Economics 381
Summer 1991
D. Maki

Midterm Examination

Instructions:  Answer any four of the following six
questions.  Questions are equally weighted.  This is a
closed book examination.  Total time allowed:  1 hour and 50
minutes (until 2:20).

1.  The neoclassical theory of labour demand applies to a
profit maximizing firm.  How does this theory differ from a
theory of labour demand applied to (a) a government employer
maximizing budget surplus, and (b) a private sector employer
maximizing sales?  Explain.

2.  How does the theory of labour supply in a family context
differ if one assumes (a) a family utility - family budget
constraint model versus (b) an individual utility - family
budget constraint model?  Explain.

3.  Human capital theory has been criticized by (a)
signalling theorists, (b) institutionalists and (c)
radial/Marxists.  State these criticisms, and the replies
you might give if you were an advocate of human capital
theory.

4.  Discuss the benefits and costs to employers and
employees of implicit contracts which involve wage < MRP for
the first few years of employment, followed by wage > MRP
thereafter.  How are these benefits and costs affected by
the existence of specific human capital?

5.  "Firms with monopsony power are not necessarily evil:
they are simply acting like any other firm when they
maximize profits subject to constraints.  It is just that
the constraints they face are different and this enables
them to make a monoposony profit per worker equal to the
difference between the value to the firm and the value to
society of the incremental unit of labour.  The solution to
this problem is to alter the constaints faced by these
firms".  Discuss.

6.  How might empirical work on labour supply based on
Becker's Theory of the Allocation of Time differ from
similar work based on neoclassical labour-leisure choice
theory?  As a concrete example, consider estimating the
labour supply effects of switching from an income tax to a
consumption tax (such as the GST).  Explain.