4) MULTIPLE CHOICE (identify the one best answer below and provide a justification for each of the five options): Suppose that the LFS data show the number of employed has decreased by 2,000. Then you know with certainty that:

a. Exactly 2,000 people previously employed lost a job.

b. The participation rate has not changed.

c. The unemployment rate has increased.

d. The size of the labour force has decreased.

e. None of the above.

Hint: remember that the LFS is a snapshot in time, i.e. it shows the number of people in each category at a certain date, but it does not show flows of people from one category to another during a certain period. Also, the 'with certainty' bit in any question is important, the answers may be different from the case of 'likely' or 'possibly'.

5) (KEY QUESTION) Minimum Wages and Unions

a. Assume an industry without legal minimum wages and unions. Show in a diagram how the equilibrium wage W* is determined, and briefly explain all the concepts in the diagram.

b. Now suppose a minimum wage, WMIN, is legislated at a level lower than W*, i.e. WMIN

c. Now suppose a minimum wage is legislated at a level higher than W*, i.e. WMIN>W*. Show it in the diagram and explain what the labour market outcomes will be.

d. Now suppose a workers' union is created and successfully negotiates wage WUNION, which is above both W* and WMIN, i.e. WUNION>WMIN>W*. Explain what the labour market outcomes will be compared to the previous part.