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Exam 3 12/4 chapters 10-12, 16 35 multiple choice, 1 problem labor demand example, ch 11 no calculators bring pencil, Oswego ID 12/4 chapters 10-12, 16 35 multiple choice, 1 problem labor demand example, ch 11 no calculators bring pencil, Oswego ID
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Final Exam Monday, 12/15, 8-10 a.m. 80 multiple choice bring pencil, Oswego ID cumulative study guide posted this week if taking MAT 102, 120, 210, 220 makeup is Tues., 12/16, 2- 4 makeup ONLY if you have a conflict with MAT Monday, 12/15, 8-10 a.m. 80 multiple choice bring pencil, Oswego ID cumulative study guide posted this week if taking MAT 102, 120, 210, 220 makeup is Tues., 12/16, 2- 4 makeup ONLY if you have a conflict with MAT
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Exam 3 Review Monopolistic Competition how does it compare? choosing P & Q Oligopoly how does it compare? interdependence Monopolistic Competition how does it compare? choosing P & Q Oligopoly how does it compare? interdependence
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Labor market labor demand labor supply Public goods Other (time permitting) economic rent collective bargaining Labor market labor demand labor supply Public goods Other (time permitting) economic rent collective bargaining
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Monopolistic competition differentiated product firms’ products are substitutable, but NOT identical many firms, no collusion zero economic profit in LR marketing means higher costs differentiated product firms’ products are substitutable, but NOT identical many firms, no collusion zero economic profit in LR marketing means higher costs
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downward-sloping demand MR < P choose Q where MR = MC choose P using demand curve downward-sloping demand MR < P choose Q where MR = MC choose P using demand curve
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P, cost Q (jeans/day) D MR MC 150 $70
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OligopolyOligopoly few firms interdependent barriers to entry differentiated, but substitutable product economic profit possible in LR set of possible behaviors few firms interdependent barriers to entry differentiated, but substitutable product economic profit possible in LR set of possible behaviors
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Interdependence & behavior P, Q decisions of one firm, affects profits of other firm cartel firms collude to act like a monopoly price leadership one firm sets price, others follow P, Q decisions of one firm, affects profits of other firm cartel firms collude to act like a monopoly price leadership one firm sets price, others follow
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game theory show strategies when outcomes are interdependent be able to interpret game box be able to find Nash equilibrium? is it best outcome? show strategies when outcomes are interdependent be able to interpret game box be able to find Nash equilibrium? is it best outcome?
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Payoff matrix Boeing 4 planes 3 planes Airbus 4 planes 3 planes 32 30 40 36 30 4036 profit, mil $
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questionsquestions IF Airbus is to earn $40 million profit, how many plane must Boeing produce? 3 planes What is Nash equilibrium? 4 planes each Is there a better outcome? Yes, 3 planes each IF Airbus is to earn $40 million profit, how many plane must Boeing produce? 3 planes What is Nash equilibrium? 4 planes each Is there a better outcome? Yes, 3 planes each
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Labor demand car wash example! calculate MP, MRP given wage, how much labor is hired? hire until MRP = MRC extra revenue of a unit of labor = extra cost of a unit of labor (wage) car wash example! calculate MP, MRP given wage, how much labor is hired? hire until MRP = MRC extra revenue of a unit of labor = extra cost of a unit of labor (wage)
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what increases labor demand? (shifts right) increase in demand for final product healthcare & nurses increase in labor productivity increase in price of substitute for labor ATMs vs. bank teller decrease in price of complement to labor truck and truck driver increase in demand for final product healthcare & nurses increase in labor productivity increase in price of substitute for labor ATMs vs. bank teller decrease in price of complement to labor truck and truck driver
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increase in technology computer programmers but demand for some types of labor will fall increase in technology computer programmers but demand for some types of labor will fall
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Labor supply allocating scarce resource: time substitution effect: as wage rises, leisure is more expensive work more, take less leisure allocating scarce resource: time substitution effect: as wage rises, leisure is more expensive work more, take less leisure
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income effect: as wage rises, income rises take more leisure since leisure is a normal good work less income effect: as wage rises, income rises take more leisure since leisure is a normal good work less
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substitution > income effect labor supply upward sloping substitution < income effect labor supply downward sloping substitution > income effect labor supply upward sloping substitution < income effect labor supply downward sloping
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assume substitution > income effect, UNLESS wages very high backward bending labor supply curve assume substitution > income effect, UNLESS wages very high backward bending labor supply curve
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wage Q labor S subst. > inc. effect subst. < inc. effect
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what increases labor supply? (shifts right) increase adult population increases in preferences for work increase in education/training decrease in nonwage income increase adult population increases in preferences for work increase in education/training decrease in nonwage income
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Public Goods 2 characteristics: nonrival, nonexclusive nonrival can be consumed by one person, without decreasing amount available for others 2 characteristics: nonrival, nonexclusive nonrival can be consumed by one person, without decreasing amount available for others
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nonexclusive impossible or costly to exclude others from using it, once purchased nonexclusive impossible or costly to exclude others from using it, once purchased
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examples:examples: lighthouse flood control dam national defense law enforcement lighthouse flood control dam national defense law enforcement
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quasi-public good nonrival, but exclusive open access good rival, but nonexclusive private good rival, exclusive examples, page 341 quasi-public good nonrival, but exclusive open access good rival, but nonexclusive private good rival, exclusive examples, page 341
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provision of public goods public goods are nonexclusive people will not buy them voluntarily wait for someone else to buy them free-rider problem market will fail to provide public goods so government taxes, and then provides public goods public goods are nonexclusive people will not buy them voluntarily wait for someone else to buy them free-rider problem market will fail to provide public goods so government taxes, and then provides public goods
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Provision of public goods preferences of median voter determine many outcomes special interest small groups with big stake -- rent seeking behavior voters not well-informed -- rational ignorance preferences of median voter determine many outcomes special interest small groups with big stake -- rent seeking behavior voters not well-informed -- rational ignorance
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special interest legislation concentrated benefits (to a few) widespread costs (to many) public goods legislation widespread benefits widespread costs special interest legislation concentrated benefits (to a few) widespread costs (to many) public goods legislation widespread benefits widespread costs
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Collective bargaining done between labor unions & employers union negotiates wages, benefits, working conditions with employer contract agreement applies to all workers done between labor unions & employers union negotiates wages, benefits, working conditions with employer contract agreement applies to all workers
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when disagreements arise mediator third party tries to help both sides agree binding arbitration both sides agree to accept a third party compromise strike not all unions can strike mediator third party tries to help both sides agree binding arbitration both sides agree to accept a third party compromise strike not all unions can strike
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Economic rent supply & demand of a resource resource earnings earnings opp. cost + rent supply & demand of a resource resource earnings earnings opp. cost + rent
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Q res. P res. S D P* Q* upward-sloping supply earnings split rent opp. cost
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Q res. P res. S D P* Q* inelastic supply earnings mostly rent opp. cost
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Q res. P res. S D P* Q* elastic supply earnings mostly opp. cost rent opp. cost
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if supply is perfectly inelastic (vertical) no other uses for resource opp. cost is zero all earnings are rent if supply is perfectly inelastic (vertical) no other uses for resource opp. cost is zero all earnings are rent
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if supply is perfectly elastic (horizontal) many other uses for resources earnings = opp. cost no rent if supply is perfectly elastic (horizontal) many other uses for resources earnings = opp. cost no rent
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