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ECO102H1 (155)

ECO100 - JAN 9

5 Pages

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James Pesando

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● Value of Marginal Product (VMP) ○ VMP = P*MP ○ P= price of final product (good ○ MP = Marginal product of worker Average Earnings (Year 2010 Dollar), Full-time workers in Canada Day Care Workers $15,515 Book keepers $38,681 Architect $76,816 Lawyers $155,770 Specialist Physicians $220,885 ● How does economics explain? ○ Ans: Value of Marginal Product of the last worker hired ● How can economics theory (VMP) be true in light of: ○ 1) Extraordinary incomes of superstars such as Celine Dion and Tiger Woods? ○ 2) Low incomes of day care workers, who provide important service? ○ 3) Males tend to earn higher incomes than females? ● Observations: ○ 1) Celine Dion and Tiger Woods: $30 million per year ○ 2) Slightly less talented professionals: $50,000 per year ○ 3) Earning differential has increased sharply over time ● Can VMP Explain? “Winner-Take-All” Markets ● Singers: ○ Now: Income derived from CDs (Everyone can consume the “best”) ○ 19th Century: Income derived from concerts ● Golfers: ○ Now: Income derived from TV (everyone can consume the “best”) ○ 19th Century: Income derived from ticket sales at tournaments ● The same concept: Everyone can consume (sparked by viewer interest), extremely high value of marginal product ● Plumbers: ○ “Best” plumber in Toronto: $60 per hour ○ Average plumber: $45 per hour ○ Why is difference so small? ■ Answer: only ONE customer at a time can purchase service of “best” plumber. Day Care Workers ($15,500 per year) ● Insight: ○ Elastic supply of individuals (low opportunity cost) willing to work as day care workers ○ For simplicity, assume SS is perfectly elastic and that supply if of large number ● Government provides $5 per day subsidy to parents who use day care ○ What happens to: ■ 1) Wages of day care workers? ■ 2) Level of employment? ○ The demand for daycare will shift upwards by $5 dollars ○ Price and quantity will increase ■ level of employment will increase ○ Wage of day care workers, Nothing: since supply is essentially elastic Assume all daycare workers could earn $40,000 as computer programmers ● Questions: What will happen to: ○ Wage of daycare workers? ○ Number of daycare workers? ● Wage will rise and number of daycare workers will fall. ● Reasons why daycare workers wage are low ● Supply curve is elastic ● and Opportunity cost is v
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