AK ECON 3610 Midterm Test W08 Answer Key

AK ECON 3610 Midterm Test W08 Answer Key - AKEECON 3610...

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Unformatted text preview: AKEECON 3610 3.0M: Labour Economies, Winter 2008 (Instructor: Steven Wald) Mid-term Test: February 21, 2008 ANSWER KEY Please note: Non-programmable calculators are permitted. Tests can be submitted for rc-grading only if done in pen (therefore, if you want to do diagrams in pencil, please go over them with pen before submitting this exam). Please only write on the lined-side of the answer booklets and show all work as partial marks for incorrect answers may be awarded. Question 1 (6 marks in total) a. The following data were reported by Statistics Canada on Friday Feb. 8, 2008 in their Labour Force Survey report for January (for Canada). Labour Force 18,109,500 Participation Rate 673% Employment 17,05 8,900 (1 mark) Calculate the unemployment rate for January. UR = U / LlT (1A) = (LF-E)r’l.F = (18,109,500 — l?,058,900)/18,109,500 = 0.058 (1/2) {Full mark if answer correct but formula not stated} b. (1 mark) Calculate the employment rate for January ER = E r POP (1/2) = 17,053,900 r [08,109,500 r 0.677)] = 0.638 (a) {Full mark if answer correct but formula not stated} C. (2 marks) The United States government measures unemployment slightly differently than does Statistics Canada. What are two measurement differences between the Canadian and American approaches that tend to result in the American unemployment rate being:I lower by about 0.7 percentage points? Age differences: Canada: 15+, US: 16+ (V) Definition of searching for work: In US must be more actively searching (e.g., contacting employers) to be considered looking for work, and hence unemployed. In Canada, if one only looks at job ads, that is considered searching for work. (/) d. (2 marks) Despite the low unemployment rate in the United States (e.g., 4.9% in January 2008), some contend that the unemployment rate presents an incomplete and misleading picture of the health of the labour market. For example, economist David Howell developed the “Inadequate Employment Rate” (IER) measure. In addition to unemployment, what does the IER include? (give two categories) {First two answers are graded} 0 involuntarily part-time (f) {i.e._. those who wanted to work full~time but are working part-time) - discouraged workers (V) (i.e., those who gave up looking for work because thought search was futile so are considered not in the labour force) 0 low paid workers (V) (i.e., those making less than two-thirds of median wage) Question 2 (10 marks in total) Use two well—labelled income-leisure choice diagrams to depict the following situations (i.e., one diagram for part a and one diagram for part b): a. (5 marks) The individual’s reservation wage exceeds the market wage so he maximizes his utility (i.e., happiness) by choosing not to work. Y tK—Slslafl‘zu—WK ~55! 41w UCurUb'hnfoqut-l— (Vt ) \ U ‘5’ c3? ‘ForCorred files derail dram amt lalodlfltg Clause/$43 T3 _:'7 l 'pbf" Markef' We! WEIR» wllegafi WU" lo _ I 6’" [_ (hrs/day) ‘HMLM :35 WW) 1 ( s? 3 b. (5 marks) An individual begins to earn some non~labour income which induces him to drop out of the ' bour force (i.e., he no longer chooses to work in the presence of non-labo . ' as“? (Q -For an resavattw MIan (Mount be - +£«ww market mm above T b5 Y...) um we grant —g\(‘ mark-15l— W. 81 (meant—WM L we Tea 1’“) Question 3 (6 marks in total) a. (2 marks) Suppose the quantity of labour demanded falls from 50 to 40 workers as the wage rate increases from $5 per hour to $6 per hour. Calculate the elasticity of demand at this point on the labour demand curve. Elasticity = %A’N ; o/oaw (i) = (N2 —N]) m] x (W; — w!) x w. = [ (40-50)/50] /[(6-5) / 5 ] = -l (V) Note: Other elasticity calculations are correct too: If go from W; to W1, then elasticity is —l .5. lftakc averages: [(Nz — N.) KN. + N2) £2 E [(W2 — WI)E(W1+ W2)f2) + then elasticity is -1.22 b. (2 marks) List four factors that determine the elasticity of labour demand. Price elasticity of demand {for product} (V2) Availability of substitute inputs (‘/2) Elasticity of supply of substitute inputs (1/1) Labour costs as a percentage of total costs (V2) c. (2 marks). For each of the factors listed in part b, describe how they could result in a relatively inelastic labour demand Price elasticity ot‘demand that is inelastic. (V2) Relatively few substitute inputs (V2) Inelastic supply of substitute inputs (1/2) Labour costs that are a small percentage of total costs (V2) Question 4 (8 marks in total) In the "long run", it is assumed that firms can vary the amount of capital and labour used in production. a. (4 marks) Using a well-labelled diagram, indicate how a firm would combine labour and capital to minimize production costs associated with a desired quantity ofoutput. ‘ t for klmNr Cap/ME 62 M leafed} or M'MWW‘M' Ed +QMJeWfl licer :EISCXgOsT ,0,” drawn weed“? NI Cr—FOST Lagomf b. (2 marks) What is the mathematical relationship corresponding to the point that minimizes production costs as depicted in part a? MPwa=MPKfr /\/ {MPNIMPK=wa’r or -MPNXMPK=-wfrareokaytoo} {Note, no part marks. Either correct or not} c. (2 marks) In the long run, the change in labour demanded due to a wage change can be broken down into a "scale effect" and a “substitution effect”. Describe what is meant by the scale effect and the substitution effect. Substitution effect: the change in quantity demanded of labour that results from a change in the wage rate, holding the level of output fixed; the portion of the change attributable solely to the change in the relative price of labour compared to capital. / Scale effect: the change in quantity demanded of labour that results from a change in the wage rate, due to the firm producing less output as the wage increase results in a product price increase and hence reduced product demand ‘/ Question 5 (8 marks in total) At a local guitar manufacturer, the company can produce acoustic guitars according to the following table: Workers l Guitars made per day _—l o l 0 1 l 2 2 l 5 3 l 7 4 J 8 a. (6 marks) Suppose that the market for acoustic guitars is what economists describe as “perfectly competitive” and guitars sell for $100 each. Based on this information, and the data contained in the above table, draw and label a short-run demand curve for workers at the local guitar manuiacturer. Workers Total Product Marginal Product Marginal Revenue Product 0 o 1 2 2 200 2 5 3 300 3 7 2 200 4 8 1 100 t ' (ids) i fix ecu/h. Cerrefi PM 517“ [Willa y drede Wire (2,33%) . m 300 l Ha“ can dais» (wailing 20“ ° dew/«M c roe, fl { WW . P 2 2.00 at v“ loo *l E“l: Wearfl’h r L 3 Lf Workers E’WIOleW-fiflr Lia/Lew] r b. (2 marks) At a daily wage of$150, hovg nihny workers should the firm employ? Why? At a daily wage of $1 50, 3 workers should be employed. 0’). Hiring three workers maximizes profits since if hire the fourth worker, total profits are reduced as the fourth worker’s MRP € 150 (v’) Question 6 (4 marks in total) a. (2 marks) What are meant by quasi-fixed labour costs? labour costs incurred by the firm that vary directly with the number of workers hired but are independent of the number of hours each person works V/ b. (2 marks) Describe two labour market phenomena that can be explained by the existence of quasi-fixed labour costs. {First two answers are graded} 0 Labour hoarding: retaining workers during an economic downturn \/ I Incentive to get employees to work louger hours or more intensively rather than hire additional workers to meet increased demand for output i/ o Reluctance of firms to engage in worksharing ‘/ Question 7 (8 marks in total) Monopsony has interesting implications for labour market behaviour. a. (2 marks) Define what is meant by a monopsony and give one example of a monopsonist. Monopsony refers to the case of a single employer in the specific labour market/. Examples {First one given is graded} - Employers is a single industry town“ 0 Certain government employers (e. g._, hospital only hirer 01‘ nurses, fire department only demander of firemen) i/ 0 Certain sports leagues (e. g, NBA only North American demander of professional basketball players) \/ b. (6 marks) Use a well-labelled diagram to depict the employment level and wages that would be paid by a monopsonist in the labour market. QM t man U l l ...
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This note was uploaded on 02/05/2011 for the course ECON 3610 taught by Professor Steve during the Fall '11 term at York University.

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AK ECON 3610 Midterm Test W08 Answer Key - AKEECON 3610...

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