The efficiency wage theory argues that:
a. employers will try to keep wages from falling when the economy is weak or the business is having trouble, and employees will not expect huge salary increases when the economy or the business is strong.
b. the productivity of workers will increase if they are paid more, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate.
c. if an employer reduces wages for all workers during economic downturn, then the best workers more likely to leave, while the least attractive workers are more likely to stay.
d. those already working for firms are "insiders," while new employees, at least for some time, are "outsiders.".
b
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Suppose that as a consequence of market changes, the selling price of recycled newspaper is $35 per ton. At this price level, is the market in an equilibrium, shortage, or surplus condition? Be sure to support with specific values.
THE MARKET FOR RECYCLED NEWSPRINT
The amount of trash generated in the United States has risen from 88.1 million tons in 1960 to 243.0 million tons in 2009. Of this tonnage, approximately 28.2 percent is paper and paperboard. In a logical move, many communities established paper recycling programs in the 1980s. The first step was to encourage individuals and firms to bring paper wastes to collection centers. According to EPA data, as shown in the accompanying table, this recovery stage has met with some success.
*The 8.3 in 1980 represents books and magazines, which were reported in the aggregate prior to 1990.
Although these data suggest that society responded responsibly, they belie a very real problem. Many communities failed to recognize the need to create a market for recovered materials. This was precisely the problem that arose during the late 1980s and continued into the 1990s. The result was insufficient demand for recovered newspapers, and the excess supply sent the price of used newsprint plummeting.
To correct the problem, it was necessary to stimulate market demand. Virtually all levels of government took an active role. A number of state governments passed laws requiring newspapers to be partly printed on recycled paper. At the federal level, President Clinton signed Executive Order 12873, calling for all printing and writing paper to contain at least 20 percent recovered paper. (This amount was subsequently raised to 30 percent in Executive Order 13101.) The EPA established clearinghouses and hotlines to bring together suppliers and demanders of recyclables. Added influences were the thriving domestic economy and the rising demand of developing nations, whose growth required new sources of paper inputs.
Taken together, market demand eventually swamped existing supplies, and in 1995, there was a shortage of recycled newsprint. Just as predicted by economic theory, the shortage placed upward pressure on price, which rose to between $100 and $200 per ton. The boom in the market was temporary, however. By 1996, excess supplies and falling demand drove prices back to the $20 per ton level of the early 1990s.
Such volatility is characteristic of this market and continues through the present day. As a case in point, assume that the market demand for recycled newsprint in 2011 is QD = 200 – 2P and that market supply is QS = –150 + 5P, where P is the price per ton and Q is the quantity in thousands of tons per year.
Normative economic analysis answers what question?
What will be an ideal response?
Which of the following does NOT contain an externality?
A) I sell you an ice cream and you drip it all over the person sitting next to you. B) I sell you an ice cream and it gives you a headache. C) I sell you an ice cream and you share it with your friend. D) I give you an ice cream and you share it with a friend.
A potential problem arises in principal-agent relationships
a. because the agents and the principals have identical goals b. because the principals may want to minimize his profits, while the agent may want to maximize them c. because the agents may have different goals from the principals d. the goals of principals and agents are irrelevant