Chapter 2 - The Labor Market

Chapter 1 Introduction►Normative economics analyzes( 4 )1.What is.2.What may be.3.What will never be.4.What should be.►What is the most all-pervasive assumption underlying economic theory?( 4 )1.Equilibrium.2.That individuals’ tastes and prefer ences are unchanging.3.That workers are necessarily exploited in a capitalist（资本主义的）system.4.Scarcity.►When analyzing persons, economists consider a person's primary objective to be( 4 )1.Possession (财产) maximization.2.Profit maximization.3.Wallowing in self-pity(自怜, 自哀).4.Utility maximization►Pareto Efficiency implies that( 4 )1.Nobody acts as a free rider for public goods.2.All firms are maximizing their production costs.3.It is impossible for firms to produce at full capacity in the presence of government intervention.4.All mutually-beneficial tran sactions have been completed.►Which of the following could not be a public good?( 2 )1.An interstate highway（州际公路）.2.A baseball glove（棒球手套）.3.A beach （海滩）.4.National defense.►Which of the following is not an example of market failure?( 4 )1.Nonexistence of markets.2.Price distortions.3.Ignorance.4.Perfect information►In the equation, L = 50 + 0.3W, the slope of the line is( 1 )1.+0.32.Indeterminate（不确定的, 模糊的）, because we do not know the value of W.3.504.-0. 3►One way a transaction can be unanimously（全体一致地,无异议地）supported is when( 3 )1.Joe wins but Sue loses.2.Some gain and some lose from the transaction; however the gainers do not fully compensate the losers.3.All parties affected by the transaction gain.4.All parties affected by the transaction lose.►One’s working conditions other than（不同于, 除了）their wage are known as ( 3 )1.Slavery（束缚）factors.2.Monetary factors.3.Nonpecuniary（非金钱的）factors.4.Product market factors.Chapter 2:The Labor Market►When a formal set of rules and procedures guides and constrains the employment relationship within a firm, what type of labor market is said to exist?( 1 )1.An internal labor market.2.A no pecuniary labor market.3.An external labor market.4.A national labor market.►To be counted as one of the official unemployed, one needs to be:( 1 )1.16 or older and actively seeking employment.2.16 or older and incarcerated in a corrections facility.3.Under 16 and a full-time student.4.16 or older and not seeking employment.►Which of the following persons is not considered a part of the labor force?( 3 )1.A recently-divorced 30-year-old housewife who is actively seeking her first job.2.A 19-year-old part-time dishwasher.3.A 59-year-old former nuclear physicist who, after being dismissed from his prior job, got so fed up with not being able to find a job worthy of him that he quit looking for work three years ago.4.A 45-year-old secretary who got discharged Friday morning and went looking for new work that afternoon.►Which group has demonstrated the most dramatic increase in its labor force participation rate since 1950? ( 2 )1.The labor force participation rate has not changed significantly for any group since 1950.2.Women.3.Children.4.Men.►Which sector of the economy has shown the greatest percentage reduction in employment since 1900?( 2 )1.Manufacturing (goods-producing).2.Agriculture.3.Services.ernment.►During which decade did the U.S. unemployment rate hit its century-long peak?( 2 )1.1920s.2.1930s.3.1960s.4.1970s.►A person’s real wages are( 2 )1. Always equal to their nominal wages.2. Nominal wages divided by some index of prices.3. What is really reported on their paycheck after taxes have been taken out.4. The same thing as their discretionary income（可随意支配的收入）.►Which is not an example of payment in-kind to an employee?( 3 )1. Free membership to the company’s health club.2. Employer-provided health care.3. A Christmas bonus of $100 cash.4.Paid vacation time.►Who represents the supply side of the labor market?(3 )ernment.2.Firms.3.Workers and potential workers4.All of the above.►At the market-clearing wage rate( 3 )1.There is an excess demand for labor.2.There is an excess supply of labor.3.Demand for labor equals supply of labor.4.Unintended inventory accumulation will necessarily result in the output market.Chapter 3:Labor Demand in the Long Run►When economists refer to labor demand as a derived demand, they mean: ( 4 )1.Its demand is derived from supply.2.Its demand is derived from the historical precedent of compensation for comparable jobs.3.Its demand is found by taking the first derivative of the total revenue function.4.Its demand is derived from the demand for the good or service workers contribute to producing►Firms’ primary objective is: ( 3 )1.Utility maximization.2.Output maximization.3.Profit maximization.4.Respect maximization►The profit-maximizing output will always occur where: ( 2 )1.Total revenue equal total costs.2.Marginal revenue equals marginal costs.3.A firm’s customer goodwill is maximized.4.Average revenue equals average costs.►The Marginal Product of Labor (MP L) represents the: ( 4 )1. Additional sales generated by increasing labor by one unit.2.Additional output generated by increasing capital by one unit.3.Additional output generated by increasing both labor and capital such that the factor proportions used in the production process are unaltered.4.Additional output generated by increasing labor by one unit.►A critical assumption economists make about the relationship between the quantity of labor hired and the marginal product of labor is that: ( 3 )1.The MP L increases as additional units of labor are added to the production process.2.The two variables are totally unrelated.3.The MP L diminishes as additional units of labor are added to the production process.4.The MP L diminishes to an irreducible minimum, then increases (i.e., the MP L curve is u-shaped).►If two inputs (capital and labor) are gross substitutes in the production process, an increase in the price of labor will have what impact on the market for capital? ( 3 )1.The capital market will only be affected if entrepreneurial ability is not an input in the production process.2.The price of capital will necessarily fall as well.3.The demand curve for labor will shift outward.4.The demand curve for labor will shift inward.►The word monophony means: ( 1 )1.One buyer.2.One love.3.One seller.4.One market.►In a monopolistic labor market: ( 3 )1.There is no one profit-maximizing quantity of labor the firm should hire.2. The marginal revenue product of labor curve will necessarily be horizontal.3.The marginal expense of labor curve lies above the labor supply curve.4.The marginal expense of labor curve is the labor supply curve.►A monopolist pays a wage: ( 4 )1.Equal to the marginal revenue product of labor.2.Between the wage determined in a competitive market and the marginal expense of labor.3.Lower than the government-mandated minimum wage.4.Lower than the wage determined in a competitive labor market►In which case is the total amount of a payroll tax paid by employees through lower wages? ( 1 )1.When the labor supply curve is vertical.2.When the labor supply curve is horizontal.3.When the labor supply curve is upward-sloping at a 45-degree angle.4.When the labor supply curve is downward-sloping and intersects the labor demand curve along the x-axis.Chapter 4:Labor Demand Elasticities►Economists categorized as Big Responders ( 3 )1.Believe that responses to price incentives are nonexistent.2.Go into an emotional rage over any controversial question that arises.3.Believe that responses to price incentives are generally large.4.Believe that responses to price incentives are generally small.►The greater the absolute value of the own-wage labor elasticity of demand( 4 )1.The greater is the impact on the output market associated with any given percentage increase in wages.2.The greater the ratio of union to non-union wages becomes.3.The smaller is the percentage decline in employment associated with any given percentage increase in wages.4.The larger is the percentage decline in employment associated with any given percentage increase in wages.►As one moves down (to the right) a labor demand curve, what happens to the absolute value of the elasticity of demand?( 4 )1.It increases.2.It remains unchanged along a linear demand curve.3. It reaches zero at the midpoint.4. It decreases.►The four laws of derived demand were developed by( 2 )1.Keynes and Smith.2.Hicks and Marshall.3.Cobb and Douglas.4.Leontief and Galbraith►The greater the ease with which firms can substitute across factors of production in producing their output( 1 )1.The higher the wage elasticity of labor demand.2.The lower the wage elasticity of labor demand.3.The more likely they are to use a fixed ratio of capital-to-labor in the production process4.The greater the shift of the labor demand curve.►The labor scale effect refers to the percentage change in employment associated with a given percentage change in wages holding ( 3 )constant:1.Entrepreneural ability.2.Output prices.3.Capital.►In which type of labor market might the formation of a union be the most beneficial to its members?( 3 )1.One in which there is zero quantity demanded for the final product they produce.2.One in which the labor demand curve is elastic.3.One in which the labor demand curve is inelastic.4.One in which labor unions are illegal.Chapter 5:Nonwage labor costs►To minimize production costs, firms should equate(3 )across all employees.1. Quasi-fixed and fixed costs.2. The ratio of output prices to average factor costs.3. The ratio of marginal expense to marginal productivity.4. Wages.►In which situation would it be profitable for a firm to pay for a worker’s general training?( 2 )1. When the worker is nearing retirement.2. When the training program also serves as a screening device.3. When the training increases the quasi-fixed cost of the employee.4. When the worker can change jobs easily.►Labor costs which are quasi-fixed( 4 )1. Are strictly proportional to hours of work.2. Are completely variable.3. Never change.4. Are not strictly proportional to hours of work►Firms in countries in which labor-sharing (the reduction of hours per employee for the sake of increasing the number of people employed) is common, such as Italy, tend to have( 2 )1. Relatively lower wages, ceteris paribus, than other countries.2. Relatively low quasi-fixed costs.3. Relatively high quasi-fixed costs.4. Zero quasi-fixed costs.►Firms are most likely to offer specific training to employees that( 1 )1. Are fast learners and less likely to quit.2. Have shown a tendency to job-hop and therefore really need the training to convince them what a great firm this is.3. Are slow learners and therefore in greatest need of training.4. Are described by former employers as borderline psychotic?►Firms are willing to pay a higher wage to hire temporary workers from an agency than if they hired the employees themselves because( 1 )1.The use of temporary-help agencies reduces the investment costs associated with hiring.2.The employees from temporary-help agencies are always of higher quality than those temporary employees they would hire themselves.3.Those from temporary-help agencies are more likely to stay with the firm for a longer period of time than those temporary employees they would hire themselves.4.The majority of firms have no interest in profit-maximization.►Which of the following is an example of specific training? ( 4 )1.A series of seminars on dealing with Disgruntled Clients?2.A consortium hosted by firms around the world on proper Business Etiquette in an International3.Training in word-processing.4.NASA’s training on operating a multi-million dollar robot designed to collect soil samples on Mars.Chapter 6: Supply of Labor to the Economy:►Which of the following is not a factor of demand for leisure? (2 )1. One’s wealth.2. The weighted-average currency exchange rate between the U.S. and the most popular currenciesof Europe.3. The opportunity cost of leisure (equal to the wage rate).4. One’s set of preferences.►The Decision to Work Over the backward-bending range of the labor supply curve(2 )1.The substitution effect is zero, by definition.2.The income effect outweighs the substitution effect.3.The substitution effect outweighs the income effect.4.There is no income effect►The substitution effect of increased wages would( 2 )1.Induce people to work less, ceteris paribus.2.Induce people to work more, ceteris paribus.3.Induce early retirement.4.None of the above►A income-leisure indifference curve shows( 2 )1.The tradeoff between income and goods for a given level of utility.2.The tradeoff between income and leisure for a given level of utility.3.The tradeoff between various levels of utility.4.The tradeoff between income and leisure for every possible level of utility.►The steeper a person’s income-leisure curve: ( 3 )1. The higher the value they place on money.2. The lower the value they place on an extra hour of leisure.3. The higher the value they place on an extra unit of leisure.4. The more likely they are to be a workaholic.►A worker’s reservation wage is: ( 3 )1. A federal government’s mandated minimum wage.2. A wage consistent with the social contract theory of the family wage .3. The lowest wage they would accept to offer their labor services.4. A wage so high that workers have reservations about taking the job because of all theresponsibilities it will entail.►Which of the following programs creates positive net wage rates for program recipients?(4 )1.The basic welfare system in the U.S.2.Unemployment compensation.3.Worker’s compensation.4.The Earned Income Tax Credit program.Chapter 7 : Household Production, the Family, and the Life Cycle►The word isoquant means( 1 )1. Equal quantity.2. You cannot argue about tastes.3. All other things remaining equal.4. Equal wages.►A relatively "flat" isoquant between dollars and time spent in household work implies( 2 )1. A relatively small substitution effect of a wage increase.2. A relatively large substitution effect of a wage increase.3. No income effect of a wage increase.4. No substitution effect arising from a wage increase.►As wives’ wages ris e relative to husbands, what would we expect to happen to labor supply choices within the household?( 4 )1. Husbands would take on relatively more market work and retain the same relative amount of household work.2. Women would take on more relatively more household and market work.3. Both husbands and wives would take a greater number of leisure hours each week.4. Women would take on relatively more market work and husbands would take on relatively more household work.►During a recession, what happens to the expected wage rate of those without jobs? ( 2 )1. It remains the same.2. It falls sharply.3. It increases relative to their value in household work.4. It never rises high enough to encourage anyone to look for work.►Workers who drop out of the labor force because of their longsuffering inability to find a job are categorized by economists as: ( 4 )1. "Hermits"2. "The unemployable"3. "The unemployed"4. "Discouraged workers"►Single parents who are offered child support assurance programs when none existed for them before can be expected to: ( 2 )1. Decrease their labor force participation rate.2. Increase their labor force participation rate.3. Increase the number of hours they work.4. None of the above.►On average, when does a worke r’s market productivity reach its apex (peak)? ( 1 )1. In middle age.2. The year before retirement.3. In the early 30's.4. Between 16 and 18 years of age.Chapter 8 : compensating wage differentials►If Job A pays $12.00 per hour and Job B pays $15.00, and the two jobs are identical in every way except that Job B is more dangerous to perform than Job A, the higher pay received for performing jobB is referred to as: ( 2 )1. A productivity premium.2. A compensating wage differential.3. A geographic mobility increment.4. A raise.►Economist Robert Frank found what relationship between a job’s social responsibility and its wages?( 2 )1. Those jobs with the lowest social responsibility tend to go unfilled for the longest periods of time.2. Those jobs with the lowest social responsibility pay the highest wages.3. There is no consistent relationship between the social responsibility of one’s job and their wages.4. Those jobs with the highest social responsibility also pay the highest wages.►Why don’t all workers necessarily take the highest-paying job available to them? ( 3 )1. Income plays no role in a person’s happiness.2. Workers are generally too lazy to find out exactly which job would offer them the highest wages.3. Individuals seek to maximize utility, not income.4. All workers fear the extra responsibility that comes from taking a higher-paying job.►Which economist was the first to offer an eloquent description of the circumstances which provide a basis for compensating wage differentials? ( 3 )1. John Maynard Keynes.2. John Kenneth Galbraith.3. Adam Smith.4. Thorsten Veblen.►Hedonic wage theory is based on the premise that: ( 4 )1. The theory of compensating wage differentials is obsolete.2. If given the choice, people will work just enough to support their desire for raucous partying.3. People will choose a job which maximizes their income.4. People will choose a job consistent with their desire to maximize their overall happiness.►For a firm to maximize profits, a reduction in on-the-job risks must be accommodated by: ( 3 )1. A reduction in the firm’s productive capacity.2. A reduction in average holiday time for full-time staff.3. A reduction in wages.4. An increase in wages.►When OSHA imposes stricter safety regulations and therefore forces firms to reduce wages as risks decrease, which group is necessarily made worse-off? ( 2 )1. The firm itself.2. Those workers who are not risk-averse (i.e., those who knowingly take risky jobs for the higher wages they provide).3. All the workers in the firm.4. The consumers of this firm’s products.►When might government safety regulations (such as those enforced by OSHA) make all workers better off? ( 3 )1. When all workers receive lower pay and benefit packages so the firm can remain competitive.2. When 50% of the workers are involuntarily undertaking on-the-job risks, but the other 50% are willingly undertaking such risks for the higher pay.3. When all workers are involuntarily undertaking on-the-job risks.4. When on-the-job injuries are reduced by 3% in a given year.Chapter 9 : Education economics►Investing in human capital refers to investments ( 1 )1. People make in themselves to improve their value in the labor market.2. In infrastructure.3. In improved benefits packages.4. In plant and machinery.5. In stocks and bonds.►Which is not a cost of investing in human capital? ( 2 )1. Forgone earnings (opportunity costs).2. Unjustifiable costs.3. Out-of-pocket or direct costs.4. Psychic costs.►Since employers cannot possibly know the exact productivity of a job applicant, they use certain( 4 )to separate the most promising applicants from the rest.1. Tests of will2. Funny feelings3. Inmate psychological evaluations4. Signals, such as a college degree or number of years work experience►An example of the downward bias of estimating the rate of return for a college education is: ( 4 )1. Excluding the opportunity costs involved in obtaining a college education.2. The inclusion of employee benefits in such calculations.3. Excluding the greater riskiness of jobs people with a college education are likely to take.4. Excluding the benefits of a college education not necessarily reflected in greater productivity, such as greater cultural, historical and philosophical insight.►Analysis of voluntary public-sector job-training programs in the U.S. have concluded: (1 )1. Generally provide benefits in excess of costs.2. Generally do not increase worker productivity at all.3. It is very unlikely that the benefits ever outweigh the costs.4. Do not provide a net benefit nearly as great as involuntary programs.Chapter 10: Worker Mobility: Migration, Immigration and Turnover►Which of the following is a psychic cost of moving across the country to take a different job? ( 2 )1. The higher overall cost of living in your new community.2. The costs of leaving behind friends and a familiar environment for a strange new place where you know nobody.3. The loss you take on your home because you just bought it 6 months ago and the market has worsened since then.4. The cost of the U-Haul van to move all your stuff.►Human capital theory predicts what about worker’s migratory patterns? ( 3 )1. People will tend to flow from warm climates to cold ones.2. People will generally not concern themselves with their economic opportunities in choosing a place to live; they will rather look for warm climates, great natural beauty and a stable political environment.3. People will tend to flow from places with relatively poor earnings opportunities to areas with better earnings opportunities.4. People will tend to migrate from wealthy industrialized nations to poor underdeveloped ones to take advantage of the lower living costs in the latter.►Economic theory suggests that the addition of illegal aliens to a domestic market with no minimum wages for day-laborers would: ( 4 )1. Keep wages and employment the same in the domestic market.2. Increase wages and employment in the domestic market.3. Necessarily drive the market-clearing wage to zero in the domestic market.4. Decrease wages but increase employment in the domestic market.►The extent to which the marginal expense of labor exceeds the wage rate is greater: ( 4)1. When the marginal revenue product of labor curve is horizontal.2. When there are no mobility costs.3. When mobility costs are low.4. When mobility costs are high.►Which age group represents the peak for geographic mobility? (3 )1. 16-202. 65-693. 20-244. 45-49►Estimating expected earnings growth by comparing the relative earnings of new immigrants to those who have been in the U.S. for a decade or more: ( 2 )1. May understate expected earnings growth because of the number of immigrants who constantly move to different areas of the country.2. May overstate the earnings growth immigrants can expect because immigrants who are less successful are more likely than others to return to their country of origin.3. Is an accurate method for estimating earnings growth.4. None of the above.►One reason that average job tenure in the U.S. is lower than it is in Europe and Japan is: ( 3 )1. The rate of pay is so much higher in Europe and Japan than it is in the U.S. that it engenders greater worker loyalty.2. Skills are more job-specific in Europe and Japan than in the U.S., so workers in Europe and Japan fear that they will have a difficult time finding other employment if they quit.3. On average, American workers receive lower levels of company training than their European and Japanese counterparts.4. The amount of employer-subsidized housing is greater in the U.S. than in the rest of the world, and American workers are reluctant to give that up by quitting their jobs.►Which of these groups face relatively high psychic costs to moving? ( 1 )1. People with more children2. Young people just out of school3. Single people4. More educated people►Suppose that janitors and engineers could both increase their earnings 20% by moving. In which of the following cases would janitors be more likely to move than engineers? (4 )1. The main cost of moving is getting information about what jobs pay.2. The cost of moving is a fixed proportion of one's current earnings.3. The cost of moving is the same for everyone.4. The cost of moving is a rising proportion of one's current earnings.►Allowing more immigration of unskilled workers will raise the wage of skilled workers in a nation if: ( 2 )1. Unskilled workers are complements in production to skilled workers.2. Unskilled workers are substitutes for skilled workers but the scale effect dominates the substitution effect.3. Both of the above.4. Neither of the above.►Until recently, China limited the movement of workers from rural to urban areas. When it removed limits, most likely: ( 4 )1. Nation welfare fell due to higher mobility costs due to increased migration.2. Rural wages fell as the migration of workers depressed rural markets.3. Urban wages rose to attract rural workers.4. National income rose as workers became better matched with employers.►Which of the following would likely increase the mobility of workers within a nation? ( 2 )1. An increase in the number of younger children per household.2. Laws making it less costly to fire workers.3. A higher fraction of unionized jobs.4. Laws imposing a mandatory waiting period on person moving into a new community before they qualify for welfare benefits.Chapter 12: Gender, Race, and Ethnicity in the Labor Market►Which is not an example of labor market discrimination? ( 1 )1. Paying a White male more than an Hispanic female more because his marginal revenue product of labor is three times higher than hers.2. Denying a job to the best candidate because you would rather hire someone of your own race.3. Paying two workers with identical skills differently because one belongs to a demographic group reputed to have poor work habits.4. Shunting female workers into lower paying jobs to reserve the high-paying ones for men.►An employer who practices personal prejudice’s discrimination against minorities will ( 3 )relative to a non-discriminating employer?1. Hire fewer minorities and pay them below the minimum wage.2. Never hire any minorities.3. Hire fewer minorities and pay them a higher wage.4. Always enjoy higher profits.►Contrary to the classic model of profit-maximization being a firm’s primary objective, employers who discriminate appear to be maximizing: ( 4 )1. Their firm’s stock prices.2. Customer goodwill.3. Their leisure time.4. Their own utility.►An employer who does not want to hire women aged 18-35 because they will likely have a child and quit is practicing: ( 1 )1. Group association.2. Employee discrimination.3. Racial discrimination.4. Screening based on a statistical measure of productivity.►In which situation would a small wage cut result in a large number of workers leaving a firm? (3 )1. When employee benefits are excellent.2. When search costs are high.3. When search costs are low.4. When the average employee has been with the firm a very long period of time.。

A n s w e r s t o T e x t b o o k Q u e s t i o n s a n d P r o b l e m s CHAPTER 7?Unemployment and the Labor MarketQuestions for Review1. The rates of job separation and job finding determine the natural rate of unemployment. The rate of jobseparation is the fraction of people who lose their job each month. The higher the rate of job separation, the higher the natural rate of unemployment. The rate of job finding is the fraction of unemployed people who find a job each month. The higher the rate of job finding, the lower the natural rate ofunemployment.2. Frictional unemployment is the unemployment caused by the time it takes to match workers and jobs.Finding an appropriate job takes time because the flow of information about job candidates and job vacancies is not instantaneous. Because different jobs require different skills and pay different wages, unemployed workers may not accept the first job offer they receive.In contrast, structural unemployment is the unemployment resulting from wage rigidity and job rationing. These workers are unemployed not because they are actively searching for a job that best suits their skills (as in the case of frictional unemployment), but because at the prevailing real wage the quantity of labor supplied exceeds the quantity of labor demanded. If the wage does not adjust to clear the labor market, then these workers must wait for jobs to become available. Structural unemployment thus arises because firms fail to reduce wages despite an excess supply of labor.3. The real wage may remain above the level that equilibrates labor supply and labor demand because ofminimum wage laws, the monopoly power of unions, and efficiency wages.Minimum-wage laws cause wage rigidity when they prevent wages from falling to equilibrium levels. Although most workers are paid a wage above the minimum level, for some workers, especially the unskilled and inexperienced, the minimum wage raises their wage above the equilibrium level. It therefore reduces the quantity of their labor that firms demand, and creates an excess supply ofworkers, which increases unemployment.The monopoly power of unions causes wage rigidity because the wages of unionized workers are determined not by the equilibrium of supply and demand but by collective bargaining between union leaders and firm management. The wage agreement often raises the wage above the equilibrium level and allows the firm to decide how many workers to employ. These high wages cause firms to hire fewer workers than at the market-clearing wage, so structural unemployment increases.Efficiency-wage theories suggest that high wages make workers more productive. The influence of wages on worker efficiency may explain why firms do not cut wages despite an excess supply of labor. Even though a wage reduction decreases th e firm’s wage bill, it may also lower workerproductivity and therefore the firm’s profits.4. Depending on how one looks at the data, most unemployment can appear to be either short term orlong term. Most spells of unemployment are short; that is, most of those who became unemployed find jobs quickly. On the other hand, most weeks of unemployment are attributable to the small number of long-term unemployed. By definition, the long-term unemployed do not find jobs quickly, so they appear on unemployment rolls for many weeks or months.5. Europeans work fewer hours than Americans. One explanation is that the higher income tax rates inEurope reduce the incentive to work. A second explanation is a larger underground economy in Europe as a result of more people attempting to evade the high tax rates. A third explanation is the greater importance of unions in Europe and their ability to bargain for reduced work hours. A final explanation is based on preferences, whereby Europeans value leisure more than Americans do, and therefore elect to work fewer hours.Problems and Applications1. a. In the example that follows, we assume that during the school year you look for a part-time job,and that, on average, it takes 2 weeks to find one. We also assume that the typical job lasts 1semester, or 12 weeks.b. If it takes 2 weeks to find a job, then the rate of job finding in weeks isf = (1 job/2 weeks) = 0.5 jobs/week.If the job lasts for 12 weeks, then the rate of job separation in weeks iss = (1 job/12 weeks) = 0.083 jobs/week.c. From the text, we know that the formula for the natural rate of unemployment is(U/L) = [s/(s + f )],where U is the number of people unemployed, and L is the number of people in the labor force.Plugging in the values for f and s that were calculated in part (b), we find(U/L) = [0.083/(0.083 + 0.5)] = 0.14.Thus, if on average it takes 2 weeks to find a job that lasts 12 weeks, the natural rate ofunemployment for this population of college students seeking part-time employment is 14 percent.2. Call the number of residents of the dorm who are involved I, the number who are uninvolved U, and thetotal number of students T = I + U. In steady state the total number of involved students is constant.For this to happen we need the number of newly uninvolved students, (0.10)I, to be equal to thenumber of students who just became involved, (0.05)U. Following a few substitutions:(0.05)U = (0.10)I= (0.10)(T – U),soWe find that two-thirds of the students are uninvolved.3. To show that the unemployment rate evolves over time to the steady-state rate, let’s begin by defininghow the number of people unemployed changes over time. The change in the number of unemployed equals the number of people losing jobs (sE) minus the number finding jobs (fU). In equation form, we can express this as:U t + 1–U t= ΔU t + 1 = sE t–fU t.Recall from the text that L = E t + U t, or E t = L –U t, where L is the total labor force (we will assume that L is constant). Substituting for E t in the above equation, we findΔU t + 1 = s(L –U t) –fU t.Dividing by L, we get an expression for the change in the unemployment rate from t to t + 1:ΔU t + 1/L = (U t + 1/L) – (U t/L) = Δ[U/L]t + 1 = s(1 –U t/L) –fU t/L.Rearranging terms on the right side of the equation above, we end up with line 1 below. Now take line1 below, multiply the right side by (s + f)/(s + f) and rearrange terms to end up with line2 below:Δ[U/L]t + 1= s – (s + f)U t/L= (s + f)[s/(s + f) – U t/L].The first point to note about this equation is that in steady state, when the unemployment rate equals its natural rate, the left-hand side of this expression equals zero. This tells us that, as we found in the text, the natural rate of unemployment (U/L)n equals s/(s + f). We can now rewrite the above expression, substituting (U/L)n for s/(s + f), to get an equation that is easier to interpret:Δ[U/L]t + 1 = (s + f)[(U/L)n–U t/L].This expression shows the following:? If U t/L > (U/L)n (that is, the unemployment rate is above its natural rate), then Δ[U/L]t + 1 is negative: the unemployment rate falls.? If U t/L < (U/L)n (that is, the unemployment rate is below its natural rate), then Δ[U/L]t + 1 is positive: the unemployment rate rises.This process continues until the unemployment rate U/L reaches the steady-state rate (U/L)n.4. Consider the formula for the natural rate of unemployment,If the new law lowers the chance of separation s, but has no effect on the rate of job finding f, then the natural rate of unemployment falls.For several reasons, however, the new law might tend to reduce f. First, raising the cost of firing might make firms more careful about hiring workers, since firms have a harder time firing workers who turn out to be a poor match. Second, if job searchers think that the new legislation will lead them to spend a longer period of time on a particular job, then they might weigh more carefully whether or not to take that job. If the reduction in f is large enough, then the new policy may even increase the natural rate of unemployment.5. a. The demand for labor is determined by the amount of labor that a profit-maximizing firm wants tohire at a given real wage. The profit-maximizing condition is that the firm hire labor until themarginal product of labor equals the real wage,The marginal product of labor is found by differentiating the production function with respect tolabor (see Chapter 3 for more discussion),In order to solve for labor demand, we set the MPL equal to the real wage and solve for L:Notice that this expression has the intuitively desirable feature that increases in the real wagereduce the demand for labor.b. We assume that the 27,000 units of capital and the 1,000 units of labor are supplied inelastically (i.e., they will work at any price). In this case we know that all 1,000 units of labor and 27,000 units of capital will be used in equilibrium, so we can substitute these values into the above labor demand function and solve for W P .In equilibrium, employment will be 1,000, and multiplying this by 10 we find that the workers earn 10,000 units of output. The total output is given by the production function: Y =5K 13L 23Y =5(27,00013)(1,00023)Y =15,000.Notice that workers get two-thirds of output, which is consistent with what we know about theCobb –Douglas production function from Chapter 3.c. The real wage is now equal to 11 (10% above the equilibrium level of 10).Firms will use their labor demand function to decide how many workers to hire at the given realwage of 11 and capital stock of 27,000:So 751 workers will be hired for a total compensation of 8,261 units of output. To find the newlevel of output, plug the new value for labor and the value for capital into the production function and you will find Y = 12,393.d. The policy redistributes output from the 249 workers who become involuntarily unemployed tothe 751 workers who get paid more than before. The lucky workers benefit less than the losers lose as the total compensation to the working class falls from 10,000 to 8,261 units of output.e. This problem does focus on the analysis of two effects of the minimum-wage laws: they raise thewage for some workers while downward-sloping labor demand reduces the total number of jobs. Note, however, that if labor demand is less elastic than in this example, then the loss ofemployment may be smaller, and the change in worker income might be positive.6. a. The labor demand curve is given by the marginal product of labor schedule faced by firms. If acountry experiences a reduction in productivity, then the labor demand curve shifts to the left as in Figure 7-1. If labor becomes less productive, then at any given real wage, firms demand less labor. b. If the labor market is always in equilibrium, then, assuming a fixed labor supply, an adverseproductivity shock causes a decrease in the real wage but has no effect on employment orunemployment, as in Figure 7-2.c. If unions constrain real wages to remain unaltered, then as illustrated in Figure 7-3, employment falls to L 1 and unemployment equals L – L 1.This example shows that the effect of a productivity shock on an economy depends on the role ofunions and the response of collective bargaining to such a change.7. a. If workers are free to move between sectors, then the wage in each sector will be equal. If the wages were not equal then workers would have an incentive to move to the sector with the higher wage and this would cause the higher wage to fall, and the lower wage to rise until they were equal.b. Since there are 100 workers in total, L S = 100 – L M . We can substitute this expression into thelabor demand for services equation, and call the wage w since it is the same in both sectors:L S = 100 – L M = 100 – 4wL M = 4w.Now set this equal to the labor demand for manufacturing equation and solve for w:4w = 200 – 6ww = $20.Substitute the wage into the two labor demand equations to find L M is 80 and L S is 20.c. If the wage in manufacturing is equal to $25 then L M is equal to 50.d. There are now 50 workers employed in the service sector and the wage w S is equal to $12.50.e. The wage in manufacturing will remain at $25 and employment will remain at 50. If thereservation wage for the service sector is $15 then employment in the service sector will be 40. Therefore, 10 people are unemployed and the unemployment rate is 10 percent.8. Real wages have risen over time in both the United States and Europe, increasing the reward forworking (the substitution effect) but also making people richer, so they want to “buy” more leisure (the income effect). If the income effect dominates, then people want to work less as real wages go up. This could explain the European experience, in which hours worked per employed person have fallen over time. If the income and substitution effects approximately cancel, then this could explain the U.S.experience, in which hours worked per person have stayed about constant. Economists do not have good theories for why tastes might differ, so they disagree on whether it is reasonable to think that Europeans have a larger income effect than do Americans.9. The vacant office space problem is similar to the unemployment problem; we can apply the sameconcepts we used in analyzing unemployed labor to analyze why vacant office space exists. There is a rate of office separation: firms that occupy offices leave, either to move to different offices or because they go out of business. There is a rate of office finding: firms that need office space (either to start up or expand) find empty offices. It takes time to match firms with available space. Different types of firms require spaces with different attributes depending on what their specific needs are. Also, because demand for different goods fluctuates, there are “sectoral shifts”—changes in the composition ofdemand among industries and regions that affect the profitability and office needs of different firms.。

Chapter2 A Changed Global Reality 世界经济格局新变化Say this for the young century: we live in interesting times. Not quite 2 1⁄2 years ago, the world economy tipped into the most severe downturn since the Great Depression in the 1930s. World trade slowed sharply. Unemployment lines grew longer, especially in the old industrial economies. Financial institutions that had seemed as solid as granite disappeared as if they were no more substantial than a bunch of flowers in the hands of an old-style magician. 对于新世纪，我们得这样说：我们生活在一个有趣的时代。

差不多两年半之前，世界经济陷入了20世纪30年代经济大萧条时期以来最惨重的低迷状态。

世界贸易进程大幅放缓。

失业队伍也越来越快，这在旧工业经济体系表现尤为突出。

原来坚如磐石的金融机构也消失了，似乎还不如老套的魔术师变的花束看起来真实。

Given that the scale of the downturn was so epochal, it should not be surprising that the nature of the recovery would likewise be the stuff of history. And it has been. As they make their way to Davos for the annual meeting of the World Economic Forum (WEF) by helicopter, bus, car or train (which is the right way to do it), the members of the global economic and political elite will find themselves coming to terms with something they have never known before. 考虑到经济衰退幅度如此的跨时代，经济复苏进程会很慢也是理所当然的，对此我们不应该感到吃惊。

CHAPTER 55-1. Suppose the labor supply curve is upward sloping and the labor demand curve is downward sloping. The study of economic trends over a particular time period reveals that the wage recently fell while employment levels rose. Which curve must have shifted and in which direction to produce this effect?If the supply curve does not shift, all wage and employment movements must occur along the supply curve, so that the wage rate and the employment level must move in the same direction. Because the wage went down while employment went up in the situation described in the question, it must have been the case that the supply curve shifted outwards (to the right). We do not have enough information to determine whether the demand curve shifted as well.5-2. It takes time to produce a new economist, and prospective economists base their career decision by looking only at current wages across various professions. Further, the labor supply curve of economists is much more elastic than the labor demand curve. Suppose the market is now in equilibrium, but that the demand for economists suddenly rises because a new activist government in Washington wants to initiate many new programs that require the input of economists. Illustrate the trend in the employment and wages of economists as the market adjusts to this increase in demand.Initially, the market is in equilibrium at a wage w0 and an employment level of E0. The increase the demand for economists results in a new equilibrium wage of w1 and a new equilibrium employment level of E1. However, the demand for economists in the short-run is inelastic at E0, so the demand increase simply leads to a rise in the wage of economists (as indicated by point 1). In the next period, students believe this wage will persist and oversupply the market so that the cobweb leads to a new wage at point 2. In the next period, students undersupply (because the wage is too low) and the cobweb leads to a new wage at point 3, and so on. Because of the relative elasticities of supply and demand (as drawn), the cobweb is exploding and will never converge to a stable equilibrium.5-3. Suppose the supply curve of physicists is given by w = 10 + 5E , while the demand curve is given by w = 50 – 3E . Calculate the equilibrium wage and employment level. Suppose now that the demand for physicists increases and the new demand curve is given by w = 70 – 3E . Assume this market is subject to cobwebs. Calculate the wage and employment level in each round as the wage and employment levels adjust to the demand shock. (Recall that each round occurs on the demand curve – when the firm posts a wage and hires workers). What is the new equilibrium wage and employment level?The initial equilibrium is given by 10 + 5E = 50 – 3E . Solving these two equations simultaneously implies that w = $35 and E S = E D = 5. When demand increases to w = 70 – 3E , the new equilibrium wage is $47.5 and the equilibrium level of employment is 7.5.Round Wage Employment1 $55.0 52 $43.0 93 $50.2 6.64 $45.9 8.05 $48.4 7.26 $46.9 7.77 $47.8 7.48 $47.2 7.6The table gives the values for the wage and employment levels in each round. The values in the table are calculated by noting that in any given period the number of physicists is inelastically supplied, so that the wage is determined by the demand curve. Given this wage, the number of economists available in the next period is calculated. By round 7, the market wage rate is within 30 cents of the new equilibrium.01 w 1w 0W age5-4. The 1986 Immigration Reform and Control Act (IRCA) made it illegal for employers in the United States to knowingly hire illegal aliens. The legislation, however, has not reduced the flow of illegal aliens into the country. As a result, it has been proposed that the penalties against employers who break the law be increased substantially. Suppose that illegal aliens, who tend to be less skilled workers, are complements with native workers. What will happen to the wage of native workers if the penalties for hiring illegal aliens increase?A substantial increase in the penalties associated with hiring illegal aliens will likely reduce the number of illegal aliens entering the United States. The effect of this shift in the size of the illegal alien flow on the marginal product (and hence the demand curve) of native workers hinges on whether illegal aliens are substitutes or complements with natives. As it is assumed that natives and illegal aliens are complements, a cut in the number of illegal aliens reduces the value of the marginal product of natives, shifting down the demand for native labor, and decreasing native wages and employment.5-5. Suppose a firm is a perfectly discriminating monopsonist. The government imposes a minimum wage on this market. What happens to wages and employment?A perfectly discriminating monopsonist faces a marginal cost of labor curve that is identical to the supply curve. As a result, the employment level of a perfectly discriminating monopsonist equals theemployment level that would be observed in a competitive market (at E *) The imposition of a minimum wage at w MIN leads to the same result as in a competitive market: the firm will only want to hire E D workers as w MIN is now the marginal cost of labor, but E S workers will want to find work at the minimum wage. Thus, the wage increases, but employment falls.DollarsE w w *S D5-6. What happens to wages and employment if the government imposes a payroll tax on amonopsonist? Compare the response in the monopsonistic market to the response that would have been observed in a competitive labor market.Initially, the monopsonist hires E M workers at a wage of w M . The imposition of a payroll tax shifts the demand curve to VMP ′, and lowers employment to E ′ and the wage to w ′. Thus, the effect of imposing a payroll tax on a monopsonist is qualitatively the same as imposing a payroll tax in a competitive labor market: lower wages and employment. (It is interesting to note that the same result comes about if the payroll tax is placed on workers, so that the labor supply and marginal cost of labor curves shift as opposed to labor demand.)5-7. An economy consists of two regions, the North and the South. The short-run elasticity of labor demand in each region is –0.5. The within-region labor supply is perfectly inelastic. The labormarket is initially in an economy-wide equilibrium, with 600,000 people employed in the North and 400,000 in the South at the wage of $15 per hour. Suddenly, 20,000 people immigrate from abroad and initially settle in the South. They possess the same skills as the native residents and also supply their labor inelastically.(a) What will be the effect of this immigration on wages in each of the regions in the short run (before any migration between the North and the South occurs)?There will be no effect on the North’s labor supply in the short run, so the wage rate will not change there. In the South, labor supply will have increased by 5 percent, so the wage rate must fall by 5/(0.5) = 10 percent (recall that the elasticity of labor demand is -0.5, so a one percent decrease in wages would have been generated by a 0.5 percent expansion of the labor supply). The new hourly wage in the South, therefore, is $13.50 and total employment in the South is 420,000.DollarsEmploymentw M w ′(b) Suppose 1,000 native-born persons per year migrate from the South to the North in response to every dollar differential in the hourly wage between the two regions. What will be the ratio of wages in the two regions after the first year native labor responds to the entry of the immigrants?After the initial migration, we have seen that wages in the South are $13.50 while wages in the North are $15. This difference leads 1,500 natives migrating from the South to the North in the first year. Employment in the North after one year, therefore is 601,500. Moreover, as the elasticity of labor demand in the North is -0.5 and employment has increased by 0.25 percent, the Northern wage falls by 0.5 percent to roughly $14.93. Likewise, employment in the South after one year is 418,500. As the elasticity of labor demand is -0.5 and employment has decreased by 0.3571 percent, the Southern wage increases by0.71428 percent to roughly $13.60. Thus, the ratio of the Northern to Southern wage after one year is1.09779.(c) What will be the effect of this immigration on wages and employment in each of the regions in the long run (after native workers respond by moving across regions to take advantage of whatever wage differentials may exist)? Assume labor demand does not change in either region.In the long run, people must move from the South to the North to equalize the wage rates in the two regions. Since the wages were equal in the two regions before the influx of immigrants, and they also must be equal after things settle down, the proportional decrease in the wage rate should be the same in the North and in the South. Because the elasticity of labor demand is the same in the two regions, this last observation implies that the percentage increase in employment in the North must be the same as the percentage increase in employment in the South. Thus, as 60 percent of the original workers were employed in the North, 60 percent of the 20,000 increase in Southern employment will eventually migrate to the North. In the long run, therefore, total Northern employment will be 612,000 while total Southern employment will be 408,000. (Note: there is no presumption that only immigrants further migrate to the North.) In each region, therefore, employment increases by 2 percent in the long run, i.e., 12,000 is 2 percent of 600,000 and 8,000 is 2 percent of 400,000. (This can also be seen immediately as 20,000 is 2 percent of the 1 million workers.) Now, given that the elasticity of labor demand is -0.5, the 2 percent increase in employment will cause the wage rate to fall by 4 percent. Hence, the long-run equilibrium hourly wage will be $14.40.5-8. Chicken Hut faces perfectly elastic demand for chicken dinners at a price of $6 per dinner. The Hut also faces an upward sloped labor supply curve ofE = 20w – 120,where E is the number of workers hired each hour and w is the hourly wage rate. Thus, the Hut faces an upward sloped marginal cost of labor curve ofMC E = 6 + 0.1E.Each hour of labor produces 5 dinners. (The cost of each chicken is $0 as the Hut receives two-day old chickens from Hormel for free.) How many workers should Chicken Hut hire each hour to maximize profits? What wage will Chicken Hut pay? What are Chicken Hut’s hourly profits?First, solve for the labor demand curve: VMP E = P x MP E = $6 x 5 = $30. Thus, every worker is valued at $30 per hour by Chicken Hut. Now, setting VMP E = MC E yields 30 = 6 + .1E which implies E* = 240. Thus, Chicken Hut will hire 240 workers every hour. Further, according to the labor supply curve, 240 workers can be hired at an hourly wage of $18. Finally, Chicken Hut’s profits are Π = 240(5)($6) –240($18) = $2,880.5-9. Polly’s Pet Store has a local monopoly on the grooming of dogs. The daily inverse demand curve for pet grooming is:P = 20 – 0.1Qwhere P is the price of each grooming and Q is the number of groomings given each day. This implies that Polly’s marginal revenue is:MR = 20 – 0.2Q.Each worker Polly hires can groom 20 dogs each day. What is Polly’s labor demand curve as a function of w, the daily wage that Polly takes as given?As each worker can groom 20 dogs each day, and using Q = 20E, we have thatVMP E = MR x MP E = ( 20 – 0.2Q ) (20) = (20 – 4E)(20) = 400 – 80E.Thus, as Polly’s demand for labor satisfies VMP E = w, we have that her labor demand curve isE = 5 – 0.0125w.5-10. The Key West Parrot Shop has a monopoly on the sale of parrot souvenir caps in Key West. The inverse demand curve for caps is:P = 30 – 0.4 Qwhere P is the price of a cap and Q is the number of caps sold per hour. Thus, the marginal revenue for the Parrot Shop is:MR = 30 – 0.8Q.The Parrot Shop is the only employer in town, and faces an hourly supply of labor given by:w = 0.9E + 5where w is the hourly wage rate and E is the number of workers hired each hour. The marginal cost associated with hiring E workers, therefore, is:MC E = 1.8E + 5.Each worker produces two caps per hour. How many workers should the Parrot Shop hire each hour to maximize its profit? What wage will it pay? How much will it charge for each cap?First, as Q = 2E, the labor demand curve isVMP E = MR x MP E = (30 – 0.8Q)(2) = 60 – 1.6Q = 60 – 3.2E.Setting VMP E equal to MC E and solving for E yields E = 11. Eleven workers can be hired at a wage of.9(11) + 5 = $14.99 per hour. The 11 workers make 22 caps each hour, and the 22 caps can be sold at a price of 30 – 0.4(22) = $21.20 each.5-11. Ann owns a lawn mowing company. She has 400 lawns she needs to cut each week. Her weekly revenue from these 400 lawns is $20,000. If given an 18-inch deck push mower, a low-skill worker can cut each lawn in two hours. If given a 60-inch deck riding mower, a low-skill worker can cut the lawn in 30 minutes. Low-skilled labor is supplied inelastically at $5.00 per hour. Each laborer works 8 hours a day and 5 days each week.(a) If Ann decides to have her workers use push mowers, how many push mowers will Ann rent and how many workers will she hire?As each worker can cut a lawn in 2 hours, it follows that each worker can cut 4 lawns in a day or 20 lawns in a week. Therefore, Ann would need to rent 20 push mowers and hire 20 workers in order to cut all 400 lawns each week.(b) If she decides to have her workers use riding mowers, how many riding mowers will Ann rent and how many workers will she hire?As each worker can cut a lawn in 30 minutes, it follows that each worker can cut 16 lawns in a day or 80 lawns in a week. Therefore, Ann would need to rent 5 riding mowers and hire 5 workers in order to cut all 400 lawns each week.(c) Suppose the weekly rental cost (including gas and maintenance) for each push mower is $250 and the weekly rental cost (including gas and maintenance) of each riding mower is $1,800. What equipment will Ann rent? How many workers will she employ? How much profit will she earn?If Ann uses push mowers, her weekly cost of mowers is $250(20) = $5,000 while her weekly labor cost is $5(20)(40) = $4,000. Under this scenario, her weekly profit is $11,000. If Ann uses riding mowers, her weekly cost of mowers is $1,800(5) = $9,000 while her weekly labor cost is $5(5)(40) = $1,000. Thus, under this scenario, her weekly profit is $10,000. Therefore, under these conditions, Ann will rent 20 push mowers and employ 20 low-skill workers.(d) Suppose the government imposes a 20 percent payroll tax (paid by employers) on all labor and offers a 20 percent subsidy on the rental cost of capital. What equipment will Ann rent? How many workers will she employ? How much profit will she earn?Under these conditions, the cost of labor has increased to $6.00 per hour, while the rental costs for a push mower and a riding mower have decreased to $200 and $1,440 respectively. Ann’s profits under the two options, therefore, arePush-Profit = $20,000 – $200(20) – $6(20)(40) = $11,200.Rider-Profit = $20,000 – $1,440(5) – $6(5)(40) = $11,600.Thus, under these conditions, Ann rents riding mowers, hires 5 low-skill workers, and earns a weekly profit of $11,600.5-12. In the United States, some medical procedures can only be administered to a patient by a doctor while other procedures can be administered by a doctor, nurse, or lab technician. What might be the medical reasons for this? What might be the economic reasons for this?The American Medical Association might argue that doctors have more training and experience than nurses, and therefore, are the only professionals who can make certain decisions or perform certain procedures.Economically, the AMA has an incentive to restrict the number of people who can practice medicine (or perform certain procedures) in order to keep doctor wages high. If nurses were allowed to do everything they were capable of, fewer doctors would be demanded, and doctor wages would fall. From an economic viewpoint, therefore, the AMA restricts the supply of doctors, which keeps doctor wages artificially high.WageW restW unrestRestricted Supply ofDoctorsUnrestricted Supplyof DoctorsL rest L unrest Services Provided by DoctorsLabor Market For Medical Services Provided by Doctors。

CHAPTER 22-1. How many hours will a person allocate to leisure activities if her indifference curves between consumption and goods are concave to the origin?A worker will either work all available time or will not work at all. As drawn in Figure A, pointB is preferred to points A andC . Thus, the worker chooses not to enter the labor market. As drawn in Figure B, point C is preferred to both points A and B . Thus, the worker chooses not to consume any leisure and work all available time.Figure A Figure B2-2. What is the effect of a rise in the price of market goods on a worker’s reservation wage, probability of entering the labor force, and hours of work?Suppose the price of market goods increases from p to p ′ and the person’s non-labor income is V . If she chooses not to work, she can purchase V/p ′ units of consumption after the price change, whereas she could have consumed V/p units of consumption prior to the price increase. Thus, her endowment point has moved from E to E ′ in Figure A. As long as leisure is a normal good, the indifference curve is steeper as we move up a vertical line, indicating that the slope of the indifference curve is steeper at E than at E ′. Thus, an increase in the price of goods lowers the reservation wage and makes the person more likely to work.Hours of LeisureHours of LeisureGoods GoodsBCA ABCU 1U 1U 0U 0Figure A.To simplify the illustration of the effect on hours of work, assume for simplicity that V = 0. The increase in the price of goods shifts the budget line from FE to GE , moving the worker from P to point R . This shift induces both an income effect and a substitution effect. The price increase in effect lowers the person’s real wage rate, increasing the demand for leisure and leading to fewer hours of work. Thissubstitution effect is illustrated by the move from point P to point Q in Figure B. The price increase also reduces the worker’s wealth, lowering the demand for leisure and leading to more hours of work. This income effect is illustrated by the move from Q to R . As drawn the income effect dominates thesubstitution effect and the price increase lowers the demand for leisure and increases hours of work. It is, of course, possible for the substitution effect to dominate the income effect (not pictured), so that hours of work decreases. Thus, without further restrictions on preferences, an increase in the price of market goods has an ambiguous effect on hours worked.Figure B.GoodsV /p ′V /LeisureHours of Leisure2-3. Sally can work up to 3,120 hours each year (a busy social life and sleep take up the remaining time). She earns a fixed hourly wage of $25. Sally owes a 10 percent payroll tax on the first $40,000 of income. Above $40,000 of income, there is no payroll tax. Sally also faces a progressive income tax rate. There is no income tax on the first $10,000 of income. From $10,000 up to $60,000, the marginal income tax rate is 25 percent. Above $60,000, the marginal income tax rate is 50 percent. Graph Sally’s budget line.Sally’s budget line will have kinks at gross income levels of $10,000, $40,000, and $60,000. As her wage is $25 per hour, these kinks occur after 400 hours, 1,600 hours, and 2,400 hours of work respectively, or, similarly, at 2,720, 1,520, and 720 hours of leisure.•From 0 to 400 hours, Sally’s after-tax wage is $22.50 (90 percent of $25). If she works exactly 400 hours, her after-tax income is $9,000.•From 400 to 1,600 hours, Sally’s after-tax wage is $16.25 (65 percent of $25). If she works exactly 1,600 hours, her after-tax income is $9,000 + $16.25 (1600-400) = $28,500.•From 1,600 to 2,400 hours, Sally’s after-tax wage is $18.75 (75 percent of $25). If she works exactly 2,400 hours, her after-tax income is $28,500 + $18.75 (2400-1600) = $43,500.•From 2,400 to 3,120 hours, Sally’s after-tax wage is $12.50 (50 percent of $25). If she works exactly 3,120 hours, her after-tax income is $43,500 + $12.50 (3120-2400) = $52,500.2-4. Tom earns $15 per hour for up to 40 hours of work each week. He is paid $30 per hour for every hour in excess of 40. Tom faces a 20 percent tax rate and pays $4 per hour in child care expenses for each hour he works. Tom receives $80 in child support payments each week. There are 168 hour in the week. Graph Tom’s weekly budget line.•If Tom does not work, he leisures for 168 hours and consumes $80.•For all hours Tom works up to his first 40, his after-tax and after-child care wage equals (80 percent of $15) – $4 = $8 per hour. Thus, if he works for 40 hours, he will be able to leisure for 128 hours and consume $80 + $8(40) = $400.•For all hours Tom works over 40, his after-tax and after-child care wage equals (80 percent of $30) – $4 = $20. Thus, if he works for 168 hours (128 hours at the overtime wage), he will notleisure at all, but he will consume $80 + $8(40) + $20(128) = $2,960.2-5. What happens to a worker’s desired hours of work if employers pay an overtime premium equal to “time and a half”(that is, 1.5 times the straight-time wage) for any hours worked in excess of 40 hours? What would happen to hours of work if the overtime premium were raised to double the straight-time wage?The availability of overtime pay generates a new (steeper) segment of the budget line originating at the point where the person works 40 hours per week. The figure below illustrates three different possibilities. If the person works 40 hours per week (person B), he or she will be better off by moving to the tangency point labeled X. This person, therefore, will take advantage of the overtime pay and work more hours. If the person is working more than 40 hours per week initially (as is the case for person C), the move from C to X involves both income and substitution effects, and hence we cannot determine which effect dominates. If the person works many fewer than 40 hours per week (person A) he or she will not be affected by the possibility of overtime pay. If the overtime pay were increased to double-pay, it would steepen the line segment originating at 40 hours of work, and perhaps induce some of the persons like A to take advantage of the overtime pay. Person B would continue to work more than 40 hours under a double-time rate, while the double-time rate would have an ambiguous effect on the hours worked of person C.Dollars of Consumption$2,960$400 $80128 168 Hours of LeisureTom’s Weekly Budget Line2-6. A person owns a small farm near a large city and must decide whether to work on that small farm or take a job in the city. Her utility depends on her income per day, Y , and the number of hours allocated to leisure activities, L . Daily income from farm work is:220f f f h h Y −=,where h f is hours of work on the farm; and daily income from the city job is:Y C = 14h C ,where h C is hours of work in the city.To calculate the budget lines associated with each of the opportunities, it is easiest to work through a numerical calculation of what a worker’s earnings would be if he or she allocated 1 hour, 2 hours, 3 hours, etc., to each of the sectors and worked in that sector exclusively. This calculation leads to:Total Earnings Marginal EarningsHours of Work Farm City Farm City1 19 14 19 142 36 28 17 143 51 42 15 14 4 64 56 13 145 75 70 11 146 84 84 9 147 91 98 7 14 8 96 112 5 14Consumption ($)Leisure(a) If she can work on the farm or in the city, but not both, which sector would she choose?The table above suggests the budget line associated with working exclusively in the city is given by CE and on the farm is the parabola FE . As a result, if a worker can only work in either the city or on the farm, a worker with indifference curves like person A is better off working on the farm, while a worker with indifference curves like person B is better off in the city.(b) If she can work both on the farm and in the city, how would she allocate her time?If a worker can allocate her time to both the city and the farm, the worker is then better off allocating the first few hours of work to the farm sector. As the table indicates, the first hour allocated to the farm sector generates $19 worth of income, the second hour generates $17, the third hour generates $15, the fourth hour generates $13, and so on. The worker is thus best off by allocating the first three hours to the farm sector and working any remaining hours she wishes in the city where each additional hour of work generates a constant $14.2-7. Cindy gains utility from consumption C and leisure L . The most leisure she can consume in any given week is 168 hours. Her utility function is U(C,L) = C × L . This functional form implies that Cindy’s marginal rate of substitution is C / L . Cindy receives $630 each week from her great-grandmother – regardless of how much Cindy works. What is Cindy’s reservation wage?The reservation wage is the MRS when not working at all. Thus, w RES = MRS at maximum leisure = C / L = $630 / 168 = $3.75.Leisure2-8. The utility function of a worker is represented by U(C, L) = C ×L, so that the marginal utility of leisure is C and the marginal utility of consumption is L. Suppose this person currently has a weekly income of $600 and chooses to enjoy 70 hours of leisure per week. How many additional dollars of income would it take to entice the worker to work 10 more hours?Initially the person’s utility is U(C,L) = U(600,70) = 600 × 70 = 42,000. She would agree to work 10 more hours (i.e., give up 10 hours of leisure) if the increase in consumption would allow her to achieve at least the same level of utility. Letting Y be her new total income, therefore, Y must solve 60Y = 42,000, which requires Y = $700. Thus, the person’s income would have to rise by $100 to compensate her for the loss of 10 hours of leisure.2-9. You can either take a bus or drive your car to work. A bus pass costs $5 per week, whereas driving your car to work costs $60 weekly (parking, tolls, gas, etc.). You spend half-an-hour less on a one-way trip in your car than on a bus. How would you prefer to travel to work if your wage rate is $10 per hour? Will you change your preferred mode of transportation if your wage rate rises to $20 per hour? Assume you work five days a week and time spent riding on a bus or driving a car does not directly enter your utility.Taking a bus will save you $55 a week, but it will cost you 5 hours of leisure time due to the longer commute. Since the price of leisure is equal to the wage rate, the monetary value of the time lost is $50 when the hourly wage is $10 and $100 when the hourly wage is $20. Therefore, it makes sense for you to take a bus to work if you are paid $10 per hour, but you will switch to driving your car if your wage increases to $20 per hour.2-10. Shelly’s preferences for consumption and leisure can be expressed asU(C,L) = ( C – 200 )× ( L – 80 ).This utility function implies that Shelly’s marginal utility of leisure is C – 200 and her marginal utility of consumption is L – 80. There are 168 hours in the week available to split between work and leisure. Shelly earns $5 per hour after taxes. She also receives $320 worth of welfare benefits each week regardless of how much she works.(a) Graph Shelly’s budget line.If Shelly does not work, she leisures for 168 hours and consumes $320. If she does not leisure at all, she consumes $320 + $5(168) = $1,160.(b) What is Shelly’s marginal rate of substitution when L = 100 and she is on her budget line?If Shelly leisures for 100 hours, she works for 68 hours and consumes $320 + $5(68) = $660. Thus, her MRS when doing this is:23$204608010020066080200==−−=−−==L C MUcMU MRS L .(c) What is Shelly’s reservation wage?The reservation wage is defined as the MRS when working no hours. When working no hours, Shelly leisures for 168 hours and consumes $320. Thus,36.1$8812080168200320≈=−−=RES w .Dollars of Consumption$1,160$320168 Hours of LeisureShelly’s Weekly Budget Line(d) Find Shelly’s optimal amount of consumption and leisure.Her optimal mix of consumption and leisure is found by setting her MRS equal to her wage and solving for hours of leisure given the budget line: C = 320 + 5(168–L )..1365960400580200)168(53205802005=−=−−−−+=−−==L LL L L L C MRSwThus, Shelly will choose to leisure 136 hours, work 32 hours, and consume $320 + $5(32) = $480 each week.2-10. 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 labor supply for this group of workers?The elasticity of labor supply is75.09112150.2250.2200.25160,2160,2340,2%%==−−=∆∆=wL S σ.2-11. Mike’s utility for consumption and leisure is U(C,L) = C × L so that his marginal rate ofsubstitution between leisure and consumption is C/L . There are 168 hours in the week and he earns $10 per hour.(a) What is Mike’s optimal amount of consumption and leisure?Mike’s optimal mix of consumption and leisure is found by setting his MRS equal to his wage and solving for hours of leisure given that the budget line is C = 10(168–L ).. 84101680 1010=−== =L LLLCMRS wThus, Mike will choose to leisure 184 hours, work 84 hours, and consume $10(84) = $840 each week. (b) If the government starts a welfare policy that pays B to all non-workers and pays $0 to all workers, at what value of B will Mike opt out of the labor force in order to go on welfare?Given our answer in part (a), we know that if Mike opts to work, his utility will be u work(840,84) =840(84) = 70,560. If he opts out of the labor market, his utility will be u welfare(B,168) = 168B. Mike will not work, therefore, as long as u welfare≥ u work, which requires that B≥ $420.2-12. Explain why a lump sum government transfer can entice some workers to stop working (and entices no one to start working) while the earned income tax credit can entice some people who otherwise would not work to start working (and entices no one to stop working).A lump sum transfer is associated with an income effect but not a substitution effect, because it doesn’t affect the wage rate. Thus, if leisure is a normal good, a lump sum transfer will likely cause workers to work fewer hours (and certainly not cause them to work more hours) while possibly enticing some workers to exit the labor force. On the other hand, the Earned Income Tax Credit raises the effective wage of low-income workers by 20 percent (at least for the poorest workers). Thus, someone who had not been working faces a wage that is 20 percent higher than it otherwise was. This increase may be enough to encourage the person to start working. For example, if a worker’s reservation wage is $6.50 per hour but the only job she can find pays $6.00 per hour, she will not work. Under the earned income tax credit, however, the worker views this same job as paying $7.20 per hour, which exceeds her reservation wage. Furthermore, the EITC cannot encourage a worker to exit the labor force, as the benefits of the EITC are received only by workers.2-13. In 1999, 4,860 TANF recipients were asked how many hours they worked in the previous week. In 2000, 4,392 of these recipients were again subject to the same TANF rules and were again asked their hours of work during the previous week. The remaining 468 individuals were randomly assigned to a “Negative Income Tax” (NIT) experiment which gave out financial incentives for welfare recipients to work and were subject to its rules. Like the other group, they were asked about their hours of work during the previous week. The data from the experiment are contained in the table below.TotalNumber OfRecipients Number ofRecipients Who Worked At Some Time in the SurveyWeek Total Hours Of Work By All Recipients in the Survey Week1999 2000 1999 2000TANF 4,392 1,217 1,568 15,578 20,698NIT 468 131 213 1,6382,535Total 4,860 1,348 1,781 17,21623,233(a) What effect did the NIT experiment have on the employment rate of public assistance recipients? Develop a standard difference-in-differences table to support your answer.EmploymentRate1999 2000 Diff Diff-in-DiffTANF 27.7% 35.7% 8.0%NIT 28.0% 45.5% 17.5% 9.5%The NIT increased the probability of employment by 9.5 percentage points.(b) What effect did the NIT experiment have on the weekly hours worked of public assistance recipients who worked positive hours during the survey week? Develop a standard difference-in-differences table to support your answer.Weekly Hours Worked Per Working Person1999 2000 Diff Diff-in-DiffTANF 12.8 13.2 0.4NIT 12.5 11.9 -0.6 -1.0The NIT decreased weekly hours worked, of those working, by 1 hour.11。

Growing Up1 Fifty years ago parents still asked boys if they wanted to grow up to be president, and asked it not jokingly but seriously. Many parents who were hardly more than paupers still believed their sons could do it. Abraham Lincoln had done it. We were only sixty-five years from Lincoln. Many of grandfather who walked among us could remeber Lincoln. Men of grandfatherly age were the worst for asking if you wanted to grow up to be president. A surprising number of little boys said yes and meant it.五十年前父母大都会问男孩子们长大后想不想当总统，问这话时一本正经，并非开玩笑。

许多穷得跟乞丐似的父母也仍然相信他们的孩子能当上总统。

亚伯拉罕・林肯就做到了。

我们与林肯那个时代仅仅差65年。

依然健在的许多爷爷辈的人还能记得林肯时代。

就是他们最喜欢问你长大后想不想当总统。

回答说想当的小男孩数量多得惊人，而且他们是当真的。

2 I was asked many times myself. No, I didn’t want to grow up to be president. My mother was present during one of these interrogations. An elderly uncle, having posed the usual question and exposed my lack of interest in the presidency, asked, “Well, what do you want to be when you grow up.我就曾经被问过多次。