Deck 4: Labor Market Equilibrium

Question 1

Which of the following is not an accurate summary of the equilibrium associated with a single competitive labor market?

A)Firms receive surplus equal to the area above the wage rate and below the demand for labor.
B)Workers receive surplus equal to the area below the wage rate and above the supply of labor.
C)All workers are paid the same market-clearing wage.
D)Total firm surplus equals total worker surplus.
E)Total economic surplus is maximized.

Answer 1

D

Question 2

When the government imposes a payroll tax on employers (and not on workers), which of the following effects will not come about?

A)The labor demand curve shifts down.
B)Employment falls.
C)Firms and workers typically both bear a portion of the tax.
D)Real wages will remain fixed if the labor market is competitive.
E)The costs of hiring increase.

Answer 2

D

Question 3

Which of the following statements regarding immigration is true?

A)For each employed immigrant there is an unemployed native worker.
B)Immigration always results in lower native wages.
C)All immigrants are low-skilled.
D)Firms do not receive a substantial immigrant surplus.
E)Consumers benefit from immigration via lower prices.

Answer 3

E

Question 4

Many immigrants and many American high school dropouts possess very few skills. What impact will these low-skill immigrants likely have on the labor market opportunities of American high school dropouts?

A)Immigration of low-skilled workers is associated with higher wages paid to American high school dropouts.
B)Immigration of low-skilled workers is associated with lower wages paid to American high school dropouts.
C)Immigration of low-skilled workers does not affect wages paid to American high school dropouts.
D)Immigration of low-skilled workers is associated with greater employment among American high school dropouts.
E)None of the above.

Question 5

Which of the following statements regarding the Affordable Care Act (ACA) is true?

A)The ACA could have negative employment effects as some firms will not expand above having 50 workers in order to avoid the mandate.
B)The ACA should not be viewed as an employer-provided benefit as the ACA is a federal mandate.
C)The ACA will likely lead to an increase in wages.
D)Prior to the passage of the ACA, over 100 million (more than one-third of) Americans did not have health insurance.
E)All of the statements are true.

Question 6

Which of the following would result in a short-run increase in the wage rate in a competitive labor market?

A)An increase in immigration.
B)An increase in the output price.
C)A decrease in productivity.
D)An increase in native labor supply.
E)A decrease in labor demand.

Question 7

Which of the following would prevent a single equilibrium wage existing across all labor markets?

A)A competitive labor market.
B)Workers having various skills and preferences.
C)Firms being free to enter any of the labor markets.
D)Potential workers being able to freely enter any of the labor markets.
E)A payroll tax paid equally by workers and firms.

Question 8

When the government mandates that firms supply a particular benefit, it is usually the case that

A)the cost of providing the benefit is less than the worker's value of the benefit.
B)employment will increase.
C)the wage will increase.
D)the wage will decrease by more than the cost of providing the benefit.
E)the wage will decrease by less than the cost of providing the benefit.

Question 9

Standard economic theory suggests which of the following in terms of labor migration across states in the U.S.?

A)Workers migrate randomly.
B)Workers migrate at most twice per lifetime.
C)Workers are likely to migrate from low-wage states to high-wage states.
D)Workers are likely to migrate from high-wage states to low-wage states.
E)Older workers are more likely to migrate than are younger workers.

Question 10

Assuming a country has a constant returns to scale Cobb-Douglas production function, what effect will immigration have on native labor that has a high degree of substitutability with the immigrant labor?

A)Immigration has no long-run effect on native wages.
B)Immigration lowers native wages in the long run.
C)Immigration raises the labor-capital ratio in the long run.
D)Immigration has no short-run effect on native wages.
E)Immigration has a negative effect on total employment in the short run.

Question 11

Compared to the labor market outcome when there are no payroll taxes, imposing a payroll tax on labor will typically result in:

A)firms paying a higher wage.
B)workers receiving a lower wage net of taxes.
C)a decrease in overall employment.
D)an increase in dead weight loss.
E)all of these are possible outcomes.

Question 12

If native workers and immigrants are substitutes, then

A)native workers will be better off with open borders.
B)native workers will encourage immigration.
C)native firms will discourage immigration.
D)immigrant workers will receive a higher wage than native workers.
E)immigration will shift the labor supply curve to the right.

Question 13

The general consensus is that wages in the stricken area increase substantially in the months immediately following a natural disaster. This is most likely a result of what?

A)The government requiring wages to increase.
B)The government's anti-gauging laws.
C)A decrease in labor demand.
D)A decrease in labor supply as some workers leave the afflicted area.
E)An increase in labor supply as workers stream to the afflicted area.

Question 14

If immigrant workers are complementary to native workers, then

A)native workers will be better off with open borders.
B)immigrant workers will receive a higher wage than native workers.
C)immigration will shift the demand for native labor to the left.
D)very few immigrants will find jobs.
E)each firm will hire only immigrants or only natives but not a mixture of the two.

Question 15

When the government imposes a payroll tax on workers,

A)the effects are identical to the effects had the government imposed the tax on employers.
B)the costs of hiring remain constant.
C)the labor supply curve shifts to the right.
D)total employment remains constant.
E)workers' real wages are unchanged.

Question 16

The equilibrium of a competitive labor market is associated with

A)no unemployment as everyone has a job.
B)no unemployment as everyone who wants a job at the equilibrium wage has one.
C)no unemployment as labor is assumed to be supplied inelastically.
D)some unemployment as some people do not have a job at the equilibrium wage.
E)some unemployment as firms are not required to pay the minimum wage.

Question 17

Suppose a law firm negotiates a very low price for each of its 1,000 employees to be members at the athletic club that is located next to the law firm. Which of the following is not likely to be true?

A)The law firm can pay its workers less than a comparable law firm that does not offer the gym benefit.
B)The firm can likely negotiate a lower per person price at the gym than each employee could negotiate alone.
C)Some employees will take advantage of the gym benefit, while others will not.
D)In the long run, the law firm will probably attract workers who value the gym benefit the most.
E)If the typical individual gym membership costs $50 per month, the law firm should expect to save $50,000 per month in wages.

Question 18

If labor is supplied perfectly inelastic, the imposition of a payroll tax legislated to be paid by firms will do all of the following except:

A)reduce the wage rate by exactly the amount of the tax.
B)leave employment levels unchanged.
C)leave firm profits unchanged.
D)reduce total output.
E)generate tax revenue paid to the government.

Question 19

If unskilled domestic labor and unskilled immigrant labor are substitutes in the production process, then a more open immigration policy will likely result in all but which of the following?

A)The total market supply of unskilled labor shifts out.
B)The market-clearing wage for unskilled labor decreases.
C)Total employment of unskilled labor increases.
D)The wage received by unskilled native workers decreases.
E)The demand curve for unskilled labor shifts up (out).

Question 20

The assumption that a firm operates in a competitive labor market means that

A)the firm offers a real wage rate that is indexed for inflation.
B)the firm faces an upward-sloped marginal cost of labor curve.
C)the firm faces a downward-sloped marginal cost of labor curve.
D)the firm faces a constant wage regardless of how much labor it employs.
E)the firm doesn't use capital in the production process.

Question 21

A perfectly discriminating monopsonist pays each worker his or her reservation wage. This results in

A)the firm receiving zero profit.
B)the firm substituting capital for labor.
C)the firm receiving all of the surplus.
D)the firm avoiding payroll taxes.
E)workers being unwilling to work at the offered wage.

Question 22

If labor supply of unskilled workers is perfectly inelastic, then

A)firms face an increasing marginal cost of hiring unskilled labor.
B)firms face a horizontal value of marginal product of employment curve.
C)the labor supply curve of unskilled workers is horizontal at the market clearing wage.
D)the labor supply curve of unskilled workers is vertical at the total number of unskilled workers in the market.
E)workers will supply more hours of labor to the market when wages increase.

Question 23

A monopsonist is

A)a firm with partial control over an industry.
B)a firm operating in a regulated industry.
C)a firm that is the single purchaser of a factor of production.
D)a firm that competes for labor but sells its output in a non-competitive market.
E)a group of firms, much like a cartel, that restricts the demand for labor in a market.

Question 24

In a noncompetitive labor market, the firm pays a wage that is less than the workers' value of marginal product because

A)the marginal cost of labor curve is above the labor supply curve.
B)the labor supply curve is above the marginal cost of labor curve.
C)labor is supplied inelastically.
D)the firm's labor demand curve is downward-sloping.
E)the firm's objective is to minimize the wage rather than to maximize profits.

Question 25

The standard cobweb model makes the following two assumptions:

A)Workers are forward-looking, and job adjustments take time.
B)Workers are myopic, and job adjustments take time.
C)Workers are forward-looking, and job adjustments are instantaneous.
D)Workers are myopic, and job adjustments are instantaneous.
E)Workers are myopic, and retraining of one's skills happens instantaneously.

Question 26

A perfectly discriminating monopsonist

A)pays the equilibrium wage to all workers.
B)pays each worker his or her reservation wage.
C)receives zero profit in the long run.
D)disregards minimum wage laws.
E)faces an increasing value of marginal product curve.

Question 27

A profit-maximizing monopsonist

A)pays the same wage to all types of labor.
B)hires an equal number of male and female workers and pays them the same wage.
C)hires more minority workers than non-minority workers, but pays the minority workers less than the non-minorities.
D)hires fewer workers and pays its workers less than it would if it were operating in a competitive labor market.
E)substitutes low-skilled labor for high-skilled labor in the long run.

Question 28

Which of the following does not characterize a perfectly discriminating monopsonist?

A)The firm's marginal cost of hiring curve is the labor supply curve.
B)The firm hires more workers than it would if it were a competitive firm.
C)The firm chooses employment and wage levels in order to maximize profit.
D)The firm pays each worker his or her reservation wage.
E)The labor supply curve can be upward sloping.

Question 29

Which of the following does not describe a perfectly discriminating monopsonist?

A)The firm hires different workers at different wages.
B)The firm hires workers to the point where the labor supply curve intersects the firm's labor demand curve.
C)The firm's marginal cost of labor equals the labor supply curve faced by the firm.
D)The firm uses fewer hours of labor than it would if it were in a competitive market.
E)The wage-labor outcome is efficient.

Question 30

Which is the distinguishing feature of the standard cobweb model?

A)The firm is a perfectly discriminating monopsonist.
B)Wages and employment levels adjust slowly over time.
C)Payroll taxes create a tax wedge, which in turn increases overall employment levels.
D)Real wages steadily increase.
E)Capital is not fixed in the short run.