Econ 4311 - Labor EconomicsMidterm 2: 11/3/16 (75 minutes)

EXAM SOLUTIONS > Econ 4311 - Labor EconomicsMidterm 2: 11/3/16 (75 minutes)

University of Missouri, Columbia ECONOM 4311 Part I. (60 points) Multiple Choice (3pts) 3 pts 1. In the standard theory of compensating differentials, a worker’s reservation price is (a) the amount of money it takes to entice the worker into accepting a risky job. (b) the amount of money it costs a worker to take a risky job. ...[Show More]

University of Missouri, Columbia
ECONOM 4311
Part I. (60 points) Multiple Choice

(3pts)

3 pts

1. In the standard theory of compensating differentials, a worker’s reservation price is

(a) the amount of money it takes to entice the worker into accepting a risky job.

(b) the amount of money it costs a worker to take a risky job.

(c) the amount of money a worker loses for not taking any job.

(d) the amount of money it costs a worker to take a safe job.

(e) the difference between the wage paid in firms offering risky jobs and the wage paid

by firms offering safe jobs.

(3pts)

3 pts

2. When graphing a worker’s indifference curves in Probability of Injury (x-axis) versus

Wage (y-axis) space, Al’s indifference curves are steeper than Pete’s indifference curve.

In this case:

(a) Al is more risk-loving than Pete.

(b) Al requires a greater wage increase than Pete in order to willingly take on more risk.

(c) Al will end up receiving a higher wage than Pete.

(d) Both are risk neutral.

(e) Al will only accept a job if it offers no risk of injury.

(3pts)

3 pts

3. A standard hedonic wage function might show what relationship?

(a) The relationship between the wage and a worker’s age.

(b) The relationship between the wage and a worker’s race.

(c) The relationship between the wage and a worker’s gender.

(d) The relationship between the wage and the probability of injury faced by the worker.

(e) The relationship between the wage and a worker’s skill level.

(3pts)

3 pts

4. Suppose 1 in 200 pilots flying Space-X aircraft dies each year while only 1 in 500 pilots

flying Subspace Gliders dies each year. Moreover, the average salary of Space-X pilots

is $115,000, while the average salary of Subspace Glider pilots is $109,000. Given this

information, what is the implied statistical value of a life of a pilot?

(a) $6,000

(b) $120,000

(c) $480,000

(d) $1,200,000

(e) $2,000,000