Question 1

How can the presence of a union in a labor market be beneficial?

Accepted Answer

In some industries,unions actually counteract the monopsony power of big firms that have market power in the labor market.Another argument for the presence of unions is that unions can make workers more productive by representing workers' problems with employers.There are also some empirical studies that show that workers who are members of a union are more productive than non-union workers.

Question 2

When a firm earns a rate of return on an investment that _____,it makes a pure economic profit.

Accepted Answer

A) is above its accounting costs 
B) is equal to its average variable cost 
C) is above the cost of borrowed funds 
D) just covers the firm's fixed costs 
A) is above its accounting costs 
B) is equal to its average variable cost 
C) is above the cost of borrowed funds 
D) just covers the firm's fixed costs C

Question 3

What does the height of the demand curve in a labor market represent?

Accepted Answer

A) The value of output produced by an incremental worker 
B) The increase in revenue from the sale of an additional unit of output 
C) The marginal cost of hiring an additional worker 
D) The payment made to an individual worker 
A) The value of output produced by an incremental worker 
B) The increase in revenue from the sale of an additional unit of output 
C) The marginal cost of hiring an additional worker 
D) The payment made to an individual worker A

Question 4

The following figure shows the demand [D],marginal revenue [MR],and supply [S] curves in the market for labor.
Figure 17-2  
-Refer to Figure 17-2.If union members cartelize the supply side of the market,the economic rent that accrues to the union is represented by the area _____.

Accepted Answer

A) W1BF 
B) W2ACF 
C) W2ABF 
D) W2AL2O 
A) W1BF 
B) W2ACF 
C) W2ABF 
D) W2AL2O

Question 5

Illustrate graphically and explain the income and substitution effects of a wage decrease on hours of labor supply for the case in which the individual's labor supply curve is backward bending.Graphically derive the individual's labor supply curve.

Accepted Answer

An individual's labor supply curve can p

Question 6

Which of the following correctly describes economic rent?

Accepted Answer

A) The area that is enclosed between a firm's upward-sloping input supply curve and the input demand curve represents economic rent. 
B) The payment to an input that is in excess of the minimum amount necessary to retain the input in its present use is economic rent. 
C) The difference between the payment to an input and the maximum amount necessary to retain the input in its present use is economic rent. 
D) The payment made by a firm to lease the services of land,buildings,equipment,or some other durable asset is economic rent. 
A) The area that is enclosed between a firm's upward-sloping input supply curve and the input demand curve represents economic rent. 
B) The payment to an input that is in excess of the minimum amount necessary to retain the input in its present use is economic rent. 
C) The difference between the payment to an input and the maximum amount necessary to retain the input in its present use is economic rent. 
D) The payment made by a firm to lease the services of land,buildings,equipment,or some other durable asset is economic rent.

Question 7

What is meant by the net marginal productivity of an investment?

Accepted Answer

A) It is the marginal revenue minus marginal cost from the last unit of capital. 
B) It is the total addition to productivity from an extra unit of capital minus the cost of capital. 
C) It is the additional revenue generated by selling an extra unit of output. 
D) It is the extra output produced by an extra unit of capital minus the marginal cost. 
A) It is the marginal revenue minus marginal cost from the last unit of capital. 
B) It is the total addition to productivity from an extra unit of capital minus the cost of capital. 
C) It is the additional revenue generated by selling an extra unit of output. 
D) It is the extra output produced by an extra unit of capital minus the marginal cost.

Question 8

A firm has $2 million in retained earnings.It can lend out the money at the rate of 11 percent per year,keep the money as idle cash,or earn invest in government bonds and earn 10 percent per year.Suppose the firm also needs $2 million for a new project which will give an 8 percent return per year.What should the firm do to maximize its return?

Accepted Answer

A) It should lend out the money at an interest of 11 percent per annum. 
B) It should purchase government bonds promising a 10 percent return per annum. 
C) It should invest the money in its new project. 
D) It should keep the money as idle cash. 
A) It should lend out the money at an interest of 11 percent per annum. 
B) It should purchase government bonds promising a 10 percent return per annum. 
C) It should invest the money in its new project. 
D) It should keep the money as idle cash.

Question 9

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line.
Figure 17-1  
-_____ will cause the budget line in Figure 17-1 to rotate from NY2 to NY3.

Accepted Answer

A) An increase in work effort 
B) A fall in work effort 
C) A rise in the wage rate 
D) A fall in the wage rate 
A) An increase in work effort 
B) A fall in work effort 
C) A rise in the wage rate 
D) A fall in the wage rate

Question 10

In a labor market with an effective union,the marginal revenue curve lies below the demand curve because:

Accepted Answer

A) workers who are part of the union are not as productive as non-union workers. 
B) union workers are paid less than their marginal revenue product. 
C) the union must lower wages paid to all workers to hire an extra worker. 
D) marginal revenue increases as additional workers are hired. 
A) workers who are part of the union are not as productive as non-union workers. 
B) union workers are paid less than their marginal revenue product. 
C) the union must lower wages paid to all workers to hire an extra worker. 
D) marginal revenue increases as additional workers are hired.

Question 11

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line.
Figure 17-1  
-Refer to Figure 17-1.If the number of leisure hours is OL3 after a change in the wage rate,the individual's supply curve of labor will be _____.

Accepted Answer

A) backward bending 
B) vertical 
C) upward-sloping 
D) relatively elastic 
A) backward bending 
B) vertical 
C) upward-sloping 
D) relatively elastic

Question 12

Real wages are higher in the United States than in less developed countries for all of the following reasons,except:

Accepted Answer

A) the large size of the labor force. 
B) the skills of the labor force. 
C) the amount of capital available per worker. 
D) the output produced per worker. 
A) the large size of the labor force. 
B) the skills of the labor force. 
C) the amount of capital available per worker. 
D) the output produced per worker.

Question 13

Which of the following does not explain wage differentials in long-run equilibrium?

Accepted Answer

A) The relative attractiveness of jobs 
B) The level of investment in human capital 
C) The size of the work force in the economy 
D) The variation in the abilities of workers 
A) The relative attractiveness of jobs 
B) The level of investment in human capital 
C) The size of the work force in the economy 
D) The variation in the abilities of workers

Question 14

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line.
Figure 17-1  
-In Figure 17-1,assume the worker is initially in equilibrium at point A.Weekly earnings and work effort are _____ respectively.

Accepted Answer

A) OY1 and OL2 
B) OY2 and NL2 
C) OY1 and NL2 
D) OY2 and ON 
A) OY1 and OL2 
B) OY2 and NL2 
C) OY1 and NL2 
D) OY2 and ON

Question 15

The income effect of a wage change typically assumes that:

Accepted Answer

A) workers get negative utility from work. 
B) not all workers consider income to be a normal good. 
C) leisure is a normal good. 
D) income and leisure are complementary goods. 
A) workers get negative utility from work. 
B) not all workers consider income to be a normal good. 
C) leisure is a normal good. 
D) income and leisure are complementary goods.

Question 16

How does the rate of return earned on capital in various industries equalize over time? Do the wages earned by labor in different industries and the interest rates for different assets also equalize in the long-run? Why?

Accepted Answer

The rates of return on capital tend to e

Question 17

Why do interest rates for specific assets such as bonds,mortgages,credit card loans,and bank loans differ even in long-run equilibrium?

Accepted Answer

Variations in interest rates exist even

Question 18

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line.
Figure 17-1  
-Refer to Figure 17-1.If the number of leisure hours is OL1 after a change in the wage rate,it implies that:

Accepted Answer

A) the income effect of the wage change is greater than the substitution effect. 
B) the income effect of the wage change is less than the substitution effect. 
C) the income effect of the wage change exactly offsets the substitution effect. 
D) the income and substitution effects of a wage change operate in the same direction. 
A) the income effect of the wage change is greater than the substitution effect. 
B) the income effect of the wage change is less than the substitution effect. 
C) the income effect of the wage change exactly offsets the substitution effect. 
D) the income and substitution effects of a wage change operate in the same direction.

Question 19

How do firms decide if an investment is feasible? In other words,how are investment projects valuated?

Accepted Answer

To value investment projects,the net pre

Question 20

Which of the following is not likely to have contributed to the stagnating real wage levels experienced in the 1970s in the U.S.?

Accepted Answer

A) Higher prices for oil,an input in production,led to a decrease in the demand for labor. 
B) The working age population increased and increased the supply of labor in the economy. 
C) The labor force participation rate of females increased sharply in the 1970s. 
D) The imports of consumer goods from Japan led to a decline in domestic production. 
A) Higher prices for oil,an input in production,led to a decrease in the demand for labor. 
B) The working age population increased and increased the supply of labor in the economy. 
C) The labor force participation rate of females increased sharply in the 1970s. 
D) The imports of consumer goods from Japan led to a decline in domestic production.

How can the presence of a union in a labor market be beneficial?

When a firm earns a rate of return on an investment that _____,it makes a pure economic profit.

What does the height of the demand curve in a labor market represent?

The following figure shows the demand [D],marginal revenue [MR],and supply [S] curves in the market for labor. Figure 17-2 -Refer to Figure 17-2.If union members cartelize the supply side of the market,the economic rent that accrues to the union is represented by the area _____.

Illustrate graphically and explain the income and substitution effects of a wage decrease on hours of labor supply for the case in which the individual's labor supply curve is backward bending.Graphically derive the individual's labor supply curve.

Which of the following correctly describes economic rent?

What is meant by the net marginal productivity of an investment?

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -_____ will cause the budget line in Figure 17-1 to rotate from NY₂ to NY₃.

In a labor market with an effective union,the marginal revenue curve lies below the demand curve because:

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -Refer to Figure 17-1.If the number of leisure hours is OL₃ after a change in the wage rate,the individual's supply curve of labor will be _____.

Real wages are higher in the United States than in less developed countries for all of the following reasons,except:

Which of the following does not explain wage differentials in long-run equilibrium?

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -In Figure 17-1,assume the worker is initially in equilibrium at point A.Weekly earnings and work effort are _____ respectively.

The income effect of a wage change typically assumes that:

How does the rate of return earned on capital in various industries equalize over time? Do the wages earned by labor in different industries and the interest rates for different assets also equalize in the long-run? Why?

Why do interest rates for specific assets such as bonds,mortgages,credit card loans,and bank loans differ even in long-run equilibrium?

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -Refer to Figure 17-1.If the number of leisure hours is OL₁ after a change in the wage rate,it implies that:

How do firms decide if an investment is feasible? In other words,how are investment projects valuated?

Which of the following is not likely to have contributed to the stagnating real wage levels experienced in the 1970s in the U.S.?

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Exam 17: Wages, Rent, Interest, and Profit

How can the presence of a union in a labor market be beneficial?

When a firm earns a rate of return on an investment that _____,it makes a pure economic profit.

What does the height of the demand curve in a labor market represent?

The following figure shows the demand [D],marginal revenue [MR],and supply [S] curves in the market for labor. Figure 17-2 -Refer to Figure 17-2.If union members cartelize the supply side of the market,the economic rent that accrues to the union is represented by the area _____.

Illustrate graphically and explain the income and substitution effects of a wage decrease on hours of labor supply for the case in which the individual's labor supply curve is backward bending.Graphically derive the individual's labor supply curve.

Which of the following correctly describes economic rent?

What is meant by the net marginal productivity of an investment?

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -_____ will cause the budget line in Figure 17-1 to rotate from NY2 to NY3.

In a labor market with an effective union,the marginal revenue curve lies below the demand curve because:

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -Refer to Figure 17-1.If the number of leisure hours is OL3 after a change in the wage rate,the individual's supply curve of labor will be _____.

Real wages are higher in the United States than in less developed countries for all of the following reasons,except:

Which of the following does not explain wage differentials in long-run equilibrium?

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -In Figure 17-1,assume the worker is initially in equilibrium at point A.Weekly earnings and work effort are _____ respectively.

The income effect of a wage change typically assumes that:

How does the rate of return earned on capital in various industries equalize over time? Do the wages earned by labor in different industries and the interest rates for different assets also equalize in the long-run? Why?

Why do interest rates for specific assets such as bonds,mortgages,credit card loans,and bank loans differ even in long-run equilibrium?

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -Refer to Figure 17-1.If the number of leisure hours is OL1 after a change in the wage rate,it implies that:

How do firms decide if an investment is feasible? In other words,how are investment projects valuated?

Which of the following is not likely to have contributed to the stagnating real wage levels experienced in the 1970s in the U.S.?

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -_____ will cause the budget line in Figure 17-1 to rotate from NY₂ to NY₃.

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -Refer to Figure 17-1.If the number of leisure hours is OL₃ after a change in the wage rate,the individual's supply curve of labor will be _____.

The following figure shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. Figure 17-1 -Refer to Figure 17-1.If the number of leisure hours is OL₁ after a change in the wage rate,it implies that: