

Question 6

Substitution Effect when Wage Falls

Answer 6

The firm takes advantage of the wage changeby rearranging its mix of inputs, by employing MORE labor and LESS capital, even if holding output constant.

Question 7

cross-elasticity factor of demand

Answer 7

sensitivity in the demand for a particular input to the prices of other inputs.; E = % ∆ in xi/ % ∆ in w

Question 8

when the cross-price elasticity is > 0

Answer 8

goods are substitutes

Question 9

when cross-price elasticity is < 0

Answer 9

goods are complements

Question 10

Capital-Skill Complementarity Hypothesis

Answer 10

unskilled labor and capital are substitutes while skilled labor and capital are complements

Question 11

Equilibrium

Answer 11

the interaction between workers and firms that occurs in the labor market and determines wage and employment levels.