Question 1

Hunter is an ambitious, competitive person who has always tried to be the best at everything he does. Consider the following job options facing Hunter and choose the option that will likely afford him the highest wage.

Accepted Answer

As a salesperson, Hunter will have the potential to earn a higher wage through commission on the sales he makes. This appeals to his competitive nature and ambition to do well. The other options either have fixed salaries or a limited work schedule, which may not be as financially rewarding in the long run.

Question 2

The "beauty premium" can be explained by the fact that

Accepted Answer

The "beauty premium" refers to the phenomenon where people who are deemed more physically attractive tend to earn higher wages. This can be explained by the fact that in some occupations, the physical attractiveness of workers may enhance the value of their marginal product. For example, in industries such as modeling, acting, and sales, physical appearance can play a crucial role in attracting customers or clients, which in turn can lead to increased sales and profits.

Question 3

Tom and Eric went to trade school at the same time. Each graduated with an associate's degree. They have received similar performance evaluations. Eric's employer is not a good business manager, and the sales manager lost a major deal. Because of the decrease in profits, the employees did not receive raises last year. Tom's employer is a savvy business manager and the sales manager is experienced and works hard. If Tom has higher earnings than Eric, the difference is most likely a function of

Accepted Answer

The difference in earnings is most likely due to chance, as both Tom and Eric have similar qualifications and performance evaluations, but their employers' business management skills differ, affecting their earnings.

Question 4

Dan and Dave are both college graduates. Dan is a patrolman and Dave is a detective in the same police precinct. While Dan's job is inherently more dangerous than Dave's, Dave passed a difficult exam to gain promotion to detective. Dave earns more than Dan because

Accepted Answer

Dave passed a difficult exam to become a detective, indicating that he has acquired more human capital (specific knowledge and skills) than Dan, who is a patrolman. This human capital and specialized training make Dave more productive and valuable to the police department, allowing him to earn a higher salary.

Question 5

According to the Hamermesh and Biddle study, people deemed more attractive than average earn

Accepted Answer

According to the Hamermesh and Biddle study, people deemed more attractive than average earn about 5 percent more than average looking people. They do not earn significantly more than that, as indicated by options A, C, and D.

Question 6

Which theory is supportive of the idea that increasing educational levels for all workers would raise all workers' productivity and therefore their wages?

Accepted Answer

Human-capital theory suggests that increasing the education level of workers increases their productivity and skills, which in turn raises their wages. Therefore, if all workers were to increase their educational levels, they would all become more productive and earn higher wages. The theory of compensating differentials suggests that workers are willing to accept lower wages in exchange for other benefits such as better working conditions or shorter commutes. The efficient-market hypothesis suggests that stock prices reflect all available information, while signaling theory suggests that education serves as a signal to potential employers about a worker's ability and work ethic. While these theories may also be relevant to understanding the labor market, they do not directly support the idea that increasing educational levels for all workers would raise their wages.

Question 7

Which of the following is not an interpretation of the "beauty premium"?

Accepted Answer

The "beauty premium" refers to the phenomenon where attractive people are often paid more or receive other advantages, such as being hired more frequently or receiving promotions more often. Option A is not an interpretation of the "beauty premium". It is a statement that beautiful workers are not willing to work for lower wages.

Question 8

Which of the following is an economic explanation for the "beauty premium"?

Accepted Answer

The economic explanation for the "beauty premium" is that employers pay above-average-looking women more than average-looking women because customers prefer to deal with better-looking women. This leads to higher sales or more satisfied customers, which ultimately benefits the employer.

Question 9

George and Brad are waiters at a local restaurant. The female customers think that George is better looking than Brad. If George earns more than Brad, this could be an example of each of the following except

Accepted Answer

A compensating differential refers to higher wages paid to compensate for undesirable job attributes, which is not applicable in this context.

Question 10

Which of the following might explain the beauty premium found by labor economists Hamermesh and Biddle?

Accepted Answer

All of the above could be factors in explaining the beauty premium found by labor economists Hamermesh and Biddle. Good looks may indeed be an innate ability for certain jobs, leading to higher productivity and wages. However, good looks may also be seen as an indirect measure of other types of ability, such as attention to detail or social skills. Finally, if better-looking people earn more than average-looking people, there may be discrimination at play, with employers biasing their hiring and promotion decisions based on personal appearance.

Question 11

Which of the following explains the "beauty premium" differences in wages?

Accepted Answer

People who spend time on their personal appearance may send a signal that they are more productive workers.

Question 12

In determining wages, ability, effort, and chance

Accepted Answer

Ability, effort, and chance are all important factors in determining wages, but they are difficult to measure objectively. Instead, economists often rely on proxies such as education and experience (which capture parts of ability and effort) to estimate wage differentials. Compensating differentials are another way to explain wage differences, but they typically only capture observable factors like job risk and working conditions, and may not fully capture differences in ability or effort. Therefore, while ability, effort, and chance do play a role in determining wages, they are not easy to measure or fully capture in existing wage models.

Question 13

Which of the following is not an explanation for why better educated workers earn more, on average, than less educated workers?

Accepted Answer

This option is an explanation for why better educated workers earn more, on average, than less educated workers. The other three options all offer potential reasons for the wage gap between more and less educated workers.

Question 14

George and Brad are waiters at a local restaurant. The female customers prefer to be seated at the tables that George waits on because they think George is better looking than Brad. If George earns more than Brad because of his better looks, this is an example of

Accepted Answer

This is an example of a beauty premium, where George earns more because of his physical appearance, which is valued by the female customers. It is not due to differences in effort or human capital, as both George and Brad are waiters at the same restaurant and likely have similar levels of skill and experience. It is also not a compensating differential, as there is no evidence that George's job is more unpleasant or risky than Brad's.

Question 15

Which of the following variables related to a worker's wage are the most difficult to measure?

Accepted Answer

Ability, effort, and chance are subjective factors that are difficult to quantify and measure accurately. Job characteristics, gender, race, geographic location, years of schooling, age, and years of experience are all factors that can be measured more objectively. However, ability, effort, and chance are highly influential in determining a worker's wage and can have a major impact on their earning potential.

Question 16

Which of the following does not explain the "beauty premium" differences in wages?

Accepted Answer

Option C states that average-looking people are preferred by customers, which contradicts the well-established "beauty premium" phenomenon. The other options explain how better-looking people may be preferred for various reasons, leading to higher wages.

Question 17

Which of the following theories explains why increased education translates into higher wages?

Accepted Answer

According to human-capital theory, an individual's investment in education and training increases their productivity, making them more valuable to employers, which leads to higher wages.

Question 18

Christy and Claudia are aspiring models. Talent scouts consider them to be similarly beautiful. Both enter a talent show. Claudia contracts food poisoning the night before the competition and withdraws. Christy wins the competition and signs a multi-million dollar contract. The differences in their earnings likely reflect

Accepted Answer

The differences in their earnings likely reflect chance, as Claudia's withdrawal due to food poisoning was an unforeseen event that affected the outcome of the competition.

Question 19

A study by labor economists Hamermesh and Biddle found that

Accepted Answer

The study by Hamermesh and Biddle found that, all else equal, above-average looking people earn more than average-looking people. The study did not find evidence that shorter-than-average men earn more than shorter-than-average women or that shorter women earn more than taller women.

Question 20

Studies of wages by labor economists indicate that measurable variables such as age, job characteristics, years of education, and years of experience account for

Accepted Answer

While these measurable variables do have an impact on wages, they only account for some, but less than 50 percent of the variation in wages in our economy, according to studies by labor economists. Other factors such as discrimination, bargaining power, and market conditions also play a role in determining wages.

Quiz 19: Earnings and Discrimination