Lecture Issues in economics today - Chapter 29

In this chapter, the following content will be discussed: The graph of the monopolist, how monopolist’s profits are calculated, the monopolist in the short run and long run, barriers to entry, limits to monopoly power, economies of scale and natural monopoly, what makes bigness bad?

Chapter 29 Race and Affirmative Action McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Chapter Outline • MEASURES OF INEQUALITY, AND DEFINITIONS AND DETECTION OF DISCRIMINATION • DISCRIMINATION IN LABOR, CONSUMPTION AND LENDING • AFFIRMATIVE ACTION McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Measures of Social and Economic Conditions African-American family income is rising • The relative position of African-American family income to white family income has risen slowly • Rates of poverty and unemployment are much higher for African-Americans than whites • More African-American men are in prison than in college McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved M e d ia n fa m ily in c o m White and Black M 60000 50000 40000 30000 20000 white black 10000 1940 1950 1960 1970 1980 1990 2000 Year McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved B la c k /W h ite M e d ia n F a m Black/White Media 0.64 0.62 0.6 0.58 0.56 0.54 0.52 0.5 1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 Year McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved What is Discrimination • Disparate Treatment Discrimination treating two otherwise equal people differently on the basis of race • Adverse Impact Discrimination doing something that is not necessarily discriminatory on its face but that impacts some groups more negatively than others • Rational or Statistical Discrimination discrimination that is based on sound statistical evidence and is consistent with profit maximization McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Measuring and Detecting Discrimination Regression techniques – Statistical methods which seek to determine if the differences in treatment for whites and blacks could have happened by random chance • Auditing techniques – Sending paid actors into a situation to determine if people with identical economic characteristics are treated differently based on race McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Labor Market Discrimination in the Past Chicago Tribune 1/3/1960 DOORMAN­WHITE age 30 to 45 married Neat in appearance and at least 5'11" or taller in height New York Times 1/3/1960 COOK, housekeeper, Negro preferred, experience essential, prominent family, permanent position, high salary McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Modeling Labor Market Discrimination SD Wage SND Wage SND SD wwhite wND wblack D Labor market for jobs only whites are allowed  McGraw­Hill/Irwin D Labor market for jobs that  blacks who work must do © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Why Competition Would Eliminate Discriminatory Pay • Businesses that hired only whites at the higher wage would have higher costs than businesses that did not discriminate • Businesses that did not discriminate could lower their prices and take the market share of those firms that did discriminate • As this happened firms would see that discrimination was not consistent with maximizing profits and would stop discriminating McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Why Competition Would Not Necessarily Eliminate Discrimination • In industries where there is economic profit, firm owners may continue to discriminate and consider it a price they are willing to pay so as to not employ blacks • In industries in which the customer chooses which business to patronize based on race, firms may be willing to discriminate because their profit maximizing interest and discrimination are consistent McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Consumption Market Discrimination Blacks pay more for cars • Blacks are shown fewer homes and those homes are in already integrated neighborhoods • Blacks are more likely to be turned down for a mortgage loan McGrawưHill/Irwin â2002TheMcGrawưHillCompanies,Inc.,AllRightsReserved Affirmative Action Affirmative Action : any policy that is taken to speed up the process of achieving equality McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved History of Affirmative Action But freedom is not enough You not wipe away the scars of centuries by saying: Now you are free to go where you want, as you desire, and choose the leaders you please.You not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race and then say, “You are free to compete with all the others,” and still justly believe that you have been completely fair.Thus it is not enough to just open the gates of opportunity All our citizens must have the ability to walk through those gates Lyndon Johnson, 1965 at Howard University McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved More History • Nixon’s Executive order 11246 mandated affirmative action in contracts with the federal government • Set-asides were created so that 10% of all federal highway contracts were “set aside” for minority owned contractors • Various Supreme Court rulings have limited the scope with which affirmative action can be employed It must now meet a high standard of “strict scrutiny.” McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved The Civil Rights Act of 1964 vs the California Civil Rights Initiative • Civil Rights Act 1964 – The state shall not discriminate against any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting • California Civil Rights Initiative – The state shall not discriminate against, or grant preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved Gradations of Affirmative Action • • • • • An equal opportunity to apply – Requires employers to advertise in minority-seen outlets Race as a tie-breaker – Race may break a tie between equally situated candidates Acceptance of all qualified minorities – Used most often in university admissions to selective schools A standard is set and qualified minorities are admitted and the remaining spots are filled with the best of the non-minority pool Guidelines – Targets are set for minority hiring and promotion and, if they are not met, a justification must be given Quotas – Strict percentages of minorities must be hired This is generally unconstitutional unless ordered by a court to remedy past discrimination McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved  .. .Chapter Outline • MEASURES OF INEQUALITY, AND DEFINITIONS AND DETECTION OF DISCRIMINATION • DISCRIMINATION IN LABOR, CONSUMPTION AND LENDING • AFFIRMATIVE ACTION McGraw­Hill/Irwin © 2002 The McGraw­Hill Companies, Inc., All Rights Reserved... Eliminate Discrimination • In industries where there is economic profit, firm owners may continue to discriminate and consider it a price they are willing to pay so as to not employ blacks • In industries... standard is set and qualified minorities are admitted and the remaining spots are filled with the best of the non-minority pool Guidelines – Targets are set for minority hiring and promotion and, if