EC307 QUESTION BANK
TOPIC 3: THEORY OF OCA: LABOUR MARKETS
Summer Exam 2021
How might collective wage bargaining have an impact on economic outcomes in sectors
that are affected by economic integration? (20 marks)
Initial equilibrium at collective wage bargaining: for every labour hour worked, through
bargaining power, collective bargaining curve (CS) lies strictly above individual supply
curve (IS), this means higher wages
Problem at initial equilibrium: at this higher wage, there is an imbalance of supply and
demand and many people are willing to supply more hours of work than at the
equilibrium -> this leads to unemployment between L’ and L
If there is trade integration without worker mobility and wages are set collectively above
market level
There is a rise of wages in expanding sector
, - Relevant labour supply curve continues to be CS (institutional structure remains
after expansion)
- Continued unemployment between L and L’
- Compared to initial point: Increase in wage, increase in employment, no change
on unemployment (distance is the same if we assume linear and parallel curves)
Fall in wages in declining sector
- Assumption of downward rigidity: possible that wage is sticky at w, increase in
unemployment L2-L1
Overall wage inequality can rise or fall depending on whether the now-expanding
sector had higher wages to begin with
No clear effect on unemployment overall, but if there is downward rigidity there
will be an increase in unemployment in the shrinking sector
Summer Exam 2020
, In a model of collective wage bargaining, how might economic integration affect
unemployment and wage inequality in i) an expanding sector, and ii) a shrinking sector?
Include diagrams as illustration in your answer.
(20 marks)
See above
Presentation topic
Relative to the UK and the US, the Eurozone exhibited significant persistence in the rate
of unemployment in the aftermath of the financial crisis. What might explain this
divergence? Is it due to labour market rigidities in the Eurozone hampering the
economy’s ability to respond to external shocks; is it a failure of fiscal policy; or does the
answer lie elsewhere?
TOPIC 4: THEORY OF OCA: COSTS OF COMMON CURRENCY
TOPIC 5: THEORY OF OCA: BENEFITS OF COMMON CURRENCY
Summer Exam 2021
How might exchange rate uncertainty benefit a firm with a relatively relaxed attitude to
risk? Explain carefully the assumptions you’re making. (20 marks)
Benefits of OCA: 3. Exchange rate uncertainty
- Price certainty (fixed exchange rates)
- Price uncertainty: price fluctuates symmetrically between P2 and P3
TOPIC 3: THEORY OF OCA: LABOUR MARKETS
Summer Exam 2021
How might collective wage bargaining have an impact on economic outcomes in sectors
that are affected by economic integration? (20 marks)
Initial equilibrium at collective wage bargaining: for every labour hour worked, through
bargaining power, collective bargaining curve (CS) lies strictly above individual supply
curve (IS), this means higher wages
Problem at initial equilibrium: at this higher wage, there is an imbalance of supply and
demand and many people are willing to supply more hours of work than at the
equilibrium -> this leads to unemployment between L’ and L
If there is trade integration without worker mobility and wages are set collectively above
market level
There is a rise of wages in expanding sector
, - Relevant labour supply curve continues to be CS (institutional structure remains
after expansion)
- Continued unemployment between L and L’
- Compared to initial point: Increase in wage, increase in employment, no change
on unemployment (distance is the same if we assume linear and parallel curves)
Fall in wages in declining sector
- Assumption of downward rigidity: possible that wage is sticky at w, increase in
unemployment L2-L1
Overall wage inequality can rise or fall depending on whether the now-expanding
sector had higher wages to begin with
No clear effect on unemployment overall, but if there is downward rigidity there
will be an increase in unemployment in the shrinking sector
Summer Exam 2020
, In a model of collective wage bargaining, how might economic integration affect
unemployment and wage inequality in i) an expanding sector, and ii) a shrinking sector?
Include diagrams as illustration in your answer.
(20 marks)
See above
Presentation topic
Relative to the UK and the US, the Eurozone exhibited significant persistence in the rate
of unemployment in the aftermath of the financial crisis. What might explain this
divergence? Is it due to labour market rigidities in the Eurozone hampering the
economy’s ability to respond to external shocks; is it a failure of fiscal policy; or does the
answer lie elsewhere?
TOPIC 4: THEORY OF OCA: COSTS OF COMMON CURRENCY
TOPIC 5: THEORY OF OCA: BENEFITS OF COMMON CURRENCY
Summer Exam 2021
How might exchange rate uncertainty benefit a firm with a relatively relaxed attitude to
risk? Explain carefully the assumptions you’re making. (20 marks)
Benefits of OCA: 3. Exchange rate uncertainty
- Price certainty (fixed exchange rates)
- Price uncertainty: price fluctuates symmetrically between P2 and P3
