Question 1

Which of the following statements about the supply of labor is correct?

Accepted Answer

The supply of labor curve can indeed bend backwards, reflecting a situation where, beyond a certain wage level, individuals may choose to work fewer hours, valuing leisure more than the additional income. This phenomenon is known as the backward-bending supply curve of labor.

Question 2

Which of the following is a correct statement of the relationship between advances in technology and the demand for labor?

Accepted Answer

Advances in technology can automate some tasks, reducing the demand for labor in those areas. However, technology also creates new job opportunities in areas such as programming, tech support, and manufacturing of the technology itself. Therefore, the demand for labor increases in some areas and decreases in others.

Question 3

If the price of capital falls,in the long run under what circumstance could the demand for labor increase?

Accepted Answer

If the price of capital falls, it becomes cheaper for firms to invest in capital-intensive technologies, which can increase the scale of production. As a result, more labor may be needed to operate these new machines and technologies, leading to an increase in the demand for labor. Therefore, the demand for labor can increase if the scale of production increases enough.

Question 4

As the wage rate rises,the quantity of labor an individual supplies

Accepted Answer

The law of diminishing marginal utility implies that as a worker receives more income, the marginal utility of that income decreases, making them less willing to work more hours. As a result, at low wage rates, higher wages will induce workers to offer more labor, while at high wage rates, the marginal utility of additional income decreases, inducing them to work fewer hours for the same pay. Therefore, the quantity of labor supplied initially increases at low wage rates and then eventually decreases at high wage rates.

Question 5

When more people remain in school for full-time education and training,the supply of low-skilled labor ________ and the supply of high-skilled labor ________.

Accepted Answer

If more people remain in school for full-time education and training, the supply of low-skilled labor decreases because those individuals are not entering the workforce immediately. At the same time, the supply of high-skilled labor increases because more individuals are gaining advanced education and training.

Question 6

What is the effect on the supply of low-skilled labor of an increase in the number of people pursuing higher education?

Accepted Answer

An increase in the number of people pursuing higher education implies that there are fewer people available for low-skilled jobs. This reduces the supply of low-skilled labor, causing the supply curve to shift to the left. As a result, the equilibrium wage rate for low-skilled labor increases, making it more expensive for firms to hire such workers.

Question 7

An increase in the price of the firm's output leads to a

Accepted Answer

An increase in the price of the firm's output makes production more profitable, leading firms to demand more labor to increase production, thus shifting the demand for labor curve to the right.

Question 8

The value of marginal product of labor is equal to the marginal product of labor ________ the price of a unit of output.

Accepted Answer

The value of marginal product of labor is calculated by multiplying the marginal product of labor with the price of a unit of output. Therefore, the answer is B, which is "multiplied by."

Question 9

The rule for maximizing profit is to hire labor up to the point at which the value of marginal product

Accepted Answer

The rule for maximizing profit is to hire labor up to the point at which the value of marginal product equals the wage rate. This means that the cost of hiring an additional worker (the wage rate) should be equal to the additional revenue generated by that worker (the value of marginal product). This ensures that the marginal benefit from hiring an additional worker is equal to the marginal cost and any further hiring would result in a decrease in profits.

Question 10

The supply of labor curve for an individual is

Accepted Answer

The supply of labor curve for an individual is upward sloping at lower wage rates because as the wage rate increases, the opportunity cost of leisure time (not working) increases, and workers are willing to supply more labor to earn a higher income. However, at higher wage rates, the income effect of the wage increase can dominate the substitution effect, causing individuals to work less as they can afford to work less and still earn a sufficient income. Therefore, the labor supply curve begins to slope downward at higher wage rates.

Question 11

The wage paid to labor is

Accepted Answer

Wages paid to labor are considered a factor price, as they represent the cost of the labor input used by the firm in production. Factors of production include labor, capital, and land. The price paid for each factor is referred to as a factor price.

Question 12

According to a recent prediction in The Wall Street Journal the adult population of Russia will decline dramatically over the next few decades.If this prediction is correct,the supply of labor in Russia will

Accepted Answer

If the adult population in Russia declines, it will result in a decrease in the labor force which means a decrease in the supply of labor. Therefore, the correct answer is C.

Question 13

Because leisure time has value to many workers,as wages increase the labor supply curve

Accepted Answer

When wages increase, workers may choose to work less hours and enjoy more leisure time since their income needs are being met with fewer working hours. Thus, the labor supply curve bends backwards and has a negative slope indicating that higher wages lead to a decrease in the quantity of labor supplied.

Question 14

The demand for labor is derived from the

Accepted Answer

The demand for labor is ultimately determined by the demand for the goods and services the labor helps produce. As the demand for goods and services increases, firms must hire more workers to produce those goods and services, leading to an increase in the demand for labor. Conversely, a decrease in the demand for goods and services will lead to a decrease in the demand for labor. Therefore, choice (D) is the correct answer.

Question 15

If the price of capital rises,in the long run the demand for labor

Accepted Answer

When the price of capital rises, firms may adjust their production methods. If capital becomes more expensive, firms might use more labor if it's a substitute (increasing demand for labor), or they might reduce overall production scale if both inputs become too costly, potentially decreasing demand for labor. The effect on labor demand depends on the relative substitution between labor and capital and the overall impact on production scale.

Question 16

Which of the following shift the supply of labor curve leftward?
i.an advancement in technology
ii.a decrease in the price of the product that the labor produces
iii.a decrease in the adult population

Accepted Answer

A leftward shift in the supply of labor curve indicates a decrease in the amount of labor supplied at every wage level. Technological advancements (i) usually result in an increase in the demand for labor, which shifts the demand curve to the right, leading to an increase in equilibrium wage and quantity of labor. Hence, it does not shift the supply curve. A decrease in the price of the product (ii) increases the demand for labor, but it does not shift the supply curve as it impacts the demand. However, a decrease in the adult population (iii) reduces the number of individuals available to participate in the labor force, resulting in a leftward shift in the supply of labor curve. As a result, D is the best choice.

Question 17

Which of the following is true?

Accepted Answer

The value to a firm of hiring another worker is indeed the worker's value of marginal product, which represents the additional revenue a firm earns from hiring one more worker. This concept is fundamental in understanding how firms decide on the number of workers to hire.

Question 18

The four factors of production that produce goods and services are

Accepted Answer

The four factors of production are labor, capital, land, and entrepreneurship. Choice A includes profits, which is not a factor of production but rather a result of successful business operations. Choice B includes money and rent, which are not factors of production. Choice D includes wages, interest, and rent, which are outcomes of the factors of production but not factors themselves. Choice E includes prices and quantities, which are also outcomes and not factors.

Question 19

A change in the wage rate

Accepted Answer

A change in the wage rate does not shift the supply of labor curve, but instead leads to a movement along it. As wages increase, the quantity of labor supplied increases, and as wages decrease, the quantity of labor supplied decreases. However, a shift in the demand for labor curve can shift the equilibrium wage rate and the quantity of labor supplied.

Question 20

If the wage rate increases,then

Accepted Answer

When the wage rate increases, individuals are willing to supply more labor as the opportunity cost of leisure time has increased. This results in a movement upward along the supply of labor curve, as the quantity of labor supplied increases at each wage rate. However, it does not result in a shift of the supply of labor curve rightward or leftward. Therefore, option B is the best choice.

Quiz 19: Markets for Factors of Production