Deck 14: Labor

Question 1

The hiring rule for the perfect competitor in the labor market is to choose that amount of labor for which the wage rate is exactly equal to

A)marginal revenue from the sale of one more unit of output.
B)the cost of capital.
C)the value of the marginal product of labor, VMPL.
D)MC.

Answer 1

C

Question 2

We see a backward-bending labor supply curve whenever

A)minimum wages are set too low.
B)minimum wages are set too high.
C)the income effect dominates the substitution effect over some range of wage rates.
D)the substitution effect dominates the income effect over some range of wage rates.

Answer 2

C

Question 3

Say a firm that sells its product at a price of $20 is using 20 units of labor. If the marginal product of the last unit of labor hired was 10, and the firm pays each worker a wage of $40, then this firm should

A)hire more workers.
B)decrease the number of workers.
C)keep the same number of workers.
D)decrease its output.

Answer 3

A

Question 4

The value of the marginal product of labor, VMPL, for the perfectly competitive firm equals

A)the total revenue the firm will get by selling the equilibrium amount of output.
B)the extra revenue the firm gets by selling the output of one additional unit of labor.
C)the revenue from the sale of one more unit of output.
D)the price of the product being produced by labor.

Question 5

If the marginal product of the fifth person employed is 10 and the product price is $5, then the VMPL is

A)$10.
B)$50 if the product market is perfectly competitive.
C)$15.
D)More than $50 if the product market is monopolistic.

Question 6

The market supply curve for any particular category of labor is

A)likely to be backward-bending.
B)likely to be upward sloping.
C)equal to the horizontal summation of the VMPL curves for that category of labor.
D)steeper than the horizontal summation of the VMPL curves for that category of labor.

Question 7

The upward sloping portion of the supply curve for labor implies that

A)higher wages lead to an increase in hours of work supplied.
B)the law of diminishing returns has settled in.
C)higher wages lead to fewer hours of work supplied.
D)a minimum wage law is in effect.

Question 8

The market demand for labor is

A)steeper than the horizontal summation of the individual demand curves.
B)less steep than the horizontal summation of the individual demand curves.
C)as steep as the horizontal summation of the individual demand curves.
D)less steep than the individual demand curves.

Question 9

The demand for labor curve will be less elastic for the industry than for the firm because

A)if all firms hire more labor, increased output will lower product price and therefore the marginal revenue product curve.
B)if all firms hire more labor, the product price will rise.
C)if all firms hire more labor, diminishing returns will not set in as quickly.
D)industry demand for labor is more elastic than the firm's demand for labor.

Question 10

The market demand for labor is

A)more elastic in the long run than in the short run.
B)more elastic in the short run than in the long run.
C)unaffected by time differences.
D)never elastic in the relevant range.

Question 11

The "backward bending" portion of the labor supply curve implies that

A)higher wages lead to an increase in hours of work supplied.
B)the law of diminishing returns has settled in.
C)higher wages lead to fewer hours of work supplied.
D)a minimum wage law is in effect.

Question 12

The hiring rule for a firm that faces a downward sloping demand curve for its output is to hire that amount of labor for which the wage rate is equal to

A)marginal revenue.
B)the price of the good being sold.
C)VMPL.
D)MRPL.

Question 13

If the MRPL is greater than the wage rate, and the supply of labor is horizontal, the firm will

A)hire more labor.
B)hire less labor.
C)increase the wage paid.
D)not change its employment or wage practices.

Question 14

In the short run, a profit maximizing firm will respond to a reduction in the wage rate by

A)hiring more labor.
B)hiring more capital.
C)hiring less labor.
D)decreasing output.

Question 15

Economic theory supports the view that increasing the minimum wage will

A)increase the employment of teenagers.
B)decrease the employment of teenagers.
C)decrease the employment of unionized labor.
D)increase the number of monopsony firms.

Question 16

The income effect of an increase in the wage rate on the quantity of leisure demanded

A)makes leisure more expensive which leads people to work more.
B)makes leisure less expensive which causes people to work less.
C)gives people more purchasing power and causes people to work less.
D)gives people less purchasing power and so they will work more.

Question 17

Which of the following labor demand curves will be the least elastic?

A)The long-run demand for labor for an inelastic product
B)The short-run demand for labor for an inelastic product
C)The long-run demand for labor for an elastic product
D)The short-run demand for labor of a firm with L-shaped Isoquants

Question 18

The substitution effect of an increase in the wage rate on the quantity of leisure demanded

A)makes leisure more expensive which leads people to work more.
B)makes leisure less expensive which causes people to work less.
C)gives people more purchasing power and causes people to demand more leisure.
D)gives people less purchasing power and so they will demand less leisure.

Question 19

Say a worker sees work and leisure as perfect complements with a ratio of 5 to 1 (requiring 1 hour of leisure for every $5 in income). If this worker earned a wage of $10 her optimal demand for leisure would be:

A)16.
B)20.
C)24.
D)10.

Question 20

For the monopolist,

A)decreasing returns to scale cause the short-run demand curve for labor to be downward sloping.
B)increasing returns to scale cause the short-run demand curve for labor to be downward sloping.
C)an upward sloping marginal revenue curve causes its demand for labor to be downward sloping.
D)diminishing returns to production and a falling product price as output increases causes the short-run demand curve for labor to be downward sloping.

Question 21

Proponents of the minimum wage implicitly assume that the ____ if they discount the unemployment effects of the policy.

A)supply curve for unskilled workers is inelastic
B)supply curve for unskilled workers is highly elastic
C)demand curve for unskilled workers is inelastic
D)demand curve for unskilled workers is highly elastic

Question 22

If an additional worker costs you $15 per hour and can add 10 units per hour of output to the firm, you should hire that person as long as

A)the value of marginal product is between $10 and $14.
B)the product price is at least $1.50.
C)the marginal product of the worker is greater than the value of the marginal product.
D)demand for your product is increasing and you sell in a competitive market.

Question 23

Which of the following two statements is true of the graph shown below? Statement 1: The graph leads to a supply of labor curve that is positively sloped throughout.
Statement 2: The opportunity cost of leisure is lower at point A than at pointD.

A)Statement 1
B)Statement 2
C)Both statements are true
D)None of the statements is true

Question 24

The competitive labor market model suggests that the persistence of significant employer discrimination requires the owners of the firm to

A)supply capital at a rate of return higher than what they could earn by investing their money elsewhere.
B)supply capital at a rate of return below what could be earned elsewhere.
C)hire a quantity of labor in which VMPL exceeds the wage rate.
D)engage in collusion.

Question 25

Which of the following would cause the demand curve for automobile workers to increase?

A)A decrease in price in automobiles.
B)A better organized assembly line where specialization increased output.
C)Higher social security taxes.
D)Higher gas prices.

Question 26

Which of the equilibrium points on the leisure-income graph below has a wage rate of $4 per hour?

A)a
B)b
C)c
D)d

Question 27

If minimum wages in a monopsony labor market are set above the firm's MFC at its initial hiring level, the effect would be to

A)increase the hiring of unskilled workers.
B)increase productivity.
C)reduce factor costs.
D)reduce employment.

Question 28

Pay rates within a firm seem to show less variation than marginal productivity rate differences. This is because

A)firms cannot measure marginal productivity accurately.
B)firms compensate their high producers with non-monetary perks.
C)social norms do not allow employers to pay high productivity wages.
D)as much as possible firms try to pay employees the same rate for fairness reasons.

Question 29

Imagine that there is a group of workers, group B, which has an average productivity of $9 per hour. Suppose workers from group A have an average productivity of $15 per hour and that employers have a productivity test that is 100% accurate 1/3 of the time, but has no value 2/3 of the time. If a worker from group B took the same productivity test that was given to workers in group A, what is the best estimate of the VMP for this worker if his test score is $21 per hour?

A)$13
B)$18
C)$17
D)$21

Question 30

Suppose workers from group A have an average productivity of $15 per hour and that employers have a productivity test that is 100% accurate 1/3 of the time, but has no value 2/3 of the time. What is the best estimate of the VMP of a worker from group A with a test score of $21 per hour?

A)$13
B)$18
C)$17
D)$21

Question 31

Opponents of the minimum wage law implicitly assume that the _____ if they worry about the unemployment effects of the policy.

A)supply curve for unskilled workers is inelastic
B)supply curve for unskilled workers is highly elastic
C)demand curve for unskilled workers is inelastic
D)demand curve for unskilled workers is highly elastic

Question 32

The optimal level of employment for a monopsonist is set at the point where the

A)wage rate equals the VMPL.
B)wage rate equals the marginal factor cost.
C)marginal factor cost equal to the MRPL.
D)supply of labor equals the marginal factor cost.

Question 33

Why is it difficult to get a cab on a rainy day?

A)Cab drivers have backward bending daily supply curve
B)Cab drivers must drive much slower when it rains
C)The demand for cabs shifts left and the quantity of cabs supplied falls
D)Cabs don't like to work on rainy day

Question 34

If 9 units of labor will be supplied if the wage rate is $12 and 10 units of labor will be supplied if the wage rate is $14, then the marginal factor cost for the tenth unit of labor is

A)less than $12.
B)$12.
C)between $12 and $14.
D)more than $14.

Question 35

When an employer's information indicates that two individuals have exactly the same productivity, there will be competitive pressure to

A)pay lower wages to the person who belongs to the group with the higher average productivity.
B)pay both workers the same wage rate even if one worker belongs to a group with a higher average productivity.
C)pay higher wages to the person who belongs to the group with the higher average productivity.
D)not hire the person who belongs to the lower average production group.

Question 36

(Appendix) If relative income standing and job safety both matter, then

A)a prisoner dilemma problem may result where optimality requires collusion or a law requiring cooperation.
B)a free market environment for choosing both objectives can bring optimality.
C)if no legislation occurs, workers will be unsafe and less equal in income standing.
D)workers will always be able to find the best suitable job.

Question 37

Which phrase finishes this statement best? The net effect of a union increasing wages

A)is to lower non-union wages by an offsetting amount so national income is not changed.
B)is to increase wages in both union and non-union sectors.
C)is to misallocate labor toward non-union work unless unionization enhances union worker productivity by its actions.
D)is that no one gains in the end since union shops cannot compete and do not survive.

Question 38

Because the monopsonist takes into account the effect that employment expansion has on wages paid to existing workers, it will

A)pay union workers more than nonunion workers.
B)be exempt from minimum wage laws.
C)employ more and pay more than the corresponding values under competition.
D)employ less and pay less than the corresponding values under competition.

Question 39

A monopsonist is a firm which

A)is a "sole-buyer" in an input market.
B)faces a downward sloping demand curve for its output.
C)is a price taker in the labor market.
D)faces a horizontal demand curve for labor.

Question 40

In general, when a test is less than accurate, our best estimate of a worker's productivity will

A)be the average productivity of the group to which he belongs.
B)be his actual test score.
C)always lie below his actual test score.
D)lie between his actual test score and the average productivity of the group to which he belongs.

Question 41

The marginal factor cost of the third laborer is _____ if the labor supply curve faced by a firm has the following wage-quantity coordinates: $$\begin{array} { l l l l l } \text { Quantity of Labor Supplied: } & 1 & 2 & 3 & 4 \\\text { Reservation Wage Rate } & 5 & 10 & 15 & 20\end{array}$$

A)15
B)25
C)30
D)Cannot be determined until the nature of the product market is known

Question 42

The questions below are based on the table below. Fill in the blank spaces first.
How many will be employed if the labor market is perfect with a going wage of $18 and the product market is imperfect?

Question 43

The questions below are based on the table below. Fill in the blank spaces first.
The Supply of Labor is W = 10 + 3Q_L
How many laborers will be hired if the product and labor markets are both imperfect?

Question 44

Which of the following is true about labor union effects on labor markets?

A)The higher wages in the union sector tend to elevate wages indirectly across all sectors of the labor market
B)Union labor tends to be less productive because the union protects its workers from discipline or firing
C)Approximately 90% of the wage difference between union and nonunion workers is due to the higher quality of union workers
D)Labor unions have no documented impacts on labor markets because they are subject to the same labor market forces that other firms face

Question 45

The competitive labor market model suggests that persistence of significant employer discrimination

A)should be larger than what currently is.
B)should not be considered at all.
C)requires the owners of the firm to supply capital at a rate of return substantially below its opportunity cost.
D)requires workers to supply labor at a rate below their opportunity cost.

Question 46

The diagram below shows the labor market faced by monopsonists. To maximize profits, this firm will hire labor at point:

A)L1.
B)L2.
C)L3.
D)0.

Question 47

If Alex seeks to maintain a constant income level, and all workers in his industry, including Alex, get a wage increase, which of the following will always be true?

A)Alex will have a backward bending supply curve for his labor
B)The market supply of labor curve will be backward bending for Alex's type of work
C)The substitution effect of the wage increase leads to less work
D)The income effect of the raise causes Alex to work more

Question 48

If the value of your marginal product is 100 and you are being paid 80, which of the following is the most plausible reason that you remain with the firm?

A)You value the high rank and leadership role as well as the salary that your position offers.
B)You have no other options so you stay or go unemployed.
C)You are altruistic and want to contribute to the firm's normal profit.
D)You have no way of knowing the value of your marginal product so you feel OK about the salary of 80.

Question 49

According to the textbook, proponents of minimum wage laws assume that

A)the demand curve for unskilled workers is nearly vertical.
B)the supply curve for unskilled workers is upward sloping.
C)the demand curve for unskilled workers is nearly horizontal.
D)the supply curve for unskilled workers is downward sloping.

Question 50

The questions below are based on the table below. Fill in the blank spaces first.
How many will be employed if the product market is perfect and the labor market is imperfect?

Question 51

The questions below are based on the table below. Fill in the blank spaces first.
The Supply of Labor is W = 10 + 3Q_L
How many laborers will be hired and what will the wage be if both product and labor markets are perfect and the going wage is $18 per worker?

Question 52

The questions below are based on the table below. Fill in the blank spaces first.
If the product and labor markets are both imperfect, what will be the wage rate paid to the laborer?

Question 53

The theory of internal wage structure predicts that worker pay will come closest to the value of their marginal product if

A)they work in an environment that has intensive workplace interaction.
B)their work allows them to do most of their work at home.
C)they work at a job that is unskilled.
D)the worker is a research chemist rather than a real estate sales agent.

Question 54

The questions below are based on the table below. Fill in the blank spaces first.
If the product market is perfect and the labor market is imperfect, what will be the wage rate paid to the laborer?

Question 55

President Obama is hoping to increase the federal minimum wage to $10.50 per hour. Use a diagram to illustrate the effect this increase would have on unskilled labor if:
1) demand for labor is nearly vertical.
2) demand for labor is very elastic

Question 56

Which of the following possible points on a labor supply curve is consistent with the income-leisure tradeoff graph below?

A)Wage = 1: Hours worked = 12
B)Wage = 2: Hours worked = 10
C)Wage = 3: Hours worked = 14
D)All of these are consistent with the information on the graph