Suggested Study Material for the Final Exam Econ 202

Suggested Study Material for the Final Exam Econ 202

Problems on New Material for extra practice:

1. What shifts the labor supply and demand curves and what do each curve look like?

Review the class notes or book for this info

2. What does it mean for the demand for labor to be “derived demand.”

Demand for labor (and capital) are derived from the demand for the output produced.

3. a. Suppose that the daily MPL of seamstresses is as follows. What quantity of seamstresses will be hired if the daily wage is $120? $250? Assume the price of output is constant at $2

LTPMPLMRPL

00-----

16060120

214080160

323090180

4350120240

544090180

651575150

756550100

86003550

At a wage of 120, hire 6 workers since MRPL >w at 6 but MRPL<w at 7. At a wage of 250, no workers are hired since MRP L<w for every L option.

b. Suppose that the price of sewing machines, a complement to labor, falls. What would we expect to happen to the Demand for labor? Why?

Increased demand for labor because can afford more sewing machines and then MRP of labor increases

c. Suppose that a new technology is invented where dresses can be produced almost entirely by machine? What would happen to the MRP of labor? What will happen to the wage paid to seamstresses?

Demand for labor falls as labor’s MRP falls (since labor is now less productive) causing the wage to fall

4. How would each of the following scenarios affect the amount of actors hired and the wage paid to actors in Amusement Parks in each independent event below? (↑ increases, ↓ decreases, or ? cannot tell)

Labor hired Wage

a. The wages of Broadway actors rise ↓S ___↓______↑___

b. The amusement park actors unionize and successfully ___↓______↑___

conduct collective bargaining

c. A recession occurs, causing the demand for amusement ↓D ____↓ ______↓ ___

park tickets to fall

d. A company begins to produce inexpensive robotic ↓D ____↓ ______↓ ___

shows with automated characters which entertain audiences.

e. There is an increase in the number of women getting into ↑S ___↑______↓__

acting.

f. Acting classes become cheaper. ↑S ___↑______↓__

5. If the gini coefficient of WKUland is .6 and the gini coefficient for Strowville is .5, then which country has more inequality? How would the Lorenz curves of each country compare?

WKU has more inequality and so their Lorenz would be more bowed out.

6. Why does an individual’s labor supply curve bend backward above a certain wage?

It bends backward when the income effect (more buying power from higher wage means can afford more leisure and less labor) exceeds the substitution effect (higher wage means leisure more expensive and so substitute with less leisure, more labor and consumption).