HW for EC 11 – Factor Markets and Rents

Please refer to my Lecture 9 on Derived Demand, and the three chapters in Mankiw that cover the markets for factors of production, earnings, and income inequality.

This is due Feb. 3, 2016 by email (hard copy to be submitted in class on Feb. 4).

The usual rules for citation of sources apply when you answer these questions:  You may use any source – textbooks, Google, etc. – but you will get no credit if you do not cite your sources. You may also organize yourselves in any way to cooperate — or compete — with each other. Please indicate briefly whether you are convinced of your answer, including the reasons as to why or why not.

1. In 14th century Europe, the Black Death killed about a third of the population in a few years.  What would economics predict as regards the wages of laborers and the rent for land? Explain. Applying this economics lesson to a country that produces babies right and left, what would you predict will happen to wages in such a country? [15 pts.]

2. Suppose that a protracted civil war kills 20% of the population of a territory.  Based on your answer to Question 1, would you recommend war as a policy or strategy to raise wages? Why or why not? [5 pts.]

3. Mankiw suggests that economics professors should be paid zero wages.  Why? Is the explanation related to rent, Ricardian rent, or quasi-rent? Why or why not? (Hint: Define, explain, and illustrate the three types of rent.) [15 pts.]

4. The basic lesson in labor economics is that in a competitive labor market, labor is paid the value of its marginal product.  Explain this using a numerical example. [15 pts.]

5. If you wanted to maximize your earnings from your labor, which of the following strategies would be most important? Least important? Re-order the list from most to least important when applied to you as a particular individual. The possible strategies are: (a) look for a job that no one else wants; (b) get as much education as you can afford or attain; (c) get lucky with your natural talent; (d) practice, practice, practice; (e) get lucky in that the employer is your own family corporation; (f) be pretty or handsome; (g) be willing to commit crime; (h) apply for jobs where there are labor unions; (i) start your own business, just like Bill Gates.  Explain your answer. [10 pts.]


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