Question 1:

Wage
S0
S1
W0
W1

D0
Quantity

The influx from military led to an increase in supply of workers and thus a decline in
wages.

O.W.E.D=

changequantity of labor demanded 1/122.8 million

=
=1
change wages
change wages

122.8M is the employment level as of June 2015

Since demand curve doesnt shift (no change in labor demanded) when workers are
released, elasticity is equal to -1.
Change in wages = -0.81% which is a very small decline so wages do not decline
dramatically as Prof Pessimist said.

Question 2:

Chart Title
12
10
8

wage

6
4
2
0
1.5

2.5

3.5

4.5

5.5

6.5

Number of hours

a)

Wage
10
8

NUMBER OF HOURS
2
3

6
4
2

4
5
6

ELASTICITY
((3-2)/2)/(8-10)/10)) =
-2.5
-1.32
-.76
-.4

b)

C) Elasticity decreases (more inelastic curve) as we go down.

Question 3:
E = 5W
MRPL= 2402E
Labor cost = W*E = (E/5)*E = 0.2E^2
MEL = derivative of labor cost = 0.4E
Profit-maximizing level is where MRPL = MEL so 240-2E = 0.4E >>>E* = 100 and
W* = (E/5) = $20

Question 4:
a)

wage

Supply of
labor
18
19
20
21
22

4
5
6
7
8

Total labor
cost
72
95
120
147
176

MEL

MRPL

23
25
27
29

29
27
25
23
21

Wage
35
30
25
20
15
10
5
0
17.5

18

18.5

19

19.5

20

20.5

21

21.5

22

22.5

Hours
Orange>> MRPL
Grey>>>SUPPLY
Blue>>MEL

b) MRPL = MEL
20 hours and wage = $6 (table)
Question 5:
To maximize profits:
MEM/MPM = MEH/MPH
MEM/MPM = 150/120= 1.25
MEH/MPH=10/7=1.43

The firm should add more workers and let each work less hours since the cost of an
added unit of output is less if it hires more workers than it is for hiring workers for
more hours.

Question 6:
a)
Income

Hours of leisure
39

3
5

b) The old budget constraint is orange line while the new is the blue line
c) Workers who were working 39 hours are better off since they will earn the
same income for 35 hours week.
Question 7:

Orange line is the old constraint

The line formed by blue arrows is the new constraint

Question 8:
Income

Leisure hrs.

The cut of the one hour commute means that the constraint shifts to the right giving
more time for leisure and work. Since the shift also means higher income then she
must work more to earn it.
Question 9:

m 0.5
)
l
l 0.5
0.5
m
0.5(

a) Slope of budget constraint curve = Mu(L)/Mu(m)=

W= m/l >> l=m/w>> 16-h=m/w>> h=16-(m/w)

b)
Income

( )

m
l

Leisur
e
Blue is old constraint while orange is the new constraint(shifted to the left) with a
lower slope as a result of tax.
c) h= 16-(m/w(1-t))
d) As t increases, 1-t decreases so m/w(1-t) increases and thus h decreases.
As t increases, wage decreases and labor supply decreases so this is the
substituting effect as wage and labor supply move in the same direction.

Question 10:
a) http://www.mdrc.org/sites/default/files/More%20Guidance%20ES_1.pdf

b) This study was created to assess the impact (progress toward degree
completion) of Opening Doors program in two colleges using
randomized control trials. Eligible students were randomly assigned to
either the treatment group, which consisted of students who received
counseling services and stipends, or the control group, which did not
receive any of these. Data such as students background
characteristics, transcripts from two colleges and degree attainment
information from National student Clearinghouse was collected to be
used for the purpose of determining the impact on course registration
rate and number of earned credits. Outcome was assessed for the two
program semesters and the four post-program semesters.
c) During the first program semester, no significant differences were

observed between the treatment and control groups in course

registration, credits attempted and earned, and grade point average.
Moreover, the course withdrawal rate during the first program
semester was 3.8 percentage points higher for the treatment group
than the control group. Starting from the second semester, positive
results were obtained. The course registration rate for treatment group
members was 7 percentage points higher than the control group, and
treatment group members attempted 0.7 more credits and earned 0.5
more credits than the control group. However, this did not continue to
the case for the follow-up semesters as there were no statistically
significant differences between the treatment and control groups by
the third post-program semester.

d) Good randomization can help eliminate bias as the treatment and control
groups are randomly divided. RCT guarantees that the two groups have the
same characteristics with the only difference observed in the outcome. In this
study, students in both groups had the same characteristics including being
incoming freshmen and having family income less than 250% of the federal
poverty level. The only difference is in the outcome represented by
registration rate and credits earned, if such a difference is observed.
Question 11:
In case of no treatment
a) Variable |
Obs
Mean
Std. Dev.
Min
Max
-------------+-------------------------------------------------------education |

491

14.32179

4.186752

28

In case of treatment
Variable |

Obs

Mean

Std. Dev.

Min

Max

-------------+-------------------------------------------------------education |

509

14.26719

4.093317

26

b)
-----------------------------------------------------------------------------Group |

Obs

Mean

Std. Err. Std. Dev. [95% Conf. Interval]

---------+-------------------------------------------------------------------0|
509 14.26719 .1814331 4.093317 13.91074
14.62364
1|
491 14.32179 .1889455 4.186752 13.95055
14.69304
---------+-------------------------------------------------------------------combined |

1000

14.294

.1308384

4.137473

14.03725

14.55075
---------+-------------------------------------------------------------------diff |
-.0546017 .2618446
-.5684307
4592274
-----------------------------------------------------------------------------diff = mean(0) - mean(1)
t = -0.2085
Ho: diff = 0
degrees of freedom =
998
Ha: diff < 0
Pr(T < t) = 0.4174

Ha: diff != 0
Ha: diff > 0
Pr(|T| > |t|) = 0.8349
Pr(T > t) = 0.5826

Since p value is not less than 0.05, we conclude that the education is not
statistically different for both groups.

c) In case of no treatment
variable |
Obs
Mean Std. Dev.
Min
Max
-------------+----------------------------------------------------------------------salary |
509 17174.12 3878.711 8528.624 28110.2
In case of treatment
Variable |
Obs
Mean Std. Dev.
Min
Max
-------------+-------------------------------------------------------salary |
491 22202.23 3918.531 13515.72 35179.91
d)

------------------------------------------------------------------------------

Group |
Obs
Mean
Std. Err.
Std. Dev.
[95% Conf. Interval]
--------+-------------------------------------------------------------------0
|
509
17174.12
171.9209
3878.711
16836.36
17511.89
1
|
491
22202.23
176.8408
3918.531
21854.77
22549.69
--------- +-------------------------------------------------------------------combined |
1000
19642.92
146.6505
4637.497
19355.15
19930.7
---------+-------------------------------------------------------------------diff |
-5028.108
246.5909
-5512.004
-4544.212

-----------------------------------------------------------------------------diff = mean(0) - mean(1)

t = -20.3905
Ho: diff = 0
degrees of freedom =
998
Ha: diff < 0
Pr(T < t) = 0.0000

Ha: diff != 0
Ha: diff > 0
Pr(|T| > |t|) = 0.0000
Pr(T > t) = 1.0000

Since p value is less than 0.05, then salary is statistically different.

e) reg salary treatment

Source |
SS
df
MS
obs = 1000
-------------+-----------------------------415.77
Model | 6.3184e+09
1 6.3184e+09
= 0.0000
Residual | 1.5166e+10 998 15196843.7
= 0.2941
-------------+-----------------------------= 0.2934

Number of
F( 1, 998) =
Prob > F
R-squared
Adj R-squared

Total | 2.1485e+10 999 21506375.9

3898.3

Root MSE

-----------------------------------------------------------------------------salary |
Coef. Std. Err.
t P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------treatment | 5028.108 246.5909 20.39 0.000
4544.212
5512.004
_cons | 17174.12 172.7897 99.39 0.000
16835.05
17513.2
-----------------------------------------------------------------------------. reg salary treatment education
Source |
SS
df
MS
= 1000
-------------+-----------------------------=11486.28
Model | 2.0591e+10
2 1.0296e+10
0.0000
Residual | 893650789 997 896339.808
0.9584
-------------+-----------------------------0.9583
Total | 2.1485e+10 999 21506375.9
946.75

Number of obs
F( 2, 997)
Prob > F

R-squared

Adj R-squared =
Root MSE

-----------------------------------------------------------------------------salary |
Coef. Std. Err.
t P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------treatment | 4978.225 59.88888 83.12 0.000
4860.702
5095.748
education | 913.579 7.239822 126.19 0.000
899.372
927.7861
_cons | 4139.918 111.4908 37.13 0.000
3921.134
4358.701
-----------------------------------------------------------------------------. reg salary treatment education ability
Source |
SS
df
MS
1000
-------------+-----------------------------Model | 2.1485e+10
3 7.1616e+09
0.0000
Residual | 86.3853078 996 .086732237
1.0000
-------------+-----------------------------1.0000

Number of obs =
F( 3, 996) =
Prob > F
=
R-squared

.
=

Adj R-squared =

Total | 2.1485e+10 999 21506375.9

2945

Root MSE

= .

-----------------------------------------------------------------------------salary |
Coef. Std. Err.
t P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------treatment | 4999.993 .0186307 2.7e+05 0.000
4999.957
5000.03
education | 499.9987 .0046554 1.1e+05 0.000
499.9895
500.0078
ability | 500.0051 .0049258 1.0e+05 0.000
499.9954
500.0148
_cons | 10000.03 .0673476 1.5e+05 0.000
9999.894
10000.16
Treatment almost explains 30 %( R^2 coefficient) of the variance in
salary
f) If we calculate change in average of salaries between treatment and
no treatment groups, we will get approximately 30%.
g) We should use RCT to avoid bias associated with not accounting for a
variable like ability while comparing salary of people who signed up for
a program to those who did not. For example, it could be that most of
the people who were treated had high abilities. Therefore, randomized
trials make sure that the two groups are randomized with a mix of
people having different abilities in each so that we eliminate bias.