borjas 7-8

# borjas 7-8 - Human Resources College of International...

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Human Resources College of International Studies, University of Tsukuba 3/6/2005 Daiji Kawaguchi 1 Final Examination Suggested Answer Name Student # Answer each question in the space provided. Your answer must be in English. You are allowed to use a dictionary. Please write legibly so that I can read your answer. This examination ends at 9:55. This examination consists of three parts: 1. basic part (70%), 2. standard part (20%) and 3. difficult part (10%). Part 1 Basic Part (7pts for each, 70pts in total) Short answer questions – Answer each question briefly. 1. Define the reservation wage. The wage level above which a person works. The wage level at which a person is indifferent between working and not working. The slope of indifference curve at the initial endowment point. 2. Suppose a firm uses capital and labor to produce output. When the price of capital increases while output price and wage rate are constant, what happens on the employment due to the substitution effect? Due to the decrease in the relative price of labor, the employment increases due to the substitution effect. (Diagram is not correct -2 points) (Reasoning is not correct -3 points)

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College of International Studies, University of Tsukuba 3/6/2005 Daiji Kawaguchi 2 3. Discuss how the optimal employment and wage is determined by the non-discriminatory monopsonistic employer (i.e. the firm has to pay the same wage for all the workers). Draw a diagram to explain. The optimal employment is determined at the point where marginal cost of employment equals to the value of marginal product of labor. The wage is determined at the point on labor supply curve. 3 pts for VMP=MC. 4pts for diagram (2pts for employment, 2pts for wage) 4. Drawing a diagram, describe the impact of a payroll tax imposed on employers on wages and employment in a competitive industry. In the diagram, clearly indicate the part of the tax shifted to workers.
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## This note was uploaded on 02/20/2009 for the course ECON 443 taught by Professor Rose during the Spring '08 term at University of Washington.

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borjas 7-8 - Human Resources College of International...

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