econmidterm1 - Hei Man Cheung Econ 151 Review M idterm 1...

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Hei Man Cheung Econ 151 Review Midterm 1 Chapter 1 – Some basic concept The labor market – the placement of people in jobs at certain rates of pay Labor Economics – concern with the behavior of employers and employees in response to the general incentives of wages, prices, profits and nonpecuniary aspects of the employment relationship. Positive Economics (model) – “what is” A theory of behavior in which people are typically assumed to respond favorably to benefits and negatively to cost. Scarcity Rationality – have an objective and pursue (utility maximization) it in a reasonably consistent fashion Normative Economics – “should be” Is the branch of economics that incorporates value judgments about what the economy ought to be like or what particular policy actions ought to be recommended Markets and values Market failure: Ignorance Transaction barriers Externalities Public goods Price distortion – taxes and subsidies Tends to stress efficiency (mutually advantageous) over equity considerations Chapter 2 – Overview of the labor market
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Hei Man Cheung Econ 151 Review Midterm 1 The labor market Labor force – all those over 16 years of age who are either employed or actively seeking work or expecting recall from a layoff Unemployment – in the labor force but not employed Earning of labor – wages Nominal wages – what workers get paid per hour in current dollars Real wages – nominal wages divided by some measure of prices (CPI) Wages – payment for a unit of time Earnings – wages multiplied by the number of time units Income – the total command over resources of a person or family during time period The Demand for labor Wage changes (movement along the demand curve) Scale effect – the effect on desired employment of a smaller scale of production (wages increase, cost of production increase, reduce level of output) Substitution effect - a shift toward a more capital intensive mode of production Labor demand curve is downward sloping Change in other forces affecting demand Shift of the demand curve The supply of labor Positively related to the wage rate prevailing in that market Firm’s supply curve is horizontal
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Hei Man Cheung Econ 151 Review Midterm 1 Market’s supply curve is upward sloping The market clearing wage Demand cross supply Overpaid Underpaid Economics Rents The wage actually paid and workers’ reservation wages Chapter 3 – The demand for labor Profit maximization – MC=MR Marginal revenue = MR (=P when it is in competitive market) Marginal revenue product = marginal revenue X marginal product or marginal product X Price Marginal product of labor= change in quantity / change in labor (holding capital constant) Marginal product of capital = change in quantity / change in capital (holding labor constant) Competitive market
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econmidterm1 - Hei Man Cheung Econ 151 Review M idterm 1...

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