Question 1

In a competitive labor market:

Accepted Answer

A) the firm can hire all the labor it wants at the going market wage rate. 
B) the market wage rate is the marginal revenue product of labor. 
C) firms will hire as long as the marginal revenue product of labor is less than or equal to the market wage. 
D) all of the above

Question 2

The owner of Instant Printing,a firm that prints business cards,tells you that as a result of an increase in the wage rate of printer operators he has reduced the amount of output he produces and the amount of capital he uses.How would you respond to this?

Accepted Answer

A) You should tell him that this doesn't make any economic sense because according to the input-substitution effect he should have substituted toward capital and away from labor. 
B) This seems logical,because the output effect of an input price increase would cause a firm to demand less of all inputs,not just the input whose price increased. 
C) You should tell him that instead of reducing output and the demand for all inputs,he should increase output and the demand for inputs so that he can meet the higher labor costs by generating more revenue. 
D) You tell him that the input-substitution effect and the scale effect both suggest that he decrease the amount of capital he uses when his workers' wage rate increases.

Question 3

The perfectly competitive firm's short-run demand for labor is downward sloping because:

Accepted Answer

A) the output price falls as the firm produces more output. 
B) of diminishing marginal productivity. 
C) the labor supply curve is upward sloping. 
D) as more labor is hired,the firm has less money available per worker.

Question 4

A wheat farmer sells wheat in a perfectly competitive market and hires labor in a perfectly competitive market.The market price of wheat is $2 a bushel,the wage rate is $10,the farmer employs five workers and the marginal product of the fifth worker is 10.What would you advise this farmer to do?

Accepted Answer

A) Do nothing because the wage rate and the marginal product of the last worker hired are equal. 
B) Reduce employment because the wage paid is less than the marginal revenue product. 
C) Increase employment because the wage paid is less than the marginal revenue product. 
D) Reduce the product price so that the wage and marginal revenue product will be equal.

Question 5

Suppose that you currently work 20 hours a week at $10 per hour and your employer tells you he must reduce your wage to $8 per hour.Using the concept of income and substitution effects,explain how you might react.

Accepted Answer

The answer of Suppose that you currently work 20 hours...

Question 6

As the dollar prizes for professional golf tournaments have increased,professional golfers have entered fewer tournaments per year.Is this type of behavior consistent with utility maximization? Explain.

Accepted Answer

The answer of As the dollar prizes for professional golf...

Question 7

Which of the following statements represents the signaling effect of a college education?

Accepted Answer

A) A person who is naturally more productive is likely to invest in education. 
B) Education can turn an unproductive person into an productive person. 
C) The information gained in a college classroom increases the productivity of graduates. 
D) all of the above

Question 8

The demand for labor:

Accepted Answer

A) is a derived demand. 
B) depends on the demand for the output the labor can be used to produce. 
C) is affected by the value placed by the market on the output produced by labor. 
D) all of the above

Question 9

Use a diagram of a competitive labor market and a representative firm to explain how much labor a profit-maximizing firm will hire.

Accepted Answer

The answer of Use a diagram of a competitive labor...

Question 10

List four reasons why the supply of labor in a particular occupation may be small.

Accepted Answer

The answer of List four reasons why the supply of...

Question 11

Since there are diminishing returns in the long run,the market demand curve is negatively sloped.

Accepted Answer

A) True 
 B)False

Question 12

Beth is a college student looking for summer employment.She has two options.Firm X is employing lifeguards to patrol the beaches at an exclusive resort in Cancun,Mexico,while Firm Y offers her a job working in an office filing paper work and assist with the ordering of office supplies.Given this information:

Accepted Answer

A) Firm X may pay a wage that is higher than that of Firm Y because the work at Firm X is not very interesting. 
B) Firm X may pay a wage that is lower than that of Firm Y because the job at Firm X has more desirable working conditions. 
C) Firm Y will pay a wage that is higher than that of Firm X because more individuals will apply for jobs at Firm Y. 
D) none of the above

Question 13

Government spending programs that provide assistance to those whose income falls below a certain level are called:

Accepted Answer

A) unilateral programs. 
B) discretionary spending programs. 
C) means-tested programs. 
D) noncash programs.

Question 14

Which of the following situations is most likely to generate the largest output effect from a decrease in the price of one of a firm's inputs?

Accepted Answer

A) The demand for a firm's product is inelastic. 
B) The demand for a firm's product is elastic. 
C) The inputs used in production are highly substitutable. 
D) The inputs used in production are highly complementary.

Question 15

Table 17.4
-Refer to Table 17.4.If the wage rate is $8 per worker and the output sells for $1,the firm will hire:

Accepted Answer

A) 0 workers. 
B) 1 workers. 
C) 2 workers. 
D) 3 workers.

Question 16

Labor skills are determined by innate ability,education and work experience.

Accepted Answer

A) True 
 B)False

Question 17

If the market wage rate is below equilibrium,there will be a surplus of workers.

Accepted Answer

A) True 
 B)False

Question 18

If Sara receives a pay increase from $15 to $16 an hour and she chooses to:

Accepted Answer

A) work more,then the income effect is equal to the substitution effect. 
B) take more vacation,then the income effect is weaker than the substitution effect. 
C) take more vacation,then the income and substitution effects are working in the same direction with regard to leisure because it is a normal good. 
D) work more,then the substitution effect for leisure demand is stronger than the income effect.

Question 19

If the substitution effect of a wage change outweighs the income effect of a wage change,the labor-supply curve is:

Accepted Answer

A) upward sloping. 
B) horizontal. 
C) vertical. 
D) backward bending.

Question 20

-Refer to Figure 17.2.If the supply of labor decreases,then equilibrium wage will ________ and equilibrium quantity of hours will ________.

Accepted Answer

A) rise;fall 
B) fall;fall 
C) rise;rise 
D) fall;rise

Exam 17: The Labor Market and the Distribution of Income

In a competitive labor market:

The owner of Instant Printing,a firm that prints business cards,tells you that as a result of an increase in the wage rate of printer operators he has reduced the amount of output he produces and the amount of capital he uses.How would you respond to this?

The perfectly competitive firm's short-run demand for labor is downward sloping because:

A wheat farmer sells wheat in a perfectly competitive market and hires labor in a perfectly competitive market.The market price of wheat is $2 a bushel,the wage rate is $10,the farmer employs five workers and the marginal product of the fifth worker is 10.What would you advise this farmer to do?

Suppose that you currently work 20 hours a week at $10 per hour and your employer tells you he must reduce your wage to $8 per hour.Using the concept of income and substitution effects,explain how you might react.

As the dollar prizes for professional golf tournaments have increased,professional golfers have entered fewer tournaments per year.Is this type of behavior consistent with utility maximization? Explain.

Which of the following statements represents the signaling effect of a college education?

The demand for labor:

Use a diagram of a competitive labor market and a representative firm to explain how much labor a profit-maximizing firm will hire.

List four reasons why the supply of labor in a particular occupation may be small.

Since there are diminishing returns in the long run,the market demand curve is negatively sloped.

Government spending programs that provide assistance to those whose income falls below a certain level are called:

Which of the following situations is most likely to generate the largest output effect from a decrease in the price of one of a firm's inputs?

Table 17.4 -Refer to Table 17.4.If the wage rate is $8 per worker and the output sells for $1,the firm will hire:

Labor skills are determined by innate ability,education and work experience.

If the market wage rate is below equilibrium,there will be a surplus of workers.

If Sara receives a pay increase from $15 to $16 an hour and she chooses to:

If the substitution effect of a wage change outweighs the income effect of a wage change,the labor-supply curve is:

-Refer to Figure 17.2.If the supply of labor decreases,then equilibrium wage will and equilibrium quantity of hours will .