Question

6. Suppose all workers in a certain labor market are of either high quality or low quality. Potential employers value a high-quality worker at $15,000 per month and a low-quality worker at $7,500 per month. The monthly supply of high-quality workers is QsH = 0.04(W - 1,500) and the supply of lowquality workers is QsL = 0.08(W - 1,500), where W is the monthly wage. If workers' abilities are observable to employers, what are the equilibrium wages?

A. WH = $15,000; WL = $7,500
B. WH = $7,500; WL = $7,500

C. WH = $12,500; WL = $12,500
D. WH = $5,250; WL = $4,500

7. Suppose all workers in a certain labor market are of either high quality or low quality. Potential employers value a high-quality worker at $15,000 per month and a low-quality worker at $7,500 per month. The monthly supply of high-quality workers is QsH = 0.04(W - 1,500) and the supply of low-quality workers is QsL = 0.08(W - 1,500), where W is the monthly wage. If workers' abilities are observable to employers, how many workers of each type do employers hire?

A. QH = 440; QL = 440
B. QH = 540; QL = 480
C. QH = 440; QL = 880
D. QH = 270; QL = 240

8. Suppose all workers in a certain labor market are of either high quality or low quality. Potential employers value a high-quality worker at $15,000 per month and a low-quality worker at $7,500 per month. The monthly supply of high-quality workers is QsH = 0.04(W - 1,500) and the supply of low-quality workers is QsL = 0.08(W - 1,500), where W is the monthly wage. If workers' abilities are not observable to employers, what is the equilibrium wage?

A. $5,000
B. $7,500
C. $10,000
D. $12,500

9.Suppose all workers in a certain labor market are of either high quality or low quality. Potential employers value a high-quality worker at $15,000 per month and a low-quality worker at $7,500 per month. The monthly supply of high-quality workers is QsH = 0.04(W - 1,500) and the supply of low-quality workers is QsL = 0.08(W - 1,500), where W is the monthly wage. If workers' abilities are not observable to employers, how many workers of each type do employers hire?

A. QH = 540; QL = 480

B. QH = 510; QL = 510

C. QH = 680; QL = 340

D. QH = 340; QL = 680

10.Suppose all workers in a certain labor market are of either high quality or low quality. Potential employers value a high-quality worker at $15,000 per month and a low-quality worker at $7,500 per month. The monthly supply of high-quality workers is QsH = 0.04(W - 1,500) and the supply of low-quality workers is QsL = 0.08(W - 1,500), where W is the monthly wage. If workers' abilities are not observable to employers, what is the deadweight loss due to asymmetric information?

A. $750,000
B. $1,500,000
C. $1,125,000
D. $500,000

Answer 1

6. Since the attribute of the workers are visible, so the wages will be as per the valuation of the worker. So the high quality workers will have a wage of $15000 and the low quality workers will have a wage of $7500.

So the correct option is A. WH = $15,000; WL = $7,500

7. QH = 0.04 * (WH - 1500) = 0.04 * (15000 - 1500) = 540

QL = 0.08 * (WL - 1500) = 0.08 * (7500 - 1500) = 480

So the correct option is B. QH = 540; QL = 480

8. If the attributes are not visible, then we see that at any particular wage, the low skilled workers are double that of the high skilled workers from their demand equations.

So the equilibrium price can be determined in the ratio of these workers. So equilibrium wage = 15000 * 1/3 + 7500 * 2/3 = 10000

So the correct option is C. $10,000

9. QH = 0.04 * (WH - 1500) = 0.04 * (10000 - 1500) = 340

QL = 0.08 * (WL - 1500) = 0.08 * (10000 - 1500) = 680

So the correct option is D. QH = 340; QL = 680

10. The deadweight loss is given as 1/2 * (difference in number of high quality workers at high price and equilibrium price) * (Difference of High price and Equilibrium price)

= 1/2 * (540 - 340) * (15000 - 10000) = 1/2 * 200 * 5000 = 500000

So the correct option is D. $500,000