Question 1

Which of the following is true when the prevailing market wage is above equilibrium?

Accepted Answer

When the prevailing market wage is above the equilibrium wage, all the statements are true: there is a surplus of labor (A), which reflects the difference between the quantity of labor supplied and the quantity demanded (B), leading to unemployment (C).

Question 2

When the prevailing market wage is above equilibrium:

Accepted Answer

When the prevailing market wage is above equilibrium, it means that the wage is higher than what would clear the market, resulting in a surplus of labor. This surplus of labor leads to unemployment because there are more people willing to work at that wage than there are jobs available. Therefore, option B is the correct answer. Options A and C are incorrect because they suggest the absence of unemployment, which is not the case when the prevailing wage is above equilibrium.

Question 3

Sarah was a great bookkeeper 20 years ago, but she left the workforce to stay home and raise her children. Now that her kids are in college, Sarah is looking for another bookkeeping job, but they all require computer skills that she doesn't have. Sarah is:

Accepted Answer

Sarah's lack of computer skills has made her unable to meet the demands of the current job market, which is an example of structural unemployment.

Question 4

Weizhe just quit his job as a phone salesman and is looking for work as an accountant. Weizhe is:

Accepted Answer

Weizhe is between jobs and actively looking for work in his desired field, making him frictionally unemployed.

Question 5

Liam just quit his job as a librarian to pursue his lifelong dream of becoming a teacher. Liam is:

Accepted Answer

Liam made a voluntary decision to quit his job in order to pursue a different career path, making him frictionally unemployed. He is actively seeking new employment in his desired field, which is a common characteristic of frictional unemployment. Structural unemployment is typically caused by industry or technological shifts, and seasonal unemployment is related to a specific time of year or industry fluctuation, neither of which apply to Liam's situation. Not being in the labor force would mean that Liam is not actively seeking employment, which is not the case here.

Question 6

While working as a sales rep for a local firm, Felipe completes an MBA by taking online college courses at night. Felipe then quits his job to look for a management position at another firm. Felipe is:

Accepted Answer

Felipe is frictionally unemployed because he voluntarily quit his job to search for a new one that matches his new qualification.

Question 7

Real-wage unemployment:

Accepted Answer

Real-wage unemployment, also known as classical unemployment, occurs when wages remain persistently above the market-clearing level, causing employers to demand fewer workers than there are available. This results in unemployment among those who are willing and able to work at the prevailing wage rate. Choice A describes structural unemployment, choice B describes frictional unemployment, and choice D describes a different type of unemployment known as cyclical unemployment, which is caused by fluctuations in the business cycle.

Question 8

Sanjeev just graduated from college and has landed his first job with an accounting firm, which will start in one month. Sanjeev plans to use the next month adjusting to the new area. Sanjeev currently is:

Accepted Answer

Sanjeev is not currently working and is not actively looking for a job, so he is not in the labor force.

Question 9

Suke used to be a music teacher at a local high school, but got let go last year due to budget cuts. Suke now works part-time as a waitress while looking for another teaching job. Suke is:

Accepted Answer

Suke is currently employed, but not to the extent of her qualifications and education. This is an example of underemployment. Frictional unemployment refers to temporary unemployment while searching for a new job. Structural unemployment occurs when workers are displaced due to changes in the economy or industry. Real-wage unemployment occurs when the minimum wage is set above the equilibrium wage, leading to a surplus of workers. None of the other options accurately describe Suke's situation.

Question 10

The normal level of unemployment that persists in an economy in the long run is:

Accepted Answer

The normal level of unemployment that persists in an economy in the long run is known as the natural rate of unemployment. This rate includes frictional and structural unemployment, which are unavoidable in any economy, and is generally accepted as being around 4-5% in developed countries. Therefore, option A is the correct answer. Options B, C, and D are incorrect as they do not accurately describe the natural rate of unemployment.

Question 11

Structural unemployment:

Accepted Answer

Structural unemployment occurs when there is a mismatch between the skills workers can offer and the skills that are in demand. This may be due to technological changes, changes in consumer preferences, or a shift in the economy towards certain industries. This leads to long-term unemployment for those workers who do not have the necessary skills to compete in the job market.

Question 12

Frictional unemployment:

Accepted Answer

Frictional unemployment is associated with individuals voluntarily changing jobs, locations, or careers, reflecting the time period they spend searching for new positions that better match their skills, interests, or personal circumstances. It is a natural and healthy part of a dynamic economy.

Question 13

Don, who has worked as a machinist all his life, was recently laid off because the plant where he worked shut down and the jobs were outsourced. There don't seem to be any machinist jobs in the area anymore. Don is:

Accepted Answer

Don's job loss is a result of structural unemployment, which occurs when the demand for certain types of labor decreases due to changes in technology, production, or outsourcing. The fact that there are no machinist jobs in the area anymore suggests that the need for machinists has decreased, leading to Don's layoff. Frictional unemployment occurs when workers are temporarily between jobs, while real-wage unemployment occurs when wages in a certain sector are too high for the demand of labor. Discouraged workers are those who have given up looking for work and are not included in the unemployment rate.

Question 14

Millennials are stereotyped as changing jobs frequently to find their "dream" career. What type of unemployment is caused by these movements?

Accepted Answer

Frictional unemployment is caused by individuals who are between jobs, either because they are searching for a new job or because they have left their job and have yet to find a new one. This is often the case with Millennials who are frequently changing jobs in order to find their ideal career path. Although frictional unemployment does exist, it tends to be relatively short-term and is not as severe as other types of unemployment.

Question 15

The natural rate of unemployment is the normal level of unemployment:

Accepted Answer

The natural rate of unemployment is the long run equilibrium rate of unemployment that exists without government intervention. It includes frictional and structural unemployment, but not cyclical unemployment.

Question 16

Barbara has been working in a coffee shop full-time while she attends college. When she graduates, she quits the coffee shop and begins to search for full-time employment related to her college degree. Barbara is:

Accepted Answer

Barbara is frictionally unemployed because she is in between jobs, having voluntarily left her job at the coffee shop to seek employment that aligns with her college degree. This type of unemployment is common when individuals are transitioning between jobs, careers, or locations.

Question 17

Carol is an autoworker who was laid off when the last factory in the area shut down. She has looked everywhere for another job as an autoworker, but cannot find one. Carol is:

Accepted Answer

Carol's unemployment is caused by the structural changes in the economy, specifically the decline in the demand for autoworkers. This is different from frictional unemployment, which is caused by the time it takes for a worker to transition between jobs, and real-wage unemployment, which is caused by wages being too high for employers to hire workers. Carol is also not a discouraged worker, as she is actively searching for work in her field.

Question 18

Which type of unemployment does not contribute to the natural rate of unemployment?

Accepted Answer

Cyclical unemployment is associated with the ups and downs of the business cycle, rather than the natural rate of unemployment, which includes frictional and structural unemployment but not the fluctuations caused by the economy's cyclical movements.

Question 19

The country of Hortonia enters into a massive free trade agreement that sends most manufacturing jobs overseas. The country's workers who were previously employed in manufacturing now face:

Accepted Answer

The loss of manufacturing jobs due to the free trade agreement results in a permanent shift in the structure of the country's economy, leading to structural unemployment for affected workers who lack the skills or education to find employment in other industries.

Question 20

Which type of unemployment contributes to the natural rate of unemployment?

Accepted Answer

Real-wage unemployment, also known as structural unemployment, is a type of unemployment that contributes to the natural rate of unemployment. This occurs when the wage rate is above the market equilibrium, resulting in a surplus of labor supply and a shortage of demand, causing some workers to be unemployed for a longer time. Meanwhile, cyclical unemployment is a type of unemployment that occurs due to business cycle fluctuations, and it is not considered part of the natural rate of unemployment. Unemployment of government workers is not necessarily a type of unemployment, as there is no assumption that all government workers are employed, and therefore, it is not a contributor to the natural rate of unemployment.

Quiz 9: Unemploymentand the Labor Market