Reference no: EM13756539

Part -1:

1. Greg's labour supply curve is backward bending. Suppose Greg's (uninsured) house gets destroyed in an earthquake. How does his labour supply curve change?

A. Each point on his labour supply curve shifts upwards.

B. Each point on his labour supply curve shifts downwards.

C. Each point on his labour supply curve shifts to the right.

D. Each point on his labour supply curve shifts to the left.

E. His labour supply curve does not change at all.

2. Kim's utility function is U(C, L) = 10C^1/2 L^1/2 and she has 100 hours a week to allocate between work and leisure. Suppose Kim currently has a weekly consumption of $900 and chooses to work 40 hours per week. What is this person's non-labour income per week (V) and hourly wage (w)?

A. V = $0 and w = $15
B. V = $300 and w = $15
C. V = $200 and w = $10
D. V = $280 and w = $8
E. V = $600 and w = $10.

3. Suppose that at his current leisure-consumption bundle, Kaushik's marginal rate of substitution between consumption and leisure is -7. This means that

A. his marginal utility from consumption is 7 times bigger than his marginal utility from leisure.
B. his marginal utility from leisure is seven times bigger than his marginal utility from consumption.
C. both his marginal utility from consumption and his marginal utility from leisure are equal to 7.
D. the wage he earns must be equal to $7 per hour.
E. he would be willing to give up seven hours of leisure for one extra dollar of consumption.

4. Among single, college-educated women aged 22 - 25, average annual hours worked is 2,160 and the average wage is $22.50. If the average wage increases to $25 per hour, average annual hours worked increases to 2,340. What is the elasticity of labour supply for this group of workers?

A. 0.75
B. 0
C. 1.4
D. -1
E. -0.25

5. If the market wage decreases, a firm's LR optimal use of capital and labour changes so that

A. the amount demanded of capital decreases; the amount demanded of labour can decrease or increase
B. the amount demanded of labour increases; the amount demanded of capital decreases
C. the amount demanded of both inputs decreases
D. the amount demanded of both inputs increases
E. the amount demanded of labour increases; the amount demanded of capital can decrease or increase

6. Which of the following is true for the upward sloping range of the labour supply curve?

A. The income effect is dominated by the substitution effect.
B. The substitution effect is dominated by the income effect.
C. There is no income effect.
D. There is no substitution effect.
E. The income and the substitution effects exactly offset each other.

7. The theory of compensating differentials predicts that

A. holding worker characteristics constant, workers in safer jobs will earn less
B. workers in risky jobs will always earn more than those in safe jobs
C. holding wages constant, higher skilled workers will have riskier jobs
D. firms will always prefer to compensate the workers for the risk of injury rather than making their jobs safer
E. both B) and C) are true

8. The following diagram illustrates two budget lines. The thick (blue) line is for a worker with a wage subsidy program, while the thin line is for a worker without a wage subsidy program. The wage is $9 per hour and each person has 100 hours per week to allocate between work and leisure. Assume leisure is a normal good.

Suppose Mark would choose to work 30 hours without the program. With the program, he will

A. definitely work more
B. definitely work less
C. work the same number of hours because the substitution effect and the income effect always offset each other
D. work more if the substitution effect is greater than the income effect
E. work less if the substitution effect is greater than the income effect

9. Marla has 100 hours per week to allocate between work and leisure. Her non-labour income is $50 per week and the market wage is $10/hour. Suppose the government offers Marla a welfare program with an income guarantee of $250 a week, and a negative income tax oft = 0.4. In this context, the income guarantee means that Marla's total income if she does not work is $250 (i.e., $50 of non-labour income plus $200 transfer from the government), and her break-even income is defined as her total income at the point where her total income is the same whether or not she participates in the government program. Marla's break-even income is

A. Yb = $350
B. Yb = $550
C. Yb = $700
D. Yb = $850
E. Yb = $900

10. Pareto Efficiency implies that

A. Each firm produces the output that minimizes its total cost.
B. Each firm produces the maximum output its technology allows.
C. It is impossible for firms to hire more workers without government intervention.
D. All gains from trade have been exhausted.
E. Nobody can be made better off without making at least one other person better off.

Questions 11 and 12 refer to the following problem: Suppose a firm's technology is described by the production function q = E + 3K, where E denotes labour and K denotes capital. The price of capital is $800 per machine per week and the firm wants to produce 90 units of output per week.

11. What combination of inputs will the firm use if the weekly salary of each worker is $400?

A. E=0, K=30
B. E=0, K=90
C. E=90, K=0
D. E=30, K=0
E. E=30, K=20

12. What is the elasticity of labour demand (in absolute value) as the wage falls from $400 to $200?

A. 0
B. infinite
C. 0.75
D. 3
E. 1/3

13. What happens to the short-run demand curve for labour if the price of capital increases?

A. The short-run demand curve for labour shifts up.
B. The short-run demand curve for labour shifts down.
C. The short-run demand curve does not change.
D. The short-run demand curve for labour shifts up if the substitution effect is stronger and shifts down if the scale effect is stronger.
E. The short-run demand curve for labour shifts down if the substitution effect is stronger and shifts up if the scale effect is stronger.

14. Consider an economy with two sectors, A and B. In the absence of government regulation, the equilibrium wage in each of the two sectors would be $360 per week. However, sector A is covered by a minimum wage of $400 per week, while sector B is not covered by a minimum wage law. Workers can seek jobs in either of the two sectors, but a worker who chooses sector A and does not find a job remains unemployed and receives unemployment benefits of $200 per week. The probability a worker can find a job in sector A is 0.9 (i.e., 90 percent). A worker's utility is given by U = Y, where Y is the worker's weakly income. In equilibrium, what will be the weekly wages paid by the firms in the two sectors?

A. wA = $420 and we = $320
B. wA = $420 and we = $100
C. wA = $400 and we = $360
D. wA = $400 and we = $380
E. wA = $400 and we = $400

15. Suppose a firm purchases labour in a competitive labour market and sells its product in a competitive product market. The firm's elasticity of demand for labour is -0.4. Suppose the wage increases by 5%. What will happen to the number of workers hired by the firm and to the marginal productivity (MP) of the last worker hired by the firm?

A. The firm hires 2% fewer workers; the MP of the last hired worker increases by 5%.
B. The firm hires 2% more workers; the MP of the last hired worker increases by 10%.
C. The firm hires 5% fewer workers; the MP of the last hired worker increases by 2%.
D. The firm hires 10% more workers; the MP of the last hired worker decreases by 5%.
E. The firm hires 5% more workers; the MP of the last hired worker decreases by 2%.

16. Suppose all workers have the same preferences represented by U = 2rvrn - 4x, where w is the wage and x is the proportion of the firm's air that is composed of toxic pollutants. There are only two types of jobs in the economy, a clean job (x = 0) and a dirty job (x = 1). If the clean job pays $25 per hour, the compensating wage differential is

A. $19
B. $20
C. $24
D. $35
E. $49

17. There are 2 types of farming tractors on the market, the FT25 and the FT50. The only difference between them is that the FT25 is more prone to accidents than the FT50. Over their lifetime, one in one-thousand FT250s is expected to result in a fatal accident, as compared to only one in five-thousand FT50s. The FT25 sells for $125,000 while the FT50 sells for $137,000. At these prices, 2,000 of each model are purchased each year. The statistical value of a life of a farmer is

A. $15 million
B. $12 million
C. $10 million
D. $8 million
E. $5 million

18. Suppose there are 2 types of workers: native workers (N) and immigrants (I). The labour supply of native workers is given by w = 5 + 0.5Ex and the labour supply of immigrants is given by w = 3 + 0.5E1, where w is the market wage. Which of the following gives the aggregate supply of labour?

A. w = 4 + E
B. w = 4 + 0.5E
C. w = 8 + 0.5EN + 0.5E1
D. w = 8 + E E.w=4+0.25E

19. Queen's is a monopsony in the market for professors and its demand for professors is given by E^D= 2,000 - 0.01w, where w is the annual salary of a professor. The labour supply of professors is given by E^s = 0.02w. If Queen's wanted to maximize profit, what would be the number of professor (E*) they would hire and what would be the equilibrium salary (w*) they would pay?

A. E* = 1,000 and w* = $50,000
B. E* = 800 and w* = $40,000
C. E* = 1,200 and w* = $60,000
D. E* = 1,000 and w* = $80,000
E. E* = 800 and w* = $100,000

20. Consider a finn with production function q = 200E^1/2K^1/2, where q is output and E and K are amounts of labour and capital, respectively. If the wage rate is w = $15 per hour and the price of capital is r= $60 per hour, what is the cost minimizing combination of E and K required to produce q = 1,600 per hour?

A. E=2 and K=-4
B. E=6 and K=12
C. E=120 and K=60
D. E=8 and K=1
E. E=16 and K=4

21. Suppose average product of labour is increasing with employment. At this employment level,

A. the marginal product is less than the average product.
B. the marginal product is also increasing with employment.
C. the marginal product is equal to the average product.
D. the marginal product is decreasing with employment.
E. the marginal product could be increasing or decreasing with employment.

Part -2:

Write your answers in the assignment, on the page on which the question is given. Always provide an explanation for your final answer, or indicate how you got it; do not assume it is obvious. Label clearly any line you draw. Try to be brief; points are subtracted for extraneous material.

1) Tom earns $10 per hour for up to 40 hours of work each week and is paid $15 per hour for every hour in excess of 40_ He faces a 20 % income tax rate and receives $200 in child support each week. There are 100 hours in the week to allocate between work and leisure. Graph Tom's weekly budget line.

2) Shelly's preferences for consumption and leisure can be expressed as U(CL) ( C - 90 )( L - 20). There are 100 hours in the week available to split between work and leisure. Shelly earns 56 per hour after taxes. She also receives $210 worth of welfare benefits each week regardless of how much she works.

(a) Graph Shelly's budget line.

(b) What is Shelly's marginal rate of substitution when she works 40 hours per week and she is on her budget line?

(c) Find Shelly's optimal amount of consumption and leisure.

3) In a particular industry, labour supply is Es= 20 t 3w while labour demand is ED = 100 - 7w, where E is the level of employment in 1,000s of workers and w is the hourly wage.

(a) What is the equilibrium wage and employment if the labour market is competitive? What is. the unemployment rate?

(b) Suppose the government sets a minimum wage of $9 hour. How many workers would lose their jobs? How many additional workers would want a job at the minimum wage? What is the unemployment rate? (Unemployment rate is the ratio of unemployed workers to the number of workers in the labour force.)

4) Derek's Toy Company specializes in production of wooden toys. The firm's production function is given by q = ere, where q is the number of toys produced per day, E represents the number of labour hours per day, and K the amount of capital per day. The market wage is $10 per hour and the price of each unit of capital is $25. The price of toys is constant at $50 per unit and the current capital level is fixed at 1600 units.

(a) Derive Derek's short run demand for labour, i.e., the equation that gives the firm's optimal employment level as a function of the market wage rate_

(b) How much labour should the firm employ in the short run? How much profit will it earn per day?