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Microecon chp 14-17

Terms in this set (59)

The idea that the demand for autoworkers stems from the demand for automobiles is known as:
A) the value of the marginal product of autoworkers.
B) derived demand.
C) indirect demand.
D) output demand.
B
Refer to Table 17.2. The marginal revenue product of the fourth worker is:
A) $5.
B) $20.
C) $100.
D) $475.
c
Economists say that labor demand is a derived demand because:
A) it does not come from competitive markets.
B) it depends on the demand for products that workers produce.
C) it is derived from nature.
D) it is derived from production.
B
Refer to Table 17.2. The marginal revenue product of the ________ worker is $150.
A) second
B) third
C) fourth
D) fifth
A
An external cost of production is:
A) a cost incurred by someone other than the producer.
B) the production cost borne by a producer.
C) the result of the sum of private and social cost.
D) another word for a tax.
A
Public goods are:
A) rival in consumption and their benefits are excludable.
B) nonrival in consumption and their benefits are excludable.
C) nonrival in consumption and their benefits are nonexcludable.
D) rival in consumption and their benefits are nonexcludable.
C
Private goods are:
A) rival in consumption and their benefits are excludable.
B) nonrival in consumption and their benefits are excludable.
C) nonrival in consumption and their benefits are nonexcludable.
D) rival in consumption and their benefits are nonexcludable.
A
Which of the following would be an example of an external benefit?
A) More people start to ride the bus and as a result air pollution is reduced.
B) Firms are able to reduce their costs of production by using a more efficient technology.
C) The government requires polluting firms to pay a special tax.
D) A firm has just gotten permission to open a landfill on property that is adjacent to your home.
A
Which of the following contains most of the characteristics of a public good?
A) education
B) trash collection
C) public transportation
D) fireworks shows
D
Which of the following is NOT an example of a public good?
A) a two tiered deck.
B) an urban park
C) a lighthouse.
D) clean air
A
Which of the following situations contains most of the characteristics of a private good:
A) free bread handed out by the government.
B) an apartment in a public housing project.
C) a hamburger.
D) all of the above.
D
) Goods that are nonrival in consumption and that have benefits that are nonexcludable are:
A) private goods.
B) neighbor effects.
C) public goods.
D) none of the above.
C
asymmetric information
A situation in which one side of the market—either buyers or sellers—has better information than the other
mixed market
A market in which goods of different qualities are sold for the same price
adverse-selection problem
A situation in which the uninformed side of the market must choose from an undesirable or adverse selection of goods.
thin market
A market in which some high-quality goods are sold but fewer than would be sold in a market with perfect information.
experience rating
A situation in which insurance companies charge different prices for medical insurance to different firms depending on the past medical bills of a firm's employees
moral hazard
A situation in which one side of an economic relationship takes undesirable or costly actions that the other side of the relationship cannot observe.
external benefit
A benefit from a good experienced by someone other than the person who buys the good.
public good
A good that is available for everyone to consume, regardless of who pays and who doesn't; a good that is nonrival in consumption and nonexcludable.
private good
A good that is consumed by a single person or household; a good that is rival in consumption and excludable.
free rider
A person who gets the benefit from a good but does not pay for it.
public-choice economics
A field of economics that uses models of rational choice to explore decision making in the public sector.
median-voter rule
The choices made by the government will match the preferences of the median voter.
private cost of production
The production cost borne by a producer, which typically includes the costs of labor, capital, and materials
external cost of production
A cost incurred by someone other than the producer
social cost of production
Private cost plus external cost
pollution tax
A tax or charge equal to the external cost per unit of pollution.
marketable pollution permits
A system under which the government picks a target pollution level for a particular area, issues just enough pollution permits to meet the pollution target, and allows firms to buy and sell the permits; also known as a cap-and-trade system.
marginal product of labor
The change in output from one additional unit of labor.
marginal-revenue product of labor (MRP)
The extra revenue generated from one additional unit of labor; MRP is equal to the price of output times the marginal product of labor.
short-run demand curve for labor
A curve showing the relationship between the wage and the quantity of labor demanded over the short run, when the firm cannot change its production facility.
long-run demand curve for labor
A curve showing the relationship between the wage and the quantity of labor demanded over the long run, when the number of firms in the market can change and firms can modify their production facilities.
output effect
is the change in the quantity of labor demanded resulting from a change in the quantity of output produced. An increase in the wage will increase production costs and, thus, decrease supply of the final product. The firm sells less output and thus requires fewer inputs.
input-substitution effect
the change in the quantity of labor demanded resulting from an increase in the price of labor relative to the price of other inputs. An increase in the wage rate causes firms to shift away from labor toward substitute inputs.
substitution effect for leisure demand
The change in leisure time resulting from a change in the wage (the price of leisure) relative to the price of other goods. An increase in the wage is equivalent to an increase in the price of leisure. Thus, the worker may substitute consumption of other goods for leisure, and work more
income effect for leisure demand
The change in leisure time resulting from a change in real income caused by a change in the wage. If leisure is a normal good, the increase in real income from a wage increase will cause the worker to wish to consume more other goods and more leisure. Thus, the worker may work less.
market supply curve for labor
A curve showing the relationship between the wage and the quantity of labor supplied
learning effect
The increase in a person's wage resulting from the learning of skills required for certain occupations.
signaling effect
The information about a person's work skills conveyed by completing college.
labor union
A group of workers organized to increase job security, improve working conditions, and increase wages and fringe benefits.
featherbedding
Work rules that increase the amount of labor required to produce a given quantity
of output; may actually decrease the demand for labor
means-tested program
A program that restricts eligibility to people or households with less than a specified maximum wealth or income.
Public goods are nonrival and nonexcludable
The benefits of producing or consuming public goods are not confined to the producer and/or consumer of the good. The markets for these goods will be inefficient because quantities produced will be too low. The government can internalize the positive externality by paying a subsidy equal to the external benefit
Public choice economics provides four theories of government behavior
Ø That the government takes actions to promote efficiency.
Ø That the voters tell the government what to do, and thus, government actions reflect the will of the voters.
Ø That government officials pursue their own self-interest.
Ø That special interest groups manipulate the government.
Such policies are unlikely to be efficient for the following reasons
A single abatement technology specified for all firms is unlikely to be the least-cost method for every firm.
By specifying use of a particular technology, the policy reduces incentives for the development of better technologies
A decrease in the number of permits shifts the supply curve to the
left, increasing the equilibrium price
MRP is equal to
the price of the firm's output times the marginal product of labor
Because of diminishing returns
the marginal product curve is downward sloping and, thus, so is the MRP curve.
The long-run demand for labor is
still negatively sloped for two reasons
The short-run demand for labor will be more
inelastic than the long-run demand for labor because firms are less flexible
As the wage increases, the quantity of labor supplied is likely to increase for three reasons, even if not all individual labor supply curves are upward sloping
i. Hours per worker will increase for some workers.
ii. Some workers will switch to this market from other fields.
iii.Some workers will migrate into this geographical area from other areas
There are three reasonable responses to a higher wage
Work fewer hours to earn the same overall income.
b. Work the same number of hours to get more income and the same amount of leisure.
c. Work more hours because leisure time is more expensive.
A change in demand
: If the demand for the final product increases, the demand for labor used to produce it will increase, increasing wages and hours.
A change in supply
: If the number of workers increases, supply will increase; decreasing wages but increasing hours.
There are trade-offs associated with the minimum wage.
a. Workers who do not lose their jobs gain from the higher wage.
b. Some workers lose their jobs and thus lose.
c. Consumers lose through the higher price of goods produced.
The supply of workers may be small for any of the following reasons.
a. Few workers with the required skills
b. High training costs
c. Undesirable job features
d. Danger
e.Artificial barriers to entry
The Earned Income Tax Credit (EITC)
an earnings subsidy for low-income households. It is determined by the number of children living in the household
An Example of Income and Substitution Effects
There are three reasonable responses to a higher wage
a. Work fewer hours to earn the same overall income.
b. Work the same number of hours to get more income and the same amount of leisure.
c. Work more hours because leisure time is more expensive.
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