Solve all questions A market demand and supply functions are as follows Qd 500 P 4, and Qs P 2 100 For parts 2 5, use ONE graph 1 Determine the equilibrium price and quantity 2 Graph the inverse demand and supply curves with Q on the horizontal axis and P on the vertical axis Clearly label all axes, curves, intercepts, and the equilibrium price and quantity values 3 Assume the government sets a rule that the selling price cannot go above $400 What kind of a price restriction is this Answer with two words Draw this price restriction on your graph in part (2) and label it 4 Will this government restriction cause a shortage or surplus Answer with one word Calculate this value and show it on your graph in part (2) 5 what is the deadweight loss with the price restriction in place Calculate this value and show this area on your graph in part (2) Attempts I Average 4 2 The connection between macroeconomics and Microeconomics Aa Aa El Unemployment analysis is an excellent example of the ties between macroeconomics and microeconomics We measure unemployment at the macro level, but micro forces partly determine this macro aggregate Suppose the following Elrapl l in the calculator represents the market for unskilled labor in France Many of the young, inexperienced youths involved in the recent rioting would begin their working careers in this labor market Use the calculator to answer the questions Tool tip Use your mouse to drag the green line on the graph The values in the boxes on the right side of the calculator will change accordingly You can also directly change the values in the boxes with the white background by clicking in the box and typing When you click the Calculate buttonr the graph and any related values will change accordingly WAGE Euros per hour CALCULATOR 15 Wage i Euros per hour 15 12 Labor Demanded 500 Labor Supplied 500 Thousands of workers Thousands of workers 0 Su rplus labor 0 9 Thousands of Workers 6 Payroll tax I ' Percent of earnings '0 I 3 0 200 400 600 800 1000 aumm Thousands of workers W W Suppose the minimum wage in France is 10 euros per hour Let's dene an unemployed worker as one that is willing to work at the prevailing wage In this case, the minimum wage is binding because it lies above the market wage That is, the minimum wage is the prevailing wage If the wage is not allowed to fall below 10 euros per hour, unskilled workers are unemployed The labor force is simply the number of employed workers plus the number of unemployed workers At a minimum wage of 10 euros per hour, the size of the unskilled labor force is Recall the calculation for the unemployment rate Unemployment Rate (Unemployed I Labor Force At a minimum wage of 10 euros per hour, the unemployment rate among unskilled workers is As indicated in the calculator, the initial payroll tax is 40 A payroll tax is a tax on the earnings that an employer pays to an employee The commentary suggests that France can reduce unemployment among young, inexperienced workers by cutting payroll taxes Suppose France cuts the payroll tax from 40 to 30 Assuming the 10 euro minimum wage remains in force, the unemployment rate among unskilled workers after the payroll tax cut is Quantity Quantity Supplied Amount of Demanded Price Surplus Shortage 1150 $40 250 950 60 500 750 80 750 550 100 1000 350 120 1250 a Calculate the amount of surplus shortage at each price in the above table b Draw the above demand and supply schedules on one graph Label axes, the two curves and the value of equilibrium price and equilibrium quantity c Using the graph for (b , show what would happen to supply if more competitors entered the market Label the curve $2 Also, show what would happen to demand if consumers' income increased and this is a normal good Label it D2 d Now assume the government establishes a price floor of $100 Would this government involvement cause a surplus or shortage in the market Q3 Between 2000 and 2004, the Austrian government began a series of reforms to their mandated severance pay requirements Austrian firms are required to provide payments to workers (as a function of their current pay and years of service at the firm) if they are dismissed from the firm The reforms reduced these payments at most years of service, though the amount of the reduction varied across workers with different years of service Under the old system, payments were constant over small ranges of years of service Under the new system, payments increase continuously with years of service a Researchers using firm level data on the level of employment and output of Austrian firms have estimated the following equation, separately on data from before the reform and after the reform Lt represents total employment at the firm in year t, Yt is a firm level measure of output Optimal employment demand in the absence of adjustment costs is modeled as L Co CY,te L ag aj Y, azlan e (before reform) Lt bo bj Y, byLu e, (after reform) What is the meaning of the estimated coefficients a, and by ii What is your hypothesis about the estimates of a, and by given the severance pay reforms Briefly explain your reasoning iii Suppose the researchers had only industry level aggregated data, and estimated the same equations using industry employment and output totals What would you expect to happen to the estimates of a, and by b The table below summarizes the level of severance pay, at different years of service before and after the reforms Suppose you are interested in estimating the effect of the reforms on the extent of employment volatility over the business cycle in Austria You have access to firm level data that gives total employment for each month the total number of hires each month and the total number of workers fired each month by the workers' years of service with the firm Data are available for each month from 1990 to 2008 The reforms began in 2000, and were phased in gradually through 2004 Outline the empirical approach you would take to estimate the effect of the reforms on employment volatility Provide as much detail as possible on the specific econometric specification you would use, and how the reform effects would be identified Years of service Old Severance New Severance Payment (amount at interval Payment (constant beginning of years of service interval) throughout years of service interval)

Question

Solve all questions  A market demand and supply functions are as follows  Qd   500   P 4, and Qs   P 2   100  For parts 2 5, use ONE graph  1  Determine the equilibrium price and quantity  2  Graph the inverse demand and supply curves with Q on the horizontal axis and P on the vertical axis  Clearly label all axes, curves, intercepts, and the equilibrium price and quantity values 3 Assume the government sets a rule that the selling price cannot go above $400  What kind of a price restriction is this  Answer with two words  Draw this price restriction on your graph in part (2) and label it  4  Will this government restriction cause a shortage or surplus  Answer with one word  Calculate this value and show it on your graph in part (2)  5  what is the deadweight loss with the price restriction in place  Calculate this value and show this area on your graph in part (2) Attempts  I   Average   4 2  The connection between macroeconomics and Microeconomics Aa Aa El  Unemployment analysis is an excellent example of the ties between macroeconomics and microeconomics  We measure unemployment at the macro level, but micro forces partly determine this macro aggregate  Suppose the following  Elrapl l in the calculator represents the market for unskilled labor in France  Many of the young, inexperienced youths involved in the recent rioting would begin their working careers in this labor market  Use the calculator to answer the questions  Tool tip  Use your mouse to drag the green line on the graph  The values in the boxes on the right side of the calculator will change accordingly  You can also directly change the values in the boxes with the white background by clicking in the box and typing  When you click the Calculate buttonr the graph and any related values will change accordingly  WAGE  Euros per hour  CALCULATOR 15 Wage i  Euros per hour  15   12 Labor Demanded 500 Labor Supplied 500  Thousands of workers   Thousands of workers  0 Su rplus labor 0 9  Thousands of Workers  6   Payroll tax I '  Percent of earnings  '0 I 3 0 200 400 600 800 1000 aumm  Thousands of workers  W W Suppose the minimum wage in France is 10 euros per hour  Let's dene an unemployed worker as one that is willing to work at the prevailing wage  In this case, the minimum wage is binding because it lies above the market wage  That is, the minimum wage is the prevailing wage  If the wage is not allowed to fall below 10 euros per hour, unskilled workers are unemployed  The labor force is simply the number of employed workers plus the number of unemployed workers  At a minimum wage of 10 euros per hour, the size of the unskilled labor force is Recall the calculation for the unemployment rate  Unemployment Rate   (Unemployed I Labor Force   At a minimum wage of 10 euros per hour, the unemployment rate among unskilled workers is As indicated in the calculator, the initial payroll tax is 40   A payroll tax is a tax on the earnings that an employer pays to an employee  The commentary suggests that France can reduce unemployment among young, inexperienced workers by cutting payroll taxes  Suppose France cuts the payroll tax from 40  to 30   Assuming the 10 euro minimum wage remains in force, the unemployment rate among unskilled workers after the payroll tax cut is Quantity Quantity Supplied Amount of Demanded Price Surplus Shortage 1150 $40 250 950 60 500 750 80 750 550 100 1000 350 120 1250 a  Calculate the amount of surplus shortage at each price in the above table  b  Draw the above demand and supply schedules on one graph  Label axes, the two curves and the value of equilibrium price and equilibrium quantity  c  Using the graph for (b , show what would happen to supply if more competitors entered the market  Label the curve $2  Also, show what would happen to demand if consumers' income increased and this is a normal good  Label it D2  d  Now assume the government establishes a price floor of $100  Would this government involvement cause a surplus or shortage in the market Q3  Between 2000 and 2004, the Austrian government began a series of reforms to their mandated severance pay requirements  Austrian firms are required to provide payments to workers (as a function of their current pay and years of service at the firm) if they are dismissed from the firm  The reforms reduced these payments at most years of service, though the amount of the reduction varied across workers with different years of service  Under the old system, payments were constant over small ranges of years of service  Under the new system, payments increase continuously with years of service  a  Researchers using firm level data on the level of employment and output of Austrian firms have estimated the following equation, separately on data from before the reform and after the reform  Lt represents total employment at the firm in year t, Yt is a firm level measure of output  Optimal employment demand in the absence of adjustment costs is modeled as L     Co   CY,te L    ag   aj Y,   azlan   e (before reform) Lt   bo   bj Y,   byLu    e, (after reform) What is the meaning of the estimated coefficients a, and by  ii  What is your hypothesis about the estimates of a, and by given the severance pay reforms  Briefly explain your reasoning  iii  Suppose the researchers had only industry level aggregated data, and estimated the same equations using industry employment and output totals  What would you expect to happen to the estimates of a, and by  b  The table below summarizes the level of severance pay, at different years of service before and after the reforms  Suppose you are interested in estimating the effect of the reforms on the extent of employment volatility over the business cycle in Austria  You have access to firm level data that gives total employment for each month  the total number of hires each month  and the total number of workers fired each month by the workers' years of service with the firm  Data are available for each month from 1990 to 2008  The reforms began in 2000, and were phased in gradually through 2004  Outline the empirical approach you would take to estimate the effect of the reforms on employment volatility  Provide as much detail as possible on the specific econometric specification you would use, and how the reform effects would be identified  Years of service Old Severance New Severance Payment (amount at interval Payment (constant beginning of years of service interval)  throughout years of service interval)

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Solve all questions. A market demand and supply functions are as follows: Qd = 500 - P/4, and Qs = P/2 - 100. For parts

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