Few firms (ambiguous- used HHI and CR-4 or CR-8 to help define), barriers to entry, same or differentiated product.

-An economist would determine how these factors influence the wage. After controlling for all of these factors, if there is a difference in factors such as gender, race, or age (now separated from productivity), then there is evidence of discrimination in wages
-Economists can create fake resumes that control for all the factors that should influence the hiring decision based on productivity and create names that “sound” white and non-white to find evidence of a statistical bias in the call back rate.

Bentham – redistribution is good if it increases total utility (true if additional happiness of gaining a dollar for lower income individuals is greater than loss of a dollar from wealthier people). Rawls – redistribution should be used to gain desired (through a vail of ignorance) distribution. Nozick – government should not redistribute income, simply enforce property rights and contracts.

When a firm operates in its best individual interest and the outcome is not collectively best. This result occurred in a single time period. If there are multiple time periods, firms can follow strategies where the collective (collusive) outcome is reached, thus there needs to be antitrust laws to monitor anticompetitive behavior.

An enforcement mechanism creates an incentive for a player to stick to a collusive strategy as opposed to cheating on an agreement. In order to develop an enforcement mechanism a game needs to be played more than once. We used game theory because there are only a FEW firms in the market, thus the actions by one firm influence the profits of other firms.

If a game is only played in one time period, then the profit incentive to cheat on an agreement creates a scenario where antitrust would not be necessary. However, when playing games in multiple time periods (like real life) players can create enforcement mechanisms and collusion is possible. Thus, the government can still theoretically increase the well being of society.

Complete equality would take away the financial incentive to work or to attempt to become more productive. “Too much” inequality could be viewed as unfair (veil of ignorance), concerns with law creation, possible revolution of mobility is limited, and possible slowdown in economic growth (due to differences in MPC)

Number of households that fail to reach a level of income (based on family size, called poverty threshold) divided by the total number of households.

Compensating wage differentials- people get paid more to take on less desirable jobs
Ability, effort, chance- ability and effort create more productivity
Human capital (edu, experience, skills)- creates more productivity
Labor Unions- greater negotiation power for workers
Efficiency wages- offering higher wages to reduce turnovers, increase cost of shrinking, and attract higher productivity workers
Minimum wage was offered as something that could alter the market wage, but it does not create wage differentials (unless some occupations are subject to it and some are not).

Since there were a few firms and they could have different costs and face different firm-specific demands, there was no way for us to represent an outcome on a graph and discuss surplus amounts. Thus we indicated what would make an outcome more competitive (lower prices, higher quantity, greater total surplus) as opposed to less competitive (higher prices, lower quantities, less total surplus) all else being equal.

Number of firms – an increase leads to more competition.
Barriers to entry – an increase leads to less competition.
Enforcement of antitrust laws – an increase leads to increased competition. Relative size of firms – an increase leads to less competition.
Product differentiation – an increase leads to less competition.
Ease of communication – an increase leads to less competition.

We defined poverty as an income threshold that depended on household size and ages of household members. Assuming that firms didn’t change the number of worker hours, an increase in minimum wage would increase the incomes of poor workers. However, firms now have an incentive to decrease hours or workers due to the increased cost of labor. If a person receives a wage increased and a cut in hours, the overall income may not change at all. Expanding the earned income tax credit (a payment to people working and earning income below a certain threshold depending on household size). In addition, the EITC reduces its benefits as income rises, but still gives recipients.

Minimum wage – firms could decrease employment, choosing not to hire people who are poorest.
In-kind transfers (SNAP, Section 8) – if awarded on absolute income level, provides a strong incentive to stay below that level, disincentive to work.
EITC – phases out benefits to encourage more work, but only applies to people who earn money.
Welfare – provides direct payments, could discourage work because it is rewarding non-work.

No, an economist would note that the 23 cents is the difference in average wages. However most of the differences in wages can be explained by factors that influence wages. When these are controlled for, there is still some evidence of gender wage discrimination, it is not as high as 23 cents.

Each person specializes in part of the production process (where they have a comparative advantage), which we call a job. For this work, people are compensated with money that they use to trade for goods and services. This allows people to expand their consumption possibilities.

I am assuming Pollywogs are normal goods. An increase in income increases demand for normal goods. Thus, the demand curve shifts to the right. At P0, the Qd > Qs or there is a shortage. A shortage causes an increase pressure on price until the shortage is eliminated (at P1, Q1). Overall there has been an increase in price and an increase in the equilibrium quantity.

-Sherman Antitrust Act (1890): outlawed price fixing (collusion) and the existence of monopolies or the attempt to monopolize. Attempting to increase competition (lower price, higher quantity, greater total surplus)
-Clayton Act (1914): outlawed business practices if deemed to by anticompetitive, once again attempting to increase competition. Included price discrimination, tying arrangements, exclusive dealing, and mergers and acquisitions

Neither firm has a dominant strategy. If WB chooses May, it is in Disney’s best interest to choose December and if WB chooses December, it is in Disney’s best interest to choose May. If Disney chooses May, it is in WB’s best interest to choose December and if Disney chooses December, it is in WB’s best interest to choose May.
There are two Nash Equilibria in this game (May, December) and (December, May). In the (May, December) outcome, WB is doing the best it can if Disney chooses December and Disney is doing the best it can if WB chooses May. In the (December, May) outcome, WB is doing the best it can if Disney chooses May and Disney is doing the best it can if WB chooses December.

HHI – the sum of the squared market shares. Between 0 and 1500 is highly competitive, between 1500 – 2500 is somewhat concentrated and above 2500 is highly concentrated.

For income inequality, we looked at the income differences between the quintiles of income earners. The degree to which the top quintile was greater than the bottom quintile was the measurement.
A problem with this measurement is that it only looks at income in a single year and income is transitory. Also, it does not account for in kind benefits. Additionally, it does not account for life-cycle effects (the ability to move from one quintile to another as you move into the prime years of earnings).

Profit from price discrimination must exceed profits from a single price (firms are profit maximizers). Market power – without market power, a firm is a price taker and cannot charge different prices to different consumers. Different consumers and a way to differentiate them – need in order to charge different consumers different prices. Prevent resale – if you cannot, lower demand consumers will buy the good for a lower price and sell to higher demand groups, taking away your profits.

compensating differentials: paying more for more pleasant working conditions
-education and human capital: paying more for more productivity from knowledge and skill
-unions: change the balance of power allowing for higher compensation
-efficiency wages: firms pay more to increase productivity and make more profits
-superstar or tournament

We used game theory because there were a few firms in the market so the actions of one firm can influence the profits of other firms. In our one time period game, we showed that firms have individual incentives to cheat (produce more or charge a lower price) on a collusive agreement. However, if a game is played over time, it is possible to develop strategies where collusion can lead to greater profits than cheating.

Nash – each player is doing the best it can GIVEN what the other player is doing. Dominant strategy – a strategy that is best NO MATTER WHAT the other player is doing. If players are following their dominant strategies then they are automatically doing the best they can given what the other player is doing (because it is the best regardless).

WhaWelfare-programs that provide financial assistance to people who are needy and have an additional qualification (such as children or a disability). Since the programs provide assistance for being needy, there could be a disincentive to earn more money.
In kind benefits – food stamps, housing, healthcare. Major problems with these is that they create a disincentive to work at a certain income level.
EITC – provides money for people as long as the earn money, but not a lot. This program provides great incentives for work. Two problems: first, it is relatively small for many people and second, it is not available for people who cannot find work.
Minimum wage – creates a minimum amount to be earned. Incentive issue is that it can reduce employment and the first people to lose their jobs will be the least skilled.t is

when each player is doing the best it can given what the other player is doing