Public Policy Analysis
Final Exam
Course Introduction
Public Policy Analysis explores the frameworks, tools, and methodologies used to examine, design, implement, and evaluate public policies. The course introduces students to key concepts such as problem identification, policy formulation, cost-benefit analysis, stakeholder analysis, and policy evaluation. Through a blend of theoretical foundations and practical case studies, students gain insight into the complexities of policymaking in various governmental and organizational contexts. By the end of the course, students will be equipped to critically assess policy alternatives and contribute to effective decision-making processes in the public sector.
Recommended Textbook
Modern Labor Economics Theory and Public Policy 12th Edition by Ronald G. Ehrenberg
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Page 2
Chapter 1: Introduction
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Q1) Which of the following will NOT prevent a mutually beneficial transaction from occurring?
A) a market where buyers and sellers have internalized all benefits and costs of their transactions
B) ignorance about availability of a service or product
C) a law against overtime work
D) a tax on labor services
Answer: A
Q2) A policy by which some parties gain and others lose,but for which the gainers fully compensate the losers is
A) Pareto improving.
B) equitable but inefficient.
C) easily implemented in most circumstances.
D) both inefficient and inequitable.
Answer: A
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Chapter 2: Overview of the Labor Market
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Q1) Which of the following events will cause a surplus of workers?
A) a wage above the market-clearing wage
B) an increase in the supply of workers
C) a decrease in the demand for workers
D) more workers wanting to work at higher wages
Answer: A
Q2) Which of these persons is officially classified as being "not in the labor force"?
A) Alex, who was fired from his job two months ago and is searching for a new job.
B) Bob, who would start looking for work if he thought he could get a good job.
C) Cole, who has never worked but just started looking for work two weeks ago.
D) Durk, who is working at a low wage job that does not challenge him.
Answer: B
Q3) If every worker wants ten dollars more per hour to work,then wages will
A) go up by $10.
B) go up by more than $10.
C) go up by less than $10.
D) go down as employment falls.
Answer: C
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4
Chapter 3: The Demand for Labor
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Q1) A worker's hourly wage is $25 and output sells for $5 a unit.What is the minimum marginal product a worker must produce in order for a competitive employer to break even when hiring the worker?
A) 1/5
B) 5
C) 25
D) 125
Answer: B
Q2) For two substitutes in production,if the substitution effect dominates,
A) then the inputs are gross complements.
B) then the inputs are gross substitutes.
C) then the inputs could be either gross complements or gross substitutes.
D) then the inputs cannot be used at the same time.
Answer: B
Q3) For two substitutes in production,if the scale effect dominates, A) then the inputs are gross complements.
B) then the inputs are gross substitutes.
C) then the inputs could be either gross complements or gross substitutes.
D) then the inputs cannot be used at the same time.
Answer: A
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Chapter 4: Labor Demand Elasticities
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Q1) If the own-wage elasticity of demand for professors is -0.5,then an increase in the wage of professors from $45,000 to $55,000 will cause the quantity demanded to fall by A) 2%.
B) 5%.
C) 10%.
D) 20%.
Q2) The own-wage elasticity of labor demand tends to decrease in absolute value as worker skill level increases.Agree or disagree,using the Hicks-Marshall Laws of Derived Demand to explain.
Q3) If two inputs are gross complements,the cross-wage elasticity of demand for the two inputs will be
A) zero.
B) one.
C) positive.
D) negative.
Q4) Industry A has own-wage elasticity of labor demand of -2.5.Industry B has own-wage elasticity of labor demand of -0.5.Which industry is more likely to be unionized? Explain why.
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Chapter 5: Frictions in the Labor Market
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Q1) Suppose that mobility costs incurred by workers are low.In this circumstance,the best way to provide incentives for on-the-job training is for
A) employees to bear all of the costs of the investment.
B) employers and employees to share the costs of the investment.
C) employers to force workers to accept a below market wage during the training period.
D) employers to bear all of the costs of the investment.
Q2) What is the overtime pay premium? Discuss its origin and who it covers.
Q3) All else equal,a firm will prefer to hire a worker who will
A) stay at the firm for a long period of time.
B) stay at the firm for a short period of time.
C) be willing to work only a limited number of hours.
D) acquire firm-specific training from another firm.
Q4) Discuss how the use of credentials in the hiring process can represent an efficient investment by the firm.
Q5) Under what conditions would an employer invest in training its employees? Explain.
Q6) Is an employer's unemployment insurance payroll-tax liability a quasi-fixed cost of employment? Why or why not?
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Chapter 6: Supply of Labor to the Economy: The Decision to Work
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Q1) Why are indifference curves between money income and leisure convex to the origin of the graph? In your discussion,introduce the concept of marginal rate of substitution between leisure and money income and explain its relevance to the convexity property of the indifference curves.
Q2) "When a worker's wage rate changes,there are two opposing effects-an income effect and a substitution effect." Explain the meaning of the quote.
Q3) The average workweek in U.S.manufacturing plants
A) has dropped steadily since 1960 from about 60 hours per week to 35 hours per week currently.
B) has increased from about 35 hours per week in 1970 to about 45 hours per week by 2010.
C) fluctuates significantly over the business cycle, averaging about 50 hours per week at business cycle peaks and 32 hours per week at business cycle troughs.
D) dropped from about 55 hours per week in the early part of the 20th century to approximately 40 hours per week by 1950 and since 1950, aside from small variation over the business cycle, has remained at about 40 hours per week with no trend in either direction.
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Page 8
Chapter
Life Cycle
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Q1) Suppose that Lizzie has a toddler (Benjy).Benjy is a "busy" boy and Lizzie is uncomfortable having others (relatives,babysitters,etc.)care for Benjy.Characterize graphically Lizzie's current indifference curves (income on the vertical axis and household time on the horizontal axis).As Benjy gets older,what,if anything will happen to Lizzie's indifference curves? What are the implications for Lizzie's labor supply?
Q2) Suppose the XYZ Company wants to incentivize older workers to retire in their early 60s.How could the XYZ Company accomplish this objective using its defined benefit pension plan? Illustrate your discussion graphically.
Q3) If a family's budget constraint shifts because of a decrease in non-labor income,then a family member who works outside the home will A) choose to decrease his or her hours of work.
B) choose to increase his or her hours of work.
C) not change his or her hours of work.
D) either increase or decrease his or her hours of work.
Q4) What is the distinction between the added worker effect and the discouraged worker effect? Which effect tends to dominate quantitatively?
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Page 9
Chapter 8: Compensating Wage Differentials and Labor Markets
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Q1) Predictable layoffs
A) will not increase utility for any workers.
B) decrease utility of all workers.
C) decrease utility of risk-averse workers.
D) imply that leisure is an inferior good to all workers.
Q2) What are the difficulties inherent in estimating compensating wage differentials empirically?
Q3) Suppose that working condition X is an undesirable working condition.Justin and Jessica both have distaste for working condition X,but Justin's aversion to working condition X is greater than Jessica's aversion.Draw a graph with a representative indifference curve for both Justin and Jessica,with the wage rate on the vertical axis and the level of working condition X on the horizontal axis.Explain why the indifference curves look as you have drawn them.
Q4) The offer curve describes
A) different wage offers a firm will make to workers of different education levels.
B) different wage-and-risk level offers made by different firms.
C) different wage-and-risk levels available to one firm.
D) different risk levels associated with the same wage level.
Page 10
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Chapter 9: Investments in Human Capital: Education and Training
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Q1) John is trying to decide whether to go to college or to start working right out of high school.College as an investment is most likely justified when ________ is greater than the cost of going to college.
A) the present value of the difference between what John would earn as a college graduate and what he would earn as a high school graduate
B) the present value of what John would earn as a college graduate
C) the sum of lifetime earnings as a college graduate
D) the difference between the sum of lifetime earnings as a college graduate and the sum of lifetime earnings as a high school graduate
Q2) Workers with relatively high levels of natural ability are quite likely to attend college.This can cause ________ bias when estimating educational returns because
A) an upward; ability increases earnings
B) a downward; ability increases earnings
C) an upward; other benefits of college are ignored
D) a downward; other benefits of college are ignored
Q3) Plot an age/earnings profile for a "typical" college graduate.How does human capital theory explain the shape of the age/earnings profile?
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Chapter 10: Worker Mobility: Migration, Immigration, and Turnover
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Q1) Assuming the demand curve for labor does not shift,a given inflow of immigrants will lower wages more when
A) the labor demand curve is more elastic.
B) the domestic labor supply curve is more elastic.
C) Both A and B will cause the wage to fall more.
D) Neither A nor B will cause the wage to fall more.
Q2) Most college professors have tenure,which makes it very hard to fire them.What is the effect of tenure on the academic job market?
A) It makes it more likely the wages of tenured professors will reflect their productivity.
B) It makes it more likely that professors will be well matched to the institutions they teach in.
C) It reduces the job mobility of tenured professors.
D) It increases the professors' willingness to invest in teaching.
Q3) How does earnings distribution help predict which skill groups within a sending country are most likely to emigrate from the country?
Q4) How does the quit rate behave over the business cycle?
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Page 12
Chapter 11: Pay and Productivity: Wage Determination
within the Firm
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Q1) Which of the following would NOT (even if true)explain why wages rise with job tenure?
A) Workers become more productive the longer they are with the firm.
B) Over time, the firm is able to dismiss less productive workers.
C) Workers acquire more specific human capital the longer they are with the firm.
D) Starting with a lower wage and then letting wages rise with job tenure reduces the present value of wages paid to a worker by an employer.
Q2) Opportunistic behavior is a tendency on the part of employees to
A) end up working less diligently than their stated intentions implied.
B) take the initiative to help advance the employer's objectives.
C) plan to mislead employers to attain a "cushy" job.
D) maximize income.
Q3) Which of the following assumptions are we making for the first time in this Chapter ?
A) Workers maximize utility.
B) Employers maximize profits.
C) The marginal product of labor of two workers may be different.
D) The productivity of two workers may differ in ways that are hard to measure.
Q4) What is the firm-size effect? What accounts for the firm-size effect?
Page 13
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Chapter 12: Gender,Race,and Ethnicity in the Labor Market
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Q1) Suppose that tall employees dislike working with short employees.Assume also that short and tall employees are perfect substitutes for one another in producing goods.What is the likely outcome?
A) Tall workers will be paid more to compensate them for their dislike of short workers.
B) Workplaces will be segregated (some employing only tall employees, others all short employees).
C) Firms will make a larger profit by integrating the workplace.
D) Increased diversity in the workplace will decrease turnover rates.
Q2) What is affirmative action?
Q3) Occupational discrimination
A) occurs when secretaries are paid less than truck drivers.
B) is when the distribution of jobs within one group is different from the distribution of jobs within another group.
C) is keeping one group in lower-paying jobs although their potential productivity is equal to that of those who have access to higher-paying jobs.
D) is the desire of those in one group to work in different jobs than those in another group.
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Chapter 13: Unions and the Labor Market
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Q1) Strikes are more likely and of longer duration in periods of relative prosperity.Use the Hicks Bargaining Model to account for this empirical observation.
Q2) The ________ Act established the National Labor Relations Board and required employers to bargain with unions representing the majority of their employees.
A) Norris-LaGuardia
B) National Labor Relations
C) Taft-Hartley
D) Landrum-Griffin
Q3) What are the two types of unions operating in the United States? What do unions do?
Q4) Which of the following statements is generally true about unions?
A) Unions raise wages in the range from 30 to 40%.
B) Public sector unions raise wages more than private sector unions.
C) The union wage advantage is higher in Europe than it is in the United States.
D) Unions reduce the dispersion of earnings among workers.
Q5) What is a right-to-work law?
Q6) What is interest arbitration?
Q7) Do unions increase worker productivity?
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Chapter 14: Unemployment
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Q1) Most workers who are laid off
A) do not return to work with the same employer.
B) return to work with the same employer.
C) stay unemployed for a relatively short duration (one month or less).
D) drop out of the labor force.
Q2) If workers for a firm have mainly general human capital,then when the demand for its output falls,the firm will mainly
A) lower wages.
B) cut back on employment.
C) cut work hours of all workers.
D) increase its specific investment in workers as the opportunity cost of training is low.
Q3) How is unemployment defined in the United States? How is the number of unemployed counted in the United States? What is the unemployment rate?
Q4) If all employers pay an efficiency wage,then
A) more employees would shirk.
B) unemployment would be higher.
C) firms would be better able to monitor their employees productivity.
D) all of the above
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Page 16
Chapter 15: Inequality in Earnings
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Q1) If the fraction of the people in the middle of the income distribution decreases by 20 percent with half of these moving to the lower end and the other half to the upper end,then income inequality will
A) increase.
B) decrease.
C) be unaffected.
D) uncertain.
Q2) Identify the major changes in earnings inequality in the U.S.since 1980.
Q3) An economist in a foreign land observes that the earnings of college graduates have increased relative to the earnings of high school graduates.Over the same period,the relative number of college graduates has gone down.Which of the following explanations is consistent with these two observations? The increase in earnings inequality between high school and college graduates
A) is due to technical change making college graduates more productive relative to high school graduates.
B) is due to an increase in the demand for college graduates relative to high school graduates.
C) is due to the increase in cost of going to college.
D) is due to an increase in the returns to a college education.
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Page 17
Chapter 16: The Labor-Market Effects of International Trade and
Production Sharing
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Q1) A study of Japan's opening to trade in 1859 showed that international trade increased the per capita income of the Japanese.Why does Japan,in this case,offer an excellent "natural experiment"?
A) Japan chose to have open trade in order to grow unlike other most other countries, so that it can be argued that the trade had the best chance to occur without being resisted by the government.
B) Japan adopted open trade because of a conversion by its Tokugawa rulers to free trade, who allowed open trade to occur naturally without government interference.
C) Japan only traded with the United States, allowing for a clear delineation of how it benefited from trade.
D) Japan moved from having almost no trade to having open trade with the world and this move was not due to economic reasons.
Q2) Does more open international trade cause the wage level in a country to converge to the wage level paid in the rest of the world?
Q3) What is the substitution effect on American labor when lower wage labor becomes available in the rest of the world?
Q4) What is production sharing?
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