Deck 17: Wage Determination

Question 1

If a firm is hiring a certain type of labor under purely competitive conditions,

A) its labor demand curve will be perfectly elastic at the market-determined wage rate.
B) the labor supply curve will lie above the marginal labor cost curve.
C) the labor supply and marginal labor (resource) cost curves will coincide and be upsloping.
D) the labor supply and marginal labor (resource) cost curves will coincide and be perfectly elastic.

Answer 1

the labor supply and marginal labor (resource) cost curves will coincide and be perfectly elastic.

Question 2

Real wages in the United States in the long run

A) show no discernible relationship to output per worker.
B) have increased at about the same rate as increases in output per worker.
C) have increased slower than increases in output per worker.
D) have increased faster than increases in output per worker.

Answer 2

have increased at about the same rate as increases in output per worker.

Question 3

According to international comparisons, which of these nations was not in the top 5 for hourly pay in U.S. dollar terms in 2013?

A) Sweden
B) Germany
C) Australia
D) United States

Answer 3

United States

Question 4

Marginal resource cost refers to the

A) increase in total revenue resulting from the sale of the extra output of one more worker.
B) price at which additional units of a resource can be hired in an imperfectly competitive resource market.
C) increase in total cost resulting from producing one more unit of output.
D) amount by which a firm's total resource cost increases as the result of hiring one more unit of the resource.

Question 5

Marginal revenue product (MRP) of labor refers to the

A) increase in total revenue resulting from selling an additional unit of output.
B) amount by which a firm's total resource cost increases when it employs one more unit of labor.
C) increase in total revenue resulting from hiring one more unit of labor.
D) price at which additional units of labor can be employed in a monopsonized labor market.

Question 6

Over the long run, real earnings per worker can increase only at about the same rate as the economy's rate of growth of

A) total output.
B) stock of capital.
C) output per worker.
D) international trade.

Question 7

The real wage will rise if the nominal wage

A) falls more rapidly than the general price level.
B) increases at the same rate as labor productivity.
C) increases more rapidly than the general price level.
D) falls at the same rate as the general price level.

Question 8

Long-run real wages in the United States have

A) risen because growth in the demand for labor has exceeded growth in the supply of labor.
B) risen because the supply of labor has fallen over time.
C) fallen because growth in the supply of labor has exceeded growth in the demand for labor.
D) fallen because the demand for labor has fallen over time.

Question 9

Since 1960, real hourly compensation in the United States has approximately

A) remained the same.
B) risen by 40 percent.
C) doubled.
D) tripled.

Question 10

The productivity and real wages of workers in industrially advanced economies have risen historically partly because

A) workers have acquired less education and training over time.
B) workers have been able to use larger quantities of capital equipment.
C) over time, the capital equipment used by workers has deteriorated in quality.
D) the supply of labor has increased.

Question 11

If the nominal wage rises by 6 percent and the price level falls by 2 percent, the real wage will

A) be unaffected.
B) rise by 4 percent.
C) fall by 4 percent.
D) rise by 8 percent.

Question 12

A firm operating in a purely competitive resource market faces a resource supply curve that is

A) perfectly inelastic.
B) perfectly elastic.
C) highly inelastic.
D) highly elastic.

Question 13

Increases in the productivity of labor result partly from

A) the law of diminishing returns.
B) improvements in technology.
C) reductions in wage rates.
D) increases in the quantity of labor.

Question 14

The long-run trend of real wages

A) cannot be determined from available data on nominal wages and the price level.
B) has been downward because the price level has risen faster than nominal wages.
C) has been upward.
D) has been downward because labor's share of the domestic income has fallen.

Question 15

If the nominal wage rises by 4 percent and the price level rises by 7 percent, the real wage will

A) be unaffected.
B) rise by 3 percent.
C) fall by 3 percent.
D) rise by 11 percent.

Question 16

Which of the following is correct?

A) The nominal wage may fall, but the real wage can never decline.
B) The real wage may fall, but the nominal wage can never decline.
C) Both the nominal and the real wage must always rise.
D) The nominal and the real wage may both fall.

Question 17

According to international comparisons, which nation had the highest hourly pay in U.S. dollar terms in 2013?

A) United States
B) Germany
C) Australia
D) Sweden

Question 18

If the nominal wages of carpenters rose by 5 percent in 2013 and the price level increased by 3 percent, then the real wages of carpenters

A) decreased by 2 percent.
B) increased by 2 percent.
C) increased by 3 percent.
D) increased by 8 percent.

Question 19

The market supply curve for labor is upsloping because

A) of diminishing returns.
B) employers as a group must pay higher wage rates to obtain more workers.
C) of declining MRC.
D) each employer is a "wage taker."

Question 20

Real wages in the United States are

A) the highest in the world.
B) relatively high, but not as high as in some other industrially advanced nations.
C) much higher than output per worker.
D) higher than nominal wages.

Question 21

A monopsonistic employer in an unorganized (nonunion) labor market will

A) pay a wage rate less than labor's MRP.
B) pay the same wage rate but hire fewer workers than if the market was purely competitive.
C) hire the number of workers indicated by the intersection of the MRC and the labor supply curves.
D) pay a wage rate in excess of labor's MRP.

Question 22

The labor supply curve facing a purely competitive employer is _, whereas the labor supply curve facing a monopsonist is .

A) upsloping; horizontal
B) downsloping; vertical
C) vertical; upsloping
D) horizontal; upsloping

Question 23

In a monopsonistic labor market, the employer will maximize profits by employing workers up to that point at which

A) the difference between the wage rate and marginal resource (labor) cost is at a maximum.
B) marginal revenue product equals marginal resource (labor) cost.
C) the wage rate equals marginal revenue product.
D) the wage rate equals marginal resource (labor) cost.

Question 24

A profit-maximizing firm will

A) expand employment if marginal revenue product exceeds marginal resource cost.
B) reduce employment if marginal revenue product exceeds marginal resource cost.
C) expand employment if marginal revenue product equals marginal resource cost.
D) reduce employment if marginal revenue product equals marginal resource cost.

Question 25

Other things equal, the monopsonistic employer will pay a

A) lower wage rate and hire fewer workers than will a purely competitive employer.
B) higher wage rate but hire fewer workers than will a purely competitive employer.
C) lower wage rate but hire a larger number of workers than will a purely competitive employer.
D) higher wage rate and hire a larger number of workers than will a purely competitive employer.

Question 26

W > MRP; W > MRC Refer to the list. The outcome in a monopsony labor market is shown by

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

Question 27

Which of the following is most likely to be an example of monopsony?

A) the market for fast-food workers in a large summer resort town
B) the market for card dealers in Las Vegas
C) the market for Major League Baseball umpires
D) the market for retail sales clerks in a major city

Question 28

As compared to a purely competitive labor market, in a nonunionized monopsonistic labor market, wages

A) and employment will both be lower.
B) will be higher, but employment will be lower.
C) will be lower, but employment will be higher.
D) and employment will both be higher.

Question 29

A profit-maximizing firm will

A) expand employment if marginal revenue product equals marginal resource cost.
B) reduce employment if marginal revenue product equals marginal resource cost.
C) reduce employment if marginal revenue product is less than marginal resource cost.
D) expand employment if marginal revenue product is less than marginal resource cost.

Question 30

A monopsonist's wage cost in hiring an additional worker is the

A) worker's wage rate.
B) worker's wage rate plus the wage increases paid to all workers already employed.
C) worker's wage rate adjusted for the lower price that must be charged for the extra output.
D) marginal wage cost less the wage rate.

Question 31

The individual firm in a purely competitive labor market faces

A) a perfectly elastic labor supply curve and a downsloping labor demand curve.
B) a perfectly elastic labor demand curve and an upsloping labor supply curve.
C) labor demand and labor supply curves both of which are perfectly elastic.
D) a downsloping labor demand curve and an upsloping labor supply curve.

Question 32

A monopsonistic employer

A) has a perfectly elastic labor supply curve.
B) is necessarily a monopolist in the product market.
C) faces a marginal resource (labor) cost that is greater than the wage rate.
D) faces a marginal resource (labor) cost that is less than the wage rate.

Question 33

Suppose the MRP of a firm's 12th worker is $22 and the worker's marginal wage cost is $16. We can say with certainty that the firm

A) is hiring labor in a competitive labor market at a wage rate of $16.
B) is hiring labor in a monopsonistic labor market.
C) will find it profitable to hire fewer workers.
D) will find it profitable to hire more workers.

Question 34

If a firm faces an upsloping labor supply curve (and there is no union or minimum wage), its

A) MRC curve is also upsloping.
B) MRC curve is perfectly elastic.
C) MRP curve is perfectly inelastic.
D) MRP curve is also upsloping.

Question 35

A firm hiring labor in a perfectly competitive labor market faces a

A) downsloping labor supply curve and upsloping labor demand curve.
B) upsloping labor supply curve and downsloping labor demand curve.
C) upsloping labor supply curve and horizontal labor demand curve.
D) horizontal competitive wage curve and downsloping labor demand curve.

Question 36

A firm that is hiring labor in a purely competitive labor market and selling its product in a purely competitive product market will maximize its profit by hiring labor until

A) marginal revenue product is zero.
B) marginal revenue product exceeds marginal resource (labor) cost by the greatest amount.
C) marginal resource cost is zero.
D) marginal revenue product equals marginal resource (labor) cost.

Question 37

Assume the Ajax Mining Company hires 80 percent of the nonunion labor force of Mother Lode, New Mexico. Also, suppose that this labor force is highly immobile. Economists would describe this employer as a(n)

A) monopolist.
B) oligopolist.
C) monopsonist.
D) monopolistic competitor.

Question 38

A firm can hire six workers at a wage rate of $8 per hour but must pay $9 per hour to all of its employees to attract a seventh worker. The marginal wage cost of the seventh worker is

A) $9.
B) $10.
C) $15.
D) $21.

Question 39

The economic term for a firm that is the sole buyer in a market is

A) monopsonist.
B) monopolist.
C) bilateral competitor.
D) bilateral monopolist.

Question 40

In monopsony,

A) each firm employs a small portion of the total supply of labor.
B) the workforce is highly mobile.
C) the wage rate paid by the employer varies directly with the number of workers employed.
D) the employer is a "wage taker."

Question 41

A monopsonistic employer's marginal resource (labor) cost curve

A) is always more elastic than the labor supply curve.
B) coincides with the labor supply curve.
C) lies below the labor supply curve because the higher wage paid to an additional worker must also be paid to all other employed workers.
D) lies above the labor supply curve because the higher wage paid to an additional worker must also be paid to all other employed workers.

Question 42

Construction workers frequently sponsor political lobbying in support of greater public spending on highways and public buildings. One reason for this is to

A) restrict the supply of construction workers.
B) increase the elasticity of demand for construction workers.
C) increase the demand for construction workers.
D) increase the price of substitute inputs.

Question 43

Occupational licensing

A) functions essentially the same as inclusive unionism.
B) attracts large numbers of workers and therefore depresses wages.
C) often restricts occupational entry and raises the incomes of license holders.
D) has been declared illegal in the majority of states.

Question 44

The electricians' union is a good example of

A) exclusive unionism.
B) an industrial union.
C) how unions can simultaneously increase wage rates and employment by increasing the demand for labor.
D) inclusive unionism.

Question 45

Labor unions are restrained in their wage demands because

A) legislation limits annual increases in nominal wages to 6 percent.
B) the labor demand curve is downsloping.
C) marginal wage cost curves lie above labor supply curves in most labor markets.
D) most unions deal with monopsonists who have superior bargaining power.

Question 46

A craft union attempts to increase wage rates by

A) equating the MRP and the MRC curves.
B) shifting the labor supply curve to the left.
C) shifting the labor supply curve to the right.
D) shifting the MRP curve to the right.

Question 47

If a firm is a monopsonist in the hiring of both labor and capital, it will obtain the profit-maximizing quantities of labor and capital when

A) $\mathrm{MRP} _{L} / P_{L}=\mathrm{MRP} C / P C=1$
B) $\mathrm{MRP}_{L} / \mathrm{MRC} L=\mathrm{MRP}_{C} / \mathrm{MRC} _{C}=1 .$
C) the MRP of labor equals the MRP of capital.
D) the MRC of labor equals the MRC of capital.

Question 48

Labor unions may attempt to raise wage rates by

A) increasing the supply of labor.
B) forcing employers, under the threat of a strike, to pay above-equilibrium wage rates.
C) decreasing the demand for labor.
D) increasing the price of complementary resources.

Question 49

Empirical studies suggest that, other things equal, the smaller the number of hospitals in a city, the lower are nurses' wages. This is evidence that

A) the labor markets of nurses are purely competitive.
B) hospitals may possess some degree of monopsony power.
C) the minimum wage does not apply to nurses.
D) labor unions have been ineffective in increasing the wages of nurses.

Question 50

Craft unions

A) attempt to organize workers at all skill levels in a firm or industry.
B) have been declared illegal by federal legislation.
C) only organize workers who have a particular set of skills.
D) attempt to increase the supply of their particular type of labor.

Question 51

If a firm is hiring variable resources D and F in imperfectly competitive input markets, it will maximize profits by employing D and F in such quantifies that

A) $\mathrm{MRP} D / \operatorname{MRC} D=\mathrm{MRP} F / \mathrm{MRC} F=1$
B) MRP_D / MRC_D = MRP_F / MRC_F.
C) MRP_D / P_D = MRP_F / P_F = 1.
D) MRP_D / P_D = MRP_F / P_F.

Question 52

If an industrial union is formed to bargain with a monopsonistic employer, then in this labor market,

A) the resulting wage rate will always be above the competitive level.
B) employment may either increase or decrease.
C) employment will increase.
D) employment will decrease.

Question 53

Occupational licensing has much the same effect as

A) inclusive unionism.
B) exclusive unionism.
C) bilateral monopoly.
D) monopsony.

Question 54

"Player drafts" of professional athletes

A) increase the competitiveness of the labor market for professional athletes.
B) reduce the profitability of professional sports franchises.
C) promote monopsony in the hiring of professional athletes.
D) increase salaries of professional athletes.

Question 55

Inclusive unionism is practiced mostly by

A) professional and semiprofessional employees.
B) small unions consisting of skilled workers, such as the bricklayers.
C) industrial unions.
D) craft unions.

Question 56

Which of the following tactics is most associated with the demand-enhancement union model?

A) reducing the price of inputs that are substitutes for union workers
B) lobbying for increases in public expenditures on the product it is producing
C) restricting the number of workers allowed to work in the industry
D) increasing the price of products that are complements for the one it is producing

Question 57

Which of the following is not correct?

A) Other things equal, a monopsonist will pay a lower wage rate than will a firm hiring labor competitively.
B) A monopsonistic employer will pay workers a wage rate equal to their MRP.
C) A purely competitive seller will pay workers a wage rate equal to their MRP.
D) An imperfectly competitive seller will employ additional workers as long as the MRP of additional workers exceeds their MRC.

Question 58

Unions often oppose increases in the prices of complementary inputs. (For example, truck drivers may oppose increases in taxes on diesel fuel.) They do this because increases in the prices of complementary inputs might

A) increase the supply of competing labor through the output effect.
B) increase the supply of competing labor through the substitution effect.
C) decrease the demand for union labor through the output effect.
D) decrease the demand for union labor through the substitution effect.

Question 59

If an exclusive union is successful in restricting the supply of labor, the

A) wage rate will rise.
B) quantity of labor demanded will rise.
C) number of job opportunities in the firm or industry will increase.
D) demand for labor curve will shift leftward.

Question 60

The critical feature of a monopsonistic labor market is that the employer

A) has a perfectly elastic demand curve for labor.
B) can hire any number of workers it chooses at the going wage rate.
C) faces an upsloping labor supply curve.
D) faces a perfectly inelastic labor supply curve.

Question 61

Minimum-wage legislation is less likely to have adverse effects on employment when the

A) affected labor market is monopsonistic.
B) economy has high unemployment.
C) derived demand for labor is shifting to the left.
D) demand for labor is relatively elastic.

Question 62

A union might increase the demand for the labor services of its members by

A) decreasing the demand for the product it is producing.
B) decreasing the prices of complementary inputs.
C) decreasing the prices of substitute inputs.
D) increasing the prices of complementary inputs.

Question 63

Unions might support a higher minimum wage because

A) their constitutions obligate them to do so.
B) they feel a higher minimum wage will lower labor's tax payments for welfare programs.
C) a higher minimum wage makes less-skilled workers less substitutable for union workers.
D) the minimum wage is better targeted than are alternative income-maintenance programs.

Question 64

In a labor market characterized by bilateral monopoly, the wage rate will

A) be logically indeterminate.
B) be established at the level desired by the union.
C) be established at the level desired by the employer.
D) always be established at the competitive level.

Question 65

Noncompeting groups of workers are the result of

A) differences in the age-earnings profiles of workers.
B) differences in the "job tastes" of workers.
C) differences in the innate and acquired abilities of workers.
D) geographic immobility.

Question 66

Authoritative estimates suggest that currently union workers on the average

A) achieve no wage advantage over nonunion workers in the same occupation.
B) realize a 5 percent wage advantage over nonunion workers in the same occupation.
C) realize a 20-30 percent wage advantage over nonunion workers in the same occupation.
D) realize a 15 percent wage advantage over nonunion workers in the same occupation.

Question 67

Many economists are critical of the minimum wage because they believe that it

A) hurts the efforts of labor unions.
B) reduces the number of available job opportunities.
C) conflicts with policies designed to equalize the distribution of income.
D) causes labor shortages in affected markets.

Question 68

The idea of compensating differences is used

A) by inclusive unions as an argument in bargaining for wage rate increases.
B) to justify the application of minimum wages to low-wage labor markets.
C) to explain the divergence between wage rates and marginal resource cost.
D) to explain wage rate differences based on differing nonmonetary aspects of jobs.

Question 69

According to some supporters of the minimum wage, it has very small or even nonexistent negative employment effects because

A) the demand for minimum-wage labor is highly elastic.
B) it reduces turnover among minimum-wage workers, prompts employers to use them more efficiently, and thus raises their average productivity.
C) it encourages teenagers to stay in school.
D) employers substitute lower fringe benefits for higher pay, keeping their compensation costs the same.

Question 70

If all workers were homogeneous, all jobs were equally attractive to workers, and labor markets were perfectly competitive,

A) compensating differences would cause wage differentials.
B) noncompeting groups of workers would result in wage differentials.
C) all workers would receive the same wage rate.
D) worker mobility would occur such that wage differentials would widen.

Question 71

Compensating differences in wages

A) compensate workers for differences in their human capital.
B) reward workers differently based on differences in the desirability of jobs.
C) describe the tendency for the wages of all occupations to adjust to the median level.
D) do not exist if jobs have different nonmonetary characteristics.

Question 72

If a single large employer bargains with an inclusive union, the resulting labor market model can best be described as

A) a cartel.
B) countervailing power.
C) a bilateral monopoly.
D) an internal labor market.

Question 73

Compensating differences in wages pay workers for

A) differences in worker training and skills.
B) differences in the nonmonetary characteristics of jobs.
C) geographic immobility.
D) discrimination in hiring and firing.

Question 74

Wage differentials may result from all the following except

A) differences in the nonmonetary aspects of various occupations.
B) differences in the education and skills of workers.
C) geographic and sociological immobility of workers.
D) the tendency of qualified workers to move from lower pay jobs to higher pay jobs.

Question 75

Bilateral monopoly occurs where

A) a monopsonistic employer bargains with an inclusive union.
B) a monopsonistic employer bargains with an exclusive union.
C) a craft union bargains with a purely competitive employer.
D) an industrial union bargains with a purely competitive employer.

Question 76

If the minimum wage is set too high, in some labor markets we can expect to see

A) a shortage of labor.
B) an increase in on-the-job training.
C) a surplus of labor.
D) a decline in wage costs.

Question 77

Suppose all workers are identical but working for Ajax is more pleasant than working for Acme. In all other nonwage aspects, the two firms offer the same job characteristics. We would expect

A) wage rates at Ajax to be higher than at Acme.
B) wage rates at Ajax to be lower than at Acme.
C) wage rates at Ajax and Acme to be the same.
D) workers at Ajax would have to be monitored more closely than those at Acme.

Question 78

Which of the following factors is not relevant in explaining the persistence of wage differentials?

A) labor immobility
B) compensating differences
C) free public education
D) noncompeting groups

Question 79

Critics of the minimum wage argue that as an antipoverty device, it is "poorly targeted." By this they mean that

A) the minimum wage only applies to a small percentage of the labor force.
B) many who benefit from the minimum wage are teenagers or not poor.
C) the government has been unable to enforce the minimum wage.
D) the average level of wages in the economy is considerably higher than the minimum wage.

Question 80

Critics of minimum-wage legislation argue that it

A) keeps inefficient producers in business.
B) reduces employment.
C) undermines incentives to work.
D) is deflationary.