Labour Economics

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QUESTION

Part A (20 marks): Four (4) Multiple Choice questions worth 5 marks each. Answer all four (4) questions in the answer booklet provided.
Question 1
According to the balance of economic resources and unlimited want, what is the condition of maximising effectiveness in labour market?
A) Wage level > marginal rate of substitution
B) Wage level < marginal rate of substitution C) Wage level = marginal rate of substitution D) Wage level > marginal rate of technical substitution
Question 2
Marginal product of labour is which of the following things?
A) Product increase when additional unit of labour is hired
B) Income increase when additional unit of labour is hired
C) Product value increase when additional unit of labour is hired
D) Wage increase when additional unit of labour is hired
Question 3
Which of the following is two factors affecting real wage level?
A) Monetary wage and price index
B) Time and price indices
C) Monetary wages and hours
D) Monetary wages and prices of some commodities
Question 4
Which of the following curve indicates the relationship between unemployment rate and inflation rate?
A) Indifference curve
B) Keel Lorenz curve
C) Utility curve
D) Philipps curve
E) None of the above
Part B (80 marks): Five (5) Short Answer questions. Marks are clearly stated in each question.
Answer all Five (5) questions.
Question 1 (5 marks):
Suppose Lauren is given two options by her employer. First option: she may choose her own hours of work and will be paid the relatively low wage rate implied by budget line HW1 shown in the accompanying diagram. Second option: she can work exactly HR hours and will be paid the relatively high wage rate implied by budge line HW2. Which option will she choose? Please justify your answer in detail.
Question 2 (15 marks)
Suppose that country A has total labour force of 10,000,000 people, but 5% of these people are just seeking jobs (those just graduate from college for instance). Another 2,000,000 people who are over 16 years old and has ability to work but reluctant to work.
a. Calculate labour force participation rate (LFPR) for country A. (5 marks)
b. In empirical research, lots of researchers found that female participation rates increase dramatically from 1950 to 2011. Please indicate five factors that contribute to this trend, and briefly explain each factor. (10 marks)
Question 3 (20 marks)
The demand for labour is very crucial to determine the equilibrium wage level and quantity of labour. Now suppose that company A are conducting their business in perfectly competitive market. The following table illustrates the labour demand schedule.
a. Please fill in this table. (5 marks)
Units of Labour Total Product Marginal Product Product Price Total Revenue MRP VMP
4 2 30 N/A
5 27 12 24
6 36 2 72
7 42 2 12
8 3 90 6
9 46
b. Draw in one diagram to depict labour demand curve of a perfectly competitive seller by using the information in labour demand table. (5 marks)
c. Please redo question (a) and (b) assuming company A is an imperfectly competitive seller with diminishing product price ($2.6 for first unit of labour, $2.4 for 2nd, $2.2 for the 3rd, $2.1 for the 4th, $2 for the 5th, and $1.9 for the 6th) (10 marks)
Units of Labour Total Product Marginal Product Product Price Total Revenue MRP VMP
4 15
5 27
6 36
7 42
8 45
9 46
Question 4 (40 marks)
Assume that aggregate demand curve can be expressed by the following function: W = 55 – 3Q, while the aggregate supply curve can be expressed by the following function: W = 5+7Q. Here W denotes wage level in thousand dollar and Q denotes unit of labours in million people.
a. What is labour equilibrium wage level and units of labour? (5 marks)
b. Draw the demand curve and supply curve in one diagram. (5 marks)
c. Explain three factors to result in shift of demand curve and three factors to result in shift of supply curve in detail. (12 marks)
d. Suppose engineering industry experienced large demand of product and thus hiring lots of people in labour market; however, there are no sufficient amount of labour force in the market. Please explain how will market respond to this labour shortage in short run and long run by applying Cobweb Model. (The combination of words and diagram will be preferable.) (18 marks)

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