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.