Econ 409 Keith Watson Test Two Study Guide
Terms in this set (48)
True or False: Unions attempt to maximize their members' wages regardless of the level of employment.
True or False: The wage that maximizes a union's total wage income occurs at the point where the elasticity of demand is equal to zero.
True or False: The more inelastic the demand for the product that union members produce, the more elastic the demand for union members.
True or False: An increase in the wage of nonunion labor can increase the demand for union labor.
True or False: For a monopsonist in a labor market, the marginal factor cost of labor is less than the wage rate.
True or False: Firms are not hurt by strikes because they do not have to pay striking workers.
True or False: A monopsonist will hire an additional worker as long as the worker adds more to revenue than he or she adds to cost.
True or False: In a monopsony, the wage is lower than the marginal revenue product
True or False: Bilateral monopoly means that the firm is a monopoly in the product market and a monopsony in the labor market.
True or False: In bilateral monopoly, the wage cannot be determined by theoretical analysis.
What is a craft union?
A group of similarly skilled workers that organize in an effort to increase wages by restricting supply.
What is true about the elasticity of demand for union labor?
If union labor accounts for a small percentage of the firm's total cost, then the demand for union labor tends to be inelastic.
If compared to a competitive labor market with the same marginal revenue product and labor supply, what would a monopsonist's wage and level of employment look like?
They would both be lower than the competitive market.
What is the exploitation of labor?
Labor that is paid a wage that is less than the marginal revenue product
What is true of a bilateral monopoly?
The wage cannot be determined by theoretical means
What do strikes result in?
Lost income for both the union and the firms employing union labor
How do union wages increase?
Usually at the expense of consumers, nonunion workers, and the firms that employ union workers
If the demand for labor is elastic, union activities that result in higher union wages will do what?
Reduce total union income
In which market structure is it possible for union activities to increase both the wage rate and the volume of employment?
Why are industrial unions successful as inclusive unions while craft unions must be exclusive in order to be successful?
They form in monopsony markets. If they can get an increase in wages, it can increase employment. Craft unions form in competitive markets, so they do well by restricting the supply of labor
What is wage discrimination? What market conditions must exist before a firm can wage discriminate and increase profits?
Wage discrimination is about one firm, one location, one time period, one job description. Wage of A/marginal revenue product of A is not equal to the wage of B/marginal revenue product of B. For this to happen, a firm must have:
1. monopsony power
2.Distringuish between two groups of workers with different elasticities of supply,
3. Prevent arbitrage
Inelastic supply gets the low wage while elastic supply gets the high wage
Under what conditions will all occupations result in equal lifetime income streams?
1. pure competition in labor markets,
2. labor is mobile,
3. workers are income maximizers
Why would you prefer to receive general training rather than specific training?
General training increases the number of people you can work for
What makes one person's elasticity of supply to a particular firm greater than another person's elasticity of supply?
Mobility. If it is easier for you to switch jobs, your supply will be more elastic. Immobile people are secondary workers, old people and those with specific training
What is the economic argument for state supported education?
Education results in spillover benefits to non-buyers of education. The more educated the society, the higher the overall wage rate, the better the citizens, and the more quality goods and services that are available
What rate of return should college graduates expect on their investment in human capital if labor markets are competitive?
A normal rate of return. Maybe 6-8%
What does an individual's lifetime income stream rise through the years?
Because we receive more and more human capital from on-the-job training
In competitive labor markets, what maximum difference would you expect between Louisiana and California? Why?
We'd expect the difference stop be just great enough to cover the cost of moving
What characteristic of female workers makes it more likely that they will be subject to wage discrimination?
Female workers tend to be less mobile. This is because they are more likely to be secondary workers, as they often take care of children, etc
What wage maximizes the total labor income for a union?
The wage that results in an elasticity of demand that equals 1
What is an industrial union?
A group of workers that organizes and welcomes new membership in an effort to gain power in a monopsony market
If the demand for labor is inelastic, union activities that result in higher union wages will do what?
increase total union income
How does a craft union restrict the supply of labor?
They control the training or education courses. Carpenters, electricians etc do this. They also charge entrance fees and dues, and practice nepotism, or straight up limit the number of people allowed into their programs.
Why do medical doctors earn higher incomes than nurses?
1. Longer period of investment in human capital (longer schooling)
2. They have the AMA, a really good doctor's union. Nurses don't have a good nursing union
The wage that maximizes total union income occurs when what?
When the elasticity of demand is 1.
True or False: An increase in the wage of nonunion labor can increase the demand for union labor
Under what conditions does a union improve economic performance in an industry?
Is has to be an inclusive union that is formed in a monopsony. Unfortunately, this causes a bilateral monopoly, so there is no guarantee that this will happen
What are the biggest unions today?
The public employee unions
In relation to a monopsony labor market with the same marginal revenue product and labor supply, a competitive market's wage and level of employment will be what?
Higher than the monopsony's.
Who is most likely to be exploited?
An older worker with many years of firm specific training. Like Dr. Watson
Describe three occupations where you would expect wages to be higher than average
An occupation where the expected working life is shorter (Pro-Football)
Seasonal workers who experience regular intervals of unemployment
Occupations that require lots of education and training
If an industrial union organizes in a monopsony market and it is able to increase wages up to the competitive level, what does this increase in wages do to the levels of employment and unemployment? If the union continues to increase wages to a level above the competitive level what will this do to the levels of employment and unemployment?
It will begin to decrease employment and cause unemployment
If labor is mobile and there is pure competition, does the level of demand for labor in a particular industry determine the level of wages in that industry in the long run? Explain.
No, it does not. In the long run, the demand does not change the wage level, because in the long run almost all labor is mobile.
What are the explicit costs, implicit costs, and benefits to an individual of a college education?
Tuition/books are explicit. Implicit costs are lost income from the time you spent in class instead of working. The benefits are the extra income above what you would have earned if you had not gone to college.
Would one year at graduate school have the same opportunity cost for a student as one year at undergraduate school?
No, because you are giving up even greater income while you are in graduate school then during undergrad.
If a monopsony forms in a competitive labor market, what happens to: the wage in that market, the price of the product produced by the monopsony, and the wage of workers in other markets?
The price of product will go up. The wage of workers in the market and in other markets will fall.
Draw the MRP, MLC, and labor supply curves for a monopsonist. Label the profit maximizing level of employment, LM, and the profit maximizing wage, WM. If this market were competitive, what would be the competitive wage, WC, and level of employment, LC?
See attached image
Draw the MRP, MLC, and labor supply curves for a monopsonist. Label the profit maximizing level of employment, LM, and the profit maximizing wage, WM. Show what happens to the level of employment if a minimum wage is imposed between the monopsony wage and the competitive wage.
See attached image
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