Deck 18: Labour Markets, Wages and Industrial Relations

Question 1

A major change in the UK labour market over recent decades has been an increase in

A) full- time employment.
B) service sector employment.
C) manufacturing employment.
D) job security.

Answer 1

service sector employment.

Question 2

When economists assume perfect markets for inputs, such as labour, they are not assuming

A) freedom of entry into all labour markets.
B) workers in any one type of employment are all alike.
C) a minimum wage.
D) workers and employers are price- takers.
E) workers are rational.

Answer 2

a minimum wage.

Question 3

When economists assume perfect markets for inputs, such as labour, they are not assuming

A) rational behaviour by workers and employers.
B) equity.
C) freedom of entry into all labour markets.
D) perfect knowledge by workers and employers.
E) workers are homogenous.

Answer 3

equity.

Question 4

Which of the following changes has occurred in UK labour markets in recent years?

A) A shift from employment in the primary and tertiary sectors to employment in the secondary sector
B) A rise in the proportion of part- time workers
C) A fall in the proportion of workers employed on fixed- term contracts
D) All of the above

Question 5

If input markets were perfectly competitive, income would be unequally distributed because

A) some people have more property.
B) some people have more power.
C) some people are more intelligent.
D) all of the above

Question 6

Which of these is not a determinant of the demand for labour?

A) Derived demand
B) The productivity of labour
C) The wage rate
D) Tuition fees

Question 7

The substitution effect of higher wages suggests that, as the wage rate increases, leisure becomes

A) less expensive and households choose more of it.
B) more expensive and households choose more of it.
C) more expensive and households choose less of it.
D) less expensive and households choose less of it.

Question 8

Economists call the sacrifice involved in working an extra hour the

A) marginal utility of leisure.
B) opportunity cost of leisure.
C) opportunity cost of work.
D) marginal disutility of work.

Question 9

As the wage rate per hour increases, the opportunity cost of leisure

A) may increase or decrease depending on the individual's preferences.
B) decreases since the consumer now has more income to spend.
C) increases since the cost of forgoing one hour of work increases.
D) remains constant.

Question 10

Assuming leisure is a normal good, if the income effect is greater than the substitution effect, a wage increase

A) will have no effect on labour supply.
B) will decrease labour supply.
C) could cause either an increase or a decrease in labour supply.
D) will increase labour supply.

Question 11

If the income effect is smaller than the substitution effect, higher net wages will

A) increase the demand for labour.
B) increase the supply of labour.
C) reduce the supply of labour.
D) have no effect on the supply of labour.

Question 12

The elasticity of supply of labour will be greater when

A) changing jobs is very difficult.
B) big wage increases are on offer.
C) the cost of changing jobs is very high.
D) more time has passed.

Question 13

The elasticity of supply of labour is not affected by

A) current wage rates.
B) the difficulty of changing jobs.
C) time.
D) the cost of changing jobs.

Question 14

An unemployed salesperson has been offered a job paying £500 a week. He turns that job down and continues to search for another job that pays more. The cost of this continued search is

A) the £500 weekly salary that he has forgone to search for another job.
B) the difference between the weekly salary he finally accepts and the £500 weekly salary that he has forgone.
C) £0, since he is currently unemployed.
D) the £500 weekly salary that he has forgone and the monetary costs incurred by continuing to search.

Question 15

Geographical immobility of labour is caused by

A) the costs of moving.
B) moral hazard.
C) people's unwillingness to move.
D) A and C

Question 16

People's inability or unwillingness to change jobs is called

A) occupational immobility.
B) quasi- rent.
C) occupational inertia.
D) transfer earnings.

Question 17

Occupational immobility is not caused by

A) low educational attainment.
B) poor training facilities.
C) fear of the unknown.
D) national wage negotiations.

Question 18

Geographical mobility would be increased by

A) people owning homes rather than renting them.
B) people having fewer family ties.
C) stable house prices.
D) nationally negotiated wage rates.

Question 19

Differences in wages that result from differences in working conditions are known as

A) compensating differentials.
B) occupational differentials.
C) job differentials.
D) search differentials.

Question 20

If output price is constant, the marginal revenue product of labour curve will have the same shape as the

A) marginal cost curve.
B) marginal product of labour curve.
C) total variable cost curve.
D) total product of labour curve.

Question 21

The marginal revenue product of labour is

A) the marginal physical product of capital times the price of labour.
B) the additional revenue the firm makes by selling one more unit of output obtained when more labour is employed.
C) the additional revenue a firm earns by employing one additional unit of labour.
D) the additional profit a firm earns by employing one additional unit of labour.

Question 22

Assume the wage rate is £10 per hour. If two workers produce 500 units per hour and three workers produce 720 units per hour, the marginal revenue product of the third worker is

A) £2,400
B) £7,200
C) £2,200
D) £3,600

Question 23

The formula for the marginal revenue product of labour (where L is labour, X is product) is

A) MPP_L/P_X
B) MPP_L + P_X
C) MPP_L × P_X
D) P_X/MPP_L

Question 24

The profit- maximising level of employment occurs when______equals_________.

A) MRP_L; Q_e
B) MRP_L; MC_L
C) MRP_K; MC_K
D) MC_L;W

Question 25

The firm's demand for labour curve depends on

A) the wage rate.
B) MRP_L and MC₁
C) MC_L
D) MRP_L

Question 26

The elasticity of demand for labour is determined by

A) the proportion of labour for other factors.
B) the price elasticity of demand for the good that labour produces and the substitutability of labour for other factors.
C) time.
D) all the above

Question 27

The elasticity of demand for labour will not be increased by

A) changes in the wage rate in the short run.
B) the ease of substituting labour with other input factors such as machinery.
C) greater price elasticity of demand for the product it produces.
D) rising wages which are a large proportion of total costs.

Question 28

The amount people must be paid to stay in their present job is called

A) occupational immobility allowance.
B) transfer earnings.
C) quasi- rent.
D) occupational inertia.

Question 29

The term 'rent', as it is used by economists, refers to

A) the profit earned by the owner of any housing unit.
B) the return on any factor that is in fixed supply.
C) any profit earned by stockholders when they sell their stock.
D) the amount paid each year by a tenant for a house or flat.

Question 30

The following diagram shows a firm operating in a perfectly competitive labour market.
Which area(s) represent the surplus over the wage bill to the firm?

A) Areas A + C
B) Area B
C) Area C
D) Area A

Question 31

The following diagram shows a firm operating in a perfectly competitive labour market.
Which area(s) represent the wage bill to the firm?

A) Area C
B) Area A
C) Area B
D) Areas A + B

Question 32

The excess a factor is paid over its transfer earnings is

A) economic rent.
B) occupational immobility allowance.
C) quasi- rent.
D) occupational inertia.
E) occupational premium.

Question 33

According to perfect competition wage theory, which of the following will not help wages to be more equal?

A) All workers having the same abilities
B) Perfect mobility of labour
C) Perfect knowledge
D) A national minimum wage

Question 34

According to perfect competition wage theory, better paid workers will be those with

A) long education and/or training.
B) scarce skills.
C) fewer family ties.
D) B and C
E) A, B and C

Question 35

If input markets were perfectly competitive, income would still be unequally distributed because

A) some people have more ability.
B) some people are more intelligent.
C) some people have more property.
D) all of the above

Question 36

By a labour market monopsonist we mean

A) a trade union.
B) a dominant employer.
C) a monopolistic firm.
D) an aggressive employer.

Question 37

Which of the following is not a source of imperfection in labour markets?

A) Workers owning rather than renting houses
B) Workers making irrational job choices
C) Workers not being equally skilled
D) Restrictions on entry to certain jobs

Question 38

Which of the following will increase a trade union's power?

A) New figures that show inflation has fallen
B) A low level of union membership
C) Normal profits for the industry in question owing to lower demand
D) High levels of unemployment
E) Reduced competition for the firm's products from abroad

Question 39

The following diagram shows a monopsony employer.
What is the profit- maximising wage for the employer to pay?

A) W₂
B) W₃
C) W₁
D) Somewhere between W₁ and W₃, but it is impossible to say the precise wage rate without more information

Question 40

In negotiating with trade unions, an employer's power can depend on

A) credit- worthiness.
B) co- operation with other employers.
C) A and B
D) neither A nor B

Question 41

If a minimum wage is adopted, a profit- maximising monopsony will respond by employing

A) fewer workers.
B) more workers.
C) the same number of workers.
D) any of the above

Question 42

In negotiating with an employer, a trade union's power can depend on

A) support from its members.
B) unemployment levels.
C) A and B
D) neither A nor B

Question 43

Which one of the following is not a feature of the efficiency wage hypothesis?

A) Paying an efficiency wage helps to reduce labour turnover and encourages firms to offer more training to their workers.
B) Workers respond to the incentive of higher wages by shirking less.
C) There are circumstances in which a firm will find it desirable to offer wages above the market- clearing rate.
D) It is efficient for a firm to offer a market- clearing wage.

Question 44

Firms may be willing to pay wages above the market- clearing rate because

A) it may raise profits by raising productivity.
B) it may raise profits by reducing labour turnover.
C) it may raise profits by raising the AC curve.
D) A and B

Question 45

Owing to the principal- agent problem involved in the employment relationship between workers and employers

A) workers may work longer hours.
B) workers may join trade unions.
C) employers may pay lower wages.
D) employers may link pay more closely with output.

Question 46

If labour market discrimination crowds women into a limited number of occupations, then

A) wages of men will be higher, but the marginal productivity of men will be lower than it would be otherwise.
B) both the wages and the marginal productivity of men will be higher than they would be otherwise.
C) both the wages and the marginal productivity of men will be lower than they would be otherwise.
D) the wages of men will be lower, but the marginal productivity of men will be higher than it would be otherwise.

Question 47

An equitable distribution of income means that

A) there is an equal distribution.
B) there is a long- run equilibrium distribution.
C) there is a fair distribution.
D) there is an efficient distribution.

Question 48

The stock of knowledge, skills and talents that people possess is called

A) skill capital.
B) training investment.
C) skill- building investment.
D) human capital.

Question 49

What is a primary labour market?

A) The market for workers that are frequently demanded
B) The market for workers in the agricultural, forestry and fishing industries
C) The market for workers with specialist skills (lawyers, biologists, etc.)
D) The market for full- time permanent workers

Question 50

What is a secondary labour market?

A) The market for workers in the agricultural, forestry and fishing industries
B) The market for peripheral workers (part- time, temporary, etc.)
C) The market for workers that are less frequently demanded
D) The market for workers without specialist skills

Question 51

The Flexible Firm Model suggests that such firms will be able to

A) hire and dismiss workers when they want.
B) offer job security to their workers.
C) switch workers between jobs.
D) A, B and C
E) A and C

Question 52

The Japanese model of industrial production involves all except which one of the following?

A) Flexible use of labour
B) Just- in- time methods
C) Large stock holding to guarantee supplies in the event of demand fluctuations
D) Total Quality Management

Question 53

Which one of the following is not a typical feature of the flexible firm in employing and deploying labour?

A) Financial flexibility
B) Functional flexibility
C) Managerial flexibility
D) Numerical flexibility

Question 54

The main types of flexibility in the use of labour are

A) numerical flexibility.
B) functional flexibility.
C) financial flexibility.
D) all of the above

Question 55

A perfect labour market is one where neither employers nor trade unions determine wages.

Question 56

Part- time employment in the UK is a higher percentage of total employment than in the whole of the EU.

Question 57

Female participation rates have increased in recent decades.

Question 58

Wage rates are the price of labour.

Question 59

If the marginal cost of labour exceeds the marginal revenue product of labour, then profit maximisation implies that the firm should employ more workers.

Question 60

If labour markets were perfect there would be no age or sex discrimination.

Question 61

The position of the labour supply curve is not affected by current wage rates.

Question 62

People's inability or unwillingness to change jobs is called occupational inertia.

Question 63

The supply curve of labour to an individual employer in perfect competition will be perfectly elastic.

Question 64

In perfect competition a worker's wage will equal MRP.

Question 65

A firm's marginal revenue product curve shifts to the left if the market demand curve for the final product shifts to the right.

Question 66

If a trade union negotiates a productivity deal, then the wage increase will be above any productivity increase.

Question 67

A monopsonist is a trade union which has a single union agreement with an employer.

Question 68

Consider a union negotiating with a firm. If figures are published showing that the firm's profits for the last year were less than anticipated, this will reduce the union's power.

Question 69

In negotiating with an employer, a trade union's power can depend on support from its members and unemployment levels.

Question 70

The efficiency wage hypothesis states that a worker's productivity is independent to the wage he or she receives.

Question 71

If an employer has a labour force that has functional flexibility, then its employees are capable of switching between jobs with relative ease.

Question 72

One of the main types of flexibility in the use of labour is wage flexibility.

Question 73

What is a derived demand?

Question 74

What are the main factors affecting the price elasticity of supply of labour?

Question 75

Define the substitution effects and income effect of a rise in wage rates.

Question 76

What is the connection between transfer earnings and economic rent?

Question 77

If labour markets were perfect, would all wage rates be equal?

Question 78

A worker 'moonlights' because he is limited to a fixed number of hours of work in his regular job which is less than he would choose. If leisure is a normal good, what will be the effect on the number of hours of moonlighting he does if the wage rate in his regular job is increased?

Question 79

If we produced as much as French workers per hour, why would it be possible for us to take Fridays off and not receive a pay cut?

Question 80

If employers are under perfect competition, why will a trade union only be able to force wages up at the expense of employment?