Question 1

What does the empirical evidence regarding compensating differentials tend to reveal?
A) They do exist in situations of job safety and work hazards.
B) There is evidence of the existence of both positive and negative differentials for a wide range of job amenities and disamenities.
C) It is hard to find the evidence to support the theory of compensating differentials.
D) They do not exist.
E) There is evidence that they exist, but the methodology is so fraught with pitfalls that the evidence is not deemed to be credible.

Accepted Answer

A

Question 2

The isoprofit schedule exhibits a(n) _______between wages and job safety levels.
A) increasing marginal rate of substitution
B) constant tradeoff
C) diminishing marginal rate of substitution
D) diminishing marginal rate of transformation
E) increasing marginal rate of transformation

Accepted Answer

D

Question 3

In the context of empirical research on compensating differentials, omitted variable bias may exist when:
A) Important variables are not controlled for in the measurement of the wage-risk tradeoff.
B) Irrelevant variables are included in the equation.
C) Employers attempt to hide crucial safety information from their employees.
D) The information about factors that are correlated with job risk is imperfect.
E) Samples have selection issues.

Accepted Answer

Omitted variable bias occurs when important variables that affect the dependent variable are not included in the model, leading to biased and inconsistent estimates. In the context of compensating differentials, failing to control for important variables in the wage-risk tradeoff can result in omitted variable bias.

Question 4

How do economists go about estimating the value of life in the context of job safety regulation?
A) They add up the cost of implementing all of the job safety features in firms that have excellent job safety records.
B) They estimate the compensating wage differential that workers in a dangerous occupation receive for the level of risk that they assume, and then extrapolate that figure for a scenario in which the risk is reduced to zero.
C) They take the amounts that are rewarded to victims' families in wrongful death law suits.
D) They estimate the difference between profits that are earned by firms with dangerous working conditions versus those with safer working conditions.
E) They never engage in such an exercise, as life is infinitely precious and thus no value can be placed upon it.

Accepted Answer

Economists estimate the value of life in the context of job safety regulation by looking at the compensating wage differential. This approach involves observing how much extra pay workers require to accept jobs with higher risks, thereby providing a market-based valuation of the risks to life and health.

Question 5

Which of the following statements does not pertain to wage structures?
A) The wage premiums that compensate workers for working jobs with undesirable characteristics
B) The lowest wage levels at which workers will accept jobs having certain attributes
C) The relative prices of labour that are utilized in order to allocate labour to its most efficient use
D) The relative prices of labour that are used to remunerate human capital
E) None of the answer choices are correct.

Accepted Answer

The answer of Which of the following statements does not...

Question 6

Which of the following is correct?
A) In a competitive market, the firm will bear the costs of a legislated increase in safety regulations.
B) In a competitive market, imposing safety regulation is easy since all firms will adopt it right away due to the market competition.
C) In a competitive market, a legislated increase in safety will drive some firms out of the business.
D) In a competitive market, the application of uniform safety standard will not help weed out the firms that have low safety technologies.
E) In a competitive market, a legislated increase in safety will make people better off.

Accepted Answer

The answer of Which of the following is correct?
A) In...

Question 7

Compensating premiums for job-related risks are normally paid (ceteris paribus) in the form of:
A) longer coffee breaks at Tim Hortons.
B) higher degrees of job security.
C) higher wages.
D) time off the job with pay.
E) certificates of appreciation for working at a tough job.

Accepted Answer

Compensating premiums for job-related risks are typically paid in the form of higher wages to compensate employees for the additional risks they take on by working in more hazardous or demanding jobs. This is based on the economic principle of compensating differentials, where workers are compensated extra for jobs that are less desirable or more dangerous.

Question 8

Consider the diagram for a labour market in which the relevant job attribute is the instability of the hours. In other words, less stable jobs are characterized by irregular hours, with no guarantee of a full time job, but with the possibility of overtime hours some weeks. What would the curves look like?
A) The model cannot be used for this situation
B) Positively sloped isoprofit curves and negatively sloped isoutility curves
C) Negatively sloped isoprofit curves and positively sloped isoutility curves
D) Negatively sloped isoprofit and isoutility curves
E) Positively sloped isoprofit and isoutility curves

Accepted Answer

The answer of Consider the diagram for a labour market...

Question 9

Which of the following regarding attracting doctors to rural community is NOT correct?
A) Rural community does not usually have fully staffed and equipped hospitals.
B) Given the tight budget constraints, government cannot afford to pay the doctors a premium to attract them in the rural community.
C) Most of the doctors prefer to work and live in the urban area.
D) If moves to rural community, doctors have to pay higher taxes on the salary premia paid by the government.
E) The theory of compensating wages explains that the doctors will move to rural community as long as a premium is paid.

Accepted Answer

The statement about doctors having to pay higher taxes on salary premia in rural communities is incorrect. Tax rates typically do not vary based on the geographic location of one's job within a country, but rather on the income level, regardless of whether one works in a rural or urban area.

Question 10

Higher isoprofit schedules would imply profits that are_______ the normal, competitive level.
A) higher than
B) below
C) greater than or equal to
D) equal to
E) None of the answer choices are correct.

Accepted Answer

The answer of Higher isoprofit schedules would imply profits that...

Question 11

An isoprofit schedule is defined as:
A) The various combinations of wages and safety that the firm can provide and maintain the same level of utility for the labour force.
B) The various combinations of wages and safety that the firm can provide and maintain the same level of profits.
C) The various combinations of safety initiatives and wages that the firm can provide and still earn profit.
D) The various combinations of wages and safety that the firm can provide and maintain the same level of costs.
E) The variation between profit and loss margins that a firm earns as a function of changing wage and job safety levels.

Accepted Answer

An isoprofit schedule represents the different combinations of factors (such as wages and safety in this context) that a firm can offer while maintaining the same level of profits. This concept is used in economic analysis to understand how firms can adjust various inputs and conditions while achieving the same economic outcome in terms of profitability.

Question 12

The employers' offer curve shows which of the following?
A) the wage levels offered by employers that are dependent on the required levels of safety and health
B) the maximum compensating wages that will be offered in the labour market for various levels of safety
C) the employers' profit-maximizating wages that combines wage and safety levels
D) the minimum compensating wages that will be offered in the labour market for various levels of safety
E) the employers' preferred combination of wage and safety levels

Accepted Answer

The answer of The employers' offer curve shows which of...

Question 13

The slope of the wage-safety locus gives:
A) The change in the wage premium that the labour market yields for differences in the degree of risk of the job.
B) The change in profitability that is associated with different combinations of wages and job safety.
C) The change in the wage premium that the labour market yields for differences in the preference of the workers.
D) The change in the wage premium that the labour market yields for differences in the salary of each worker.
E) The change in the wage premium that the market yields for differences in the safety standards of firms.

Accepted Answer

The slope of the wage-safety locus represents the trade-off between wages and job safety, indicating how much additional wage (wage premium) workers require to accept jobs with higher levels of risk.

Question 14

Consider the diagram for a labour market in which the relevant job attribute is job safety. Why are the isoprofit curves concave, i.e., bowed in towards the origin?
A) Because paying higher wages and providing a safer environment for the workers are both costly for the employer
B) Because the marginal rate of transformation between wages and safety is increasing as a firm introduces more sophisticated safety procedure.
C) Because a firm's profit decreases if it provides a safer environment for the workers.
D) Because there is a negative trade-off between job safety and wages
E) Because the marginal rate of transformation between wages and safety is decreasing as a firm introduces more sophisticated safety procedure.

Accepted Answer

The answer of Consider the diagram for a labour market...

Question 15

The more ________ the individual, the more he/she requires a _______compensating wage differential in return for accepting a riskier work environment.
A) risk-averse; larger
B) risk-neutral; smaller
C) risk-averse; smaller
D) risk-loving; larger
E) risk-neutral; larger

Accepted Answer

Risk-averse individuals require a larger compensating wage differential to accept a riskier work environment because they prefer to avoid risk, thus demanding higher compensation to take on additional risk.

Question 16

Which of the following regarding family-friendly workplace practice is correct?
A) Practices as the availability of parental leave, flexible working hours, job sharing, and taking time off work and making it up later are all part of the family-friendly workplace programs advocated by the government.
B) One cannot use the theory of compensating wage differentials to explain family-friendly workplace practice since it is not a job characteristic.
C) Empirical research finds little evidences to support the use of the theory of compensating wage differentials to explain family-friendly workplace practice.
D) One cannot use the theory of compensating wage differentials to explain family-friendly workplace practice since people are not willing to accept lower wages in return to family-friendly work environment.
E) None of the answer choices are correct.

Accepted Answer

Family-friendly workplace practices include parental leave, flexible working hours, job sharing, and other arrangements, which are often supported by government policies.

Question 17

In wage-job safety space, workers' indifference (or isoutility) curves slope downwards because:
A) Workers require a higher compensating wage in order to avoid risky jobs.
B) Workers require a higher compensating wage in order to remain indifferent to the additional risk.
C) Lower wages are required in order to keep profits constant if a higher degree of job safety is required.
D) Employers will compensate them for their aversion to risk.
E) More hours of labour are supplied when wages are increased.

Accepted Answer

Workers require a higher compensating wage to remain indifferent to additional risk, which is why the indifference curves slope downwards.

Question 18

Which of the following is not a way in which high wages may induce higher productivity?
A) Through reductions in absenteeism
B) Through improved morale
C) Through higher levels of job safety and improved working conditions
D) Through lower levels of turn over
E) Through greater intensity of work effort

Accepted Answer

C) is not a direct way in which high wages may induce higher productivity. While high wages can lead to better job safety and improved working conditions indirectly by providing more resources for such improvements, these aspects are more directly influenced by regulations, company policies, and workplace practices rather than the wage level itself.

Question 19

With reference to behavioural economics, in the context of compensating differentials, all of the following statements apply except that:
A) It is based on laboratory experiments in which the choices of workers are observed.
B) The labour market will generate compensating differentials in order to deal with job-related amenities and disamenities.
C) It gives reasons for why people ignore major infrequent risks or possible disamenties of the job.
D) It investigates how individuals make job-related choices (such as working conditions) based on imperfect information.
E) It makes a case for government intervention and regulation in the workplace.

Accepted Answer

The answer of With reference to behavioural economics, in the...

Question 20

Which of the classical economists was the first to analyze the topic of compensating wage differentials?
A) John Stuart Mill
B) John Maynard Keynes
C) Adam Smith
D) David Ricardo
E) Alfred Marshall

Accepted Answer

Adam Smith was the first classical economist to analyze the topic of compensating wage differentials, discussing how differences in the desirability or risk of different jobs lead to differences in wages to compensate for these factors.

Quiz 8: Compensating Wage Differentials

What does the empirical evidence regarding compensating differentials tend to reveal?

The isoprofit schedule exhibits a(n) _______between wages and job safety levels.

In the context of empirical research on compensating differentials, omitted variable bias may exist when:

How do economists go about estimating the value of life in the context of job safety regulation?

Which of the following statements does not pertain to wage structures?

Which of the following is correct?

Compensating premiums for job-related risks are normally paid (ceteris paribus) in the form of:

Which of the following regarding attracting doctors to rural community is NOT correct?

Higher isoprofit schedules would imply profits that are_______ the normal, competitive level.

An isoprofit schedule is defined as:

The employers' offer curve shows which of the following?

The slope of the wage-safety locus gives:

Consider the diagram for a labour market in which the relevant job attribute is job safety. Why are the isoprofit curves concave, i.e., bowed in towards the origin?

The more __ the individual, the more he/she requires a _compensating wage differential in return for accepting a riskier work environment.

Which of the following regarding family-friendly workplace practice is correct?

In wage-job safety space, workers' indifference (or isoutility) curves slope downwards because:

Which of the following is not a way in which high wages may induce higher productivity?

With reference to behavioural economics, in the context of compensating differentials, all of the following statements apply except that:

Which of the classical economists was the first to analyze the topic of compensating wage differentials?