Reference no: EM133366861

Question 1. List at least two examples of ways in which firms are not "anti-market". In other words, what are ways that firms use and/or respond to price mechanisms within their production process?

Question 2. What happens to the effectiveness of price mechanisms at organizing economic activity (i.e., allocating scarce resources in an efficient manner) transaction costs rise? In a few sentences, describe why this is the case.

Question 3. There can be real benefits to workers from the ability to organize and negotiate through labor unions. However, when labor unions bargain with firms for salaries, price mechanisms are impeded in a few ways. One of these ways is that the negotiated salaries are generally not meritocratic (e.g., raises are based on seniority rather than productivity). As a policy maker, it's important to know which markets are more appropriate for labor unions (e.g., where unions are likely to be the least inefficient).

a. Describe why it is likely to be inefficient if all workers at a firm are paid exactly the same wage.

b. Make an argument for which market would see less salary distortions (inefficiencies) from a union presence: one in which productivity is easily observable (e.g., manufacturing) or one in which productivity is not easily observable (e.g., public education).