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Final Examination

Final Examination. Extra office hours (BA 111A): Thursday, December11 2:30 - 4:30 Sunday, December 14 2:30 - 4:30. Monday, December 15 10:30 – 12:30 NOTE: The exam will be in LC 7 – not LC 1. Chapters covered on exam: 1-8, 10-11, 13-15, and 18

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Final Examination

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  1. Final Examination Extra office hours (BA 111A): Thursday, December11 2:30 - 4:30 Sunday, December 14 2:30 - 4:30 Monday, December 15 10:30 – 12:30 NOTE: The exam will be in LC 7 – not LC 1. Chapters covered on exam: 1-8, 10-11, 13-15, and 18 (60 to 65 percent of the exam will be drawn from chapters 13, 14 and 15 and to a much lesser extent chapter 18.)

  2. Factor Markets and the Distribution of Income Chapter 18 Pages 437-446 of chapter 20

  3. Revenue Spending Goods & Services sold Goods & Services bought Inputs for production Labor, land, and capital Wages, rent, and profit Income The Circular-Flow Diagram Market for Goods and Services Firms Households Market for Factors of Production

  4. S W W0 D earnings L0 L Market for a Factor of Production

  5. Price-taking firm’s decision regarding the quantity of an input to employ. The value of the marginal product of an input, VMP, is the marginal product of the input times the price of the output; VMP = MP•P. Example: Suppose that the MPL is 1.5 shirts per hour and the price of shirts is $6 per shirt. A worker working one hour will yield the firm $9.00 in additional revenues.

  6. Suppose that the market price of the output produced by a firm is $0.50 per unit and the market price of labor is $8.00 per hour.

  7. A firm’s demand for an input is based upon the input’s VMP, which depends upon the input’s marginal productivity and the output’s value (price) in the market; VMP = MP • P.

  8. market for another input SK SL W r W0 r0 DK DL input’s earnings labor earnings K0 L0 K L Markets for Factors of Production labor market

  9. Marginal Productivity Theory of Income Determination: In a market economy the distribution of income depends upon the distribution of resource (input) ownership and the prices of those factors of production. The prices of inputs are determined by supply and demand in the markets for those inputs. The importance of the marginal productivity of inputs in determining the distribution of income follows from the fact that the demands for inputs directly depends upon the values of their marginal products.

  10. WH WL LH LL The Market Determination of Wages market for high skilled workers market for lower skilled workers SH SL WH1 DH WL1 DL LH1 LL1

  11. The Distribution of Income in the United States: 1998

  12. Average Annual earnings by Educational Attainment

  13. Why has the gap in earnings between skilled and unskilled workers risen in recent years? • International trade has altered the relative demand for skilled and unskilled labor. • Changes in technology have altered the relative demand for skilled and unskilled labor.

  14. market for high skilled workers market for lower skilled workers SH WH WL WH2 SL DH’ WH1 DH WL1 DL LH1 LH2 LL LH LL1 The Market Determination of Wages

  15. Principles of Economics Markets are usually a good way to organize economic activity. Governments can sometimes improve economic outcomes.

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