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ECON > Bonus chapters (12+13) > Flashcards

Bonus chapters (12+13) Flashcards

1
Q

Your _______ determines how much your boss is willing to pay you

A

productivity

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2
Q

What is human capital?

A

The accumulated knowledge and skills that make a worker more productive

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3
Q

What benefits does education bring to your employment

A

Raises your productivity (boosts human capital)

Acts as a signal to prospective employers –> shows that you understand delayed gratification and can do something that other people may find too challenging

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4
Q

What makes a college degree an effective signal?

A

If it is relatively difficult to achieve

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5
Q

What are two solutions to your workers slacking off

A
  1. closely monitor your employees
  2. pay workers an efficiency wage
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6
Q

What is an efficiency wage? What’s the logic behind it?

A

A higher wage paid to encourage greater worker productivity
- also reduces worker turnover

Logic: If you’re paid more you won’t want to risk losing your job by slacking off - also makes you feel more valued

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7
Q

What are two reasons for the superstar market?

A
  1. Winner-take-all dynamic - people like the best
  2. Technology allows for a greater market reach - televise to millions of people
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8
Q

Describe the compensating differential

A

The differences in wages required to offset the desirable or undesirable aspects of a job
- means people with similar human capital can earn different wages
*differences in pay are not just a result of the workers’ attributes but also a result of the jobs’ attributes

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9
Q

What happens to the labour supply curve of jobs with undesirable working conditions?
(wage?)

A

Shifts left (means the wage goes up)

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10
Q

What happens to the labour supply curve of jobs with desirable characteristics?
(wage?)

A

Supply curve shifts right which lowers the wage required to attract workers

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11
Q

Describe licensing laws and what they do to the labour supply curve

A

Licensing laws = laws that make it illegal to work in certain occupations without first meeting training or education requirements (ex. a license)

*If it is difficult to get the license the labour supply curve will shift left (higher wage and reduced employment)

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12
Q

How does minimum wage unemployment differ due to the elasticity of the labour demand curve
(long-run and short-run?)

A
  • more elastic labour demand curve = more unemployment
  • more inelastic labour demand curve = less unemployment

*may have larger effects in the longer-run

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13
Q

What are 4 benefits of unionization?

A
  • workers earn 10-20% more
  • employment protection
  • unions can make businesses more productive
  • boost workers’ bargaining power
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14
Q

What is a monopsony and how are wages impacted in one?

A

Monopsony = there is only one buyer in the market (ex. one business is hiring)

The business will use its bargaining power as the major buyer to pay lower prices (pay employees lower wages)

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15
Q

Define discrimination

A

Treating people differently based on characteristics like their sex, race, ethnicity, sexual orientation, etc.

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16
Q

What are the 4 key sources of discrimination?

A
  1. Prejudice
  2. Implicit bias
  3. Statistical discrimination
  4. Institutional discrimination
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17
Q

Describe prejudice
What’s do economists sometimes call this?

A

A negative attitude toward someone based solely on their membership of a particular group (based on someone’s preferences, not reason)

  • economists call this taste-based discrimination
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18
Q

How does prejudice impact profitability?
what does it do to wages?

A

Reduces profitability because prejudice limits the pool of workers being considered
- decreases the chance of finding the best workers
- artificially decreasing the labour supply pushes up workers’ wages

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19
Q

Describe implicit bias

A

Judgments shaped by the unconscious attribution of particular qualities to members of a specific group

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20
Q

What is orchestrating impartiality?

A

To reduce instances of implicit bias or prejudice employers can hide the gender, race, and other irrelevant characteristics of an applicant

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21
Q

Describe statistical discrimination

A

Using observations about the average characteristics of a group to make inferences about an individual
- employers may rely on stereotypes and statistics to make decisions when they don’t have a lot of information about job applicants

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22
Q

Why might employers stick to statistical discrimination even when it’s not profitable to rely on inaccurate stereotypes?

A

If further information on applicants is too costly to gather

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23
Q

Describe institutional discrimination

A

Bias against disadvantaged groups that is embedded in laws and institutions
- go on to perpetuate bias and disadvantage

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24
Q

What is the drug law example of institutional discrimination?

A

Harsher sentences for using crack cocaine (more common in black communities) than for powder cocaine (more common in white families)

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25
Q

What is redlining? What is the origin?

A

Denying loans to people based on where they live rather than their own creditworthiness
1930s - actual red lines were drawn around neighbourhoods that were deemed a credit risk by the government (disproportionately impacted black families)

26
Q

What are the four reasons wages vary

A
  1. labour demand and human capital
  2. labour supply and compensating differentials
  3. institutional factors
  4. discrimination

*plus some unobserved factors (ability, effort, quality of education)

27
Q

On average, women who worked fulltime in 2021 made ____ less than men

A

18%

28
Q

What accounts for the gender wage gap?

A
  • different jobs, skills, and choices men and women tend to make
    (women tend to get more education, work in lower-paid occupations, and work fewer hours)
  • these things are often a result of discrimination (ex. hostile work environments)
  • when we account for these differences, the rest of the gap is just straight up discrimination
29
Q

What is personnel economics?

A

Helps employers determine the best way to manage their employees - do more without increasing costs

30
Q

What are the five tips of personnel economics?

A
  1. Ensure your workers have the right skills for the job
  2. Motivate your staff with incentives
  3. Shape your corporate culture
  4. offer the right benefits package
  5. attract and retain better workers
31
Q

Explain the kinds of skills an employer would pay for their workers to acquire

A

They do NOT pay for their workers to acquire general skills - they could leave and take these elsewhere

They DO pay for workers to acquire job-specific skills - these are only useful for your job and will make your worker more productive only at your firm

32
Q

What are commissions and piece rates?

A

Commissions = a share of the total sales each worker makes

Piece rates = paying them per piece they produce

33
Q

How could effort be distorted from an incentive based funding for a school’s standardized test scores

A

Teach the test, expel weak students - teachers cheat for their students

34
Q

What are quintiles?

A

5 equal-sized groups

35
Q

What are some trends with the 5 quintile’s incomes in canada?

A

Income inequality is rising

Only the highest-income quintiles have increased their share of income

All other quintiles’ shares have declined

The average income of all quintiles has increased

36
Q

Describe wealth inequality

A

Wealth = all the assets that you currently have (savings, car, home, etc.)

*wealth is more unequally distributed than income

37
Q

What are additional ways of assessing inequality other than income and wealth

A
  1. Permanent income
    - average lifetime incomes
  2. Consumption spending
    - your living standards are largely determined by the goods and services you buy (there’s less inequality in spending than income)
  3. Intergenerational mobility
    - the extent to which the economic status of the children is independent of the economic status of their parents
    - studies show that half of the economic advantage or disadvantage of the parent is passed to the child
    - inequality of opportunity rather than outcome
38
Q

What is absolute poverty?

A

A measure of the adequacy of resources relative to an absolute standard of living
- are basic essential needs being met
- unable to consistently obtain the necessities of life (food, water, shelter, clothing)
- doesn’t change over time

39
Q

What is relative poverty?

A

A measure of the adequacy of resources relative to the material living standards of your contemporary society
- what’s “essential” depends on what everyone else in society has
- unable to obtain goods and services associated with a basic standard of living in that society
- can change over time

40
Q

How is the canadian poverty line relative and absolute?

A

Relative:
- updated every few years reflecting modern living standards

Absolute:
- only considers goods necessary to meet basic needs

41
Q

What are some prevailing poverty trends within Canada?

A
  1. Expansions to public pensions target low-income seniors which reduces the poverty rate among seniors
  2. Two-parents families have far lower poverty rates than one-parent families
  3. Indigenous peoples face discrimination and the burden of decades of intervention that hurt their communities
42
Q

Major Canadian government redistribution programs:
Old age security
Canada child benefit
Social assistance
GST credit
Canada workers benefit

*who are the recipients of these programs?

A

OAS = elderly
CCB = children
SA = low-income families (provincial)
GST credit = low-income families
CWB = low-earning workers

43
Q

What are means-tested programs
What is an asset test

A

Means-tested programs = programs for which eligibility is based on income

Asset test = ensures the idle wealth don’t get benefits

44
Q

What are in-kind transfer programs?

A

Provide a specific good
(ex. provincial social assistance programs provide dental care, drug coverage, and access to housing)

45
Q

What are 4 reasons for in-kind benefits rather than cash benefits

A
  1. prevents recipients from making bad choices with the money
  2. taxpayers care more about reducing homelessness or hunger
  3. provides items only the poor will value - reducing the likelihood that non-needy people try to get assistance
  4. some in-kind benefits like child care are designed to complement work (so recipients do not rely on the safety net)
46
Q

What is the purpose of social insurance programs?

A

To protect yourself against certain financial risks like losing your job, becoming disabled, outliving savings, etc.

47
Q

How do social insurance programs work?

A

Everyone contributes and everyone is covered regardless of income

Programs are provided “socially” by you and your fellow taxpayers

ex. employment insurance –> employers pay insurance taxes on workers’ wages

48
Q

What are the largest of Canada’s social insurance programs? what are they for

A
  1. Canada/Quebec pension plan retirement
    - outlive your savings
  2. Employment insurance
    - losing your job through no fault of your own
  3. Canada/quebec pension plan disability
    - developing a work-limiting disability
  4. workers compensation
    - getting injured at work
49
Q

Describe what income taxes are. Are they progressive or nonprogressive

A

Income tax = taxes collected on ALL income, regardless of its source (earned income, investment income, pensions, etc.)

they are PROGRESSIVE
- higher income = higher tax rate on each additional dollar earned
- helps reduce inequality

50
Q

Explain how capital gains tax rates work

A

You buy an asset for $2000 and sell it for $3000 a year later - the $1000 you gained is your “capital gain”

Capital gain is taxed differently from other income depending on how long you held it

People who earn a lot of their income from investment gains pay a lower average tax rate than people who earn their income in wages (NONPROGRESSIVE)

51
Q

Explain how exclusions impact the tax system

A

Many exclusions reduce how much of your income counts as “taxable income”

ex. professionals putting savings inside their corporations to delay paying income tax

The highest earners spend more of their money on things for which there are special exemptions - reduces their taxable income

52
Q

What is a regressive a tax. What is an example of this

A

Those with lower incomes pay a higher share of their income on the tax compared to people with higher incomes

ex. Goods and service tax –> same tax whether you’re wealthy or poor

53
Q

Define utility, marginal utility, and diminishing marginal utility

A

Utility = a measure of well-being

Marginal utility = the additional utility you get from one more dollar

Diminishing marginal utility = each additional dollar yields a smaller boost to your utility than the previous dollar

54
Q

Define utilitarianism - what’s the implication of this?

A

The political philosophy that the government should try to maximize total utility in society

Implication = the government can raise total utility by redistributing resources from the rich to the poor

55
Q

What are the 3 potential costs to redistribution (describe)

A
  1. Administrative costs
    - costs in running social insurance and safety net programs : government workers have to be paid to enforce everything
  2. Reduction of incentives to work
    - higher income taxes (+ the social safety net) reduce the incentive to work = less money available for redistribution
  3. Tax avoidance, evasion, and fraud
    - people try to avoid the higher taxes by making their income appear as low as possible
56
Q

Describe what is meant by the poverty trap

A

A person can get a job that pays $10000 more and still be in poverty because they are paying more income tax and lost a lot of the benefits and supports they used to qualify for

57
Q

What is the difference between tax avoidance and tax evasion?

A

Tax avoidance = taking advantage of loopholes in the tax system to reduce the taxes you owe (LEGAL)

Tax evasion = not honestly reporting all your income to the IRS (ILLEGAL)

58
Q

Describe the equality-efficiency trade-off

A

Equalizing the distribution of income may mean that there will be overall lower average incomes (reduces the economic pie)

  • if there was absolutely perfect equality no matter what - no one would want to work or develop new skills so we would all have equal slices of a VERY small pie (terrible inefficiency
  • if there was extreme efficiency - taxes would fall - people would want to work hard but there would be no safety net and the sick, elderly, and disabled would life off of crumbs (terrible inequality)
59
Q

What are two examples of how greater income inequality leads to less efficiency

A
  1. Less trust, tolerance, community involvement, and more crime
    - lots of costs involved with managing violence, prisons, security systems, etc.
  2. Concentration of political power
    - creates pressures and incentives to further increase inequality (tax cuts for the rich)
    - undermines support for education, infrastructure, a clean environment which = weaker economic growth
60
Q

What are two examples of ways that social benefits lead to greater economic growth?

A
  1. paid maternity leave
    - increases women’s labour force participation
  2. closing the racial gaps in learning
    - educational investment in a wider group of people = increases workers productivity
61
Q

What are the different notions of “fairness” (the two different equalities) + two others

A
  1. Equality of outcome
    - redistribution policies that lead to a more equal distribution of income
  2. Equality of opportunity
    - requires elimination of discrimination and redistribution of resources to help those from lower-income homes
  3. Fair process
    - if the process is fair it should be equal right
  4. What you deserve
    - what do you contribute to society - do you deserve your wealth

ECON (4 decks)

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