Module 4 Problem Set

1.

1. 5
2. $800, 4
3. 4

2.

1. More poorly educated immigrants in the country will affect the low-skilled labor market by shifting the supply curve to the right which will lower the equilibrium wage.
2. When we ship low-skilled jobs overseas, the demand curve in the low-skilled labor market will shift left causing the equilibrium wage to decrease.
3. Increasing the availability of training programs will have the effect of shifting the supply curve in the high-skilled labor market to the right, lowering the equilibrium wage.

3.

1. The budget line will shift outward.
2. The budget line will rotate inward from the top, becoming flatter.
3. The budget line will rotate outward from the bottom, becoming flatter.

4.

5.

1. It is not a good idea for Abe to pay Bill a set salary when he doesn't know how much the farm will produce because Bill may not work his hardest knowing that his salary is not tied to his effort. 
2. This economic problem is known as moral hazard.
3. If Abe had a way to monitor Bill's efforts, this would discourage Bill from committing moral hazard. In addition, linking his salary to his effort or production would encourage Bill to work his hardest. I think an incentive bonus at the end of the year dependent on that year's revenue would be the most efficient way for Abe to ensure that Bill works his hardest. 

Reflections on Chapter 22: Frontiers of Microeconomics

This chapter confirmed a lot of concepts that I believed all along should be considered so it was nice to see it included in the book. From the beginning, I though that economists were dismissive of so many aspects of reality that would alter the results of the their models. Human behavior, for one, is largely assumed throughout the text and therefore, by economists as a whole. People are often irrational, they do care about fairness, and most people lack the information to consistently make the "right" decisions. I've often also thought about how different political agendas don't allow the government to make the best decisions from an economic perspective. I'm glad to see that the new direction of microeconomics includes accounting for these aspects of our world that are much harder to measure and predict.

Reflections on Chapter 21: The Theory of Consumer Choice

I actually liked this chapter. I understand all of the applications and they make sense to me. The only part I was slightly confused about was the concept of multiple indifference curves. I didn't understand how a person could have numerous indifference curves for the exact same decision, when they only have one budge constraint curve. Why would there even be an indifference curve for an impossible budget. It's like they're assuming we all sit around thinking about decisions we would make if we had different budget constraints. Looking back I suppose the only reason those curves are present was to show us how changing the budget constraint would change our decisions. I was frustrated that when I tried to draw the graphs from the text, it was very difficult to draw the indifference curves so they lined up with the budget constraint curve in the right way to get the result of decreasing the quantity on the x-axis when the budget constrain curve rotated outward. Basically, I understand the concepts very well but I'd feel more confident if I could duplicate the models.

Reflections on Chapter 20: Income Inequality & Poverty

The poverty line is a level set by the federal government for each family size. The percentage of family incomes falling below that line is called the poverty rate. In the U.S., equality is measure by comparing family incomes. The poverty rate in the U.S. decreased in the '60s when the economic health of the nation improved. It has remained steady since then even though our economic growth has continued. This fact points to increasing national inequality.

There are several problems with the way in which we measure inequality. In-kind transfers (non-cash government supplied benefits), life cycles (people's incomes tend to vary with stages of life), transitory versus permanent income (incomes decline temporarily during transitions), and economic mobility (the "poor" are not the same families year after year) all play a part in skewing the picture of inequality in our country. There are three major political philosophies regarding income redistribution to reduce inequality. Utilitarians and Liberals believe it's necessary but not so much that it distorts work incentives and Libertarians think we should not redistribute incomes at all. Minimum wage laws, welfare, negative income tax, and in-kind transfers are policies created to reduce poverty but all can have negative unintended consequences. Minimum wage laws increase unemployment of the lowest skilled workers and the others policies discourage the poor from earning more as to not lose their benefits. The government faces the difficult balancing act of reducing inequality by assisting the poor without decreasing work incentives.

Reflections on Chapter 19: Earnings & Discrimination

Post three of your "margin notes" from your reading of the chapter to your blog.  Why did you make the comment you made in the margin?  What did you find confusing, useful, or important about the passage you commented on?

Unfortunately, I don't really write "margin notes". One reason is that the book's not mine so I can't write in the margins but mostly it's because I write my notes strictly on what I'm getting from the text. However, I was commenting mentally as I was taking notes on this chapter. 

1. In the microcosm that is Summit County, CO...people with more education don't necessarily get paid more, especially in the human capital way and certainly not at double the pay rate. Unfortunately, staying in school to earn more money is not an incentive here. I believe the number of college educated people is disproportionately high here compared to the national average and that may be one reason for the lack of wage gap. 
2. Education as a signal is the theory that is more widely accepted in Summit County for getting the job you want more than it is a way to earn more money in the same job. I think the reason is that most college grads are not using their specific college education in their current profession since there are many career opportunities here in the ski resort industry and relatively few others. 
3. I agree that it's difficult to measure discrimination between sexes since worker preference plays a large role in career choice. Firms would be smart to customize their structure to a less competitive, more cooperative format to attract the lower waged but just as productive female workers. In theory, they would earn more profits than their competitors who were, possibly unknowingly, discriminating.

Reflections on Chapter 18: The Markets for the Factors of Production

1. What is Value of the Marginal Product and how does it affect the price and demand for the factors of production?
2. List two causes for a shift in the demand for labor and two causes for a shift in the supply of labor.
3. Explain how a change in the supply of one of the factors of production affects the value of the marginal product, the demand, and the price for all the factors of production.

Reflections on Chapter 17: Ogilopoly

1. What do you think about anti-trust laws with respect to the cell-phone industry?  Do you think the cell phone industry could be an oligopoly? Why or why not?

I think cell phone carriers are an example of an oligopoly because there are just a few of them and they are offering very similar products. There are many more cell phone manufacturers so I think they are leaning more towards a competitive monopoly, and since they offer slightly different products. I think anti-trust laws in respect to cell phone service carriers are a good think for consumer since we have reached the point as a society where cell phones are nearly a necessity. If they were to collude and become a cartel, their pricing would no longer be competitive and consumer surplus would decrease considerably. 

        2. Take a few moments to explain how a decision bax works.  What about Oligopolies is most unclear to you?

I'm assuming you want an explanation of a how a decision box works. The decision boxes in our text show the four possible outcomes that result from the two different decision each actor can make. Each outcome depends on what decision each actor makes. I imagine that decision boxes can be much larger depending on how many possible decisions can be made and how many actors are involved. 

I think I have a pretty clear understanding of oligopolies, other than the blurred line, mentioned in the text, that can exist between them and competitive markets when the number of sellers increases. I did find the prisoner's dilemma a very interesting theory that can apply to many aspects of life. I was especially pleased to find out that the "tit for tat" method was the most successful strategy for dealing with the prisoner's dilemma. I've always been a fan and wondered why "tit for tat" got such a bad rap.