Question

(B) Short Questions: (70%) 1. In a small closed economy, there is a perfectly competitive, frictionless labor market pro- vides market equilibrium price w for continuous, homogeneous workers and firms. (Work- ers and Firms are identical. Workers have exactly the same productivity. Firm only values productivity.) Jim is one of the workers. In a job interview, Jim asks for a wage w+ e, where e is a small positive number. Do you think Jim is going to get the job? Explain why? 2. In another world, there is still a perfectly competitive labor market. Now, whenever a unemployed worker is searching for a job, he needs to pay some application fees for inter- views, spends some time and money to travel to the interview. Do you think, in this case, it's possible now for Jim to ask for a wage that is higher than w, say w+ e? Explain why?

Answer 1

any wage more than w. to Jim, even perfectly In a small closed economy, there is a competitive, frictionless labor market provide market equilibrium at price w for continuous, homogeneous workers and fims. • Workers and firms are identical • Workers have exachy same productivity firms only values productivity Wage wie Market Wage Rote (supply of labor) Labor. 1. In a perfectly competitive market , both firms and labors are wage takers : - they take market wage rate as given. Jim asks for a wage wiE. to me, Jim will not get the job at wtt. This is because all workers are identical. So firms can here some other worker wage rate w which is less than whE. According Moreover, all workers have exactly same productivity. So forms which only values productivity, have no reason to pay if t is a small positive number