Unit 6 Flashcards
firms?
components of goods are produced by different departments within a firm
markets?
components of goods are brought together by different firms
contracts of products?
- transfer ownership (permanent)
- social interactions are short lived
constracts of labour?
- transfer of authority (temporarily)
- social interactions are long
- workers develop firm-specific assets
all of the above = larger effect if lost
other people’s labour?
- firms manages other’s money/ labour
- profit depends on input costs, outputs and sales/ revenue
contracts of labour incomplete because?
cannot know what employee will need to do
impractical to determine effort of employees
(piece rate contracts are complete)
when workers wage is the reservation option?
they are indifferent between keeping and losing their job
employees have no power
wage is > reservation option (ie willing to accept)?
receive employment rents
employers can exercise power over workers
employment reservation calc?
wages less reservation wage
factors that increase reservation wage?
- disutility of work (don’t like it)
- traveling, clothing, etc
- unemployement benefits
- better opportunities
factors that decrease reservation wage?
- cost of searching for a new job
- loss of firm-specific assets
- loss of benefits
- social stigma
determinants of employment rent?
total employment rent = employment rent per hour x expected lost hours of work
or
employment rent per hour = wage - reservatoin wage - disutility
best response curve?
concanve, as effort approaches maximum level, disutility becomes greater
unemployed?
people who are jobless, actively seeking work and available to work
involuntary unemployment?
willing to work for current wage but you are not employed
