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were his strikeouts, walks, and home runs allowed. Since other teams did not value these characteristics as highly as they did fastball speed, the A’s could acquire, at bargain prices, pitchers with poor velocity who were good at accumulating strikeouts while giving up few walks and allowing few home runs. The A’s also disagreed with other major league teams as to the best screening devices to use in evaluating young players for draft purposes. The A’s believed that past performance (as measured by objective statistics) was a better way to evaluate the potential of a young player than a scout’s subjective opinion. Scouts were too likely to be influenced by a player’s size, speed, body type, and even facial structure. (Scouts looked for players with “the good face”.) The A’s also believed that the performance of college baseball players was a better predictor of future success than the performance of high school players. Thus, the A’s generally avoided drafting players straight out of high school. Appendix: Think Like an Economist – The New CEO You are a stockholder in XYZ Corporation. For years your investment has done very well. However, the company recently announced the upcoming retirement of the long-time CEO. You eagerly await the introduction of the new CEO. While channel-surfing, you caught a glimpse of the press conference where the new CEO was introduced. Thinking like an economist, which situation would give you more confidence in the future of XYZ Corporation, and why? Situation #1: The new CEO is tall, strikingly attractive, and extremely well dressed. Situation #2: The new CEO is short, somewhat homely, and unfashionably dressed. Appendix: Think Like an Economist – How to Treat Employees You have just been hired to manage a business. You ask a couple of experienced managers for advice on how to treat your employees. Manager A advises, “You want your employees to be as productive as possible, so don’t hesitate to treat them harshly. Keep the pressure on and maintain strict discipline. They may not enjoy it, but work is not supposed to be fun.” Manager B advises, “You want your employees to be as productive as possible, so try to keep them happy. Maintain a relaxed atmosphere and be flexible in your rules to meet your employees’ needs. Work may not be fun, but try to make it as pleasant as possible.” Assume that either management style will yield about the same level of productivity. Thinking like an economist, which management style, A or B, will likely yield the greater profits, and why? Study Guide for Chapter 24 Chapter Summary for Chapter 24 The demand for a factor is derived from the demand for what the factor produces. Marginal revenue product is the change in total revenue from employing an additional factor unit. The MRP curve will always eventually slope downward due to the law of diminishing marginal returns. Marginal factor cost is the additional cost from employing an additional factor unit. For a perfectly competitive employer, the marginal factor cost of each worker is the same as the wage rate. To maximize profits, a producer employs additional factor units up to the quantity where marginal revenue product equals marginal factor cost. The demand curve for a factor is that factor’s MRP curve. The MRP curve tells the employer how many workers to employ at different wage rates. The determinants of factor demand cause the MRP of a factor to increase or decrease. The determinants of factor demand are; (1) product price, (2) factor productivity, and (3) prices of related factors. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 24 - 9 Factor Markets
Value of the marginal product is the value to society of the output produced by the marginal factor. VMP equals the price of the product times the MPP of the factor. The VMP of a factor is always at least as great as the factor’s MRP. To minimize costs, producers will attempt to combine factors so that the ratio of MPP to factor price will be the same for all factors. The elasticity of demand for labor measures the responsiveness of employers to a change in the wage rate. The three determinants of the elasticity of demand for labor are; (1) the number of substitute factors, (2) the price elasticity of demand for the product that the labor produces, and (3) the percentage that labor costs make up of total costs. For a perfectly competitive labor employer, the labor supply curve will be horizontal. Wage and marginal factor cost are the same. The labor supply curve in a particular labor market will be upward sloping. The determinants of labor supply are; (1) wage rates in alternative labor markets, and (2) nonmoney aspects of a job. Wage rates in different labor markets differ due to; (1) differences in workers’ MRP, (2) differences in nonmoney aspects of jobs, (3) rareness of skills required, (4) training costs, and (5) relocation costs. Employers seek to hire and promote employees who will be highly productive. Employers do not have perfect information, so they rely on some type of screening device. A screening device is a characteristic used by employers as the basis for hiring and promoting employees. An employer who discovers screening devices that more accurately predict worker productivity will have a competitive advantage. Some commonly used screening devices are seen as generally legitimate (work experience, education). These may not always be legitimate and will not always predict worker productivity accurately. Other screening devices are seen as less legitimate (appearance). Some screening devices may amount to illegal discrimination (age, race, gender). Questions for Chapter 24 Fill-in-the-blanks: 1. Marginal ______________________ ______________________ is the change in total revenue from employing an additional factor unit. 2. Marginal ______________________ ______________________ is the additional cost from employing an additional factor unit. 3. A ______________________ ______________________ is a characteristic used by employers as the basis for hiring and promoting employees. Multiple Choice: ___ 1. If the demand for dog grooming increases, the demand for dog groomers will ____________________ and their wage rate will ____________________ . a. increase, increase b. decrease, decrease c. increase, decrease d. decrease, increase ___ 2. Due to the law of diminishing marginal returns: a. marginal revenue product will eventually decline b. the marginal revenue product curve will eventually slope downward c. Both of the above d. Neither of the above FOR REVIEW ONLY - NOT FOR DISTRIBUTION Factor Markets 24 - 10
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PRINCIPLES OF ECONOMICS JEFF HOLT S
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Principles of Economics, 6th Editio
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16. Study Guide for Chapter 7 17. C
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11. Appendix: Book Review - “The
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20. Appendix: The NCAA Cartel 21. S
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Introduction: A Brief History of U.
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In the twentieth century, per capit
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Appendix: The 35 Largest National E
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Multiple Choice: ___ 1. The Jamesto
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2. Describe the economic cost of th
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Chapter 1 Scarcity and Choices The
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Example 5B: At the end of 1982, the
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Example 11: When Cindy quits her jo
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consequences may result in failure
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An upward sloping curve (as in Exam
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In making decisions, humans tend to
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5. ______________________ _________
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___ 13. If the value of one variabl
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Y Point X Y A 0 1 B 3 3 C 6 5 D 9 7
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Chapter 2 Trade and Economic System
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Example 4B: The following quantitie
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1. An increase in the quantity of r
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3. For whom to produce? This is det
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The graph below illustrates the shi
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The two primary economic systems ar
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___ 12. The capitalist vision sees
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___ 25. According to the book “Ca
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Chapter 3 Demand, Supply, and Equil
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. For inferior goods, income and de
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The same information can be placed
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Not only does a free market elimina
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$7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3
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Example 17: The graph below illustr
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Questions for Chapter 3 Fill-in-the
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___ 12. Assuming a market originall
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$8 - 7 - 6 - 5 - Price 4 - 3 - 2 -
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Chapter 4 Inflation and Unemploymen
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Computing the Rate of Inflation The
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Full Employment Though unemployment
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3. Cyclical unemployment - due to d
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During the Great Depression, the ec
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Appendix: Think Like an Economist -
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Answer questions 8. and 9. based on
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___ 25. The extension of unemployme
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Chapter 5 Measuring Total Output: G
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5. Leisure. Leisure time is by defi
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The U.S. is a high per capita GDP c
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Example 17: In “An International
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The simple circular flow diagram be
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___ 3. Which of the following would
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2. Explain what nonproduction trans
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Chapter 6 The Aggregate Market The
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Example 2C: Assume the same facts a
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Example 5B: The price of crude oil
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Price Level Real GDP SRAS AD 2 AD 1
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Appendix: Why the Aggregate Demand
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___ 3. DEF Company can invest in ne
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2. List and explain the two factors
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Chapter 7 Classical Economic Theory
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Notice that the investment demand c
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Long-Run Equilibrium If Real GDP is
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Example 6B: When the economy is in
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Laissez-faire If the economy is sel
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___ 5. According to Say’s Law: a.
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3. On the graph below, draw an aggr
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Chapter 8 Keynesian Economic Theory
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Example 2B: The graph below illustr
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Example 5: Assume that the table be
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Notice on the graph on the previous
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According to Keynesian theory, a ch
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“The General Theory” also inclu
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___ 8. If the consumption function
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3. If the MPC is .667, and investme
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Chapter 9 Fiscal Policy The basic e
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Keynesian Fiscal Policy Theory and
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Example 5A: The federal government
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The Laffer Curve What will happen t
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Appendix: The Importance of Incenti
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___ 4. A decrease in government exp
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2. Explain what automatic stabilize
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Chapter 10 Money, Money Creation, a
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Example 4B: The castaways on Gillig
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Looking at the balance sheet below,
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Demand-side One-shot Inflation Exam
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4. Inflation increases uncertainty
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life; it came into existence not by
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calculated by using the potential d
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___ 12. If the required-reserve rat
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4. Referring to the balance sheet f
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Chapter 11 The Federal Reserve Syst
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5. After Bank X sells the $300,000
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Low Mortgage Interest Rates Mortgag
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Relaxed Standards for Mortgage Loan
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The Bursting of the Housing Bubble
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On February 17, 2009, the federal g
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Fed policies caused short-term inte
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___ 10. The Fed’s most important
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___ 25. In response to the recessio
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Chapter 12 Monetary Policy The basi
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2. A change in aggregate demand (AD
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Monetarist Transmission Mechanism C
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3. Borrowers do not have to seek ou
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Appendix: Book Review - “The Age
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Questions for Chapter 12 Fill-in-th
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___ 16. The primary source of incom
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7. According to Alan Greenspan, wha
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Chapter 13 Taxes, Deficits, and the
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Example 5: In 2015, Taxpayer A had
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of $5 and a quantity of 10 units. T
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The complexity of the tax law also
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the current government spending and
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cut of 1964. The top rate was lower
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___ 6. Federal excise taxes: a. are
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3. How would eliminating the loopho
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Chapter 14 Economic Growth The basi
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2. Labor. Labor can contribute to e
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estricting international trade (e.g
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An improvement in technology (e.g.
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The table below shows the economic
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will increase both Real GDP and per
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___ 8. Which of the following is co
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___ 26. The opinion that economic g
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Chapter 15 Less Developed Countries
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Example 8: Countries A, B, C, and D
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Obstacles to Economic Development f
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c. Restrictions on international tr
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Appendix: Book Review - “The Powe
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Example 25: In Brazil, about half t
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Study Guide for Chapter 15 Chapter
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___ 13. Among the counterproductive
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4. List four ways that governments
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Chapter 16 International Trade The
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Other Benefits of Free Internationa
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Example 6: The graph below illustra
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competitive disadvantage. But dumpi
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is only 25% as productive as before
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Smith was skeptical of government a
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___ 4. For Country X, what is the o
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___ 18. Frédéric Bastiat’s “P
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4. On the graph below: (1) What is
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Chapter 17 Elasticity We are often
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Example 4A: What is price elasticit
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Example 5A: Gertie’s Gas and Go i
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Example 10A: When the price of Good
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Example 13B: On the graph below, su
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$7 - 6 - 5 - Price 4 - 3 - 2 - 1 -
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In the long run, would the deadweig
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___ 7. The factors that determine w
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3. a. Which price (or prices) from
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Chapter 18 Utility The basic econom
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Nonetheless, society generally assu
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Example 9: Capital City operates a
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Marginal rate of substitution - the
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The diamond-water paradox is the ob
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Complete the table below to answer
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4. The graph below shows indifferen
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Chapter 19 The Firm The basic econo
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than contributing to team productio
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1. Difficulty in raising large amou
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Corporations also use self-financin
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Example 24: A blacksmith who produc
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For financing needs, proprietorship
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___ 13. Corporations: a. are comple
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5. List two things that the absence
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Chapter 20 Production and Costs The
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In Example 5B, Birdwell finds that
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variable cost initially decreases,
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Quantity TC MC AFC AVC ATC 0 240 X
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If the scale of operation is increa
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average total cost. Average fixed c
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___ 11. Concerning the cost curves:
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5. Complete the following cost tabl
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Chapter 21 Perfect Competition The
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Even though a perfect competitor ca
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Example 6C: This example builds on
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Page 358 and 359: ___ 17. Perfect competition: a. req
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Page 362 and 363: Chapter 22 Monopoly Of the four mar
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Page 370 and 371: 2. Negotiating, beginning at a high
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Page 374 and 375: ___ 8. The slope of the demand curv
Page 376 and 377: Price Quantity 3. List some of the
Page 378 and 379: Chapter 23 Monopolistic Competition
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Page 382 and 383: Example 7A: The graph below represe
Page 384 and 385: Example 9: The Organization of the
Page 386 and 387: Example 12 illustrates the dilemma
Page 388 and 389: its current price and quantity. The
Page 390 and 391: ___ 14. Game theory: a. is a method
Page 392 and 393: Answers for Chapter 23 Fill-in-the-
Page 394 and 395: Chapter 24 Factor Markets The basic
Page 396 and 397: $ $240 - 200 - 160 - 120 - 80 - 40
Page 398 and 399: Since producers will attempt to equ
Page 400 and 401: 2. Differences in nonmoney aspects
Page 404 and 405: ___ 3. To maximize profits, a produ
Page 406 and 407: ___ 19. According to the book, “M
Page 408 and 409: Multiple Choice: 1. a. 8. c. 15. d.
Page 410 and 411: Chapter 25 Labor Unions The primary
Page 412 and 413: The elasticity of demand for union
Page 414 and 415: Example 4A: Assume that the graph b
Page 416 and 417: Notice from the graph in Example 6
Page 418 and 419: Wage Factory A Quantity of Labor S
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Page 422 and 423: ___ 10. For a monopsony: a. there i
Page 424 and 425: 3. The graph below represents a lab
Page 426 and 427: Chapter 26 Interest, Present Value,
Page 428 and 429: An increase in expected rates of re
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Page 432 and 433: Example 13B: General Ordnance prove
Page 434 and 435: Appendix: Present Value Table One f
Page 436 and 437: ___ 4. An increase in expected rate
Page 438 and 439: Problems: 1. List and explain the t
Page 440 and 441: Chapter 27 Market Failure The basic
Page 442 and 443: External Benefit If a market genera
Page 444 and 445: Example 2: To encourage the consump
Page 446 and 447: $100 - 90 - 80 - MSC 70 - $ 60 - 50
Page 448 and 449: A common good is nonexcludable. Non
Page 450 and 451: Study Guide for Chapter 27 Chapter
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___ 5. What government policy would
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4. Based on the information on the
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Chapter 28 Public Choice and Govern
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Candidates and the Median Voter Mod
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Example 8: According to State and F
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Example 10: When Elvis Presley was
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4. Pessimistic bias. This is the te
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___ 5. An elected official will: a.
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2. If a certain policy will yield s
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Chapter 29 Government Regulation of
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underproduction is the amount that
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micromanagement results in business
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market. They may agree with their c
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Questions for Chapter 29 Fill-in-th
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___ 10. The public interest theory
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4. List the four types of costs imp
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Chapter 30 Agriculture and Health C
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weather may cause bumper crops. Bad
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Security and Rural Investment Act o
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Example 12: From 1960 to 2013, the
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1. NHI would provide universal heal
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d. Insurance providers are not allo
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Study Guide for Chapter 30 Chapter
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Answer questions 7. through 10. by
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___ 21. If there were no individual
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Chapter 31 Income Distribution and
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Income is more equally distributed
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over a typical career is the accumu
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Ideal Income Redistribution The ide
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Poverty - a family whose income fal
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Appendix: Income Inequality around
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How is this story an analogy for th
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___ 2. In 2013, the Lowest Income 6
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Problems: 1. Explain the two primar
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Absolute advantage - when one natio
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Fiat money - money by government de
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Nonrivalrous good - a good for whic
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Absolute advantage, 16-9 Absolute e
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“Company town”, 25-6 Comparativ
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Eli Lilly and Company, 22-1 Emergen
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Houston, Texas, 15-10 Human capital
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Market, 3-1, 3-8-9 Market basket, 4
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Political bias, 9-4, 12-7 Political
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Short run production, 20-2-3 Short-
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Upturns, 9-4 USDA, 27-9, 30-1-2, 30
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