ECON 320 Review Question Set II Peter Orazem

1. Comment on the views that female labor supply is rising because households need two earners, families are having fewer children, and social opinions have changed.

2. Would an increase in the tax on wages increase or decrease the supply of labor? On what does your answer depend? Illustrate your answer with graphical analysis.

3. Draw a graph with income on the vertical axis and leisure on the horizontal axis. Draw two indifference curves, one for a leisure lover and the other for an income lover. How do the two differ?

4. Will an increase in income, holding wages constant, increase or decrease the demand for leisure? Assume leisure is a normal good.

5. Suppose a workers' compensation program is established which pays $X per year, regardless of whether or not the individual works. Show the budget constraint of an injured worker. How would this constraint change if the program paid $.5X to all injured workers, but added $1.00 for every hour worked?

6. Dr. Homer Hartless criticizes social security because he contends both the income and substitution effects would tend to decrease work incentives. How can this be true?

7. In the life-cycle model, expected wage increases will have no income effects. Why?

8. Using the life-cycle model, explain why people work more hours when they are 45 than when they are 20 or 60?

9. How does specific training lead to an internal labor market?

10. Describe how an internal labor market can benefit firms and workers.

11. What will be the effect of increasing the minimum wage on the training of young workers? Answer for both general training and specific training.

12. Under what circumstances would a firm pay for general training? Why would a firm pay for a specific training? Explain using diagrams.

13. What is present value?

14. What would be the effect of increasing the rate of interest on a firm's decision to pay for training?

15. Suppose United Gratuities will pay Lotta Incentive $1,000 to undertake their training program. Lotta could earn $1,300 if she worked for another firm that did not offer training. UG will pay Lotta $1,650 in the next period. Assume that Lotta only expects to live two periods. Will she decide to work for UG if her rate of time preference is 5 percent? 10 percent? 20 percent?

16. What would happen to college enrollment if a new disease decreased life expectancy? What if mandatory military service of two years was imposed on all 18 year olds? What if starting salaries for college graduates rose? What if salaries for college graduates with 30 years of job experience rose?

17. Who would you expect to be more likely to quit to go to another firm, someone who is 25 or someone who is 55? Someone with 2 years of job tenure or someone with 20 years of job tenure? Someone who is single or someone who is married? Why?

18. If education increases an individual's earning power, should the government pay for schooling?

19. The gap in average wages between men and women increase with age. Other than discrimination, why might this increasing gap in wages occur?

20. When is education an ineffective screening device?

21. Some types of wage discrimination against women could increase rather than decrease incentives for women to receive a college education. Explain.

22. Why might firms pay higher wages to an educated worker, even when they don't care about what the individual learns in school?

23. In the fictional town of Red Neck, female librarians with college degrees are paid less than male garbage collectors with eighth grade educations. This can be taken as proof that the city government of Red Neck discriminates against women. Comment.

24. How can you explain long‑run wage differentials between areas of the country?

25. Are there circumstances when a firm will pay above marginal revenue product? Are there circumstances when a firm will pay below marginal revenue product?

26. Why might the World Bank have made raising education levels for women a priority in its efforts to enhance economic growth in developing countries?

27. "Any hazards which could potentially harm or maim should be eliminated by government standards." Comment.

28. Why do some workers accept dangerous jobs at wages that others would consider insufficient to compensate them for the risk?

29. Why might one expect average pay under an incentive scheme to exceed average pay under a fixed wage or salary? Is the higher pay under the incentive scheme necessarily caused by higher worker output?

30. Several politicians have proposed raising U.S. labor productivity by mandating that workers be paid in stock as well as wages. If total compensation is the same across the two compensation plans, are workers likely to prefer partial payment in stock to full payment in wages?

31. How does CEO pay raise work incentives for lower-level managers?

32. Distinguish between defined benefit and defined contribution pension plans. Which one can be used to induce voluntary retirements? How?

33. What has happened to the relative importance of benefits as a share of compensation. What factors are important for explaining the change?