1. Suppose in a competitive labor market, the wage rate initially is w0 > 0. Sophie and Coco choose leisure and consumption to maximize their utility. Everyone has a total number of T = 1600 hours per year to allocate between work and leisure. Sophie and Coco have the same non-labor income but they have different preferences over leisure and consumption. For both Sophie and Coco, marginal utilities from leisure and consumption are always positive. Moreover, leisure is a normal good for both Sophie and Coco. However, when a wage rate increases, the income effect dominates the substitution effect for Sophie. But for Coco, the substitution effect of a wage increase dominates the income effect. Which of the following statements is correct?

   (a) If non-labor income and wage rate both increase, Coco would definitely work less. 
2. (b) If non-labor income and wage rate both increase, Sophie would definitely work less.
3. (c) If non-labor income and wage rate both increase, it is unclear whether Sophie would work more or less.
4. (d) If non-labor income increases and wage rate decreases, Coco would definitely work more.(e) If non-labor income decreases and wage rate increases, Coco would definitely consume more.(f) If non-labor income decreases and wage rate remains the same, Sophie would work more but Coco would work less.

5. Let u be the unemployment rate, v be the vacancy rate, p be the larbor force participation rate, and i be the inflaction rate. Which of the following functions most likely describes a Beveridge curve?

   (a) i=−ln(p)+p2 

6. (b) u=−p+v

   (c) u=vⁱ (d) v=2× u^-1/2 (e) v=2× u^13/4 (f) p=2× v^13/4 (g) p=u× i^13/4  (h) u=v× i^13/4 (i) u= e^p

7. Suppose a firm uses skilled and unskilled workers to produce. The firm’s production function is Q = H ln(L) where Q is the output quantity; H is the number of skilled workers; and L is the number of unskilled workers. Let the wage rates of skilled and unskilled workers be wH = 2 and wL = 1 respectively. The output price is p = 1 per unit. The firm operates in competitive input and output markets. What is the profit maximizing combination of H and L? (a) H=0,L=1 (b) H=0,L=2 (c) H=L=e² (d) H =L=ln(2) (e)H=L= √2 (f) H = 2, L = 1 (g) H=1,L=2 (h) H=4,L=2

8. Suppose an individual has a utility function U = C+3L, where C is the consumption level and L is the leisure hours. Suppose the individual has 100 hours in total for work and leisure and $10 non-labor income. The wage rate is $3.14. Which feasible consumption level maximizes the individual’s utility?

   (a) 0

9. (b) 1.8

10. (c) 9.42

11. (d) 10

12. (e) 31.4

13. (f) 96.86

14. (g) 100

15. (h) 131.4

16. (i) 314

17. (j) 324

18. (k) 414

Answer rating: 100% (QA)

Question 1 The correct answer is c If nonlabor income and wage rate both increase it is unclear whet... View the full answer