Deck 7: Wages and Employment in a Single Labour Market

Question 1

After the imposition of minimum wage, monopsonist's profits will:

A) equal to zero
B) Rising as fast as the marginal cost
C) increase
D) decrease
E) remain the same

Answer 1

D

Question 2

Consider Figure 7.6 in the textbook. The equilibrium wage and employment levels for the monopsonist are:

A) WC and NM.
B) WM and NC.
C) WC and NC.
D) WM and NM.
E) VMPW and NM.

Answer 2

D

Question 3

The supply of labour to an industry is generally upward sloping because:

A) The substitution effect and the scale effect of a wage change work in the same direction.
B) The wage elasticity of labour supply is elastic.
C) There are many workers working for an industry.
D) It is more profitable for firms to hire more workers when labour is cheap.
E) Workers are more willing to work when there are added incentives in the form of higher wages.

Answer 3

E

Question 4

Which of the following is a normative statement about minimum wages?

A) "A minimum wage is a just another name for a living wage."
B) "A minimum wage has adverse consequences for inflation."
C) "A minimum wage causes some unemployment in the labour market."
D) All of the choices
E) None of the choices

Question 5

Which of the following statements regarding the demand for labour is false?

A) If the firm is an monopolist in the product market, the firm's demand curve is flatter than it would be if the firm were operating in a perfectly competitive product market.
B) If a firm is a monopolist in the product market, the firm's demand curve is more elastic than it would be if the firm were operating in a perfectly competitive product market.
C) If a firm is a monopolist in the product market, it may still behave as a wage taker in the labour market.
D) If a firm is a monopolist in the product market, the firm's demand for labour is the same as the industry's demand for labour.
E) If a firm is a monopolist in the product market, it may or may not pay wages which are higher than the case in which the firm operates in a competitive output market.

Question 6

If an employer is competitive in the labour market:

A) It can pay at most the going wage.
B) It can pay lower than the market equilibrium wage.
C) The wage level is independent of the structure of the product market.
D) It can affect the going market wage by either hiring many workers or laying off many workers.
E) It has to pay at least the going wage.

Question 7

One way to evaluate empirically the impact of the minimum wage on employment is to:

A) appeal to the theory of labour demand, which says that all other factors held constant, an increase in the minimum wage unambiguously reduces employment.
B) observe and record what happens to the employment of low-wage workers every time there is an increase in the minimum wage.
C) survey employers in order to ask them whether they laid off employees as a result of the increase in the minimum wage.
D) compare what happens to the employment of low-wage workers in one sample consisting of firms that were subjected to an increase in the minimum wage to a comparable group of firms that were not.
E) estimate an equation for aggregate employment that has the aggregate wage as the independent variable.

Question 8

Empirical evidence on the practical importance of minimum wage laws suggests:

A) that their impact on the employment level is nil.
B) that their impact on employment is actually favourable because they put more money in the hands of poorly paid workers, stimulating consumer spending, thus promoting economic growth.
C) that they do reduce the employment levels of younger and unskilled workers to a minor extent - a weak disemployment effect.
D) that they succeed in raising the incomes of poor households.
E) that they do reduce the employment levels of younger and unskilled workers to a major extent - a strong disemployment effect.

Question 9

Which of the following statements regarding monopsony is false?

A) The marginal cost of labour is lower than the average cost of labour in the case of monopsony.
B) The equilibrium wage and the equilibrium employment levels are lower than what they would be if the labour market were perfectly competitive.
C) All workers except the marginal worker are paid more than their reservation wage.
D) The total wage bill is lower in the case of monopsony.
E) If a competitive labour market were to become a monopsony, economic rent would be transferred from the workers directly to the employer.

Question 10

If the labour market is perfectly competitive, labour demand function is given by ND = a + bW and labour supply function is given by NS = c + dW; W is the wage rate. After imposing a payroll tax T, market equilibrium wage rate will be:

A) higher than before the tax, and the firm pays b/(b - d) share of the tax.
B) lower than before the tax, and workers pay b/(b - d) share of the tax.
C) higher than before the tax, and workers pay b/(b - d) share of the tax.
D) lower than before the tax, and the firm pays b/(b - d) share of the tax.
E) equal to before the tax.

Question 11

Which of the following statements is false?

A) The monopsonist has no demand curve for labour.
B) The monopsonist is a wage taker.
C) The monopsonist may be able to carry out wage discrimination.
D) The monopsonist has market power in the labour market.
E) The monopsonist is a profit-maximizing firm.

Question 12

Which of the following statements is true if a firm is operating in a competitive labour market?

A) The supply of labour is horizontal at the market wage.
B) The marginal cost of labour curve lies above the supply curve.
C) The marginal cost of labour curve lies below the supply curve.
D) It must also be operating in a competitive output market.
E) The demand for labour is the marginal product of labour curve.

Question 13

If the government sets a minimum wage for workers that is above the competitive wage,

A) Unemployment would decrease through a disemployment effect.
B) Wages would fall as firms try to reduce labour costs.
C) The total wage bill must fall.
D) Unemployment would increase through a disemployment effect.
E) The total wage bill must rise.

Question 14

Competitive labour markets lead to all of the following conditions except:

A) The marginal workers not receiving economic rents.
B) Market wage rate is determined when labour demand equals to the labour supply.
C) Labour market leads an efficient allocation of labour resources.
D) Wages equalizing across all labour markets.
E) The additional benefit that a worker receives equals to the additional cost of foregone leisure for the the worker.

Question 15

Which of the following occupations is thought to be affected by monopsonistic conditions in the real world?

A) Fast-Food Workers
B) Professional Athletics
C) Nurses
D) Physicians
E) Cleaners and Housekeepers

Question 16

Within the framework of competitive labour markets, what is the expected effect of the minimum wage?

A) to make the workers who are retained less productive than what would otherwise be the case
B) to reduce employment below the level that would otherwise exist
C) to make the workers better off
D) to cause a shortage of workers at the going transactions wage
E) to shift the demand for low-skilled workers to the left (a fall)

Question 17

Which of the following statements about a payroll tax is true?

A) It reduces the quantity demanded of workers if the supply of labour is perfectly inelastic.
B) It generally reduces the quantity demanded of workers.
C) It is borne entirely by employers if demand is perfectly inelastic.
D) It is borne entirely by workers if the supply of labour is perfectly elastic.
E) It is shared equally between workers and employers.

Question 18

Which of the following statements is false?

A) If a firm is an imperfect competitor in the labour market, then the labour supply curve is less than perfectly elastic.
B) If a firm is a perfect competitor in the labour market, then there is no marginal labour cost curve.
C) If a firm is an imperfect competitor in the labour market, then the employees receive less economic rent than they would if the market were perfectly competitive.
D) If a firm is an imperfect competitor in the labour market, the labour supply curve that it faces is upward sloping.
E) If a firm is an imperfect competitor in the labour market, the marginal labour cost curve lies above the labour supply curve.

Question 19

If workers receive economic rents, then:

A) If wages were to be increased, the employment level would rise.
B) The product market could be perfectly competitive.
C) They are receiving wages which are below the competitive level.
D) If wages were to be reduced, the firm would no longer be able to recruit labour.
E) They are receiving wages which are higher than the competitive level.

Question 20

Which of the following statements regarding monopsony is false?

A) A perfectly discriminating monopsonist will hire the same number of workers as a firm which is a perfect competitor in the labour market.
B) A monopsonist can lower the wages that it pays without losing its entire labour force.
C) A perfectly discriminating monopsonist pays all of its workers less than the wage that would prevail in a perfectly competitive labour market.
D) The monopsonist earns a profit because it earns economic rents for all the hired workers.
E) A firm operating in a perfectly competitive labour market cannot lower the wage that it pays without losing some of its workforce.

Question 21

The empirical literature on monopsony has found:

A) Where it exists, monopsony power seems to endure over the long run.
B) Although one might expect to see monopsony power in markets for nurses and teachers, studies have failed to find this effect.
C) There is evidence of monopsony power in certain labour markets.
D) It appears as though many labour markets are affected by monopsony power.
E) All of the answer choices are correct.

Question 22

Which of the following statements regarding monopsony is false?

A) A monopsonist faces no constraints as it sets wages.
B) Monopsony is more likely in situations of unskilled labour.
C) A monopsonist is likely to lose some of its market power in the long run.
D) A monopsonist is likely to face a fairly inelastic supply of labour.
E) Monopsony is more likely in situations of immobile labour.

Question 23

Under what conditions might one expect wages to be above the prevailing competitive levels?

A) in cases in which the employer is a monopolist, an oligopolist, or a monopolistic competitor in the output market
B) only in cases in which the employer has market power in the labour market
C) only in cases in which the employer has market power in the product market
D) only in the case where a union exists
E) only in the case where the employer is a monopolist in the product market

Question 24

In 2007, the government of Ontario raised the minimum wage substantially and justified it as a policy designed to help the poor. What was the evidence found in this regard?

A) It does not help the poor because there is not a lot of overlap between the poor and minimum-wage workers.
B) It does help the poor because the employment effect is strong.
C) It does help the poor because most of the poor are working at low-paid jobs.
D) It does help the poor because many of them work long hours, and thus will benefit from a higher wage.
E) The existing research is inconclusive on this issue.

Question 25

Both the utility levels of workers and the profit levels of firms are maximized when:

A) the labour market is in a state of equilibrium.
B) there is effective government intervention.
C) the labour market is competitive.
D) the firm has monopsony power.
E) the workers are unionized.

Question 26

What is the primary difference between a monopsonist and a firm which operates in a perfectly competitive labour market?

A) The monopsonist is likely to be more profitable.
B) In order to recruit another worker, the monopsonist incurs a smaller increase in labour costs.
C) In order to recruit another worker, the monopsonist incurs a larger increase in labour costs.
D) The labour supply curve is irrelevant for the monopsonist.
E) The monopsonist hires such that the marginal revenue product of labour is equal to the marginal labour cost, but the non-monopsonist does not.

Question 27

What has empirical research on the incidence of the payroll tax found?

A) That payroll taxes are "job killers"
B) That the burden is shared almost equally between firms and workers
C) That most of the burden falls upon firms
D) That most of the burden falls upon workers
E) That there is no burden at all because the tax is free

Question 28

Which of the following statements is false?

A) Monopsony firms will hire more workers if a minimum wage is imposed below the monopsony wage.
B) Monopsony firms will behave as if they are competitive if a wage is imposed at the level of the competitive wage.
C) Monopsony firms can earn a higher profit than firms operating in competitive labour markets.
D) Monopsony firms have a wage lower than the marginal labour cost because they face upward- sloping labour supply curves.
E) Monopsony firms have a wage greater than the marginal labour cost because they face upward- sloping labour supply curves.

Question 29

American adults of working age work on average 35-40 % more hours per week than their counterparts in France and Germany. All of the following have been mentioned by researchers as possible explanations, except:

A) A greater inherent laziness among the French and the Germans.
B) Social interactions associated with the labour/leisure tradeoff.
C) Higher payroll and incomes taxes applied to both workers and firms.
D) Labour supply curve may be more elastic in France and Germany than in America.
E) Extensive regulations regarding working and employment practices.

Question 30

Which of the following statements is true? The burden of a payroll tax is paid:

A) by workers if the demand for labour is perfectly inelastic.
B) by firms if they are legally responsible for remitting the tax to the government.
C) by both workers and firms if the elasticities of demand and supply of labour are between zero and infinity.
D) by workers if the supply of labour is perfectly elastic.
E) indeterminate.

Question 31

Consider Figure 7.6 in the textbook. The equilibrium wage and employment levels for the firm in a perfectly competitive labour market are:

A) WM and NC.
B) VMPW and NM.
C) WM and NM.
D) WC and NC.
E) WC and NM.

Question 32

In the real world, what are some of the signs that are indicative that the labour market might be characterized by a monopsony?

A) underemployed workers
B) high unemployment
C) unfilled vacancies and recurrent labour shortages
D) low wages
E) labour markets in which the employers are diffused

Question 33

Congratulations! You have just been appointed the special advisor to the prime minister for employment-related issues. Fortunately, your portfolio does not involve analyzing all of the facets of labour markets, but rather two specific policy measures: the payroll tax and the minimum wage regulation.
• Payroll taxes have risen rapidly in Canada over the past decade, and some analysts claim that this has a detrimental effect on employment. The payroll tax has been labelled by some as a "job killer." Explain how you would go about analyzing this proposition. Because you are a trained economist, you can go beyond the scope of the rhetorical anecdotes and unsubstantiated, ideological accusations, and apply supply-and-demand analysis to this issue. Your response should include a graph with an explanation, and an identification of the variables that determine the extent of the alleged disemployment effect.
• It is alleged by some that minimum wage laws have a potentially adverse effect on employment. I valid, this assertion would definitely weaken the ability of minimum wage laws to help the disadvantaged. It is time to play point-counterpoint. First, put on your neo-classical economist hat and argue a case against the minimum wage. What are the economic effects? Is it an effective policy measure? Because you are a trained economist, you can apply substantive economic analysis using labour demand theory. Next, put on your more interventionist hat, and argue that the minimum wage does not have significant disemployment effects. In particular, you might mention the case of implementing a minimum wage in a monopsony, or the case of an employer with a high degree of market power. Finally, put on your empirical researcher hat. We know that there are theoretical reasons to expect at least some disemployment effect, but how important are these effects in the real world? Without discussing the technical details, discuss the essence of the findings of the empirical research. You should provide a bit more depth than a simple yes/no answer.

Question 34

If the labour market is perfectly competitive, labour demand function is given by ND = a + bW and labour supply function is given by NS = c + dW; W is the wage rate. At market equilibrium, we can determine the market wage rate as:

A) (a + c)/(d + b).
B) (a - c)/(d - b).
C) (a + c)/(d - b).
D) (a - c)/(d + b).
E) (d + b)/(a + c).

Question 35

Which of the following statements is true in regarding to the marginal cost of labour?

A) shows the increase in revenue received by the firm if it hires one more worker.
B) is derived from the marginal revenue product curve.
C) is the same as the supply curve of labour for a monopsonist.
D) is horizontal for a perfectly competitive firm but is downward sloping for a monopsonist.
E) is equal to the wage paid if the firm is a monopsonist.