Labor Demand, Unions, and Economic Principles

Drive demand

Demand for labor or resources that is derived from the demand for the final product.

Union-made products appeal

An attempt to increase the demand for union labor, thereby increasing wages and job security for union workers.

LRAC curve represents what

The LRAC (Long-Run Average Cost) curve represents economies of scale.

Cost advantage decision

The decision to outsource or make their own depends on whether the firm has a cost advantage in production.

Wage for similar resources

The same wage, due to the principle of opportunity cost and competitive labor markets.

Unions restricting labor supply

Limiting entry into the profession, requiring certifications, or using collective bargaining.

Craft unions

Craft unions (e.g., electricians, plumbers) often use this strategy to maintain high wages by controlling entry.

Interest rate and loan terms

The interest rate determines the cost of borrowing, influencing loan affordability and repayment terms.

Industrial union wage negotiation

Negotiating with employers for higher wages through collective bargaining.

Reliable information

Information that helps make informed economic decisions, not just about money but about efficiency and resource allocation.

Supply of labor conditions

Higher if job conditions are favorable, offering non-monetary benefits, job security, and work-life balance.

Author's decision on computer purchase

If the additional revenue from the extra columns exceeds the cost of the computer, then yes.

Corporations obtaining investment funds

Issuing stocks, bonds, or reinvesting profits.

Marginal products of workers

The marginal product of the 15th worker is 1 cabinet.

Perfectly competitive firm

The firm is a price taker, meaning its demand curve is perfectly elastic.

Arbitrator vs mediator

A mediator facilitates negotiations, while an arbitrator makes binding decisions.

Resource demand price

Price equals the marginal revenue product (MRP), which determines resource demand.

Market work

Activities where individuals earn wages, as opposed to non-market work (household labor) and leisure.

Union wage floor impact

Higher labor costs, potentially leading to unemployment if demand for labor decreases.

Technological breakthrough effect

Increase output per unit of capital, raising economic growth and demand for capital goods.

Utility Maximization

Jamal maximizes utility by allocating time among market, non-market, and leisure time.

Bounded Rationality

The idea that decision-making is limited by available information and cognitive constraints.

Bond Value and Interest Rates

If you have bonds when market interest rates decrease, the bond value will increase, because older bonds with higher interest rates become more attractive.

Market Power

If the zip code marginal revenue product curve slopes downward, the firm has some market power, as the product market also has a downward-sloping demand curve.

Economic Rent

The greater the economic rent as a proportion of total earnings, a resource is earning more than its opportunity cost, suggesting inelastic supply.

Total Earnings at Equilibrium

Total earnings of a resource at equilibrium represent the sum of economic rent and opportunity cost.

Marginal Benefit Curve

Marginal benefit curve shows that consumers value additional information, which improves decision-making.

Marginal Revenue Product (MRP)

MRP = MP × Price of Output.

Demand for Labor

MRP determines demand for labor.

Intellectual Property Issue

The Internet has created a problem for intellectual property because information is costly to produce but cheap to distribute, making piracy an issue.

Opportunity Cost in Equilibrium

Opportunity cost in equilibrium is represented by the area of economic rent.

Perfectly Inelastic Supply

If all returns to a resource are in the form of economic rent, the supply curve is perfectly inelastic.

Opportunity Cost Returns

If all returns are about opportunity cost, the resource earns just enough to keep it in its current use.

Powerball Decision

David won the Powerball. Should he take a payout or lump sum? It depends on time value of money and personal financial goals.

Wage Rate Changes

As wage rate changes, time spent in the market will change due to income and substitution effects, which can lead to a backward-bending supply curve.

MRC in Perfect Competition

If a firm hires a resource in a perfectly competitive resource market, then MRC = Wage Rate.

Economic Rent and Supply

Economic rent is high, as supply is perfectly inelastic.

Opportunity Cost of a Dean

A college dean has a higher opportunity cost than a student working minimum wage because the dean has better alternatives with higher wages.

Winner's Curse

In an auction, the winning bid is overly optimistic due to the winner's curse, where the highest bidder may have overpaid.

Principal-Agent Problem

The principal-agent problem is less likely with a haircut than car repairs because haircuts are easy to evaluate, whereas car repairs involve information asymmetry.

Market Value of Pharmaceuticals

Market value of pharmaceuticals with publicly traded securities can be calculated by Market Value = # of Shares × Share Price.

Signaling

Which of the following involves signaling? Education, warranties, branding, which reduce information asymmetry.

Supply of Labor

Supply of labor will be greater to a job that provides desirable working conditions, benefits, and career growth.

Agent-Principal Relationship

Copious Corporation is owned by stockholders who elect a board. Stockholders = Principals, Managers = Agents, leading to potential conflicts (principal-agent problem).