Labour Market Economics Exam Questions and Correct Answers Latest Update (Graded A+)

Labour Market Economics Exam Questions and Correct Answers Latest Update (Graded A+) Three major participants that impact our experience with labour market issues - Answers 1. individual workers 2. employers 3. the govt Economics - Answers Allocation of scarce resources Two major decisions that people have to make - Answers 1. whether or not to work 2. if so, how many hours Labour force - Answers people in the eligible population who participate in the labour market activities Eligible population - Answers -proportion of the population that are potential labour force participants -that is: civilian, non institutionalized, 15 years or older and not including those resident in Nunavut, Yukon, or NWT or in FN reserves Labour force formula - Answers LF = employed (E) + unemployed seeking work (U) Labour force participation rate - Answers fraction of the population that participates LFPR = LF / eligible population Unemployment rate - Answers fraction of the labour force that is unemployed UR = U / LF OR U/U + E Indifference curve - Answers -defined as a line joining all points that represents combinations of consumption and leisure that yield the same satisfaction -mapping of a persons preference structure -people are presumed to want more than less (assumption) Indifferent - Answers both choices/ options make you equally satisfied Leisure - Answers all non labour market activities Marginal rate of substitution (MRS) - Answers slope of the indifference curve Yn - Answers non labour market income W - Answers wage T - Answers max amount of leisure possible if no labour market activity is undertaken Income and substitution effect of wage change - Answers -increasing wage rates don't always mean increased work effort -wage increase often encouraged people to work extra hours but that extra income had the effect of encouraging more leisure (income effect) -person will substitute towards the cheaper good (substitution effect) Net effect - Answers which effect (income or substitution) is greater - more work or more leisure Why should one effect be greater than the other and how is this shown - Answers -depends on the preference structure of the person -when the curves favour one axes over the other, you assume that the preferences are in that direction Reservation wage - Answers wage at which the person is indifferent between working or not working En - Answers equilibrium of a non participant Why would the labour supply curve bend backwards against itself - Answers when the income effect is overcoming the substitution effect How did the social security safety net start - Answers govt focused on policies designed to boost consumption spending in order to compensate for the decline in govt spending on the war Examples of social security safety nets - Answers 1. canadian pension plan / Quebec pension plan (CPP) 2. workers comp 3. child tax benefits 4. EI 5. old age security (OAS) Goal of social security safety nets - Answers to assist those who have low income or no income and how to design them to maximize the benefits to the people who they are supposed to assist while having the least work disincentive efforts Demogrant - Answers lump transfer to some designated group of people (ex. all people over 65, everyone gets it regardless of wealth) Canadian old age security (OAS) - Answers no longer a demogrant because this amount is taxed back if your income is over a certain level Effects of these programs - Answers less hours worked if leisure is a normal good Social assistance/ welfare - Answers monthly sum o`f money that is paid to a person who is not employed and is not (or no longer) receiving EI payments stop when the person starts to work Negative income tax - Answers an alternative to welfare that provides an income guarantee and an implicit tax rate of less than 100% applied to labour market earnings Wage subsidy - Answers suggested as an alternative to welfare and negative income tax plans you have to work in order to be subsidized - payment could be in the form of an earned income tax credit Short run - Answers Only one factor of production can be varied Long run - Answers Both can be varied Production function - Answers Q output = F (K, L) K - Answers Capital L - Answers Labour Which is the short run demand for labour curve - Answers The downward sloping part of the MRP curve below ARP Is there a relationship between marginal revenue and price - Answers Yes MPP x MR = MRP APP x MR = ARP MPP - Answers Marginal physical product MR - Answers Marginal revenue MRP - Answers Marginal revenue product ARP - Answers Average revenue product Demand curve for labour for a monopolist - Answers Lies everywhere below the D curve of the perfectly competitive firm Why must the monopolist reduce price when increasing output by adding more workers - Answers Because it prices up along the AR = demand curve MPP x price = MRP Who employs less labour: monopolist or perfectly competitive firm - Answers Monopolist What can vary in the long run - Answers Both K and L Isoquant - Answers -Like an IC -K and L -Links points of equal quantity of output MRTS - Answers -Marginal rate of technical substitution -Determined internally by the ability of the firm to substitute one factor of production for the other Isocosts - Answers -Lines of equal cost to the firm -Cost being K and L -Idea is that the firm wishes to achieve the greatest production but is constrained by its budget What happens if the cost of K and L increase - Answers Less would be used and line of equal cost would shift inwards What happens when inputs are cheaper - Answers Firm can afford to produce a higher output What happens to the demand of workers when the wage rises - Answers Less workers are demanded What is the scale effect - Answers Occurs when the firm reduces its output due to wage increase What direction do the substitution and scale effect go and what does this mean - Answers The same way- to the left Means that the labour demand curve will always be downward sloping