Question 1

Suppose the equilibrium wage rate in the labor market is $10 and the demand for labor increases. If wages are sticky, there will be a

Accepted Answer

When demand for labor increases but wages are sticky, wages do not adjust quickly to the new equilibrium. This results in a shortage of labor because more employers want to hire at the old wage rate, but the wage does not increase to balance supply and demand.

Question 2

Efficiency wages may lower employee turnover.

Accepted Answer

Efficiency wages are higher than equilibrium wages and can result in lower employee turnover as workers are more likely to remain with their current employer to receive these higher wages.

Question 3

Suppose the wage rate in the labor market is $15 and the productivity of workers increases, which of the following statements is incorrect?

Accepted Answer

If the productivity of workers increases and wages are sticky, meaning they cannot adjust to the new productivity level immediately, there will be a surplus of workers in the market. This is because firms will not be willing to pay the higher productivity workers at the same rate as before, leading to fewer workers being employed. Therefore, choice D is incorrect.

Question 4

Suppose the wage rate in the labor market is $15 and the demand for labor decreases. If wages are sticky,

Accepted Answer

If the demand for labor decreases, there will be a surplus of labor at the current wage rate of $15. However, if wages are sticky, they will not decrease to eliminate the surplus. This will lead to an increase in unemployment as more workers are willing to work at the current wage rate of $15, but fewer job opportunities are available. Therefore, option B is the correct answer.

Question 5

An unspoken agreement between workers and firms that the firm will not cut wages is known as

Accepted Answer

An unspoken agreement between workers and firms that the firm will not cut wages is commonly referred to as an implicit or social contract. This agreement is typically based on the understanding that workers will provide high-quality labor, productivity, and loyalty to the firm in exchange for job security and stable, predictable wages.

Question 6

If wages are sticky, an increase in labor

Accepted Answer

When wages are sticky, they do not adjust quickly to changes in labor demand, so an increase in labor demand would not immediately change the wage rate.

Question 7

Suppose that airline workers are laid off during a recession because of an unspoken agreement between airline workers and airline executives that wages will not be reduced. This example is consistent with the

Accepted Answer

The example given involves an implicit agreement between workers and executives, which is the basis of the implicit contract explanation of unemployment. This explanation suggests that layoffs may occur during economic downturns because firms are hesitant to reduce wages that were previously agreed upon with workers, leading to a reduction in employment instead.

Question 8

If firms set wages too high, the result is unemployment.

Accepted Answer

If wages are set too high, it can make it difficult for firms to afford hiring new workers or maintaining their current workforce, leading to unemployment.

Question 9

Suppose the wage rate in the labor market is $8 and more people entered the labor force, which of the following statements is correct?

Accepted Answer

When more people enter the labor force and wages are sticky (meaning they do not adjust quickly to changes in supply and demand), the supply of labor increases without a corresponding increase in wage rates. This can lead to a surplus of labor, or in other words, an increase in the unemployment rate, as there are more workers available than there are jobs at the current wage rate.

Question 10

Efficiency wages are an explanation for the existence of unemployment.

Accepted Answer

Efficiency wages refer to wages that are intentionally kept higher than the equilibrium wage in order to motivate workers to be more productive and reduce shirking. However, this also means that some workers who are willing to work for a lower wage will be excluded from employment, leading to unemployment. Therefore, efficiency wages can contribute to the existence of unemployment.

Question 11

Minimum wage laws contribute to a ________ unemployment rate by raising wages above the market clearing level in some labor markets.

Accepted Answer

Minimum wage laws increase the cost of hiring workers, which leads to businesses hiring fewer workers than they would in a free market. Some workers who are willing to work for the minimum wage may become unemployed because businesses aren't willing to pay the higher wage. This results in an increase in the unemployment rate above what it would be without minimum wage laws.

Question 12

If firms pay wages higher than the market clearing wage, their profits will be reduced.

Accepted Answer

The answer of If firms pay wages higher than the...

Question 13

If, as a result of imperfect information, firms set their wage rates ________ the market clearing wage rate, there will be a shortage of workers.

Accepted Answer

When firms set their wage rates below the market clearing wage rate, it results in a shortage of workers because the wage is not high enough to attract the necessary number of employees.

Question 14

Efficiency wages may increase worker productivity.

Accepted Answer

Efficiency wages are set by employers above the market wage rate in order to attract and retain higher-quality workers. By offering higher wages, employers can increase worker motivation, job satisfaction, and loyalty, which can in turn increase productivity.

Question 15

Efficiency wages generally increase worker morale.

Accepted Answer

Efficiency wages refer to paying workers above the equilibrium wage in order to increase their productivity and reduce turnover. By receiving a higher wage, workers feel valued and respected, which can increase their job satisfaction and motivation, ultimately leading to a boost in morale.

Question 16

If, as a result of imperfect information, firms set their wage rates ________ the market clearing wage rate, there will be a surplus of workers.

Accepted Answer

When firms set their wage rates above the market clearing wage rate, it results in a surplus of workers because more people are willing to work at the higher wage than there are jobs available.

Question 17

The social contract explanation for the existence of downwardly sticky wages focuses on

Accepted Answer

The social contract explanation for the existence of downwardly sticky wages is that there are unspoken agreements between workers and firms that firms will not cut wages.

Question 18

The ________ contributes to a ________ unemployment rate among teenaged workers.

Accepted Answer

The minimum wage law sets a minimum wage rate that employers have to pay their workers. If the minimum wage rate is set above the equilibrium wage rate, some workers who are willing to work at the lower wage rate will be unable to find jobs. This leads to a decrease in the quantity of labor demanded and hence higher unemployment. Because teens are often inexperienced and have lower productivity levels than older workers, they are more likely to be affected by a higher minimum wage rate. Therefore, the minimum wage law contributes to a higher unemployment rate among teenaged workers.

Question 19

Intel Corporation, a major manufacturer of microchips, saw the demand for its product drop by 25%. Even though the demand for its product decreased, Intel did not cut the wages of its nonunionized workers. This is an example of

Accepted Answer

This is an example of an implicit or social contract not to cut wages. Despite the decrease in demand for Intel's microchips, the company chose to maintain the wages of its nonunionized workers. This suggests that there is an expectation or understanding between the company and its employees that wages will not be cut in such situations, even if there is no formal contract in place. This is an example of an implicit or social contract.

Question 20

Frito Lay experienced a 20% drop in its sales. Even though the demand for its product decreased, Frito Lay did not cut the wages of its nonunionized workers. This is an example of

Accepted Answer

Frito Lay not cutting the wages of its nonunionized workers despite a 20% drop in sales is an example of an implicit or social contract not to cut wages. In such situations, companies often rely on social norms and expectations to maintain their relationships with employees. Cutting wages could harm the company's reputation with employees and could result in decreased motivation and productivity. Therefore, companies like Frito Lay often prioritize maintaining these relationships and adhering to the implicit or social contract, even in challenging times.

Quiz 13: The Labor Market in the Macroeconomy