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Unformatted text preview: Labor Economics 01:220:302 Sec.01 Instructor: Carl Shu‐Ming Lin Name: Midterm Spring 2011 March 9, 2011 Each question is 20 pts Q1. 1. Economic rationality A) implies that people have an objective and pursue it in a consistent fashion. B) implies that people's behavior does not adapt when incentives change. C) implies that there is no such thing as a free lunch. D) can be directly proven. 2. Which of the following is a positive statement? A) Mutually beneficial trade is good. B) Minimum wage laws are not Pareto efficient. C) All workers should earn, at a minimum, a living wage. D) All persons who cannot produce enough to earn a living wage should not be allowed to work. 3. Which of the following could NOT be a public good? A) national defense B) an apple C) music broadcast by a radio station D) information about worker safety when using asbestos 4. A worker's income is equal to his A) earnings. B) wage rate multiplied by hours worked. C) wages plus benefits. D) earnings plus employee benefits plus unearned income. 5. If the salaries of accountants increase and other conditions remain the same, then A) a firm will move to the left along its labor demand curve for accountants. B) a firm will move to the right along its labor demand curve for accountants. C) the labor demand curve for accountants will shift to the left. D) the labor demand curve for accountants will shift to the right. 6. If every worker wants ten dollars more per hour to work, then wages will: A) go up by $10 B) go up by more than $10 C) go up by less than $10 D) go down as employment falls 1 7. If the firm hires to a point where the marginal expense of labor is greater than the marginal revenue product of labor, then A) profits could be increased by increasing employment. B) profits could be increased by reducing employment. C) profits are maximized. D) total cost must be greater than total revenue. 8. An employer who is a monopolist in the product market will probably A) hire more employees than a perfect competitor would. B) hire fewer employees than a perfect competitor would. C) hire the same number of employees as a perfect competitor, due to competitiveness in the labor market. D) hire fewer workers at a higher wage than a perfect competitor would. 9. In the short run A) a firm can not hire new workers. B) wage rates and product prices cannot change. C) a firm can not add on to an assembly line or introduce new machines to the production process. D) employment levels cannot change. 10. Moving from the upper to the lower portion of a straight labor demand curve, the elasticity A) changes from elastic to inelastic. B) changes from inelastic to elastic. C) stays the same. D) could change from inelastic to elastic, or from elastic to inelastic. Q2. 20pts 1. Other things equal, in which of the following will have the most elastic own‐wage elasticity of demand? A) A steel firm with one plant in California. B) All steel firms in California. C) All steel firms in the United States. D) All steel firms in the world. 2. Employment often increases after an increase in the minimum wage because A) more people want to work at the new, higher wage. B) independently, labor demand increases significantly at the same time. C) the minimum wage is below the equilibrium level of wages. 2 D) the labor supply curve is vertical. 3. Which of the following is definitely NOT a quasi‐fixed cost of labor? A) unemployment insurance B) health insurance C) overtime pay D) vacation pay 4. General training is usually paid for by A) the employer. B) the employee. C) both the employer and the employee. D) neither the employer nor the employee. 5. A monopsony can hire one worker at a wage of $5, two workers at a wage of $6 each, three workers at $7 each, and so on (each added worker adding one dollar to the wage rate). If the marginal revenue product for all workers is $16, what wage will it pay? A) $10 B) $11 C) $16 D) $17 6. The marginal product of a new worker is 80 units and the marginal expense of a new worker is $800. The marginal product of hiring current workers another hour is 10 units and the marginal expense of hiring current workers another hour is $12. If the firm needs extra hours of work (assuming the work could be done by either the new or current workers), it should: A) hire new workers. B) hire current workers more hours. C) be indifferent between hiring new workers or hiring current workers more hours. D) not hire anyone for the added hours of work. 7. Through the substitution effect, a decrease in the wage rate will cause ________ in the quantity of leisure desired. A) an increase B) a decrease C) no change D) an ambiguous change 8. Indifference curves drawn with leisure and income on the axes have negative slopes A) because people are willing to give up income to obtain more leisure and vice versa. B) if a person likes leisure more than income. C) because they cannot cross one another. D) unless one of the goods is inferior. 9. A person with ________ indifference curves is most likely to decide not to participate in the labor force. A) flat B) steep C) straight D) upward‐sloping 3 10. An increase in the wage rate when the substitution effect dominates will ________ labor force participation and ________ hours of work (of those working before and after the wage increase). A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase Q3. The demand curve for gardeners is GD 19 W, where G the number of gardeners and W the hourly wage. The supply curve is GS 4 2W. a. Graph the demand curve and the supply curve. What is the equilibrium wage and equilibrium number of gardeners hired? b. Suppose the town government imposes a $2 per hour tax in all gardeners. Indicate the effect of the tax on the market for gardeners. What is the effect on the equilibrium wage and the equilibrium number of gardeners hired? How much does the gardener receive? How much does the customer pay? How much does the government receive as tax revenue? Q4. Suppose that the demand for burger flippers at fast‐food restaurants in a small city is LD 300 20W , where L the number of burger flippers and W the wage in dollars per hour. The equilibrium wage is $4 per hour, but the government putsin place a minimum wage of $5 per hour. a. How does the minimum wage affect employment in these fast‐food restaurants? Draw a graph to show what has happened, and estimate the effects on employment in the fast‐food sector. b. Suppose that in the city above, there is an uncovered sector where LS 100 80W and LD 300 20W , before the minimum wage is put in place. Suppose that all the workers who lose their jobs as burger flippers due to the introduction of the minimum wage week work in the uncovered sector. What happens to wages and employment in that sector? Draw a graph to show what happens, and analyze the effects on both wages and employment in the uncovered sector. Q5. A. Minimum Wage For a monopsonistic firm’s short run response to a minimum wage, refer to the figure below, where the firm initially chooses to hire E0 workers and requires it to pay a wage of W0 . Suppose now that a minimum wage of Wm is set, please answer the following questions. 4 a. What is the new labor supply curve? b. What is the new marginal expense of labor curve? c. What is the firm’s profit maximization condition? And which point is the new profit max condition? d. Does the increase of minimum wage reduce employment level? Explain and indicate the new wage rate and employment level. e. There are two qualifications for the possibility of part d. Briefly describe your answer. B. Immigration Assume that the characteristics an individual is composed of are physical labor, schooling and work experience (with no other factors of production). And assume that each factor is inelastically supplied. a. For unskilled immigrants endowed with no schooling and no work experience, analyze the effects (returns and employment level) on the labor markets of the three factors. b. If we assume complementarity on schooling and work experience, analyze the effects on the two labor markets. c. If we assume natives and immigrants are gross substitute, analyze the effects on the wage and employment of natives. If we assume native and immigrants are gross complement, analyze the effects on the wage and employment of natives. d. Explain the meanings of “ TR TC ” and “ MRPL MEL ”. Which one is the profit max condition? Explain. 5 ...
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