16 Consumer Choice

• Workers in the United States lose their jobs when jobs are sent to other countries.
• Outsourced jobs are moved from high cost areas to low cost areas.
• More than one job is created in another country when a U.S. job is lost to outsourced.
• The cost of manufacturing goods and providing services can be lowered by outsourcing.
• Lower costs translate into lower prices for U.S. consumers and businesses.
• Firms in the U.S. compete in the global economy.
• The demand and supply of resources are examined in this chapter.
• An essential part of the market economy is the outsourcing of jobs.

• Firms that maximize profits must decide how much to produce.
• Firms must combine the right amount of labor and capital in order to maximize output and hold down costs.
• The labor market is where we begin to look at the costs of production.
• Supply and demand are used to show the role of the labor market in the U.S. economy.
• Lesson learned about labor into the markets for land and capital.
• Income inequality, unemployment, discrimination, and poverty are examined in Chapter 15.

• Two thirds of the income generated by the U.S. economy is generated by wages and salaries.

• Sophia would like to open a Mexican restau named Agaves.
• The labor inputs are the dining room staff, cooks, dishwash ers, and managers.
• She needs a physical location and land input.
• She will need a building to operate, along with ovens and other kitchen equipment, seating and tableware, and a cash register.

• Sophia's restaurant won't need any help if there's no demand for her food.
• Sophia secures the land, builds a building and hires employees to produce food for her.
• She is willing to spend a lot of money to build and staff the restaurant because she expects there to be demand for the food.

• The demand for an input used in the production process is not limited to the demand for a certain type of cuisine.
• Consumer demand for iPad causes Apple to demand the resources needed to make them.

• Many people find a lack of customers very useful.
• When economists work at restaurants.

• A friend waits tables at a restaurant for 60 hours a week.
• He is discouraged because he can't seem to make enough money to pay his bills.
• He has to work so many hours to make ends meet because the restaurant doesn't have enough business.

• He should apply for a job at a more popular restaurant because labor is a derived demand.
• He will earn more tip income if he works at a place with more customers.

• As a student, you hope that your education will help you land a job one day.
• You might be thinking about potential earnings in different occupations as you choose a major.
• Economists earn more than elementary school teachers but less than engineers.
• Night shift workers earn more than their day shift counterparts.
• Professional athletes and successful actors make more money for jobs that are not as important as janitors, construction workers, and nurses.
• It's obvious that demand helps to regulate the labor market in the same way that it helps to determine the prices of goods and services sold.

• The demand for labor is correlated with the value that each worker creates.
• We will look at the factors that influence labor demand to develop a more complete understanding of how the labor market works.

• To understand how labor demand is determined, we need to look at the restaurant business, a market that is highly competitive.
• The output of labor is compared to the wages the firm must pay to determine how many workers to hire.
• The analysis of production will be applied to the labor market in the restaurant business.
• The key factors of the labor hiring process are highlighted in Table 14.1.

• We're going to work our way through the table.

• When the firm moves from three to four, there will be an additional worker.

• The marginal product of labor for the fourth worker is the increase of 20 meals.
• As additional workers are added, the values in column 3 decline.

• The marginal product of labor is how much each worker adds to the firm's output.
• Combining the marginal product of labor with the price the firm charges gives us a tool that we can use to explain how many workers the firm will hire.
• Agaves charges $10 for each meal.

• The wage that must be paid is compared with the cost of product in column 5.
• The price of the output it produces tipped the process.

• The green numbers show that the marginal profit is positive for the first four workers.

• The fifth worker's VMP is greater than the wage the firm pays, if the firm hires four full- time workers plus a fifth part- time worker.
• The marginal cost of hiring a fifth worker is equal to the marginal benefit for the firm.
• The firm wouldn't hire the sixth worker because the marginal profit was negative.

• The firm's willingness to pay for each worker is called the VMP.
• The firm's labor demand curve is what it is.

• The diminishing marginal product causes the VMP curve to slope downward.
• The firm will hire more workers if the value of the marginal product is higher than the market wage.

• The firm's labor demand curve is the value of the marginal $500 product.
• The firm will hire more workers if the marginal product's value is $400 more than the market wage.
• Because labor is subject to diminishing $200 marginal product, eventually the value created by Market wage is less than the market wage.

• The VMP is $500 for the demand and supply of resources.
• The amount easily exceeds the market wage of hiring an extra worker and creates a marginal profit of $400.
• The second, third, and fourth workers make an additional profit of $300, $200, and $100, which is represented by the green arrows.
• When the value of the marginal product declines, there will be a point when hiring additional workers will cause profits to fall.
• The value created by hiring additional labor eventually falls below the market wage because labor is subject to diminishing marginal product.

• Agaves hires workers to satisfy their customers and we know that customers want good food.
• At high wages Agaves will use fewer workers, and at low wages it will hire more workers.
• The blue arrow moves along the original demand curve to show the law of demand.
• A change in price results in a change in quantity demanded.
• The demand for workers depends on the number of customers who place orders.
• Changes in the restaurant business can affect the number of workers that the restaurant hires.
• If the number of customers increases, the demand for workers will increase or shift to the right.
• If there is a decrease in the number of customers, the demand for workers will decrease or shift to the left.

• There are two factors that shift labor demand: a change in demand for the product that the firm produces and a change in the cost of producing that product.

• The value of the marginal product of labor is more important to a firm than the cost of hiring labor.
• Consider Agaves.
• Many customers will switch to Agaves if a Mexican restaurant closes.
• The entire demand curve for cooks, table clearers, and A machine at Mcdonald's helps to fill the drink orders will be caused by Agaves preparing more meals.

• Sometimes a change in the cost of production can be positive, such as when a new technology makes production less expensive.
• When the cost of a needed raw material increases, it can make production more expensive.

• Technology can act as a substitute for workers in a positive way.
• The same number of meals can be prepared with fewer workers by using microwave ovens.
• The use of conveyor belts and automated systems to help prepare meals is a growing trend.
• Changes in technology can affect a firm's demand for workers.

• In the long run, substituting technology for workers may seem like a bad idea.
• In the long run that isn't usually the case.
• The demand for lumberjacks is affected by technological advances.
• Traditional logging jobs can be dangerous and inefficient if timber companies invest in new harvesting technology.
• The workers are freed up to work in other parts of the economy when the lumber companies use the new technology.
• The result is fewer timber jobs in the short term.
• This adjustment is painful for the workers involved, and they often have difficulty finding jobs that pay as well as the job that they lost.
• The One John Deere 1270D harvester can replace 10 lumberjacks, but it requires highly skilled operators who can fell more trees.

Can penny make five flower barrettes in an hour?

• In 8 hours, she can make 40 barrettes.
• The marginal product of labor, or VMPlabor, is the difference between the price of a barrette and the cost of labor.

• The marginal profit from hiring her is how many flower barrettes she makes.

• Harvester operators can command higher wages because they have a higher marginal product of labor.

• There are 10 traditional lumberjacks in need of a job for every harvester operator employed at a higher wage.
• What happens after the job losses?
• While one worker harvests trees, the 9 other workers are forced to move into related fields or do something completely different.
• It might take some workers a long time to find a new job, but once they do, society benefits.
• 10 workers used to take 1 to produce, and 9 other workers are able to work in other jobs and grow the economy in different ways.

• If labor becomes more productive, the VMP curve shifts to the right, driving up both wages and employment, which is exactly what happens with the demand for harvester operators.
• The demand for traditional labor could fall due to substitution.
• This has happened to traditional lumberjack jobs, leading to a decrease in wages.

• The wage rate and the number of workers who are willing to supply their services to employers are connected in this section.
• Some workers may want to cut back on their hours at high wage levels.
• Other employment opportunities, the changing composition of the workforce, migration, and immigration are some of the factors that influence the labor supply.

• People work to make ends meet.
• Many workers enjoy their jobs, but this doesn't mean they would work for nothing.
• Most of us have other interests, obligations, and goals that we don't enjoy working on.
• The supply of labor depends on both the wage that is offered and how people use their time.

• Most people in our society must work to meet their basic needs.
• Once those needs are met, a worker might be more likely to use his or her time in leisure.

• Workers may be willing to work more hours at higher wages.
• Suppose that Emeril is doing labor for leisure.

• He works 40 hours at $10 per hour and can also work 4 hours overtime.
• If he decides to work overtime, he will end up working 44 hours and earning $440

• Some workers may work less hours at higher wages.
• The substitution effect and their additional income may outweigh the income effect at high hours.

• For example, suppose that Rachael works overtime for $10 an hour.
• Her total pay will be between $10 and $440 She may continue to work the overtime at a higher wage if her wage increases to $11.
• If she doesn't work overtime, she will make the same amount of money as she did before the wage increase, and she can either work fewer overtime hours or stop working overtime altogether.
• When Rachael's wage goes up, she chooses to work fewer hours.

• The labor supply curve can be affected by wage increases.
• The number of hours worked increases from Q1 to Q2 to Q3 when the wage increases.
• The number of hours worked is large at high wage rates.
• Workers might experience diminishing marginal utility from the additional income and thus value increased leisure time more than increased income.
• The normal supply curve bends backwards between W2 and W3 if workers choose to work less in this situation.

• The income effect may become larger than the substitu W2 tion effect and cause the labor supply curve to bend backward.

• W1 occurs when leisure time becomes more valuable than income.

• When the income effect is large enough to offset the substi leisure more than the additional tution effect, the labor supply curve workers value additional bends backward.

• The supply curve will be drawn upward because most workers in the real world don't reach wage level W2 which is a wage at which they might begin to value leisure more than labor.
• It's important to know that the direct relationship we normally observe doesn't always hold.

• There are a number of factors that determine the supply of labor.
• The wage rate is not the only factor that governs the supply of labor.

• When the wage rate increases, the quantity of workers increases.
• The supply curve is affected by three factors: other employment opportunities, the changing composition of the workforce, and migration and immigration.

• The supply of workers for any given job depends on the prevailing wage in related labor markets.
• The supply of labor at Agaves should be considered.

• The red arrow is moving along the original supply curve.

• The supply of table clearers is dependent on a number of people.
• The number of laborers willing to work is influenced by the prevailing wages in similar jobs because table clearers are mostly young and unskilled.
• If the wages of baggers at local grocery stores increase, some of the table clearers at Agaves will decide to bag at local grocery stores instead.
• The leftward shift to S3 will be caused by the decreasing supply of table clearers.
• If the wages of baggers were to fall below the wages of table clearers, the supply of table clearers would increase or shift to the right.
• When jobs that require comparable skills have different wage rates, the number of workers willing to supply labor for the lower- wage job will shrink and the number willing to supply labor for the better- paid job will grow.

• The labor force participation rate has increased in most developed countries over the last 30 years.
• The United States, Switzerland, and New Zealand all saw their female/male ratios go up.

• There are many more women employed in the workforce today than there were a generation ago, and the supply of workers in many occupations has expanded significantly as a result.

• Immigration and migration are important factors in the supply of labor.
• Immigration increases the available supply of workers by a significant amount each year.

• Over half a million people from foreign countries entered the United States through legal channels in 2015.
• The United States has over 40 million legal immigrants.
• Many illegal immigrants enter the United States to work as hotel maids, janitors, and fruit pickers.
• When states suggest or pass a tough immigration law, businesses in food and beverage, agriculture, and construction protest because they need inexpensive labor to remain competitive.
• Many states have wrestled with the issue, but policies that address illegal immigration are controversial.
• The states want cheap labor but don't want to pay for medical care, as well as the cost of educating the illegal immigrants' children.

• The state economy would come to a halt.

• Californians have to do without low cost workers to take care of their homes.

• The film points out that migrants from Mexico add a tremendous amount of value to the local economy through their purchases as well as their labor.
• A scene depicts a television commercial for a "disappearance sale" put on by a local business after it learns that most of its regular customers are gone.

• We consider migration to be the pro cess of moving from one place to another in the United States.
• The US population grows at an annual rate of 1%, but there are significant regional differences.
• Large population influxes lead to marked regional changes in the demand for labor and the supply of people looking for work.
• The 10 fastest-growing states in 2010 were in the South or West, with some states adding as much as 4% to their population in a single year.
• Nevada, Utah, North Carolina, Idaho, and Texas all added at least 20% to their populations from 2000 to 2010, giving them 84% of the nation's population growth from 2000 to 2010.

• Significant changes can be hidden by statewide data.
• A number of counties experienced 50% or more population growth between 2000 and 2010 according to census data.
• The suburb of Chicago that grew the most between censuses was Kendall County, Illinois.
• The county has transitioned from an agricultural area to a bedroom community.
• Kendall is a relatively distant suburb of major metropolitan areas.
• New homes are available in these areas at reasonable prices.

• Your friend is worried about his uncle, who just got a raise.
• Your friend doesn't understand why his uncle wants to travel.

• The labor supply curve is usually thought of as upward sloping, in which higher wages translate into more hours worked and less leisure time.

• The labor supply curve bends backward when the worker's wage increases.
• This tendency is reflected by your friend's uncle.

• Markets reconcile the forces of demand and supply through pricing.
• We are ready to see how the equilibrium wage is established after considering the forces that govern demand and supply in the labor market.
• We can identify what causes shortages and surpluses of labor, why outsourcing occurs, and what happens when there is a single buyer of labor.
• The goal of this section is to show you how to use demand and supply curves to understand the labor market.

• Wages are the price at which workers are willing to rent their time to employers.

• There is high supply of workers and low demand.
• There is a shortage at low wages.

• The wage rate should be raised until the equilibrium wage is reached.

• There is a surplus of workers.
• The downward pressure on wages is caused by the surplus.
• Fewer workers are willing to rent their time to work.
• The surplus of workers is eliminated when wages go down.
• The number of workers willing to work in that profession at that wage is equal to the number of job openings that exist at that wage.

• The labor market is guided by a similar process.
• Firms are forced to raise wages to attract workers.
• Wages rise until the shortage is eliminated.

• There is a shortage of nurses in the United States.
• It takes years of training for a nursing job.
• Demand for nursing care is expected to increase as baby boomers age.
• The pool of nurses is rapidly aging and nearing retirement.
• According to the Bureau of Labor Statistics, there will be a shortage of nurses in America by the year 2025, making nursing the number one job in the country.

• The economists think that the shortage of nurses will be gone by 2025.
• There is upward pressure on wages from a shortage.
• In this case, rising wages show that nursing services are in high demand and that wages will continue to rise.
• A surge in nursing school applications has been caused by this situation.

• The labor market for nurses won't return to equilibrium immediately because the training process takes two or more years to complete.
• There will be a nursing shortage for a few years until more nurses are supplied to the market.
• Many of the tasks that nurses traditionally carry out, such as taking patients' vital signs, will likely be shifted to nursing during that time.

• The combination of more newly trained nurses entering the market and the transfer of certain nursing services to assistants and technicians will eventually cause the nursing shortage to disappear.
• When a market is out of balance, forces are acting on it to get it back to normal.

• Now that we have seen how labor markets work, let's see what happens when demand and supply change.
• There is a shift in labor demand and a shift in labor supply.
• The equilibrium wage and equilibrium quantity of workers are adjusted accordingly.

• The shift in labor demand is shown in panel a.
• Imagine that the demand for medical care increases due to an aging population and that, as a result, the demand for nurses increases, causing a shift in the demand curve from D1 to D2.
• There is a shortage of workers equal to Q3 - Q1 at wage W1.
• Wages increase from W1 to W2 as a result of the shortage.
• As wages go up, nursing becomes more attractive.
• Existing nurses decide to work longer hours or delay retirement as more people enter the field.
• The number of nurses increased from Q1 to Q2.
• The wage is settled at W2, and the number of nurses is reached.

• When the supply of nurses increases, we see what happens.
• The supply shifts from S1 to S2 when additional nurses are certified.
• The result is a surplus of workers equal to Q3 - Q1 at wage W1, which puts downward pressure on wages.
• The market wage settles at W2, the new equilibrium point is E2, and the number of nurses employed reaches Q2.

• We explain how outsourcing works, why companies do it, and how it affects the labor market for workers.

• In the publishing industry, page make- up is often done overseas to take advantage of lower labor costs.
• The labor is lower.

• A qualified worker can lay out book pages anywhere in the world.

• The pool of potential workers expands when countries are outsourcing.
• If a labor expansion is driven by outsourcing or by an increase in the domestic supply of workers, those who are already employed in that particular industry will earn less.
• There is an increase in unemployment in the occupation that can be outsourced.

• W2 nurses are employed.

• Shortage surplus of workers equal to Q3 - Q1 causes the equi librium wage to fall and the number of nurses to rise.

• When we think of outsourcing jobs, we usually think of call centers.
• Some infertile couples are outsourcing their preg nancy to surrogate mothers in India.
• surrogate mothers are impregnated with eggs that have been fertilized Since 2002, when it was legalized in India, it has been legal in many other countries, including the United States.
• Doctors work with surrogates in almost every major city in India.
• A nine-month commitment for a surrogate mother earns around $5,000.

• The amount is the same as what low skilled workers in India earn in 10 or more years.
• In India, infertile couples are matched with infertile couples with $10,000 for all of the costs associated with local women, such as surrogate mothers.

• The misconception that outsourcing is bad for the economy was started in our chapter.
• Many people hold that opinion because they imagine the jobs that are lost in the short run when they think of outsourcing.
• Outsourced jobs are not lost, they are relocated to cheaper areas.
• Lower production costs are one of the benefits of outsourced work.
• Lower costs translate into lower prices for consumers and help firms compete in the global economy.

• The United States jobs are not affected by outsourcing.
• When foreign countries send their production to the United States, what happens?
• Mercedes- Benz has many of its cars built in Alabama.
• If you were an assembly- line worker in Germany who had spent a lifetime making cars for Mercedes, you would be upset if your job was moved to North.
• The Amerioutsourcing is more than just a one- way street.

• A software writer in India is replaced by a worker in China.
• A job winner and a job loser are always created by outsourcing.
• Employment in the United States increases in the case of foreign outsourcing.
• The Mercedes-Benz plant in Alabama has more than 3000 workers.
• The company decided to make the vehicles in the United States rather than in Germany because it would be more profitable to hire American workers.

• The figure shows how outsourcing helps to increase labor demand in the U.S.
• When jobs are sent to the United States, there are job losses and lower wages in Germany.
• The demand for labor in Germany goes from D1 to D2 and wages go from W2 to Q2.
• There has been an increase in demand for U.S. labor in Alabama.
• Wages rise to W2 as demand shifts from D1 to D2.

• It is not possible to say anything definitive about the impact of outsourcing on labor in the short run because each nation will experience outsourcing flows out and into the country.
• It is not likely that workers who lose high paying jobs will be able to find other jobs that pay the same.

• In the long run, we can say that outsourcing benefits domestic consumers and producers.
• In international trade, outsourcing is a key component.
• Throughout the book, we have seen that trade creates value.
• Companies and countries become more efficient when they specialize.
• Producers can expand production by using efficiency gains.
• In the absence of trade barriers, lower costs benefit consumers in domestic and international markets through lower prices, and the outsourcing of jobs provides income for foreign workers to purchase domestic imports.

• There is more demand in one market than there is in the other.

• The result is higher wages and more employment.

• We assumed that the market for labor is competitive when we looked at supply, demand, and equilibrium.
• Sometimes that is not the case.
• The labor market can only have a few buyers and sellers.
• A monopolist with only one sonist has a lot of market power.

• We looked at how a monopolist behaves.
• The monopolist charges a higher price for the product it sells.
• Market power can be used by a monopsonist in the labor market.
• It can pay its workers less because it is the only firm hiring.
• College towns that are isolated are a good example.
• Almost all of the available jobs in college towns are through the college.
• The college has a monopsony in the labor market because it is the chief provider of jobs.
• Many local workers can be hired at low wages.

• Gerald was the first sports economist.
• At that time, each player's contract had a "reserve clause" stating that the player belonged to the team for his entire career unless he was traded or released.

• If a player was unhappy with his contract, his only other option was to stop playing.
• The teams knew that the players would stay for the wage that the team was willing to pay, because most players could not make more than they were earning as baseball players.
• Each team was a monopsonist under the reserve clause.
• The teams that won used their market power to increase their profits.

• Everything was changed by Scully's work.
• He used two baseball statistics to evaluate the player's performance and then estimate how much the player's performance affected the team's winning percentage.
• He was able to estimate how much revenue each player generated for his team by examining the correlation between winning and revenues.
• The results were amazing.
• The top players at that time made more money than they were being paid and generated more revenue for their teams.
• The reserve clause made it difficult for the player to negotiate for higher wages even if he was good.

• The repeal of the reserve clause in 1975 was the result of the work of Scully.
• The reserve clause was struck down because it was anticompetitive.
• The salaries of players have increased because of limited free agency.
• Baseball players can make over $30 million a year, and the average salary is close to $4 million.

• The key is why economists earn supply.
• Certified elementary school teachers have more qualifications than economists.

• The equilibrium wage in economics is higher than in elementary education.

• The value of the marginal product of labor of economists is higher than that of most elementary school teachers because many economists work in industry, which pays higher wages than the public sector.

• The key is supply.
• The wage needed to work at night must be higher because fewer people are willing to work at night.

• Demand and supply are important roles for professional athletes.
• Successful actors spend a large amount of their income on entertainment because the public is willing to pay for it.
• When what they do is not high, demand for entertainment is low.

• Since the value of the marginal product that they create is incredibly high, and the supply of workers with these skills is small, accomplished athletes and actors earn huge incomes.

• Why do janitors do construction work?
• The value of the marginal product of labor created in essential workers and nurses is low so their employers are not able to pay high wages.

• Most workers spend between 35 and 40 hours a week at work.

• The table shows how demand and supply affect wages.
• Workers with a high- value marginal product of labor earn more than workers with a lower- value marginal product of labor.
• It is important to note that working an essential job doesn't guarantee a high income.
• The highest incomes are reserved for jobs with high demand and low supply.
• The underlying market forces that govern pay take a backseat to our preconceived notions of fairness.
• Wage discrimination is one of the additional factors that determine wages.

• Land and capital are needed to produce goods and services.
• In this section, we look at how land and capital enter into the production process.

• A company builds a new facility that doubles its workspace.

• The company may have experienced more demand for its product.
• Labor is always changing in demand.

• The number of people employed increases when the demand for labor increases.

• The company decided to send 100 jobs to Indonesia.

• There are two changes in this situation.
• A decrease in demand for labor in Indiana results in lower wages and fewer workers hired.
• Increased demand for labor in Indonesia results in higher wages and more workers being hired.

• The workers need equipment, tables, chairs, cash register, and a kitchen to do their jobs.
• Labor would not be relevant without a physical location and capital resources.

• The value of the marginal product that it produces determines the demand for land.
• The supply of land is usually fixed.
• We can think of it as either inelastic or nonresponsive.

• Supply and demand determine the price of land.
• The price of land on the vertical axis is the rental price needed to use it, not the price needed to purchase it.
• We don't count the entire purchase price of the land when evaluating a firm's economic situation.
• The cost of land in the production process is overstated because the land is only used for a short time.
• Consider a car that you buy.
• You put 15,000 miles on it after a year of driving it.
• The true operating cost for one year of service is overstated by counting the entire purchase price.
• The true cost of operating a vehicle includes wear and tear, as well as operating expenses such as gasoline, maintenance, and service visits.
• There is a similar process going on with land.

• The way we read the statistics, team.

• Everyone high school player who failed to have a successful else in baseball undervalues them because Beane, formerly a heavily recruited 25 people that we can afford, is no longer.

• A's lack of financial ability to pay as much as up "outcasts" that no other team wanted helped them have a remarkable season.

• While trying to negotiate a trade with the Cleveland Indians, Beane meets Peter Brand, a young Yale economist who has new ideas about applying statistical analysis to baseball in order to build a better team.
• Brand says that evaluating a player's marginal product would be a better way to recruit.

• Brand explains his methodology for evaluating players in the key scene of the movie.

• The opportunity cost of using the land is captured by this method.

• P1 is also low.
• The rental price of land is high when demand is high.
• A good example of the high demand for land is found in apartment rentals near college campuses.
• Students and faculty want to live near the campus so the demand for land is higher there.
• The demand for land is related to the demand for the products that it is used to produce.
• The demand for apartments, homes, and retail space near the campus is very high.

• The price of land depends on demand.

• The price will go up from P1 to P2.
• The rental price of the land is reflected in the price.

• Most of us think of the rental price when we think of "rent."
• Rent seeking occurs when firms compete to get the best position in the market.

• In the case of housing near college campuses, a small studio apartment is more expensive than a similar apartment that is 10 miles away.
• The rent near campus must be high enough to compensate the property owners for using their land for an apartment instead of in other ways that might also be profitable in the area.
• There is a decline in the number of people interested in using the land.

• Rental prices are often very high in areas where many people would like to live or work.
• In Tokyo, the average two-bedroom apartment rents for almost $4,500 a month, making it the most expensive place to rent in the United States.
• Most apartment rental prices in the United States are inexpensive because of that staggering amount.
• The owners of properties in Moscow, Hong Kong, London, and New York all get more economic rent than the owners of similar two-bedroom apartments in Peoria, Idaho Falls, and Scranton.

• An exception to our assumption that the amount of land is fixed is a satellite photo of manufactured islands.

• Equipment and materials are needed to produce goods.
• The value of the marginal product determines the demand for capital.
• The demand for capital is a derived demand, just like the demand for land and labor.
• The value of the marginal product associated with its use decreases as the amount used increases, reflecting the downward sloping demand for capital.

• Firms have to decide if hiring additional labor, using more land, or using more capital is the best use of their resources.
• They compare the value of the marginal product per dollar spent across three factors of production.

• Let's look at an example.
• The rental rate of land is $5,000 per acre per year, and the rental rate of capital is $1,000 per year.
• The marginal product of labor is $450, the marginal product of land is $125,000, and the marginal product of capital is $40,000.
• The application of a fundamental economic principle--keeping costs as low as possible--is what the table compares the ratios of the value of the marginal product of each factor of outsourcing.
• Managers have to pay the lowest wage that still ensures an effective workforce because labor is the most expensive input for a business.
• Firms look for the right balance of costs and skills when outsourcing jobs.
• Three jobs in the United States, Mexico, China, and India have salaries that are a percentage of the typical U.S. salary.

• India is outsourcing software engineering jobs from the United States.

• The "bang per buck" for each resource, or the relative benefit of using each resource, is given by this calculation.

• The highest bang per buck is created by dividing the VMP of capital by the rental price of capital.
• The firm is getting more benefit per dollar spent on capital than if it were labor or land.
• The firm would benefit from using more capital.
• The VMP of capital in column 2 will fall due to diminishing returns, and the bang per buck for capital will drop from $40 in column 4 to a number that is more in line with bang per buck for labor and land.
• The firm would benefit from using less land.
• It will raise the VMP and increase its bang per buck.
• The firm will eventually bring the value created by all three factors to a point at which the bang per buck spent is equal for each of the factors.
• The firm will be using its resources efficiently at that point.

• Wages rise and fall, as do property values and the cost of acquiring capital, because the world is always changing.
• The mix of land, labor, and capital must be constantly adjusted to get the largest return.
• The markets for land, labor, and capital are connected.

• The returns of all factors will be affected by a change in the supply of one factor.
• Firms will hire more labor if wages fall.
• They will use less capital if they hire more labor.
• Capital is not any more productive than it used to be.
• The demand for capital is reduced by lower wages.
• In this situation, the demand curve for capital would shift to the left, lowering the rental price of capital as well as the quantity of capital deployed.

• At theTesla electric automobile factory in California, a robot can perform up to four tasks.
• It does it all without a coffee break.
• This is the future.

• Hundreds of thousands of low- skilled workers are employed by Apple and other consumer electronics giants.

• There is a renewed debate among economists and technologists over how quickly jobs will be lost because of the falling costs and growing sophistication of robots.
• The pace and scale of this encroachment into human skills is relatively recent and has a profoundTesla factory in California according to MIT economists.

• The revolution in agricultural technology over the last century resulted in the reduction of farming employment in the United States from 40% of the workforce to 2% today.

• In many applications, robots are more cost-effective than humans, according to robot manufacturers in the United States.
• A robotic manufacturing system costs $250,000 and is replaced with two machine operators who earn $50,000 a year.
• The machines yielded $3.5 million in labor savings over the 15 year life of the system.

• Construction jobs that require workers to move in unpredictable settings and perform different tasks that are not repetitive, assembly jobs where only a limited quantity of the product is, and assembly jobs where only a limited quantity of the product is are some of the jobs that are still beyond the reach of automation.

• The list is getting shorter.
• Older robots can't do such work because computer vision systems are expensive and limited to carefully controlled environments.
• Thanks to an inexpensive stereo camera and software that lets the system see shapes with the same ease as humans, new types of robot can quickly discern the irregular dimensions of randomly placed objects.

• Gary Bradski is a machine- vision scientist.

• The misconception was that outsourcing is bad for the economy.
• It is true that outsourcing destroys jobs in high cost areas, but it also creates jobs in low cost areas.
• It lowers the cost of manufacturing goods and providing services.
• Firms that are outsourcing are able to better compete in the global economy thanks to improved efficiency.

• Agaves is considering buying a dishwasher.
• The unit uses less water and uses less labor.
• The dishwasher has a usable life of five years before it will need to be replaced.
• It will save the restaurant $300 a year in water and 10 hours of labor.

• Every business wrestles with this question on a regular basis.
• The way to answer it is very simple.
• When the marginal product per dollar spent is greater than the marginal product per dollar spent on the next- best alternative, a firm should invest in new capital.
• When the bang per buck exceeds that of labor and other investments, a firm should invest in new capital.

• The total cost of buying the dishwasher is compared with the total savings.
• The savings are larger than the total cost of the dishwasher.

• The five year savings is $22,300.

• The interaction between demand and supply is what determines the compensation for factor inputs.
• Resource demand is derived from the demand for the final product a firm produces, and resource supply is dependent on other opportunities and compensation levels in the market.

• We will look at income and poverty in the next chapter.

• The amount of human capital required for a job, as well as location, lifestyle choices, union membership, and the riskiness of the profession are some of the factors that affect wages.
• Understanding these elements will help you understand why workers do what they do.

• The inputs used in producing goods and services are labor, land, and capital.

• The demand for each factor of production is derived from a firm's desire to supply a good in another market.
• The marginal product's value is equivalent to the firm's labor demand curve.

• The wage rate is what determines the supply of labor.
• The labor- leisure trade- off is faced by each worker.
• The labor supply curve may bend backward if the income effect becomes larger than the substitution effect.
• Changing composition of the workforce, immigration, and migration can result in changes in the supply of labor.

• Labor markets bring the forces of demand and supply together in a wage signal.
• The supply of workers exceeds the demand for labor when wages are above the equilibrium.
• The result is a surplus of available workers that puts downward pressure on wages until the equilibrium wage is reached.
• There is a shortage of workers when wages are below the equilibrium.
• Firms are forced to raise wages to attract workers.
• When the equilibrium wage is reached, the shortage is eliminated.

• In the short run, there is no definitive result for outsourcing labor.
• In the long run, outsourcing moves jobs to workers who are more productive.

• Firms compare the value of the marginal product per dollar spent to land and capital factors.
• Firms want to equalize revenue per dollar spent on each input.

• Someone to be nearby to assist the client is when you choose an academic major.
• Real estate of skills will allow you to find stable and construction jobs in the same way.
• The public sector job could be replaced.

• You typically earn $70,000 a year.
• It will be difficult to replace you, but it can be done from overseas.

• programmers are susceptible to outsourcing Insurance underwriters, who make $60,000 per year, are being outsourcing because the mathematical algorithms used to estimate risk can be analyzed from any location.
• Financial analysts are also at risk.
• We think of Wall Street when we think of financial analysts who make $70,000 per year.
• New York City does not require residence for crunching numbers and evaluating prospective stock purchases.
• Financial positions are increasingly being done by third parties.
• Physicists and biochemists make the same amount of money.
• There are jobs in architecture, management, and law that are under pressure.
• It's not a guarantee that a high paying job is safe from outsourcing.

• It is good to be a dentist because you have to be in the area.
• Medical care jobs are safe.
• The medical delivery process includes physicians, nurses, technicians, and support staff.

• Maria works at a restaurant.

• She decided to work 40 hours per week.

• The marginal product and the value of the marginal product are computed.

• Jimi has a limited supply of equilibrium point, and notes how the wage and rooms for his instructors to use for lessons.
• The number of workers changes.

• There is a change in location.

• People are willing to work more hours.

• The cost of working the night is $25 per hour.

• Jimi's labor demand schedule should be used to determine the value of each touchdown, yard each of the following wage rates for gained, and the team's revenue.
• Each instructor's touchdown is worth an extra $250,000.

• The market price of a guitar is $75,000.
• The cost of player A is $ 3.0 million and the cost of sons is $35 per hour.
• What is the cost of player B?

• The government requires employers to provide healthcare coverage throughout the entire growing season for all employees in Utopia.
• Will this increased coverage have the same effect as double the normal impact?

• Illustrate the changes with a crop falling by 50% and the marginal product of labor supply and demand diagram.

• The current wage rate is $20 per answer.
• Even though we can't predict the hour, the rental rate of land is $10,000 per country you are from, there is a sur acre, and the rental rate of capital is $2,500.

• The manager of the firm decides if you should check it out.

• The VMP of the fifth worker is $90 and each shirt's journey, so it gets the credit, but behind worker costs $80, so Pam should hire five work the scenes it takes a planet to make every ers.
• The answer to the lose $20 is to hire the sixth worker.

• Player A has a predicted VMP of $3.25 million and a cost of $ 3.0 million.

• Good pay comes from working hard and performing well.
• The structure of compensation in the working world is unfair to many people.

• Many other workers can easily replace you if you are an outstanding babysitter or short- order cook.
• Both occupations will never earn more than the minimum wage.
• An average neurosurgeon is paid very well because few individuals have the skill and training to perform neurosurgery.
• Society values neurosurgeons more than babysitters because they save lives.

• If you want to make a lot of money, you need an occupation that society values highly.
• What matters are your skills, what you produce, and the supply of workers in your chosen profession.

• Income and inequality in labor markets are examined in this chapter, as well as the characteristics of successful wage earners and the obstacles the poor face when they try to escape poverty.
• We can explain the many forces that determine income by examining those at the top and bottom of the income ladder.

• The incidence of poverty, poverty trends, and measurement issues are explored.
• Understanding the causes of poverty allows society to craft economic policies that help those in need.

• The forces of supply and demand explain why some workers are paid more than others.
• There are other factors that contribute to differences in earnings.
• Some occupations pay higher or lower wages because of nonmonetary factors.
• Discrimination on the basis of gender, race, or other characteristics is a real factor in wages.

• Some jobs have characteristics that make them less desirable.

• No two workers are the same.
• The supply and demand of labor are affected by differences in jobs and worker ability.

• Some jobs are more unpleasant than others.
• Firms must offer more to attract workers if the job's characteristics make it unattractive.
• Some of the most dangerous occupations in the world are roofing, logging, and deep sea fishing.
• Workers who do these jobs have to be paid more to make up for the higher risk of injury.
• The wage differential must be positive if a job's characteristics make it unattractive.

• Some jobs are very desirable.
• Radio DJs spend the day playing their favorite music, restaurant chefs sample a lot of great food, and video game testers try out the newest version of a game before it's released.
• Some jobs are more fun, exciting, prestigious, or stimulating than others.

• The firm offers lower wages in these cases.
• Newspaper reporters and radio DJs get low pay.

• Most people who do video game testing are not paid.

• Education, training, and industry experience are required for many complex jobs.
• Only a small number of students are able to pursue these degrees.

• Workers with high human capital can market their skills to competing firms.

• It is easy to find replacements for low skilled workers who earn less because the human capital required to do those jobs is low.

• The table shows the relationship between education and pay.
• Increased human capital qualifies a worker for higher paying jobs.

• Workers with advanced degrees have a higher marginal product of labor because they have more skills for the job.
• They have invested a lot in education.
• Higher wages reward additional education.

• The returns to increased education are not the result of what a student learns, but rather a signal to prospective employers according to an alternative perspective on the value of education.
• Income, Inequality, and Poverty are not evidence of a set of skills that make a worker more productive.
• A degree and attending prominent institutions is a sign of a potential employee's quality.
• Prospective employers assume that a student who gets into college is willing to work hard.
• Students who do well in college are able to learn quickly and perform well under stress.

• It is possible to test the importance of signal ing by looking at the returns to earning a college degree.
• The four- year price tag has reached extraordinary levels at many elite institutions.

• It is difficult to answer this question because the students who attend moreselective institutions are more likely to have higher earnings potential regardless of where they attend college.
• These students enter college with a trait that carries forward into the workplace no matter where they attend school.

• The financial outcomes for over 6,000 students who were accepted or rejected by a comparable set of colleges were examined by economists.
• Students who were accepted to moreselective colleges but decided to attend a lessselective college earned the same amount of money 20 years later.

• The reason for an increase in human capital is not shown in Table 15.1.
• Employers can interpret other, less observable qualities.
• Harvard graduates were likely to be successful even before they went to college because they were highly motivated and learned a lot in their time at school.
• Part of the increase in income attributable to completing college depends on a set of other characteristics that the student already possessed.

• Most people prefer to live in Key West, Florida, rather than in Eureka, Nevada, along the most isolated stretch of road in the continental United States.
• Being able to see a show, visit a museum, or go to a Yankees game in New York City is different from what you'd experience in Dodge City, Kansas.
• Some places are more desirable than others.

• When the cost of living is high in metropolitan areas, jobs pay higher wages as a cost-of-living adjustment.
• The higher wage helps employees afford a quality of life similar to what they would enjoy if they worked in less expensive areas.

• Wage differences are determined by the choice of lifestyle.

• For many employees of nonprofits or religious organizations, this is true.
• Others aspire to be a musician, writer, or actor.
• Others are guided by a passion such as skiing or surfing.

• Many workers think their pay is less important than what they do.
• Lower pay is a compensating differential for these workers.

• Unions are able to secure increased wages by creating significant who bargain collectively for market power over the supply of labor available to a firm.

• An effective union can use the threat of a strike to negotiate higher bargaining position because firms cannot do with designed to aid a union's out labor.

• U.S. law prohibits some unions from going on strike, including those that represent many transit workers, some public school teachers, law enforcement officers, and workers in other essential services.

• The effect of unions in the United States has changed over time.
• Wages were found to be as much as 30% higher for unionized workers.
• Around 60 years ago, one in three jobs was a unionized position.
• The wage premium is usually between 10% and 20%.
• The demise of unions coincides with the transition of the U.S. economy from a manufacturing base to a greater emphasis on the service sector.

• One approach to paying wages is unique.

• Wages are usually determined in the labor market at the intersection of supply and demand.

• Income, Inequality, and Poverty qualified workers can find employment.
• Worker productivity is hardly affected by that outcome.

• The result is greater per unit of input if the rate of labor productivity is higher than the cost.

• Henry Ford used efficiency wages to increase productivity on the Model T assembly line.
• The workday was reduced from 9 hours to 8 hours.
• Ford's main goal was to reduce worker turnover because of the repetitive nature of their work.
• He hoped that most workers wouldn't quit so quickly because the job was so lucrative.
• The turnover rate went from 10% to less than 1%.

• Workers went to Detroit as word of Ford's high wages spread.
• Over 10,000 job seekers lined up outside of Ford's Highland Park, Michigan, plant the day after the wage increase was announced.
• Ford hired many temporary workers from this crowd and gave them a 30-day trial.
• After the trial period, he hired the most productive workers and let the others go.
• The productivity increase was enough to offset the wage increase.
• Reducing the length of each shift allowed Ford to add an extra shift which increased productivity even more.

• The presence of efficiency wages, location and lifestyle, and human capital are some of the factors that have influenced wages.
• Table 15.2 summarizes the nonmonetary factors of income differences.

• Workers with the same ability are paid differently because of their characteristic.

• Wage discrimination is important for individuals and policymakers and economists try to understand its effects in the past and help address it today.
• Some of their observations are explored in this section.

• While most economists acknowledge that bias plays a role in wage discrimination, they believe that broader factors related to human capital play the major roles.

• Henry Ford developed a visionary assembly by sex, race or ethnic group, age and experience.

The data shows 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299 888-353-1299

• Some workers want jobs that are more fun, exciting, prestigious, or stimulating than others.
• They are willing to accept less money.
• Higher wages are required for jobs that are unpleasant or risky.

• Workers who acquire more human capital can command higher wages.

• The location will affect the compensation wage.
• Wage is less important when employment is highly valued.
• The compensation wage will be lower in both instances.

• Because firms can't do without labor, unions can threaten a strike.

• The firm pays above-equilibrium wages to help increase productivity.

• You are looking at two job offers.
• Company A is well known.
• The company's base wage is relatively low, but it offers a year- end bonus based on productivity, which can substantially boost your income.

• B's wages are higher than the norm in your field.
• A year- end bonus is not offered by this company.

• Some companies use efficiency wages to reduce turnover, encourage teamwork, and create loyalty.
• You can't bring your dog to work.

• Company B pays its workers higher wages to reduce turnover.

• Wage discrimination still exists despite the fact that employers no longer pay men more than women for doing the same job.
• The Lilly Ledbetter Fair Pay Act gives victims of wage discrimination more time to file a complaint with the government.
• The act was named after a former employee.

• She was paid less than her male counterparts.

• Women make on average $1 for every $1 men make.

• Wage discrimination is a topic that economists try to study further.
• Some jobs pay more than others, and women and men hold different types of jobs.
• Men are more likely to work in road work and construction jobs if they have exposure to extreme temperatures, bad weather, and other dangers.
• More women than men take time off from work to raise a family, which means they are less likely to work a full- time schedule, and leave the labor force for longer periods.
• Men take less time off to raise children.
• In the long term, these differences can lead to lower levels of human capital and lower wages for women.

• Differences in human capital can help explain the differences in data by race or ethnic group.
• Asian Americans who have a bachelor's degree or higher have higher education levels than whites who have a bachelor's degree or less.
• As educational differences become less pronounced, economists expect the wage disparity between groups to decrease.
• Socio economic factors play a role in the disparity.
• Some inner- city schools have low quality that can make it hard for minorities to get an education.

• Differences in human capital are reflected in the earnings gap between mid- career workers and others.
• Workers who are just starting out have limited experience.
• As these workers age, they accumulate on- the- job training and experience that make them more productive and enable them to get higher wages.
• Gains from increased experience are offset by diminishing returns for older workers.

• The location is a source of wage differentials.
• A person is working.
• The average wage for people who live outside metropolitan areas is less than it was for people in their early 60s.
• There is a gap because afterwards.

• According to research that spans the labor market from the law profession to college teaching and in countries as different as the United States and China, beauty matters.

• Income, Inequality, and Poverty can make as much as 25% below normal.

• The influence of beauty on wages can be seen in two different ways.
• Beauty can be seen as a valuable trait in many professions.
• It's not surprising that beauty is related to wages in professions such as actors, fashion models, restaurant server, and litigators.
• If beautiful people are more productive in certain jobs because of their beauty, then attractiveness is simply a measure of the value of the marginal product that they generate.
• Being beautiful is a form of human capital that the worker possesses.

• There is evidence of discrimination found in a second interpretation.
• Part of the earnings increase associated with beauty might be related to the preference of employers.
• Customers who prefer to buy products and services from attractive people could be influenced by the success of workers who are more beautiful.

• We have to acknowledge the possibility that the truth could be a little bit of both because it is impossible to determine whether the beauty premium is a compensating differential or the result of overt discrimination.

• There is a phenomenon of relegating a group of workers to a narrow range of jobs.
• Imagine a community named Utopia with only two types of jobs: a small number in economy and a narrow range of jobs.

• Everyone in the community is happy to work either job, as men and women are equally proficient at both occupations.
• We would expect the wages for engineers and secretaries to be the same.

• Imagine if everyone in Utopia had the same opportunities.

• When women in Utopia are not allowed to work as engineers, we should roll back the clock.
• Women who want to work can only be secretaries.
• As a result of this occupational crowding, workers who have limited opportunities find themselves competing with one another, as well as with the men who cannot get engineering jobs, for secretarial positions.
• Wages fall in secretarial jobs and rise in engineering.
• Because only men can work in engineering, they are paid more than their female counterparts.
• Women who want to work can only receive a low wage as a secretary, so many choose to stay at home and produce non market services, such as child rearing, which have a higher value to the women who make this choice than the wages they could earn as secretaries.

• Many of the lower- paying jobs in our society are dominated by women, even though they are not restricted to secretarial jobs.
• There are a number of female- dominated occupations in the United States.
• Men have not rushed into these jobs because of the low wages.
• Wages have remained low because women have not left these jobs to the extent one might expect.

• Discrimination, personal preferences, and rigidity in changing occupations are all part of the explanation.
• Many economists think there will be a change.
• Women are more responsible for expanding the supply of workers in most fields because they attend more colleges and universities.
• As the supply of workers expands, the net effect is likely to be lower wages in traditionally male- dominated jobs.

• Because no employer will admit to discriminating, researchers can only infer the amount of bias driven discrimination after first looking at observable differences from compensated differentials and differences in human capital.
• Unobservable differences are presumed to reflect discrimination.
• Most economists think that discrimination accounts for less than 5% of wage differences.

• There are many signs of improvement.

• The gender gap is getting smaller.
• In 1960, women in the workforce earned 60 cents for every dollar men earned.

• The gap between women's and men's earnings continues to close, with women earning an average of 82 cents for every dollar men earn.
• Women are more prepared to get jobs that pay better because they are no longer clustered in less rigorous academic programs.
• In the United States, more women than men received doctorate degrees.
• For decades, the number of women at every level of academia has been increasing.
• There are three women for every two men in postsecondary education.

• Some of the other compensation differentials that have kept men's wages higher than women's may be offset over time by this education advantage.

• The film shows the television news education.

• In the 1980s, women held 25% of purchasing man teams and began to add women and minorities to ager jobs.

• In one scene, Veronica Corningstone, a news number was just 21% thirty years ago.

• After leaving the office, Veronica began a monologue, "Here we go again."
• It's the same at every station.
• Women ask me how I dealt with it.
• I don't really have a choice.
• This is a man's world.
• While they're laughing and carrying on, I'm practicing my non regional language.

• Babe Ruth was paid $80,000 by the New York Yankees in 1930.
• In today's dollars, this would be $1 million.
• The other baseball players of Babe Ruth's era earned less.
• The annual salary of the president of the United States is less than that of top professional athletes, movie stars, college presidents, and many corporate CEOs.

• Calculating differentials is part of the answer.
• Being president of the United States means being the most powerful person in the world, and so paid compensation is only a small part of the benefit.
• The way labor markets function is part of the answer.

• This compensation structure is common in professional sports and in the entertainment industry for many years, but it also exists in the legal profession, medicine, journalism, investment banking, fashion design, and corporate management.

• Being a little bit better than your competitors can be worth a lot.
• The baseball player earned $32 million in 2015.
• As good as Kershaw is, he is not eight times as good as an average baseball player.

• It's hard to tell the difference between a major and minor league baseball game.
• Minor- league pitchers in ability lead to large throw just about as hard, the players run almost as fast, and the fielding is different.

• Major- league players make hundreds of times more than that.

• Paying so much to a relatively small set of workers may seem unfair, but the prospect of much higher pay or bonuses motivates many ambitious employees to exert maximum effort.
• We can see that winner- take- all creates incentives that encourage highly skilled workers to maximize their abilities if we look beyond the amount of money that some people earn.

• Some workers earn more than others.
• The marginal product of labor is 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- 888-609- We first look at why income inequality exists.
• We look at how income inequality is measured once we understand the factors that lead to it.
• We explain how observed income inequality statistics are constructed and what they mean because income inequality is difficult to measure.
• Income mobility is a characteristic of many developed nations that can help reduce the impact of income inequality on the life- cycle wage pattern.

• There are three conditions that need to be met for workers to get the same wages.
• Every job needs to be attractive to potential employees.
• All workers would have to be mobile.
• Perfect equality of income would require workers to be clones of each other.
• We don't live in such a world.
• Some people are more productive than others.
• Humanitarian aid workers, missionaries, teachers, and ski bums are some of the people who choose occupations where they know they will earn less.
• The natural result of a market economy is income inequality because of our differences.

• Five factors that can contribute to income inequality are ability, training and education, discrimination, wealth, and corruption.

• Workers with more ability earn higher wages.
• Large differences in wages can be caused by differences in ability, as more able workers have the ability to create larger marginal products than less able workers.

• High wages need more ability but not enough.
• Workers of all ability levels benefit from additional training.

• Each worker's human capital is enhanced by the acquisition of specific skills.
• Workers earn higher wages when there is more human capital in the marketplace.

• Discrimination harms the workers who are discriminated against, and it makes the distribution of income in a country more equal.
• Workers who are passed over for promotions or job openings because of their gender, race, age, religion, or other trait earn lower wages that do not reflect their ability, training or education.
• Discrimination limits some workers' ability to earn more.
• Since discriminated workers are concentrated among women and minorities, the net effect is that discriminated groups end up concentrated among the lowest-paid groups, leading to more income inequality.

• Children born into wealthy households earn 10% more than children born into low income households.
• A head start in life can be provided by wealth, which gives a child from an affluent home access to better education, private tutoring, a healthier diet, and many other intangible benefits.
• Higher levels of human capital can translate into higher wages.

• Trust is required in order to achieve gains from trade.

• Many less developed countries suffer from corruption.
• There is a country without a central government.
• Lawlessness has arisen because of this situation in which clans, warlords, and militia groups fight for control.
• International aid efforts often need to bribe government officials to get aid to those in need.

• Income inequality can be caused by corruption.
• Getting ahead in societies where corruption is common requires bribes to be paid to officials in order to get business permits or to ward off competitors.
• When investors can't be sure that their assets are safe, they are less likely to start a business.
• Under corrupt political systems dishonest people benefit at the expense of the poor.
• Income inequality is caused by corruption and legitimate business opportunities are lost.

• Some people are fighting back because of the damage that corruption causes.
• In India, where corruption is rampant, 5th Pillar has developed zero- rupee notes.
• The notes can be used to indicate that a person is unwilling to participate.
• A zero rupee note lets the other person know that you won't give or take money for services that are required by law or for illegal activity.
• Widespread corruption leads to more income inequality.

• Income inequality in the United States is the first thing we will look at to answer this question.
• Economists study the distribution of household income in the United States by quintiles, or five groups of equal size, ranging from the poorest fifth of households to the top fifth.

• According to the U.S. Bureau of the Census, the wealthiest 20% of people in the United States make less than 3% of total income.
• The second fifth earns 8.4% of income.
• The percentage of total U.S. income earned by the poorest households is 3.2%, while the richest households earn 51.1%.

• We can say that households in the top fifth have 16 times the income of households in the bottom fifth.
• The amount of income inequality in the United States seems large if you view that number in isolation.
• The data for the bottom quintile's income has not yet been adjusted to reflect disposable income.

• Table 15.5 compares the income inequality in different countries using disposable income.
• The countries above the line are more developed than the ones below.

• The U.S. income inequality ratio is high compared with other nations but relatively low compared with less developed nations.
• Highly developed nations have lower levels of income inequality.

• People who are at the bottom of the income ladder in developed countries earn more money than people who are at the bottom of the income ladder in less developed countries.

• The true nature of income inequality can be masked if we translate it into a number.
• In this section, we look at what the income inequality ratio can tell us and what it can't.

• The United States has an inequality ratio that is close to 10.

• The ered poor.

• The higher inequality ratio is caused by the relative success of the top income earner in the United States.
• In other words, there are more high-income people in the United States than in Japan.

• There are many successful people in Mexico.
• The success of some people is compared to the extreme poverty of others in these countries.
• High inequality ratios can be a sign of a serious poverty problem.
• The top quintile of the population has a disposable income of $60,800, while the bottom quintile has an average disposable income of $4,000.
• $60,800/$4,000 is the income inequality ratio.
• Consider Canada.
• If the lowest quintile of the population in Canada has an average disposable income of $10,500, and the highest quintile has an average of $60,800, the income ratio there is 5.8.
• In both countries, the top quintile is doing equally well, but the wide spread poverty in the other country causes an income inequality ratio that is alarming.
• The inequality ratio is indicative of a poverty problem.

• A high income inequality ratio can occur if people at the bottom earn very little or if the income of high income earners is much greater than the income of others.
• Even though income inequality ratios give us some idea about the degree of inequality in a society, a single number cannot fully reflect the sources of the underlying differences in income.

• Its value can be zero or 100 tion of a country's residents.

• The Gini index is a measure of income equality in a society.
• A nation with a Gini index of 100 would have one individual who gets all the income.
• The average Gini index is 40.

• All countries have a Gini index that is lower than 40, while those in red have a Gini index that is higher.

• The number between 0 and 1 is the Gini index.
• Economists use 100 to represent the score as a whole number between 1 and 100.

• The Lorenz curve can be used to see how income inequality has changed over time.
• The United States has seen an increase in income inequality over the last 50 years.
• At the time of the most recent Census, the red line shows the Lorenz curve.

• By 2010, the Gini index had climbed to 44.

• Goods and services are given to the poor in lieu of cash.
• Subsidized housing and the Supplemental Nutrition Assistance Program are examples of in- kind services.

• The data does not account for unreported or illegally obtained income.

• Income data alone does not capture the traded illegally.

• If you grow your own vegetables or mow your own lawn, those activities have a positive value that is not reflected in your income data.
• Many households in less developed countries produce a lot of their own goods and services.
• The amount of inequality in the less developed countries will be overstated if we don't count these.
• The number of workers per household and median age of each worker are different from country to country.
• It's more likely to be misleading if households contain more workers or older workers than if they don't.

• None of these flaws pose a serious measurement issue from year to year.
• It's fine to compare inequality data from this year with last year, but it's more difficult to compare inequality from 50 years ago.
• Income inequality in the United States increased slightly from the year before to the year after.
• We must be careful about assuming a trend because we are only looking at two data points.
• The time frame can be extended back to 1968.

• It is difficult to determine the impact of these changes on income inequality.
• A good economist tries to make relevant comparisons by examining similar countries over a relatively short period of time.

• We didn't count the standard calculations and models in official income data.

• We need to be careful not to make too much out of how well people are living on their own.
• Income analysis doesn't offer a complete picture of human welfare.
• In chapter 16 we will see that income is only one factor in determining human happiness and well- being.

• Each person has an incentive to work harder and invest in human capital if they have a realistic chance of moving up the economic ladder.

• If 10 of the poor must remain poor, income inequality will remain high.
• The lowest income group can expect to experience economic success over time.

• Income mobility data captures the dynamic nature of the U.S. economy.

• The data for 1990-2005 was adjusted.

• "The rich get richer, and the poor get poorer" is a way to think about income inequality.
• The rate of inequality increases as people make more and less money.

• The combination of these factors leads to huge gaps between those at the top and those at the bottom.

• Poverty isn't the only factor of inequality.

• A friend tells you he wants to live in a world without income inequality.

• Consider Alpha and Omega.

• Omega has 10 residents who earn $250,000 and $50,000.

• We must use quintile analysis to answer this question.
• Because there are 10 residents in Alpha, the top 2 earners represent the top quintile and the lowest 2 earners represent the bottom quintile.

• The top 2 earners represent the top quintile and the lowest 2 earners represent the bottom quintile in Omega.

• Omega has an income inequality of $250,000, $50,000 or 5.

• The quintile analysis shows an income inequality ratio of 5 for Omega, versus 3 for Alpha.

• The rich citizens of Alpha earn more than the poor citizens of Omega.

• Omega has more income inequality than the rest of the income distribution.
• One might prefer Omega if the absolute amount of income is what matters more, or one might prefer Alpha if relative equality is what matters more.

• Mobility increased through the late 1980s, but then declined for both the lowest and highest quintiles.
• The percentage of households that moved up or down at least two quintiles is shown in columns 4 and 5.

• There are differences in income mobility between the two groups.

• Low earnings are the exception for the marginal poor.
• Many young workers are willing to borrow in order to purchase a car or home because they expect to have higher incomes as they get older.

• Income inequality began with the Industrial Revolution.
• During the 18th and 19th centuries, he found high levels of income inequality.
• The pattern changed during the 20th century.

• Some economists are not convinced by the government's provision of services.

• The answer is not clear.
• By the late 1960s, technological wealth declined dramatically.

• The more wealth there, the faster it grows.
• The world's natural state is a normal return on investments for the wealthy.
• Unless economic wealth can grow faster than economic output calamities, the distribution of wealth will be equal.
• About 10% of income inequality is reduced by the impact of inherited wealth.

• Despite these criticisms, many skeptics recommend that governments increase tax rates kind words for Piketty because he succeeded in on accumulated wealth with the goal of reducing rising income inequality to the forefront of income inequality.

• Workers in their 50s have higher savings rates than younger workers.
• Retirement needs not be a period of low consumption if the worker has saved enough.
• The life- cycle wage pattern claims that changing borrowing and saving patterns over time will smooth out the consumption pattern.

• Middle- aged people with high incomes spend less than they should because they are saving for retirement.
• The elderly who have lower incomes spend more than they should because of their retirement savings.

• The poor who do not escape the lowest quintile will be the focus of the next section.
• The group spends their entire lives below the poverty threshold.

• Poverty is still a challenge in the United States.
• 15% of households are below the poverty threshold according to the Census Bureau.
• Poverty statistics will help us understand the issues.
• We look at possible policy solutions once we understand the problem.

• The poverty rate has been tracked by the Census Bureau for the last 50 years.
• The poverty threshold is adjusted each year to keep up with inflation.

• The money that represents income earned by family members in the household is what is included in an individual family's threshold.

• The data is not adjusted for cost of living differences in the family's specific geographical area.
• Poverty thresholds are crude.

• The Equal Opportunity Act was one of the measures Congress passed to fight poverty.
• The rate of poverty is higher today than it was 50 years ago.
• The US economy's output has doubled in that time.

• It would have been great if the economy's progress could be enjoyed at the bottom of the economic ladder as well as at the top.
• The stagnant poverty rate suggests that the gains from economic growth have gone to households in the middle and upper quintiles.
• Many low income workers lack the necessary skills to earn a living wage and investments by firms in automation and technology have reduced the demand for these workers.

• Children, female heads of household, and certain minorities are disproportionately affected by poverty.
• When we combine at-risk groups, for example, black or Hispanic women who are heads of household, the poverty rate can exceed 50%.

• There are a number of policies related to poverty.

• "Welfare" is not the name of a specific government program, but rather a term that describes a series of initiatives designed to help the poor.
• We look at how government assistance programs operate and how they create incentives.

• Welfare can include monetary payments, subsidies and vouchers, health services, and subsidized housing.
• The government and other organizations provide welfare.
• It is intended to help the unemployed, those with illnesses or disabilities that prevent them from working, the elderly, veterans, and households with dependent children.
• Eligibility for welfare is limited to a set amount of time and is valid only if the recipient's income remains below the eligibility cutoff.
• The Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI) and Subsidized Nutrition Assistance Program (SNAP) are examples of welfare programs.

• Goods and services can be given to the poor in addition to financial assistance.
• Medicaid provides health care to the poor.
• Local community food banks, religious households, and private charities are often used to pay for long- term medical care for low income individuals in communities or cities.

• The idea behind in- kind transfers is to protect recipients from making poor decisions if they receive cash instead.
• Some recipients may use cash transfers to support drug or alcohol addictions, to gamble, or to buy unnecessary goods and services.
• In- kind transfers can be used to limit the likelihood of poor decisions.
• Not everyone agrees that in- kind transfers are a good idea.
• Skeptics think they are paternalistic, inefficient, and disrespectful, and they argue that cash payments allow recipients to make the choices that best fit their needs.

• The Earned Income Tax Credit is a tax credit designed to encourage low income workers to work more.
• EITC offers an incentive to work at very low income levels by giving a tax credit of $6,000 a year.
• The amount is determined by the number of dependent children in the household.
• Once a family reaches an income level above its earnings threshold, EITC is phased out and workers lose the tax credit.

• Panem has twelve districts.

• Each district has its own wealth, resources, and production.
• The Capitol district regulates all aspects of life in the other poverty- stricken districts.
• The Hunger Games are where a boy and a girl are chosen to fight to the death.

• District 12 is an area with similarities to the coal mining area of Appa.
• The inhabitants of District 12 work in the mines.
• They struggle to make a result.

• As the program is phased out, workers will not face a large disincentive to work because the EITC is gradually reduced.

• The largest poverty fighting tool in the United States is the EITC.
• Critics argue that traditional antipoverty programs discourage recipients from working.

• The minimum wage is seen as an antipoverty measure.
• The minimum wage creates trade offs.

• A higher minimum wage makes it harder to find jobs.

• Welfare programs can create work disincentives, especially when we examine the combined effects of welfare and in- kind transfer programs.

• A family of five with a combined income of $30,000 a year.
• If the family qualifies for public assistance, they will get another $10,000 in benefits.
• A family with an income of $40,000 cannot receive most of the financial assistance it has been getting.
• The family's benefits went from $10,000 to $2,000 per year.
• The family made $42,000.
• Even though the family earned an additional $10,000, they lost $8,000 in welfare benefits because the person who secured part- time employment felt it wasn't worth it.
• The family was able to raise its net income by $2,000 and return $8,000.
• The loss of those benefits as they are phased out creates a large disincentive to work.

• The dilemma that poverty- reducing programs face is that those that provide substantial benefits can discourage participation in the workforce because a recipient who starts to work, in many cases, no longer qualifies for the benefits and loses them.

• Many economists are concerned about the consequences of welfare programs.
• A society that establishes a generous welfare package for the poor will face a Samaritan's dilemma.
• President Bill Clinton made a vow in 1996 to end welfare as we know it creates disincentives and for it to be a second chance, not a way of life.

• Clinton encouraged states to require employment searches in order to receive aid.
• The TANF program imposed a maximum of five years for when a recipient can receive benefits.

• Muhammad Yunus received the peace prize for his work helping poor families in Bangladesh.
• Income, Inequality, and Poverty is a new type of loan that has lent more than $10 billion to poor people in Bangladesh in an effort to eliminate extreme poverty.

• Repayment of the loans is based on an honor system.
• According to one survey, over 50% of the families of Grameen borrowers have moved above the poverty line.

• It all began with a few thousand dollars.
• In 1974, when he was trained as an economist in the United States, Muhammad Yunus lent money to 42 villagers in Bangladesh who made bamboo furniture.
• The villagers were able to purchase their own raw materials thanks to the loans that were paid back.

• There was a truly innovative idea by Yunus.
• To be eligible for a loan, applicants must belong to a group.
• The others can get their loans once the first two start paying them back.
• While there is no group responsibility for returning the loans, the Grameen Bank believes that it creates a sense of social responsibility, ensuring that all members will pay back their loans.

• He was proved right because he trusted that people would honor their commitments.

• There are two different welfare programs in your state.
• Each person will get $8,000 under the first plan.
• The second plan doubles any income earned up to $12,000.

• Think about incentives.
• Under the first plan, recipients' benefits are used to lend a helping not tied to work.

• The policy acts as a positive incentive to get a job.
• Someone who works 20 hours a week and earns $10 per hour would make $200 per week, or about $10,000 a year.
• The person would get an additional $10,000 from the government under the second plan.

• There is a dilemma with the stewardship of the donations.
• The largest possible set of needs are what donors want their gifts to benefit.

• Not all charities are aboveboard.

• Here are a few things you can do to make a difference.

• Find out how much of your money will be used for charity.
• If the organization isn't willing to share this information, walk away.

• In order to confuse donors, some organizations use names that are similar to well- known organizations.

• Don't give in to emotional appeals that talk about lems but don't explain how donated money will be spent.
• Donate without succumbing to high-pressure tactics or solicitations made over the phone.
• Ask for written materials about the charity.

• Ask if donations are tax deductible.

If you are audited, how can you make sure your donation gets to you?

• Give generously after you have done your due diligence.

• Income and work have long been a topic of contention.
• Some jobs pay more than others, and working hard and performing well at one's job don't guarantee good pay.
• Wages are affected by a number of factors, including location, education and human capital, union membership, and efficiency wages, all of which create income inequality.

• Two of the five foundations of economics are trade- offs and incentives.
• The debate about how society should handle income, poverty, and inequality is complex and passionate.
• The narrowing of the wage gap between males and females is one of the data that shows society is improving.
• There are always trade-offs in economics.
• Highly productive workers may not work as much if policies are put in place to reduce income inequality.
• Poverty initiatives may have unforeseen consequences.
• Good intentions alone won't close the wage gap or decrease income inequality, but the use of incentives might.

• Compensation differentials, education and human capital, location, lifestyle, union membership, and efficiency wages are some of the nonmonetary factors of earnings.

• Economic studies say wage discrimination accounts for less than 5% of wage differences.

• Women still earn less than men.

• The wage gap is partially explained by occupational crowding.
• Significant wage differences will persist if supply imbalances remain in traditional male and female jobs.

• Income inequality can be caused by five factors: ability, training and education, discrimination, wealth and corruption.
• The income inequality ratio can be used to measure a nation's level of inequality.

• Income inequality is reduced by economic mobility.
• Due to the life- cycle wage pattern, distinct borrowing and saving patterns over an individual's life smooth out his or her spending pattern.

• The poverty rate is determined by economists.

• Despite many efforts, the poverty rate in the United States is still higher than it was 50 years ago.

• Efforts to reduce poverty are subject to the Samaritan's dilemma because they can make it harder for recipients to support themselves.

• Full- time working men are included in the antipoverty program.

• If society restricted the economic to earning $50,000 each, two of them would be able to get $60,000 opportunities of right- handed persons to jobs each.
• Four families earn $10,000 in construction, while left- handed people can each make $50,000, and four can work any job.

Would left- handed workers make more?

• If right- handers are allowed to work in fields, they should be able to work any job they want.

• Not all internship positions are paid.

• Discuss how to reduce income inequality.

• Consider two communities.

• The government is considering how much it will cost to attend college.

• Each household should get $10,000.

• The minimum would be doubled minus the recipient's income.

• You have to match the income of the low-income people.

• A company has 10 employees.

• A number of famous people appeal to management to help reduce income inequality.
• The com all dropped out of college.
• When college graduates ary, why would anyone decide to pay each worker the same amount of money?

• There are 10, 10, 11, 11, 12, and 12 units produced.

• If the money is given, the return on your wealthy friend's invest will be higher.
• To go to college.
• College forgot about incentives.
• Students earn more than high school graduates did in order to create equal pay.
• The workers reduced their revenue product of the poor students' labor because hard work is not in additional education.

• The college should be scrapped because of the higher earning power.

• Tracy's condition is difficult because she lives in poverty, which will reduce the amount of money in the country and the jobs in the city in the future.

• When away in, calculate the average output.
• She comes from a broken family and her mother left her father because he had a drinking problem.
• The necessity of caring for and the lack of nearby job 16 + 18 + 19 + 21 + 23 + 25 + 30 + 191 are some of the factors.
• When the company decides to pay for economic opportunities elsewhere, Tracy's father prevents her from taking advan age output.