Week 12: Wage gaps and minimum wage Market failures: public goods and externalities

Question 1

A worker cooperative

Answer 1

A business where workers:

• Participate in decision- making (one person = one vote)
• Share in profits (residual claimants)
• Own business (own shares)

Question 2

A worker cooperative Advantages:

Answer 2

• Offers a path to wealth creation
• Increases productivity has worker shave more investment in the business
• Can lead to better quality services or products due to this higher investment
• Everyone gets paid equally

Question 3

A worker cooperative Disadvantages:

Answer 3

• Won’t fix the inequality in America
• Not very popular as they strive for small businesses which are harder to maintain to a tough economy
• Workers have to keep working until all the work is done (done can work more than others)
• Risky starting up
• Long tedious meeting (no boss, fighting with family and friends, can slow down updates)
• Easier for someone to tell you what to do

Question 4

Pure natural experiment:

Answer 4

• two identical subjects
• One gets treatment, other does not
• Observe changes

Question 5

Why haven’t worker cooperatives increased rapidly yet?

Answer 5

Lack of awareness about them
* Capital accumulation / financing constraints
* As size of coop grows, letting everyone have a say is functionally
harder
* New members may just be looking for a job

Question 6

Market failure

Answer 6

when markets tend to produce inferior outcomes

o Market failures occur when we don’t take into account the effect of our actions on outher

1) Undersupply of public goods
2) oversupply of externalities

Question 7

What are public goods?

Answer 7

Public goods benefit all consumers. They are nonrival and nonexcludable

Question 8

2 types of public goods:

Answer 8

1) Excludable
2) Nonexcludable

Question 9

1) Excludable

Answer 9

can control who uses goods

Rival: the more you consume the less is available for others

Question 9

2) Nonexcludable

Answer 9

a person who can use / benefit even if they don’t pay

Nonrival: one person’s use will not prevent others from using

Question 9

Why are public goods undersupplied?

Answer 9

• Once new knowledge is created, any number of people can use it
  without interfering with another’s use
• Little incentive to privately create new knowledge
• invest in R&D
• just wait and copy
• Historically R&D funded by government
• Internet
• Jet engines