34. The adverse effects of a strike on other associated industries and consumers are likely to be: a. greater when it involves services rather than products b. greater when it involves small firms rather than large firms c. on the order of 5% of GDP each year d. substantially less than the adverse effects of lockouts by management 35. The allocative efficiency loss associated with unions arises because: Questions 36 – 38 refer to the following graph, in which all product markets are assumed to be competitive.
6 36. Assume the two labor demand curves are identical, and that all union workers who lose their job as a result of the union wage increase from Wnto Wufind jobs in the nonunion sector. The area corresponding to the efficiency loss is: 37. If all displaced union workers opt to remain in the union sector hoping to be recalled, the area corresponding to the efficiency loss of the union wage increase is: 38. The allocative efficiency loss implied by the diagram is a static, short-run loss. Compared to the static loss, the dynamic, long-run loss is probably: a. greater, because unions reduce firm profitability and thereby inhibit investment b. greater, because unemployment is greater in the long run c. greater, as firms have a greater opportunity to exercise their monopsony power d. smaller, because the decline in nonunion wages increases the extent of poverty 39. Evidence suggests that unions reduce firm profitability and discourage investment, so that: Wage Labor VMPnNonunion Wn Ws c d gh Wage Labor VMPuWu Union Wn e f a b c’ d’
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