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Suppose the federal government needs workers to repair a levee along a floodprone river. From the perspective of normative economics, what difference does it make whether able-bodied citizens are compelled to work (for pay) on the levee or whether a workforce is recruited through the normal process of making job offers to applicants and relying on their voluntary acceptance? 4. What are the functions and limitations of an economic model? 5. In this chapter, a simple model was developed in which it was predicted that workers employed in jobs paying wages less 14 Chapter 1 Introduction than they could get in comparable jobs elsewhere would tend to quit to seek higher-paying jobs.

1. Firm A, for example, is represented in the figure by point A, which shows a quit rate of 40 percent and an hourly wage of $4, while point B 1 Several other types of data are also used frequently by labor economists. One could look, for example, at how a given firm’s quit rate and wage rate vary over time. Observations that provide information on a single behavioral unit over a number of time periods are called time-series data. , employers) for a number of time periods; combinations of cross-sectional and time-series data are called panel data.

Normative Economics and Government Policy Solutions to problems that prevent the completion of socially beneficial transactions frequently involve governmental intervention. If the problem is a lack of information about health risks, say, one obvious solution is for the government to take steps to ensure workers are informed about such risks. If the problem is that some law prevents women, say, from working the hours they want, an obvious prescription is to repeal the law. For other types of transaction barriers, the needed intervention is for the government to either compel or actively promote transactions different from the ones that would be made by “the market” (that is, those made by private decision makers).

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