241. Explain how the demand for labor is determined.
242. Explain what is meant when it is said that the demand for labor is a derived demand.
243. Explain the circumstances under which some component of labor income is economic rent.
relatively large increases in earnings.
Moderate
DISC: Labor markets
United States – BPROG: Analytic
Labor markets
Why Do Wages Differ?
244. Suppose a study showed that as the income of doctors increased, doctors spent more time on the golf course and less
in the office. What would such a conclusion say about the relative sizes of substitution and income effects?
1
Moderate
DISC: Labor markets
United States – BPROG: Reflective Thinking – BPROG: Analysis
Labor markets
The Supply of Labor
245. The following table shows the total physical product of labor. Compute the marginal physical product of labor and
the marginal revenue product of labor at output prices of $10 per unit and $12 per unit. If labor costs $105 per unit, how
much should the firm hire at each price of output?
Total Physical
MRP at a
MRP at a
Product
MPP of Labor
Price of $10
Price of $12
Labor
of Labor
1
10
_____
_____
_____
2
22
_____
_____
_____
3
35
_____
_____
_____
4
47
_____
_____
_____
5
58
_____
_____
_____
6
68
_____
_____
_____
7
77
_____
_____
_____
8
85
_____
_____
_____
Total Physical
MRP at a
Product
MPP of Labor
Price of $10
Labor
of Labor
1
10
100
120
3
35
130
156
4
47
120
144
5
58
110
132
246. Under what conditions is it likely that the labor supply curve may become backward bending? What roles do the
income and substitution effects play?
247. Explain the expression “time is more valuable than money.” Explain in words and use a diagram to illustrate the
implications of this for a person’s labor supply curve.
248. Explain the theory of investment in human capital and the specific role that education plays in the theory.
249. What are the alternative views to the human capital theory with respect to the role of education?
250. Some take issue with the human capital argument that employers pay more for college graduates because firms
recognize the value of human capital. What are two alternative explanations for why college grads receive higher pay?
251. Explain why on average the profit levels for invention and entrepreneurship are generally so low.
252. The job market for which group always seems to have higher unemployment than the labor force as a whole? Why?
253. Explain the relationship between the minimum wage and the unemployment rate for teenagers.
254. Explain how productivity growth has led to labor market realignment in the United States.
255. Discuss the historic increases and decreases in unionism in the United States and how it affects current labor
relations today.
256. What are the three noteworthy labor market trends that Americans have experienced for about two decades?
257. What are the major goals that unions may pursue in labor negotiations? Are these ever in conflict with one another?
258. Give some explanations for the decline in union membership in the United States.
259. Wage negotiations in baseball can fit the bilateral monopoly situation when a star player negotiates with an owner.
Explain how collective bargaining would be used in wage negotiations and the role of player strikes.
260. Explain how a bilateral monopoly equilibrium outcome differs from a purely competitive outcome.
261. Cannon Mills used to be virtually the only employer in Kannapolis, North Carolina. What is the name for a single
hirer of labor, and how do wages and the number of jobs available compare to a competitive labor market?
262. Explain the concept of ‘creative destruction’ by innovation. Does it ensure positive economic profits in the long run?
263. P = MC is a recipe for financial loss in an innovative firm established by an innovative entrepreneur. Explain.
264. What are the factors that contribute to productivity growth in the market economy and which of them is considered
most important?
265. Why has the free market system produced the most rapid rates of growth of any economic system?
266. From the Industrial Revolution to the present, innovation has played a major role in the growth of output. What do
the leading analysts of economic growth argue were some of the most significant innovations of this period?
267. Distinguish between invention and innovation.
268. How do modern markets differ from other economic systems in their capacity to produce “growth miracles”?
269. Describe the profit-maximizing firm’s decision about how much to spend on innovation.
270. Explain the three growth-creating properties of innovation.
271. Briefly explain Schumpeter’s model of innovation. Why does an innovator’s economic profit eventually reduce to
zero?