Misallocation

Question 1

Suppose that an economy is perfectly competitive. Then firms are supposed to have identical…
A) Capital utilization.
B) Levels of technology.
C) Marginal product of capital.
D) None of the above.

Answer 1

C) Marginal product of capital.

Question 2

Consider the following payoffs for entering three different occupations A, B and C:
u(o) =
1 + yA − κA if o = A
1 if o = B
1 − κC if o = C
where y is a wage premium and κo is an occupation-specific barrier. Also, individuals receive a shock e¬ G following a Gumbel distribution, so that their total utility of choosing occupation o is given by U(o) = u(o) + e.
Which occupation will be chosen more often?
A) Occupation A.
B) Occupation B.
C) Occupation C.
D) It is impossible to answer without further information.

Answer 2

D) It is impossible to answer without further information.

Question 3

According to Hsieh et al. (2019), which of the following statements is false?
A) A large fraction of US economic growth can be explained by falling frictions to occupational choice.
B) Some sectors, like construction, still exhibit significant frictions for women.
C) Increases in labor force participation cannot be explained by falling frictions.
D) Relative Frictions have fallen more for black women than for black men.

Answer 3

C) Increases in labor force participation cannot be explained by falling frictions.