FINAL EXAM ANSWER KEY
Version A
I. Multiple choice
(1)b. (2)b. (3)b. (4)a. (5)b. (6)e. (7)c. (8)a. (9)d. (10)c.
(11)a. (12)b. (13)c. (14)a. (15)d. (16)b. (17)c. (18)a. (19)b. (20)a.
II. Problems
(1) [Measuring the labor force: 8 pts]
- working-age population = 226.1 million.
- unemployment rate = 5.0 percent.
- employment-to-population ratio = 62.8 percent.
- labor force participation rate = 66.1 percent.
(2) [Labor supply: 12 pts]
- reservation wage = $3.
- C = 800 - 10 L.
- L* = 39 hours, C* = $410.
- Hours of work = 21 hours.
(3) [SR labor demand: 12 pts]
- E* = 1600.
- q = 2400.
- profit = $15,000.
(4) [LR labor demand: 4 pts] Industry A has more elastic demand for labor because its elasticity of demand for output is greater (Hicks-Marshall rules).
(5) [Payroll tax: 14 pts]
- 80 million.
- $15.
- $12.
- $85 million.
- $170 million.
- $240 million.
- $15 million.
(6) [Cobweb model: 12 pts]
- E = 4000, w = $40.
- w = $70.
- E = 7000, w = $55.
- E = 5500, w = $62.50.
- E = 6250, w = $58.75.
- E = 6000, w = $60.
(7) [Monopsony: 6 pts]
- E = 1200.
- w = $7.
- E = 1400.
(8) [Immigration surplus: 8 pts]
- w = $15.
- w = $13.
- immigration surplus = $20 million.
- transfer = $300 million.
(9) [Value of a statistical life: 4 pts] $5 million.
(10) [Simple model of schooling decision: 10 pts]
- $567,391.
- $558,696.
- Choose "no college."
- r = 10 percent.
- Choose "college."
(11) [Measuring inequality: 14 pts]
- Lorenze curve has kink point where percent of population = 60 percent and percent of earnings = 36 percent.
- Gini = 0.24.
- 90-50 wage gap = 167 percent.
- 50-10 wage gap = zero.
- 90-10 wage gap = 167 percent.
(12) [Oaxaca decomposition: 6 pts]
- 0.9.
- 0.6.
- 0.3.
(13) [Household production-possibility curve: 10 pts]
- Market goods" intercept=$300, "Household services" intercept=250, kink point with market goods=$200 and household services=150.
- 5 hours.
- 0 hours.
(14) [Monopoly union model: 4 pts]
- w* = $25.
- E* = 1500.
(15) [Mandatory retirement: 6 pts]
- wage = VMP at t = 10 years.
- mandatory retirement at t = 20 years.
- loss = $25,000.
(16) [Markov model: 10 pts]
- 0.03.
- 0.27.
- 3 percent.
- 27 percent.
- steady-state unemployment rate = 10 percent.
Version B
(1)c. (2)c. (3)a. (4)b. (5)c. (6)b. (7)a. (8)c. (9)d. (10)c.
(11)d. (12)a. (13)d. (14)b. (15)d. (16)b. (17)d. (18)a. (19)c. (20)b.
II. Problems
(1) [Measuring the labor force: 8 pts]
- working-age population = 237.8 million.
- unemployment rate = 9.5 percent.
- employment-to-population ratio = 58.4 percent.
- labor force participation rate = 64.6 percent.
(2) [Labor supply: 12 pts]
- reservation wage = $2.
- C = 1275 - 15 L.
- L* = 49 hours, C* = $540.
- Hours of work = 26 hours.
(3) [SR labor demand: 12 pts]
- E* = 900.
- q = 600.
- profit = $1,000.
(4) [LR labor demand: 4 pts] Industry B has more elastic demand for labor because its elasticity of substitution in production is greater (Hicks-Marshall rules).
(5) [Payroll tax: 14 pts]
- 70 million.
- $16.
- $10.
- $160 million.
- $320 million.
- $420 million.
- $60 million.
(6) [Cobweb model: 12 pts]
- E = 4000, w = $40.
- w = $100.
- E = 10,000, w = $70.
- E = 7000, w = $85.
- E = 8500, w = $77.50.
- E = 8000, w = $80.
(7) [Monopsony: 6 pts]
- E = 1800.
- w = $10.
- E = 2200.
(8) [Immigration surplus: 8 pts]
- w = $15.
- w = $10.
- immigration surplus = $45 million.
- transfer = $450 million.
(9) [Value of a statistical life: 4 pts] $7.5 million.
(10) [Simple model of schooling decision: 10 pts]
- $544,782.
- $551,304.
- Choose "college."
- r = 20 percent.
- Choose "no college."
(11) [Measuring inequality: 14 pts]
- Lorenze curve has kink point where percent of population = 70 percent and percent of earnings = 28 percent.
- Gini = 0.42.
- 90-50 wage gap = 500 percent.
- 50-10 wage gap = zero.
- 90-10 wage gap = 500 percent.
(12) [Oaxaca decomposition: 6 pts]
- 0.5.
- 0.2.
- 0.3.
(13) [Household production-possibility curve: 10 pts]
- Market goods" intercept=$350, "Household services" intercept=250, kink point with market goods=$150 and household services=200.
- 5 hours.
- 10 hours.
(14) [Monopoly union model: 4 pts]
- w* = $15.
- E* = 500.
(15) [Mandatory retirement: 6 pts]
- wage = VMP at t = 15 years.
- mandatory retirement at t = 30 years.
- loss = $100,000.
(16) [Markov model: 10 pts]
- 0.97.
- 0.53.
- 3 percent.
- 47 percent.
- steady-state unemployment rate = 6 percent.
[end of answer key]