ECON 2450 Study Guide - Midterm Guide: Budget Constraint, Econometrica, Utility
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Instructions: unless otherwise explicitly stated, you must show how you arrived at your answer to get full mark. However, where the answer is just one, or a few, words no further motivation is needed. Answers must be given on the answer sheets provided. Do not fold the answer sheets or write on the back. Consider a model of the labor market under perfect competition. If they work, they earn a (real) wage, w; if they do not work they earn some bene(cid:133)t from the government, b. 1(cid:0)(cid:13) where (just as in class) n is the number of (cid:133)rms, and al(cid:13) is the output of a (cid:133)rm that hires. L workers, where a > 0 and (cid:13) 2 (0; 1). (a) illustrate the labor supply and demand functions in a diagram with w on the vertical axis and ls and ld on the horizontal axis. Draw everything so that there is some unemploy- ment (i. e. , less than full employment) in equilibrium.
