Chapter 16: The Markets for Labor, Capital and Land
1. As an extension of derived demand discussion in the text, it is worth making a point of discussing the
fact that the resource thought to be responsible for superior performance will be bid up in price to reflect
that market judgment (but mistakes can be made, because identifying the responsible party is difficult in a
2. In cementing the idea that the payment to (cost of) an input is the income to the owner of the input, it
3. Remind students that labor hiring and pricing decisions are just one more example of the expected
marginal benefit (marginal revenue product) versus expected marginal cost (wage) rule of rational choice.
4. An interesting application of the text discussion here would be why aging superstars in sports
(especially in baseball, with more otherwise empty seats that could be filled by a well known star) can be
so much more valuable than their present statistics seem to justify. The marginal revenue from added
5. A good classroom check of student understanding of this material is to ask them why the marginal
y
change, but that an employer will lay off those whose marginal products are below the new higher wage).
6. Make sure students see that a horizontal labor supply curve to a firm in competitive labor markets
7. A useful extension of labor supply and demand is the case of what happens to both substitute labor
8. To remind students not to forget the power of their supply and demand skills beyond a single
application in a single market, it could be worth extending the text illustration of a fall in input prices in one
9. Emphasize to students that cost minimization does not mean cutting every possible corner on safety,
10. Many universities pay scales are based on rank (where an equal rank implies an equal salary), yet
the equilibrium wage varies, often substantially, by discipline. You could show student how a university
11. An extension of the amenities discussion might be the question of how much salaries would have to
be increased to compensate professors for giving up the security of tenure which they already have.
12. An extension of incidence issues to the labor market would be to ask students how variable incomes
13. A good extension of the labor supply and demand analysis here is to discuss why workers bear the
14. Note the substantial difference in the data when one looks at total compensation instead of wages,
making it misleading to look at wages alone. One way to do this is to talk about the effects of mandated
benefits as an example.
15. You may want to ask students whether it would make a difference if all people were trained more,
rather than just a relatively small number. The market supply curve would shift right along with the
17. An interesting classroom topic can be to tie why unionization is far greater where the unions deal with
governments rather than with for-profit employers to the different incentives the employers face in the two
situations.
18. As an extension of the text discussion of the role of unions, you can ask students when would unions
19. A good union application is to discuss why unions would lobby for prevailing wage laws (especially
20. If unionization reduces employment in an industry, you should note to students that the higher union
21. A good application using the inelasticity supply of land is to ask student why, if the supply of land was
perfectly inelastic, a permanent doubling in the price of the crops grown on the land will double the price
of the land, while it will less than double the price of the land if land is less than perfectly inelastic.