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Midterm

Fall 09 midterm answer key midterm 1

5 Pages
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Department
Economics
Course Code
ECON 351
Professor
Stephanie Lluis

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ECON 351 Fall 200 Midterm 1 Answer key Student Number Students Name Instructions: you can use a calculator. Please read the questions CAREFULLY Good luck! Par A (30 p ts): TruelFalselExplain (5 points each, 2 for TIF and 3 for Explain) For each statement, answer whether it is True or False and explain why (with words or with a self- explaining graph when it is relevant) I. Among single, college educated women aged 22-25, average annual hours worked is 2160 and the average wage is S22.5. If th average wage increases to$25 per hour, average annual hours worked increase to 2,340. The uncompensated elasticity of labour supply for this group of workers is 0.85 False (2 rrs The clasticity of labor supply is 2,340-2,160 2.160 0.75 %A 25.00-22.50 1 22.50 2. A government transfer (a demogrant can lead some workers to stop working while the earned income tax credit can lead some people who otherwise would not work to start working. (graph strongly suggested) A lump sum transfer is associated with an income effect but not a substitution effect, because it doesn't affect thc wage rate. Thus, ifleisure is a good alump sum transfer will likely cause workersto work fewer hours (and certainly not cause them to work more hours) while possibly Some workers toextrtEicTaborTorce. On the other hand, thc Earned Income Tax Credit raisestheaTelive wage of low. income workers by Xpercent (at least for the poorest workers). Thus, someone who had not been working faces a wage that is Xpercent higher than it otherwise was. This increase may be enough to encourage the pu r Lo SLart working. Fe example, if a worker's reservation wage iss630 per hour out the only job she can find pays $6.00 pe hour, she will not work. Under the earned income tax credit, however, the worker views this same job as paying $7.20 per hour, which exceeds her reservation wage. Furthermore, the EITC cannot encourage a worker to exit the labor force, as the benefits of the EITC are received only by workers mus ECON 351 Fall 200 Midterm 1 Answer key Student Number Students Name Instructions: you can use a calculator. Please read the questions CAREFULLY Good luck! Par A (30 p ts): TruelFalselExplain (5 points each, 2 for TIF and 3 for Explain) For each statement, answer whether it is True or False and explain why (with words or with a self- explaining graph when it is relevant) I. Among single, college educated women aged 22-25, average annual hours worked is 2160 and the average wage is S22.5. If th average wage increases to$25 per hour, average annual hours worked increase to 2,340. The uncompensated elasticity of labour supply for this group of workers is 0.85 False (2 rrs The clasticity of labor supply is 2,340-2,160 2.160 0.75 %A 25.00-22.50 1 22.50 2. A government transfer (a demogrant can lead some workers to stop working while the earned income tax credit can lead some people who otherwise would not work to start working. (graph strongly suggested) A lump sum transfer is assoc
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