Deck 9: Labor Economics 

Question 1

If a firm employs a new worker, the additional product he generates is

A) the marginal physical product of labor.
B) the diminished return.
C) the outside edge.
D) total product.

Answer 1

the marginal physical product of labor.

Question 2

We assume that when new workers are hired, the marginal physical product of labor will

A) increase because more workers can always get more work done.
B) decrease because the new workers are likely to be less skilled than the previously hired ones.
C) decrease because of the law of diminishing marginal returns.
D) increase because large firms are more efficient.

Answer 2

decrease because of the law of diminishing marginal returns.

Question 3

The marginal factor cost of labor is

A) the cost involved in training new workers.
B) the change in total cost that results from employing one more worker.
C) the change in marginal cost that results from selling one more unit of output.
D) total labor employed divided by total sales.

Answer 3

the change in total cost that results from employing one more worker.

Question 4

A firm will not hire a potential new worker if

A) the firm earns accounting profits.
B) the firm earns economic profits.
C) the worker's marginal revenue product is less than her marginal factor cost.
D) the worker's marginal product is less than the current average product of all workers.

Question 5

The demand for labor is

A) identical to the supply of labor.
B) derived from the demand for the final product being produced.
C) derived from the willingness of workers to accept overtime hours.
D) identical to the marginal factor cost of labor.

Question 6

Firms will hire workers who

A) have a marginal factor cost that exceeds their marginal revenue product.
B) have a marginal revenue product of zero.
C) add to cost by more than they add to revenue.
D) add to revenue by more than they add to cost.

Question 7

The market demand for labor is

A) upward sloping.
B) downward sloping.
C) determined by the supply of labor.
D) determined by the marginal factor cost of labor.

Question 8

Which of the following would increase the demand for labor in the dry cleaning industry?

A) Immigration laws make it easier for new immigrants to obtain permission to work.
B) The price of dry cleaning services rises.
C) The price of dry cleaning services falls.
D) Changes in dry cleaning procedures mandated by environmental legislation result in decreased labor productivity in the dry cleaning industry.

Question 9

When wages rise in an industry due to a decrease in the supply of labor, we expect that the quantity of labor employed in that industry will

A) increase.
B) decrease.
C) remain unchanged.
D) return to the level at which the marginal revenue product is zero.

Question 10

In a perfectly competitive market, the firm hires labor up to the point at which

A) the marginal factor cost of labor is zero.
B) the marginal revenue product of labor is zero.
C) the marginal revenue product of labor equals the wage rate.
D) None of the above.

Question 11

The supply of labor to the individual firm in a competitive market is

A) perfectly inelastic.
B) determined by the demand for labor.
C) downward sloping.
D) perfectly elastic at the going market wage rate.

Question 12

Suppose a perfectly competitive firm faces a labor market in which the going wage rate is $90 per day. If the last worker hired has a marginal physical product of 15 units of output per day, what is the selling price of the firm's output?

A) $6 per unit
B) $15 per unit
C) $45 per unit
D) $90 per unit

Question 13

Suppose a perfectly competitive firm faces a labor market in which the going wage rate is $480 per week. If the last worker hired has a marginal physical product of 12 units of output per week, what is the selling price of the firm's output?

A) $12 per unit
B) $40 per unit
C) $480 per unit
D) $240 per unit

Question 14

For the individual worker, the opportunity cost of working is

A) the income taxes paid on his wages.
B) the forgone leisure.
C) the difficulty in dealing with fellow workers.
D) None of the above.

Question 15

For the individual worker, the opportunity cost of leisure is

A) zero.
B) the expense incurred in pursuing leisure activities.
C) the risk that she will eventually become unemployed.
D) the forgone wages.

Question 16

According to the substitution effect,

A) firms hire the best workers first.
B) firms hire the most experienced workers first.
C) workers prefer to work more hours when the wage rate rises.
D) workers prefer to work fewer hours when the wage rate rises.

Question 17

As the wage rate rises, other things constant, firms will

A) lower the selling price of their product.
B) advertise their product more heavily.
C) employ more workers.
D) employ fewer workers.

Question 18

To the extent that a worker is influenced by the income effect, he will

A) want to work fewer hours when the wage rate increases.
B) want to work more hours when the wage rate increases.
C) ignore the opportunity costs of leisure.
D) ignore the opportunity costs of working.

Question 19

The supply of labor to the health care industry will decrease when

A) there is an increased demand for health care.
B) minimum wages are legislated for health care workers.
C) working conditions for health care workers improve through legislated mandates.
D) workers receive better employment opportunities in other industries.

Question 20

The fact that the labor supply curve slopes upward indicates that

A) the income effect of a wage increases outweighs the substitution effect.
B) workers seek to work more hours when the wage rises.
C) workers seek to work more hours when the wage decreases.
D) firms want to hire more workers when the wage rises.

Question 21

If a minimum wage is imposed above the equilibrium wage in a labor market,

A) it will increase the demand for labor in that market.
B) it will decrease the demand for labor in that market.
C) it will cause unemployment in that market.
D) it will not change the employment level from its equilibrium amount.

Question 22

If the marginal revenue product of a worker exceeds the wage at which he could be hired,

A) then the worker's marginal factor cost will exceed his wage.
B) then the worker's wage will exceed his marginal factor cost.
C) the firm will diminish its profit by hiring the worker.
D) the firm can add to its profit by hiring the worker.

Question 23

Increases in the minimum wage in a labor market will

A) increase the quantity of labor demanded and increase the quantity of labor supplied.
B) increase the quantity of labor demanded and decrease the quantity of labor supplied.
C) decrease the quantity of labor demanded and increase the quantity of labor supplied.
D) decrease the quantity of labor demanded and decrease the quantity of labor supplied.

Question 24

Which one of the following would increase the supply of labor to an industry?

A) A minimum wage is imposed above the equilibrium wage.
B) A minimum wage is imposed below the equilibrium wage.
C) Overall working conditions in the industry improve.
D) Overall working conditions in the industry deteriorate.

Question 25

If it is true that the marginal factor cost of labor is equal to the going wage, this implies that

A) the firm does not have to increase its wage offer in order to attract more workers.
B) the firm is paying wages above the minimum wage level.
C) the marginal revenue product does not decline as more workers are hired.
D) the marginal physical product does not decline as more workers are hired.

Question 26

The fact that the demand for labor is downward sloping means that

A) the marginal factor cost of labor declines as more workers are hired.
B) workers prefer to work more hours when their wage rate declines.
C) workers prefer to work fewer hours when their wage rate declines.
D) firms prefer to hire more workers when the wage rate declines.

Question 27

Increases in the legislated minimum wage will

A) make all workers more productive.
B) make all workers less productive.
C) increase the employment level.
D) generate unemployment.

Question 28

In Table 9.2, what is the marginal physical product for the second worker?

A) 10
B) 11
C) 12
D) 40

Question 29

In Table 9.2, what is the marginal physical product for the fourth worker?

A) 10
B) 11
C) 12
D) 40

Question 30

Refer to Table 9.2. Suppose the firm faces a wage rate of $8 and sells its product for $1. How many workers will be hired?

A) 2
B) 3
C) 4
D) 5

Question 31

Refer to Table 9.2. Suppose the firm faces a wage rate of $24 and sells its product for $2. How many workers will be hired?

A) 2
B) 3
C) 4
D) 5

Question 32

Refer to Table 9.2. Suppose the firm sells its product for $50 and that it hires 4 workers. What must be the going wage rate?

A) $2
B) $3
C) $4
D) $5

Question 33

Refer to Table 9.2. Suppose the firm sells its product for $24 and that it hires 5 workers. What must be the going wage rate?

A) $2
B) $3
C) $4
D) $5

Question 34

Which one of the following is FALSE?

A) A perfectly competitive firm's demand for labor is its marginal revenue product curve.
B) Under conditions of perfect competition, marginal revenue product equals marginal physical product multiplied by the product's price.
C) Changes in the selling price of a product do not affect the demand for labor.
D) The demand for labor is a derived demand.

Question 35

An increase in the selling price of a product

A) increases the productivity of labor.
B) raises the firm's demand for labor.
C) decreases the supply of labor to the industry.
D) increases the supply of labor to the industry.

Question 36

If labor productivity increases,

A) the demand for labor will increase.
B) the supply of labor will increase.
C) the supply of labor will decrease.
D) workers will earn wages higher than their marginal revenue product.

Question 37

The slope of the labor supply curve is determined by

A) the current minimum wage.
B) the slope of the labor demand curve.
C) the willingness of workers to trade leisure for income.
D) the productivity of labor.

Question 38

Which of the following would increase the supply of labor to high-tech industries?

A) Increased productivity among high-tech workers
B) Improved working conditions and job security in high-tech industries
C) A decrease in the minimum wage applying to high-tech workers
D) An increase in the minimum wage applying to high-tech workers

Question 39

If there is a decline in the price a certain type of capital equipment used in one industry, and the result is that employment declines in that industry, we can conclude that

A) this type of capital equipment is a substitute for labor.
B) this type of capital equipment is a complement to labor.
C) the demand for labor in this industry is upward sloping.
D) the supply of labor in this industry is downward sloping.

Question 40

If there is an increase in the price a certain type of capital equipment used in one industry, and the result is that employment declines in that industry, we can conclude that

A) this type of capital equipment is a substitute for labor.
B) this type of capital equipment is a complement to labor.
C) the demand for labor in this industry is upward sloping.
D) the supply of labor in this industry is downward sloping.

Question 41

If there is an increase in wages in one industry accompanied by an increase in the number of workers employed, we can conclude that

A) firms in this industry do not maximize profits.
B) the demand for labor in this industry is horizontal.
C) the increase in wages was brought about by a reduction in labor supply.
D) the increase in wages was brought about by an increase in labor demand.

Question 42

If there is an increase in wages in one industry accompanied by a decrease in the number of workers employed, we can conclude that

A) firms in this industry do not maximize profits.
B) the demand for labor in this industry is horizontal.
C) the increase in wages was brought about by a reduction in labor supply.
D) the increase in wages was brought about by an increase in labor demand.

Question 43

The equilibrium wage rate in any one industry is determined by

A) the interaction of labor supply and labor demand.
B) federal labor legislation.
C) whether the industry is unionized.
D) whether the industry is subject to minimum wage legislation.

Question 44

Which one of the following would increase the equilibrium wage in an industry while also increasing the amount of labor employed?

A) An increase in the minimum wage effective in the industry
B) An increase in the number of immigrants available to work in the industry
C) A reduction in the selling price of the industry's product
D) An increase in the productivity of labor in the industry

Question 45

Which one of the following was NOT a goal of the early American labor unions?

A) To improve wages and working conditions
B) To end child labor
C) To create a nationwide minimum wage
D) To shorten the workday

Question 46

What was the name of the first national assembly of craft unions in the U.S.?

A) The Congress of Industrial Organization
B) The American Federation of Labor
C) The Equal Opportunity Alliance
D) The Workplace Coalition

Question 47

Which has been the pattern of strike activity in the U.S. over the past half-century?

A) The number of strikes has steadily increased.
B) There were peaks of strike activity in the decades of the 1950's and 1970's, but the number of strikes has been declining since 1980.
C) Strike activity was low during the decade of the 1950's, but there were peaks of strike activity in the decades of the 1960's and 1990's.
D) The amount of strike activity varies little from year to year.

Question 48

What is a boycott?

A) A decision by workers to organize a strike
B) A decision by workers to organize a union
C) A labor technique in which a union encourages members of the public not to buy products from a firm that is being struck
D) A labor technique in which workers collude to undermine the quality of the good they are manufacturing or the service they are providing

Question 49

What is a lockout?

A) A management technique in which labor is prevented from returning to work until a new contract is agreed upon
B) A management technique in which high quantities of a good are produced to create an inventory stockpile in anticipation of a strike
C) A labor technique in which the supply of labor is restricted
D) A labor technique in which workers collude to slowdown the work process

Question 50

What is the name given to the process by which unions and their employers negotiate the conditions of employment and wages?

A) Boycotting
B) Bilateral filibuster
C) Collusive engagement
D) Collective bargaining

Question 51

Economists Freeman and Medoff argue that

A) labor unions have made it difficult for American workers to compete against their counterparts from around the world.
B) management always has the best interests of labor at heart.
C) labor always has the best interests of management at heart.
D) unions provide benefits beyond wage increases for their members.

Question 52

Which one of the following is TRUE?

A) As empirical evidence shows that college graduates earn more than workers who do not have formal schooling beyond high school, more people pursue college degrees.
B) The empirical evidence shows that investment in human capital does not result in higher earnings.
C) The typical worker can expect to earn a wage that is twice the value of his marginal revenue product.
D) Most of the income inequality in the U.S. is due to unequal patterns of inheritance.

Question 53

Economic discrimination occurs whenever

A) there is income inequality.
B) workers with the same marginal revenue product receive unequal pay.
C) workers with more seniority are paid more.
D) workers with more human capital are paid more.

Question 54

For the individual worker, the opportunity cost of working is the _________ forgone.

Question 55

For the individual worker, the opportunity cost of leisure is the _________ forgone.

Question 56

To the extent that an _________ effect is present, the worker will want to work fewer hours when his wage rate rises.

Question 57

To the extent that an _________ effect is present, the worker will want to work more hours when his wage rate rises.

Question 58

The fact that the labor supply curve slopes _________ suggests that the substitution effect outweighs the income effect.

Question 59

The demand for labor is a _________ demand, because it depends on the demand for the final output.

Question 60

The marginal revenue product of labor is equal to marginal _________ product times marginal revenue.

Question 61

If a firm can hire an indefinite number of workers at the going wage, then the marginal factor cost of labor is equal to the _________.

Question 62

The firm will hire workers who add to _________ by more than they add to cost.

Question 63

The demand for labor is the _________ _________ _________ curve.

Question 64

Increases in labor productivity will _________ the demand for labor.

Question 65

Increases in the federally mandated minimum wage will _________ the quantity of unskilled labor demanded.

Question 66

Labor unions seek to win higher wages for their members by _________ the supply of labor.

Question 67

The process by which unions and employers negotiate the conditions of employment and wages is known as _________ _________.

Question 68

One tactic used by unions is that of organizing a _________, in which members of the public are encouraged to not to buy goods from a firm being struck.

Question 69

What is the opportunity cost of leisure, from the viewpoint of the worker?

Question 70

What is the opportunity cost of working, from the viewpoint of the worker?

Question 71

What is the name given to the effect that accounts for the worker's willingness to work more when the wage rate increases?

Question 72

What is the name given to the effect that accounts for the worker's preference for working less when the wage rate increases?

Question 73

When does the marginal factor cost differ from the wage rate?

Question 74

What is the marginal factor cost?

Question 75

What accounts for the diminishing marginal physical product of labor?

Question 76

How does a perfectly competitive firm select the optimal quantity of labor?

Question 77

If a minimum wage is imposed the equilibrium wage rate, how does this affect the quantity of labor demanded?

Question 78

If a minimum wage is imposed the equilibrium wage rate, how does this affect the quantity of labor supplied?

Question 79

What types of workers are most likely to become unemployed as a result of increases in the legislated minimum wage?

Question 80

Why is it that increases in the price of capital goods used in the provision of services and the manufacture of goods can either increase or decrease the demand for labor?