University of California, Santa Barbara Olivier Deschênes Department of Economics Winter 2009 Economics 150B Answer Key Midterm Examination #1 Name:______________________________________ Perm:______________________________________ Question 1: [4 points] True/False/Uncertain (To receive full credit you must explain/prove your answers)Certain occupations, such as coal mining, are inherently dangerous to worker’s health and safety. Therefore, the most appropriate government policy is the establishment and enforcement of rigid safety standards (assume that workers are fully informed about the risk involved with coal mining jobs). False: If workers have perfect information about the injury risks attached to their jobs, and choose riskier jobs (presumably for a higher wage), then it must be that these jobs gives them the highest level of utility. Therefore, government policies establishing safety standards (imposing maximal risk levels for example) are going to make someworkers worst off. See the graph at the end. 1
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