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Q1. Consider an industrial union. The labor market demand is W = 2,000 2L, and supply is W = 20 + 8?. Q1.1) What quantity

Q1. Consider an industrial union. The labor market demand is W = 2,000 2L, and supply is W = 20 + 8?.

Q1.1) What quantity of labor would the union set? Explain.

Q1.2) What would the market equilibrium quantity of labor be without the union? Explain.

Q1.3 (5 points) Explain the difference in strategies between craft and industrial unions to increase wage.

Q2.1 (5 points) Explain how dead weight loss exists in a monopsony market (You can show this with a graph).

Q2.2) (5 points) Explain how competitions can eliminate discrimination in the labor market.

Q2.3 (5 points) Explain why people are risk averse in gaining, and risk seeking when losing.

Q3 (15 points)

Suppose an experimenter would like to know if individuals are risk averse, risk neutral or risk seeking. He has each individual make a series of 10 decisions between a relatively safe option A and a relatively risky option B.

Task

Option A

Option B

1

10% chance of $19, 90% chance of $5

10% chance of $30, 90% chance of $0

2

20% chance of $19, 80% chance of $5

20% chance of $30, 80% chance of $0

3

30% chance of $19, 70% chance of $5

30% chance of $30, 70% chance of $0

4

40% chance of $19, 60% chance of $5

40% chance of $30, 60% chance of $0

5

50% chance of $19, 50% chance of $5

50% chance of $30, 50% chance of $0

6

60% chance of $19 40% chance of $5

60% chance of $30, 40% chance of $0

7

70% chance of $19, 30% chance of $5

70% chance of $30, 30% chance of $0

8

80% chance of $19, 20% chance of $5

80% chance of $30, 20% chance of $0

9

90% chance of $19, 10% chance of $5

90% chance of $30, 10% chance of $0

10

100% chance of $19, 0% chance of $5

100% chance of $30, 0% chance of $0

3.1) (5 points) How many choices of A would a risk neutral person make? Explain.

3.2) (5 points) What is the range of the number of choices for A that would be consistent with risk seeking? Explain.

3.3) (5 points) How could you know, from looking at the data, that an individual was not sufficiently motivated or was confused in this experiment?

Q4. Suppose that you are an expected utility maximizer. When offered a choice between:

(A): $30 with probability 0.5 (B): $70 with probability 0.2

$20 with probability 0.5 $30 with probability 0.4

$0 with probability 0.4

Suppose you choose A. Here u(0)=0.

Q4.1) (5 points) Now you are offered a choice between

(C): $70 with probability 0.2 (D): $30 with probability 0.3

$30 with probability 0.2 $20 with probability 0.5

$0 with probability 0.6 $0 with probability 0.2

Which would you choose? Show your calculation.

Q4.2) (5 points) Calculate the average payoff of each of the above options. Show your calculation.

A:

B:

C:

D:

Q4.3) (5 points) Assume we are going to do an experiment that asks subjects to first pick between A and B, and then pick between C and D. What result can we expect to see from this experiment based on the prior literature?

Q5. Suppose you have the following regression that was estimated using data from college football games. Here, the unit for "funding" is $10,000, and the unit for other factors are integers.

probability of making the playoffs

= 0.7 + 0.05 numbers of superstars + 0.02 funding

0.08 number of conflicts among team members

0.3 number of players got covid

Q5.1) (5 points) Based on the information below, what is the probability of University of Arizona to make the playoff? Show your calculation.

2 superstars

$500,000 amount of funding provided

3 conflicts among players

4 players got COVID

Q5.2) (5 points) If the University of Arizona football team got $100,000 more funding, how much more likely are they to make the playoff? Show your calculation.

Q5.3) (5 points) Let's say the standard error for the estimate for "Number players got COVID" is 0.02. What is the 95% confidence interval for the estimate? Show your calculation.

Q6. (15 points) Suppose you are doing a hypothesis test to analyze if home advantage exists in MLB. i.e., you are comparing the performance at home and away.

Q6.1) (5 points) What is your null hypothesis and alternative hypothesis?

Q6.2) (5 points) What is the T-statistic given the information below? (Hint: the numerator should be a positive number) Show your calculation.

Performance at home = 1.2

Performance away = 1

S(diff) = 0.75

Number of observations = 100

Q6.3) (5 points) Let's say your p-value for this hypothesis test is 0.058. With 95% confidence level what conclusion can you derive?

Q7. (10 points) Short answer questions

Q7.1) (2 points) Is the following statement true or false?

Probability weighting function assumes that people act as if probabilities are distorted. People overweight small probabilities and underweight large probabilities.

Q7.2) (2 points) Is the following statement true or false?

Consumer discrimination is not dangerous in Becker's model because it gets eliminated by market forces over time.

Q7.3) (2 points) Fill in the blank.

Loss aversion is a well-established phenomenon. However, what is considered as a loss depends upon the.

Q7.4) (2 points) Give two examples of prospect theory (risk seeking behavior when losing, but risk averse behavior when gaining) in sports.

Q7.5) (2 points) Draw a risk averse utility function (label the axes).

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