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The elasticity of demand for union labor can be reduced by; a. Reducing the availability of substitute factors. The number of substitute factors is a determinant of the elasticity of demand for labor (see Chapter 24). The fewer the number of substitute factors for labor, the less elastic the demand for labor. Example 2A: Unions have often attempted to achieve their goals through the political process. To reduce the availability of substitute factors, unions would support restrictions on immigration and restrictions on the employment of nonunion workers during strikes. b. Reducing the availability of substitute products. Another determinant of the elasticity of demand for labor is the price elasticity of demand for the product that the labor produces (see Chapter 24). The less elastic the demand for the product, the less elastic the demand for the labor that produces the product. Reducing the availability of substitute products reduces the elasticity of demand for the product. Reducing the elasticity of demand for the product reduces the elasticity of demand for labor. Example 2B: To reduce the availability of substitute products, a union of widget workers would support legislation restricting imported widgets. Likewise, a union of public school teachers would oppose legislation providing for school vouchers that could be used to pay tuition at private schools. 2. Increase the demand for union labor. An increase in the demand for union labor will result in more union jobs at every wage rate. Example 3A: Assume that the labor demand curve from Example 1B shifts to the right. A greater quantity of labor will be employed at every wage rate. Wage Rate $24 - 21 - 18 - 15 - 12 - 9- z 0 0 3 6 9 12 15 18 The demand for union labor can be increased by; Quantity of Labor (thousands of hours) D = MRP a. Increasing product demand. The demand for a factor (like labor) is derived from the demand for what the factor produces (see Chapter 24). An increase in the demand for the product will cause an increase in the demand for the labor that produces the product. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 25 - 3 Labor Unions
Example 3B: To increase product demand, a union of widget workers would support legislation restricting imported widgets, or might launch a public relations campaign urging consumers to buy “American-made” or “union-made” widgets. A union of public school teachers would support a move from half-day to full-day kindergarten. b. Increasing the MPP of union workers. An increase in labor productivity (MPP) will increase the MRP of the labor, shifting the labor demand curve to the right (see Chapter 24). Example 3C: To increase the MPP of union workers, a union of widget workers might negotiate for worker training programs paid for by the employer. Or a union might simply negotiate higher wages which would encourage their employer to invest in more capital. The increased amount of capital would increase the MPP of the union workers. c. Increasing the prices of substitute factors. An increase in the price of a substitute factor for union labor would increase the demand for union labor. Example 3D: To increase the price of a substitute factor, a union of widget workers would support legislation increasing the minimum wage, or restricting the outsourcing of jobs to foreign countries, or imposing a global minimum wage. 3. Decrease the supply of union labor. A decrease in labor supply will lead to a higher equilibrium wage rate. The ideal situation to allow a union to control the supply of labor is a closed shop agreement with the employer. Closed shop – requires union membership as a condition for employment. A closed shop agreement would give a union the ability to restrict the supply of labor available by simply not admitting new members to the union. As discussed below, closed shop agreements are illegal. But most states allow for an alternative called a union shop agreement. Union shop – requires employees to join the union within a specified time. A union shop agreement ensures that all eligible workers will be union members. This increases the union’s bargaining power. A threat of a strike is more convincing when there is 100 percent union membership. As discussed below, union shops are illegal in some states. The Taft-Hartley Act (1947) prohibited closed shop agreements in all states. The Act also gave the individual states the power to pass right-to-work laws. Right-to-work laws prohibit union shops. In the twenty-four states that have enacted right-to-work laws, every shop must be an open shop. In open shops, workers may join the union or may choose to not join the union. Workers who choose to not join the union are still covered by the collective bargaining agreement. The more workers who choose to not join the union, the weaker is the union’s bargaining power. The most recent state to pass right-to-work was Michigan, in 2012. Collective Bargaining Collective bargaining is where a union bargains with management on behalf of the workers. The union, as a type of labor monopoly or cartel, will have more bargaining power than the individual workers would have. A union has market power and can directly affect the wage rate through collective bargaining. The most important bargaining tool available to a union is the threat of a strike. A union might use the threat of a strike to negotiate a wage rate above equilibrium. FOR REVIEW ONLY - NOT FOR DISTRIBUTION Labor Unions 25 - 4
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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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At what price will there be neither
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Appendix: Perfect Competition in th
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Multiple Choice: ___ 1. A perfect c
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___ 17. Perfect competition: a. req
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Answers for Chapter 21 Fill-in-the-
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 402 and 403: were his strikeouts, walks, and hom
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 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
Page 420 and 421: As a cartel, a labor union faces a
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
Page 430 and 431: An asset is valuable because we exp
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
Page 452 and 453: ___ 5. What government policy would
Page 454 and 455: 4. Based on the information on the
Page 456 and 457: Chapter 28 Public Choice and Govern
Page 458 and 459: Candidates and the Median Voter Mod
Page 460 and 461: 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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