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Unformatted text preview: NAME. . we Midterm Exam
Economics 151A, Winter 2010
9rofessor Stevens INSTRUCTIONS:
1. Write your name at the top ofthis page. Make sure that you have a tote! of '7 pagesmthis cover page
pfus six pages of exam questions. 2. Write all answers directly on the exam pages. Use the back ofthe pages for additional paper if
needed. Show your work ANS clearly indicate your finai answer. 3. You have 1 hour and 15 minutes to compiete this exam. it is Worth a total of 100 points. 4. You may NOT use a caicuiator, or any notes or other materiais. \ .. W W6 .:.;.W‘“—* “fit iEiii. L mm; \0 i. IViuitipie choice, Circie the best answer to each of the foilowing questions. (4 points each) 1. The standard error of a regression coefficient is an indication of
a. How many mistakes were rnade while estimating the relationship
The precision of the estimate of the regression coefficient
 c. How much effect the independent variahie has on the dependent variable
d. The slope of the regression line 2. Biau and Kahn (2007) find that the labor supply of married women in the us.
a. is more eiastic now than it was in 1980
is less eiastic now than it was in 1980
c. does not depend on their wage opportunities
d. does not depend on their husbands’ earnings 3. The study of the effects of the Eli’C on labor force participation by Eissa and Liebman compared
the labor market decisions of
a. Single women with and without kids
b. Less educated single women with kids and more educated singie women with kids
c. Neither A nor B Both A and B 4. The ubstitution effect of an increase in the wage rate
Wiii aiways be to work more
b. Wiii always be to work less
c. is ambiguous from economic theory alone
d. Wiii always be iarger than the income effect 5. One of iViarshaIi’s rules otderived demand states that the eiasticity of iabor demand and the
elasticity of product demand (with respect to output price)
a. Are negatively reiated
Are positiveiy reiated
c. Are both dependent on the elasticity of substitution
d. Wili never have the same sign 9. The scale effect on production when a firm faces an increase in the wage paid to their workers will be to
a. Decrease iahor and increase capitai ' m A! a
b. increase iabor and decrease capitai 4 “j
c. increase labor and increase capitai Decrease iabor and decrease capital An individual’s reservation wage measures a. Their marginai utiiity of leisure when working positive hours ® Their marginai rate of substitution of leisure for consumption at 0 hours of work cs
d. Their marginal utility of leisure at 0 hours of work
Their marginal rate of substitution of leisure for consumption when working positive
hours ' Labor suppiy theory teils us that the labor suppiy curve a.
b. is upward sloping
ls downward sloping ® Can be either upward or downward sioping d. is extremely inelastic A labor supply elasticity of 0.9 means that a wage increase from $10 to $1}. wiil result in a.
b. d. An increase in hours worked of 0.9 hours
An increase in hours worked of 9 hours An increase in hours worked of9 percent
A decrease in hours worked ore percent 10. The elasticity of substitution in production is determined primariiy by a.
b. The prices of inputs
The avaiiabie suppiy of inputs to the firm @The underiying technology ofthe production process d. The elasticity of iahor demand Ii. Short answers. Answer each question in the space provided. il—i. A welfare program provides a benefit of $300 per month for qualifyingindividuais who are not
working. If a recipient works and has earned income, the welfare beneﬁt is phased~out at a rate of10
percent (or 10 cents for every dollar earned). The graph below shows the budget constraint in a modei
of leisureconsumption choice for an individual prior to implementation of the welfare program. This
individuai has $50 in nonwearned income (not counting the welfare program) each month, and if they
work, can earn a wage of $8 per hour. Total time availabie for leisure and work in a month is 420 hours.
The price of the consumption good is $1. (Points: 45u6w9) ' Consumption Point 1} / 420 Leisure bib a. What is the correct dollar amount at which the originai budget constraint meets the
consumption axis? (labeied point 1) . 35(90r50’5» gLH O b. Draw in the budget constraint (on the graph above) after the welfare program is introduced. c. What is the maximum number of hours this individuai can work, and still receive a positive
amount of the welfare benefit? 300. was
4 a; 3?;375hm6 q d. indicate heiow the predicted effect of the welfare program described above on consumption,
leisure and hours worked. Assume that, prior to the Welfare program the individual chose to
work 270 hours a month, and consume 150 hours a month of ieisure‘ in each square indicate
whether the welfare program causes the indicated quantity to increase (+), decrease (w), or is uncertain. ]
7 TMH ' Us “I “V
Consumptionw wg§P¢3 3 L, Li”! Leisure hours W
Hours worked il—li. A firm faces a market wage of w, selis its product in a perfectly competitive market at price p, and
has a production function given by: Q=L°'4i<0‘6, with capital fixed in the short run. (points: 68) a. Write an expression (involving w,p,i, & K) that describes the ruie for how many workers (L) this
(proﬁt maximizing) firm wili hire. U) W warm PMPE: u)" PCQLWEG
w 1—. a Li L...
b. Any firm operating in a perfectiy competitive market wiil produce where marginai cost is equai to marginal revenue. Briefly show or explain why this is consistent with the ruie for how much
iabor to hire (your answer to part a.). iEHE. This question concerns severai individuais who are choosing consumption and Eeisure (and hours
or work). individuals have 600 hours per month to aiiocate to Eeisure or work, and have an endowment
of nonlabor income of V. The hourly wage paid for work is w. (points: 1210) a. (5) Use the graph beiow to iiiustrate an individuai who, at the wage rate indicated, chooses 0
hours of work. Draw the indifference curve for such an individual.
(ii) Use your graph to indicate this person’s reservation wage.
(iii)Show a wage increase that is large enough to induce this individual to work. Show the new
hours of work on the graoh. Consumption b. Use the same gragh, below, to consider the responses of 2 individuals ( Art and Bart) to an
increasein the wage rate. Art is currently consuming 100 hours of leisure; Bart is currently consuming 500 hours of leisure. Show that, for a given wage decrease, it is more likeiy that Art
wilt work more after the wage decrease than that Bart will work more after the wage decrease. Beiow the graph, use what you know about income and substitution effects to expla‘ answer briefly (23 sentences}, Consumption v“ r \5‘ 600 Leisure
$60 $170 EXPLANATION: gNC/r EJ543ng M +0 4
MT MS l’r END of EXAM 7 ...
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 Spring '06
 Miller
 Economics, Supply And Demand, welfare program

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