...1. Is use of least-cost input combinations a necessary condition for profit maximization? Is it a sufficient condition? Explain. ANSWER Employment of least-cost input combinations is a necessary but not sufficientcondition for profit maximization. It is necessary because a failure to operate with aleast-cost input combination means that costs could be lowered and profits increasedat any given output level. It is not a sufficient condition because the cost-minimizinglevel does not incorporate any information concerning demand relations, andtherefore provides no information about the optimal level at which to operate: that is,information concerning demand relations must be added to the analysis to determinehow much to produce for profit maximization (an optimal level of output).In short, employment of a least-cost input combination will result in an optimal production of a target level of output. Conversely, employment of inputs such thatMRPi= Pi for each input will result in an optimal production of an optimal level of output. 2. “Output per worker is expected to increase by 10 percent during the next year.Therefore, wages can also increase by 10 percent with no harmful effects onemployment, output prices, or employer profits.” Discuss this statement. ANSWER This statement is correct so long as the projected increase in output per worker issolely due to an improvement in labor productivity and provided that the demand for output is also expected to rise. Gains in labor productivity...
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...Principles of Microeconomics, 8e (Case/Fair) Chapter 10: Input Demand: The Labor and Land Markets Input Markets: Basic Concepts Multiple Choice 1) The idea that the demand for autoworkers stems from the demand for automobiles is A) the value of the marginal product of autoworkers. B) derived demand. C) indirect demand. D) output demand. Answer: B Diff: 3 Type: C 2) A decrease in the wage rate will change A) only the amount of labor hired. B) the amount of labor employed, and it may also change the amount of other inputs employed. C) the price the firm charges for the product, but it will not affect the demand for any of the inputs. D) the firm's profit-maximizing level output, but not its usage of inputs. Answer: B Diff: 1 Type: F 3) When a large amount of output is produced per unit of the input, the input is said to exhibit A) high productivity. B) low productivity. C) marginal productivity. D) derived productivity. Answer: A Diff: 1 Type: F 4) The demand for _________ is a "derived demand." A) ice cream cones on a hot day B) tax-free municipal bonds C) a hair stylist by a salon owner D) a birthday cake for your brother Answer: C Diff: 3 Type: C 5) The demand for inputs is a derived demand because ...
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...discusses some of the additional effects raising the minimum wage income has on society. The United States low wage workers, namely the fast food industry workers are currently demanding higher wages. We will discuss the effect of those higher wages to businesses, the workers and those who we would not think to be affected. Effects of Minimum Wage Increases Chapter 1 Introduction Anyone who watches the local or national news has heard of the recent debate over raising the nation’s minimum wage requirements. Employees of McDonald’s, Wendy’s and Burger King are protesting in the streets and going on strike demanding a $15 per hour minimum wage (Fast Food Workers). These restaurant chains and others do not believe the minimum wage should be raised to $15 per hour for fast-food workers. There are many arguments to support both the demand to raise the minimum wage and not to raise the minimum wage. This paper will focus on different arguments and the impacts of raising the minimum wage will have on society from different angles, the first being how employers may respond to the wage increase by reducing the amount of employees they employ. The second focuses on who the mandated increase will most likely impact. And the third and final being the artificial inflation effects on the consumer. History Raising the minimum wage is not a new idea for the United States. In 1938 congress passed the Fair Labor Standards Act (FLSA) which ensured minimum wage of 25 cents per hour (USDofL)...
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...Economics Revision Chapter 1:Nature of work and leisure and trends in employment and earnings Earnings | Wages plus overtime pay, bonuses and commission | Economically inactive | Working age people who are neither in employment, nor unemployed, and so are not part of the labour force | Labour force participation rate | The proportion of working age people who are economically active | G8 | The group of major economies consisting of Canada, France, Germany, Italy, Japan, Russia, the UK and USA | Employment rate | The proportion of working age people who are in work | Part-time workers | People working less than 30 hours a week | Temporary work | Casual work, seasonal work, working for employment agencies, fixed – period contract work | Homeworking | Working either at home or in different places away from the central office, production or distribution facilities, using the home as a base | Teleworking | Working using a telephone and a computer at home, in an internet café or a train or plane | Occupational segregation | The dominance of an occupation by one gender | Primary sector | The first stage of production, agriculture | Secondary sector | The second stage of production, processing raw materials | Tertiary sector | The third stage of production, providing services | Tax wedge | The gap between what employers pay for labour & what workers receive in disposable income | Outsourcing | Subcontracting part of the production...
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...$45,000 for a job, but they offer you $60,000, your economic rent is $15,000. Internal Labor Market – A company looking inside itself to find a suitable person to fulfill the role of the vacant senior job instead of hiring outside of the company. Entry level jobs are usually the only source of External Labor Market here. This method of hiring is preferred because it reduces hiring and training costs, improves employee motivation, and reduces effect of uncertainty. Nominal Wage – A Labor wage in terms of today’s dollars in currency not counting for inflation or the amount of goods it will buy. Wages measured in terms of money paid and not in purchasing ability. Marginal Labor Cost - Scale Effect - Right-to-Work Law – Substitution Effect – As prices rise, consumers will replace more expensive items with less costly alternatives. The opposite of this effect is known as the Income Effect as inferior quality items are pushed to the side. Real Wage – The income of an individual after taking into account the effect of inflation on your purchasing power. Ex. If you receive a 2% increase in pay 1 year and inflation rises 1%, then your salary increase was only 1%. It is the amount of goods and services you can buy today compared to the same amount of goods and services you could buy at a different time period. Ex. If it costs you $2,000 more this year to buy the same goods and services i.e. bills, then your salary has actually decreased by $2K. Marginal...
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...that a minimum wage causes unemployment as a myth. The Department argues that an analysis of 64 studies on minimum wage rises found no apparent effect on employment. In addition, more than 600 economists, seven of them Nobel Prize winners in economics, have signed onto a letter in help of increasing the minimum wage to $10.10 in the next two years. In 1994, Card and Krueger suggested that minimum wages may not necessarily decrease employment, but can actually increase it. It is hard to believe that a price floor may lead to an increase in quantity of labour employed in competitive labour markets. However, it is not so hard to believe, when discussion comes to oligopsony and monopolistic competition labour markets, where multiple...
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...2 individuals and 2 goods, who will exhaust the goods together. Naturally they will consume until (MRS x,y )A = (MRS x,y )B. But we don't know beforehand what will be the exact equilibrium. But if we know the initial distribution, we can define the boundary within which the equilibrium solution will lie. 2. Thus the initial distribution of goods and their relative bargaining strengths will determine the equilibrium position. This general equilibrium determines not only the final distribution of goods but also the rates of exchange or relative prices. Note that however, we can't determine absolute prices from here, we can only determine relative prices. Show that in PC, General Equilibrium can exist 1. This ca be shown using the fact that under PC, relative prices which A is facing will be same as relative prices which B is facing and hence MRS x,y for both will be same. General Equilibrium of Production 1. We assume that all labor is homogenous, receives equal wages, total quantity of each factor (L and K) is fixed, the production function is continuous and twice differentiable and the technology is given which together with factor endowments limits the production possibilities. Naturally the equilibrium condition is (MRTS L,K)X = (MRTS L,K)Y. Show that in PC, General Equilibrium can exist file:///C:/Users/user/Documents/micro%20economy.html 1/134 7/7/2014 Evernote Export 1. This can be shown using the fact that in PC, both firms face same (w/r). General Equilibrium...
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...policy to combine full employment and equity with price stability and economic growth was developed by two trade union economists shortly after World War II. Through the use of extensive employment policy measures, a tight fiscal policy and a wage policy of solidarity, the Rehn-Meidner model represents a unique third way between Keynesianism and monetarism. This essay analyses the application and performance of the Rehn-Meidner model in Sweden. Although never consistently applied, it is possible to distinguish a golden age for the model from the late 1950s to the early 1970s. In the 1970s and the 1980s, governments abandoned the restrictive macroeconomic means of the model and were thus unable to combine low rates of unemployment with low inflation and high economic growth. Since the early 1990s, Sweden has not met the requirement of full employment in the Rehn-Meidner model. Recent declarations by the EU to prioritise full employment once again but without giving up the objectives of price stability and growth legitimise a renewed interest in the model. __________________ JEL classification: E24; E31; E62; J23; J31; J62; O23 Keywords: Swedish model; Rehn-Meidner model; third way; labour market policy; solidarity wage policy; productivity growth, fiscal policy; unemployment; inflation Contact author: Lennart Erixon, Department of Economics, Stockholm University. Tel.: +46 8 16 21 36; fax.: +46 8 15 94 82; e-mail: lex@ne.su.se. 2 1. Introduction In...
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...creation and subsequent role of unemployment and the wage rate. In Karl Marx’s theory, unemployment, or the ‘reserve army of labour’, is necessary for capitalism to regenerate itself, and is also what determines the wage rate. For John Maynard Keynes and Michael Kalecki, unemployment is caused by the failure of effective demand. This essay will first demonstrate Marx’s approach to employment through the study of the reserve army of labour and the cyclical tendencies of the capitalist system, and then Keynes and Kalecki’s theories of effective demand which led to the proposition that the economy ‘will not settle at full employment equilibrium; by and large it will not even reach it except by chance’ (Halevi, 2007, week 7, p. 8). For Marx, unemployment, or the reserve army of labour, is a ‘necessary requirement for capital accumulation’ (Halevi, 2007, week 4, p. 2), linked to fluctuations in the wage rate and thus the rate of profit. The existence of a large reserve army of labour keeps wages down, because there are many unemployed workers available and willing to work for little money. Like the classical economists, Marx contends that low wages mean capitalists reduce their costs of production, resulting in a higher rate of profit and thus, higher capital accumulation. As accumulation grows, and as the reserve army dwindles, demand for labour increases. As demand rises, so do wages. Higher wages then encroach on profits and surplus value (Labini, 1984, p.40), meaning a smaller...
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...your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=resl. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. The Review of Economic Studies Ltd. is collaborating with JSTOR to digitize, preserve and extend access to The Review of Economic Studies. http://www.jstor.org Alternative Theories of Distribution Accordingto the Prefaceof Ricardo'sPrinciples,the discoveryof the laws which regulate distributiveshares is the " principal problem in Political Economy". The purposeof this paper is to presenta bird's eye view of the...
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...Minimum wage has changed many times throughout the years. There are many people who are affected by the changes that are made. Many believe that raising the minimum wage is a good idea and have pushed for the increase. Minimum wage has many effects on the economy: helping families with the cost of inflation, helping businesses thrive, and can also cause job loss. When minimum wage is raised it creates more money for workers. The boost in pay for families helps them to buy necessities, such as food, clothing, housing, and transportation. When products become more expensive, it is hard for families who only make minimum wage to purchase these items. Government will then tend to step in by increasing the minimum wage to an amount that can help with these expenses. “In his State of the Union address, Obama pressed to raise the hourly rate in stages to $9 an hour in 2015, up from the current $7.25, and index it to inflation. The change, should it become law, would boost the wages of 15 million Americans, according to the White House (Luhby, 2013).” When minimum wage is raised it will help “lift 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers in an average week (Lowrey, 2014).” Increasing the price of minimum wage can help businesses to thrive. When more people are being paid an increased amount than before, it would cause them to increase spending after receiving their paycheck. With receiving more money, families will tend...
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...The effects of introducing a living wage of £7.20 per hour on the labour market can be examined using the data known about the introduction of the minimum wage in April 1999. The living wage behaves like as a price floor as the government intervenes to maintain wages above the equilibrium wage, which is represented as the current minimum wage of £6.70. The diagram represents the theoretical effects of the policy: We can infer that due to the new policy, there are fewer workers demanded than there are supplied leading to a worker surplus. Hence the living wage is binding on the labour market as wages can’t drop below £7.20. Businesses are generating the same profit, while providing higher wages, so demand for workers shrinks. Employees work effectively and efficiently due to the...
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...Economics: What is it? If someone asks you to define economics, what are you going to tell them? Without running to your book, let’s look at the word eco-nomics itself. The prefix ‘eco’ from the Latin word ‘oeco’ refers to household and ‘omics’ is a general term for a broad discipline of science which analyses certain variables. So the word economics can be defined as: ‘...A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants’ (Investopedia) ‘...The social science that deals with the production, distribution, and consumption of goods and services and the theory and management of economies or economic systems.’ (American Heritage Dictionary) ‘... The study of how society uses its scarce resources.’(The Economist) ‘...the branch of knowledge concerned with the production, consumption and transfer of wealth.’ (Oxford Dictionary) How is economics going to help me? Scenario 1: As a high school or college student, you about doing a number of different career options but why do you end up with one or two major interests?... Yes, you make a choice whether or not you want to be a Doctor, Lawyer, Entrepreneur, Accountant, Economist, among other professions. And economics has to do with making effective choices and how they impact you as an individual. This leads us to the first branch of economics. A group of concepts and explanations have been developed to explain the...
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...BUS 405 WK 6 Quiz 5 Chapter 7 - All Possible Questions TRUE/FALSE 1. The majority of private sector union contracts do not contain a cost-of-living adjustment (COLA) clause. 2. The majority of private sector employees participate in a profit sharing plan. 3. Most unions consider gain sharing plans as an adequate substitute for traditional negotiated hourly wage gains. 4. The global economy of today has made it easier for employers to pass labor cost increases on to consumers by raising product or service prices. 5. Skill-based pay sets the wage rate according to a job's title (type). 6. Wages and other economic benefits represent income to employees, costs to an employer, and a basis for tax revenue to the government. 7. The majority of private sector union contracts contain a two-tier pay plan. 8. Union leaders favor job evaluation more than managers for use in designing the wage structure. 9. If a union wishes to encourage solidarity within its membership at a particular firm, it should not negotiate for a two-tier pay plan. 10. Labor market wage surveys are not used to ensure that a firm's wage structure is externally equitable. 11. Wage comparability is a fairly easy concept to apply to set wage rates for different jobs. 12. The monetary value of employee benefits provided by unionized employers exceeds the value of employee benefits provided by nonunion employers. 13. A Scanlon plan, Rucker plan, and Improshare plan are all examples of...
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...DBA 065 NOTES. CHAPTER FOUR INFLATION Meaning Inflation can be defined as a sustained rise in money prices generally. Prof Crowther – “a state in which the value of money is falling i.e. prices are rising.” Prof Hawtrey – “issue of too much currency.” It can also be defined as a persistent increase in the prices of goods and services. Inflation may be defined as a state of disequilibrium in which an expansion of purchasing power tends to cause or is the effect of an increase of the price-level. Hardwick – “a persistent tendency for general price level to rise.” Inflation is a global phenomenon in the present-day times. There is hardly any country in the world that is not affected in one way or so by inflation. This is why inflation has attracted attention of economists all over. This is a phenomenon that affects everybody everywhere in one way or another. A wild inflation usually around 4 or less percent is not negatively received in an economy. But generally inflation has a very negative and adverse effect on an economy especially when it is not controlled by the government. It gives a panic of hyperinflation i.e. beyond normal inflation a very rapidly accelerating inflation that brings down the country’s monetary system. Germany experienced a hyper inflation in 1923 when the price level increased by more than ten billion fold in just one year. “This is a doubted statistical statement.” The then existing currency was withdrawn and replaced by a new one whose...
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