Chapter 07 - The Wage Structure
CHAPTER 7
7-1. Evaluate the validity of the following claim: The increasing wage gap between highly
educated and less educated workers will itself generate shifts in the U.S. labor market over
the next decade. As a result of these responses, much of the “excess” gain currently accruing
to highly educated workers will soon disappear.
The incentives for young workers to stay in school rose as a result of the increasing wage
differential across schooling groups. The widening wage inequality, therefore, would be expected
to increase the number of young persons who obtain a college education. This increase in the
supply of highly educated workers will eventually narrow the wage gap between the highly
educated and the less educated. The extent to which the supply response narrows the “excess
gain” depends on two parameters: (1) the elasticity of supply measuring how college enrollments
respond to the increasing relative wage of college graduates; and (2) the elasticity of demand
measuring the responsiveness of the relative wage of college graduates to an increase in their
supply. The greater these elasticities are in the coming years, the greater role the “self-correcting”
mechanism will play in reducing wage inequality in the future.
7-2. What effect will each of the following proposed changes have on wage inequality?
(a) Indexing the minimum wage to inflation.
Indexing the minimum wage to inflation should reduce wage inequality because the minimum
wage helps prop up the wages of less skilled workers. Note that an increase in the minimum wage
may have negative employment effects, but the proposed policy is not to increase the minimum
wage but rather simply to prevent it from falling in real terms.
(b) Increasing the benefit level paid to welfare recipients.
Wage inequality measures the dispersion of wages in the working population. An increase in
welfare benefits would likely induce less-skilled workers out of the labor force, and would reduce
measured wage inequality by effectively eliminating the bottom of the wage distribution.
(c) Increasing wage subsidies paid to firms that hire low-skill workers.
Wage subsidies would increase the demand for less skilled workers, reducing wage inequality.
(d) An increase in border enforcement, reducing the number of illegal aliens entering the
country.
If illegal aliens tend to be relatively less-skilled, the decrease in supply of illegal aliens would
raise the relative wage of less skilled workers. In addition, if the less-skilled illegal aliens
complement the skills of skilled natives, the reduction in the number of illegal aliens would
decrease the wages of skilled natives. In sum, reducing the number of illegal aliens would likely
reduce wage inequality (though, it would do so at the expense of the entire wage distribution).
7-1
Chapter 07 - The Wage Structure
7-3. From 1970 to 2000, the supply of college graduates to the labor market increased
dramatically, while the supply of high school (no college) graduates shrunk. At the same
time, the average real wage of college graduates stayed relatively stable, while the average
real wage of high school graduates fell. How can these wage patterns be explained?
The graphs below show equilibrium movements in the market for high school graduates and in
the market for college graduates. The decrease in labor supply among high school graduates and
the increase in labor demand among college graduates is taken as given. The analysis, therefore,
focuses on labor demand for each type of labor.
Given a lower supply of high school graduates, the only way for their average wage to fall is for
labor demand for high school graduates to have decreased (shifted in).
Labor Market for
High School Graduates
LS2000
LS1970
w1970
w2000
LD
LD1970
2000
2000
L1970
L
Given a greater supply of college graduates, the only way for their average wage to stay the same
is for labor demand for college graduates to have increased (shifted out).
Labor Market for
College Graduates
LD1970
LS2000
LD2000
w1970 = w2000
L1970
LS1970
L2000
7-2
Chapter 07 - The Wage Structure
7-4.
(a) Is the presence of an underground economy likely to result in a Gini coefficient that
over-states or under-states poverty?
The larger the underground economy, the more the Gini coefficient is likely to over-state poverty
as the underground economy tends to employ low-skill, low-income workers.
(b) Consider a simple economy where 90 percent of citizens report an annual income of
$10,000 while the remaining 10 percent report an annual income of $110,000. What is the
Gini coefficient associated with this economy?
As all citizens in each group receive an equal income, the actual Lorenz curve will be a straight
line within each group. Let’s suppose there are 1,000 citizens. The 90% of poorest citizens,
therefore, receive 0.90 x 1000 x $10,000 = $9 million. The entire economy, though, earns
0.9(10,000)+0.1(110,000) = $20 million. Therefore, the bottom 90% receives 9 ÷ 20 = 45% of
total income. The perfect and actual Lorenze curves can now be drawn rather easily.
Share of Income
1.00
Perfect-Equality
Lorenz Curve
Actual Lorenz
Curve
0.45
0.00
0
0.9
Share of Citizens
1.00
The Gini coefficient is now easily calculated by seeing that the area beneath the actual Lorenz
curve is two triangles and one rectangle.
Gini =
(1 / 2) − [(1 / 2)(0.9)(0.45) + (0.1)(0.45) + (1 / 2)(0.1)(0.55)]
= 0.45 .
(1 / 2)
(c) Suppose the poorest 90 percent of citizens actually have an income of $15,000 because
each receives $5,000 of unreported income from the underground economy. What is the
Gini coefficient now?
The problem is identical to that above, but the income levels change. In this case, per capita GDP
is 0.9 x 15,000 + 0.1 x 110,000 = $24,500 so total income of the 1,000 citizens is $24,500,000.
Lastly, the total income share of the poorest 90% of citizens is 900 x 15000 ÷ 24.5 million =
55.1%. (That is, in the graph on the previous page, the income share at 90% of citizens increases
from 45% to 55.1%.) The Gini coefficient is not calculated as it was before:
Gini =
(1 / 2) − [(1 / 2)(0.9)(0.551) + (0.1)(0.551) + (1 / 2)(0.1)(0.449)]
= 0.349
(1 / 2)
7-3
Chapter 07 - The Wage Structure
7-5. Use the two wage ratios for each country in Table 7-4 to calculate each country’s
percent increase in the 90-10 wage ratio from 1984 to 1994. Which countries experienced a
compression in the wage distribution over this time? Which three countries experienced the
greatest percent increase in wage dispersion over this time?
The results are:
Country
Germany
Canada
Norway
Japan
Finland
France
Netherlands
Australia
Sweden
United States
United Kingdom
New Zealand
Italy
1984
138.7
301.5
105.4
177.3
150.9
232
150.9
174.6
103.4
266.9
177.3
171.8
129.3
1994
124.8
278.1
97.4
177.3
153.5
242.1
158.6
194.5
120.3
326.3
222.2
215.8
163.8
percent
change
-10.02%
-7.76%
-7.59%
0.00%
1.72%
4.35%
5.10%
11.40%
16.34%
22.26%
25.32%
25.61%
26.68%
Thus, Germany, Canada, and Norway (with Japan holding constant) all experienced a
compression in the wage distribution over this time. The United Kingdom, New Zealand, and
Italy experienced the largest percent increases in wage dispersion.
7-4
Chapter 07 - The Wage Structure
7-6. Consider an economy with the following income distribution: each person in the bottom
quartile of the income distribution earns $15,000; each person in the middle two quartiles
earns $40,000; and each person in the top quartile of the income distribution earns
$100,000.
(a) What is the Gini coefficient associated with this income distribution?
For practice one might draw the actual Lorenz curve, but this problem is fairly easy as the actual
Lorenz curve will be a straight line within income groups.
If there are 1,000 people in the economy: the bottom quartile contributes 250 x 15,000 = $3.75
million toward total national income; the middle two quartiles contribute 500 x 40,000 = $20
million; and the top quartile contributes 250 x $100,000 = 25 million. Thus, total national income
is $48.75 million, with the lowest quartile receiving about 7.7% of income, the middle quartiles
receiving 41.0%, and the top quartile receiving 51.3%. The area under each of these three
sections of the actual Lorenz curve, therefore, is (where a ½ indicates a triangle while 0.25
indicates a quartile and 0.50 indicates the middle two quartiles):
•
•
•
Lowest quartile: (½)(0.25)(0.077) = 0.009625.
Middle two quartiles: (0.5)(0.077) + (½)(0.5)(0.41) = 0.141.
Top quartile: (0.25)(0.487) + (½)(0.25)(0.513) = 0.185875.
Thus, the Gini coefficient is (0.5 – 0.009625 – 0.141 – 0.185875) / 0.5 = 0.327.
(b) Suppose the bottom quartile pays no taxes, the middle two quartiles pay 10 percent of its
income in taxes, and the top quartile pays 28 percent of its income in taxes. Two-thirds of
all tax money is redistributed equally to all citizens in the form of military defense,
government pensions (social security), roads/highways, etc. The remaining one-third of tax
money is disturbed entirely to the poorest quartile. What is the Gini coefficient associated
with this redistribution plan? Would you consider this tax and redistribution plan to be a
particularly aggressive income redistribution policy?
First, we must determine total taxes: 500(40,000)(0.10) + 250(100,000)(0.28) = $ 9 million are
paid in total taxes. This comes from each person in the lowest quartile paying $0; each person in
the middle two quartiles paying $4,000 in taxes; and each person in the top quartile paying
$28,000 in taxes. Of this $9 million, $6 million is repaid to all people equally in the form of
defense, social security, road, etc. So, each person claims $6,000 of this pool of taxes. The
remaining one-third of taxes, which equals $3 million, is divided among the poorest quartile.
Thus, the poorest 250 people each receive an income transfer of $12,000. New incomes,
therefore, are $33,000 for the bottom quartile, $42,000 for the middle two quartiles, and $78,000
for the top quartile. Given these new numbers, the analysis from part (a) can be repeated.
The bottom quartile receives $8.25 million of income, or 16.9% of $48.75 million.
The middle two quartiles receive $21 million of income, or 43.1% of $48.75 million.
The top quartile receives $19.5 million of income, or 40.0% of $48.75 million.
And the Gini coefficient is 0.173245.
This appears to be a fairly substantial redistribution scheme as it cuts the Gini coefficient in half.
It also has the richest person earning 2.36 times that of the poorest person (78/33) whereas this
ratio was 6⅔ times (100/15) without the redistribution.
7-5
Chapter 07 - The Wage Structure
7-7. The two points for the international income distributions reported in Table 7-1 can be
used to make a rough calculation of the Gini coefficient. Use a spreadsheet to estimate the
Gini coefficient for each country. Which three countries have the most equal income
distribution? Which three countries have the most unequal income distribution?
If one considers the percent of income received by the poorest and richest 10 percent of
households called P and R respectively, the Gini coefficient is
[ .5 – (½)(.1)P – .8P – .8(½)(1–R–P) – .1(1–R) – .1(½)R ] / .5.
Using excel, the results are:
P
0.02
0.03
0.03
0.03
0.01
0.01
0.03
0.03
0.01
0.04
0.04
0.02
0.02
0.02
0.04
0.04
0.02
0.02
Country
Australia
Austria
Belgium
Canada
Chile
Dominican Republic
France
Germany
Guatemala
Hungary
India
Israel
Italy
Mexico
Norway
Sweden
United Kingdom
United States
R
0.25
0.23
0.28
0.25
0.45
0.41
0.25
0.22
0.43
0.22
0.31
0.29
0.29
0.39
0.23
0.22
0.28
0.3
Gini
0.061
0.032
0.087
0.054
0.288
0.244
0.054
0.021
0.266
0.014
0.113
0.105
0.105
0.215
0.025
0.014
0.094
0.116
Thus, the three countries with the most inequality are Chili (0.288), Guatemala (0.266), and the
Dominican Republic (0.244). The three countries with the most equality are Sweden (0.014),
Hungary (0.014), and Germany (0.021). It should be emphasized that these are very crude
measures as they rely on only two points in the income distribution.
7-6
Chapter 07 - The Wage Structure
7-8. Consider the following (highly) simplified description of the U.S. wage distribution and
income and payroll tax schedule. Suppose 50 percent of households earn $40,000, 30 percent
earn $70,000, 15 percent earn $120,000, and 5 percent earn $500,000. Marginal income tax
rates are 0 percent up to $30,000, 15 percent on income earned from $30,000 to $60,000, 25
percent on income earned from $60,000 to $150,000, and 35 percent on income earned in
excess of $150,000. There is also a 7.5 percent payroll tax on all income up to $80,000.
(a) What is the marginal tax rate and average tax rate for each of the four types of
households? What is the average household income, payroll, and total tax bill? What
percent of the total income tax is paid by each of the four types of households? What
percent of the total payroll tax bill is paid by each of the four types of household?
Marginal tax rates:
households earning $40,000 is 15 percent + 7.5 percent = 22.5 percent.
households earning $70,000 is 25 percent + 7.5 percent = 32.5 percent.
households earning $120,000 is 25 percent + 0 percent = 25 percent.
households earning $500,000 is 35 percent + 0 percent = 35 percent.
Income tax bill:
households earning $40,000 is 15 percent of $10,000 = $1,500.
households earning $70,000 is $4,500 + 25 percent of $10,000 = $7,000.
households earning $120,000 is $4,500 + 25 percent of $60,000 = $19,500.
households earning $500,000 is $27,000 + 35 percent of $350,000 = $149,500.
Payroll tax bill:
households earning $40,000 is 7.5 percent of $40,000 = $3,000.
households earning $70,000 is 7.5 percent of $70,000 = $5,250.
households earning $120,000 is 7.5 percent of $80,000 = $6,000.
households earning $500,000 is 7.5 percent of $80,000 = $6,000.
Total tax bill and average tax rates:
households earning $40,000 is $4,500 => ATR = 11.25 percent.
households earning $70,000 is $12,250 => ATR = 17.5 percent.
households earning $120,000 is $25,500 => ATR = 21.25 percent.
households earning $500,000 is $155,500 => ATR = 31.10 percent.
Average tax bills over all households are:
Income: .5(1,500) + .3(7,000) + .15(19,500) + .05(149,500) = $13,250
Payroll: .5(3,000) + .3(5,250) + .15(6,000) + .05(6,000) = $4,275.
Total: $17,525.
Percent of the total income tax collected by the government that is paid by each household group:
$40,000 households pay .5(1,500) / 13,250 = 5.67 percent.
$70,000 households pay .3(7,000) / 13,250 = 15.85 percent.
$120,000 households pay .15(19,500) / 13,250 = 22.08 percent.
$500,000 pay .05(149,500) / 13,250 = 56.42 percent.
7-7
Chapter 07 - The Wage Structure
Percent of the total payroll tax collected by government that is paid by each household group:
$40,000 households pay .5(3,000) / 4,275 = 35.09 percent.
$70,000 households pay .3(5,250) / 4,275 = 36.84 percent.
$120,000 households pay .15(6,000) / 4,275 = 21.05 percent.
$500,000 pay .05(6,000) / 4,275 = 7.02 percent.
(b) What is the Gini coefficient for the economy when comparing after-tax incomes across
households? (Hint: assume there are 1,000 households in the economy.) What happens to
the Gini coefficient if all taxes were replaced by a single 20 percent flat tax on all incomes?
Suppose there were 1,000 households. Total after-tax income is 500($35,500) + 300($57,750)
+150($94,500) +50($344,500) = $66,475,000.
The cumulative gross income shares of the four income groups, therefore, are:
500($35,500) / $66.47m = 26.7 percent.
26.7 percent + 300($57,750) / $66.47m = 52.8 percent.
52.8 percent + 150($94,500) / $66.47m = 74.1 percent.
74,1 percent + 50($344,500) / $66.47m = 100.0 percent.
The area under the Lorenz curve, therefore, is (.5) (½)(.267) + (.3)[.267+(½)(.528–.267 )] +
(.15)[.528+(½)(.741–.528 )] +(.05)[.741+(½)(1–.741 )] = 0.6675 + 0.11925 + 0.95175 +
0.043525 = 0.3247. The Gini coefficient, therefore, is [ .5 – ..3247 ] / .5 = .3506.
Suppose there was a flat tax of 20 percent. Total after-tax income is 500(.8)($40,000 +
300(.8)($70,000) +150(.8)($120,000) +50(.8)($500,000) = $67,200,000.
The cumulative gross income shares of the four income groups, therefore, are:
500($32,000) / $67.2m = 23.8 percent.
23.8 percent + 300($56,000) / $67.2m = 48.8 percent.
48.8 percent + 150($96,000) / $67.2m = 70.2 percent.
70.2 percent + 50($400,000) / $67.2m = 100.0 percent.
The area under the Lorenz curve, therefore, is (.5) (½)(.238) + (.3)[.238+(½)(.488–.238 )] +
(.15)[.488+(½)(.702–.488 )] +(.05)[.702+(½)(1–.702 )] = .0595 + .1089 + .08925 + .04255 =
.3002. The Gini coefficient if there was a 20 percent flat tax, therefore, would be [ .5 – ..3002 ] /
.5 = .3996.
(c) A presidential candidate wants to remove the cap on payroll taxes so that every
household would pay payroll taxes on all of its income. To what level could the payroll tax
rate be reduced under the proposal while keeping the total amount of payroll tax collected
the same?
Suppose there are 1,000 households: 500 pay $3,000, 300 pay $5,250, and 200 pay $6,000. The
total payroll tax receipts, therefore, are $4,275,000, while total income is $84 million. Thus,
generating $4.275 million of tax on $84 million of income requires a tax rate of 5.089 percent.
7-8
Chapter 07 - The Wage Structure
7-9. Suppose Hinterland has been a closed economy (meaning there is no immigration from
foreign countries and no international trade). The current labor force has 4 million skilled
workers and 8 million unskilled workers. Both types of labor have perfectly inelastic supply
curves, and the current skilled-unskilled wage ratio is 2.5. The elasticity of demand of
skilled labor is -0.4, while the elasticity of demand of unskilled labor is -0.1. Suppose
Hinterland allows a brief period of immigration, during which time 1 million skilled
workers and 4 million unskilled workers migrate to Hinterland. Suppose there are no other
changes to the economy. Approximately what is the new skilled-unskilled wage ratio? (Hint:
the percent change in the wage ratio is approximately equal to the percent change in the
skilled wage minus the percent change in the unskilled wage.)
Because each individual worker’s labor supply is inelastic, the economy-wide supply curve for
each type of labor is vertical and will shift as additional workers are added. The demand curves
do not shift. Therefore, the percentage change in the wage rate for each type of labor will be
determined by the percentage change in the supply of this type of labor and by the elasticity of
labor demand. That is,
η=
%∆E
%∆w
- or -
% ∆w =
% ∆E
η
.
Moreover, the hint plus the previous formula gives us:
w
%∆ S
 wU

%∆E S %∆EU
 ≈ %∆wS − %∆wU =
−
.
ηS
ηU

Finally, given the immigration and labor supply numbers, we know that
•
•
%∆ES = 1 mil / 4 mil = 25% so that %∆wS = -62.5% as ηS = -0.4.
%∆EU = 4 mil / 8 mil = 50%.so that %∆wU = -500% as ηU = -0.1.
Thus,
w
%∆ S
 wU
 %∆E S %∆EU
 ≈
−
= -62.5% - (500%) = 437.5%
ηS
ηU

and the new skilled-unskilled wage ratio is approximately (1+4.375) • 2.5 = 13.4375
7-9
Chapter 07 - The Wage Structure
7-10. Ms. Aura is a psychic. The demand for her services is given by Q = 2,000 – 10P, where
Q is the number of one-hour sessions per year and P is the price of each session. Her
marginal revenue is MR = 200 – 0.2Q. Ms. Aura’s operation has no fixed costs, but she
incurs a cost of $150 per session (going to the client’s house).
(a) What is Ms. Aura’s yearly profit?
Find the number of sessions that Ms. Aura will provide by equating the marginal revenue to the
marginal cost of a session:
MR = MC
200 – 0.2Q = 150
0.2Q = 50
Q* = 250
The price that would generate demand for 250 sessions is $175. Thus, her annual profit is
175(250) – 150(250) = $6,250 per year.
(b) Suppose Ms. Aura becomes famous after appearing on the Psychic Network. The new
demand for her services is Q = 2500 – 5P. Her new marginal revenue is MR = 500 – 0.4Q.
What is her profit now?
The same kind of calculations as in part (a) but using the new demand curve yields a profit
maximizing quantity of 875 sessions at a price of $325 per session and an annual profit of
$153,125.
(c) Advances in telecommunications and information technology revolutionize the way Ms.
Aura does business. She begins to use the Internet to find all relevant information about
clients and meets many clients through teleconferencing. The new technology introduces an
annual fixed cost of $1,000, but the marginal cost is only $20 per session. What is Ms.
Aura’s profit? Assume the demand curve is still given by Q = 2500 – 5P.
With the new marginal cost, Ms. Aura will provide 1,200 sessions and charge $260 per session.
Her annual profit will equal $287,000.
(d) Summarize the lesson of this problem for the superstar phenomenon.
Superstars command an economic rent because they are, in essence, a monopoly with a favorable
demand curve. The greater the demand for the superstar’s product, the higher price the superstar
can charge, and the more profit can be earned. Notice also that, going from part (a) to part (b), is
the lesson that when demand for your services is high, you provide a lot of service, i.e., an
upward sloping labor supply curve.
7-10
Chapter 07 - The Wage Structure
7-11. Suppose two households earn $40,000 and $56,000 respectively. What is the expected
percent difference in wages between the children, grandchildren, and great-grandchildren
of the two households if the intergenerational correlation of earnings is 0.2, 0.4, or 0.6?
If the intergenerational correlation of earnings is r, the percent difference in earnings of the
children is (56,000 – 40,000)r / 40,000 = 0.4r, of grandchildren is .4r2, and of great-grandchildren
is .4r3. Therefore, we have that the expected percent difference in earnings is:
Correlation
20%
40%
60%
Children
8%
16%
24%
Grandchildren
1.6%
6.4%
14.4%
Great-Grandchildren
0.32%
2.56%
8.64%
7-12. Suppose 50 percent of a population all receive an equal share of p percent of the
nation’s income, where 0 ≤ p ≤ 50.
(a) For any such p, what is the Gini coefficient for the country?
Calculating the Gini coefficient is most easily done with reference to a graph. Notice, given the
set-up of the problem, there are two sections to the graph of the distribution of national income,
and both are linear segments.
Share of
Income
1
½
p
½
1
Share of Households
So, now the Gini coefficient is the area between the bold line and the dashed bold line divided by
two. This is easiest to figure as the area below the bold line (one-half) less the area below the
dashed bold line. The area below the dashed bold line equals (0.5)(0.5)p + 0.5p + (0.5)(0.5)(1 – p)
= 0.25 + 0.5p. Finally, the Gini coefficient is (0.5 – 0.25 – 0.5p) / 0.5 = 0.5 – p.
(b) For any such p, what is the 90 – 10 wage gap?
Each person in the lower half of the distribution receives 0.02pM, where M is national income.
Similarly, each person in the top half of the distribution receives 0.02(1–p)M. As the 10th
percentile person is in the lower half and the 90th percentile person is in the upper half, the 90 –
10 wage gap is 0.02(1–p)M / 0.02pM = (1–p)/p.
7-11
Chapter 07 - The Wage Structure
7-13. Consider two developing countries. Country A, though quite poor, uses government
resources and international aid to provide public access to quality education. Country B,
though also quite poor, is unable to provide quality education for institutional reasons. The
distribution of innate ability is identical in the two countries.
(a) Which country is likely to have a more positively skewed income distribution? Why?
Plot the hypothetical income distributions for both countries on the same graph.
At the outset, there is no reason to think the distribution of income is different between the two
countries. However, one could argue that Country A collects more taxes than Country B, and as
taxes are likely to fall more heavily on the rich, that the simple act of collecting taxes in Country
A will cause it to lessen the skewness in its income distribution relative to Country B. Of course,
one could make the alternative argument – that developing countries over-tax their poorest
workers more than the rich. The graph below, however, assumes the first case.
Original Wage Distribution
Percent of
Workers
Country A: Taxing the Rich
Country B: Not Taxing the Rich
Earnings
(b) Which country is more likely to develop faster? Why? Plot the hypothetical income
distributions in 20 years for both countries on the same graph.
Country A is likely to develop faster because of its savings and investments into education
(human capital).
Wage Distribution after 20 Years
Percent of
Workers
Country B
Country A
Earnings
7-12
Chapter 07 - The Wage Structure
7-14. File sharing software threatens the music industry in part because artists will not be
fully compensating for their recording of songs. Suppose that the government decides that
file sharing software products are legal anyway.
(a) The almost immediate result will be that artists start earning very little money for their
recordings but they continue to earn money for live performances. How will income change
for the music industry? How does your answer relate to the superstar phenomenon?
Musicians who are also great performers will continue to make new music and will continue to
earn a lot of money. Musicians who are good at making new music but not good at giving live
performances will see a reduction in their income. For example, rumor has it that Steely Dan and
the Steve Miller Band are fairly horrible in concert, although their music is loved by many
people. These bands would struggle to earn money under the policy. Other artists that are known
to put on great shows (The Rolling Stones) will continue to earn a lot of money. Thus, the public
policy doesn’t choose which superstars will continue to do well; it simply redefines what talents
are going to be rewarded.
(b) Although one would expect lower prices to benefit the music-listening public if the
government decides that file sharing software products are legal, but in what way(s) could
the music-listening public also be hurt from the policy?
The most obvious way such a policy would hard the music-listening public is that fewer people
make music as it is less profitable. Thus, the public will have fewer choices of music to listen to.
This is analogous to if the government removed the patent system from new drugs, which would
results in fewer new drugs being developed.
7-13