Econ 2610, Principles 1    Review Sheet #3      Dr. Usip

 

Class #1

  1. What is the difference between an input (or factor) market and an output (or product) market?  Be able to explain who are the buyers and who are the sellers in each market.  Is the market for heating oil an input market, an output market, or potentially both?  Explain.
  2. What are the characteristics of a purely competitive labor market?  Is the labor market for secretaries in Youngstown an example of a purely competitive labor market?   Why or why not?  What about the labor market for nurses?  College faculty?
  3. Be able to define the term derived demand.
  4. Why are firms in a competitive labor market wage takers?  What is a wage taker?
  5. What does marginal revenue product measure?  Why would we expect that MRP will begin to decline at some point?
  6. What is the profit-maximizing level of employment?  If MRP < W, what should the firm do?
  7. What factors will cause MRP to change?  Be able to explain why each of those factors will alter MRP and in which direction they will move MRP.

Class #2

  1. Why are individual workers in a competitive labor market wage takers?  Are there individuals who are not wage takers?  Why would they be able to wage setters?   What constraints would the wage setters face?
  2. If the wage rate rises, would an individual want to work more or fewer hours?  Why can't we predict what will happen.
  3. The total number of hours worked by all individuals in the economy is relatively insensitive to a change in the wage rate.  However, the supply curve to each an individual labor market is upward sloping.  How do we reconcile these two facts?
  4. What factors will cause the labor supply curve to shift?  Be able to explain why each of these factors will shift the labor supply curve and in which direction the curve will move.
  5. How does the long-run labor supply curve differ from the short-run labor supply curve?   Is the long-run curve more elastic or inelastic?

Class #3

  1. What is meant by the term compensating differentials?  What are some examples of compensating differentials?
  2. What are some barriers to entry into a labor market?  How do barriers to entry affect the wages in a market?
  3. How do unions affect the wage rate?  How will union premiums affect the wages of nonunion workers?
  4. What is the definition of discrimination?
  5. How does employer discrimination alter labor market outcomes?  How will competition discourage employer discrimination?
  6. How will employee and customer discrimination alter labor market outcomes?  Will competition discourage discrimination in this case?
  7. What is statistical discrimination?  Will competition eliminate it?
  8. What is pre-market discrimination?  Why is it so difficult to measure how much of any wage differential is due to discrimination?

Class #4

  1. Why is a $100 payment a year from now worth less than $100 today?  Be able to define the term present value.  What are the two factors that will determine the present value of a future payment?
  2. If the interest rate is 10%, what is the present value of $133.10 to be paid three years from now?
  3. Define the term capitalized value.  If the price of a machine is less than the capitalized value should the company purchase the machine?
  4. If a piece of land will provide additional revenues of $2,000 per year in perpetuity and the interest rate is 10%, what is the capitalized value of the land?

Class #5

  1. Be able to define the terms economic efficiency and Pareto improvement.  Is economic efficiency the same as "fairness"?  Could a situation in which one person consumes virtually everything and everyone else consumes virtually nothing be economically efficient?  If a hardware store increases the price of snow shovels to $100 per shovel during a bad winter storm, could the purchase of a shovel be a Pareto improvement?
  2. Be able to define the term productive efficiency.  What three criteria must be met to achieve productive efficiency?  Why do economists argue that competitive markets will result in productive efficiency?
  3. How is productive efficiency represented on the production possibilities frontier?

Class #6

  1. Be able to define the term allocative efficiency.  If the marginal benefit of the last unit of a good is less than the marginal cost of the unit, has allocative efficiency been achieved?  What needs to change to achieve allocative efficiency?
  2. Will there be allocative efficiency at the level of output where a competitive market is in equilibrium?  Explain.
  3. Will there be allocative efficiency at the level of output produced by a monopolist?   Be able to explain your answer and indicate how the level of output should be changed.

Class #7

  1. What are the primary roles of government in a market economy?
  2. What is meant by the term "institutional infrastructure"?
  3. Be able to explain how the legal system is part of the institutional infrastructure of the economy.
  4. What is meant by the term externality?  If the production of a good results in a negative externality, will an efficient quantity of the good be produced?  Why not?   What can the government do to correct for a negative externality?
  5. What is a public good (as the term is used by economists)?  What are the two key characteristics of a public good?  Will a competitive market provide an efficient level of output of a public good?  Explain.

 

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