CHAPTER 20
Test Yourself
3. (a) Odd-job repairs in private homes: perfect competition.
(b) Low-priced clothing for women: pure monopoly.
(c) Auto manufacturing: bilateral monopoly.
4. Many secretaries found their marginal productivities considerably increased by computerization. With modern word processing equipment they could produce more letters and documents, faster and more elegantly. Some telephone operators found their marginal productivity reduced: with the advent of automatic, computerized switches, there was no further need for their skill of plugging wires into holes on black boards. Those whose productivity was increased were in areas in which they could cooperate with and use the new technology. Those whose productivity was decreased were in areas in which the new technology simply replaced their skills.
Discussion Questions
1. The supply of youthful, (fairly) unskilled labor is relatively high in colleges and college towns. This leads one to expect that the marginal productivity of such labor is driven to fairly low levels, and the consequence is low wages. The college itself may be such a major employer of student labor that it can act as a monopsonist, and reduce the wage below the value of the marginal product. If students formed a union they might be able to withhold labor, and/or insist on a minimum wage that is higher than the prevailing wage. They would face the danger, however, of reduced employment.
8. While GDP per capita has risen, real wages have not. There may be many reasons for this, among them increased labor force participation rates and a shift away from wages toward other forms of non-wage income.
13. Constant innovation holds the key. What holds good for a leading company also holds good for a leading economy. Most of the erstwhile leading economies stagnated and failed to adapt, because of which the mantle passed over to eager competitors.