Deck 10: The Labor Market and the Distribution of Income

Question 1

When a firm hires a worker for one hour, the marginal benefit to that firm equals the

A) dollar value of the goods produced by that worker in one hour.
B) hourly wage of that worker.
C) number of items the worker produces in that hour.
D) price of each item that the worker produces in that hour.

Answer 1

dollar value of the goods produced by that worker in one hour.

Question 2

Other things being equal, as diminishing marginal returns begin to occur, the marginal revenue product of labor

A) decreases as more workers are used.
B) increases as more workers are used.
C) remains unchanged as more workers are used.
D) none of the above

Answer 2

decreases as more workers are used.

Question 3

In the short run, the marginal-revenue product curve is ________ because of ________.

A) downward sloping; diminishing returns
B) upward sloping; increasing returns
C) downward sloping; increasing returns
D) upward sloping; diminishing returns

Answer 3

downward sloping; diminishing returns

Question 4

Applied to perfectly competitive labor markets, the marginal principle tells firms to hire workers until

A) the marginal revenue product of the last worker hired equals the wage.
B) marginal productivity begins to diminish.
C) average total costs are minimized.
D) the price of the product equals the wage of the worker.

Question 5

A curve that shows the relationship between the wage and the quantity of labor demanded in the short run is

A) the marginal revenue product of labor curve.
B) the marginal revenue curve.
C) the marginal product of labor curve.
D) none of the above.

Question 6

In a perfectly competitive labor market, the firm ________ the price of its product and ________ the wage it pays its workers.

A) takes from the market; takes from the market
B) can freely set; takes from the market
C) takes from the market; can freely set
D) can freely set; can freely set

Question 7

The marginal revenue product of labor is the

A) change in labor necessary to produce an additional unit of output.
B) cost of additional labor necessary to produce an additional unit of output.
C) change in output resulting from adding an additional unit of labor.
D) change in revenue resulting from adding an additional unit of labor.

Question 8

The marginal product of labor is the

A) change in labor necessary to produce an additional unit of output.
B) cost of additional labor necessary to produce an additional unit of output.
C) change in output resulting from adding an additional unit of labor.
D) change in revenue resulting from adding an additional unit of labor.

Question 9

When a firm hires a worker for one hour, the marginal cost to that firm equals the

A) hourly wage of that worker.
B) diminishing marginal productivity of that worker.
C) price of each item that the worker produces in that hour.
D) average total cost of production at the quantity produced.

Question 10

Table 10.1
Refer to Table 10.1. The marginal product of the fifth unit of labor is

A) 8.
B) 40.
C) 50.
D) 250.

Question 11

The demand for labor is called a "derived demand" because it is

A) derived from the demand for the products it is used to produce.
B) affected by the demand for consumer products workers produce.
C) affected by the price of consumer products workers produce.
D) all of the above.

Question 12

Table 10.1
Refer to Table 10.1. The marginal product of the third unit of labor is

A) 30.
B) 50.
C) 60.
D) 160.

Question 13

The demand for labor is

A) derived from the demand for the products it is used to produce.
B) determined by the demand for consumer products.
C) determined by the price of consumer products.
D) all of the above.

Question 14

If the price of output increases, the marginal revenue product curve will shift ________ and the profit maximizing quantity of labor demanded will ________.

A) up; increase
B) up; decrease
C) down; increase
D) down; decrease

Question 15

Labor costs account for approximately ________ of total production costs.

A) three-fourths
B) half
C) one-fourth
D) one-third

Question 16

Table 10.1
Refer to Table 10.1. The marginal product of the fourth unit of labor is

A) 40.
B) 50.
C) 52.5.
D) 210.

Question 17

Table 10.1
Refer to Table 10.1. If the price of output is $2 per unit, the marginal revenue product of the eighth unit of labor is

A) $10.
B) $20.
C) $310.
D) $620.

Question 18

Table 10.1
Refer to Table 10.1. If the price of output is $2 per unit, the marginal revenue product of the fourth unit of labor is

A) $50.
B) $52.50.
C) $100.
D) $105.

Question 19

If labor productivity increases, the marginal revenue product curve will shift ________ and the profit maximizing quantity of labor demanded will ________.

A) up; increase
B) up; decrease
C) down; increase
D) down; decrease

Question 20

Table 10.1
Refer to Table 10.1. If the price of output is $10 per unit, the marginal revenue product of the third unit of labor is

A) $50.
B) $60.
C) $500.
D) $600.

Question 21

Figure 10.1
Figure 10.1 depicts a firm's marginal revenue product curve. If the product price is $2, what is the marginal product of the 30th hour of labor?

A) 5 units
B) 6 units
C) 7 units
D) 8 units

Question 22

Table 10.2
Refer to Table 10.2. If the price of output is $1 per unit and we observe the firm hiring four workers, if the firm is maximizing profit, the wage rate must be between ________ and ________.

A) $35; $40
B) $30; $35
C) $45; $60
D) $80; $90

Question 23

Table 10.2
Refer to Table 10.2. If the price of output is $2 per unit and we observe the firm hiring four workers, if the firm is maximizing profit, the wage rate must be between ________ and ________.

A) $25; $45
B) $30; $35
C) $45; $60
D) $60; $80

Question 24

Table 10.1
Refer to Table 10.1. Suppose that this year the wage rate is $30 and the price of the good is $1. If the firm is maximizing profit ________ workers will be hired. Next year the wage rate will increase to $40, but the price of the good will remain at $1. Then ________ workers will be hired.

A) 6; 5
B) 6; 6
C) 7; 6
D) 5; 5

Question 25

Table 10.1
Refer to Table 10.1. If the price of output is $2 per unit and the wage rate is $60, ________ workers should be hired.

A) five
B) six
C) seven
D) eight

Question 26

Table 10.2
Refer to Table 10.2. If the price of output is $10 per unit, the marginal revenue product of the third unit of labor is

A) $50.
B) $60.
C) $500.
D) $600.

Question 27

Table 10.2
Refer to Table 10.2. The marginal product of the seventh unit of labor is

A) 50.
B) 40.
C) 30.
D) 10.

Question 28

Table 10.1
Refer to Table 10.1. If the price of output is $2 per unit and we observe the firm hiring six workers, if the firm is maximizing profit, the wage rate must be between ________ and ________.

A) $20; $40
B) $30; $50
C) $40; $60
D) $500; $600

Question 29

Figure 10.1
Figure 10.1 depicts a firm's marginal revenue product curve. If the firm maximizes its profit and the hourly wage is $15, how many hours of labor will the firm demand?

A) smaller than 30 hours
B) between 30 hours and 40 hours
C) between 40 hours and 50 hours
D) greater than 50 hours

Question 30

Figure 10.1
Figure 10.1 depicts a firm's marginal revenue product curve. The marginal revenue product curve is negatively sloped because ________ decreases as the firm uses more labor.

A) the hourly wage
B) the marginal product of labor
C) the product price
D) none of the above

Question 31

Table 10.2
Refer to Table 10.2. If the price of output is $2 per unit and the wage rate is $50, how many workers should be hired?

A) three workers
B) four workers
C) five workers
D) six workers

Question 32

Figure 10.1
Figure 10.1 depicts a firm's marginal revenue product curve. If the firm maximizes its profit and the hourly wage is $12, how many hours of labor will the firm demand?

A) smaller than 30 hours
B) between 30 hours and 40 hours
C) between 40 hours and 50 hours
D) greater than 50 hours

Question 33

Table 10.2
Refer to Table 10.2. The marginal product of the third unit of labor is

A) 25.
B) 50.
C) 60.
D) 160.

Question 34

Figure 10.1
Figure 10.1 depicts a firm's marginal revenue product curve. If the product price decreases, the marginal revenue product curve

A) shifts downward.
B) shifts upward.
C) remains the same.
D) none of the above

Question 35

Table 10.2
Refer to Table 10.2. If the price of output is $2 per unit and the wage rate is $40, how many workers should be hired?

A) six workers
B) five workers
C) four workers
D) three workers

Question 36

Table 10.2
Refer to Table 10.2. If the price of output is $10 per unit, the marginal revenue product of the sixth unit of labor is

A) $20.
B) $50.
C) $200.
D) $500.

Question 37

Table 10.2
Refer to Table 10.2. The marginal product of the fifth unit of labor is

A) 50.
B) 40.
C) 30.
D) 20.

Question 38

Table 10.1
Refer to Table 10.1. If the price of output is $2 per unit and we observe the firm hiring four workers, if the firm is maximizing profit, the wage rate must be between ________ and ________.

A) $40; $50
B) $50; $90
C) $80; $100
D) $320; $500

Question 39

Figure 10.1
Figure 10.1 depicts a firm's marginal revenue product curve. Why does the marginal revenue product of labor decrease faster as the firm increases its use of labor by 10 hours?

A) because the marginal product of labor decreases at an increasing rate
B) because the marginal product of labor decreases at a decreasing rate
C) because the marginal product of labor increases at an increasing rate
D) because the marginal product of labor increases at a decreasing rate

Question 40

Figure 10.1
Figure 10.1 depicts a firm's marginal revenue product curve. If the product price is $4, what is the marginal product of the 40th hour of labor?

A) 4 units
B) 3.5 units
C) 3 units
D) 2.5 units

Question 41

Figure 10.1
Figure 10.1 depicts a firm's marginal revenue product curve. If the prevailing hourly wage increases

A) the marginal revenue product curve shifts upward.
B) the marginal revenue product curve shifts downward.
C) the marginal revenue product curve does not shift but there is a movement upward along the curve.
D) the marginal revenue product curve does not shift but there is a movement downward along the curve.

Question 42

The input-substitution effect of an increase in the wage comes about because higher wages

A) increase production costs, and final good prices will rise, reducing the quantity demanded of the product.
B) increase production costs, and final good prices will rise, increasing the quantity demanded of the product.
C) make labor less expensive as an input, leading firms to switch to labor as an input.
D) make labor more expensive as an input, leading firms to switch to other inputs.

Question 43

In less-developed countries the ________ effect leads to ________.

A) input-substitution; labor intensive production
B) input-substitution; mechanized production
C) output effect; labor intensive production
D) input effect; mechanized production

Question 44

The market demand curve for labor is the relationship between the wage and the quantity of labor that

A) all workers are willing to provide.
B) any given worker is willing to provide.
C) all firms are willing to employ.
D) any given firm is willing to employ.

Question 45

Figure 10.2
Figure 10.2 depicts a firm's marginal revenue product curve. If the output price is $5, what is the marginal product of the third worker?

A) four units of output
B) five units of output
C) six units of output
D) seven units of output

Question 46

Recall the Application about the salaries paid in Major League Baseball to answer the following question(s). Some Major League Baseball players are free agents, meaning they are free to negotiate a contract with any team. Other players are journeymen and apprentices, who are restricted to a single team.
Recall the Application. On average, free agents in Major League Baseball tend to be paid a salary ________ their marginal revenue product.

A) significantly higher than
B) significantly lower than
C) close to
D) unrelated to

Question 47

If the principles of economics section is three credit hours and an instructor teaches two sections with 100 students in each and tuition and fees at your school are $100 per credit hour, then the marginal revenue product for your school from hiring that instructor that semester is

A) $100.
B) $300.
C) $30,000.
D) $60,000.

Question 48

The long-run labor demand curve is

A) more elastic than the short-run labor demand curve.
B) less elastic than the short-run labor demand curve.
C) either more or less elastic than the short-run labor demand curve.
D) perfectly elastic (horizontal).

Question 49

The change in the quantity of labor demanded resulting from a change in the quantity produced of the product is known as the ________ effect.

A) input-substitution
B) price elasticity
C) output
D) derived demand

Question 50

Which of the following is a long-run impact of an increase in the wage?

A) The quantity demanded of labor increases because there are no diminishing returns.
B) The quantity demanded of labor increases because the marginal revenue product curve shifts upward due to a higher product price.
C) The quantity demanded of labor decreases because firms face a higher degree of diminishing returns.
D) The quantity demanded of labor decreases because firms will have an incentive to use more of other inputs instead of labor.

Question 51

The change in the quantity of labor demanded resulting from a change in the relative cost of labor is known as the ________ effect.

A) input-substitution
B) price elasticity
C) output
D) derived demand

Question 52

Figure 10.2
Figure 10.2 depicts a firm's marginal revenue product curve. If the wage rate is $15, how many workers will the firm demand?

A) four workers
B) five workers
C) six workers
D) seven workers

Question 53

Figure 10.2
Figure 10.2 depicts a firm's marginal revenue product curve. Suppose that we observe the firm demanding three workers. If the firm is maximizing its profit, the wage rate must be between ________ and ________.

A) $30; $35
B) $25; $30
C) $20; $25
D) $15; $20

Question 54

The output effect of an increase in the wage comes about because higher wages

A) increase production costs, and final good prices will rise, reducing the quantity demanded of the product.
B) increase production costs, and final good prices will rise, increasing the quantity demanded of the product.
C) make labor less expensive as an input, leading firms to switch to labor as an input.
D) make labor more expensive as an input, leading firms to switch to other inputs.

Question 55

Figure 10.2
Figure 10.2 depicts a firm's marginal revenue product curve. Suppose that we observe the firm demanding five workers. If the firm is maximizing its profit, the wage rate must be between ________ and ________.

A) $5; $10
B) $10; $15
C) $15; $20
D) $25; $30

Question 56

The short-run labor demand curve is

A) more elastic than the long-run labor demand curve.
B) less elastic than the long-run labor demand curve.
C) either more or less elastic than the long-run labor demand curve.
D) perfectly elastic (horizontal).

Question 57

Figure 10.1
Figure 10.1 depicts a firm's marginal revenue product curve. If the prevailing hourly wage decreases

A) the marginal revenue product curve shifts upward.
B) the marginal revenue product curve shifts downward.
C) the marginal revenue product curve does not shift but there is a movement upward along the curve.
D) the marginal revenue product curve does not shift but there is a movement downward along the curve.

Question 58

If the principles of economics section is three credit hours and an instructor teaches two sections with 100 students in each and tuition and fees at your school are $500 per credit hour, then the marginal revenue product for your school from hiring that instructor that semester is

A) $500.
B) $1500.
C) $150,000.
D) $300,000.

Question 59

Figure 10.2
Figure 10.2 depicts a firm's marginal revenue product curve. If the marginal product of the second worker is 10 units of output, what is the price of output?

A) $3
B) $4
C) $5
D) $6

Question 60

Figure 10.1
Figure 10.1 depicts a firm's marginal revenue product curve. If the product price increases, the marginal revenue product curve

A) shifts downward.
B) shifts upward.
C) remains the same.
D) none of the above

Question 61

If Jerry's demand for leisure increases as the wage increases

A) the income effect dominates the substitution effect.
B) the substitution effect dominates the income effect.
C) the income effect is completely offset by the substitution effect.
D) There is insufficient information.

Question 62

What is the output effect?

Question 63

When wages increase, the income effect of labor supply ________ the quantity of labor supplied because ________.

A) reduces; the price of leisure has increased
B) reduces; workers acquire more of all normal goods (including leisure) when income increases
C) increases; the value of working has increased
D) increases; the price of leisure has increased

Question 64

According to the output effect, a decrease in the wage will decrease production costs, so the price of final goods will decrease and the demand for labor will decrease.

Question 65

Why is the demand for labor downward sloping in the short run?

Question 66

The output effect is the change in labor supply due to a change in the quantity of output produced.

Question 67

Explain why the marginal revenue product of labor curve is the firm's short-run demand curve for labor.

Question 68

What is the input-substitution effect?

Question 69

The input-substitution effect associated with an increase in the wage implies that as the wage increases, a firm will substitute other inputs for the relatively expensive labor.

Question 70

The price of an hour of leisure time is

A) the income that could have been earned in that hour.
B) zero.
C) the minimum wage rate.
D) determined by the value of the activity the person engages in during that hour of leisure.

Question 71

Recall the Application about the salaries paid in Major League Baseball to answer the following question(s). Some Major League Baseball players are free agents, meaning they are free to negotiate a contract with any team. Other players are journeymen and apprentices, who are restricted to a single team.
Recall the Application. On average, apprentices in Major League Baseball tend to be paid a salary ________ their marginal revenue product.

A) significantly higher than
B) significantly lower than
C) close to
D) unrelated to

Question 72

According to the substitution effect of labor supply, when the wage rate goes up

A) it becomes more costly to consume leisure, so people will work more.
B) it becomes less costly to consume leisure, so people will work more.
C) the opportunity cost of enjoying leisure goes down.
D) firms will hire more workers since people are more willing to work.

Question 73

The price of an hour of leisure time for a successful lawyer is ________ the price of an hour of leisure for an unemployed high school drop-out.

A) greater than
B) the same as
C) less than
D) impossible to compare to

Question 74

According to the income effect of labor supply, if leisure is a normal good, then an increase in the wage rate will ________ the quantity of labor ________.

A) increase; supplied
B) decrease; supplied
C) increase; demanded
D) decrease; demanded

Question 75

The relationship between the wage and the quantity of labor that a given worker is willing to provide is called

A) individual labor demand.
B) market labor demand.
C) individual labor supply.
D) market labor supply.

Question 76

Marginal revenue product is the additional revenue for the firm when it hires one additional unit of labor.

Question 77

When wages increase, the income effect ________ the supply of labor and the substitution effect ________ the supply of labor.

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

Question 78

The input-substitution effect associated with an increase in the wage implies that as the wage increases, a firm will substitute other inputs for the relatively expensive labor.

Question 79

Marginal revenue product equals marginal revenue times the price of output.

Question 80

For a perfectly competitive firm, the marginal-revenue product curve is the same as the firm's short run demand for labor curve.