Deck 17: The Economics of Factor Markets

Question 1

Firms are willing to pay more for workers with greater human capital because workers with greater human capital have a greater value of marginal product.

Answer 1

True

Question 2

A compensating differential is the difference in wages paid to workers who are discriminated against and those who are not discriminated against.

Answer 2

False

Question 3

The most important factors of production are

A) labour, land, and capital.
B) water, earth, and knowledge.
C) money, stocks, and bonds.
D) management, finance, and marketing.

Answer 3

A

Question 4

A decrease in the demand for fish

A) decreases the value of the marginal product of fishermen, reduces their wage, and reduces employment in the fishing industry.
B) increases the value of the marginal product of fishermen, increases their wage, and increases employment in the fishing industry.
C) decreases the value of the marginal product of fishermen, reduces their wage, and increases employment in the fishing industry.
D) increases the value of the marginal product of fishermen, increases their wage, and decreases employment in the fishing industry.

Question 5

A factor exhibits diminishing marginal productivity if employing additional units of the factor reduces output.

Question 6

At least some of the difference in pay between men and women can be explained by the fact that, on average, men may do more unpleasant jobs.

Question 7

If there is a difference in wages among groups, it is evidence that there is discrimination in the labour market.

Question 8

If a factor exhibits diminishing marginal product, hiring additional units of the factor will

A) cause a reduction in output.
B) have no effect on output.
C) increase the marginal product of the factor.
D) generate ever smaller amounts of output.

Question 9

If there is an increase in the equilibrium wage, there must have been an increase in the value of the marginal product of labour.

Question 10

The value of the marginal product of labour is the

A) price of the output times the wage of labour.
B) price of the output times the marginal product of labour.
C) value of the output of all units of labour employed.
D) wage of labour times the quantity of labour.
E) wage of labour times the marginal product of labour.

Question 11

An increase in the supply of capital decreases the value of the marginal product of capital, reduces the rental rate of capital, and decreases the value of the marginal product of labour, which reduces the wage of labour.

Question 12

Competition will tend to eliminate discrimination in the labour market if employers and employees are not biased and if government does not require discrimination.

Question 13

An increase in the supply of labour

A) increases the value of the marginal product of labour and decreases the wage.
B) decreases the value of the marginal product of labour and decreases the wage.
C) decreases the value of the marginal product of labour and increases the wage.
D) increases the value of the marginal product of labour and increases the wage.

Question 14

What will a decrease in the supply of fishermen do to the market for capital employed in the fishing industry?

A) increase the demand for fishing boats and decrease rental rates on fishing boats
B) decrease the demand for fishing boats and increase rental rates on fishing boats
C) decrease the demand for fishing boats and decrease rental rates on fishing boats
D) increase the demand for fishing boats and increase rental rates on fishing boats

Question 15

Figure 1 Labour (number of workers)

$\begin{array}{cccc} \text { Labour (number of } & \text { Output } & \text { Marginal Product } & \text { Value of MPL } \\ \text { workers) } & \text {per hour } & \text { of Labour (MPL) } \\\hline0 & 0 \\ 1 & 5 \\ 2 & 9 \\ 3 & 12 \\ 4 & 14 \\ 5 & 15\end{array}$

-Refer to Figure 1. What is the marginal product of labour as the firm moves from using three workers to using four workers?

A) 0
B) 2
C) 8
D) 12
E) 14

Question 16

Figure 1 Labour (number of workers)

$\begin{array}{cccc} \text { Labour (number of } & \text { Output } & \text { Marginal Product } & \text { Value of MPL } \\ \text { workers) } & \text {per hour } & \text { of Labour (MPL) } \\\hline0 & 0 \\ 1 & 5 \\ 2 & 9 \\ 3 & 12 \\ 4 & 14 \\ 5 & 15\end{array}$

-Refer to Figure 1. If this profit-maximizing firm sells its output in a competitive market for €3 per unit and hires labour in a competitive market for €8/hour, then this firm should hire

A) one worker.
B) two workers.
C) three workers.
D) four workers.
E) five workers.

Question 17

The demand for a factor is considered to be a derived demand because it is derived from the firm's decision to supply output in another market.

Question 18

An increase in the demand for apples will cause all but which of the following?

A) a decrease in the number of apple pickers employed
B) an increase in the value of the marginal product of apple pickers
C) an increase in the price of apples
D) an increase in the wage of apple pickers

Question 19

Figure 1 Labour (number of workers)

$\begin{array}{cccc} \text { Labour (number of } & \text { Output } & \text { Marginal Product } & \text { Value of MPL } \\ \text { workers) } & \text {per hour } & \text { of Labour (MPL) } \\\hline0 & 0 \\ 1 & 5 \\ 2 & 9 \\ 3 & 12 \\ 4 & 14 \\ 5 & 15\end{array}$

-Refer to Figure 1. If the price of output is €4 per unit, what is the value of the marginal product of labour as the firm moves from using four workers to using five workers?

A) €4
B) €8
C) €12
D) €56
E) €60

Question 20

In equilibrium, when a competitive firm hires labour up to the point at which the value of the marginal product of labour equals the wage, it also produces up to the point at which the price equals marginal cost.

Question 21

An individual firm's demand for a factor of production

A) slopes downward because an increase in the production of output reduces the price at which the output can be sold in a competitive market, thereby reducing the value of the marginal product as more of the factor is used.
B) slopes downward due to the factor's diminishing marginal product.
C) slopes upward due to the factor's increasing marginal product.
D) is perfectly elastic (horizontal) if the factor market is perfectly competitive.

Question 22

If a person who works in a coal mine gets paid more than a person with a similar background and skills who works in a safer job, then

A) coal miners must have greater human capital than others.
B) we have observed a compensating differential.
C) coal miners must be more attractive than other workers.
D) we have evidence of discrimination against workers outside the coalmine.

Question 23

A decrease in the supply of farm tractors will cause all but which of the following?

A) an increase in the rental rate for tractors
B) a decrease in the rental rate of farmland
C) an increase in the value of the marginal product of tractors
D) an increase in the wage of farm workers

Question 24

Which of the following professionals is most likely to be able to generate the income of a superstar?

A) the best professor.
B) the best writer.
C) All of these answers participate in markets that could generate a superstar.
D) the best accountant.
E) the best medical doctor.

Question 25

An increase in the price of automobiles shifts the demand for autoworkers to the

A) right and increases the wage.
B) right and decreases the wage.
C) left and decreases the wage.
D) left and increases the wage.

Question 26

If both input and output markets are competitive and firms are profit maximizing, then in equilibrium each factor of production earns

A) an amount equal to the price of output times total output.
B) the amount allocated by the political process.
C) an equal share of output.
D) the value of its marginal product.

Question 27

According to the human capital view of education, education

A) has no impact on the human capital of workers.
B) increases human capital and the wages of workers.
C) can make any worker into a superstar.
D) only helps firms sort workers into high-ability and low-ability workers.

Question 28

According to the signalling view of education, education

A) can make any worker into a superstar.
B) increases human capital and the wages of workers.
C) only helps firm's sort workers into high-ability and low-ability workers.
D) reduces the wage gap between high-skill and low-skill workers.

Question 29

Walter's Wheat Farm sells its output and hires its labour in perfectly competitive markets. In the short run, Walter can vary only one input, labour. When Walter is producing in short-run equilibrium, all of the following conditions, except one, will necessarily be satisfied. Which is the exception?

A) The value of marginal product of labour equals the wage rate.
B) The marginal cost curve crosses the marginal revenue curve from below.
C) Marginal revenue equals the price of the firm's output.
D) The firm's total revenue will decrease if more labour is hired.

Question 30

The rental price is the price a person pays to use a factor of production for a _________ period of time.

A) limited.
B) unlimited.
C) long.
D) unknown.

Question 31

Which of the following is true regarding the earnings of attractive versus unattractive workers?

A) Attractive people tend to earn less because attractive people are viewed as shallow and more self-absorbed and, therefore, as less productive.
B) Attractive people tend to earn more because they may actually have a larger value of marginal product.
C) Attractive people tend to earn more because attractive people usually have greater human capital.
D) Attractive people tend to earn less because attractive people usually have less human capital.

Question 32

Which of the following is not true with regard to workers who have a high value of marginal product? These workers

A) have skills that are in relatively scarce supply.
B) produce output for which there is great demand.
C) usually have little capital with which to work.
D) are usually highly paid.

Question 33

A new technology that increases the productivity of chefs has what effect on the labour market for chefs?

A) The wage rate will rise, and quantity of chefs employed will fall.
B) The wage rate will rise, and the quantity of chefs employed will rise.
C) The wage rate will fall, and quantity of chefs employed will fall.
D) The wage rate will fall, and the quantity of chefs employed will rise.

Question 34

In a competitive market, which of the following is least likely to be the source of a persistent discriminatory wage differential?

A) All of these answers could be the source of a persistent discriminatory wage differential.
B) the customer
C) the government
D) the employer

Question 35

A competitive, profit-maximizing firm should hire workers up to the point where the

A) wage, the rental price of capital, and the rental price of land are all equal.
B) marginal product of labour equals zero and the production function is maximized.
C) value of the marginal product of labour equals the wage.
D) marginal product of labour equals the wage.

Question 36

If two jobs require the same amount of skills and experience, the job that pays the most is most likely to be the one that is

A) unpleasant.
B) discriminatory.
C) safe.
D) fun.
E) easy.

Question 37

Economists have hypothesized that the widening gap between the wages of unskilled workers and skilled workers may be due to

A) decrease in the demand for unskilled workers because of increases in technology and increases in international trade.
B) increase in the number of unskilled workers available due to immigration into the UK.
C) decrease in the demand for unskilled workers because workers are more poorly educated.
D) increase in the number of unskilled workers available because workers are more poorly educated.

Question 38

An increase in the demand for a firm's output

A) decreases the prosperity of the firm but increases the prosperity of the factors hired by the firm.
B) decreases the prosperity of both the firm and the factors hired by the firm.
C) increases the prosperity of both the firm and the factors hired by the firm.
D) increases the prosperity of the firm but decreases the prosperity of the factors hired by the firm.

Question 39

Which of the following is not part of a worker's human capital?

A) education
B) experience
C) All of these answers are parts of a worker's human capital.
D) effort
E) on-the-job training

Question 40

All of the following would tend to increase a worker's wage except

A) working the night shift.
B) working harder.
C) more education.
D) having a greater amount of natural ability.
E) doing a job that is fun.

Question 41

Which of the following could result in women being paid less than men?

A) women obtaining less human capital because they don't plan to work continuously to the age of retirement
B) women entering and leaving the labour force to care for children
C) customers preferring to deal with men
D) women preferring to work in pleasant clean safe work places
E) all of these answers

Question 42

Explain the role that consumers play in perpetuating discrimination in labour markets.

Question 43

It is not considered discrimination when an employer offers different opportunities to individuals that differ only by their

A) productivity.
B) age.
C) sex.
D) race.

Question 44

Using the theory of wage determination, explain why wages in developing countries, where levels of capital are small, are typically quite low.

Question 45

A recent study of the determinants of wages for clerical staff at a university found that years of schooling, years of experience, age and job characteristics only explained about one-half of the difference in wages. Describe other factors that may be important in explaining wages differences for clerical staff.

Question 46

Which of the following is likely to generate a compensating differential?

A) One employee is more attractive than another.
B) One employee is more educated than another.
C) All of these answers generate compensating differentials.
D) One employee works harder than another.
E) One employee is willing to work the nightshift while another is not.

Question 47

In order for a market to support superstars it must have which of the following characteristics?

A) It must be involved in professional athletics.
B) Every customer must be indifferent to the price they pay and the seller must be a competitor in the market for the product.
C) Every customer must be willing to pay an enormous amount for the product and the product must be a necessity.
D) Every customer must want the good supplied by the best producer and the technology must exist for the best producer to supply every customer at low cost.

Question 48

List the productivity factors that may explain the differences in pay between men and women in similar occupations. Do any of these factors arise as a result of cultural or social traditions? If so, describe how changes in social relationships will affect the pay gap over time.

Question 49

Evaluate the following statement: "The gender pay gap provides evidence of widespread, severe, ongoing discrimination by employers and fellow workers."

Question 50

Describe the difference between a diminishing marginal product of labour and a negative marginal product of labour. Why would a profit-maximizing firm always choose to operate where the marginal product of labour is decreasing (but not negative)?

Question 51

A wage differential among groups may not by itself be evidence of discrimination in the labour market because different groups have

A) different preferences for the type of work they are willing to do.
B) different levels of job experience.
C) all of these answers are correct.
D) different levels of education.

Question 52

After graduating from college, you receive job offers from five different accounting firms. All job offers have a different compensation package. Is it irrational for you to accept an offer that doesn't provide the highest level of monetary compensation? Use the concept of compensating differentials to explain your answer.

Question 53

Explain how a firm values the contribution of workers to its profitability. Would a profit-maximizing competitive firm ever stop increasing employment as long as marginal product is rising? Explain your answer.

Question 54

Competitive markets tend to

A) increase labour market discrimination because some workers can charge more for their services than other workers in a competitive market.
B) have no impact on labour market discrimination.
C) reduce labour market discrimination because non-discriminating firms will employ cheaper labour, earn more profits, and drive discriminating firms out of the market.
D) increase labour market discrimination because bigoted employers can charge any price they want in a competitive market to cover the cost of their discrimination.

Question 55

Which of the following explanations of wage differentials is not likely to be true?

A) Men have more human capital than women.
B) Employers in competitive markets are bigots.
C) Men have more job experience than women.
D) Minimum wage legislation maintains differences in pay between jobs

Question 56

Explain the theory that education acts as a signalling device. How does this contrast with the theory of education as an investment in human capital?

Question 57

A person earns €60 000 in a job. The next best job would pay €50 000 so the economic rent is

A) €110 000
B) €60 000
C) €50 000
D) €10 000

Question 58

Which of the following statements regarding discrimination is true?

A) The existence of a wage differential among groups is strong evidence of discrimination in the labour market.
B) Discrimination can only persist in a competitive labour market if customers are willing to pay to maintain the discriminatory practice or the government requires discrimination.
C) Bigoted employers are the main source of a persistent discriminatory wage differential in a competitive market.
D) Discrimination cannot exist in a competitive labour market.

Question 59

Which of the following is not a reason why some workers are paid above the equilibrium wage?

A) minimum-wage laws
B) efficiency wages
C) unions
D) beauty

Question 60

Explain why the following situation is likely to persist: football players in Europe are the highest paid athletes but in the US they are paid much less than many other athletes.