Final Exam Review Questions

Chapter 18 – Factors of Production
1. Explain why the labor demand curve is the value of the marginal product curve for labor
2. Explain why the labor supply curve is usually upward sloping
3. Explain why a competitive firm maximizes profit when it hires labor to the point where the wage equals the value of the marginal product of labor
4. Demonstrate the similarity between the labor market and the market for other factors of production
5. Explain why the change in the supply of one factor alters the value of the marginal product of the other factors

Chapter 19 – Earnings and Discrimination
1. Explain why an economics professor earns less than a corporate economist of similar age, background, and training
2. Explain the differing impact of policies aimed at increasing the educational attainment of all workers under the signaling and the human-capital view of education
3. List the characteristics of a market where superstars can arise
4. List three reasons why a wage can rise above the equilibrium wage
5. Explain why differences in wages among groups does not by itself say anything about how much discrimination there is in the labor market
6. Explain why competitive employers are unlikely to discriminate against groups of employees unless the customers or the government demands it

Chapter 20 – Distribution of Income
1. Explain how the women’s movement has affected income distribution in the United States
2. Name some factors that cause the measurement of income distribution to exaggerate the degree of income inequality
3. Compare and contrast utilitarianism, liberalism and libertarianism
4. Explain the concept of a negative income tax

Chapter 21 – Theory of Consumer Choice
1. Draw a budget constraint on a graph if you are given the value of income and the prices of the good
2. Explain why indifference curves must slope downward in the two products considered are ‘goods’
3. Explain the relationship between the relative prices and the marginal rate of substitution between two goods at the consumer’s optimum
4. Shift the budget constraint when the price of a good increases
5. Demonstrate the income and substitution effect on a graph using indifference curves and budget constraints
6. Show why someone’s labor-supply curve might be backward sloping

Chapter 22 – Frontiers
1. Describe the information asymmetry in the labor market
2. Explain why insurance companies screen potential customers
3. Generate an example of the Condorcet voting paradox
4. Explain why people are willing to sign contracts that require them to contribute a portion of their paychecks to a retirement savings program.