Question 1

A wage increase raises the quantity of labor supplied through the substitution effect.

Accepted Answer

According to the law of supply, when the wage rate increases, the opportunity cost of leisure time increases and it becomes relatively more expensive to not work. This creates a substitution effect which encourages workers to increase their labor supply, as they are willing to work more at the higher wage rate.

Question 2

A higher wage has an income effect.

Accepted Answer

A higher wage means that a person's income increases, which allows them to purchase more goods and services, thereby increasing their standard of living. This effect is known as the income effect.

Question 3

Explain and show graphically why a firm in perfect competition will hire labor where the MRP of labor is equal to the MFC of labor. Be sure to discuss in your answer exactly what MFC and MRP are.

Accepted Answer

The answer of Explain and show graphically why a firm...

Question 4

A change in expectations will not shift the supply curve of labor.

Accepted Answer

A change in expectations can shift the supply curve of labor because if workers expect higher or lower future wages, they might adjust their current labor supply accordingly.

Question 5

An increase in the participation of women in the labor force has been accompanied by a slower increase in wages.

Accepted Answer

This is known as the "gender pay gap" and is a well-documented phenomenon in many countries. Despite women's increased participation in the labor force, they still earn less than men on average. This is due to a variety of factors, including occupational segregation, discrimination, and the undervaluing of work traditionally done by women.

Question 6

The demand for factors of production or resources is called a derived demand. Explain the reasoning behind this terminology. What are the determinants that lie behind the demand for factors?

Accepted Answer

The answer of The demand for factors of production or...

Question 7

A higher wage has an income effect that is always negative with respect to the quantity of labor supplied.

Accepted Answer

The answer of A higher wage has an income effect...

Question 8

Explain how changes in technology affect and change the demand for labor. Distinguish between situations in which a particular type of technological change increases the demand for a particular type of labor and those in which it decreases the demand for a particular type of labor.

Accepted Answer

The answer of Explain how changes in technology affect and...

Question 9

A change in nonwage income will shift the labor supply curve.

Accepted Answer

Nonwage income, such as government subsidies or transfer payments, can impact the opportunity cost of not working and therefore affect individuals' willingness to work at various wage levels. This can lead to a shift in the labor supply curve. For example, if nonwage income increases, individuals may choose to work less at each wage level, causing a leftward shift in the labor supply curve.

Quiz 12: Environmental Protection and Negative Externalities