Labor Economics (Econ3365) Spring 2012 Dr.
Juhn

__Problem
Set 1 – Due February 15, 2012__

1.
(5 points) Find
out civilian non-institutional population, civilian labor force, unemployment
rate, labor force participation rate, and employment-population ratio for January
2012. Use the Bureau of Labor Statistics
website: http://www.bls.gov

(Note:
Use the seasonally adjusted numbers.)

2.
(10 points) Use
supply and demand analysis to predict the impact of the following on the labor market
for oil platform workers in the Gulf of Mexico.
Discuss what will happen to
equilibrium wages and employment. Use
graphs.

a.
Political
instability in the Middle East pushes the price of oil to an all time high.

b.
A major explosion
on an oil platform causes casualties and an oil spill that lasts for 3 months.

3.
(15 points) Following
is the equation describing Tom’s MRS between leisure and consumption:

(MU_{L}/MU_{C})
= C/L

There
are 168 hours in the week available to split between work and leisure. Tom earns $10 per hour. He also receives $120 worth of disability
benefits each week regardless of how much he works. The price of consumption is equal to $1.

a.
(5 points) Graph Tom’s budget line. (Put L = hours of leisure per week on the
horizontal axis and C = dollars of consumption on the vertical axis).

b. (5 points) Assuming that Tom works positive hours, find Tom’s optimal amount of consumption and leisure hours.

c. (5 points) Suppose Tom’s wage increased to $20 per hour. Solve for Tom’s optimal amount of consumption and leisure hours with the wage increase.

In this case the ________ effect dominated the ________ effect. (Fill in the blank spaces with either “income” or “substitution.”)