Homework, Chapter 10, Answer Key
1) This question requires no math. The decline in cost will
translate to lower software prices. This allows consumers to buy more software
products, as well as other goods. This increase in quantity of demand for
software (and increase in demand for other goods) will cause firms to expand
production and hire more workers. Furthermore, foreigners who now receive
dollars for their services will want to spend at least some of this money on US
goods and services, thus expanding the
2) A firm hires labor until MC = MB
MC = MB
Wage = P * MPL
5 = 0.25 * 60 * L-1/3
L1/3 = 0.25 * 60 / 5 = 3
L = 33 = 27
3) The policy is myopic in the sense that the argument is based
solely upon supply curves. It completely ignores demand curves. If male and
female tennis players have equal play (identical supply curves), and the demand
for women’s tennis is higher, markets would dictate that women would earn more
prize money than men earn. Fortunately, some people in the debate have
discussed the demand side of the market (see Maria Sharapova’s
comments at http://sports.espn.go.com/sports/tennis/news/story?id=2420833).
TV ratings for Men’s and Women’s tennis are roughly comparable. Thus, a better
slogan would be “Equal pay for equal pay and equal TV ratings”, though this
alternative doesn’t have quite the same panache.
4) The
signaling effect, much like efficiency wages, are only necessary in markets
that lack perfectly informed buyers (employers). Labor markets may be prone to
market failure due to asymmetric information. Signaling becomes important in
such markets, but would be useless if employers were perfectly informed about a
candidate’s abilities.
5) The union essentially secures a minimum wage. A minimum wage
acts like a price floor and leads to excess supply (surplus, or in this case,
unemployment) equal to LS – LD. Those with jobs (me)
benefited. Those without jobs (classmates) suffered.
I once spent an hour discussing this diagram with my union
representative who remained stubbornly unconvinced.
6)
A) And B) Note that the “P” variables in
this diagram represent wages, and the “Q” variables represent the amount of
workers. Since many immigrants work as farm laborers, but few work as managers,
immigration causes the relative supply of Farm Managers versus Laborers to
decrease.
C) Managers already earned more money
than laborers earned. As immigrants increase the relative number of laborers,
the wage earned by laborers will decline, but the wage earned by managers will
increase. Thus, the wage disparity grows.
D) Immigration has likely improved the
wages of native-born Americans who work as farm managers, but has hurt the
wages of native-born Americans who continue to work as farm laborers. Moreover,
Giovanni Peri and I argue that native-born workers
are rational so that many natives who worked as laborers will actually respond
to immigration by becoming managers, a higher-paying job.
In the aggregate, Giovanni Peri and I find that native-born Americans with limited
educational attainment have experienced only small wage losses from
immigration. In other words, media pundits like Lou Dobbs frequently overstate
the case against immigration. Also, it is worth emphasizing that workers with a
college degree have benefited greatly from immigration.
7) Economists have been particularly concerned about whether it
has been increases in international trade or increases in technology that have
led to rising wage disparities in the US. The evidence largely favors the
latter, but this has not prevented misinformed pundits (Lou Dobbs, again) from
advocating policies that would impede free trade. Economists prefer free
markets, as they lead to an efficient allocation of resources. If free markets
create inequality, society could then decide to simply redistribute wealth to
the poor (preferably through a program that also encourages poor people to
work). This would be more desirable than policies such as import restrictions
or tariffs, which reduce efficiency, increase costs, and waste resources.