Hey everyone,
I hope to have GR's back to you Tuesday along with our updated syllabus through the end of the international trade block. Keep thinking about why people get paid what they get paid. Specifically, if messing with prices is a bad idea how would that relate to wages? If an employer (like a producer "overcharging") underpays his/her employees, what will be the effect on the business?
More generally wages are affected by the seven principles. For example when there are only a few people who can do specific things they might get paid a lot more than others (scarcity). So, a neurosurgeon gets paid more than even a family practice doctor. However, scarcity isn't the only factor that comes into play, alternatives also matter. Normally we talk about alternatives via opportunity cost or comparative advantage. Whether I am a world renowned PhD holding Economist or a world renowned PhD holding English professor, the scarcity of each is about the same but they get paid completely different amounts for the same jobs (proffessor at a university), why? The answer is alternatives, as an economist my skills lend me to have many other alternatives and a much higher opportunity cost than the english professor. Having more alternatives means that my opportunity cost of teaching is higher and so the school must compensate me accordingly.
Finally, what does it mean for someone to be productive? Many times it depends on the people and tools at my disposal. If you put me (with my skills) in Somalia, my level of productivity will change while I haven't changed at all. How many machines (physical capital) I have also depends on how much they cost me relative to other options, like hard labor. There is a tradeoff between machines and people and the relative costs of each will determine equilibrium.... If people are more expensive, I'm more likely to find machines that can do the job.
As for assignments:
Read BE 207-212 & 229-233 and answer this question along with your regular journal entry:
-Would you expect the average hammer to drive more nails per year in a richer country or a poorer country? Would you expect the average worker to produce more output per hour in a richer country or a poorer country? Explain the reasons in each case.
Also, Read BE 212-218 & 222-229 and answer:
-What determines how much people are paid to work? How is this like prices?
Vocabulary terms to memorize:
I hope to have GR's back to you Tuesday along with our updated syllabus through the end of the international trade block. Keep thinking about why people get paid what they get paid. Specifically, if messing with prices is a bad idea how would that relate to wages? If an employer (like a producer "overcharging") underpays his/her employees, what will be the effect on the business?
More generally wages are affected by the seven principles. For example when there are only a few people who can do specific things they might get paid a lot more than others (scarcity). So, a neurosurgeon gets paid more than even a family practice doctor. However, scarcity isn't the only factor that comes into play, alternatives also matter. Normally we talk about alternatives via opportunity cost or comparative advantage. Whether I am a world renowned PhD holding Economist or a world renowned PhD holding English professor, the scarcity of each is about the same but they get paid completely different amounts for the same jobs (proffessor at a university), why? The answer is alternatives, as an economist my skills lend me to have many other alternatives and a much higher opportunity cost than the english professor. Having more alternatives means that my opportunity cost of teaching is higher and so the school must compensate me accordingly.
Finally, what does it mean for someone to be productive? Many times it depends on the people and tools at my disposal. If you put me (with my skills) in Somalia, my level of productivity will change while I haven't changed at all. How many machines (physical capital) I have also depends on how much they cost me relative to other options, like hard labor. There is a tradeoff between machines and people and the relative costs of each will determine equilibrium.... If people are more expensive, I'm more likely to find machines that can do the job.
As for assignments:
Read BE 207-212 & 229-233 and answer this question along with your regular journal entry:
-Would you expect the average hammer to drive more nails per year in a richer country or a poorer country? Would you expect the average worker to produce more output per hour in a richer country or a poorer country? Explain the reasons in each case.
Also, Read BE 212-218 & 222-229 and answer:
-What determines how much people are paid to work? How is this like prices?
Vocabulary terms to memorize:
Productivity – the relationship between inputs and outputs, which can be applied to individual factors of production or collectively. Labor productivity is the most widely used measure. Much of the differences in countries living standards reflect differences in their productivity.
Capital – One of the four essential ingredients of economic activity or factors of production. Money and assets put to economic use. Examples include human capital, social capital, financial capital, and fixed capital.
Labor – One of the factors of production; determined by the number of people in the population, their willingness to work, laws and regulations, and the health of the economy and firms.
Wages – the price of labor. In practice, wages are often sticky, especially in a downward direction: when demand for labor falls, wages do not fall. Instead, the fall in demand results in higher involuntary unemployment.
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