Ec 202 - Exam

Questions:

1. When supply is less than perfectly elastic, the marginal labor cost is greater than the wage rate. Why?

2. What three methods might labor unions use to increase the demand for labor? If those methods are successful, what effect do they have on wage rate and employment?

3. How do industrial unions attempt to increase wage rate, and what effects of those methods of increasing wage rate have on employment in the industry affected?

4. What is bilateral monopoly? What determents wage rate in a labor market of this type?

5. What is meant by the term noncompeting groups in a labor market? What two factors tend to explain wage differentials in non-competing groups?

6. Explain what is meant by the principal agent problem and related to shirking? What are the different incentives plans that correct the shirking on the job? How does profit sharing reduce shirking and what is the reason for efficiency wages?

Answers:

1. MRC (marginal resource – labor cost) is higher than the wage rate. When a monoponist pays a higher wage to attract another worker, it has to pay the higher wage to the new worker and also to the worker it is currently employing at a lower wage.

2. Unions may use the following methods to increase the demand for labor:

a. Increasing the demand for the goods or services they help produce.

b. Altering the price of other inputs.

c. Supporting polices that will reduce the price of complementary resources.

If those methods to increase the demand for labor they can cause a decline in number of workers employed, unemployment and lower wages.

3. Industrial unions attempt to increase wage rate by several ways: demand – enhancement modal, exclusive or craft union model and inclusive or industrial unionism. If those methods to wage increases are successful they can be accompanied by a new problem – a decline in number of workers employed and unemployment. A rise in the wage rate also increases...