Mutiple Choice Part Essay Examples

Question 1

In 2008, the US experienced a recession. This means people became unemployed and they found it difficult to find jobs because of the higher unemployment and fewer jobs openings. Therefore, they became discouraged and stopped searching for jobs.

Question 2

The person should be employed or if they are unemployed the person should be actively looking for a job.
Question 3
A higher wage rate. A higher wage rate means the employee can increase his/her consumption working for the same number of hours and hence achieve a higher utility level.

Question 4

An increase in the wage rate will increase the number of hours supplied because the workers will give up some of their leisure time to work.

Question 5

It is the leisure time and income level that gives the employee the highest utility. On a graph, it is the point at which the worker’s highest indifference curve is tangent to the budget constraint of the worker.

Question 6

Option 1 would result in longer working hours if the workers value additional consumption more than they value leisure whereas option 2 would result in longer working hours if workers value additional leisure time more than they value additional consumption.

Question 7

Quality of the education. If the education is of low quality then its value would be lower.

Question 8

Employers are likely to finance training that would directly increase the productivity of an employee hence increase the total revenue. This is because employers would want to cover and realize returns on the training costs.

Question 9

Education. Education will increase the productivity of an employee and consequently increase the value of their future income.

Question 10

A producer is likely to increase the scale of production when the wage rate is low.
Question 11
The level of productivity has improved because of improvement in technology. This means that employees are paid a wage that is much lower than their marginal product today.

Question 12

It is likely to increase the demand for capital. Producers will increase the production scale hence demand both labor and capital.

Question 13

The labor demand for unskilled labor declined as the US specialized in production of goods that are skilled labor intensive.
Question 14
Demand for labor. The demand for labor is higher in Istanbul resulting in an upward pressure on wages.

Question 15

There will be a increase in the number of skilled workers in the country where labor is relatively cheap as it will specialize in the production of the skilled labor-intensive good while there will be a decline in the number of skilled workers in the country where skilled labor is relatively expensive.

ANALYSIS PART

Question 1
a)
Labor Force Participation rate = Labor Force/ Working Age Population
Labor Force Participation rate = 100m/ 150m = 0.6667 = 66.67%
Unemployment Rate = Unemployed Persons/Labor Force
Unemployment Rate = (100m-85m)/100m = 0.15 = 15%
b)

New Labor Force will 85% of the original value

Labor Force = 85%*100m = 85m
Labor Force Participation rate = 85m/ 150m = 0.5667 = 56.67%

New employed people number will be 80% of the original

Employed people = 80%*85m = 68m
Unemployed people = 85m-68m = 17m
Question 2
Present Value = Future Value/ (1+i) n

Present value calculated using Microsoft Excel Software

If she refuses to learn Spanish
If she learns Spanish
b)

The interest rate will only change in the first year and become 90% while in the remaining years it will be 10%

If she learns Spanish
If she refuses to learn Spanish
c)
How much she is willing to pay is the difference between the present values of learning Spanish and not learning Spanish
If the husband is employed = 124,358.74 – 75815.74 = 48,543
If the husband is unemployed = 120,530.99-68,160.23 = 52,370.76
Question 3
a)

Marginal product is the additional output of an additional worker

Marginal product = New output level with an additional worker – Previous output level
Average Product = Total output/total workers who produced it
b)
The optimal employment level is when the marginal revenue is at least equal to the marginal cost (the payment to an additional worker)

At $ 75 it is 5

At $ 100 it is 4
At $ 125 it is 2
At $ 150 and $ 175 it is 1
c)
Exploitation level = marginal revenue – marginal cost
At level 1 = 180-125 = 55
At level 2 = 130-125 = 5

PART C: ESSAY

Free vs. Non-Free Education
One of the advantages of an education system where students are expected to pay is that classes are smaller. This implies a higher student-teacher ratio as well as greater distribution of other learning material per student. These factors are positively correlated with the quality of education. Secondly, making students pay will increase their commitment to learning as they bear the direct costs. Lastly, college education provides credibility signals. Therefore, people with education are likely to earn higher wages than those who do not. Therefore, it is fair that only those who receive the direct benefits pay for it. A disadvantage of having students pay for education is that it may lock out bright but poor students out of the education system. In addition, commercialization of education may affect the quality as institutions will be keen on attracting students to increase revenue at the expense of education quality. For instance, schools may provide easy exams to ensure high success rate or focusing on unimportant factors such as building modern cafeteria or investment in entertainment and sports to attract students.
Free education increases the externalities that education has to society. Free education means more people can access it hence increasing the average education level in society. Consequently, there will be a more productive and innovative workforce. This improves the general living standards. Secondly, free college education reduces income disparity. This is because it ensures equal opportunity for both the rich and poor to access education. Therefore, the poor can catch up and improve their living standards as education creates more opportunities for them to escape poverty. However, there are disadvantages for free college as well. Firstly, free education means an opportunity cost. Government has to divert resources from needs that may be more beneficial to society. For example, such funds should be used in stimulating growth to ensure there are adequate jobs instead of churning out graduates who will be unemployed. Secondly, free education may increase government involvement in education stifling independence of research and teaching. Government may feel it is justified to advance its agenda since it funds the education system.