second semester study guide

Unions are necessary to counter the market power of

  • Notes
  • nzuvia
  • 32
  • 100% (2) 2 out of 2 people found this document helpful

This preview shows page 11 - 13 out of 32 pages.

Unions are necessary to counter the market power of firms that hire workers o Company Town – One company in a town, great market power over wages Efficient Wage Theory – Above-equilibrium wages paid by firms increase worker productivity and efficiency Paying high wages might be profitable because they raise the efficiency of a firm’s workers o Worker Health – Better paid workers eat a more nutritious diet and are therefore healthier and more productive o Worker Turnover – The more a firm pays its workers, the less often its workers will choose to leave ! Training new workers is expensive and new workers are not as productive o Worker Effort – High wages make workers more eager to keep their jobs and, thereby, give workers an incentive to put forward their best efforts o Worker Quality – By paying a high wage, the firm attracts a better pool of workers to apply for its jobs Convergence o Since poorer countries typically have less capital per worker (lower K/L), diminishing marginal returns dictates that additional capital will yield higher returns in the poor country than in a rich country because it means more to the poor country o Absolute Convergence – All else equal, the poorer country could potentially have a comparable GDP to that of a rich country ! Investment – The higher returns to capital in the poor country will encourage increased domestic saving by consumers and attract investment, both from domestic and foreign entities
Image of page 11

Subscribe to view the full document.

Brought to you by MK2review.com ! Technology – The poorer country can take advantage of technological advances already made by richer countries and therefore does not have to spend money on research and development o Conditional Convergence – There are many other factors that influence the growth rate of a country and often times poorer countries have negative features that inhibit their growth relative to richer countries, and therefore can never achieve absolute convergence ! Limitations of natural resources ! Rule of law ! Economic system (capitalist, socialist, etc.) ! Social division in society (oppression, discrimination, etc.) ! Institutional foundations (education, roads, infrastructure) ! Property rights ! Government stability Helpful Hints: Options Option – The right to buy or sell some asset in the future at a price that is agreed upon today ( ex. The right to sell a certain amount of stock at $20 a share on December 31) Call Option – Gives the holder of the option to buy assets at the pre-specified price o Expected Value – The amount that a stock would be worth on average ! (Probability of Price 1)(Price 1) + (Probability of Price 2)(Price 2) + … o The expected value of the option can be calculated similarly o ex. Call option is set at $20 and the three equally likely prices for the stock in a certain amount of time are $18, $21, $24 ! If the stock is $18 the option is worth $0, if the stock is $21, the option is worth $1 because you would have the option to but the stock for less than it is traded, etc.
Image of page 12
Image of page 13

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern