Reference no: EM13309604

1. Unemployment. If I was discussing "The Macroeconomics of Penn State," I could define "unemployment" as the inability of a student to register for a class that he or she wishes to take. In this context, one can find examples of frictional unemployment, structural unemployment, and cyclical unemployment.

A) Looking at the PSU class schedule, many classes in Economics and Management are full, while most classes in Library Science and Agriculture have open spots. Which type of unemployment does this describe?

B) In the California State University system, recession-induced budget cuts have reduced the number of classes campus-wide, so that it is difficult for students to register for a full schedule. Which type of unemployment does this describe?

C) Around the beginning of each semester, students sometimes register for one section of a class, then move to another section when an opening becomes available. This, in turn, creates an opening in the original section that soon gets filled by someone else. Which type of unemployment does this describe?

D) Would a tuition increase raise the rate of unemployment, or lower it? Explain.

2. Labor Demand. Work review question #4 in Chapter 3.

3. Elasticity of Labor Demand. Work review question #3 in Chapter 4.

4. Labor Supply. Catholic priests take a vow of chastity, forgoing marriage and intimate non-marital relationships. This question relates to the article posted on Angel (Divine Recruits), which should be read by class time on the homework day.

A) How does the vow of chastity affect the labor supply of Catholic priests? Illustrate on a graph. It doesn't have to be a supply/demand graph because I'm not asking about demand.

B) In 2000, the last year for which I have data, the median salary of priests (including housing), set by the bishop of the diocese, was $25,000. In contrast, full-time Protestant pastors earned $40,000. Thus, we could say that Catholic priests earn a relatively low hourly wage. How does this affect labor supply? Illustrate on a graph.

C) A friend says, "These low salaries aren't going to affect the number of people that become priests, because you are either destined to become a priest or not, and nothing is going to stop you." In economic terms, what is my friend saying about labor supply? Illustrate this concept on a graph.

D) Protestant pastors can marry, and their wages are determined by a fairly competitive market. Which labor market is more likely to have difficulty filling all the available positions-the market for Catholic priests, or the market for Protestant pastors? Why?

5. Equilibrium. Explain, using Supply/Demand analysis, the effects of the following. For each, draw two graphs, one for the labor market (workers), and one for the output market (the product).

A) A machine is developed that harvests tomatoes mechanically (on the market for laborers, and the tomato market).

B) An economic contraction leads to a slowdown in housing construction (on the housing market, and the market for construction workers).

C) A huge natural gas reserve is tapped in the Barnett Shale in Fort Worth, Texas (on the market for workers in the natural gas industry, and the market for natural gas).

D) World War I kills a substantial fraction of the unskilled (primarily young) workers in the countries involved (on the market for low-skill labor, and for products made by low-skill labor).

6. Equilibrium. Assume the child care industry is a perfectly competitive industry, and that child care workers are hired in a perfectly competitive labor market. There is a sizable Child Care Tax Credit, which lowers the taxes of those parents who put their children in (paid) child care while they (the parents) work.

A) Illustrate, on an S/D graph, the effect of the tax credit on the price and quantity of child care in the short run.

B) Illustrate, on an S/D graph, the effect of the tax credit on wages and employment in the nursing market (many nurses require child care for their children while they are at work).

C) Illustrate, on an S/D graph, the effect of the tax credit on wages and employment in the child care industry. An academic study (really) has found that the supply of child care workers is quite elastic. Be sure this is shown in your graph. Which changes more: the wages of child care workers, or the total number of child care workers employed?

7. Labor Demand. Around 1820, with the invention of improvements in the milling of cotton, such as the cotton gin, cotton became much cheaper to raise and harvest, and cotton production exploded. In 1950, with the invention of the mechanical cotton harvester, fewer farm laborers (or sharecroppers) were needed to harvest the cotton.

A) Are cotton gins and cotton farm laborers complements or substitutes in production?
Are mechanical harvesters and farm laborers complements or substitutes in production?

B) Consider the effect of the cotton gin on the demand for cotton farm laborers.
Which is the primary reason demand increases: a scale effect or a substitution effect?

C) Consider the effect of the mechanical harvester on the demand for cotton farm laborers. Which is the primary reason demand decreases: a scale effect or a substitution effect?

8. Labor Supply. A reduction in income tax rates can lower the wage costs of employers.

A) Explain why, using a supply/demand graph.

B) Describe the income and substitution effects of this income tax reduction on labor supply.

C) For the tax cut to increase labor supply, which must be larger, the income effect or the substitution effect? Explain.