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Economics 2150A/B Lecture Notes - Lecture 6: Diminishing Returns, Production Function, Indifference Curve

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School
Western University
Department
Economics
Course
Economics 2150A/B
Professor
Irene Trela

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ECON 2150A/B Full Course Notes
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ECON 2150A/B Full Course Notes
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Document Summary

The following applications will be taken up in class: High tech versus low tech is just different ways in which workers become more productive due to training and specialization. High tech is perfect substitutes and so its not always one to one since hightechs are worth more k/l ratio is rising. It is now cheaper to just use capital instead. The purpose of firms is to turn input into outputs by combining various materials to create the finished goods. The goods and services produced by a firm are the outputs. Technology plays a factor in the quantity of output that can be attained. Labour and capital are the inputs and factors of production used to manufacture goods. Production function allows us to know the maximum possible outputs that we can attain based on the quantity of inputs we have available. Capital in this refers to only physical capital and not financial capital.

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Related Questions

17. All of the following can raise union member wages except:

a. limiting union membership over time

b. increasing the demand for non-union made goods

c. increasing the productivity of union workers

d. increasing the demand for union-made goods

 

12. If a firm wants to maximize its profits, it should

a. equates the marginal revenue product for each input to the price of the input

b.hire unskilled labour rather than skilled labour since unskilled labour is cheaper

c. hire lots of capital and very little labour since labour needs to be trained

d. equate the marginal physical product for each input to the price of the input

 

10. A profit-maximizing monopolist will hire labour up to the point where

a. marginal revenue equals than the wage rate.

b. marginal revenue product is greater than the wage rate.

c. marginal revenue equals the price of the product.

d. marginal revenue product is less than the wage rate.

 

9. The practice of outsourcing has been given a boost by:

a. firms that are becoming more risk-averse.

b. advances in telecommunications and computer networking.

c. support from organized labour.

d.sharp increases in the cost of overseas labour.

 

8. Suppose firms in an industry hire unskilled labour and skilled labour. unskilled labour is a substitute for capital and skilled labour is a complement with capital. A decrease in the real price of capital would:

a. cause the demand for unskilled labour to increase and the demand for skilled labour to decrease. the wage of unskilled labour would rise relative to the wage of skilled labour

b. cause the demand for both kinds of labour to decrease. wages rates of both kinds of labour would decrease too.

c. cause the demand for labour to increase, raising wages of both skilled and unskilled labour.

d. cause the demand for unskilled labour to decrease and the demand for skilled labour to increase. the wage of unskilled labour would decrease relative to the wage of skilled labour.

Topic: Why is unemployment so high in Europe? Briefly discuss.

Optional reading: You can use any Web browser to search for the words “European unemployment.” Just by scanning the headlines, see how many possible explanations you can list. Why Is Unemployment So High in Europe? Between World War II and the mid-1970s, unemployment in Western Europe was low. From 1960 to 1974, for example, the unemployment rate in France never got as high as 4 percent. The worldwide recession of the mid-1970s, however, jacked up unemployment rates. But unemployment continued to climb in Continental Europe long after the recession ended, topping 10 percent during the 1990s, and was still 8 percent to 9 percent in 2007. Some observers claim that the natural rate of unemployment has increased in these countries. Economists have borrowed a term from physics, hysteresis (pronounced his-ter-eé-sis), to argue that the natural rate of unemployment depends in part on the recent history of unemployment. The longer the actual unemployment rate remains above what had been the natural rate, the more the natural rate itself increases. For example, those unemployed can lose valuable job skills, such as the computer programmer who loses touch with the latest developments. As weeks of unemployment stretch into months and years, the shock and stigma may diminish, so the work ethic weakens. What’s more, some European countries offer generous unemployment benefits indefinitely, reducing the hardship of unemployment. Some Europeans have collected unemployment benefits for more than a decade. No consensus exists regarding the validity of hysteresis. The theory seems to be less relevant in the United States and Great Britain, where unemployment fell from 10 percent in 1982 to 4.5 and 5.5, respectively, in 2007. An alternative explanation for high unemployment in Continental Europe is that legislation introduced there in the 1970s made it more difficult to lay off workers. In most European countries, job dismissals must be approved by worker councils, which consider such factors as the worker’s health, marital status, and number of dependents. Severance pay has also become mandatory and can amount to a year’s pay or more. With layoffs difficult and costly, hiring became almost an irreversible decision for the employer, so firms have become reluctant to add workers, particularly untested workers with little experience. Also, high minimum wages throughout Europe, high payroll taxes, and an expanded list of worker rights have increased labor costs. For example, in Sweden, women are guaranteed a year’s paid leave on having a child and the right to work no more than six hours a day until the child reaches grade school. Swedish workers are also guaranteed at least five weeks of vacation a year; French workers get at least six weeks (Americans have no minimum vacation guarantees). Regardless of the explanation, the result is high unemployment in Continental Europe, particularly among young workers. As noted in an earlier chapter, 60 percent of those unemployed in Germany in 2006 had been out of work more than a year, versus less than10 percent of those unemployed in the United States. Few private sector jobs have been created there since 1980. If Continental Europe had the same unemployment rate and the same labor participation rate as the United States, about 30 million more people there would be working there.

Question 26 pts

Which of the following is not a reason why specialization and trade are beneficial to society?

Specialization fosters learning by doing, thus lowering the unit-costs of products

Firms and workers become less dependent on others for producing goods and services

The total output of economic goods may be increased even without any increase in resources

Scarce resources are utilized more efficiently by exploiting differences among them

Question 27 pts

Laissez-faire capitalism limits the government's economic functions to the following, except:

Protecting private property rights

Establishing a legal environment to enforce contracts among individuals

Setting prices of individual goods and services

Preventing individuals and firms from coercing others

Question 28 pts

A production system where various workers concentrate on different specialized tasks to contribute towards a whole product is referred to as:

Roundabout production

A coincidence of wants

Freedom of enterprise

Division of labor

Question 29 pts

The market system is said to be characterized by "consumer sovereignty." This is because:

A sovereign government determines which consumer goods will be produced

Firms must match their production decisions to the consumers' choices

The prices of consumer goods are regulated by a sovereign government

Consumer goods are considered to be more important than capital goods

Question 30 pts

Consumers express self-interest when they:

Seek the lowest price for a product

Reduce business losses

Exclude others in their thinking

Collect economic profits

Question 311 pts




Refer to the above graph with three demand curves. An "increase in quantity demanded" would be illustrated by a change from:

Point 5 to point 1

Point 4 to point 1

Point 2 to point 5

Point 4 to point 6

Question 32 pts

The table below shows the weekly demand for hamburger in a market where there are just three buyers.



Refer to the above table. At a price of $6, the weekly market quantity demanded for hamburger is:

17

23

24

18

Question 33pts

If farmers withhold some of their current corn harvest from the market because they anticipate a higher price of corn in the near future, then this would cause a(n):

Movement up along the current supply curve of corn

Movement down along the current supply curve of corn

Leftward shift in the current supply of corn

Rightward shift in the current supply of corn

Question 34 pts

Which of the following will not cause the supply curve to shift?

A technological change in the production of the good

A change in the prices of other goods that producers could be producing

A change in the costs of resources needed to produce the good

A change in the price of the good

Question 35 pts

All of the following would affect the position of the supply curve for cranberries, except the:

Price of agricultural land for cranberries

Cost of fertilizers for cranberry production

Popularity of cranberry drinks

Development of a new pest control for cranberries

Question 36 pts

When high-school and college graduates apply for jobs in the labor markets,

Job applicants and employers are both "buyers".

Job applicants are the "sellers" while employers are the "buyers".

Job applicants and employers are both "sellers".

Job applicants are the "buyers" while employers are the "sellers".

Question 37 pts




Refer to the figure above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S2?

A decrease in consumer incomes, assuming corn is a normal good

The development of a more effective insecticide against corn rootworm

An increase in the price of fertilizer

A change in consumer tastes away from cornbread

Question 38 pts

Which is of the following statements is correct?

If demand increases, then price will decrease

If demand decreases, then price will decrease

If price decreases, then demand will decrease

If price increases, then demand will decrease

Question 39 pts

Which would be a likely cause of an increase in the demand for pizza?

A decrease in the price of hamburger sandwiches

A health report showing eating pizza reduces stress

A reduced desire for take-out and fast-food dining

A decrease in the prices of cheese, pepperoni, and mushrooms

Question 40 pts

A market for a product reaches equilibrium when:

Price falls further after there is a shortage

The price rises further after there is a surplus

Buyers intend to buy a quantity equal to the quantity that sellers intend to sell

The actual quantity bought by buyers equals actual quantity sold by sellers

Question 41 pts

A higher price reduces the quantity demanded for a product because:

Individuals can afford less of the product and will switch to substitutes

The financial assets of individuals increase

Individuals will buy more of the product and less of its substitutes

The purchasing power of individuals increases

Question 42 pts

The idea of the Law of Demand, as applied to electric cars, assumes which of the following to be constant?

Price of electric cars

How much sellers are charging customers for electric cars

Price of gasoline cars

Quantity of electric cars demanded by buyers

Question 43 pts

Use the following graph of the demand for coffee:



Refer to the above diagram of three demand curves for coffee. An increase in the price of coffee, other factors constant, would cause a:

Movement from point a to point b

Movement from point b to point a

Shift from D1 to D2

Shift from D1 to D3

Question 44 pts

Which of the following factors will decrease the current demand for a product?

A decrease in the current price of a complementary product

A decrease in the current price of a substitute product

An increase in the current price of a substitute product

An expected increase in the future price of the product

Question 45pts

In competitive markets, a surplus or shortage will:

Cause shifts in the demand and supply curves that tend to eliminate the surplus or shortage

Cause changes in the quantities demanded and supplied that tend to intensify the surplus or shortage

Cause changes in the quantities demanded and supplied that tend to eliminate the surplus or shortage

Never exist because the markets are always at equilibrium

Question 46 pts

Which of the following would cause a leftward shift in the supply curve for car washes?

A decrease in taxes on car washes

An increase in the price of car washing equipment

A decrease in the price of water

An increase in the number of cars in the city

Question 47pts

The market system automatically corrects a surplus condition in a competitive market by:

Raising the price of the commodity in question while decreasing the quantity demanded

Raising the price of the commodity in question while increasing the quantity demanded

Reducing the price of the commodity in question while increasing the quantity demanded

Reducing the price of the commodity in question while decreasing the quantity demanded

Question 48 pts

A leftward shift of the supply curve for oil in the United States is most likely to result from:

A decrease in the world price of oil

An increase in the costs of exploration and drilling for oil

An increase in the subsidy for oil exploration and drilling

A decrease in the fees that oil companies must pay for drilling licenses

Question 49 pts

A fall in the price of milk, used in the production of ice cream, will:

Decrease the supply of ice cream

Have no effect on the supply of ice cream

Increase the supply of ice cream

Cause a movement along the supply curve of ice cream

Question 50 pts




Refer to the above graph, which shows the market for beef where demand shifted from D1 and D2. The change in equilibrium from E1 to E2 is most likely to result from:

An increase in the cost of cattle feed

A decrease in consumer incomes

A decrease in the tax on beef products

An increase in the price of pork