Rev 3610 Midterm Test W 2007 Solutions

Rev 3610 Midterm Test W 2007 Solutions - AKJECON 3610 3.0M:...

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Unformatted text preview: AKJECON 3610 3.0M: Labour Economics, Winter 2007 (Instructor: Steven Wald) Mid-term Test SOLUTIONS Nil-s >007; s M .- MARKS IN BRACKETS V2 or 1 mark (I) There are 6 questions totalling 50 marks. (3 pages in total) Question 1 (10 marks in total) a. (2 marks) (Note, in case you are comparing your results to actual Statistics Canada figures, the employment number given in the question was actually the 2006 annual average rather than monthly unemployment. Sorry! ) UR = U f LF = (LF — E)fLF (V2) = 1,230,200 f 17,714,500 = 0.069 (1A) (Note: AWARDED FULL MARK IF ANSWER CORRECT WITHOUT FORMULA STATED) ER = E f POP (1/2) = 16,484,200 / 26,360,863 = 0.625 (R) (since LFPR = LWPOP) (Note: AWARDED FULL MARK LF ANSWER CORRECT WITHOUT FORMULA STATED) b. (1 mark) About 100,000 (I) (NOTE: GIVE 1/; if close (50,000 to 79,000 or 121,000 to 200,000); give 1 if really close (any # between 80,000 and 120,000)) c. (2 marks) - Age differences: In Canada, people 15 years and over are surveyed, in the US, people 16 years and over are surveyed (V') - Job Search: In US, passive searchers (those only looking at job ads) are considered Not in the Labour Force, whereas in Canada, they are considered unemployed ( 0/ ) d. (2 marks) Any two of below - Still considered unemployed if without work but didn’t search because 0n temporary layoff expecting to be recalled to work (1/ ) - Still considered unemployed if without work but didn’t search because have job - Not considered unemployed if a full-time student without work and searched for a full-time job (V) e. (I mark) People who reported they wanted to work at a job but who did not look for work because they believed no suitable work was available. (All three underlined points are necessary for V') f. (2 marks) - Involuntarin part-time (V) - Low-paid workers 0/) QuestionZ (10 marks in total) 5 .PM PT b. c WL: Regan/aw wag/i Y res WM: Marke‘f' Magi Wa‘fe) CC. = CHM (are (off ch ;¢£ml& we +lw€4 [6939126 We R~ MarLNfi“ W . _ U L he rage/o;de ([ {M 3 '-\ q l WijQ 119:» com ) wage Euclid? \ [We > ‘| Question 3 (6 marks in total) a. (2 marks) Elasticity=[(N3—N1)HNI] x [(wa—wqu (V) = [(so—éoyso] x[(11_10)x10] = ~5/3 (i.e.,—1.67) (w) b. (4 marks) Price elasticity of demand (1/2) This relates to how responsive the product demand is to changes in its price. If not very responsive, then wage increase can be passed on to consumers as a price increase with little reduction in labour demand. This relates to the scale effect. (1/: for 93}; of above points) Availability of substitute inputs (V2) This relates to possibilities to use other types of labour and capital in the production process. If more possibilities for substitution, then labour demand is relatively elastic since with a given increase in wage, more opportunities for the producer to use something else. (‘/a for w of above points) Elasticity of supply of substitute inputs (1/2) This relates to how the price of the substitute inputs reacts to an increase in its demand. If inelastic, then its price would rise rapidly limiting its use as a substitute. (1/2 for afly of above points) Ratio of labour costs to total costs (1/2) This is the importance of being unimportant. If a low percentage of total costs, then a small scale effect related to wage increase. Also, maybe employers den’t bargain that hard to reduce employment in response to wage increase if wages rep resent a small percentage of overall costs. (1/2 for w of above points) Question 4 (8 marks in total) a. (4 marks) ltxlqimd Pvilnmt/{S (IL- I II r WWW] co m b. (2 marks) The tangency point is MPNIMPK = wk (2 marks). Note, can also eXpress in the negatives or as MPN/ w = MPK / r c. (2 marks) Long run labour demand is more elastic (V) It is more elastic because: can substitute capital for labour in response to a wage change (V). (An equally good answer is stating that there is the presence of the substitution effect in the long run) Question 5 (10 marks in total) a. (5 marks). Below are numbers needed to draw demand curve (no points awarded for this table of data, points given for drawin g the curve). Workers Total Product Marginal Product Marginal Revenue Product 0 0 1 2 2 200 2 5 3 300 3 7 2 200 4 8 1 100 ILL"? f. '— I': / .j I VJ .v‘ I l f. 'I W3." L / t, ' ' I l i ; : { 4-H are, six it as: \ .. . . ._ A,‘ 4— ‘w- II ' d- . .i' o ‘1 l: w J, 1V3? II = f .L. -’” 'v\/ '_*.l_ . t'} Wu :1: Fifi (I mark) At a daily wage of $150, 3 workers should be employed. (1/). Hiring three workers maximizes profits since if hire the fourth worker, total profits are reduced as the fourth worker’s MRP < 150. (2 marks) Any two of the following - Maybe employers can’t really calculate MPN (1/ ) - Maybe employers don’t really try to maximize profit, but instead try to reach a certain level of profits (I/ ) - The demand curve assumes that a worker’s productivity isn’t affected by the wage hefshe is paid (V) - Maybe MPN isn’t diminishing. If not, then the demand curve doesn’t slope downwards. ( I/ ) - Perfect competition is a textbook ideal. In reality, there is some degree of market power in labour markets and product markets (V ) (2 marks) According to the theory, the demand curve shifts to the right if: - the product price increases (t/ ) - productivity of labour increases (can also say marginal productivity) (1/) Question 6 (6 marks in total) a. (2 marks) Quasi fixed costs are costs that depend on number of employees working (V ) but not on number of hours w0rked. (I/ ) . (2 marks) Any two of following: - a 'L/‘u'ikrj'i 5 x. '-Z..-' - training (V2) Not necessarily dependent on how many hours a personW (V2) ,1. - hiring (1/2) Not necessarily dependent on how many hours a perSon works (1/2) - non-wage benefits (V2) (Note, could list distinct non-wage benefits each for a mark. 13g, gym membership, subsidized meals, health insurance, dental insurance, etc.) Not necessarily dependent on how many hours a person is works. 5/2) ( - dismissal costs ('/2) Not necessarily dependent on how many hours a person works (1/2) - Payroll taxes (e.g._, Employment Insurance, CPP) Once the payroll tax limit is reached per employee, then this cost is no longer linked to an employee’s hours. (1/2). (2 marks) Any two of following: Makes a firm less willing to hire (V) Makes a firm less Willing to fire ('1’) Increases the firrn’s incentives to employ workers for longer hours and to work them more intensively as alternatives to hiring 0/) Makes demand for labour less sensitive to economic conditions (‘0 Cause a fimi to pay workers less than their Marginal Revenue Product 0/) Makes unskilled workers” employment more cyclical (less of a buffer since fixed costs less) (V) ...
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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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Rev 3610 Midterm Test W 2007 Solutions - AKJECON 3610 3.0M:...

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