Question 1

Which of the following is an implicit cost of a college education?

Accepted Answer

A) The cost of tuition 
B) The cost of foregone earnings 
C) The cost of housing and dining at a dorm 
D) The cost of commuting to college and back 
A) The cost of tuition 
B) The cost of foregone earnings 
C) The cost of housing and dining at a dorm 
D) The cost of commuting to college and back

Question 2

As a result of the substitution effect of a lower wage,hours of work will:

Accepted Answer

A) increase due to a higher opportunity cost of leisure time. 
B) fall due to a higher opportunity cost of leisure time. 
C) fall due to a lower opportunity cost of leisure time. 
D) increase due to a lower opportunity cost of leisure time. 
A) increase due to a higher opportunity cost of leisure time. 
B) fall due to a higher opportunity cost of leisure time. 
C) fall due to a lower opportunity cost of leisure time. 
D) increase due to a lower opportunity cost of leisure time.

Question 3

Which of the following correctly describes an interest rate?

Accepted Answer

A) It is the portion of the payment to an input supplier in excess of the minimum amount necessary to retain the input in its present use. 
B) It is paid by suppliers of loanable funds. 
C) It equates the value of future and present consumption. 
D) It is the price paid to purchase an asset. 
A) It is the portion of the payment to an input supplier in excess of the minimum amount necessary to retain the input in its present use. 
B) It is paid by suppliers of loanable funds. 
C) It equates the value of future and present consumption. 
D) It is the price paid to purchase an asset.

Question 4

As a result of the income effect of a higher wage,hours of work will:

Accepted Answer

A) increase due to a lower opportunity cost of leisure time. 
B) fall due to a higher real income enabling greater leisure time. 
C) increase due to a higher real income eliciting greater leisure time. 
D) fall due to a lower opportunity cost of leisure time. 
A) increase due to a lower opportunity cost of leisure time. 
B) fall due to a higher real income enabling greater leisure time. 
C) increase due to a higher real income eliciting greater leisure time. 
D) fall due to a lower opportunity cost of leisure time.

Question 5

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 6

Suppose Jack earns $10 an hour which is subject to a tax of 10 percent.If the government raises the tax rate to 50 percent,he will:

Accepted Answer

A) increase hours of work if the income effect of the change in wage is less than the substitution effect. 
B) increase hours of work if the income effect of the change in wage is greater than the substitution effect. 
C) reduce hours of work if the income effect of the change in wage rate exactly offsets the substitution effect. 
D) reduce hours of work if the income and substitution effects operate in opposite directions. 
A) increase hours of work if the income effect of the change in wage is less than the substitution effect. 
B) increase hours of work if the income effect of the change in wage is greater than the substitution effect. 
C) reduce hours of work if the income effect of the change in wage rate exactly offsets the substitution effect. 
D) reduce hours of work if the income and substitution effects operate in opposite directions.

Question 7

Consider a production possibility frontier [PPF] for the current year that measures the output of capital goods on the horizontal axis and the output of consumer goods on the vertical axis.Which of the following statements is true?

Accepted Answer

A) Technological progress will lead to a fall in current consumption resulting in a movement along the PPF. 
B) For the productive capacity of the economy to increase,current consumption should increase. 
C) An increase in investment in the current period will lead to a shift of the PPF in the future period. 
D) An increase in investment in the current period increases current consumption. 
A) Technological progress will lead to a fall in current consumption resulting in a movement along the PPF. 
B) For the productive capacity of the economy to increase,current consumption should increase. 
C) An increase in investment in the current period will lead to a shift of the PPF in the future period. 
D) An increase in investment in the current period increases current consumption.

Question 8

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 9

Suppose that a firm has an opportunity to invest $100,000 in a project that over its one year life is likely to yield $115,000 in revenue.To maximize its return on investment the firm should:

Accepted Answer

A) finance the investment through borrowed funds if the interest rate is 25 percent or less. 
B) finance the investment out of retained earnings if the interest rate is less than 15 percent. 
C) borrow funds to finance the investment if the interest rate is 15 percent or less. 
D) borrow funds to finance the investment as the present value of money is higher than the future value. 
A) finance the investment through borrowed funds if the interest rate is 25 percent or less. 
B) finance the investment out of retained earnings if the interest rate is less than 15 percent. 
C) borrow funds to finance the investment if the interest rate is 15 percent or less. 
D) borrow funds to finance the investment as the present value of money is higher than the future value.

Question 10

A comparison of wages in the U.S.and in less developed countries shows that:

Accepted Answer

A) high-wage U.S.labor cannot compete with low-wage labor in many developing countries. 
B) workers in the U.S.are more productive than workers in less developed countries. 
C) the substitution of labor for capital depresses wages and increases unemployment. 
D) the supply of labor in developed countries had increased faster than demand. 
A) high-wage U.S.labor cannot compete with low-wage labor in many developing countries. 
B) workers in the U.S.are more productive than workers in less developed countries. 
C) the substitution of labor for capital depresses wages and increases unemployment. 
D) the supply of labor in developed countries had increased faster than demand.

Question 11

Economic rent accrues to:

Accepted Answer

A) owners of monopsony firms. 
B) owners of monopoly firms 
C) consumers in competitive markets. 
D) suppliers in input markets. 
A) owners of monopsony firms. 
B) owners of monopoly firms 
C) consumers in competitive markets. 
D) suppliers in input markets.

Question 12

Which of the following best explains the backward bending portion of the labor supply curve?

Accepted Answer

A) An increase in the wage rate results in a larger income effect and a lower substitution effect. 
B) An increase in the wage rate increases the quantity of labor supplied to the market. 
C) An increase in the wage rate increases the elasticity of the labor supply curve. 
D) An increase in the wage rate leads to a steeper labor supply curve. 
A) An increase in the wage rate results in a larger income effect and a lower substitution effect. 
B) An increase in the wage rate increases the quantity of labor supplied to the market. 
C) An increase in the wage rate increases the elasticity of the labor supply curve. 
D) An increase in the wage rate leads to a steeper labor supply curve.

Question 13

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 14

Which of the following is the best example of economic rent?

Accepted Answer

A) Bob leases a two-bedroom apartment in town for $1,000 that he could have got for $700. 
B) Ann was paid a $20,000 bonus this year for selling $500,000 more than her required sales quota. 
C) Diane received a $20,000 raise to counter a job offer she received from a competing firm. 
D) Carl,a union member,earns $20,000 more than a worker who is not a member of the union. 
A) Bob leases a two-bedroom apartment in town for $1,000 that he could have got for $700. 
B) Ann was paid a $20,000 bonus this year for selling $500,000 more than her required sales quota. 
C) Diane received a $20,000 raise to counter a job offer she received from a competing firm. 
D) Carl,a union member,earns $20,000 more than a worker who is not a member of the union.

Question 15

In the market for loanable funds,an increase in the interest rate leads to _____ if the income effect dominates the substitution effect.

Accepted Answer

A) a decrease in demand 
B) an increase in supply 
C) an increase in demand 
D) a decrease in supply 
A) a decrease in demand 
B) an increase in supply 
C) an increase in demand 
D) a decrease in supply

Question 16

Use the following figure to answer the question : Figure 17-1 : shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line.
 
-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 17

An individual's supply curve of labor is backward bending when:

Accepted Answer

A) the income effect dominates at lower wage rates and the substitution effect dominates at higher wage rates. 
B) the substitution effect dominates at lower wage rates and the income effect dominates at higher wage rates. 
C) the substitution and income effect work in the same direction at lower wage rates but in opposite directions at higher wage rates. 
D) the substitution and income effect offset each other at lower wage rates but work in opposite directions at higher wage rates. 
A) the income effect dominates at lower wage rates and the substitution effect dominates at higher wage rates. 
B) the substitution effect dominates at lower wage rates and the income effect dominates at higher wage rates. 
C) the substitution and income effect work in the same direction at lower wage rates but in opposite directions at higher wage rates. 
D) the substitution and income effect offset each other at lower wage rates but work in opposite directions at higher wage rates.

Question 18

Use the following figure to answer the question : Figure 17-1 : shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line.
 
-Refer to Figure 17-1.If the number of leisure hours is OL3 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

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 20

Payment to an input which is in excess of the minimum amount required to retain the input in its present use is called _____.

Accepted Answer

A) total revenue 
B) factor payment 
C) economic rent 
D) surplus value 
A) total revenue 
B) factor payment 
C) economic rent 
D) surplus value

Which of the following is an implicit cost of a college education?

As a result of the substitution effect of a lower wage,hours of work will:

Which of the following correctly describes an interest rate?

As a result of the income effect of a higher wage,hours of work will:

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

Suppose Jack earns $10 an hour which is subject to a tax of 10 percent.If the government raises the tax rate to 50 percent,he will:

Consider a production possibility frontier [PPF] for the current year that measures the output of capital goods on the horizontal axis and the output of consumer goods on the vertical axis.Which of the following statements is true?

The income effect of a wage change typically assumes that:

Suppose that a firm has an opportunity to invest $100,000 in a project that over its one year life is likely to yield $115,000 in revenue.To maximize its return on investment the firm should:

A comparison of wages in the U.S.and in less developed countries shows that:

Economic rent accrues to:

Which of the following best explains the backward bending portion of the labor supply curve?

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 is the best example of economic rent?

In the market for loanable funds,an increase in the interest rate leads to _____ if the income effect dominates the substitution effect.

An individual's supply curve of labor is backward bending when:

Use the following figure to answer the question : Figure 17-1 : shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. -Refer to Figure 17-1.If the number of leisure hours is OL₃ after a change in the wage rate,it implies that:

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

Payment to an input which is in excess of the minimum amount required to retain the input in its present use is called _____.

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

Which of the following is an implicit cost of a college education?

As a result of the substitution effect of a lower wage,hours of work will:

Which of the following correctly describes an interest rate?

As a result of the income effect of a higher wage,hours of work will:

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

Suppose Jack earns $10 an hour which is subject to a tax of 10 percent.If the government raises the tax rate to 50 percent,he will:

Consider a production possibility frontier [PPF] for the current year that measures the output of capital goods on the horizontal axis and the output of consumer goods on the vertical axis.Which of the following statements is true?

The income effect of a wage change typically assumes that:

Suppose that a firm has an opportunity to invest $100,000 in a project that over its one year life is likely to yield $115,000 in revenue.To maximize its return on investment the firm should:

A comparison of wages in the U.S.and in less developed countries shows that:

Economic rent accrues to:

Which of the following best explains the backward bending portion of the labor supply curve?

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 is the best example of economic rent?

In the market for loanable funds,an increase in the interest rate leads to _____ if the income effect dominates the substitution effect.

An individual's supply curve of labor is backward bending when:

Use the following figure to answer the question : Figure 17-1 : shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. -Refer to Figure 17-1.If the number of leisure hours is OL3 after a change in the wage rate,it implies that:

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

Payment to an input which is in excess of the minimum amount required to retain the input in its present use is called _____.

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

Use the following figure to answer the question : Figure 17-1 : shows the weekly income (in dollars)and leisure (in hours)of a worker using an indifference curve and a budget line. -Refer to Figure 17-1.If the number of leisure hours is OL₃ after a change in the wage rate,it implies that: