Deck 17: Decisions in Factor Markets

Question 1

An advertising campaign that successfully convinces consumers to buy union- made products has the direct effect of shifting the

A) supply curve of union labour leftward.
B) supply curve of union labour rightward.
C) demand curve for union labour rightward.
D) demand curve for union labour leftward.

Answer 1

demand curve for union labour rightward.

Question 2

If a nonrenewable natural resource's price is expected to increase at a rate faster than the interest rate, then

A) the price today will fall.
B) the supply today will decrease.
C) the demand today will decrease.
D) the supply today will increase.

Answer 2

the supply today will decrease.

Question 3

The marginal cost of labour is defined as the

A) total cost of producing a certain amount of output.
B) additional cost of hiring an additional worker.
C) additional fixed cost of producing an additional unit of output.
D) total cost of hiring an additional worker.

Answer 3

additional cost of hiring an additional worker.

Question 4

A firm in a competitive labour market will hire labour until the value of marginal product of labour equals the

A) firm's marginal cost.
B) firm's average cost.
C) wage rate.
D) firm's marginal revenue.

Question 5

Coal is an example of

A) a casual resource.
B) capital.
C) a nonrenewable natural resource.
D) a renewable natural resource.

Question 6

If people suddenly start to expect the price of oil to rise less rapidly than the interest rate, the demand for oil _______ and the supply of oil _______.

A) decreases; decreases
B) decreases; increases
C) increases; decreases
D) increases; increases

Question 7

In order to hire an additional worker, a monopsony must pay

A) the same wage rate it paid before.
B) a higher wage rate than it paid before.
C) a lower wage rate than it paid before.
D) a wage rate that is sometimes higher, sometimes lower and sometimes the same as before, depending on the elasticity of the supply of labour.

Question 8

Next year's expected price of oil is $88 per barrel and the interest rate is 10 per cent per year. According to the Hotelling Principle, the price of oil this year is

A) $88 per barrel.
B) $96 per barrel.
C) $80 per barrel.
D) None of the above answers is correct.

Question 9

For the past year, Ted has had a part- time job at which he is willing to work 30 hours each week. During Ted's annual review, his boss grants him an 8 per cent increase in his wage. As a result of the wage increase, Ted is now willing to work 25 hours each week. Ted's opportunity cost of _______
Has risen and for Ted the substitution effect of the wage hike is _______ than the income effect.

A) work; greater
B) leisure; less
C) work; less
D) leisure; greater

Question 10

The value of marginal product (VMP) of labour is the extra revenue generated by

A) price discrimination.
B) selling one additional unit of output.
C) raising the price of the good by one dollar.
D) hiring one additional unit of labour.

Question 11

With respect to the labour supply curve, the income effect

A) lowers the opportunity cost of labour.
B) raises the opportunity cost of labour.
C) influences a person to work less as the wage rate increases.
D) reinforces the substitution effect.

Question 12

Winnie's Car Wash is a perfectly competitive firm. The table above shows Winnie's total product schedule. If the price of a car wash is $4 and the wage rate is $70 per day, how many workers should Winnie employ to maximise his profit?

A) 1
B) 2
C) 3
D) 4

Question 13

Which of the following is a method used by unions to increase the demand for their members' labour?

A) Oppose immigration restrictions
B) Oppose minimum wage laws
C) Support import restrictions
D) Decrease the marginal product of union members

Question 14

When Sam's Scarves uses 2 knitting machines and employs 3 people, total revenue is $330 a day. When Sam's Scarves uses 2 knitting machines and employs 4 people, total revenue is $360 a day. The value of marginal product of the fourth worker is _______.

A) $360
B) $110
C) $90
D) $30

Question 15

Winnie's Car Wash is a perfectly competitive firm. The table above shows Winnie's total product schedule. If the price of a car wash is $4, and Winnie maximises his profit when he employs 3 workers, the wage rate is

A) $50 per day.
B) $30 per day.
C) $70 per day.
D) $25 per day.

Question 16

The preceding table gives monthly production information for Peter's Peanuts, a firm in a perfectly competitive industry. An increase in the wage rate for labour leads to

A) an increase in the demand for labour.
B) a decrease in the quantity of labour demanded.
C) a decrease in the demand for labour.
D) an increase in the quantity of labour demanded.

Question 17

Which answer below correctly describes the relationship between the demand for labour curve and the value of marginal product curve for a firm in a competitive labour market?

A) The curves intersect to determine the equilibrium quantity of labour.
B) The value of marginal product curve lies to the right and above the demand for labour curve.
C) The value of marginal product curve lies to the left of the demand for labour curve.
D) The curves are the same.

Question 18

In the short run, _______ increases the quantity of labour demanded by the firm.

A) a decrease in the price of the firm's output
B) an increase in the prices of other factors of production used by the firm
C) a decrease in the wage rate
D) a technological advance that decreases the marginal product of labour

Question 19

The preceding table gives monthly production information for Peter's Peanuts, a firm in a perfectly competitive industry. The market price of peanuts is $2 per kilogram. A worker costs $1,200 per month. How many workers does Peter hire to maximise his profit?

A) Zero
B) Three
C) Four
D) One

Question 20

A firm's demand for labour increases and its demand curve for labour shifts rightward if

A) the price of its product falls.
B) its value of marginal product decreases.
C) an advance in technology increases the marginal product of labour.
D) the wage rate falls.

Question 21

Pointy Stone State Park is the sole employer of naturalists in the area. The table above provides information about the supply of naturalists and the value of marginal product of labour for naturalists. What weekly wage will Pointy Stone State Park pay naturalists?

A) $550 per week
B) $450 per week
C) $500 per week
D) $400 per week

Question 22

If the price of dog grooming increased, then the number of workers hired by Doug's Dog Grooming would

A) increase.
B) decrease.
C) remain unchanged.
D) Any of the above answers is possible.

Question 23

For a perfectly competitive firm, the value of marginal product diminishes as employment increases because the

A) marginal product decreases as the firm's production increases.
B) marginal revenue decreases as the firm's production increases.
C) price falls as the firm's production increases.
D) None of the above answers is correct.

Question 24

If a union is unable to increase the demand for its workers, then success at raising the wage rate paid its members means that

A) all union members receive a higher wage.
B) the union will push for a decrease in the minimum wage.
C) more union members will be hired.
D) some union members will lose their jobs.

Question 25

A minimum wage might increase employment by a monopsony if it makes the supply of labour curve to that firm

A) steeper, that is, makes supply more elastic.
B) flatter, that is, makes supply more elastic.
C) steeper, that is, makes supply less elastic.
D) flatter, that is, makes supply less elastic.

Question 26

The above table has the total product schedule for Joe's Barber Shop. Joe charges $6 per haircut. If the wage rate is $24 per worker, what quantity of labour will maximise profits?

A) 2 workers
B) 5 workers
C) 4 workers
D) 1 worker

Question 27

If Sam decides to work, his

A) reservation wage is greater than his wage rate.
B) value of marginal product equals his wage rate.
C) reservation wage is less than his wage rate.
D) value of marginal product is greater than his wage rate.

Question 28

Which of the following would explain why Josh's Limo Service might increase its demand for limo drivers?

A) A decrease in the demand for limo rides
B) A fall in the price of a taxi ride
C) A rise in the price of a limo ride
D) A rise in the wage paid to limo drivers

Question 29

For the past year, Ted has had a part- time job at which he is willing to work 10 hours each week. During Ted's annual review, his boss grants him an 8 per cent increase in his wage. As a result of the wage increase, Ted is now willing to work 15 hours each week. Ted's opportunity cost of _______
Has risen and for Ted the substitution effect of the wage hike is _______ than the income effect.

A) work; less
B) leisure; less
C) leisure; greater
D) work; greater

Question 30

_______ natural resources are natural resources that can be used repeatedly, and _______ natural resources are natural resources that can be used only once.

A) Renewable; nonrenewable
B) Non- fossil; fossil
C) Nonrenewable; renewable
D) Renewable; hydrocarbon

Question 31

A monopsony pays a wage rate _______ the marginal cost of labour and _______ the value of marginal product of labour.

A) equal to; equal to
B) lower than; equal to
C) equal to; lower than
D) lower than; lower than

Question 32

The demand for labour is a derived demand because it is derived from

A) union pressure.
B) the supply of labour.
C) the demand for the output the labour produces.
D) natural law.

Question 33

Because the marginal cost of labour curve lies above the labour supply curve, a monopsony will pay a wage that is

A) equal to value of marginal product.
B) less than the wage paid in a competitive market.
C) equal to the wage paid in a competitive market.
D) greater than value of marginal product.

Question 34

If a monopsony must negotiate with a union, then the wage will probably be

A) the same as if there had been no union.
B) more than the marginal cost of labour.
C) more than the value of marginal product.
D) more than what it would have been without a union but not more than the value of marginal product.

Question 35

The labour supply curve has a positive slope if the

A) substitution effect outweighs the income effect.
B) demand for labour is inelastic.
C) income effect outweighs the substitution effect.
D) demand for labour is elastic.

Question 36

The income effect means that at a high enough wage rate the labour supply curve has a

A) positive slope because an increase in the wage rate increases income.
B) negative slope because an increase in income increases the demand for leisure.
C) negative slope because an increase in the wage rate increases hours worked to earn more income.
D) positive slope because an increase in income increases the demand for leisure.

Question 37

If the supply of a factor is perfectly inelastic, then

A) the supply curve is horizontal.
B) a fall in price results in no quantity being supplied.
C) sellers will provide whatever quantity is demanded at the going price.
D) no more than the existing quantity can be supplied.

Question 38

Which of the following will increase the wage rate?

A) An improvement in technology that increases the marginal product of labour
B) An increase in the adult population
C) An increase in the retirement age
D) Both answers A and B are correct.

Question 39

If a union can successfully shift the demand curve for union labour rightward, the union can achieve

A) a decrease in both employment and wages.
B) an increase in wages and employment.
C) an increase in wages but a decrease in employment.
D) an increase in employment but a decrease in wages.

Question 40

The preceding table gives monthly production information for Peter's Peanuts, a firm in a perfectly competitive industry. The market price of peanuts is $2 per kilogram. If a worker costs $800 per month, how many workers will Peter employ to maximise profit?

A) Two
B) Four
C) Zero
D) One

Question 41

If a union is able to decrease the supply of workers in a competitive labour market but the union cannot affect the demand for its members' labour, then

A) wages and the quantity of labour hired will both decrease.
B) wages will decrease but the quantity of labour hired will increase.
C) wages and the quantity of labour hired will both increase.
D) wages will increase but the quantity of labour hired will decrease.

Question 42

A market structure in which there is only one buyer is

A) an oligopoly.
B) a competitive market.
C) a monopoly.
D) a monopsony.

Question 43

When the price of the good or service it produces rises, the firm's

A) demand for labour curve shifts rightward.
B) output decreases.
C) demand for labour curve shifts leftward.
D) demand for labour curve remains unchanged.

Question 44

An increase in the marginal product of capital shifts the

A) supply of capital curve rightward.
B) demand for capital curve leftward.
C) demand for capital curve rightward.
D) supply of capital curve leftward.

Question 45

Because a monopsony is the only buyer in a particular market, the

A) supply of labour to the monopsony is perfectly inelastic.
B) supply of labour curve faced by the monopsony is downward- sloping.
C) supply of labour to the monopsony is perfectly elastic.
D) supply of labour curve faced by the monopsony is upward- sloping.

Question 46

For a monopsony, the marginal cost of labour is _______ the wage rate.

A) equal to
B) greater than
C) less than
D) first greater than and later less than

Question 47

Based on the production and revenue data in the above table, if the wage rate is $20 per worker, how many workers will be hired?

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

Question 48

Usually the demand for labour decreases (that is, the demand for labour curve shifts leftward) if the

A) prices of other factors fall.
B) wage rate decreases.
C) price of the firm's output rises.
D) wage rate increases.

Question 49

When a firm faces a labour supply curve that is upward- sloping, the firm must

A) maximise the amount of labour it hires.
B) pay a wage that exceeds the value of marginal product.
C) pay a wage that does not exceed the minimum wage.
D) offer a higher wage if it wishes to hire more workers.

Question 50

As the quantity of labour employed by a firm decreases, labour's _______ increases.

A) average cost
B) marginal revenue
C) marginal cost
D) value of marginal product

Question 51

If the value of marginal product of a factor of production exceeds the price of the factor the

A) firm should hire less of that factor.
B) firm should hire more of that factor.
C) firm is maximising profits.
D) firm should shut down.

Question 52

A decrease in the wage rate

A) shifts the firm's demand for labour curve leftward.
B) shifts the firm's demand for labour curve rightward.
C) leads to a movement along the demand for labour curve but does not shift the curve.
D) None of the above answers is correct.

Question 53

Consider the demand for labour in the computer chip industry. The demand for labour

A) is shown by a perfectly inelastic demand for labour.
B) is shown by a perfectly elastic demand for labour.
C) has a demand curve that is backward- bending.
D) is derived from the demand for computer chips.

Question 54

The demand for a productive resource, not for its own sake, but for use in the production of goods and services is called a _______.

A) derived demand
B) production demand
C) resource demand
D) goods and services demand

Question 55

Water from the Murray River is an example of

A) capital.
B) a nonrenewable natural resource.
C) a renewable natural resource.
D) a static resource.

Question 56

Which of the following groups lists the four factors of production?

A) Labour, capital, land, entrepreneurship
B) Labour, capital, money, entrepreneurship
C) Labour, capital, land, money
D) Labour, money, land, entrepreneurship

Question 57

Other things being equal, a technological change that raises the value of marginal product of capital raises the rental rate of capital because the

A) demand curve for capital shifts leftward.
B) supply curve of capital shifts rightward.
C) demand curve for capital shifts rightward.
D) supply curve of capital shifts leftward.

Question 58

An increase in the price of a firm's output increases the firm's demand for labour because the

A) value of marginal product curve becomes flatter.
B) value of marginal product curve becomes steeper.
C) value of marginal product of each worker increases.
D) marginal product of each worker increases.

Question 59

As a competitive firm hires increasing amounts of labour, the value of marginal product of labour

A) decreases.
B) remains constant.
C) increases.
D) decreases then increases.

Question 60

The table above shows the number of kilograms of bricks that can be produced by the Red Brick Company as the number of workers hired increases. The brick market is perfectly competitive and each kilogram of bricks sells for $20. The labour market is competitive and the wage rate is $30 an hour. When the Red Brick Company maximises its profit, it produces _______ kilograms of bricks an hour.

A) 19
B) 22
C) 21
D) 10

Question 61

Which of the following activities increases the demand for union labour?

A) A decrease in the minimum wage
B) Additional job training for union members
C) An increase in immigration
D) An increased desire by consumers to buy imports

Question 62

As wages rise, the substitution effect induces households to

A) reduce the opportunity cost of leisure.
B) reduce the economic rent from leisure.
C) choose supplying labour in the labour market rather than engage in leisure.
D) choose leisure rather than supplying labour in the labour market.

Question 63

Jose owns a local coffee shop. When Jose calculates how his total revenue changes in response to hiring an extra worker, Jose is calculating the

A) total revenue.
B) marginal product of labour.
C) value of marginal product of labour.
D) marginal revenue.

Question 64

John's reservation wage is $10 per hour. This means that

A) John will supply labour in the market at a wage of $10 and lower.
B) John will work 10 hours per day.
C) John will decrease the hours he works when his wage rate exceeds $10 per hour.
D) John will not supply labour in the market until he receives a wage of at least $10 per hour.

Question 65

Doug's Dog Grooming is a perfectly competitive firm charging $5 per dog grooming. Doug's Dog Grooming has the total and marginal product of labour schedules in the above table and can hire workers from a perfectly competitive labour market for $15 per hour. The profit- maximising level of employment for Doug's Dog Grooming is

A) 6 workers.
B) 4 workers.
C) 2 workers.
D) 1 worker.

Question 66

Because the value of marginal product diminishes as the quantity of labour employed increases, the _______ the wage rate, the _______ workers the firm hires.

A) higher; more
B) lower; more
C) lower; fewer
D) None of the above answers is correct because there is no relationship between the wage rate and the number of workers hired.

Question 67

In the table above, if the wage rate is $8 per hour, the profit- maximising number of workers is

A) 4.
B) 1.
C) 2.
D) 5.

Question 68

The marginal product of labour is the

A) total revenue divided by units of labour.
B) extra revenue gained by selling one more unit of output produced by hiring additional units of labour.
C) change in total product produced by hiring an additional unit of labour.
D) extra revenue gained by employing one more unit of labour.

Question 69

Pointy Stone State Park is the sole employer of naturalists in the area. The table above provides information about the supply of naturalists and the value of marginal product of labour for naturalists. How many naturalists will Pointy Stone State Park hire?

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

Question 70

An example of a bilateral monopoly would be when a union

A) bargains with a monopsony.
B) bargains with a monopoly.
C) bargains with many different employers.
D) deals directly with the final consumers.

Question 71

Which of the following lowers the current price of a nonrenewable natural resource?

A) An increase in the marginal revenue product of the resource
B) An increase in the interest rate
C) A decrease in the stock of the resource
D) An increase in the price of a substitute resource

Question 72

Meredith receives a wage hike. If Meredith decides to work an extra hour,

A) her substitution effect is greater than her income effect.
B) her opportunity cost of leisure is high.
C) she operates on the backward- bending portion of her labour supply curve.
D) her reservation wage rate exceeds her value of marginal product.

Question 73

Sam's Scarves has 2 knitting machines and employs 2 people. They produce 15 scarves a day. If the firm hires an additional person, the 3 workers can produce 19 scarves a day other things remaining the same. The market for scarves is perfectly competitive and the price of a scarf is $20. The value of marginal product of the third worker is _______.

A) $300
B) $380
C) $80
D) 4 scarves

Question 74

The value of marginal product (VMP) of an input such as labour is the

A) extra revenue gained by employing one more unit of the input.
B) additional output produced by the last unit of an input.
C) total revenue divided by the units of the input employed.
D) extra revenue gained by selling one more unit of output.

Question 75

Sun's Petrol Station is a firm operating in a perfectly competitive industry. Sun's Petrol Station sells each litre of petrol for $3. What is the value of marginal product from hiring the fourth worker?

A) $840
B) $2,400
C) $60
D) $120

Question 76

The above table has the total product schedule for Joe's Barber Shop. Joe charges $6 per haircut. If the wage rate falls from $24 per worker to $12 per worker, the quantity of labour hired _______ and the new number of workers employed is _______.

A) decreases; 2
B) increases; 3
C) increases; 2
D) increases; 5

Question 77

The firm's demand for labour is derived directly from _______ .

A) labour's cost
B) the wage rate
C) the supply of labour
D) labour's value of marginal product

Question 78

The quantity of labour demanded by a firm in a competitive labour market is such that the

A) wage rate equals the marginal cost.
B) wage rate equals the marginal product of labour.
C) wage rate equals the value of marginal product of labour.
D) marginal revenue equals the marginal product.

Question 79

Winnie's Car Wash is a perfectly competitive firm. The table above shows Winnie's total product schedule. If the price of a car wash is $4, what is the value of marginal product of the 4th worker?

A) $40
B) $240
C) $70
D) $10

Question 80

A firm's demand for labour

A) always increases when the prices of other factors fall.
B) decreases when the price of the firm's output falls.
C) decreases when the wage rate decreases.
D) increases when the price of the firm's output falls.