Problem 4 Assume that all workers have the same preferences given by U(w,d) = % where w is the wage they receive, and d is the number of decibels workers must listen to while working. Every worker has the option to work at home in silence (d = 25), in an oice (d = 49), or at an airport (03 = 100). The job at home provides a wage of $100. Further assume that the economy is in equilibrium, and thus no worker has incentive to change jobs. (a) What is the equilibrium wage for working in an oice? Working at an airport? (b) What is the compensating wage differential between the home job and the airport job? (0) Now assume that workers have different preferences. There are some workers who hate noise (type A) and those who don't mind noise (type B). On a graph with wage on the vertical axis and decibels on the horizontal axis, graph one indifference curve for each type. Hint: You don't need to solve anything for this part. Just draw general curves based on what we talked about in class. Problem 5 (a) Assume the market is in equilibrium, then a natural disaster hits. What happens to the demand and supply curves? What happens to the demand supply in neighboring cities? Draw both graphs. (b) Suppose there are two jobs in the economy: farmer and coal miner. Farming rms (which are all identical) can produce a safer work environment more cheaply than coal mining rms (which are all identical). Suppose initially that all workers in the economy have the same preferences. In equilibrium, farmers get paid $50,000 a year and have a probability of death of 1 in 10,000. Coal miners get paid $52,000 and have a probability of death of l in 5,000. What is the value of a statistical life? (0) What are moving costs? Explain why they are so important in labor economics. ((1) Explain how welfare or tax credits impact the labor supply. Give an example of one we talked about in class