Northeastern University

University College

Economic Principles III

ECN 4117 Winter 1995 Due:- March 3, 1995

Problem Set #3

1. Discuss critically how the wage rate and the level of employment is determined in the following labor market conditions.

a) Perfectly competitive labor market

b) Monopolistic labor market

c) Union dominated labor market

d) Bilaterally monopolistic labor market

You know the enormous difference between the wage rates in the United States and in many developing countries such as Mexico, Brazil, China and India. What other economic factors besides the structure of labor markets are responsible for such differences?

2. Do question #2 on page 531 of the text.

3. Do question # 2 on page 551 of the text.

4. Do question #11 on page 566 of the text, and the following sub questions.

a) State why do you like or do not like the idea of marginal productivity theory of income distribution.

b) Briefly discuss the theory of determination of economic rent, interest rate, and profit. How can you explain the fact that in the most capitalist economy such as of the United Sates, the share of labor in the GDP is about 80 percent leaving only 20 percent share of GDP to owners of non-labor resources?

5. What is so-called principal-agent problem in labor market studies? What are its consequences and what are its solutions? How might the efficiency wage system solve this problem?