Question 1

What happens to labor supply in the pear-picking market when the wage paid to apple pickers increases?

Accepted Answer

When the wage paid to apple pickers increases, the labor supply in the pear-picking market is likely to decrease because some workers will switch to apple picking, where they can earn a higher wage. This reduces the pool of available workers for pear picking, potentially leading to a decrease in labor supply.

Question 2

Suppose that the market for labor is initially in equilibrium.An increase in the price of output will cause the equilibrium wage

Accepted Answer

When the price of output increases, firms will receive higher revenue and thus be willing to pay higher wages to attract and retain workers. This will shift the demand curve for labor to the right, causing both the equilibrium wage and the equilibrium quantity of labor to rise.

Question 3

Figure 18-5
The figure shows a particular profit-maximizing,competitive firm's value-of-marginal-product (VMP)curve.On the horizontal axis,L represents the number of workers.The time frame is daily.

-Refer to Figure 18-5.Assume that two points on the firm's production function are (L = 2,Q = 180)and (L = 3,Q = 228),where L = number of workers and Q = quantity of output.The firm pays its workers 120 per day.The firm's non-labor costs are fixed,and they amount to 250 per day.We can conclude that

Accepted Answer

To calculate the marginal cost per unit of output, we need to divide the additional cost of hiring one more worker ($120) by the additional output produced by that worker (Q2 - Q1 = 228 - 180 = 48). So the marginal cost per unit of output is $120/48 = $2.50. We cannot determine whether hiring a third worker would increase profit without knowing the firm's VMP at that level of employment. And while the firm's maximum profit occurs where VMP = wage rate, we do not have enough information to determine the exact number of workers needed to achieve this. We also cannot determine the firm's selling price based on the information given. Therefore, the only conclusion we can draw is that the marginal cost per unit of output is $2.50.

Question 4

Which of the following best illustrates the concept of "derived demand?"

Accepted Answer

The answer of Which of the following best illustrates the...

Question 5

When the wages paid to government economists increase,the labor supply curve for academic economists

Accepted Answer

When the wages paid to government economists increase, it creates a higher opportunity cost for academic economists to leave their jobs and join the government. Therefore, academic economists will reduce their labor supply and shift the supply curve to the left.

Question 6

The term Luddite is used to describe

Accepted Answer

The term Luddite originated in the early 19th century in England when a group of workers known as the Luddites protested against the introduction of new machines in the textile industry. They believed that the machines would take away their jobs and opposed technological advance. Today, the term Luddite is used to describe people who are opposed to technology or favor minimal use of it.

Question 7

Consider the market for university economics professors.Suppose the opportunity cost of going to graduate school to get a Ph.D.in economics decreases for many individuals.Suppose it generally takes about five years to get a Ph.D.in economics.Holding all else constant,in five years the equilibrium wage for university economics professors will

Accepted Answer

If the opportunity cost of going to graduate school to get a Ph.D. in economics decreases, more individuals will choose to go to graduate school and obtain a Ph.D. in economics. This will increase the supply of potential economics professors in the market. With more supply and all else constant, the equilibrium wage for university economics professors will decrease. Therefore, the best choice is (B) decrease.

Question 8

When a labor market experiences a surplus of labor,there is downward pressure on

Accepted Answer

When there is a surplus of labor, there are more workers available than there are job openings, meaning employers have more options to choose from and can lower wages. This results in downward pressure on wages. A surplus of labor does not affect the supply of labor or the final product price, and may actually increase the demand for labor due to the lower wage levels.

Question 9

Figure 18-8
This figure below shows the labor market for automobile workers.The curve labeled S is the labor supply curve,and the curves labeled DS1U1B11S1U1B0 and DS1U1B12S1U1B0 are the labor demand curves.On the horizontal axis,L represents the quantity of labor in the market.

-Refer to Figure 18-8.What is measured along the vertical axis on the graph?

Accepted Answer

The vertical axis measures the wage paid to automobile workers.

Question 10

When we focus on the firm as a supplier of a good or a service,we assume that the firm is a profit maximizer.When we focus on the firm as a demander of labor,we assume that the firm's objective is to

Accepted Answer

The objective of the firm as a demander of labor is to maximize profit. It will hire workers as long as the marginal revenue product of labor is greater than the wage rate. Therefore, to maximize profit, the firm will hire the optimal number of workers that will bring in the most revenue at the lowest cost.

Question 11

Figure 18-7 -Refer to Figure 18-7.Which of the following would shift the labor supply curve from S₁ to S₂?

Accepted Answer

The answer of Figure 18-7

-Refer to Figure 18-7.Which of...

Question 12

If Ernie's individual labor supply curve is upward sloping,then Ernie responds to an increase in the

Accepted Answer

If Ernie's individual labor supply curve is upward sloping, then he is willing to work more hours as the wage rate increases. This is because the opportunity cost of leisure (i.e., the enjoyment that Ernie could have from leisure activities) becomes relatively lower than the wage rate, and he can earn more income by working more hours. Therefore, Ernie responds to an increase in the wage rate by working more hours per week.

Question 13

Figure 18-8 This figure below shows the labor market for automobile workers.The curve labeled S is the labor supply curve,and the curves labeled DS1U1B11S1U1B0 and DS1U1B12S1U1B0 are the labor demand curves.On the horizontal axis,L represents the quantity of labor in the market. -Refer to Figure 18-8.Which of the following is a possible explanation of the shift of the labor-demand curve from D₁ to D₂?

Accepted Answer

An increase in the price of automobiles would increase the demand for automobile workers, leading to a rightward shift of the labor-demand curve from D₁ to D₂.

Question 14

Your best friend receives a pay raise at her part-time job from 8 dollars to 10 dollars per hour.She used to work 20 hours per week,but now she decides to work 16 hours per week in order to spend more time studying economics.For this price range,her labor supply curve is

Accepted Answer

The labor supply curve is backward sloping in this scenario because as the wage increases, she chooses to work fewer hours, indicating that the income effect outweighs the substitution effect.

Question 15

In a representative labor market,

Accepted Answer

In a representative labor market, the wage adjusts to balance the supply and demand for labor, which is known as the equilibrium wage. At this wage rate, the value of the marginal product of labor is equal to the wage rate. Therefore, both options A and B are correct. Option C is incorrect because an increase in the supply of labor may actually decrease the equilibrium wage if it outpaces the increase in demand for labor, which results in a surplus of labor.

Question 16

Figure 18-5
The figure shows a particular profit-maximizing,competitive firm's value-of-marginal-product (VMP)curve.On the horizontal axis,L represents the number of workers.The time frame is daily.

-Refer to Figure 18-5.Suppose one point on the firm's production function is
(L = 3,Q = 180),where L = number of workers and Q = quantity of output.If the firm sells its output for $5 per unit,then

Accepted Answer

From the VMP curve in the figure, we can see that initially, as the number of workers increases from 0 to 3, the VMP curve is upward sloping, indicating increasing marginal product of labor. This means that for each additional worker hired, the firm's total output increases by a larger amount than the previous worker. However, beyond L = 3, the VMP curve starts to slope downward, indicating diminishing marginal product of labor. This means that each additional worker hired contributes less and less to the firm's total output.

Given that one point on the firm's production function is (L = 3,Q = 180), we can use this information to calculate the marginal product of labor (MPL) as follows:
MPL = (change in Q) / (change in L) = (180 - 0) / (3 - 0) = 60
This tells us that each additional worker hired beyond L=3 contributes 60 units of output to the firm's total output.

If the firm sells its output for $5 per unit, it can calculate its marginal revenue product (MRP) as follows:
MRP = MPL x Price = 60 x 5 = 300

To maximize its profit, the firm should hire workers up to the point where their MRP equals their wage (i.e., the cost of hiring them). If the firm pays workers $160 per day, it can calculate its marginal cost (MC) of labor as follows:
MC = wage / MPL = 160 / 60 = 2.67

To maximize its profit, the firm should hire workers up to the point where MRP = MC. From the VMP curve, we can see that this occurs at L = 4, where the firm's MRP is $300 and its MC is $160 / 60 = $2.67. Therefore, the firm will maximize profit by hiring four workers.

In summary, all of the above statements are correct. The production function exhibits the property of diminishing marginal product of labor, and the firm will maximize profit by hiring four workers if it pays workers $160 per day.

Question 17

Figure 18-7 -Refer to Figure 18-7.If the relevant labor supply curve is S₂ and the current wage is W₁,

Accepted Answer

The current wage (W₁) is above the equilibrium wage, causing a surplus of labor. This is indicated by the distance between the labor supply curve and the quantity demanded at that wage. An increase in the minimum wage or firms raising the wage would worsen the surplus. The market would need to adjust through a decrease in wages or an increase in quantity demanded to restore equilibrium.

Question 18

Which of the following would shift a market labor supply curve to the right?

Accepted Answer

An increase in immigration would increase the number of people available to work in a particular labor market, which would shift the labor supply curve to the right.

Question 19

For a competitive,profit-maximizing firm,the demand curve for labor will shift in response to a change in the

Accepted Answer

The demand for labor is derived demand, meaning that it is dependent on the demand for the firm's product. If the price of the product that the firm sells increases, then the firm's revenue will increase, which will lead to an increase in the demand for labor. On the other hand, if the price of the product that the firm sells decreases, then the firm's revenue will decrease, which will lead to a decrease in the demand for labor. Therefore, the demand curve for labor will shift in response to a change in the price of the product that the firm sells.

Question 20

An upward-sloping labor supply curve means that

Accepted Answer

An upward-sloping labor supply curve means that as the wage rate increases, workers are willing to supply more hours of labor because the opportunity cost of leisure time has increased. In other words, workers are sacrificing more by not working when the wage rate is high, so they choose to work more. This is consistent with choice C which states that an increase in the opportunity cost of leisure leads workers to increase the quantity of labor they supply. Choices A and B are incorrect because they do not accurately reflect the concept of an upward-sloping labor supply curve.

Quiz 18: The Market for the Factors of Production