Question 1

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If the last worker hired increases output by three units per hour, then to maximize profits the firm should

Accepted Answer

A)   not change the number of workers it currently hires.
B)   lay off some of its workers.
C)   hire additional workers.
D)   There is not enough information to answer the question.E) A) and B)
F) A) and C)

Question 2

The change in a firm's revenue as a result of hiring one more worker

Accepted Answer

A)   is the definition of the marginal product of labor.
B)   is equal to the firm's marginal cost.
C)   is the definition of the marginal revenue product of labor.
D)   will be negative if the demand for the firm's output is inelastic.E) B) and C)
F) A) and D)

Question 3

An increase in the demand for orthodontic services leads to

Accepted Answer

A)   an increase in the supply of orthodontists.
B)   lower prices for orthodontic care.
C)   an increase in the demand for orthodontists.
D)   a rise in the rates of dental insurance.E) All of the above
F) B) and D)

Question 4

Phil Harrison is a welder who works on skyscrapers and extension bridges. Phil's brother William is also a welder but he works in a manufacturing plant where he does all of his welding on ground level. Which of the following would not explain why Phil earns a higher wage than his brother?

Accepted Answer

A)   cognitive dissonance
B)   Phil has greater experience as a welder than his brother has.
C)   Phil's marginal revenue product is greater than William's marginal revenue product.
D)   Phil's job is more hazardous than William's job.E) All of the above
F) C) and D)

Question 5

The income effect of a wage increase is observed when

Accepted Answer

A)   the higher wage income causes workers to take more leisure and work less.
B)   leisure's higher opportunity cost causes workers to take less leisure and work more.
C)   the higher wage income causes workers to take less leisure and work more.
D)   leisure's higher opportunity cost causes workers to take more leisure and work less.E) A) and D)
F) A) and C)

Question 6

Table 17-3
  Hotspur Incorporated, a manufacturer of microwave ovens, is a price taker in its input and output markets. The firm hires labor at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80. Table 17-3 shows the relationship between the quantity of labor it hires and the quantity of microwave ovens it produces.
-Which of the following is not held constant along a firm's demand curve for labor?

Accepted Answer

A)   the quantity of other inputs used by the firm
B)   the wage rate
C)   changes in technology
D)   the price of the product produced by the firmE) A) and B)
F) A) and C)

Question 7

Along an upward sloping labor supply curve, as the wage rate increases, the opportunity cost of leisure ________, causing individuals to supply a ________ quantity of labor.

Accepted Answer

A)   increases; greater
B)   increases; lower
C)   decreases; greater
D)   remains constant, constantE) None of the above
F) B) and C)

Question 8

Marginal revenue product for a perfectly competitive seller is equal to

Accepted Answer

A)   the output price multiplied by the total product of labor.
B)   the output price multiplied by the number workers hired.
C)   the change in total revenue that results from hiring another worker.
D)   the marginal cost of production.E) C) and D)
F) None of the above

Question 9

Consider this quote from an article in the Wall Street Journal: "The stock of educated workers isn't increasing fast enough to keep up with rising demand. ....... Employers are paying the typical four-year college graduate [without graduate school] 75% more than they pay high-school grads. Twenty-five years ago, they were paying 40% more. Employers insist on ever better-educated, skilled workers. " Source: David Wessel, "Lack of Well-Educated Workers Has Lots of Roots, No Quick Fix", Wall Street Journal, April 19, 2007, Page A2.
Which of the following best explains the rapid increase in the wage differential between college graduates and high school graduates?

Accepted Answer

A)   The demand for college educated workers shifted to the right while the supply of college educated workers shifted to the left.
B)   The supply of high-school educated workers shifted to the right faster than the demand for college educated workers shifted to the right.
C)   The demand for college educated workers shifted to the right faster than the supply of college educated workers shifted to the right.
D)   The demand for high-school educated workers shifted to the left faster than the supply of college educated workers shifted to the right.E) All of the above
F) None of the above

Question 10

Differences in marginal revenue products are the most important factor in explaining wage differences. Other factors that explain wage differences include all but one of the following. Which factor does not help explain differences in wages?

Accepted Answer

A)   cognitive differentials
B)   compensating differentials
C)   discrimination
D)   labor unionsE) B) and C)
F) A) and C)

Question 11

The labor market is considered as one of the more important markets in an economy because

Accepted Answer

A)   most people typically earn the bulk of their income from wages and salaries.
B)   most people are concerned that wages determined in the labor market are unfair.
C)   the usual market forces do not hold in the labor market.
D)   the labor market does not reach an equilibrium.E) C) and D)
F) None of the above

Question 12

Mel's House of Cars is an automobile dealership that sells both new and used cars. Two other dealerships located nearer Mel's pay their salespeople a straight salary-they receive no commission for each car they sell. Mel has decided to pay all of his salespeople a commission on all car sales. Which of the following is most likely to occur as a result of Mel's decision?

Accepted Answer

A)   Mel will have difficulty finding salespeople. Research by labor economists has found that most employees prefer the security of a salary to the uncertainty of being paid based on how much revenue they generate for their employers.
B)   Mel will experience a principal-agent problem. Some of his salespeople will tend to shirk because they will not be paid if they sell no cars, regardless of how hard they work.
C)   Mel will be able to hire some of the most productive salespeople who work for the other two dealerships.
D)   Mel risks violation of federal law that regulates firms' compensation policies.E) A) and B)
F) A) and C)

Question 13

A firm might prefer a commission system of compensation when the nature of the work is repetitive and monotonous and can be performed by an individual.

Accepted Answer

A) True 
 B)False

Question 14

If the demand for labor is unchanged, population growth will increase the supply of labor and increase the equilibrium wage.

Accepted Answer

A) True 
 B)False

Question 15

The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers.

Accepted Answer

A) True 
 B)False

Question 16

If the labor supply curve shifts to the right and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.

Accepted Answer

The equilibrium wage will fall...

Question 17

What is the shape of the labor supply curve implied by the following statements?
a. "I'm sorry, kids, but now that I'm earning more, I just can't afford to come home early in the afternoon, so I won't be here when you get home from school."
b. "They can pay me a lot or they can pay me a little. I'll still put in my 8 hours a day."
c. "Now that I have received a salary increase, I am going to work 36 hours instead of 40 hours a week"

Accepted Answer

a. upward-...

Question 18

What is a factor market?

Accepted Answer

A)   It is a market where financial instruments are traded.
B)   It is a market where stocks and bonds are traded.
C)   It is a market producers buy consumption and capital goods.
D)   It is a market where resources used to produce final goods are traded.E) B) and D)
F) A) and B)

Question 19

The substitution effect of a wage increase is observed when

Accepted Answer

A)   the higher wage income causes workers to take more leisure and work less.
B)   leisure's higher opportunity cost causes workers to take less leisure and work more.
C)   the higher wage income causes workers to take more leisure and work more.
D)   leisure's higher opportunity cost causes workers to take more leisure and work less.E) None of the above
F) A) and B)

Question 20

In order for a labor supply curve to be backward bending at high wages,

Accepted Answer

A)   leisure must be an inferior good.
B)   the substitution effect of a wage increase must be greater than the income effect.
C)   workers must have an irrational response to wage increases.
D)   the income effect of a wage increase must be greater than the substitution effect.E) A) and C)
F) All of the above

Exam 17: The Markets for Labor and Other Factors of Production

The income effect of a wage increase is observed when

Correct Answer
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Correct Answer
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What is a factor market?

Correct Answer
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The change in a firm's revenue as a result of hiring one more worker

Correct Answer
verified

An increase in the demand for orthodontic services leads to

Correct Answer
verified

If the labor supply curve shifts to the right and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.

Correct Answer
verified
The equilibrium wage will fall...
View Answer

Differences in marginal revenue products are the most important factor in explaining wage differences. Other factors that explain wage differences include all but one of the following. Which factor does not help explain differences in wages?

Correct Answer
verified

The labor market is considered as one of the more important markets in an economy because

Correct Answer
verified

Along an upward sloping labor supply curve, as the wage rate increases, the opportunity cost of leisure , causing individuals to supply a quantity of labor.

Correct Answer
verified

Correct Answer
verified

The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers.

Correct Answer
verified

The substitution effect of a wage increase is observed when

Correct Answer
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Phil Harrison is a welder who works on skyscrapers and extension bridges. Phil's brother William is also a welder but he works in a manufacturing plant where he does all of his welding on ground level. Which of the following would not explain why Phil earns a higher wage than his brother?

Correct Answer
verified

Marginal revenue product for a perfectly competitive seller is equal to

Correct Answer
verified

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If the last worker hired increases output by three units per hour, then to maximize profits the firm should

Correct Answer
verified

A firm might prefer a commission system of compensation when the nature of the work is repetitive and monotonous and can be performed by an individual.

Correct Answer
verified

If the demand for labor is unchanged, population growth will increase the supply of labor and increase the equilibrium wage.

Correct Answer
verified

Correct Answer
verified

In order for a labor supply curve to be backward bending at high wages,

Correct Answer
verified

Correct Answer
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a. upward-...
View Answer

Exam 17: The Markets for Labor and Other Factors of Production

The income effect of a wage increase is observed when

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is a factor market?

Correct AnswerverifiedShow Answer

The change in a firm's revenue as a result of hiring one more worker

Correct AnswerverifiedShow Answer

An increase in the demand for orthodontic services leads to

Correct AnswerverifiedShow Answer

If the labor supply curve shifts to the right and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.

Correct AnswerverifiedThe equilibrium wage will fall...View AnswerShow Answer

Differences in marginal revenue products are the most important factor in explaining wage differences. Other factors that explain wage differences include all but one of the following. Which factor does not help explain differences in wages?

Correct AnswerverifiedShow Answer

The labor market is considered as one of the more important markets in an economy because

Correct AnswerverifiedShow Answer

Along an upward sloping labor supply curve, as the wage rate increases, the opportunity cost of leisure ________, causing individuals to supply a ________ quantity of labor.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers.

Correct AnswerverifiedShow Answer

The substitution effect of a wage increase is observed when

Correct AnswerverifiedShow Answer

Phil Harrison is a welder who works on skyscrapers and extension bridges. Phil's brother William is also a welder but he works in a manufacturing plant where he does all of his welding on ground level. Which of the following would not explain why Phil earns a higher wage than his brother?

Correct AnswerverifiedShow Answer

Marginal revenue product for a perfectly competitive seller is equal to

Correct AnswerverifiedShow Answer

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If the last worker hired increases output by three units per hour, then to maximize profits the firm should

Correct AnswerverifiedShow Answer

A firm might prefer a commission system of compensation when the nature of the work is repetitive and monotonous and can be performed by an individual.

Correct AnswerverifiedShow Answer

If the demand for labor is unchanged, population growth will increase the supply of labor and increase the equilibrium wage.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In order for a labor supply curve to be backward bending at high wages,

Correct AnswerverifiedShow Answer

Correct Answerverifieda. upward-...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The equilibrium wage will fall...
View Answer

Correct Answer
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Correct Answer
verified

Along an upward sloping labor supply curve, as the wage rate increases, the opportunity cost of leisure , causing individuals to supply a quantity of labor.

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a. upward-...
View Answer