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MGEA06H3 Study Guide - Midterm Guide: Labour Economics, Business Cycle, Menu Cost


Department
Economics for Management Studies
Course Code
MGEA06H3
Professor
Iris Au
Study Guide
Midterm

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MGEA06 – Chapter 8 Review Question Answer Key
Check your understanding, 8-1, questions 1–3.
See solutions at the back of the text.
Check your understanding, 8-2, questions 1–3.
See solutions at the back of the text.
Check your understanding, 8-3, questions 1–2.
See solutions at the back of the text.
Problem #3
a) Melanie is frictionally unemployed because she is refusing offers for low-paying jobs in
favor of engaging in job search for a higher-paying job (she got the skilled that the employers
are looking for and just takes time to get a job that requires similar skill).
b) Melanie is structurally unemployed because she is demanding a higher wage than the current
equilibrium wage in her industry. In this case, the equilibrium wage has been lowered by the
outsourcing of work to other countries.
c) Melanie is cyclically unemployed because her bout of unemployment is tied to the business
cycle. It is likely she will be reemployed once the economy picks up.
Problem #5
Part (a):
Equilibrium wage is:
100 – 5W = 5W
10W = 100
W = 10
Level of employment comes from the labour demand ( the number of workers the firms want
to hire at the prevailing wage) = 100 – 5(10) = 50 thousands
Size of the labour force comes from the labour supply (the amount of workers who are
willing to work at the prevailing wage) = 5(10) = 50 thousands.
Unemployment rate = 0% (because there is no unemployment)
Part (b):
Size of the labour force = 5(12) = 60 thousands.
Level of employment = 100 – 5(12) = 40 thousands
Unemployment rate = (60 – 40) thousands/60 thousands × 100% = 33 %
Part (c):
Size of the labour force = 5(14) = 70 thousands.
Level of employment = 100 – 5(14) = 30 thousands
Unemployment rate = (70 – 30) thousands/70 thousands × 100% = 57.1%
Part (d):
MGEA06 Chapter 8 RQ Solutions Worth Publishers 1
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