By the Hosios efficiency condition, a buyer’s surplus share is set equal to the elasticity of a function used in this theory. For 10 points each:
[10h] Name this theory. Their development of a model in this theory that accounts for lasting effects of shocks won Dale Mortensen and Christopher Pissarides the 2010 Nobel Prize in Economics.
ANSWER: search and matching theory [prompt on search theory or matching theory] (The function in the lead-in is the matching function.)
[10e] Common matching functions use the number of vacancies and the number of people with this trait as inputs. People who temporarily have this trait are classified as “frictional.”
ANSWER: unemployed [or jobless; or not working; accept word forms; accept frictional unemployment]
[10m] Due to their form, matching functions will display this property in an ideal labor market. Cobb-Douglas functions display this property if the sum of their exponents is equal to 1.
ANSWER: constant returns to scale [or CRS; prompt on returns to scale]
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