Solution Manual For Modern Labor Economics: Theory and Public Policy, 13th Edition

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Answers to Chapter 1•Review Questions1.Answer d.In product markets, firms sell and individuals buy. Also, human beings are not asintimately involved in the transactions, so nonpecuniary factors are less important.2.Answer d.If people strive to make themselves as happy as they can (i.e., maximize their utility),and a human being is “attached” when labor market transactions take place, it seemslikely that feelings, emotions, personalities, and working conditions will play a role indetermining the nature of these transactions. All these factors seem to play an importantrole in determining a human being’s happiness.3.Answer b.This is the only statement that refers to “what is” true about the labor market. All theothers, either explicitly or implicitly, make reference to “what should be” true aboutlabor market outcomes.4.Answer a.This statement makes reference to “what should be,” while all the others refer to howlabor market variables are actually linked.5.Answer a.A model is useful precisely because it is abstract. If it accurately captured all of thecomplexity of the real world or people’s actual thought processes, it would be so intricatethat no patterns or principles could be discerned. Models can be used not only to predictbehavior but also to illustrate the kind of behavior that should take place to reach certaingoals.6.Answer d.Individuals or households are assumed to maximize utility, while firms are assumed tomaximize profits.7.Answer d.The two most fundamental assumptions of positive economics are scarcity (peoplecannot get everything they want) and rationality (people consistently weigh costs andbenefits).8.Answer c.Utility maximization means people strive to be as happy as possible, and that happinessmay depend in part on how other people are doing, not solely on an individual’s owncircumstances. The concept of mutually beneficial transactions is a normative one,unrelated to what actually happens in some instances. Positive models refer to actuallinks between economic variables, and these links can only be exposed by holding otherfactors constant.9.Answer b.The test of a positive economic model is how well it predicts average tendencies. It doesnot have to capture everyone’s idiosyncrasies all the time. Normative models, on theother hand, relate to standards that someone feels should be attained.

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