Question 2 (45 marks) This section reflects Policy questions. Assume a worker utility function is µ = f(wo, W₁) where wo

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Question 2 45 Marks This Section Reflects Policy Questions Assume A Worker Utility Function Is U F Wo W Where Wo 1 (111.86 KiB) Viewed 33 times

Question 2 45 Marks This Section Reflects Policy Questions Assume A Worker Utility Function Is U F Wo W Where Wo 2 (96.09 KiB) Viewed 33 times

Question 2 45 Marks This Section Reflects Policy Questions Assume A Worker Utility Function Is U F Wo W Where Wo 3 (96.69 KiB) Viewed 33 times

Question 2 (45 marks) This section reflects Policy questions. Assume a worker utility function is µ = f(wo, W₁) where wo represents safe jobs with a probability of zero risk of injury w₁represents risky jobs with a probability of 1 that there is some degree of risk of injury Figure 1 Indifference curves relating the wage and the probability of injury AW A I. Wage ŵ, 3 0 U₁ QU. U 1 Probability of Injury Based on figure 1 above, explain in detail the impact of the three wages on the derived utility for the worker. (6 marks)

Figure 2 Determining the market compensating differential (ww.) II. III. E- D Number of Workers in Risky Job Based on figure 2 above, explain in detail how firms choose which type of job to offer and which is more profitable. The answer should discuss the work environment, the demand curve and supply curve, the market compensating differential. (6 marks) Illustrate and explain the market conditions that may cause a firm to get away with paying a lower wage for risky jobs? (10 marks) IV. Assuming that there are many types of firms (instead of just those offering safe and risky jobs), then the probability of injury can take any value between 0 and 1. In light of this preamble, briefly state what a hedonic wage function seeks to reflect. (2 marks)

Wage V. VI. Figure 3 Hedonic Wage Function VII. Tx U₁ U₂ Pe U₂ Hedonic Wage Function Probability of Injury Based on figure 3 above, explain in detail the indifference curves for the three types of workers? (6 marks) Based on figure 3 above, explain in detail the isoprofit curves. (6 marks) Assume that the hedonic wage function is: w₁ = ap₁ + other variables where 'a' is the wage change associated with one unit increase in the probability of injury A US consensus estimate fatal injuries at 0.001 with associated increase annual earnings by about US$6,600 for workers in such risky jobs. From the above scenario answer the following questions: a. Explain the number 0.001 as it relates to the hedonic wage function. (3 marks) b. What is the reservation price for riskier jobs? (1 marks) c. If there are 1,000 workers in a firm, what is the statistical value of life (5 marks)