Econ 211 Exam 3 Topic Study Guide

This guide is to be used in addition to the practice questions posted on Canvas in Modules.

Chapter 11 The Labor Market

 Use the income and substitution effect to explain why an individual demand curve might bend backwards.
(Figure 1)
 Know the four shifters for the market labor supply curve.
 Marginal revenue product is the marginal physical product of labor times marginal revenue.
 Understand why a firm’s demand for labor is the MRPL. (Figure 3)
 Learn the 3 shifters for labor demand.
 Know the 3 factors that affect the elasticity of demand for labor.
 The wage rate for a firm in a competitive market is determined where market demand equals market
supply. The firm chooses to hire labor where the market wage rate is equal to firm demand (MRPL or
VMPL). (Figure 4)
 Be able to find the optimal number of workers to hire given a graph or table (see Table 1 and Figure 3)
 Use two labor market graphs to show how a firm that discriminates against a group of workers will actually
reduce their own profits relative to a firm that does not discriminate. (Becker’s theory, see class written
notes)

Chapter 15 Poverty and Income Distribution

 What is the difference between wealth and income?

 Is there a greater inequality in the US with wealth distribution or income distribution?
 Understand the concept of quintiles and how we use data to construct Lorenz curves.
 Be able to figure out relative changes in the Gini coefficient when shifting a Lorenz curve to the right or
left. (Figure 3)
 What are the main causes of income inequality?
 What percentage of Americans are living in poverty?
 Be able to calculate income deficit.
 If you spend 20% of your budget on food, does this indicate that you might be living in poverty?
 Have poverty rates improved in the US since 1960?
 Explain some traditional and some new factors causing poverty in the US.
 Understand the Rawls vs Nozick argument.

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Chapter 13 Externalities and Public Goods

 What do we mean by market failure? Know the three types of market failures.
 Define externality. What do we mean by positive and negative externality? Know examples.
 Be able to draw 2 of the main categories of externalities (positive externality for consumption and negative
externality for production). Label private benefits/costs vs social benefits/costs. (see externalities
worksheet)
 Understand conditions for the Coase theorem.
 Be able to reproduce the chart showing the taxonomy of 4 main types of goods using degree of rivalry and
excludability. Know the 4 main types of goods and some examples. (Table 2)
 Is emergency room health care a public good?
 Understand why we need a large number of people to participate for insurance to work properly.
 Use asymmetric information to explain who is more likely to buy health insurance, healthy people or sick
people.
 True or false: Since the United States spends more than any other country on health care, we have better
results than any other country.
 Understand marginal damages and marginal abatement costs and use this graph to explain why zero
pollution is not optimal. (Figure 6)
 Be able to determine a Pigouvian tax on a graph.
 Explain the difference between command and control and market-based environmental policies and know
examples.
 Why do CO2 levels fluctuate within a single year? Why have global CO2 levels been increasing
exponentially since 1958? What does this have to do with climate change?
 Did cap and trade reduce sulfur dioxide and acid rain problems in the US?
 Does Knoxville currently meet air quality standards set by the EPA?