Economics Reservation Wage Problems – Explain what is meant in economics
University of Southern California Economics Reservation Wage Problems
Problem 1
1.1 Explain what is meant in economics by “reservation wage”.
1.2 Discuss what you think will happen to the reservation wage if:
1.2.1 Unemployment Benefits increase
1.2.2 Health insurance is tied to holding a job
1.2.3 A more infectious and deadly COVID?19 variant is discovered
1.3 Do firms always pay wages that are equal to their workers’ reservation wages? Why or why not?
Problem 2 Do Exercise 6.7 in Chapter 6 of the online book.
Problem 3 The figure shows the changes in total working hours in a sample of countries during the twentieth century.
3.1 Why do you think hours of work have decreased over time even if wages have increased? [Think about Income and Substitution Effects from a wage increase]
3.2 What do you think might account for differences in preferences for working hours among workers in different countries? [You can consider any country, not just those in the Figure]
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