This midterm was set for a 50-minute time-slot. Yours will be longer.
Some of the material tested here (e.g. essay question 3 and several of the MC questions) is irrelevant for your midterm because we didn’t cover it yet.
University of North Carolina, Economics 190, Oertel, Fall
Midterm Exam 2, November 4, 2002
Each
of these questions has only one right answer.
Please circle the letter for the appropriate answer, or otherwise clearly
indicate your choice.
With
some questions it may help to draw a diagram for yourself.
1.
A nondiscriminating monopsony will
a)
employ
more workers and pay a higher wage than a competitive industry would.
b)
employ
more workers and pay a lower wage than a competitive industry would.
c)
employ
fewer workers and pay a lower wage than a competitive industry would.
d)
employ
fewer workers and pay a higher wage than a competitive industry would.
2.
A discriminating monopsony would hire
a)
exactly
as many people as a nondiscriminating monopsony would.
b)
exactly
as many people as a competitive industry would.
c)
exactly
as many people as a monopoly would.
d)
hire
only men.
3.
An increase in the minimum wage can raise both wages and employment if
a)
the
employer is a monopoly.
b)
the
employer is a discriminating monopsony.
c)
the
employer is a non-discriminating monopsony.
d)
the
employer is a competitive firm in the labor market.
4.
If ability and schooling are positively correlated then ability bias will tend
to
a)
cancel
out, on average.
b)
overstate
the return to schooling.
c)
understate
the return to schooling.
d)
reduce
other benefits from attending college.
5.
Suppose that high-ability individuals face a total cost of $10,000 per year of
education, while low-ability individuals face a total cost of $20,000 per year
of education. If an employer believes
someone is ‘high-ability’ they get paid a lifetime salary of $200,000. An individual believed to be ‘low-ability’
gets paid $165,000. The employer wants
to separate the job applicants accurately. Therefore the
$400K-salary-job must require less than
a)
1.21
years of education.
b) 1.75 years of education.
c) 3.5 years of education.
d) 8.25 years of education.
6.
The possibility of ‘collusion’ is cited as one of the disadvantages of
a)
delayed
compensation.
b)
efficiency
wages.
c)
tournaments.
d) piece rates.
7.
Delayed compensation exists because
a)
firms
want to save money while workers are young.
b)
workers
want to save money when they are young.
c)
it
reduces shirking and increases effort.
d)
workers
like seeing their wages go up.
8.
One reason for mandatory retirement is that
a)
piece
rates are low for old workers.
b)
firms
need to pay efficiency wages.
c)
old
workers engage in sabotage or collusion.
d)
firms
need a way of ending a delayed compensation contract.
9.
The ‘bonding critique’ provides a reason why
a)
piece
rates may not actually exist.
b)
tournaments
may not actually exist.
c)
efficiency
wages may not actually exist.
d)
delayed
compensation may not actually exist.
10.
Frictional unemployment exists because
a)
the
unemployed do not have the skills sought by employers.
b)
there
are more unemployed workers than vacant jobs.
c)
workers
get fired when they disagree with their boss.
d)
workers
and firms need time to locate each other.
11.
Assume, for simplicity, that the labor force never grows or shrinks.
Suppose
that each month 21% of unemployed workers find a job. Also, each month 2% of the employed lose their job. What is the steady-state unemployment
rate in this economy?
a)
8.7%
b)
9.5%
c)
10.5%
d)
91.3%
12.
The practice of ‘experience rating’
refers to the fact that
a)
older
firms have better bond ratings.
b)
experienced
workers get higher UI benefits.
c)
inexperienced
workers pay high contributions.
d)
firms
with higher layoff rates pay higher payroll taxes.
13.
The Phillips curve shows the relationship between
a)
earnings
and unemployment benefits.
b)
inflation
and unemployment.
c)
wages
and employment.
d)
inflation
and wages.
Part B: Essay Questions/Problems (34 points= 57% of test
grade)
Please
answer all questions.
1.
(12 points) Earnings tend to increase with education.
a) What
is the human capital interpretation of this?
Explain.
b)
What is the ‘signaling’ interpretation?
Explain.
c)
Economists think that finding evidence in favor of one or the other of these
explanations should matter for education policy. Why? Explain?
2.
(10 points) Economists believe that on-the-job training (OJT) is a good
(partial) explanation for the fact that earnings increase with experience.
a)
Economists also believe that firm and worker will share the cost of specific
OJT. Why?
b) What is an alternative explanation for the relationship between earnings and experience?
3.
(12 points) Suppose that the marginal revenue from search is given by MR= 70 –
4w, where w is the wage offer at hand. The
marginal cost of search is given by MC=10+2w.
a)
Why is marginal revenue from search a negative function of the wage offer at
hand? Explain.
b)
Why is the marginal cost of search a positive function of the wage offer at
hand? Explain.
Can
you give an interpretation of the intecept?
c)
What is the worker’s asking wage? Will
this worker accept a job offer of $8?
d)
Suppose UI benefits are reduced, and the marginal cost of search becomes
MC=10+4w. What is the new asking
wage? Will this worker accept a job
offer of $8?