1. True or false (30 points total). For each of the following, indicate whether the

statements made in each part are true or false, and briefly explain your answer. If your

answer depends on any assumptions, state them clearly. (Hint: you might need to make

an assumption to determine whether the statement is true or false, and the answer might

differ depending on your assumption.) Use graphs or equations to illustrate your answer

whenever it is helpful.

b. (5) In an economy where minimum wages cover one sector, but there is also an

uncovered sector where the minimum wage does not apply, a higher minimum wage does

not reduce employment because workers shift to the uncovered sector and take jobs there.

c. (5) With a perfect complements production function, there is never a substitution effect

from an increase in the wage.

e. (5) If a woman is initially not working (with leisure a normal good), we do not know

whether a higher wage will increase or decrease the likelihood that she will start working,

because the income and substitution effects are in opposite directions.