PROBLEMS AND APPLICATION

1. Suppose that the president proposes a new law aimed at reducing healthcare costs: All Americans are requited to eat one apple daily.

a. How would this apple-a-day law affect the demand and equilibrium price of apples?

b. How would the law affect the marginal product and the value of the marginal product of apple pickers?

c. How would the law affect the demand and equilibrium wage for apple pickers?

2. Show the effect of each of the following events on the market for labor in the computer manufacturing industry.

a. Congress buys personal computers for all U.S. college students.

b. More college students major in engineering and computer science.

c. Computer firms build new manufacturing plants.

3. Suppose that, in the short run, labor is the only variable input used by a perfect competitive firm producing white T-shirts. The firm’s production function is as follows.

a. Calculate the marginal product for each additional worker.

b. Each T-shirt sells for $5. Calculate the valve of the marginal product of each worker.

c. Compute the demand schedule showing the number of workers hired for all wages from zero to $120 per day.

4. Your enterprising uncle opens as and winch shop that employs 7 people. The employees are paid $6 per hour, and a sandwich sells for $3. If your uncle is maximizing his profit, what is the value of the marginal product of the last worker he hired? What is that worker’s marginal product?

5. Imagine a firm that hires two types of workers-some with computer skills and some without. If technology advances so that computers become more useful to the firm, what happens to the marginal product of the two types? What happens to equilibrium wages? Explain, using appropriate diagrams.

6. Suppose a freeze destroys part of the Florida orange crop.

a. Explain what happens to the price of oranges and the marginal product of orange pickers as a result of the freeze. Can you say what happens to the demand for orange pickers? Why or why not?

b. Suppose the price of oranges doubles and the marginal product falls by 30 percent. What happens to the equilibrium wage of orange pickers?

c. Suppose the price of oranges rises by 30 percent and the marginal product falls by 50 percent.What happens to the equilibrium wage of orange pickers?

7. During the 1980s and 1990s, the United States experienced a significant inflow of capital from other countries. For example, Toyota, BMW, and other foreign car companies built auto plants in the United States.

a. Using a diagram of the US. capital market, show the effect of this inflow on the rental price of capital in the United States and on the quantity of capital in use.

b. Using a diagram of the US. labor market, show the effect of the capital inflow on the average wage paid to US. workers.

8. In recent years, some policymakers have proposed requiring firms to give workers certain fringe benefits. For example, in 1993, President Clinton proposed requiring firms to provide health insurance to their workers. Let’s consider the effects of such a policy on the labor market.

a. If there is no change in labor supply, how would this law affect employment and wages?

b. Why might the labor supply curve shift in response to this law? Would this shift in labor supply raise or lower the impact of the law on wages and employment?

9. This chapter has assumed that labor is supplied by individual workers acting competitively. In some markets, however, the supply of labor is determined by a union of workers.

a. Explain why the situation faced by a labor union may resemble the situation faced by a monopoly firm.

b. The goal of a monopoly firm is to maximize profits. Is there an analogous goal for labor unions?