ECON 300: EXAM 3
92 Cards in this Set
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The Sherman Antitrust Act of 1890
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SAA's intent of preventing monopolization and/or conspiracy of trade
Goal: Preserve & Promote competition
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"Exclusive Dealing"
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Is when selling to a retailer on the condition, that the retailer not carry any rival products
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The Clayton Act of 1914
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Made price discrimination illegal
Made interlocking directorates illegal
Made illegal tying & exclusive contracts
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The Robinson-Patman Act of 1936
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Passed to decrease the failure rate of small business
by protecting them from competiton from large & growing chain stores
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Tying Contracts are...
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arrangements whereby the sale of one product is dependent on the purchase of some other product
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The Federal Trade Commission Act of 1914
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Declared unfair methods of competition in commerce to be illegal
unfair competition illegal
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The Wheeler-Lea Act of 1938
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Empowered the Federal Trade Commission to deal with false & deceptive acts or practices
e.g. false and deceptive advertising
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The Cellar-Kefauver Anti-merger Act of 1950
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Designed to prevent one company from acquiring another's physical assets if the acquisition reduces competition
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Herfindahl Index
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Calculated by adding the squares of the market share of each industry
Measures degree of concentration
<1,000 represents competitive industry
>1,800 represents concentrated industry
10,000 is perfect monopoly
MAX value
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Natural Monopolies exists when...
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one firm can supply the entire output demanded at lower cost than two or more firms can
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Regulating Natural Monopolies & Criticism
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Regulating Nat. Monopolies are done by the govt by
determining acceptable profit & output
set price equal to average total costs
Criticism
No incentive for firms to hold costs-down
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Natural Monopolies imposed to using Marginal-Cost Pricing....
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results in firm taking aloss
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Regulatory Lag is...
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the period of time between when nat. monopolies costs change & the time regulators adjust monopoly price
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The Capture Theory of Regulation specifies that...
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industries or firms can sometimes gain control of the agencies that are attempting to regulate them
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Firms that are price takers face what kind of supply curve?
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A horizontal supply curve
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Derived Demand
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The demand for factors
idea that change in demand for a good will affect the demand for the factors used to produce that good
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Marginal Revenue Product (MRP) is...
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The additional revenue generated by employing an additional factor unit
equal to marginal revenue multiplied by marginal physical product
MRP= MR x MPP
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Marginal Factor Costs (MFC) is...
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The additional costs generated by employing an additional factor unit
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The factor supply curve of a price taker is _____, whereas the market factor supply curve is ___________.
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The factor supply curve of a price taker is HORIZONTAL
the market factor supply curve is UPWARD SLOPING
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The Marginal Factor Cost curve for a factor price taker is?
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The MFC curve for a factor price taker is HORIZONTAL
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The Marginal Factor Cost curve for a factor price taker is?
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The MFC curve for a factor price taker is HORIZONTAL
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What is a firm's FACTOR DEMAND CURVE also known as?
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It is also known as its MARGINAL REVENUE PRODUCT CURVE
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Why does a perfectly competitive firm's Marginal Revenue Product (MRP) curve slope DOWNWARD?
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because MRP=MRxMPP
as more of a factor is employed, the lower its MPP is
thus MRP DECLINES
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At what point will a firm maximize profits by hiring factors up to this point?
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At the point MRP=MFC
As long as MRP > MFC
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A firm's factor demand curve is the...
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MRP or VMP if the firm is a price taker (perfectly competitive)
MRP curve if the firm is a price searcher
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What is Value Marginal Product (VMP)?
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The price of the product multiplied by the additional output resulting from an additional factor unit employed
VMP= P x MPP
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What is the result of a decrease in Marginal Physical Product (MPP)?
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It will cause the firm's factor DEMAND curve to shift LEFT
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For a product price searcher...
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P>MR
therefore, VMP>MRP
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What are ways there can be an increase in the demand for labor?
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an increase in demand for the product that labor produces
an increase in the marginal physical product of labor
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Percentage change in the wage rate has what affect on demand?
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The elasticity of demand for labor measures the percentage change in quantity demanded of labor
Brought by percentage change in Wage Rate
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Absolute Value of elasticity of demand for labor
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...
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The lower the elasticity of demand for a product...
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the lower the elasticity of demand for the labor that produces the product
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The more substitues for labor...
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the higher the elasticity of demand for labor
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The market supply curve of labor...
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slopes upward, indicating that as the wage rate rises, the quantity supplied of labor rises
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The person who chooses to work at a job that pays $40,000 a year instead of at a job that pays $100,000 a year is probably receiving
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more non-pecuniary benefits in the $40,000 job than in the $100,000 job
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Suppose there are two labor markets, A and B, and labor is homogeneous between markets. The wage rate in labor market A falls relative to the wage rate in labor market B. What happens in labor market B?
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The supply curve of labor shifts rightward
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A decrease in the wage rate
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decreases the quantity supplied of labor
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What are reasons why wage rates differ?
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In the short run, demand conditions are not the same in all labor markets
Some jobs have special non-pecuniary aspects
Labor is not homogeneous
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If, at a particular wage rate in a competitive market, the quantity SUPPLIED of labor exceeds the quantity demanded of labor, then
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some workers will begin to accept lower wages and, as a result, employers will begin to hire more workers
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What conditions are necessary for wage rates to be identical in every labor market in both the short run and the long run?
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Demand for labor is identical in each market
non-pecuniary factors in each job are the same
All labor is homogeneous
All labor has zero costs of mobility
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Non-Pecuniary Benefits is...
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the non-money benefits a person may receive in a job
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What can cause an increase in real wages?
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A technological advance that increases the quality of the capital goods used by labor
Higher demand for labor
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What assumptions are not likely to be met in the real world?
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Demand for labor to be identical in every labor market
Non-Pecuniary factors in each job are the same
All labor is homogeneous
All labor has zero costs of mobility
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The Marginal Productivity Theory states that...
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firms in perfectly competitive product and factor markets will pay factors their marginal revenue product
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What does the Marginal Productivity theory imply?
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The theory implies that a worker will be paid in amount EQUAL to his/her contribution to the productive process
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Marginal Productivity Theory implies that a a worker will be paid a wage such that
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W = MRP, and W = VMP
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If MRP = VMP = MFC = wages, then the firm is
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selling its product in a perfectly competitive market and is hiring its labor in a perfectly competitive labor market
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For a factor price taker, the marginal factor cost curve...
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and the factor supply curve are identical and horizontal
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What is true about total money income in 2005?
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The lowest 20% of all income earners earned less than 5% of the total money income
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"In-Kind" transfer payments are made...
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in the form of goods or services
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Evidence seems to indicated that the distribution of income prior to adjusting for taxes and in-kind transfer payments is...
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less equal than after adjusting for taxes and in-kind transfer payments
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What are reasons for economists to contend that in-kind transfers should be included in the calculation of an individual's income?
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Simple money income is not a complete measure of one's command over goods & services
in-kind items make a person "better-off" than the person's actual money income would lead us to believe
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An individual's income equals...
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labor income
+ asset income
+ transfer payments
-taxes
= Individual Income
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The Lorenz Curve
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is a graphical representation of the distribution of income
expresses the relationship between cumulative percentage of households & percentage of income
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If there were perfect income equality, the Lorenz curve...
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would be a 45-degree line
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The Gini coefficient
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is a measurement of the degree of inequality in the income distribution
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If the Gini coefficient is zero? if 1?
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complete income equality if zero
complete income inequality if 1
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What is one way to reduce the degree of income inequality?
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increase transfer payments going to people with low labor and asset incomes and increase taxes on people with high labor and asset incomes
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One measure of the severity of poverty is the ratio of income to poverty which is calculated by...
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dividing a family's income by the family's poverty income threshold
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Anytime the Ratio of Income to Poverty for a family is...
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Greater than 1, the family is not considered to be living in poverty
Between 1.0 and 1.25, the family is considered to be "near poor"
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Poverty Income Threshold for an individual under 65 years old in 2006 was?
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$10,488
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Wage discrimination exists when?
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individuals of equal marginal revenue products are paid different wage rates
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Reasons for income differences in the text?
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Luck
Wage discrimination
Risk Taking
LOW MINIMUM WAGE is NOT a reason
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What does the marginal productivity normative standard of income distribution state?
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It states that people should be paid their marginal revenue products
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What is the argument of proponents of the absolute income equality standard?
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Argue that individuals should receive a wage EQUAL TO their marginal revenue product, and that this is a just distribution
an equal distribution of income will lead to the maximization of societal utility
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The veil of ignorance is...
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the veil behind which a person does not know whether he/she will be rich or poor once the veil is removed
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Absolute Poverty
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A family is in poverty if it receives less that $10,000 a year in money income
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in 2006, the poverty income threshold for a family of four was...
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$20,416
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In 2005, what percent of the total income of all households did the top 20% of households in the US earn collectively?
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50%
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How to compute the Gini coefficient?
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computed by dividing the area between the line of perfect income equality and the actual Lorenz curve by the total triangular area below the line of perfect income equality
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What does the absolute income equality standard of income distribution state individuals should receive?
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individuals should receive an equal percentage of total income
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According to the Rawlsian normative standard of income distribution, people will argue for...
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a different income distribution if they know what their position in the current income distribution than if they did not
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Rawls argues that a person who is begin the veil of ignorance...
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is more likely to want a more equal distribution of income than if he/she were not behind the veil
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If income groups were divided into 5 groups they would be interpreted as...
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the top fifth as rich, middle three-fifths as middle income and the lowest fifth as poor
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What are transfer payments?
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Transfer payments are payments that are not made in return for goods and services currently supplied
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What are in-kind transfer payments?
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They are transfer payment that are paid in a specific good or service
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A winner-take-all market
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is one in which the top producer in the market earns significantly more than other in the same market
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How could the federal government make the income distribution more equal?
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Increase taxes on the rich and increase transfer payments to the poor & middle class
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Asset Income
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The return on savings that a person receives
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Calculating a person's labor income
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multiplying wage rate a person earns by the number of hours the person works
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Suppose the data show that each year between 1965 and 2006, 10% of all income earners earned little enough to be considered poor. What does it follow?
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the person who was part of the 10% poor in 1965 may not be part of the 10% in 2006
the income distribution in the US was unequal
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Factors contributing to income inequality
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Innate abilities & attributies
the amount of work a person chooses to do
education & training
Luck
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When does wage discrimination exist?
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When individuals of EQUAL ABILITY & PRODUCTIVITY are paid different wage rates
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If poverty is defined in relative terms, then it follows that
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there are poor people in Beverly Hills, CA
there will always be poor people unless there is absolute income equality
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Milton Friedman
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Economist who said, "I am distressed by the sight of poverty. I am benefited by its alleviation...."
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A Public Good is...
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a good that is consumed by one person can be consumed by other persons to the same degree and the consumption of which cannot be denied to anyone
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In 2006, the median (total money household) income was highest for? and lowest for?
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Highest for Asians
Lowest for African-Americans
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The Southern Region of the US
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Region of the US with the highest poverty rate
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Poverty rate in the US
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Mississippi has the highest; New Hampshire has the lowest
in 2001, California had most millionaires; Vermont had fewest
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2005 income inequality & Gini coefficient
US v. Sweden
US v. Mexico
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the Gini coefficient was higher in the US than in Sweden
higher in Mexico than in US
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The social insurance justification for government welfare assistance holds that...
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individuals currently not receiving welfare think they might one day need welfare assistance and thus they support welfare programs today
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HMO vs. PPO
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HMO
Chose doctors within the network
designed to control costs
PPO
Choose who you see
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ECON 300: EXAM 3