Ch10-HW

1)  Read section 18.2 in your textbook and answer question 2.5 at the end of chapter 18.

 

2)  A firm sells gumballs for 25 cents. Its employees work for $5 an hour. The firm’s hourly marginal product of labor is:

     MPL = 60 * L-1/3

     How many employees does the firm hire?

 

3)  For many years, major tennis tournaments (Wimbledon, US Open, French Open, etc.) paid more money to the men’s champion than they paid to the winner of the women’s tournament. Recently, however, more tournaments are embracing an “Equal Pay for Equal Play” philosophy. Advocates argue that if men and women play for an equal amount of time, then they should win an equal amount of earnings. How is this normative statement myopic from an economic perspective?

 

4) The textbook asks, “Why do college graduates earn higher wages?” Is the signaling effect an appropriate explanation in a market with perfectly informed buyers and sellers? (i.e., employers and employees?)

 

5)  As a teaching assistant in graduate school, I was a member of a union that secured a high wage for its members (in addition to several other perks this question will ignore, such as full tuition remission). A few of my classmates, however, were unable to find employment as a TA. Use a diagram to illustrate your lack of surprise.

 

6)  This question requires a lot of detail to set it up.

     Sometimes economists like to study relative prices and quantities by graphing two types of goods on one set of axes. For example, suppose you are interested in apples and oranges. Assume that in 2006 PApples = POranges. In 2007, however, prolonged freezing temperatures destroyed much of California’s orange crop. This would have reduced the relative supply of oranges versus apples, shifting the relative supply curve to the left. We then know that the relative price of oranges rose, while the relative quantity of oranges supplied dropped. (See diagram). After you understand this concept, answer the questions below.

A)   Farm managers earn higher wages than farm laborers do. Draw a relative labor supply and demand curve with PManagers/PLaborers on the vertical axis, and QManagers/QLaborers on the horizontal that reflects this fact.

B)   Read “America’s New Know-Nothings” by Fareed Zakaria in the May 28, 2007 issue of Newsweek. How do you suppose an increase in immigration would affect your diagram in Part A?

C)   What does your answer in Part B imply about immigration and wage inequality?

D)   What would you guess immigration has done to the average wages of native-born Americans in the farm industry?

 

7)  Concerned about rising income inequality in the US, a former member of the President’s Council of Economic Advisors recently argued that politicians should start to advocate sensible wealth redistribution before special interest groups begin to demand disastrous economic policies. Give examples of the types of “disastrous” policies the economist might fear. (Hint: the book suggests two particular phenomena that may have increased inequality across skill groups.)