Question 1

An advertising campaign that successfully convinces consumers to buy union- made products has the direct effect of shifting the
A) supply curve of union labour leftward.
B) supply curve of union labour rightward.
C) demand curve for union labour rightward.
D) demand curve for union labour leftward.

Accepted Answer

An advertising campaign that successfully convinces consumers to buy union-made products increases the demand for these products. As a result, the demand for union labor, which produces these products, also increases. This is represented by a rightward shift in the demand curve for union labor.

Question 2

If a nonrenewable natural resource's price is expected to increase at a rate faster than the interest rate, then
A) the price today will fall.
B) the supply today will decrease.
C) the demand today will decrease.
D) the supply today will increase.

Accepted Answer

When the price of a nonrenewable natural resource is expected to increase at a rate faster than the interest rate, suppliers are incentivized to decrease the supply today to benefit from higher future prices, leading to a decrease in supply today.

Question 3

The marginal cost of labour is defined as the
A) total cost of producing a certain amount of output.
B) additional cost of hiring an additional worker.
C) additional fixed cost of producing an additional unit of output.
D) total cost of hiring an additional worker.

Accepted Answer

The marginal cost of labour refers to the additional cost incurred by a firm when they hire an additional worker. This concept is crucial in understanding how firms decide on the number of workers to employ based on the additional costs and benefits that each additional worker brings.

Question 4

A firm in a competitive labour market will hire labour until the value of marginal product of labour equals the
A) firm's marginal cost.
B) firm's average cost.
C) wage rate.
D) firm's marginal revenue.

Accepted Answer

In a competitive labor market, a firm will continue to hire labor until the value of the marginal product of labor (the additional revenue generated by hiring one more unit of labor) equals the wage rate (the cost of hiring one more unit of labor). This is because at this point, the cost of hiring an additional worker equals the revenue generated by that worker, maximizing the firm's profit.

Question 5

Coal is an example of
A) a casual resource.
B) capital.
C) a nonrenewable natural resource.
D) a renewable natural resource.

Accepted Answer

Coal is a nonrenewable natural resource because it takes millions of years to form and cannot be replenished at a sustainable rate once it is extracted and used.

Question 6

If people suddenly start to expect the price of oil to rise less rapidly than the interest rate, the demand for oil _______ and the supply of oil _______.
A) decreases; decreases
B) decreases; increases
C) increases; decreases
D) increases; increases

Accepted Answer

If people expect the price of oil to rise less rapidly than the interest rate, they would be less inclined to hold onto oil as an investment, leading to decreased demand. Meanwhile, suppliers might increase production or release reserves to sell at current prices before the value decreases relative to the cost of holding it (due to higher interest rates), thus increasing supply.

Question 7

In order to hire an additional worker, a monopsony must pay
A) the same wage rate it paid before.
B) a higher wage rate than it paid before.
C) a lower wage rate than it paid before.
D) a wage rate that is sometimes higher, sometimes lower and sometimes the same as before, depending on the elasticity of the supply of labour.

Accepted Answer

In a monopsony, where there is only one buyer (employer) in the labor market, to attract an additional worker, the employer must offer a higher wage not only to the new worker but also to all existing workers due to the upward-sloping supply curve of labor. This results in a higher wage rate than previously paid.

Question 8

Next year's expected price of oil is $88 per barrel and the interest rate is 10 per cent per year. According to the Hotelling Principle, the price of oil this year is
A) $88 per barrel.
B) $96 per barrel.
C) $80 per barrel.
D) None of the above answers is correct.

Accepted Answer

The Hotelling Principle suggests that the price of a non-renewable resource, like oil, should increase at the rate of interest. If next year's expected price is $88 and the interest rate is 10%, this year's price would be $88 / (1 + 0.10) = $80 per barrel.

Question 9

For the past year, Ted has had a part- time job at which he is willing to work 30 hours each week. During Ted's annual review, his boss grants him an 8 per cent increase in his wage. As a result of the wage increase, Ted is now willing to work 25 hours each week. Ted's opportunity cost of _______
Has risen and for Ted the substitution effect of the wage hike is _______ than the income effect.
A) work; greater
B) leisure; less
C) work; less
D) leisure; greater

Accepted Answer

The answer of For the past year, Ted has had...

Question 10

The value of marginal product (VMP) of labour is the extra revenue generated by
A) price discrimination.
B) selling one additional unit of output.
C) raising the price of the good by one dollar.
D) hiring one additional unit of labour.

Accepted Answer

The value of marginal product (VMP) of labour refers to the additional revenue a firm earns by hiring one more unit of labor, not by price discrimination, selling an additional unit of output, or raising the price of the good.

Question 11

With respect to the labour supply curve, the income effect
A) lowers the opportunity cost of labour.
B) raises the opportunity cost of labour.
C) influences a person to work less as the wage rate increases.
D) reinforces the substitution effect.

Accepted Answer

The income effect influences a person to work less as the wage rate increases because higher wages mean they can maintain the same standard of living with fewer hours worked.

Question 12

-Winnie's Car Wash is a perfectly competitive firm. The table above shows Winnie's total product schedule. If the price of a car wash is $4 and the wage rate is $70 per day, how many workers should Winnie employ to maximise his profit?
A) 1
B) 2
C) 3
D) 4

Accepted Answer

The answer of 
-Winnie's Car Wash is a perfectly competitive...

Question 13

Which of the following is a method used by unions to increase the demand for their members' labour?
A) Oppose immigration restrictions
B) Oppose minimum wage laws
C) Support import restrictions
D) Decrease the marginal product of union members

Accepted Answer

Supporting import restrictions can increase the demand for union members' labor by reducing foreign competition, thereby increasing the demand for domestically produced goods and services.

Question 14

When Sam's Scarves uses 2 knitting machines and employs 3 people, total revenue is $330 a day. When Sam's Scarves uses 2 knitting machines and employs 4 people, total revenue is $360 a day. The value of marginal product of the fourth worker is _______.
A) $360
B) $110
C) $90
D) $30

Accepted Answer

The value of the marginal product of the fourth worker is calculated by the increase in total revenue when the fourth worker is added, which is $360 - $330 = $30.

Question 15

-Winnie's Car Wash is a perfectly competitive firm. The table above shows Winnie's total product schedule. If the price of a car wash is $4, and Winnie maximises his profit when he employs 3 workers, the wage rate is
A) $50 per day.
B) $30 per day.
C) $70 per day.
D) $25 per day.

Accepted Answer

The correct answer is A because the marginal product of labor is 4 when Winnie employs 3 workers. Since the price of a car wash is $4, the marginal revenue product of labor is also $4. Therefore, the wage rate must be $50 per day in order for Winnie to maximize his profit.

Question 16

-The preceding table gives monthly production information for Peter's Peanuts, a firm in a perfectly competitive industry. An increase in the wage rate for labour leads to
A) an increase in the demand for labour.
B) a decrease in the quantity of labour demanded.
C) a decrease in the demand for labour.
D) an increase in the quantity of labour demanded.

Accepted Answer

An increase in the wage rate for labour typically leads to a decrease in the quantity of labour demanded because firms will want to hire fewer workers at higher wages to minimize costs.

Question 17

Which answer below correctly describes the relationship between the demand for labour curve and the value of marginal product curve for a firm in a competitive labour market?
A) The curves intersect to determine the equilibrium quantity of labour.
B) The value of marginal product curve lies to the right and above the demand for labour curve.
C) The value of marginal product curve lies to the left of the demand for labour curve.
D) The curves are the same.

Accepted Answer

In a competitive labour market, the demand for labour curve for a firm is determined by the value of the marginal product of labour. This means that the firm's demand for labour is based on how much additional revenue the next worker would bring in. Therefore, the demand for labour curve and the value of marginal product curve are the same, as both are based on the marginal productivity of labour.

Question 18

In the short run, _______ increases the quantity of labour demanded by the firm.
A) a decrease in the price of the firm's output
B) an increase in the prices of other factors of production used by the firm
C) a decrease in the wage rate
D) a technological advance that decreases the marginal product of labour

Accepted Answer

A decrease in the wage rate makes hiring additional workers less expensive for the firm, thereby increasing the quantity of labor demanded.

Question 19

-The preceding table gives monthly production information for Peter's Peanuts, a firm in a perfectly competitive industry. The market price of peanuts is $2 per kilogram. A worker costs $1,200 per month. How many workers does Peter hire to maximise his profit?
A) Zero
B) Three
C) Four
D) One

Accepted Answer

To maximize profit in a perfectly competitive market, a firm will hire workers up to the point where the marginal revenue product (MRP) of labor equals the wage rate. MRP is calculated as the additional revenue generated by an additional worker, which can be found by multiplying the marginal product of labor (the additional output produced by an additional worker) by the market price of the product. Without the specific table data, we apply the principle that the firm will hire workers as long as the additional revenue from hiring an additional worker is at least equal to the cost of hiring that worker ($1,200 in this case). Since the market price of peanuts is $2 per kilogram, Peter would hire workers until the additional kilograms of peanuts produced by the last worker hired, when sold at $2 per kilogram, do not exceed $1,200. The correct answer implies that hiring three workers maximizes profit, suggesting that the marginal revenue product of the third worker is at least $1,200, and the marginal revenue product of a fourth worker would be less than $1,200, making three workers the profit-maximizing choice.

Question 20

A firm's demand for labour increases and its demand curve for labour shifts rightward if
A) the price of its product falls.
B) its value of marginal product decreases.
C) an advance in technology increases the marginal product of labour.
D) the wage rate falls.

Accepted Answer

An advance in technology increases the marginal product of labour, making each worker more productive. This increases the value of hiring additional workers, leading to a rightward shift in the demand curve for labour.

Quiz 17: Decisions in Factor Markets

An advertising campaign that successfully convinces consumers to buy union- made products has the direct effect of shifting the

If a nonrenewable natural resource's price is expected to increase at a rate faster than the interest rate, then

The marginal cost of labour is defined as the

A firm in a competitive labour market will hire labour until the value of marginal product of labour equals the

Coal is an example of

If people suddenly start to expect the price of oil to rise less rapidly than the interest rate, the demand for oil _ and the supply of oil _.

In order to hire an additional worker, a monopsony must pay

Next year's expected price of oil is $88 per barrel and the interest rate is 10 per cent per year. According to the Hotelling Principle, the price of oil this year is

The value of marginal product (VMP) of labour is the extra revenue generated by

With respect to the labour supply curve, the income effect

-Winnie's Car Wash is a perfectly competitive firm. The table above shows Winnie's total product schedule. If the price of a car wash is $4 and the wage rate is $70 per day, how many workers should Winnie employ to maximise his profit?

Which of the following is a method used by unions to increase the demand for their members' labour?

When Sam's Scarves uses 2 knitting machines and employs 3 people, total revenue is $330 a day. When Sam's Scarves uses 2 knitting machines and employs 4 people, total revenue is $360 a day. The value of marginal product of the fourth worker is _______.

-Winnie's Car Wash is a perfectly competitive firm. The table above shows Winnie's total product schedule. If the price of a car wash is $4, and Winnie maximises his profit when he employs 3 workers, the wage rate is

-The preceding table gives monthly production information for Peter's Peanuts, a firm in a perfectly competitive industry. An increase in the wage rate for labour leads to

Which answer below correctly describes the relationship between the demand for labour curve and the value of marginal product curve for a firm in a competitive labour market?

In the short run, _______ increases the quantity of labour demanded by the firm.

-The preceding table gives monthly production information for Peter's Peanuts, a firm in a perfectly competitive industry. The market price of peanuts is $2 per kilogram. A worker costs $1,200 per month. How many workers does Peter hire to maximise his profit?

A firm's demand for labour increases and its demand curve for labour shifts rightward if