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25 Cards in this Set

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2 basic ways to compare the advantages/disadvantages of a human capital investment
1- is the net present value positive or negative? - if positive then invest

2- compare the internal rate of return and the rate of investment - if the internal RoR > interest rate than invest
internal rate of return
the investment in which the net present value returned on it is > 0
how is a college education measured?
a college education entails direct costs, which are out-of-pocket, and indirect costs, which are forgone earnings...but later is measured in incremental revenue
y is underemplyment and inefficient allocation of resources a problem in monopolies?
b/c P > MR and therefore VMP > MRP, due to the fact that extra employees expand production
a firm in which a firm is the sole employer of a particular kind of labor
bilateral monopoly and the wage rate it sets
BM is a situation in which a strong labor union and a monopsonist occur in the same setting and the wage rate is indeterminate
cobweb model & y does it form this shape?
a market in which changes in labor demand occur and changes in labor supply lag behind it due to periods of training required

shape is formed b/c the supply lags behind demand and shortages and surpluses r incurred inb/t
how do unions bargain to increase the wage by increasing the demand for labor in what ways?
1- increasing prod demand
2- increasing productivity
3- increasing the # of emploters
4- alter the prices of related inputs
how do unions bargain to increase the wage rate by restricting labor supply?
1- reducing the # of qualified supliers of labor
2- influencing nonlabor income
efficiency wage
a wage rate that reduces the employers costs per effective unit of labor hired
where does the optimal combination of wages and fringe benefits ly?
where the isoprofit curve is tangent to highest attainable indifference curve
principle-agent problem
occurs when agents pursue some of their own goals that are in conflict with achieving the goals of the principle
attempts by workers to increase utility by taking unauthorized breaks or by giving less than agreed-upon effort during work hours
different types of incentive pay plans
royalties- pay received as a percentage of sales revenue
piece rates- compensation paid in proportion to the output produced by the employee
tournament pay- prizes based on relative performance where top dog gets all the bones
profit sharing- pay in which the employee receives a portion of the firm's profits
equity compensation- options where part of an employee's earnings are invested in the company's stock
free-rider problem
the incentive for employees to shirk while working in a group in which they will be compensated just the same as everyone else
what reduces the "price" of fringe benefits
1- purchased in economies of scale
2- after-tax considerations
3- efficiency considerations
how do fringe benefits make a firm run more efficiently?
in a sense they "tie" the workers to their job and so keeping them there longer, so the firm is overall more experienced w/ limited turnover and runs efficient
how do efficiency wages reduce shirking in a firm?
they raise the opportunity cost of the job, the employee values their job more and the stakes are raised for getting canned
how does an implemented efficiency wage increase unemployment?
b/c theyre set higher than the market wage and the supply stays constant a shortage occurs - the higher the wage, the higher the unemployment
what is the Lorenz curve and what does it measure?
a graphical depiction of the earnings distribution

measures the percentage of wages allocated to the percentage of full-time workers
Gini coefficient
total measure of earning inequality
GC = area b/t Lorenz curve & line of equality / total under the diagonal
isoprofit normal profit curve
indicates the various combinations of wages and fringe benefits providing a given profit
indifference curve
a curve showing the various combinations of wages & fringe benefits that will yield some given level of utility to the individual
y do workers accept fringe benefits over cash?
1- the tax advantage (it saves them money, essentially their wages arent gettin taxed)
2- if accepting these then they wont spend as much of their real wages (helps to "lock in" health and pension benefits)
cobweb model
model that depicts the slow changes that occurs when the labor supply model lags behind changes that occur in the labor demand model for a particlar job b/c of lengthy training periods