Question 1

If the price of bread falls, what will happen to the demand curve for bakers?

Accepted Answer

The answer of If the price of bread falls, what...

Question 2

What happens to the labour supply curves in both countries when New Zealand workers immigrate to the Australia?

Accepted Answer

When New Zealand workers immigrate to Australia, the labour supply in Australia increases due to the influx of new workers, while the labour supply in New Zealand decreases as workers move out of the country. This shift in the labour supply curves is represented by a rightward shift in the Australian labour supply curve and a leftward shift in the New Zealand labour supply curve. Therefore, option A is the best choice.

Question 3

When a labour market experiences a surplus of labour, there is downward pressure on:

Accepted Answer

When there is a surplus of labour, there are more workers available for the jobs than there are positions available. This creates competition among the labour force for fewer job opportunities, thereby reducing the bargaining power of workers to demand higher wages. As a result, employers can drive down wages to a level that better represents the new equilibrium point of supply and demand for labour.

Question 4

Which of the following factors would lead to an increase in the supply of labour?

Accepted Answer

An increase in immigrant labour would lead to an increase in the supply of labour in a country as more individuals are entering the workforce.

Question 5

Which of the following events would cause an increase in the labour supply curve?

Accepted Answer

If more married women decide to work, this would increase the labour force as more people would be actively seeking employment, thus shifting the labour supply curve to the right. A lower retirement age, fewer married men deciding to work, or tighter restrictions on immigration policy would not affect the number of people available to work and therefore would not shift the labour supply curve.

Question 6

A profit-maximising competitive firm that experiences diminishing marginal product of labour must also be experiencing:

Accepted Answer

A profit-maximising competitive firm that experiences diminishing marginal product of labour will hire workers up to a point where the marginal revenue product (MRP) of labour is equal to the wage rate. As the marginal product of labour decreases with each additional worker hired, the MRP curve will slope downward. This means that the demand for labour is also downward-sloping, as the firm will hire fewer workers at higher wage rates.

Question 7

Rocchetta Industries manufactures and supplies bottled water in Mexico. As a result of a contamination of water supplies at many of Mexico's resort communities, the demand for bottled water has increased. According to the information provided, we would expect the value of marginal product for Rocchetta Industries workers to:

Accepted Answer

With the increased demand for bottled water due to contamination of water supplies, Rocchetta Industries will need to produce more bottled water, which will increase the value of marginal product for its workers. This is because the workers will be producing more units of output that are in higher demand, resulting in increased revenues for the firm. As a result, the workers should expect to see an increase in their wages, rather than a decrease.

Question 8

A competitive firm will hire workers up to the point at which the value of the marginal product equals the:

Accepted Answer

A competitive firm will hire workers up to the point at which the marginal product of labor (the additional output produced by hiring one more worker) equals the wage. This is because the firm wants to hire workers until the cost of hiring one more worker (the wage) is just equal to the additional revenue that worker generates (the marginal product).

Question 9

Jack the physical therapist invents a new wrist-brace that allows assembly line workers to work without suffering the effects of carpal-tunnel syndrome, thus making the workers more productive. The demand for assembly line workers will:

Accepted Answer

The invention of the new wrist-brace will improve the working conditions and increase productivity, which will likely increase the demand for assembly line workers.

Question 10

Profit-maximising competitive firms hire labour until marginal cost rises to equal:

Accepted Answer

Profit-maximizing competitive firms hire labor until the marginal cost of hiring an additional unit of labor (which is the wage rate in a competitive labor market) equals the marginal revenue product of labor. The marginal revenue product of labor is the additional revenue a firm earns from hiring one more unit of labor, which is equal to the marginal product of labor (the additional output from hiring one more unit of labor) times the price of the output. Therefore, the correct answer is that firms hire labor until the marginal cost rises to equal the price of the output, as this ensures that the cost of hiring an additional unit of labor is justified by the revenue it generates.

Question 11

The profit-maximising employment rule for a competitive firm ensures that:

Accepted Answer

The profit-maximising employment rule for a competitive firm states that the firm will hire workers up to the point where the marginal revenue product (the additional revenue generated by each additional worker) is equal to their wage rate. This ensures that the firm is producing at the point where output price (which is equal to marginal revenue) equals marginal cost, which in turn maximises profits. Therefore, the correct answer is A.

Question 12

If one observes a profit-maximising firm decreasing employment, it is possible to infer that the:

Accepted Answer

A profit-maximising firm will only decrease employment if the wage exceeds the value of the marginal product. This means that the firm is no longer getting a return on investment by keeping those employees, and cutting them will increase their profit.

Question 13

When the price of computer software rises, the value of the marginal product of computer programmers will:

Accepted Answer

When the price of computer software rises, the demand for programmers will increase, as more programmers will be needed to produce the software. As the demand for programmers increases, the value of the marginal product of computer programmers will also increase, leading to higher wages and an increase in their value to the firm. Therefore, the correct answer is B, rise.

Question 14

Suppose that a profit-maximising firm is increasing employment. A likely reason for this is that the:

Accepted Answer

The firm is likely increasing employment because the value of the marginal product (VMP) exceeds the wage. This means that each additional worker's contribution to revenue is greater than the cost of hiring them, making it profitable for the firm to hire more workers.

Question 15

Bob has been a private school caretaker for 30 years. For practical purposes, assume that Bob's productivity never changes. What then, if anything, will decrease the value of the labour that Bob performs?

Accepted Answer

Bob's productivity remaining the same means that the quality and quantity of his work is consistent. However, a decrease in tuition fees would mean that the value of Bob's labor decreases as his salary may be affected. This has no relation to the productivity of other janitors or the unemployment rate.

Question 16

Which of the following could decrease labour demand?

Accepted Answer

If there is a decrease in demand for the final product produced by labour, firms will require less labour to produce the same level of output, leading to a decrease in labour demand. The other options either increase labour supply or productivity, or have no impact on labour demand.

Question 17

A profit-maximising employer will always hire up to the point where the:

Accepted Answer

The value of marginal product (VMP) is the additional revenue generated by each additional unit of labour, and it is a measure of the marginal revenue product of labour. A profit-maximising employer will hire labour up to the point where the VMP equals the market wage. If the VMP is higher than the wage rate, then hiring an additional worker will increase profits. However, if the VMP is lower than the wage rate, then hiring an additional worker will decrease profits. Therefore, hiring up to the point where VMP is just equal to market wage will result in maximum profits for the employer.

Question 18

What happens to the labour supply in the pear-picking market when the apple pickers get a wage rise?

Accepted Answer

When the apple pickers get a wage rise, they will have less incentive to switch to pear picking, resulting in a decrease in the labour supply in the pear-picking market. Therefore, the best choice is letter A.

Question 19

Which of the following could increase labour demand?

Accepted Answer

An increase in the amount of capital available for workers to use would enable workers to be more productive, leading to an increase in labour demand. A decrease in final product price (option A) would lower the revenue a firm receives, reducing the amount of labour it can afford to hire. A decrease in the marginal productivity of workers (option C) would also reduce the amount of labour required by firms.

Question 20

Suppose that a change to early retirement laws leads to a decrease in labour supply. This means that:

Accepted Answer

A decrease in labor supply, assuming demand remains constant, would lead to a shortage of workers. This shortage increases the bargaining power of workers, leading to higher wages. The assumption that the supply curve is downward-sloping is standard in economic models, reflecting that as wages increase, more individuals are willing to work, and vice versa.

Quiz 19: The Markets for the Factors of Production