Economics 428/528 Assignment 3 Answer Key
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1.
True/False and Justify:
a.
"In the real world, the workweek is determined by the firm, not by the worker.
Therefore, the decrease over time in the average work week cannot be explained
as a movement along the labor supply curve."
True.
This is an equilibrium phenomenon, think about hedonic function in terms of
weekly hours. Firms should consider the workers’ preferences while determining the
workweek. If the market pushes towards a shorter workweek, arising from the supply
preferences of workers, and one firm does not change its policy, another firm will do
it and eventually that firm will find it very hard (or expensive thinking about
compensating wage differentials) to hire workers. Therefore, the optimum strategy for
the firms will be to decrease workweek.
b.
"Employers commonly offer an overtime premium to induce workers to supply
more labor. This proves that the labor su