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Assignment 7: Due in discussion section the week of November 25. From Ch.
12, # 1, # 3. From Ch. 13, #2, #7. Short thought piece: Many of the jobs
that women choose to enter pay less than the jobs than men choose to
enter (same pattern applies to choice of college majors). What explains
these choices? Is this pattern likely to change?
Chapter 12
1a. False. The information imparted by
the expense of the advertisement, not the message itself, is the more
reliable signal of high quality.
1b. True. because charging non-buyers
for advice is often impractical, the market generally provides less
than the socially optimal amount of retail service.
1c. False. The best-attired lawyer will
not ALWAYS be the best lawyer. Take this as a cue only if you have no
more reliable information.
1d. True. The benefit of searching in a
large city is greater, because there is a greater range of potential
spouses to choose from.
3. Carlos will hire the realtor,
because he will sell the house for $250,000 and pay the realtor
$12,500, for a net price of $237,500, which is well above Whitney's
$140,000. Without the realtor, total economic surplus would have been
only $20,000 ($10,000 each to Whitney and Carlos). But with the
realtor, total surplus is $107,500 to Carlos, $50,000 to the buyer,
and $10,500 to the realtor (his $12,500 commission minus his $2,000
opportunity cost of negotiating the transaction).
Chapter 13
2a. After deducting the $5 cost of the
fabric, the company recieves $30 from the sale of each pair of jeans.
Since the market wage is $250 a week, it is not worthwhile to hire the
5th worker, whose value of marginal product is only $240
per week. The firm hires 4 workers and produces 72 pairs of jeans per
week.
2b. It leaves Stone's decision
unaffected, since the equilibrium wage is higher than the minimum
wage.
2c. This time, the union wage is higher
than the equilibrium wage. Stone will no longer hire the fourth
worker.
2d. Stone will now hire a fifth worker.
7. The present value of the cost of law
school is $20,000 [1 + (1/1.2) + 1/(1.2)2 ], which is equal
to about $55,555. Since that value is more than the $50,000 increase
in the present value of lifetime earnings, Stefano should not go to
law school.
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