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HW2 - University of Illinois at Urbana-Champaign Professor...

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University of Illinois at Urbana-Champaign Professor Ron Laschever, ECON 440, Spring 2010 1 Problem set #2 Due at the start of class on Thursday, February 11 1. Indicate whether the statement is true or false, and support your answer with a 1-3 sentence explanation. If part of a statement is false, then the whole statement is false. a. Firms’ demand for labor is more sensitive to wage rates in the short-run than in the long- run. Explain whether this statement is true or false and draw a graph of the long run and short-run demand for labor to illustrate your answer. b. If women’s labor supply is more elastic than men’s, it will be more efficient to tax the labor income of men than to tax that of women. (Assume that the firm demand curves for labor supplied by women and men are the same.) 2. Consider a firm that uses both labor and capital in production. The price of capital is $20 per unit and the wage rate is $10 per hour.
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