Backward bending labor supply curve results because a person is willing and able to work more hours as the wage rate increases until at some sufficiently high wage the person chooses to work fewer hours Brand names may signal information regarding the product reducing consumer risks is valuable to a firm it makes the demand less elastic and can enable the firm to earn higher profits Cartel is an organization of independent firms whose purpose is to control and limit production and maintain or increase prices and profits cartels are illegal in US Civil Rights Act of 1964 unlawful for any employer to discriminate on the basis of race color religion sex or national origin Club good a good that is excludable but non rivalrous Collusion leads to secret cooperative agreements illegal in the U S although it is legal and acceptable in many other countries Commons good a good that is rivalrous but non excludable Comparable Worth the pay ought to be determined by the job characteristics rather than by supply and demand Compensating wage differentials wage differences that make up for the higher risk or poorer working conditions of one job over another Cost plus or mark up pricing a pricing policy where a firm computes its average costs of producing a product and sets the price at some percentage above this cost Differentiation means that in the consumer s mind the product is not the same Marketing is often the key to successful differentiation Discrimination When factors unrelated to marginal revenue product affect the wages or jobs that are obtained It is another reason for wage differentials Disparate treatment treating individuals differently because of their race sex color religion or national origin Disparate impact it is the result of different treatment not the motivation that matters Dominant strategy strategy that produces better results no matter what strategy other firms follow oligopoly firms try to achieve this Economic freedom the degree to which private individuals are able to carry out voluntary exchange without government involvement linked to standards of living Economic Rent when a resource has a perfectly inelastic supply its pay or earnings earnings in excess of transfer earnings Externality a cost or benefit of a transaction that is borne by someone who is not directly involved in the transaction Cost plus or mark up pricing a pricing policy where a firm computes its average costs of producing a product and sets the price at some percentage above this cost Free rider a consumer or producer who enjoys the benefits of a good or service without paying for that good or service Game theory provides a description of oligopolistic behavior as a series of strategic moves and countermoves strategic behavior has been analyzed using game theory mathematical techniques Labor market supply curve slopes up because the number of people willing and able to work rises as the wage rate rises and because the number of hours that each person is willing and able to work rises as the wage rate rises at least up to some high wage rate Marginal factor cost MFC the additional cost of an additional unit of a resource Marginal revenue product MRP the additional revenue that an additional resource can create for a firm Market failure occurs when the market outcome is not the socially or economically efficient outcome some action by the government is sometimes necessary to ensure that the market work well Monopolistic competition market structure where there are a large number of firms products produced by the different firms are differentiated and entry and exit occur easily Monopsonist is a firm that is the only buyer of a resource monopsony firms are able to pay resources less than their MRPs Nash Equilibrium occurs when a unilateral move by a participant does not make the participant better off Negative externality may result when some of the costs of an activity are not borne by consumers or firms not directly involved in the activity Nonprice Competition firm attempts to establish its product as a different product from that offered by its rivals Occupational Segregation is the separation of jobs by gender Oligopoly market structure characterized by Few firms either standardized or differentiated products and Difficult entry Outsourcing the process of purchasing services from another firm rather than employing someone to do the service inside the firm Outsourcing is called offshoring when the jobs are purchased from a firm in another country Personal discrimination is based upon prejudices on the part of employers fellow workers or customers Positive externality may result when some of the benefits of an activity are received by consumers or firms not directly involved in the activity Price Leadership Cartels may form in which firms simply do whatever a single leading firm in the industry does this avoids strategic behavior and requires no illegal collusion Principle of mutual exclusivity the owner of private property is entitled to enjoy the consumption of that property privately Principle of rivalry states when one consumes or uses a good or service less remains for others Private costs and benefits those that are borne solely by the individuals involved in Private good good that is both excludable and rivalrous Private property rights rights of the transaction Product differentiation implies that the products are different enough that the individuals to own property producing firms exercise a mini monopoly over their product reduces the price elasticity of demand which appears as a steeper demand curve Successful product differentiation enables the firm to charge a higher price Public good good that is non excludable and non rivalrous Resource Market market that provides one of the resources for producing goods and services labor capital land Social cost total social cost of a transaction is the private cost plus the external cost Statistical discrimination results when an indicator of group performance is incorrectly applied to an individual member of that group Strategic behavior behavior that occurs when what is best for A depends upon what B does and what is best for B depends upon what A does Transfer Earnings if a resource has a perfectly elastic supply curve its pay or earnings what a resource could earn in its best alternative use the amount that must be paid to get the resource to transfer to another use Rivalrous Non Rivalrous Excludable Non Excludable Private Goods Examples