Question 1

Labor demand is more elastic

Accepted Answer

A) the greater is the supply elasticity of capital. 
B) the greater is the elasticity of substitution between labor and capital. 
C) the greater is the elasticity of demand for the firm's output. 
D) the greater is labor's share in total costs. 
E) All of the above. 
A) the greater is the supply elasticity of capital. 
B) the greater is the elasticity of substitution between labor and capital. 
C) the greater is the elasticity of demand for the firm's output. 
D) the greater is labor's share in total costs. 
E) All of the above. E

Question 2

If the minimum wage applies to one sector (the covered sector) but not another sector (the uncovered sector), an increase in the minimum wage in the covered sector is likely to result in which of the following?

Accepted Answer

A) Greater employment in the covered sector. 
B) Less employment in the uncovered sector. 
C) A lower wage in the covered sector. 
D) A lower wage in the uncovered sector. 
E) Workers willingly leaving the covered sector for the uncovered sector in search of higher wages. 
A) Greater employment in the covered sector. 
B) Less employment in the uncovered sector. 
C) A lower wage in the covered sector. 
D) A lower wage in the uncovered sector. 
E) Workers willingly leaving the covered sector for the uncovered sector in search of higher wages. D

Question 3

What is not true when thinking of the firm's objective as a cost-minimization problem rather than as a profit-maximization problem?

Accepted Answer

A) The slope at any point on any isoquant reveals the marginal rate of technical substitution. 
B) The firm chooses labor and capital to minimize its costs. 
C) The firm chooses a particular level of output to produce. 
D) The price of the output good never enters the decision as to how much labor or capital to employ. 
E) The firm will choose labor and capital inputs so that the marginal productivity of labor relative to the marginal productivity of capital equals the price of labor relative to the price of capital. 
A) The slope at any point on any isoquant reveals the marginal rate of technical substitution. 
B) The firm chooses labor and capital to minimize its costs. 
C) The firm chooses a particular level of output to produce. 
D) The price of the output good never enters the decision as to how much labor or capital to employ. 
E) The firm will choose labor and capital inputs so that the marginal productivity of labor relative to the marginal productivity of capital equals the price of labor relative to the price of capital. B

Question 4

Labor demand is more elastic the greater the elasticity of substitution between labor and capital because

Accepted Answer

A) workers supply more labor when their wage increases. 
B) the firm's output price falls when the firm produces more output. 
C) a firm is less willing to pay higher labor costs if it is easy for the firm to substitute capital for labor. 
D) firms always have the option of substituting capital for labor. 
E) a firm's technology is slow to change. 
A) workers supply more labor when their wage increases. 
B) the firm's output price falls when the firm produces more output. 
C) a firm is less willing to pay higher labor costs if it is easy for the firm to substitute capital for labor. 
D) firms always have the option of substituting capital for labor. 
E) a firm's technology is slow to change.

Question 5

The slope of the production function while holding capital fixed is

Accepted Answer

A) the marginal product of labor. 
B) the marginal product of capital. 
C) the average product of labor. 
D) the labor-capital ratio. 
E) the capital-labor ratio. 
A) the marginal product of labor. 
B) the marginal product of capital. 
C) the average product of labor. 
D) the labor-capital ratio. 
E) the capital-labor ratio.

Question 6

Why is the short-run labor demand curve less elastic relative to the long-run labor demand curve?

Accepted Answer

A) Because firms care about changes in wages in the short-run but not in the long-run. 
B) Because firms are better able to substitute capital for labor in the long run compared to the short run. 
C) Because labor is a normal good. 
D) Because a perfectly competitive firm can always pay lower wages in the long run. 
E) Because isocost curves get shallower when the wage increases. 
A) Because firms care about changes in wages in the short-run but not in the long-run. 
B) Because firms are better able to substitute capital for labor in the long run compared to the short run. 
C) Because labor is a normal good. 
D) Because a perfectly competitive firm can always pay lower wages in the long run. 
E) Because isocost curves get shallower when the wage increases.

Question 7

In the U.S.labor market, it is typically the case that:

Accepted Answer

A) If job creation is high, then job destruction is low. 
B) If job creation is low, then job destruction is high. 
C) There is relatively little job destruction during economic up-turns. 
D) There is relatively little job creation during economic down-turns. 
E) There is a large amount of job creation and job destruction happening at the same time, during both expansions and contractions. 
A) If job creation is high, then job destruction is low. 
B) If job creation is low, then job destruction is high. 
C) There is relatively little job destruction during economic up-turns. 
D) There is relatively little job creation during economic down-turns. 
E) There is a large amount of job creation and job destruction happening at the same time, during both expansions and contractions.

Question 8

From 1981 to 1989, the nominal federal minimum wage was unchanged.As a result:

Accepted Answer

A) The real minimum wage increased because firms paid higher wages to attract workers over time. 
B) The real minimum wage decreased because firms substituted skilled labor for unskilled labor. 
C) The real minimum wage increased due to higher payroll taxes. 
D) The real minimum wage decreased over time due to inflation. 
E) The real minimum wage was unchanged as well. 
A) The real minimum wage increased because firms paid higher wages to attract workers over time. 
B) The real minimum wage decreased because firms substituted skilled labor for unskilled labor. 
C) The real minimum wage increased due to higher payroll taxes. 
D) The real minimum wage decreased over time due to inflation. 
E) The real minimum wage was unchanged as well.

Question 9

At a wage of $25 per hour, the firm employs 50,000 hours of labor per week.If the wage would increase to $27 per hour, the firm would employ 45,000 hours of labor per week.What is the elasticity of labor demand?

Accepted Answer

A) -2.50. 
B) -1.50. 
C) -1.25. 
D) -0.50. 
E) -0.25. 
A) -2.50. 
B) -1.50. 
C) -1.25. 
D) -0.50. 
E) -0.25.

Question 10

Ally owns a shoe store.The market wage is $10 per hour, and the cost of capital is $2 per week for every $1,000 of capital borrowed.Consider the isocost line associated with spending $8,000 per week, and let the y-axis be the amount of capital borrowed in $1,000s.Which of the following is not true?

Accepted Answer

A) If Ally borrows no capital, she can employ 800 hours of work. 
B) If Ally employs no workers, she can borrow $4 million of capital. 
C) If Ally employs 600 hours of work, she can borrow $1 million of capital. 
D) If Ally employs 400 hours of work, she can borrow $3 million of capital. 
E) The slope of the isocost line is -5. 
A) If Ally borrows no capital, she can employ 800 hours of work. 
B) If Ally employs no workers, she can borrow $4 million of capital. 
C) If Ally employs 600 hours of work, she can borrow $1 million of capital. 
D) If Ally employs 400 hours of work, she can borrow $3 million of capital. 
E) The slope of the isocost line is -5.

Question 11

If unskilled labor and capital are substitutes,

Accepted Answer

A) demand for unskilled labor increases when the price of capital decreases. 
B) the cross-elasticity between unskilled labor and capital is positive. 
C) the price of unskilled labor decreases when the price of capital increases. 
D) the price of capital is increasing. 
E) the demand curve for capital is upward-sloping. 
A) demand for unskilled labor increases when the price of capital decreases. 
B) the cross-elasticity between unskilled labor and capital is positive. 
C) the price of unskilled labor decreases when the price of capital increases. 
D) the price of capital is increasing. 
E) the demand curve for capital is upward-sloping.

Question 12

What is the most accurate description of the value of a worker to the firm?

Accepted Answer

A) The wage. 
B) The firm's total output when holding capital fixed. 
C) The firm's average product when holding capital fixed. 
D) The dollar value of the worker's output. 
E) The dollar value of the average worker's output. 
A) The wage. 
B) The firm's total output when holding capital fixed. 
C) The firm's average product when holding capital fixed. 
D) The dollar value of the worker's output. 
E) The dollar value of the average worker's output.

Question 13

The elasticity of substitutions is

Accepted Answer

A) the change in capital over the change in the price of labor. 
B) the percentage change in capital over the percentage change in labor. 
C) the change in the price of capital over the change in the price of labor. 
D) the percentage change in the price of capital over the percentage change in the price of labor. 
E) the percentage change in the capital/labor ratio resulting from a 1 percent change in the relative price of labor. 
A) the change in capital over the change in the price of labor. 
B) the percentage change in capital over the percentage change in labor. 
C) the change in the price of capital over the change in the price of labor. 
D) the percentage change in the price of capital over the percentage change in the price of labor. 
E) the percentage change in the capital/labor ratio resulting from a 1 percent change in the relative price of labor.

Question 14

What is an example of the substitution effect?

Accepted Answer

A) Workers choose to provide more hours of labor when the wage rate decreases. 
B) Hiring more labor as long as the marginal product of labor is positive. 
C) The firm expands output when production costs fall. 
D) The firm expands output when production costs increase. 
E) The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production. 
A) Workers choose to provide more hours of labor when the wage rate decreases. 
B) Hiring more labor as long as the marginal product of labor is positive. 
C) The firm expands output when production costs fall. 
D) The firm expands output when production costs increase. 
E) The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.

Question 15

Adjustment costs are those costs

Accepted Answer

A) incurred by a firm as it transports its product from the factory to the marketplace. 
B) incurred by a firm when it pays its workers overtime. 
C) incurred by a firm as it changes the size of its workforce. 
D) saved by a firm as it takes advantage of tax credits offered by the government. 
E) saved by the firm when it fires a worker. 
A) incurred by a firm as it transports its product from the factory to the marketplace. 
B) incurred by a firm when it pays its workers overtime. 
C) incurred by a firm as it changes the size of its workforce. 
D) saved by a firm as it takes advantage of tax credits offered by the government. 
E) saved by the firm when it fires a worker.

Question 16

The production function relates

Accepted Answer

A) factor prices to output prices. 
B) wages to labor employed. 
C) factors of production to total output. 
D) factors of production to profit. 
E) the output price to factors of production. 
A) factor prices to output prices. 
B) wages to labor employed. 
C) factors of production to total output. 
D) factors of production to profit. 
E) the output price to factors of production.

Question 17

In the long run, a decrease in the competitive wage will be associated with which of the following?

Accepted Answer

A) A substitution effect in favor of employing more capital. 
B) A scale effect in favor of employing more labor. 
C) More employment if the wage decrease was a result of a decrease in the demand for labor. 
D) Less employment if the wage decrease was a result of an increase in the supply of labor. 
E) An increase in the output price. 
A) A substitution effect in favor of employing more capital. 
B) A scale effect in favor of employing more labor. 
C) More employment if the wage decrease was a result of a decrease in the demand for labor. 
D) Less employment if the wage decrease was a result of an increase in the supply of labor. 
E) An increase in the output price.

Question 18

The marginal rate of technical substitution at any particular labor-capital bundle is

Accepted Answer

A) the slope of the isoquant. 
B) the average product of labor relative to the average product of capital. 
C) the wage relative to the cost of capital. 
D) the slope of the indifference curve. 
E) the ratio of labor to capital. 
A) the slope of the isoquant. 
B) the average product of labor relative to the average product of capital. 
C) the wage relative to the cost of capital. 
D) the slope of the indifference curve. 
E) the ratio of labor to capital.

Question 19

At what point should a firm stop hiring workers?

Accepted Answer

A) When the wage per worker starts to increase. 
B) When the price of capital starts to decrease. 
C) When the firm's marginal gain from hiring an additional worker is zero. 
D) When the firm's marginal profit from hiring an additional worker equals the cost of hiring that worker. 
E) When the firm's value of marginal product equals zero. 
A) When the wage per worker starts to increase. 
B) When the price of capital starts to decrease. 
C) When the firm's marginal gain from hiring an additional worker is zero. 
D) When the firm's marginal profit from hiring an additional worker equals the cost of hiring that worker. 
E) When the firm's value of marginal product equals zero.

Question 20

Consider the following hypothetical difference-in-differences results concerning the average of hours worked in "big-box stores" between North and South Dakota before and after North Dakota increased its minimum wage.The minimum wage increase is associated with average hours of working decreasing by how much per week in North Dakota relative to South Dakota?

Accepted Answer

A) 2.1 hours 
B) 11.7 hours 
C) 13.8 hours 
D) 15.9 hours 
E) 20.2 hours 
A) 2.1 hours 
B) 11.7 hours 
C) 13.8 hours 
D) 15.9 hours 
E) 20.2 hours

Labor demand is more elastic

If the minimum wage applies to one sector (the covered sector) but not another sector (the uncovered sector), an increase in the minimum wage in the covered sector is likely to result in which of the following?

What is not true when thinking of the firm's objective as a cost-minimization problem rather than as a profit-maximization problem?

Labor demand is more elastic the greater the elasticity of substitution between labor and capital because

The slope of the production function while holding capital fixed is

Why is the short-run labor demand curve less elastic relative to the long-run labor demand curve?

In the U.S.labor market, it is typically the case that:

From 1981 to 1989, the nominal federal minimum wage was unchanged.As a result:

At a wage of $25 per hour, the firm employs 50,000 hours of labor per week.If the wage would increase to $27 per hour, the firm would employ 45,000 hours of labor per week.What is the elasticity of labor demand?

Ally owns a shoe store.The market wage is $10 per hour, and the cost of capital is $2 per week for every $1,000 of capital borrowed.Consider the isocost line associated with spending $8,000 per week, and let the y-axis be the amount of capital borrowed in $1,000s.Which of the following is not true?

If unskilled labor and capital are substitutes,

What is the most accurate description of the value of a worker to the firm?

The elasticity of substitutions is

What is an example of the substitution effect?

Adjustment costs are those costs

The production function relates

In the long run, a decrease in the competitive wage will be associated with which of the following?

The marginal rate of technical substitution at any particular labor-capital bundle is

At what point should a firm stop hiring workers?

Introduction to Labor Economics

Labor Supply

Labor Market Equilibrium

Compensating Wage Differentials

Human Capital

The Wage Structure

Labor Mobility

Labor Market Discrimination

Labor Unions

Incentive Pay

Unemployment

Filters

Exam 3: Labor Demand

Labor demand is more elastic

If the minimum wage applies to one sector (the covered sector) but not another sector (the uncovered sector), an increase in the minimum wage in the covered sector is likely to result in which of the following?

What is not true when thinking of the firm's objective as a cost-minimization problem rather than as a profit-maximization problem?

Labor demand is more elastic the greater the elasticity of substitution between labor and capital because

The slope of the production function while holding capital fixed is

Why is the short-run labor demand curve less elastic relative to the long-run labor demand curve?

In the U.S.labor market, it is typically the case that:

From 1981 to 1989, the nominal federal minimum wage was unchanged.As a result:

At a wage of $25 per hour, the firm employs 50,000 hours of labor per week.If the wage would increase to $27 per hour, the firm would employ 45,000 hours of labor per week.What is the elasticity of labor demand?

Ally owns a shoe store.The market wage is $10 per hour, and the cost of capital is $2 per week for every $1,000 of capital borrowed.Consider the isocost line associated with spending $8,000 per week, and let the y-axis be the amount of capital borrowed in $1,000s.Which of the following is not true?

If unskilled labor and capital are substitutes,

What is the most accurate description of the value of a worker to the firm?

The elasticity of substitutions is

What is an example of the substitution effect?

Adjustment costs are those costs

The production function relates

In the long run, a decrease in the competitive wage will be associated with which of the following?

The marginal rate of technical substitution at any particular labor-capital bundle is

At what point should a firm stop hiring workers?

Introduction to Labor Economics

Labor Supply

Labor Market Equilibrium

Compensating Wage Differentials

Human Capital

The Wage Structure

Labor Mobility

Labor Market Discrimination

Labor Unions

Incentive Pay

Unemployment

Filters