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Econ 339 Winter 2007 Midterm I

Econ 339 Winter 2007 Midterm I - Northwestern University...

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Northwestern University Department of Economics ECON 339 Labor Economics - Professor: Steffen Habermalz First Midterm Examination – February 5 th 2007 INSTRUCTIONS : Answer all questions. Make sure you show ALL your work. 1. Labor Supply: a) (5 pts.) According to Juhn/Potter what is the future of the Labor Force Participation Rate and why? b) (4 pts.) Mindy faces a market wage of $10 per hour and she can work a maximum amount of 168 hours. Her marginal rate of substitution equals C/L where C=consumption and L=leisure. Calculate the transfer amount that will make her indifferent between working and not working. c) (6 pts.) Is there a welfare policy that will unambiguously induce people to work more AND join the labor force? Explain your answer. 2. Consider Mark with utility function U=C*L. This implies that the MRS=C/L. The market wage equals $15 per hour. Mark has 100 hours to divide between Leisure and work and he doesn’t have any Non-labor income.
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