Suppose that the marginal revenue from search is given by:
MR = 100 - 4w
where w is the wage offer at hand. The marginal cost of search is given by:
MC = w.
Draw a graph depicting the two functions provided above.
Use the marginal revenue and marginal cost curves above to solve for the maximum and minimum expected wage offers for this worker. Indicate these results on your graph in (A).
Depict a $10 wage offer in your graph in (A) above. Would the worker accept the job offer?
Solve for the asking wage and depict your result on your graph in (A).
Suppose that the worker can now collect unemployment insurance that is worth $200 a week. If the worker works 40 hours a week, what would be the new MC function?
Use this new MC function to solve for the new asking wage.
Explain how a good-old-boy network (i.e., a collection of individuals who share a common bond that leads them to help one another) might affect the marginal cost and benefit from search, affect the reservation wage, and affect the actual wages of persons who are connected to the network versus those who are not if both would face the same wage offer distribution in the absence of the network.
The Federal Reserve Board has, in recent years, adopted a policy of using interest rates to aggressively combat inflation.
Using your knowledge of the tradeoffs described by the Phillips curve, explain the short-run implications of an anti-inflationary policy on employment. Who is likely to benefit and who is likely to loose from such a policy?
Using your knowledge of the tradeoffs described by the Phillips curve, explain the long-run implication of an anti-inflationary policy on employment. How can such a policy be justified in the long run? Explain.
Nearly all federal government job openings across the country can be found online. It is likely that in the near future all job openings, both private and public, will be accessible from a personal computer. Explain the likely effect of this technological development on:
frictional unemployment.
structural unemployment.
the level and amount of search.
the incidence and duration of unemployment.
the natural or steady state rate of unemployment.
What effect does offering better unemployment benefit (either more dollars or for a longer period of time) have on:
