Question 1

The principal-agent problem arises primarily because

Accepted Answer

A)  principals and agents share a common interest, leading to free-rider problems. 
B)  principals and agents are in an adversarial role, sharing no common interests. 
C)  principals pursue some of their own objectives, which may conflict with the objectives of the agents. 
D)  agents pursue some of their own objectives, which may conflict with the objectives of the principals. 
A)  principals and agents share a common interest, leading to free-rider problems. 
B)  principals and agents are in an adversarial role, sharing no common interests. 
C)  principals pursue some of their own objectives, which may conflict with the objectives of the agents. 
D)  agents pursue some of their own objectives, which may conflict with the objectives of the principals.

Question 2

A bilateral monopoly case is a situation where two monopolists in two countries are selling competing products in the world market.

Accepted Answer

A) True 
 B)False

Question 3

By reducing labor turnover, unions may increase productivity because a lower turnover rate

Accepted Answer

A)  results in a less-experienced workforce. 
B)  increases the incentive for firms to provide training to their workers. 
C)  allows firms to employ a greater number of younger, more energetic workers. 
D)  increases the incentive for firms to substitute labor for capital in the production process. 
A)  results in a less-experienced workforce. 
B)  increases the incentive for firms to provide training to their workers. 
C)  allows firms to employ a greater number of younger, more energetic workers. 
D)  increases the incentive for firms to substitute labor for capital in the production process.

Question 4

In a purely competitive labor market, a profit-maximizing firm will hire labor up to the point where the marginal revenue product of labor equals the

Accepted Answer

A)  wage rate or price of labor. 
B)  price of the product. 
C)  marginal cost of one extra unit of output. 
D)  average cost of each unit of output. 
A)  wage rate or price of labor. 
B)  price of the product. 
C)  marginal cost of one extra unit of output. 
D)  average cost of each unit of output.

Question 5

Consider the case of Eastover Coal Mining Company, operating its mine in the small, isolated town of Eastover, Kentucky. The data in the table describe the firm, where MPL = marginal product of labor and MRCL = marginal resource cost of labor. If the firm sells its coal in a purely competitive market for $10 per ton, how many laborers should it hire? $\begin{array} { | c | c | c| } 
\hline\text { Nuriber of } & \text { MPL (Tons of } & \text { MRGL } \
\text { Labores } & \text { Coal) } & \
\hline 1 & 10 & \$ 20 \
\hline 2 & 7 & 30 \
\hline 3 & 5 & 55 \
\hline 4 & 4 & 90 \
\hline 5 & 3.5 & 120\
\hline
\end{array}$

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5 
A)  2 
B)  3 
C)  4 
D)  5

Question 6

U.S. union membership has declined substantially in recent years. Which of the following is not usually cited as a causal factor?

Accepted Answer

A)  Most nonunion workers are in manufacturing industries. 
B)  Import competition has reduced or restrained the growth of employment in some highly unionized industries. 
C)  Some industries and firms have migrated to the less-unionized South. 
D)  Managerial opposition to unions has intensified. 
A)  Most nonunion workers are in manufacturing industries. 
B)  Import competition has reduced or restrained the growth of employment in some highly unionized industries. 
C)  Some industries and firms have migrated to the less-unionized South. 
D)  Managerial opposition to unions has intensified.

Question 7

If an employer has to raise the wage rate of workers in order to employ more labor, then the marginal labor cost curve of the employer

Accepted Answer

A)  lies above the supply curve of labor. 
B)  is the supply curve of labor that it faces. 
C)  lies below the supply curve of labor. 
D)  is a downward-sloping curve. 
A)  lies above the supply curve of labor. 
B)  is the supply curve of labor that it faces. 
C)  lies below the supply curve of labor. 
D)  is a downward-sloping curve.

Question 8

Labor unions are restrained in their wage demands because

Accepted Answer

A)  legislation limits annual increases in nominal wages to 6 percent. 
B)  the labor demand curve is downsloping. 
C)  marginal wage cost curves lie above labor supply curves in most labor markets. 
D)  most unions deal with monopsonists who have superior bargaining power. 
A)  legislation limits annual increases in nominal wages to 6 percent. 
B)  the labor demand curve is downsloping. 
C)  marginal wage cost curves lie above labor supply curves in most labor markets. 
D)  most unions deal with monopsonists who have superior bargaining power.

Question 9

Which union status allows the firm to hire nonunion workers, provided that these workers would join the union within a specified period or lose their jobs?

Accepted Answer

A)  open shop 
B)  agency shop 
C)  union shop 
D)  closed shop 
A)  open shop 
B)  agency shop 
C)  union shop 
D)  closed shop

Question 10

A labor union may engage in a lockout if the collective bargaining process breaks down.

Accepted Answer

A) True 
 B)False

Question 11

One clear effect of labor unions is an increase in the wage rates of their members.

Accepted Answer

A) True 
 B)False

Question 12

Suppose Steve Stone takes a job with Zemo Manufacturing, whose labor contract with its unions has an agency shop clause (30 days). Steve

Accepted Answer

A)  must join the union within 30 days. 
B)  can decide against joining the union and place the union dues in a retirement account. 
C)  can decide against joining the union but then will not receive any union-negotiated wage increases. 
D)  can decide against joining the union but nevertheless will have to pay union dues or donate an equivalent amount to an approved charity. 
A)  must join the union within 30 days. 
B)  can decide against joining the union and place the union dues in a retirement account. 
C)  can decide against joining the union but then will not receive any union-negotiated wage increases. 
D)  can decide against joining the union but nevertheless will have to pay union dues or donate an equivalent amount to an approved charity.

Question 13

Which of the following is illegal under federal labor law?

Accepted Answer

A)  closed shops 
B)  agency shops 
C)  union shops 
D)  state right-to-work laws 
A)  closed shops 
B)  agency shops 
C)  union shops 
D)  state right-to-work laws

Question 14

In monopsony situations, a minimum wage might increase wage and employment levels.

Accepted Answer

A) True 
 B)False

Question 15

Many economists are critical of the minimum wage because they believe that it

Accepted Answer

A)  hurts the efforts of labor unions. 
B)  reduces the number of available job opportunities. 
C)  conflicts with policies designed to equalize the distribution of income. 
D)  causes labor shortages in affected markets. 
A)  hurts the efforts of labor unions. 
B)  reduces the number of available job opportunities. 
C)  conflicts with policies designed to equalize the distribution of income. 
D)  causes labor shortages in affected markets.

Question 16

Which of the following is a market imperfection that might explain persistent wage differentials within an occupation?

Accepted Answer

A)  movement of labor from lower-wage to higher-wage jobs 
B)  readily available information about job opportunities and pay 
C)  principal-agent problems 
D)  discrimination 
A)  movement of labor from lower-wage to higher-wage jobs 
B)  readily available information about job opportunities and pay 
C)  principal-agent problems 
D)  discrimination

Question 17

Suppose two workers can harvest $46 worth of apples per day and three workers can harvest $60 worth. On the basis of this information, we can say that the

Accepted Answer

A)  marginal product of each of the first two workers is 23. 
B)  marginal revenue product of each of the first two workers is $23. 
C)  marginal revenue product of the third worker is $14. 
D)  third worker should not be hired. 
A)  marginal product of each of the first two workers is 23. 
B)  marginal revenue product of each of the first two workers is $23. 
C)  marginal revenue product of the third worker is $14. 
D)  third worker should not be hired.

Question 18

A firm that is hiring labor in a purely competitive labor market and selling its product in a purely competitive product market will maximize its profit by hiring labor until

Accepted Answer

A)  marginal revenue product is zero. 
B)  marginal revenue product exceeds marginal resource (labor) cost by the greatest amount. 
C)  marginal resource cost is zero. 
D)  marginal revenue product equals marginal resource (labor) cost. 
A)  marginal revenue product is zero. 
B)  marginal revenue product exceeds marginal resource (labor) cost by the greatest amount. 
C)  marginal resource cost is zero. 
D)  marginal revenue product equals marginal resource (labor) cost.

Question 19

The individual firm in a purely competitive labor market faces

Accepted Answer

A)  a perfectly elastic labor supply curve and a downsloping labor demand curve. 
B)  a perfectly elastic labor demand curve and an upsloping labor supply curve. 
C)  labor demand and labor supply curves both of which are perfectly elastic. 
D)  a downsloping labor demand curve and an upsloping labor supply curve. 
A)  a perfectly elastic labor supply curve and a downsloping labor demand curve. 
B)  a perfectly elastic labor demand curve and an upsloping labor supply curve. 
C)  labor demand and labor supply curves both of which are perfectly elastic. 
D)  a downsloping labor demand curve and an upsloping labor supply curve.

Question 20

Education is a form of human capital, and it helps explain wage differentials.

Accepted Answer

A) True 
 B)False

Exam 17: Wage Determination

The principal-agent problem arises primarily because

A bilateral monopoly case is a situation where two monopolists in two countries are selling competing products in the world market.

By reducing labor turnover, unions may increase productivity because a lower turnover rate

In a purely competitive labor market, a profit-maximizing firm will hire labor up to the point where the marginal revenue product of labor equals the

U.S. union membership has declined substantially in recent years. Which of the following is not usually cited as a causal factor?

If an employer has to raise the wage rate of workers in order to employ more labor, then the marginal labor cost curve of the employer

Labor unions are restrained in their wage demands because

Which union status allows the firm to hire nonunion workers, provided that these workers would join the union within a specified period or lose their jobs?

A labor union may engage in a lockout if the collective bargaining process breaks down.

One clear effect of labor unions is an increase in the wage rates of their members.

Suppose Steve Stone takes a job with Zemo Manufacturing, whose labor contract with its unions has an agency shop clause (30 days). Steve

Which of the following is illegal under federal labor law?

In monopsony situations, a minimum wage might increase wage and employment levels.

Many economists are critical of the minimum wage because they believe that it

Which of the following is a market imperfection that might explain persistent wage differentials within an occupation?

Suppose two workers can harvest $46 worth of apples per day and three workers can harvest $60 worth. On the basis of this information, we can say that the

A firm that is hiring labor in a purely competitive labor market and selling its product in a purely competitive product market will maximize its profit by hiring labor until

The individual firm in a purely competitive labor market faces

Education is a form of human capital, and it helps explain wage differentials.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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