I. Contract? What Contract? a) How would you use the concept of Supply andDemand
ID: 1234017 • Letter: I
Question
I. Contract? What Contract?
a) How would you use the concept of Supply andDemand to Explain the problem you just read about?
b) How is this problem related toInterventions that violate Equilibrium in the Market Place base don the principles of Supply and Demand
c) How would you relate one or more issuesraised in this article to the concept of Efficient Production andCost Minimization?
d) What are some of the NormativeIssues that can be raised in this article?
e) How will an economistrespond to normative issues especially in light of the supply anddemand issues above?
Explanation / Answer
a) In this case, the supply of unskilled labor is very largecompared to the demand. People would like to work at Harvard due tothe prestige associated with the university, and given thecompetition for jobs, unskilled workers are willing to put up withless pay and abuse in order to retain their position. There isexcess supply for only limited demand for unskilled labor. b) Due to interventions such as the imposition of minimum wagelaws, the supply of unskilled labor is much greater than thedemand, resulting in a surplus of workers who are unable to findjobs. If the market is allowed to freely establish its equilibrium,the average wage may be much lower than the regulated minimal wage,but more workers will be able to find work and won't be forced tosuffer on-the-job mistreatment. c) Harvard is clearly engaging in cost minimization by categorizingthe workers as part-time workers. Because of the benefitsassociated with a full-time position (eg insurance, retirementbenefits), paying for 2 part-time jobs is inherently cheaper thanpaying for 1 full-time position, even if both work the same numberof hours. d) The normative issues raised here have to do with theexploitation of unskilled workers because of the abundance in theirsupply. It brings to question what an ideal system should be likewhere the bargaining power on the demand and supply side can berelatively equal. e) An economist may argue against minimum wage laws while citingthis case study as evidence of the sort of unintended side effectsof government regulation. One can also argue for labor unions sothat a monopsony can balance against the monopolist, leveling theplaying field between workers and employers.