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Econ Fina Essay

1057 words - 5 pages

Running head: Holmen Final

1. Assume a monopsonistic labor market. Discuss the impact of the imposition of a binding mininmum wage.

According to McKenzie and Lee (2010) minimum wages imposed at the state and federal level are examples of price floors; a price (or wage) below which a specified good (labor) cannot be sold. If congress imposes a binding minimum wage that is above the equilibrium it creates a surplus of workers. A minimum wage above the equilibrium (Ec) shifts the demand curve (demand for employment) to the left represented by Em. The effects of a binding minimum wage can be both positive and negative. Workers that already employed will receive the benefits of a ...view middle of the document...

Overpayment
InE
InE

In2
In2

In1
In1

Underpayment
Income

0 1 2 15 20 30 Years of employment
A ‘twisting’ payscale:
* Does this strategy benefit firms? How?
The presumption is that the red line represents the productivity of the worker over the course of time. The gains for the firm is that the worker would have incentives to work hard and increase productivity for all workers. Companies need to maintain the credibility that they will follow through with overpayment later on.
* Does it benefit workers? How?

Some workers are willing to take a lower payment if the underpayment is more than compensated by an overpayment later on. If they continue up the path they would reach the firms equilibrium price. For workers that accept the underpayment method they need some sort of insurance that they will continue to receive these incremental increases in their salary over the course of their career. Workers may also conclude that everone in the firm will have a gre
that everyone in the firm will have a greater incentive to work harder.

* Mandated retirement ages for workers are now illegal. Does this law promote the interests of workers? Why or why not?

The mandatory retirement will help those that are close to retirement hang on to their overpayment or prevent them from having their jobs cut, fired or demoted. For younger workers, it can mean that they will get a higher wage early in their careers but can expect minimal overpayments later on. However, there are good reasons for a mandatory retirement policy. It allows the firm to overpay and underpay workers for a short period of time and it also increases the profibility and interests of the firm.

3. Why are monopolies less efficient than purely competitive (or less monopolistic markets)? Explain:
MC
ATC
Pm
Pm

Pc
Pc

MC=MR
MC=MR

ATC
ATC

D
QC
QC
MR
MR
QM
QM


In a perfectly competitive market, the price will be at the equilibrium price. Under monopoly conditions the price will be higher and the quantity demanded will...

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