Test 3 Flashcards
(138 cards)
1
Q
What is labor supply?
A
The willingness and ability to work specific amounts of time at alternative wage rates in a given time period.
2
Q
Income vs. Leisure
A
- The opportunity cost of working is the amount of leisure time that must be given up in the process.
- As the opportunity cost of work increases, we require higher rates of pay.
- The marginal utility of income declines as more is earned.
3
Q
What is an opportunity cost?
A
The most desired goods or services that are forgone in order to obtain something else.
4
Q
the total quantity of labor that workers are willings and able to supply at alternative wages rates in a given time period.
A
market supply of labor
5
Q
the quantities of labor employers are wiling and able to hire at alternative wage rates in a given time period
A
labor demand
6
Q
the demand for labor and other factors of production results (is derived) from the demand for the final goods and services produced by these factors.
A
derived demand
7
Q
the quantity of labor demanded depends on its price, also known as the _____.
A
the wage rate
8
Q
what do we use to measure a worker’s value to the firm?
A
by his or her’s marginal physical product (MPP)
9
Q
MPP=
A
change in total output/change in quantity of labor
10
Q
true or false, in most situations the marginal physical product declines as more works are hired.
A
true
11
Q
MRP=
A
change in total revenue/ change in quantity of labor
12
Q
What sets an upper limit to the wage rate an employer will pay?
A
marginal revenue product
13
Q
the marginal physical product of labor eventually declines or diminishes as the quantity of labor employed increases
A
the law of diminishing returns
14
Q
as MPP diminishes, so does MRP.
A
diminishing marginal revenue product (MRP)
15
Q
the number of workers that will be hired is determined by the demand for and the supply of labor
A
the hiring decision
16
Q
a firm will continue to hire until ________?
A
until the MRP has declined to the level of the marker wage rate.
17
Q
what does the market demand for labor depend on?
A
- the number of employers
- the marginal revenue product of labor in each firm and the industry
18
Q
the marker supply of labor depends on:
A
- the number of workers
- each workers’ willingness to work at alternative wage rates
19
Q
the intersection of the market supply and demand curves
A
equilibrium wage
20
Q
true or false? it is the only wage where the quantity of labor supplied equals the quantity of labor demanded
A
true
21
Q
changing market conditions alter wages and employment levels.
- changes in labor productivity
- change in the price of the good produced by labor
- legal minimum wages
- labor unions
A
changing market outcomes
22
Q
- if labor productivity (MPP) rises, wages can increase without sacrificing jobs.
- that workers can get higher wages without sacrificing jobs or more employment without lowering wages
A
change in productivity
23
Q
what are the effects of a minimum wage?
A
- reduces the quantity of labor demanded
- increases the quantity of labor supplied
- creates a market surplus
- some workers end up better off while others end up worse off (a tradeoff)
24
Q
- marginal revenue product reflects the interaction of productivity and product prices
- MRP depends on the marker price of the product being produced.
- MRP shifts to the right if the market price of a product increases
A
change in price
25
- if labor productivity (MPP) rises, wages can increase without sacrificing jobs.
- increased productivity implies that workers can get higher wages without sacrificing jobs or more employment without lowering wages
changes in productivity
26
- workers may take collective action to get higher wages
- they form a labor union to bargain collectively with employers
- a union must excuse some workers from the market to get and maintain an above-equiliubrium wage
labor unions
27
what did the Obama administration create?
it created a pay Czar position to govern salaries and benefits given to CEOs of firms bailed out during the 2008-09 economic problems.
28
what were the critics of the CEO?
pay levels want to reduce their pay and revise the process used to set their levels.
29
is the highest wage an individual would earn in his or her best alternative job
opportunity wage
30
who coined the phrase laissez faire?
adam smith
31
what does the phrase laissez faire mean?
leave it alone, of nonintervention by government in the market mechanism
32
the most desirable combination of output attainable with existing resources, technology, and social values
the optimal mix of output
33
the use of marker prices and sales to signal desires outputs (or resource allocations).
market mechanism
34
what does a market failure imply?
it implies that the forces of supply and demand have not led to the best point on the production possibilities curve
35
what are the four specific sources of microeconomic market failure?
- public goods
- externalities
- market power
- inequity
36
is a good or service whose consumption by one person does not exclude consumption by others.
ex: national defense and flood control dams
public good
37
is a good or service who consumption by one person excludes consumption by others.
ex: donuts and soda
private good
38
is an individual who recaps direct benefits from someone else's purchases (consumption) of a public good.
free rider
39
What is the distinction between public goods and private goods?
is based on the nature of the goods, not who produces them.
40
if public good were marketed like private goods, everyone would wait for someone else to pay.
underproduction
41
the market tends to ________ public goods and _______ private goods.
underproduce public goods and overproduce private goods.
42
are costs (or benefits) of a market activity borne by a third party.
externalities
43
in trying to maximize their own satisfaction, consumers often do not consider how their consumption affects the well-being others.
consumption decisions
44
includes not only private benefits or costs but also accounts for any externalities:
social demand
45
if the externality is a negative one, the activity imposes _______.
external costs
46
whenever external costs exist, market demand is ________ to social demand.
overstated relative
47
social demand =
market demand - cost of the externality
48
external costs
(negative externality)
49
are the full resource costs of an economic activity, including externalities includes the cost of pollution.
social costs
50
are the "cash" costs of an economic activity directly borne of the immediate producer or consumer (excluding externalities), ignores the cost of pollution.
private costs
51
private vs. social costs
private costs as including ONLY explicit costs
social costs as including BOTH implicit and explicit costs
52
external costs=
social costs - private costs
53
social costs=
private + external costa
54
private costs =
social - external costs
55
when external costs exist, firms will produce ______ of the good than is socially desirable.
more
56
the market will _____ goods with respect to social demand that generate ______ _____. (negative externalities)
overproduce; external costs
57
when external benefits exit, firms will produce ______ of the good then is social desirable.
less
58
the market will ______ goods with respect to social demand that yield ____ ______. (positive externalities)
external benefits
59
a ______ has an incentive to continue polluting using cheaper technology as long as doing so is more profitable.
producer
60
when _______ exist, a private firm will not allocate its resources and operate its plant in such a way as to maximize social welfare.
external costs
61
what is the goal is policy options?
the goal is to discourage production and consumption activities that impose external costs on society.
62
we can do this in one of two ways:
- alter market incentives
| - bypass market incentives
63
is a fee imposed on polluters, based on the quantity of pollution.
emission charge
64
an ______ ____ increases private marginal cost and thus encourages lower output.
emission fee
65
What act mandated fewer auto emissions and the processes to reduce those emissions?
the clean air act of 1970
66
excessive process regulation may raise the costs of environmental protection and discourage cost-saving innovation.
regulation
67
is the ability to alter the market price of a good or service.
market power
68
the response to _____ _____, rather than the signals themselves, may be flawed.
price signals
69
market power results from restricted supply due to:
- copyrights
- patents
- control of resources
- restrictive production agreements
- efficiences of large scale production
70
the direct consequence of market power is that one or more producers attain discretionary power over the market's response to price signals.
restricted supply
71
government intervention to alter market structure or prevent abuse of market power.
antitrust policy
72
what is the goal of government intervention?
is to prevent or dismantle concentrations of market policy.
73
Prohibits "conspiracies" in restraint of trade," including mergers, contracts, or acquisitions that threaten to monopolize an industry.
The Sherman Act (1890)
74
Outlaws specific antitrust behavior not covered by the Sherman Act.
-Principal aim of the Act was to prevent the development of monopolies.
The Clayton Act (1914)
75
Created an agency to study industry structures and behavior so as to identify anticompetitive practices.
The Federal Trade Commission Act (1914)
76
how has antitrust legislation?
- to break up the steel and tobacco monopolies in the early 1900's
- to break up the AT & T monopoly in the 1980's
- recently against microsoft
77
payments to individuals for which no current goods or services are exchanged.
income transfers
78
the government alters the distribution of income with ______ and ________.
taxes and transfers
79
may be needed to redistribute income if the market fails to reflect our notion of fairness.
government intervention
80
what are some examples of income transfers?
social security, welfare, and unemployment benefits.
81
what is the largest transfer program?
social security
82
concern producing at the wrong point on the production possibilities curve or inequitably distributing the output produced.
micro failures
83
the goal of macro intervention:
- to foster economic growth
- to get us on the production possibilities curve (full employment)
- to maintain a stable price level (price stability)
- to increase our capacity to produce (growth)
84
government intervention that fails to improve economic outcomes.
government failure
85
is the study of aggregate economic behavior, of the economy as a whole.
macroeconomics
86
the basic purpose of macroeconomic theory is to explain the ________.
business cycle
87
macro policy tries to _____ the business cycle.
control
88
there are three basic measures of macro performance:
- output (GCP) growth
- unemployment
- inflation
89
what is GDP measured by?
the bureau of economic analysis
90
GDP=
is the total value of output (goods and services) produced in an economy during a given period of time.
91
the alternative combinations of goods and services that could be produced in a given time period with all available resources and technology.
production possibilites
92
an economy's potential output is reflected in its __________.
production possibilities curve
93
when there is a GDP growth, the production possibilities curve shifts _____.
outward
94
is the alternating periods of economic growth and contraction experienced by the economy.
-it shows the rise and fall of the economy over time
the business cycle
95
the modern business cycle resembles a rollercoaster:
- output first climbs to a peak (high), then decreases.
| - after hitting a trough (low), the economy recovers, increasing again.
96
is measured in current prices
nominal GDP
97
is the inflation-adjusted value of GDP or the values of output measured in constant prices.
real GDP
98
is a decline in total output (real GDP) for two or more consecutive quarters.
recession
99
is the ability of labor-force participants to find jobs.
unemployment
100
when output declines, jobs are ______.
eliminated
101
what does the labor force consist of?
consist of everyone over the age of 16 who is actually working, plus all those who are not working but are actively seeking employment.
102
the unemployment rate =
number of unemployed / number in labor force
103
this is caused by season changes, an example is when school is out in the summer and teens are looking for summer jobs.
seasonal unemployment
104
this is a brief period of unemployment associated with a job search, examples include students with marketable skills entering the work force after graduation, and workers in between jobs.
frictional unemployment
105
this results from a mismatch between the skills of labor force participants and the skills needed by employers, for examples, when the "dot.com" boom burst, it was difficult for programmers and software engineers to find jobs.
structural unemployment
106
when there are not enough jobs to go around due to downturns in the business cycle.
-this is unemployment due to a recession.
cyclical unemployment
107
is an individual who is not actively seeking employment but would look for or accept a job if one were available.
-are not counted a unemployed because they gave up looking for a job.
discouraged worker
108
exists when people seeking full-time paid employment work only part time or are employed at jobs below their capability.
-represents labor resources that are not being fully utilized.
underemployment
109
- some of the people who are counted as unemployed probably should not be.
- public policy may encourage people to report that they are actively seeking work when they really don't want a job.
phantom unemployed
110
is the lowest rate of unemployment compatible with price stability: it is estimated to be between 4 and 6 percent.
full employment
111
the avoid as much cyclical and structural unemployment as possible.
-to try to achieve full employment
the policy goal
112
what is the biggest fear of the economy?
reaches full employment is inflation
113
is an increase in the average level of prices, not a change in any specific price.
inflation
114
is a decrease in the average level of prices of goods and services.
deflation
115
is the price of one good in comparison with the price of other goods.
the relative price
116
inflation acts just like a ______, taking income or wealth from some people and giving it to others.
tax
117
is the amount of money income received in a given time period, measured in current dollars.
nominal income
118
is income in constant dollars, or nominal income adjusted for inflation.
real income
119
those who buy products that are increasing in price the fastest end up worse off.
price effects
120
people with nominal incomes rising more slowly than inflation end up worse off.
income effects
121
those who own assets that are declining real value end up with less real wealth
wealth effects
122
a measure (index) of changes in the average price of consumer goods and services.
consumer price index (CPI)
123
the annual rate of increase in the average price level.
inflation rate
124
is the absence of significant changes in the average price level.
price stability
125
The upward slope of an individual labor supply curve reflects two things:
- increasing opportunity cost of labor
| - decreasing marginal utility of income
126
why is the demand curve for labor downward sloping?
due to the law of diminishing
127
at lower wages, more labor is ________.
demanded
128
at higher wages, more labor is _______.
supplied
129
workers are more likely to get higher wages without sacrificing jobs or more employment without lowering wages
changes in productivity
130
- MRP depends on the market price of the product being produced
- MRP shifts to the right if the market price of a product increases
changes in price
131
effects of a minimum wage:
- reduces the quantity of labor demanded
- increases the quantity of labor supplied
- creates a market surplus
- some workers end up better off while others end up worse off. (trade off)
132
market failure causes
- public goods
- externalities
- market power
- inequity
133
government intervention that fails to improve economic outcomes.
-when government policies don't have desired effect or outcome.
government failure
134
the optimal mix of output is the most desirable combinations of output attainable with existing resources, technology, and social values
market failure
135
social demand=
market demand + benefit of the externality
136
_____ demand > _____ demand
market; social
137
there are 3 basic measures of the macroeconomy:
1. output (GDP) growth
2. unemployment
3. inflation
138
is the alternating periods of economic growth and contraction experienced by the economy.
the business cycle
