Deck 16: The Market for Labor

Question 1

An individual's labor supply can become backward bending because high wages tend to magnify substitution effects.

Answer 1

False

Question 2

If most employers discriminate on the basis of race,then wage differentials between whites and blacks will certainly occur.

Answer 2

False

Question 3

A worker will not supply any labor when the wage rate is less than the marginal value of leisure.

Answer 3

False

Question 4

There are three types of decision makers in a market economy,consumers,firms and resource suppliers.

Question 5

A technological improvement that is permanent is more likely to raise employment than one that
is temporary.

Question 6

Tastes and preferences are relevant to individual choices for consumption but not relevant to choices for supplying labor.

Question 7

The difference between the earnings of a college graduate and an unskilled worker constitute the rent on human capital.

Question 8

An individual's indifference curves between labor and consumption are upward sloping because both are desired.

Question 9

A permanent increase in workers' marginal productivity causes employment to rise by more than
if the increase were temporary.

Question 10

One reason that the extent of discrimination is difficult to measure is that workers sometimes choose to accept lower-paying jobs even though higher-paying jobs are available.

Question 11

All other things being equal,firms that provide on-the-job training to workers will tend to pay higher wages.

Question 12

Education is partly investment but also partly consumption.

Question 13

If there is discrimination,employers engage in it at a cost.

Question 14

When an increase in marginal productivity increases workers' nonlabor income,the effect on the quantity of labor supplied is ambiguous.

Question 15

Higher wages always cause a worker to increase the quantity of labor supplied.

Question 16

Positive externalities created by human capital provide one explanation of why firms do not move more capital to low-wage areas.

Question 17

The substitution and income effects of a wage increase both cause consumption to rise.

Question 18

A worker's labor supply curve is upward sloping only if the substitution and labor income effects are in the same direction.

Question 19

The slope of the budget line depends on the wage rate and the amount of human capital the worker has accumulated.

Question 20

A worker's labor supply may either rise or fall when nonlabor income increases,depending on whether the substitution effect or the income effect dominates.

Question 21

Because people work more efficiently in periods of high productivity,they tend to work fewer hours because it does not take as long to complete assignments.

Question 22

When the wage rate rises,the substitution effect leads a worker to

A) increase consumption while the income effect leads to a decrease in consumption.
B) decrease consumption while the income effect leads to an increase in consumption.
C) increase consumption,as does the income effect.
D) substitute sleep for other leisure.

Question 23

An increase in a worker's marginal productivity can cause an increase in the worker's non-labor income.

Question 24

In the indifference curve-budget line model of labor supply,the slope of the indifference curves is used to measure

A) the wage rate.
B) labor's marginal product.
C) the worker's nonlabor income.
D) the marginal value of leisure.

Question 25

When does a higher wage rate lead to an increase in the number of work hours supplied by laborers?

A) Always.
B) When the substitution effect outweighs the income effect.
C) When the income effect outweighs the substitution effect.
D) Never.

Question 26

Since mowing ones lawn is not done at their workplace,it is viewed as a use of their leisure time and thus (somewhat paradoxically)falls into the category of leisure.

Question 27

An increase in nonlabor income leads to

A) a fall in the quantity of labor supplied and in consumption.
B) a fall in the quantity of labor supplied but an increase in consumption.
C) an increase in the productivity of labor.
D) a fall in the wage rate.

Question 28

Human capital tends to increase over the course of a person's life.

Question 29

Consider the indifference curve-budget line model of labor supply,and assume consumption and leisure are both normal goods.A higher wage rate would result in

A) more consumption and less leisure.
B) a reduction in the worker's marginal value of leisure.
C) reduced consumption if the income effect is larger than the substitution effect.
D) increased labor only if the substitution effect outweighs the income effect.

Question 30

If providing more labor and consuming less leisure would make a worker better off,then the wage rate must be greater than the worker's

A) marginal revenue product.
B) marginal value of leisure.
C) nonlabor income.
D) human capital.

Question 31

One deficiency of labor-leisure indifference curve analysis is that because indifference curves are always tangent to the worker's budget line,the model can not explain why some people choose not to work.

Question 32

When there is an increase in the wage rate there will be

A) both a substitution effect and an income effect.
B) only a substitution effect.
C) only an income effect.
D) either a substitution effect or an income effect.

Question 33

Attending college can be seen as an individual's attempt to raise their level of human capital.

Question 34

In the indifference curve-budget line model of labor supply,

A) labor is measured along the horizontal axis and leisure is measured along the vertical axis.
B) labor is measured along the horizontal axis and consumption is measured along the vertical axis.
C) consumption is measured along the horizontal axis and labor is measured along the vertical axis.
D) consumption is measured along the horizontal axis and leisure is measured along the vertical axis.

Question 35

Unlike regular indifference curve analysis,that involving the labor consumption trade-off only includes income effects (not substitution effects)because labor only generates income.

Question 36

If a worker has chosen a quantity of labor where the marginal value of leisure exceeds the wage rate,she would be better off by

A) choosing less leisure.
B) providing fewer hours of labor.
C) providing more hours of labor.
D) staying at this combination of labor and consumption.

Question 37

In the indifference curve-budget line model of labor supply,the vertical intercept of the budget line represents

A) the worker's nonlabor income.
B) the wage rate paid to the worker.
C) the number of leisure hours enjoyed by the worker.
D) the number of hours of labor that the worker supplies.

Question 38

The major reason education leads to higher wages is due to signaling.

Question 39

The substitution effect shows that when the wage rate increases

A) an additional hour of labor is not worth pursuing.
B) an additional hour of leisure is now less costly in terms of foregone consumption.
C) an additional hour of leisure is now more expensive in terms of foregone consumption.
D) there will be intertemporal substitution.

Question 40

In the indifference curve-budget line model of labor supply,labor consists of

A) all productive activities outside of the marketplace.
B) working in the marketplace for the going wage.
C) engaging in productive activities,whether in the marketplace or not.
D) working in the marketplace for the going wage and entrepreneurial activities.

Question 41

The decline in the average number of hours worked over the last century from 60 hours to 40 hours can be explained as a consequence of

A) an increase in nonlabor income shifting labor supply to the left.
B) an increase in nonlabor income shifting labor supply to the right.
C) a decrease in the demand for labor.
D) an improved understanding of the importance of sleep to labor productivity.

Question 42

Which of the following situations will shift a worker's labor supply curve to the left?

A) Higher nonlabor income.
B) A lower wage rate,assuming the substitution effect dominates the income effect.
C) New machinery that substitutes for labor and lowers its marginal product.
D) A decrease in the marginal value of leisure.

Question 43

Suppose a permanent technological improvement raises labor's marginal productivity.Whether or not workers own capital,we can conclude that

A) the wage rate will rise.
B) employment will fall.
C) the supply of labor will rise.
D) the demand for labor will fall.

Question 44

When the wage rate rises,a worker chooses to replace some leisure hours with work hours,even if he would remain equally well off.This phenomenon is known as

A) compensating differential.
B) the income effect.
C) the substitution effect.
D) intertemporal substitution.

Question 45

Consider a theory of discrimination based on the assumption that white employees dislike associating with black employees.Such a theory would predict that

A) blacks will be paid a lower wage than whites.
B) the workforce will be heavily segregated.
C) white workers will have better capital than black workers.
D) black unemployment will be higher than white unemployment.

Question 46

When the wage rate rises,a worker is better off and thus chooses to have more leisure and more consumption.This phenomenon is known as

A) compensating differential.
B) the income effect.
C) the substitution effect.
D) intertemporal substitution.

Question 47

Which of the following would cause a rightward shift in the labor demand curve?

A) A rise in the demand for leisure hours.
B) A rise in the wage rate.
C) A rise in workers' marginal productivity.
D) A decline in workers' nonlabor incomes.

Question 48

A worker who brings both labor and human capital to her job earns

A) both the wage rate for her labor and a share in the employer's profits.
B) both the wage rate for her labor and a market rate of return on her skills.
C) the going wage rate for her labor,the benefits of her capital accrue to her employer's owners.
D) both the going wage rate for her labor and annual bonuses based on the level of profits and her skills.

Question 49

When some jobs are inherently more risky or unpleasant than other jobs,different workers will be paid different wages because of

A) differences in human capital.
B) differing access to capital.
C) compensating differentials.
D) discrimination.

Question 50

Moe and Curley have identical skills.Their jobs are identical,except Moe's job provides more on-the-job training experiences than does Curley's job.Who will have the higher observed wage rate?

A) Moe's wage rate will be higher than Curley's.
B) Curley's wage rate will be higher than Moe's.
C) Moe and Curley will be paid the same wage rate.
D) There is insufficient information to determine who will be paid the higher wage.

Question 51

Suppose Afghanistan receives monthly gifts of food and other consumption goods from the world's nations.What effect will these gifts have on the Afghanistan's labor market?

A) The demand for labor will rise.
B) The wage will rise and employment will fall.
C) Fewer jobs will be available and wages will be lower.
D) The gifts will have no effect on the labor market.

Question 52

One theory that predicts sustained wage and rent differentials is based on the idea that your accumulation of human capital raises the productivity of the other workers and the physical capital in your locale.In this situation,human capital accumulation creates

A) a signaling equilibrium.
B) external benefits.
C) compensating differentials.
D) intertemporal substitutions.

Question 53

Suppose a couple's decision about where to live was based on maximizing family income.The wife is offered a job elsewhere paying $35,000 more per year,but the husband would have to take a $60,000 pay cut to move with her so they stay.The fact that the wife's salary is lower than average in her field is a result of

A) compensating differentials.
B) supply decisions by the workers.
C) gender discrimination.
D) differences in human capital.

Question 54

The productive skills resulting from previous investments in education and training are called

A) human capital.
B) signals.
C) compensating differentials.
D) nonlabor income.

Question 55

When is an individual's labor supply curve most likely to be backward bending?

A) When substitution effects are large.
B) When income effects are large.
C) When wages are relatively low.
D) When nonlabor income is low.

Question 56

How does a temporary technological improvement that raises labor's marginal productivity affect the supply of labor?

A) There is no change in labor supply-changes in marginal productivity affect only labor demand.
B) The fall in labor supply is greater than if the improvement were permanent.
C) Labor supply will rise only if employers are willing to pay compensating differentials.
D) Income effects lower labor supply,while intertemporal substitution raises labor supply.

Question 57

All other things being equal,wages will be higher when

A) employers provide less capital for their workers to use.
B) workers choose not to obtain signals like education.
C) workers possess less human capital.
D) the job has unpleasant or risky aspects.

Question 58

When would a rise in labor's marginal productivity lead to a leftward shift in workers' labor supply curve?

A) When workers are employed by a monopsony.
B) When workers earn more nonlabor income from their capital.
C) When workers engage in intertemporal substitution.
D) When workers reduce their investment in human capital.

Question 59

Discrimination is difficult to measure empirically because

A) it is hard to measure and control for differences in marginal productivity.
B) data on racial and gender differences is rarely available.
C) discrimination is practiced by very few employers.
D) economists find no significant wages differentials due to gender or race.

Question 60

If Hispanics are paid less than their marginal product,then

A) cooperation among firms can perpetuate this wage discrimination.
B) employers can engage in discrimination at zero cost.
C) nondiscriminating firms will hire more Hispanics.
D) whites will be paid compensating differentials.

Question 61

A decrease in the wage rate causes the budget line to

A) become flatter.
B) become steeper.
C) shift upward.
D) shift downward.

Question 62

Leisure-Consumption indifference curves

A) slope upward and are concave.
B) slope upward and are convex.
C) slope downward and are concave.
D) slope downward and are convex.

Question 63

Over the past one hundred years,

A) wages rates have decreased,but nonlabor income has increased.
B) wages have increased,but nonlabor income has decreased.
C) both wages and nonlabor income have increased.
D) both wages and nonlabor income have decreased.

Question 64

Consider a technological improvement that raises labor's marginal product.Explain why the subsequent effect on the labor market is different when the improvement is temporary as compared to when it is permanent.

Question 65

Under what circumstances will an individual's labor supply curve become backward bending? Explain.

Question 66

An increase in the marginal productivity of labor will tend to

A) shift the labor supply curve rightward if the change is temporary.
B) result in an increase in employment if the change is temporary.
C) result in an increase in employment if the change is permanent.
D) all of the above.

Question 67

Intertemporal substitution dictates that

A) people will work less in periods of high productivity.
B) people will spend more in periods of high productivity.
C) people will work more in periods of high productivity.
D) people will spend less in periods of high productivity.

Question 68

For which type of job would you expect to see a compensating differential?

A) An accountant.
B) A police officer.
C) A senator.
D) A tele-marketer.

Question 69

An downward shift in a worker's budget line is a result of

A) an increase in the wage rate.
B) a decrease in the wage rate
C) an increase in nonlabor income.
D) a decrease in nonlabor income.

Question 70

Mary is a waitress who,when tips are included,earns $15 per hour.Mary chooses to work 40 hours per week.Assume there are no taxes,so Mary earns $600 per week.A slowdown in the restaurant's business cuts Mary's hourly wage in half,to $7.50 per hour.To compensate Mary for the lost income,Mary's rich parents begin sending a gift of $300 per week.

Question 71

When a payroll tax is imposed,labor is the only source of income that is taxed.When an income tax is imposed,all sources of income are taxed.

Question 72

Explain why many models of discrimination result in the prediction of segregated workforces.