Qistan is a small country. It's economy relies heavily on revenues from tourism. Qistan is one of the world's most popular tourist destinations. It offers visitors the perfect mix of a cosmopolitan city with traditional aspects of local culture and civilization. Low season is summertime in Qistan as temperatures begin to become extremely high, with an average temperature of 50 degree Celsius. During summers, the number of tourists normally drops by 60 to 70 percent, thus causing unemployment in the tourism industry to hit the highest rates. Another important source of national income of Qistan is oil production. Unfortunately, Qistan's oil reserves are running out significantly. At current production rates, Qistan's oil reserves are estimated to be exhausted in 50 years. Qistan's long-term countermeasure is to diversify from an oil-reliant economy to an economy that is technology-based. However, this economic transformation has caused many blue-collar workers to lose their jobs. Their skill levels are inadequate when new industries are created and advanced technologies are applied in traditional industries. The population of Qistan is estimated at around 600,000 as of 31 st December 2020. 80 percent of the total population are older than the legal working age and are not institutionalized. Full-time students, full-time homemakers, pensioners, and discouraged workers are as many as 48 thousand, 69 thousand, 96 thousand, and 7 thousand respectively. 220,000 workers work full time whereas another 22,000 work part time. The politics of Qistan has been dominated by two major political parties shortly after the founding of the country. The Democratic Party is more aligned towards liberal philosophy whereas the Republican Party is more conservative. One of the main differences between the two political parties is that Democrats favor increasing the minimum wage whereas Republicans argue that wages need to be fixed by the free market. When it comes to tax matters, Democrats believe that higher tax rates should be imposed on higher income groups while on the contrary, Republicans do not subscribe to the viewpoint that richer people need to pay more taxes. The Qistan work culture is characterized by hard work, loyalty, discipline, punctuality, devotion, and team spirit. As time passes by, this work culture is fading. Young Qistanian workers are increasingly adopting leisure habits. Research showed that although young Qistanians still work hard, most of them are more interested in leisure than their parents. In response to these work-leisure changes, the government is considering to cut overall working hours and reduce the standard workweek from 6 days to 5 days. Recently the Qistanian government has raised the nation's hourly wage rates. This change has caused the working hours of higher-income groups to fall from 55 to 53 hours per week. On the other hand, the same change has increased the weekly working hours of lower-income groups from 60 to 65 hours. Higher wage rates have also attracted an influx of immigrants from poorer neighbouring countries into Qistan. However, these immigrants are sometimes illegally paid lower wages by their employers for performing substantially equal work as native workers. Qistan has been experiencing economic growth since 1970s, except in years 1985, 1998 and 2008. In those three years, unemployment rate rose by 4.7%, 5.6% and 3.9% respectively. In year 2019, Qistanian workers produced an hourly output of USD 280 and the figure jumped up to USD 325 in year 2020. Labor market discrimination is common in Qistan. For instance, many profit-maximizing employers are reluctant to hire women or invest in women's human capital because experience tells that female workers tend to have lower levels of commitment towards their job once they have to fulfill their family responsibilities. In other circumstances, employers discriminate against employees of darker skin colors, causing them to be underrepresented in jobs which pay higher wages. Some other employers refuse to employ ethnic minorities not because they are less suitable employees but simply due to employers' irrational distaste for minorities. Nonetheless, some economists argued that gender differences in labor markets might not solely be due to employers' discriminatory behavior but attributable to various non-discrimination reasons too.

QUESTION 1 (40 MARKS)

a) "One of the main differences between the two political parties is that Democrats favor increasing the minimum wage whereas Republicans argue that wages need to be fixed by the free market. When it comes to tax matters, Democrats believe that higher tax rates should be imposed on higher income groups while on the contrary, Republicans do not subscribe to the viewpoint that richer people need to pay more taxes." The paragraph above is taken from the case. Are the TWO (2) statements normative or positive in nature? Are they microeconomic or macroeconomic statements? Justify your answers. (8 marks)

b) Why is the demand for labor called a derived demand? Explain your answers and find an example of derived demand in the case given. (4 marks)

c) Sketch the indifference curves of older Qistanian workers and younger Qistanian workers. What is the main difference between the TWO (2) indifference curves? Why are they different? Support your answer with an evidence from the case given.(9 marks)

d) Sketch an individual labor supply curve. Where do you think higher-income groups and lower-income groups should be located on the curve? Show their locations on the diagram and explain your answers. (8 marks)

e) Andy is a young Qistanian. He receives USD 2 worth of daily interest from his saving account in a bank and enjoys 13 hours of leisure everyday. His weekly income is USD 399. Sketch the weekly budget line of Andy. Calculate his hourly wage rate and show his location on the budget line. (8 marks)

f) According to the case study above: "Higher wage rates have also attracted an influx of immigrants from poorer neighbouring countries into Qistan." Using a labor demand-labor supply diagram, show what will happen to the equilibrium wage and equilibrium employment of Qistan. (3 marks)

QUESTION 2 (35 MARKS)

a) Based on the data given in the case study about key labor force indicators, compute Qistan's:

i) Employment rate.

ii) Unemployment rate.

iii) Labor force participation rate. (12 marks)

b) Based on the information given in the case study:

i) Identify TWO (2) types of unemployment in Qistan.

ii) Support your answers by giving an evidence from the case study for each type of unemployment.

iii) Suggest ONE (1) solution to reduce each type of unemployment. (6 marks)

c) Assume that year 2019 is the base year:

i) Compute the labor productivity index in years 2019 and 2020.

ii) Compute the labor productivity growth rate in year 2020.

iii) What do you think is the most important factor contributing to labor productivity growth of Qistan? (10.5 marks)

d) In years 1985, 1998 and 2008, what had happened to Qistan's:

i) Labor force participation rates ii) Inflation rates

iii) Labor productivity Justify your answers. (6.5 marks)

QUESTION 3 (25 MARKS)

a) Sarah and her husband (Daniel) are considering to migrate to Qistan. Sarah is 54 years old and Daniel is 55 now. Sarah's annual income is USD 36,000 and Daniel earns USD 48,000 per year. Both of them plan to retire at the age of 60. The discount rate in their country of origin is 15 percent. If they migrate to Qistan, Sarah is going to become a full-time homemaker and Daniel is going to earn 80 percent more than his initial annual income. The discount rate in Qistan is 20 percent. Daniel plans to retire 2 years earlier if he moves to Qistan. The monetary costs of migration of the family is USD 20,000. The psychic costs of migration of Sarah and Daniel are USD 15,000 and USD 25,000 respectively. Do you think the family should migrate to Qistan? Support your answer with detailed calculations. All answers must be in two decimal points. (14 marks)

b) Identify the discrimination models which explain the labor-market discrimination faced by women, ethnic minorities and workers of darker skin colors in Qistan. (3 marks)

c) Identify the types of discrimination experienced by immigrants, women, and workers of darker skin colors in Qistan. (4 marks)

d) "Some economists argued that gender differences in labor markets might not solely be due to employers' discriminatory behavior but attributable to various non- discrimination reasons too." Do you agree with the above statement? Justify your answer