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BUS5POE: Principles of Economics

   

Added on  2020-03-16

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BUS5POE PROBLEM SET No 10PART A (INTRODUCTION TO THE KEY CONCEPTS)1)Adult Population200Not in Labour Force30Unemployed25Number of employed = 200-30 -25 = 145The labour force = 145+25 = 170The percentage of people not in the labour force = 30/200 = 15%The rate of unemployment = 25/200 = 12.5%Labour force participation rate = 170/200 = 85%2)A common reason is that such higher wages generate more loyalty towards the employer, spurring greater effort by employees. Especially in a monopsony we see that the employer optimally pays only what the worker contributes towards the firm. This is not enough to generate adequate effort from the worker. Higher wages are like an incentive to let worker put in more efforts. Sometimes higher wages discourage workers from leaving the firm for better offers from rivals. Higher thanefficiency wages become a tool to retain workers in some cases where poaching is common and manpower is limited. 3)TRUEAs shown total participation rates have been falling over the last decade. The workforce participation rate for women stands at 59.3%, and 70.4% for men. in August 2016 (Gender workplace at a aglance)In 1978, women’s participation was as low as 43.4%. which has now reached 59.3%. ‘The decline in men’s employment from 79.3% in Feb 1978 to 71.2% in January 2016 now has played a significant role in closing the gender employment gap.’ (Heron, 2016)

4)a.The unemployment rate has decreased.: no sure because this option is true only when the labor force participation rate remains constant. So those who were unemployed get employed now, withtheir pool remaining constant. b.Exactly 5,000 people previously unemployed got a job. Not sure. This option will be true if labour force remains constant. When this happens 5000 formerly unemployed now become employed. But if more people have entered the labour force then c.The participation rate has not changed. No . Employed workers can increase when unemployed getjobs or participation rate rises. The latter is not true, but the former can be true-we have no way ofknowing if unemployment has gone down. d.The size of the labour force has increased. When this happens we can have more employment and more unemployed as well. Just knowing that pool of employed has risen does not imply that labour force has risen. Labor force= unemployed + employed. Employed pool can rise if unemployed pool declines ( with same labour force) or just because more workers entered the employed pool and got jobs. e.None of the above.

PART B (INDEPENDENT THINKING, REAL-WORLD APPLICATIONS AND REFLECTION)5)(KEY QUESTION) Minimum Wages and Unionsa.Equilibrium wage W* is determined at E where demand equals supply of workers. L* is the equilibrium level of workers hired. We assume a rising supply curve for workers, and a downsloping demand curve for them. b.At Wmin we have disequilibrium because demand exceeds supply of workers. Firms are wanting tohire more and pay for it. they will not stop at Wmin as they are already willing t pay W*. So this minimum wage is INEFFECTIVE. Equilibrium will be found at E again.

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