ECON 2450 Study Guide - Midterm Guide: Phillips Curve, Utility Maximization Problem, 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: labor markets [4 marks] Consider a model of the labor market under perfect competition. The unemployment bene(cid:133)t, b, is endogenous and (cid:133)nanced by taxes on wages, through an employment insurance system. The tax rate, (cid:28), is exogenous (0 < (cid:28) < 1). The before-tax wage rate is denoted w, so the after-tax wage is (1 (cid:0) (cid:28) )w. The total labor force is l, and the unemployment rate, u, is given by where ld is labor demand, given by u = As in class, n is the number of (cid:133)rms, and a and (cid:13) are parameters from the production function (and 0 < (cid:13) < 1).
