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Example 4A: Assume that the graph below represents labor market equilibrium without a union. The equilibrium wage rate is $15 and the equilibrium quantity of labor employed is 12,000 hours. Wage Rate $24 - 21 - 18 - 15 - 12 - 9- z 0 0 3 6 9 12 15 18 Quantity of Labor (thousands of hours) S D = MRP Example 4B: Now assume that the workers in Example 4A above form a union. The union negotiates on behalf of the workers, and threatens to strike unless the wage rate is increased to $18. The union wants to convince the management that the workers will strike if offered a wage below $18. If the union is willing to strike, the quantity of labor supplied will fall to zero if a wage below $18 is offered. The labor supply curve will be horizontal at $18. The MFC of labor will be $18 and MRP and MFC will be equal at 9,000 hours of labor. As illustrated on the graph below, the new wage rate will be $18 and the new quantity of labor employed will be 9,000 hours. Wage Rate $24 - 21 - 18 - 15 - 12 - 9- S = MFC z 0 0 3 6 9 12 15 18 Quantity of Labor (thousands of hours) S D = MRP FOR REVIEW ONLY - NOT FOR DISTRIBUTION As seen in the Examples 4A and 4B, collective bargaining will generally result in higher wages and fewer workers employed. 25 - 5 Labor Unions
Monopsony A labor union faces a trade-off between wages and employment. Collective bargaining will generally result in higher wages and fewer workers employed. But collective bargaining may result in higher wages and more jobs, if the union is negotiating with a monopsony employer. Monopsony – a lone buyer in a factor market. An example of a monopsony employer of labor would be a company that is the only employer in a small town. This type of situation was much more common fifty or one hundred years ago, when a mine, a mill, or a factory might be the only employer in a “company town”. Example 5: The town of McIntyre, Pennsylvania was established in 1910 by the Rochester and Pittsburgh Coal and Iron Company. The company operated a company store and owned most of the town. When the coal mines became unprofitable, the company sold the town in 1947. Workers in a company town often lived in company-owned housing, with rent deducted from the workers’ paychecks. The workers might be paid in company scrip, which could be spent only at the company store. As the lone buyer in a factor market, a monopsony has market power and faces an upward sloping labor supply curve. A monopsony’s hiring decision will affect the wage rate in the market. A monopsony will have to pay a higher wage to employ more labor. A monopsony’s marginal factor cost curve is not the same as its labor supply curve. The monopsony’s MFC curve will be twice as steeply upward sloping as its labor supply curve. Example 6: Monopso Company is a monopsony employer of labor. The table and the graph below illustrate the labor supply curve and MFC curve for Monopso Company. Wage Rate Labor Quantity Factor Cost MFC $8 0 $0 X 9 1 9 $9 10 2 20 11 11 3 33 13 12 4 48 15 13 5 65 17 $17 - 16 - MFC 15 - 14 - Wage 13 - Rate 12 - S 11 - 10 - 9- 8- z 0 0 1 2 3 4 5 FOR REVIEW ONLY - NOT FOR DISTRIBUTION Quantity of Labor (hours) Labor Unions 25 - 6
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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-
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Chapter 22 Monopoly Of the four mar
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Page 378 and 379: Chapter 23 Monopolistic Competition
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Page 384 and 385: Example 9: The Organization of the
Page 386 and 387: Example 12 illustrates the dilemma
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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
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Page 398 and 399: Since producers will attempt to equ
Page 400 and 401: 2. Differences in nonmoney aspects
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Page 404 and 405: ___ 3. To maximize profits, a produ
Page 406 and 407: ___ 19. According to the book, “M
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Page 410 and 411: Chapter 25 Labor Unions The primary
Page 412 and 413: The elasticity of demand for union
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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
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Page 462 and 463: 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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