Unlevel Playing Fields: Ch. 3

Markets & Competition: Perfect competition: many buyers, many sellers, homogeneous products, perfect information

Rational Individual: Uses all available info. to make decisions which best serve one's own interests or maximize individual utility using exogenous preferences to resolve scarcity problem

Scarcity: limited means and unlimited wants

Opportunity cost: next most valued alternative

Utility: individual measure of pain and pleasure

MARKETS

DEMAND:

Law of Demand: as price rises, desired purchases decline

Determinants of Demand: consumer preferences, income of consumers, population, availability of substitutes

Substitute goods: buying more of one good means buying less of another

SUPPLY:

Law of Supply: as price rises, desired sales increase

Determinants of Supply: technology, costs of inputs, alternative market opportunities

Equilibrium: A situation with no tendency to change

What equilibrium looks like and how we get there: Figure 3.1

How equilibrium changes: Figure 3.2

Efficiency: Situation where one person cannot be made better off without harming someone else.

Compare to Productivity: output per labor hour

Equity: equal opportunities or outcomes

Laizzes faire: government policies which do not interfere with the market (may be efficient)

Problems: trade-off of equity and efficiency, lack of competition, public goods

Division of Labor: pin-making

Comparative Advantage: when a person, community or nation can produce a good or service for exchange relatively more cheaply than another

Unlevel Playing Fields: Ch. 4

Neoclassical Labor Markets

DEMAND FOR LABOR: DERIVED
marginal revenue product
LAW OF DEMAND due to Law of Diminishing Returns

SUPPLY OF LABOR: opportunity cost (leisure)

Problems: wages up, may want to work more OR less so LAW OF SUPPLY MAY NOT HOLD (Figures 4.1 & 4.2)

RATE OF TIME PREFERENCE: low if value future, high if not influences occupation, location, education...

HUMAN CAPITAL: productive capabilities due to formal or informal education

Household Production: specialize in home or paid production. Labor OR leisure at home
=> sexual division of labor, comparative advantage

Wage Differences:

1) Firm-specific and general human capital (firm pays for specific and workers for general)

2) Compensating differences & hedonic wages

3) Inheritance

Other sources of wage differences: disequilibrium

Unemployment:

1) Structural Unemployment: due to changes in technology, consumer desires or product innovation

2) Frictional Unemployment: due to firms seeking high quality workers and workers searching for high wages

3) Seasonal Unemployment: predictable unemployment at certain times of year

LINKING Unemployment and Wages: workers paid for job insecurity?

KEYNESIAN Unemployment: Involuntary
Positive Feedback: adverse event causes more adverse events
Negative Feedback: adverse event causes corrective event

Wage Differences Among Groups:

Male-Female differences: education and experience account for 1/2 of difference; can be efficient. Gap closing

Racial divergence: culture may affect time preference, labor supply, etc.

1) Educational wage gap rose
2) Experience matters
3) Group learning -- values, language, etc.