ECNS203 Montana Tech Ch 7 & 8 Markets Still Supply and DemandQuestions Please answer the questions in each chapter. Chapter 7, questions 3,4 See CH7 notes

ECNS203 Montana Tech Ch 7 & 8 Markets Still Supply and DemandQuestions Please answer the questions in each chapter.

Chapter 7, questions 3,4 See CH7 notes for help
Chapter 8, questions 1,8 See CH8 notes for help

Write a brief discussion about the following.

1- Prior to the the 1970s, Major League Baseball operated with a reserve clause where players were bound to a single team for their entire playing career and free agency was not an option. In 1974, the courts allowed baseball players to become free agents, and sign with any team.

The union, representing the players, devised a system so that only a few players would be eligible for free agency in any one year. Using economic reasoning, explain why the player’s union would be interested in a system where only a limited number of players would be eligible for free agency in a given year.

2- A few years ago, the magazine Rolling Stone published an article stating the actual price of a gallon of gasoline was actually close to $12.00 a gallon. Use your understanding of chapter 8 to explain the economic logic behind this statement. ECNS 203
Chapter 7 – Labor Markets
Income is compensation derived from the provision of Services to Others. People
earn income by helping others.
• Markets – still supply and demand
o Demand curve – employers
o Supply curve – employees
• Derived Demand
Market Equilibrium:
P
(wage)
1
2
3
4
5
6
7
Q (# of labor Inputs)
Increased Supply of Labor
P
(wage)
1
2
3
4
5
6
7
Q (# of labor Inputs)
1
Increased Demand for Labor
P
(wage)
1
2
3
4
5
6
7
Q (# of labor Inputs)
The Effect of a Minimum Wage (Price Floor)
P
(wage)
15
12
9
6
3
1
2
3
4
5
6
7
Q (# of labor Inputs)
2
Hiring Decisions (Appendix)
o Marginal product of labor (in units of output)
o Value of marginal product (in dollars)
o Hire labor if value of marginal product > wage rate
o Value of marginal product = demand curve for labor
Units of Output
Labor
Input
Total
Product
Product
Price
($/unit)
Marginal
Product
Value of
Marginal
Product
0
–
1
20
20
$
8.00
$
160.00
2
44
24
$
8.00
$
192.00
3
60
16
$
8.00
$
128.00
4
72
12
$
8.00
$
96.00
5
80
8
$
8.00
$
64.00
6
84
4
$
8.00
$
32.00
7
84
–
$
8.00
$
$250.00
–
Value of Marginal Product = Demand for
Labor
$200.00
$150.00
$100.00
$50.00
$1
2
3
4
5
6
7
How many units of labor are hired if the wage rate is $90?
3
Role of Labor Unions
1. Increase the demand for labor
2. Decrease the supply of labor
3. Impose an above-equilibrium wage floor
Strength of Labor Unions
o Union shop
o Right-to-work
Outsourcing
o What prevents U.S. Jobs from being outsourced?
o Marginal Product of Labor
The Four Sources of Income Growth are:
(a) Improvements in Worker Skills,
(b) Capital Formation,
(c) Technological Advancements, and
(d) Better Economic Organization.
Increases in Real Income are Dependent Upon Increases in Real Output
4
ECNS 203
Chapter 8 – Government and Markets
Markets are strong but sometimes they fail.
o Role of government (Socialism?)
U.S. economy
o Rely on market system to determine what is produced (quantities
and prices)
o Profits Direct Businesses Toward Activities that Increase Wealth.
o Voluntary Exchange Promotes Economic Progress.
Market Failure (promote the inefficient use of resources (four factors of
production))
1. Monopoly power
a. Antitrust power
i. Sherman Act (1890)
ii. Clayton Act (1914)
iii. Role of Federal Trade Commission (FTC)
b. Collusion
60 Minutes story on generic drug companies
https://www.cbsnews.com/news/sweeping-lawsuit-accusestop-generic-drug-companies-executives-of-fixing-prices-60-minutes2019-05-12/
1
d. Economic regulation/deregulation
i. Fair-return price (Natural Monopolies)
P
Quantity of Output
2. Spillover/Externalities
a. Spillover Costs (negative externalities)
P
Quantity of Output
b. Spillover Benefits (positive externalities)
P
Quantity of Output
2
Role of government to bring spillovers into the market
3. Public Goods
a. Free-rider problem
4. Economic Inequality
Robert Reich: https://www.youtube.com/watch?v=u2DIMTxCB8U
3

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