Consider a firm that is competitive in both the product and the resource market. The firm incurs a marginal cost of $5. If the marginal product of an additional worker is 20 units, what is the maximum wage that should be offered to the worker?
What will be an ideal response?
In a perfectly competitive market, the market price of a good that a firm charges is equal to the marginal cost of producing the good. Therefore, the market price of the good equals $5. Because a worker should be paid a wage up to his value of marginal product, the maximum wage that should be offered to the worker is 20 × 5 = $100.
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In 1997 a community in a Southeastern state passed a beautification ordinance (law prohibiting the placement of indoor furniture outside of homes, i.e., no couches on the porch). The law represents a conflict between __________ and __________
a. the rich; the poor b. third parties; private property rights c. consumers of goods; producers of goods d. public goods; private goods e. market failure; government failure
The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because:
A. the real-world MPS is larger than the MPS in the examples. B. in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes. C. the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts. D. the MPC in the United States is greater than 1.