Page 196 - Krugmans Economics for AP Text Book_Neat

and demand for labor, to answer the following questions. Illus- 16. In which of the following cases is it likely for efficiency wages
trate each answer with a diagram. to exist? Why?
a. Jane and her boss work as a team selling ice cream.
Wage
rate b.Jane sells ice cream without any direct supervision by
S her boss.
$20
c. Jane speaks Korean and sells ice cream in a neighborhood in
which Korean is the primary language. It is difficult to find
another worker who speaks Korean.
10
17. How will the following changes affect the natural rate of
unemployment?
a. The government reduces the time during which an unem-
D
0 ployed worker can receive benefits.
50 100
Quantity of labor b.More teenagers focus on their studies and do not look for
(thousands) jobs until after college.
a. What is the equilibrium wage rate in Profunctia? At this c. Greater access to the Internet leads both potential employ-
wage rate, what are the level of employment, the size of the ers and potential employees to use the Internet to list and
labor force, and the unemployment rate? find jobs.
b.If the government of Profunctia sets a minimum wage equal d.Union membership declines.
to $12 per hour, what will be the level of employment, the 18. With its tradition of a job for life for most citizens, Japan once
size of the labor force, and the unemployment rate? had a much lower unemployment rate than that of the United
c. If unions bargain with the firms in Profunctia and set States; from 1960 to 1995, the unemployment rate in Japan ex-
a wage rate equal to $14, what will be the level of ceeded 3% only once. However, since the crash of its stock mar-
employment, the size of the labor force, and the unem- ket in 1989 and slow economic growth in the 1990s, the
ployment rate? job -for-life system has broken down and unemployment rose
to more than 5% in 2003.
d.If the concern for retaining workers and encouraging high-
quality work leads firms to set a wage rate equal to $16, a. Explain the likely effect of the breakdown of the job-for-
what will be the level of employment, the size of the labor life system in Japan on the Japanese natural rate of
force, and the unemployment rate? unemployment.
15. A country’s labor force is the sum of the number of employed b.As the accompanying diagram shows, the rate of growth of
and unemployed workers. The accompanying table provides real GDP has picked up in Japan since 2001. Explain the
data on the size of the labor force and the number of unem- likely effect of this increase in GDP growth on the unem-
ployed workers for different regions of the United States. ployment rate. Is the likely cause of the change in the unem-
ployment rate during this period a change in the natural
rate of unemployment or a change in the cyclical unemploy-
Labor force Unemployed ment rate?
(thousands) (thousands)
Region March 2007 March 2008 March 2007 March 2008 Real GDP
growth rate
Northeast 27,863.5 28,035.6 1,197.8 1,350.3
3%
South 54,203.8 54,873.9 2,300.9 2,573.8 2.7%
Midwest 34,824.3 35,048.6 1,718.2 1,870.8 2.2%
West 35,231.8 35,903.3 1,588.0 1,914.4 2 1.9% 1.8%

1.4%
a. Calculate the number of workers employed in each of the
regions in March 2007 and March 2008. Use your answers 1
to calculate the change in the total number of workers em-
ployed between March 2007 and March 2008. 0.2% 0.3%
b.For each region, calculate the growth in the labor force 0
from March 2007 to March 2008. 2001 2002 2003 2004 2005 2006 2007
Year
c. Compute unemployment rates in the different regions of
the country in March 2007 and March 2008. Source: OECD.
d.What can you infer about the rise in unemployment rates
over this period? Was it caused by a net loss in the number
of jobs or by a large increase in the number of people seek-
ing jobs?

154 section 3 Measurement of Economic Performance