Question 1

How much labour will a competitive, profit-maximising firm hire?

Accepted Answer

A profit-maximising firm will continue to hire labour until the value of the marginal product (VMP) is equal to the wage paid to the worker. This is because the VMP represents the additional revenue generated by each additional unit of labour hired, and the firm will continue to hire workers as long as the additional revenue they generate is greater than the cost of hiring them (i.e. their wage). Therefore, choice C is the best answer.

Question 2

The labour supply curve is fundamentally a representation of the trade-off people face between which of the following?

Accepted Answer

The labour supply curve shows how many hours of work an individual is willing and able to supply at different wage rates, based on the trade-off between work and leisure. As the wage rate increases, people may be willing to work more hours because the financial incentive to do so is greater, but they also may be willing to work fewer hours if the higher wage rate allows them to enjoy more leisure time.

Question 3

What happens to the demand for piano tuners and the wage paid to piano tuners with the implementation of improved tuning instruments?

Accepted Answer

The answer of What happens to the demand for piano...

Question 4

Suppose that an incredibly delusional Australian government decides that not enough people watch daytime TV and, as a result, passes legislation requiring all employers to fire 20% of their workforce, making them sit at home and watch television all day.The effect of such a policy will:

Accepted Answer

With 20% of the workforce fired, the remaining workers may be more productive on average, as less productive workers might be the ones let go.

Question 5

Competitive firms hire an additional worker only if the additional profit created by the newly hired worker exceeds:

Accepted Answer

A competitive firm will hire an additional worker as long as the additional profit (which is the additional revenue generated by the worker) exceeds the cost of hiring that worker, which is the wage she is paid.

Question 6

The equilibrium rental income paid to landowners at any point in time equals the:

Accepted Answer

The equilibrium rental income paid to landowners is determined by the value of the marginal product of land. This represents the additional revenue generated by using an additional unit of land. Landowners will rent out their land as long as the rental income received is greater than or equal to the opportunity cost of using the land themselves. The marginal product of land represents the additional output produced by using an additional unit of land. Therefore, the equilibrium rental income will equal the value of the marginal product of land.

Question 7

What happens to the profit earned by apple producers and the wage earned by apple pickers when the price of apples falls?

Accepted Answer

When the price of apples falls, the profit earned by apple producers will fall because they will receive less revenue for the same amount of apples sold. This could lead to a decrease in wages for apple pickers, as producers may cut costs in order to maintain their profitability. Therefore, both profit and wage will fall.

Question 8

What happens to the profit earned by apple producers and the wage earned by apple pickers when the price of apples rises?

Accepted Answer

When the price of apples rises, the demand for apples remains relatively constant, meaning that producers can charge more for their product without fearing a decrease in sales. This leads to an increase in profits for apple producers. The increased profitability of apple production creates an incentive for more growers to enter the market, increasing the supply of apples in the long run, which generally leads to a decrease in the price of apples.

Since the demand for apples is relatively constant, the additional revenue generated by a price increase is unlikely to be offset by decreased employment or wages for apple pickers. Instead, the higher demand for apples means that producers will need to hire more workers to keep up with production, leading to wage growth for apple pickers. Therefore, both profit and wages should rise when the price of apples increases.

Question 9

Jason runs an apple farm and sells them at market, along with many other sellers.Recent changes to working holiday visa laws mean that there has been an increase in the supply of people willing to pick apples.This is likely to lead to a:

Accepted Answer

An increase in the supply of labor usually leads to a decrease in the marginal product of labor. This means that each additional worker added to the apple picking operation will contribute less and less to the total output of apples picked. As a result, the costs of producing apples may rise, leading to reduced profits or increased prices for consumers. However, it is important to note that the impact on Jason's revenue and long-run profit may vary depending on the elasticity of demand for apples and the efficiency of his apple picking operation.

Question 10

In the fourteenth century, the Black Death caused:

Accepted Answer

The Black Death caused a significant reduction in the labor force, resulting in a shortage of workers. With fewer workers available, their bargaining power increased, and therefore, their wages went up. On the other hand, landowners had to compete for the available workers, which resulted in a decrease in the prices of agricultural products, including rent. As landowners could make less money from their estates, rents would fall.

Question 11

What does a firm's labour demand curve represent?

Accepted Answer

The firm's labour demand curve represents the number of workers that the firm is willing to hire at any given wage.

Question 12

If the wage rate is artificially set higher than the equilibrium wage rate, this will lead to:

Accepted Answer

When the wage rate is set higher than the equilibrium wage rate, firms are unable to afford to hire as many workers as they would have at the equilibrium wage rate. This results in unemployment, as there are workers who are willing and able to work at the artificial wage rate but are unable to find jobs because firms are not hiring as many workers.

Question 13

Technological advancements tend to do what to the labour demand curve?

Accepted Answer

Technological advancements can either increase the demand for labor by creating new markets and jobs (shifting the labor demand curve right) or decrease the demand for labor through automation and efficiency improvements (shifting the labor demand curve left), depending on the nature of the technology and its application in the economy.

Question 14

The equilibrium rental income paid to the owners of capital at any point in time equals the:

Accepted Answer

The equilibrium rental income paid to the owners of capital is determined by the value of the marginal product of capital. This means that the rental income reflects the additional value that each unit of capital contributes to the production process. As the value of the marginal product of capital increases, so does the equilibrium rental income paid to the owners of capital. Therefore, choice A is the correct answer. The marginal product of capital alone does not determine the equilibrium rental income, as it is also influenced by other factors such as the supply and demand for capital. The purchase price of capital is not directly related to the equilibrium rental income, as it is a one-time cost incurred by the firm when acquiring the capital. The wage paid to labourers is not directly related to the equilibrium rental income paid to the owners of capital, as they are two separate factors in the production process.

Question 15

What happens to the demand for piano tuners and the wage paid to piano tuners when the price of pianos increases?

Accepted Answer

When the price of pianos increases, it is likely that the demand for piano tuners will also increase. This is because more people may invest in expensive pianos and want to ensure that they are properly tuned. As a result, the demand for piano tuners will go up, and so will their wage.

Question 16

If workers respond to an increase in the opportunity cost of leisure by taking less of it, their labour supply curve is:

Accepted Answer

The labor supply curve is upward-sloping because as the opportunity cost of leisure increases (meaning leisure becomes more expensive in terms of forgone earnings), workers are incentivized to work more and take less leisure, thus increasing the quantity of labor supplied.

Question 17

Suppose a massive influenza outbreak wipes out 30% of Australia's workforce.Beside the human tragedy, the effect of the outbreak on the remaining workers would be to:

Accepted Answer

With 30% of the workforce gone, there would be an increase in demand for the remaining workers' services, allowing them to negotiate higher wages and better working conditions. Therefore, their marginal productivity would increase.

Question 18

Which of the following would cause the Australian labour supply curve to shift?
(i) an influx of workers from New Zealand
(ii) a subsidy on the cost of childcare
(iii) an increase in the demand for labour

Accepted Answer

(i) An influx of workers from New Zealand would increase the labour supply in Australia, causing the supply curve to shift to the right. 
(ii) A subsidy on the cost of childcare would encourage more parents, particularly women, to enter the workforce, also increasing the labour supply and shifting the supply curve to the right. 
(iii) An increase in the demand for labour would not directly cause the labour supply curve to shift, as it represents a movement along the curve rather than a shift.

Question 19

The Luddite revolt:

Accepted Answer

The Luddite revolt directly led to the term "luddite" being used to describe individuals who are opposed to new technology, reflecting the original Luddites' actions against the mechanization of the textile industry during the early 19th century.

Question 20

Identify the true statements about the value of the marginal product for a competitive firm below.

Accepted Answer

All three statements are true. The value of marginal product (VMP) represents the additional revenue a firm earns from adding one more unit of labor. As more workers are hired, the marginal product of each additional worker will eventually decrease, leading to a diminishing VMP. The VMP also changes when the marginal product changes because the VMP is calculated by multiplying the marginal product by the market price of the output. Additionally, if the price of the output changes, the VMP will also change. Therefore, all three statements are true about the value of the marginal product for a competitive firm.

Quiz 19: The Markets for the Factors of Production