Freakonomics -A Rogue Economist Explores the Hidden Side of Everything - Assignment Example

Economics: Questions and answers Name Institution Date Q1. It is worthwhile noting that both income and leisure are consumer goods, which are the consumer desires to get more of each one of them. Significantly, if the efficacy function is in a way that extra income constantly elevates leisure’s marginal utility, it will as well be depressing provided that income is not insignificantly negative. This means that provided that extra income has no effect in decreasing leisure’s marginal utility to huge levels. Consequently, one can define leisure as a normal good provided that the incomplete offshoot defined by ones attitude is negative. Conclusively, any good is said to be normal if its respective best consumption rises when the financial plan restraint shifts external wise with no changes in slope. Consequently, if ones attitude is positive, we conclude that leisure is a second-rate. Consequently, I do disagree with the above notion because it does not tally with model of typical labor supply (Levitt, 2011). Q2. Assuming that capital refers to a typical input; the enlargement in the cost of capital raises the firm’s marginal costs and will decrease the level of profit maximization output approximately 100 units. Notably, the rise in the cost of capital furthermore squashes the isocost arc. Consequently, I do agree with the notion that the firm will use more workers and capital in the case that there is a decrease in the cost of capital. Q3. Where q is output; that is, value added and where one omits time subscripts to diminish notation. Notably, the term labor indicates the total workers in the process of the production process whereby one completely presume steady working hours for each year. Consequently, the amount of workers and the sum of hours utilized in production are, in addition to a steady scale limit, the same. Significantly, the collective production utility as shown in the above equation points out that value added is determined by two inputs; that is, capital and labor. Considerably, one can simply extend the total inputs. Notably, the condition of the practical form of the above equation creates a function of production that points out the relationship of out put to inputs or, the relationship of inputs to outputs. Considerably, among the key features of functions of the production is the extent of replacement potential between inputs. Conclusively, I do disagree with the statement that the above equation indicates there is zero substitution elasticity between labor and capital. Q4. The compensating wage disparities theory presents a hypothetical structure to clarify why the ‘underlying’ pay structure varies among geographical quarters. Notably, rivalry in labor markets guarantees that the aggregate rewards of diverse jobs will be apt to fairness. Consequently, elevated pay in certain areas is probable where the living cost is high while elevated pay is as well essential to pay off for less pleasing working surroundings. The pay rate in the private quarters signifies the precise rate required to draw and preserve staff. Therefore, all else equivalent a higher pay rate in a certain area implies that such an area is insignificantly attractive. The pay presented in such an area aims at countering the region’s virtual unpleasantness. Conclusively, I do agree that the above statement does not contradict with the theory of wage disparities compensation. This is because although some jobs in the private sector may pay well, such a move may be aiming at persuading labors to join the firm. Significantly, , in a normal setting jobs like masonry require huge physical strength yet they pay little money, while consultancy oriented jobs which do not significantly require huge physical strength pay huge wages. Q5. It is worthwhile noting that, the key distinction between signaling model and the model of human capital lies in the fact that signaling models let firms illustrate deductions about unnoticed workers’ characteristics. Significantly, such deductions can be with regard to schooling or workers’ work experience, or on straight measures of a certain job performance aspects. Considerably, many current experiential findings can significantly be clarified by signaling models as opposed to the theory of human capital. Consequently, due to the signaling models’ explanatory power, standard approximation of the secondary schooling’s social return are significantly key distinctions in affective personalities like determination, which were obtained either at home or in the level of primary school. Consequently, I do disagree with the statement that the difference between policy implications of the model of human capital and the signaling model is basically by the fact that signaling models assumes a positive correlation between schooling years and earning (Levitt, 2011). Q6. (A). The wage of the reservation is the MRS when totally not working. Therefore, wRES = MRS at utmost free time = C / L = $630 / 168 = $3.75. (b). U(C, L) = (C – 200) × (L – 80). The above utility function means that Jessica’s leisure marginal utility is about C – 200 and her consumption marginal utility is approximately L – 80. Notably, there are exactly 168 hours weekly accessible to divide between job and leisure. Jessica earns about $5 hourly after taxes. Significantly, she also earns $320 welfare benefits weekly in spite of the amount of work. Q7. since labor along with capital are ideal substitutes, therefore the isoquant for making 100 output units is linear furthermore the firm will utilize just labor or capital, with respect to which is comparatively cheaper in making 100 output units. The (total value of the) isoquant’s slope (MPE / MPK) is a third since one machine replaces the work of three people. Notably, when the wage is around $300, the isocost’s is approximately 300/750. Significantly, the isocost curve, thus, is significantly steeper compared to the isoquant and also the firm merely employs capital (at tip A). Considerably, when the wage per week is about $225, then the isoquant is significantly steeper compared to the isocost and the firm employs merely labor (at tip B) (Levitt, 2011). The labor demand elasticity refers to the proportion of labor change divided by the proportion difference in the wage. Notably, since labor demand rises from 0 to a better amount as the wage declined to approximately $225, the labor demand elasticity is infinity. Q8. (A) There will be no significant consequence on the labor supply in the North during the short run; therefore, the rate of wage will not adjust there. However, In the South, supply of labor will have risen by about five percent; therefore, the rate of wage must reduce by approximately 5/ (0.5) which is the same as 10 percent. The new wage per hour in the South, hence, is $13.50 while the South’s total employment is 420,000. (b). after the first migration, it is clear that wages in the South are $13.50 whereas wages in the North are fifteen US dollars. The above difference results to 1,500 citizens shifting from the South to the North in the primary year. Notably, Employment in the North following a year thus is 601,500. In addition, as demand labor elasticity in the North is roughly -0.5 plus employment has risen by approximately 0.25 percent, therefore the Northern wage declines by approximately 0.5 percent to almost $14.93. Similarly, employment in the South following one year period year is roughly 418,500. Considerably, as the demand of labor elasticity is approximately -0.5 while employment has risen by about 0.3571 percent, consequently, the Southern wage raises by approximately 0.71428 percent to nearly $13.60. Consequently, the proportion of the Northern wage to the Southern wage following one year period is roughly 1.09779 (Levitt, 2011). (c) In the long run, it is significant that people ought to from the South to the North in order to balance the rates of wage in the above- mention regions. Notably, given that the wages were the same in the above- mentioned regions prior to the immigrants’ influx, and they as well ought to be the same after things the above situation, the relative decline in the rate of wage should be the equal both in the North and in the South. Significantly, because the demand labor elasticity is equivalent in the above- mentioned regions, the above observation means that the proportion of the rise in employment in the North ought to be the equal as the proportion of rise in employment in the South. Consequently, as sixty percent of the initial workers were working in the North, sixty percent of the roughly 20,000 the rise in Southern employment will finally shift to the North. Notably, in the long run, then, overall employment in the Northern will be approximately 612,000 whereas overall employment in the Southern employment will be around 408,000. Considerably, in all regions, then, employment rises by about two percent in the long run, that is , about 12,000 is two percent of the roughly 600,000 and approximately 8,000 is around two percent of 400,000. Consequently, assuming that demand labor demand elasticity is approximately -0.5, the two percent the rise in employment will result into wage rate declining by about four percent. Therefore, the long-run equilibrium wage per hour will be almost $14.40. Q9. It is worthwhile noting that, there is a good deal of evidence on the constructive influence of education on production, as well as development. Significantly, tertiary learning should, consequently, be emphasized predominantly with the current humanity of advanced information and technology and globalization. Notably, the above need is significantly vital with production development being a critical prerequisite towards socio-economic development. Considerably, there is a warning deriving tough fifteen policy propositions from the above results principally since several non observables are merely fully controlled, therefore could significantly influence the results. However, there is an apparent suggestion on the growth of education at every educational level. Additionally, this must as well factor in the value and significance of such educational development to the economy, as well as society. Notably, positive although low return rate to education and correspondence between education, familiarity, its square, as well as wages for people described by gender, following, constructive and noteworthy return rate to education and correlations between education, experience, its square and wages described by size of the firm and industry at the micro stage in all industrial firms plus third, a rise in level of skills and size of firm leads to enhanced correlation between real education, requisite education, knowledge, its square as well as wages at the micro stage in all industrial firms. It is significant highlighting that, due to the critical position of return rate to education, certain theoretical models are vital. For instance, there is the Decision theory, which explores rational choices. Significantly, is vital in predicting and giving details on actual choices, as well as to develop real decision making. Notably, the first principle refers to the positive theory while the second one refers to normative theory. Despite the fact that the principal aim in positive theory is to foretell and give details on the actual choices, normative theory aims at understanding how to advance concrete decision making; hence, provides an understanding of decision theory several applications. Additionally, Decision theory can predict equilibrium realized by certain evolutionary process. For instance, such an evolutionary development may refer to a biological evolutionary course or a cultural process of evolutionary. The models developed in this case initiate the learner to several tools, as well as models of decision theory, especially in the human race devoid of doubt. Notably, one should first reflect on decisions aimed at profit-maximizing that firms formulate in completely competitive markets, demonstrate how the theory explains supply along with demand choices, and the manner in which it explains the “market” setting value to realize a competitive stability. Significantly, the above model is extended to consumers, whose favorites can take a significantly general structure, which enables one to develop “efficacy” functions, a vital tool during decision theory, as well as game theory. Additionally, the idea of efficiency emerges from studies on the above- mentioned theories, which can be employed to calculate the products that the employed models predict. Particularly, one identifies that, competitive markets, dominated by self-interested individuals, are resourceful, compared to the monopoly markets. Bibliography Levitt, S. (2011). Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. Charlottesville, VA: HarperCollins. Read More