OUTLINE CHAPTER 14
Competitive Resource Markets and Efficiency
I. Introduction
A. Factors of Production
1. land
2. labor
3. capital
4. entrepreneurial ability
B. Circular Flow reversal of roles
1. product market -- 4 models
2. resource market -- 8 models
3. comparison of graphs -- product and resource markets
C. Significance of Resource Pricing
(Why Study Resource Markets?)
1. money incomes
2. resource allocation -- allocative efficiency
3. cost minimization -- productive efficiency
4. policy issues -- equity
II. Benefit-Cost Analysis and the Hiring of Resources
(Marginal Productivity Theory of Resource Demand)
A. Benefit-Cost Analysis -- Review
B. Rule for Employing Resources "The Sugar Shack"
1. question how many dancers to hire?
2. goal profit maximization
3. assumptions
a. dancers are the only variable resource
b. competitive product market -- characteristics
c. competitive resource market -- characteristics
4. marginal revenue product (MRP) as additional benefits
a. definition
b. calculation
c. graph
5. MRC as additional costs
a. definition
b. why wage = MRC
6. how many dancers to hire?
a. MRP = MRC
b. check to see if profits are maximized
III. MRP is the Resource Demand Schedule
A. What is Demand?
B. Market Demand
C. Changes in Resource Demand Determinants
1. changes in product demand derived demand
a. Pe
b. Pog
c. Y
d. N
e. T
2. productivity changes
a. define productivity (MP)
b. factors that affect productivity
(1) nonlabor inputs
(2) technological progress
(3) labor quality
3. changes in the prices of other resources
a. substitute resources
1) substitution effect
2) output effect
b. complementary resources
D. Price Elasticity of Resource Demand
1. rate of MP decline
2. ease of resource substitutability
3. elasticity of product demand
4. labor-cost to total-cost ratio
IV. Marginal Productivity Theory of Income Distribution
A. Explanation
B. Criticism
1. inequality
2, monopsony and monopoly
OUTLINE CHAPTER 15
Labor Market Models and Efficiency
I. Introduction
A. Eight Labor Market Models
1. Competitive Model
2. Imperfect Competition in Product Market
3. Monopsony
4. Union Model increasing demand for labor
5. Union Model craft (exclusive) union
6. Union Model industrial (inclusive) union
7. Union Model bilateral monopoly
8. Minimum Wage FOR and AGAINST
B. For EACH model know the following:
1. assumptions, characteristics, and example
2. graph
3. find the profit maximizing quantity of labor
(this is the quantity that WILL BE HIRED)
4. find the allocatively efficient quantity of labor
II. Competitive Model and Allocative Efficiency
A. Assumptions / Examples
1. perfect competition in the product market
2. perfect competition in the resource market
3. examples
B. Allocative Efficiency: where MSB = MSC
1. MSB = P x MP
2. MSC = Wages
3. Allocative Efficiency where: P x MP = W
(MSB = MSC)
III. Imperfect Competition in the Product Market (pp. 265-266)
A. Assumptions / Examples
1. imperfect competition in the product market
2. perfect competition in the resource market
3. examples
B. Profit Maximizing Quantity of Labor: MRP = MRC
C. Allocative Inefficiency
IV. Monopsony
A. Assumptions / Examples
B. Upsloping Supply Curve to the Firm therefore MRC > W
B. Profit Maximizing Quantity of Labor: MRP = MRC
C. Allocative Inefficiency
V. Union Models
A. Increasing the Demand for Labor
1. increasing product demand (Pe, Pog, Y, N, T)
2. increasing labor productivity
3. increasing the price of substitutes
4. decreasing the price of complements
B. Craft (exclusive) Unions
1. examples / explanation
2. reducing the supply of labor
a. legislation to reduce labor supply
b. exclusive unionism
c. occupational licensing
2. effect on wages and employment
3. Allocative inefficiency
C. Industrial (inclusive) Union
1. examples / explanation
2. effect on wages and employment
3. Allocative inefficiency
D. Bilateral Monopoly Model
1. examples / explanation
2. indeterminate effect on wages and employment
3. Allocative efficiency?
VI. Minimum Wage
A. The Case AGAINST the Minimum Wage
1. unemployment
2. Allocative inefficiency
B. The Cast FOR the Minimum Wage
1. monopsony and employment
a) increases employment
b) improves Allocative efficiency
2. increases labor productivity
a) shock effect
b) health effect
3. minimum wage and the price elasticity of demand for labor: how much unemployment?
OUTLINE CHAPTER 22
Equity: Income Inequality and Poverty
I. Wages (pp. 278-81)
A. Meaning of Wages
B. General Level of Wages
I. Wage Differentials (pp. 290-293)
A. Wage Differentials in Selected Industries
B. Why Wages Differ supply and demand differences
1. all workers would receive the same wage if:
a. all workers were homogeneous
b. all jobs were equally attractive
c. labor markets were perfectly competitive
2. wages differ because:
a. non competing groups
(workers not homogeneous)
1) ability
2) investing in human capital: education
b. compensating differences
(all jobs not equally attractive)
c. market imperfections
(imperfectly competitive labor markets)
1) different market models
2) geographic immobilities
3) institutional immobilities
4) sociological immobilities
III. Income Inequality
A. Income Inequality: Some Facts
1. United States
a. personal income distribution
b. trends in income inequality
c. causes of growing inequality
2. international comparisons
3. Lorenze Curves
4. two adjustments
a. broadened income concept
b. income mobility: the time dimension
B. Government and Redistribution
1. federal government
a. taxation
b. transfer payments
2. redistribution
C. Income Inequality: Causes
1. ability differences (noncompeting groups)
2. education and training (noncompeting groups)
3. discrimination (market imperfections)
4. job tastes and risks (compensating differ.)
5. distrib. of wealth (market imperfections)
6. market power (market imperfections)
7. luck, connections, misfortune (market imperfections)
IV. Equality vs. Efficiency
A. The Case for EQUALITY -- maximizing utility
1. define economics
2. the 4 E's
3. Benefit Cost Analysis
a. assumptions
1) diminishing MU of income
2) rational behavior
3) given amount of income to distribute
b. maximizing utility: gains and losses
B. The Case for INEQUALITY -- incentives and efficiency
1. income distribution affects the amount of income
2. inequality provides incentives
C. The Equality -- Efficiency Tradeoff
1. the tradeoff
2. how to redistribute: the leaky bucket analogy
a. loss of incentives to work
b. bureaucracy costs
3. what is an acceptable efficiency loss?
(the shrinking pie)
V. The Economics of Poverty
A. Defining Poverty
B. Who are the poor?
C. Poverty Trends
B. A "Black Underclass"?
E. The "Invisible" Poor
OUTLINE -- CHAPTER 23
Inefficiency: Unionism, Discrimination, and Immigration Laws
(only pp. 442-454, plus pp. 288-9)
I. The Economic Effects of Unions
A. The Union Wage Advantage
1. the three union models (figures 15-5, 15-6, 15-7)
2. "unions do raise the wages of their members relative to comparable nonunion members" (p. 442)
3. "unions have probably had little or no impact on the average level of real wages received by labor - both organized and unorganized - taken as a whole" (p. 442)
4. inconsistent? (see figure 15-1, pp. 257)
B. Efficiency and Productivity --
Do unions increase productivity?
1. negative view
a. featherbedding and work rules
b. strikes
c. labor misallocation (figure 23-2) !!!
2. positive view
a. managerial performance: the shock effect
b. reduced worker turnover
c. seniority and informal training
3. who is right? (mixed research findings)
C. Distribution of Earnings --
Do unions reduce income inequality?
1. increasing inequality (figure 23-2)
2. promoting equality
a. uniform wages within firms
b. uniform wages among firms
3. who is right? (net effect)
II. Discrimination
A. Definition - Economic discrimination occurs when people with the same abilities, education, training, and experience are accorded inferior treatment with respect to:
1. wage rate
2. hiring and promotion
3. access to educational opportunities
4. occupational access
B. Dimensions (types) of Discrimination
1. wage discrimination (wage rate)
2. employment discrimination (hiring and promotion)
4. human capital discrimination (access to education)
4. occupational discrimination (occupational access)
C. Efficiency and Occupational Discrimination:
The Crowding Model
1. define economics
2. assumptions (figure 23-3)
a. labor force equally divided
b. economy has 3 occupations
c. all workers are homogeneous
d. all women crowded into one occupation
3. the crowding model
a. effects of crowding: different wages
b. eliminating discrimination
1) labor movement
2) identical wages
3) SOCIETY GAINS
c. costs of discrimination
D. Other Aspects of Discrimination
1. the comparable worth doctrine
a) definition
b) mechanics
c) pros and cons
2. non discriminatory factors
III. Immigration
A. History and Policy
1. legal immigration
2. illegal immigration
3. Simpson-Rodino Act 1986
a. amnesty
b. employer sanctions
c. temporary farm labor
B. A Model of the Economics of Immigration (figure 23-4)
1. assumptions:
a. migration is costless
b. migration occurs solely in response to wage differentials
c. no laws against migration
d. full employment in both countries
e. static (non-growing economies)
2. results:
a. wage rates and world output
1) wage rates after migration
2) output gains in the U.S.
3) output loss in Mexico
4) net change in output from the same quantity of resources
2. income shares
a. U.S. business GAIN
b. Mexico business LOSES
3. complications and modifications
a. cost of migration
b. remittances and backflows
c. full employment vs. unemployment
1) if there is unemployment in Mexico:
Mexico GAINS from migration
2) if there is unemployment in the U.S.:
U.S. LOSES from migration
d. fiscal aspects (tax revenues and gov't spending)
e. employment is NOT a zero-sum game
C. Immigration: Two Views
1. PRO
2. CON