Question 1

Technological progress implies that

Accepted Answer

Technological progress may result in some people losing their jobs or experiencing a decrease in wages, while others benefit from the increased efficiency and productivity. In order to ensure that everyone is better off, those who benefit could compensate those who are disadvantaged by the progress.

Question 2

The minimum wage is a relatively blunt instrument with which to reduce poverty because

Accepted Answer

While the minimum wage can help some low-income workers, it does not necessarily reduce poverty overall. Most workers whose wages are affected by minimum wage increases do not live in poor families, meaning that increasing the minimum wage may not reach those who are most in need. Additionally, the minimum wage only covers about half of the labor force and many employers do not comply with the law, further limiting its impact. Studies have also shown that minimum wage increases can lead to job losses, potentially further harming low-income workers.

Question 3

If the labor market is competitive and coverage is complete, then legislation to enact a minimum wage above the equilibrium wage level would

Accepted Answer

If the labor market is competitive and coverage is complete, then a minimum wage hike above the equilibrium wage level would result in an excess supply of labor, as more workers will be willing to work at a higher wage, leading to a surplus of workers. This would increase the cost of labor for employers beyond the market rate, consequently decreasing demand for labor, further leading to a decrease in employment. Hence, the result would be an increase in wages and decrease in employment.

Question 4

Employment often increases after an increase in the minimum wage because

Accepted Answer

The answer of Employment often increases after an increase in...

Question 5

In most states, there is a mandatory maximum number of children allowed per day care worker. If this maximum number is binding, then if the wages of day care workers goes up, the main effect on day care employment will be through

Accepted Answer

The scale effect refers to the change in the quantity of labor demanded due to a change in the output price. In this case, the output price is the cost of day care services. If the wages of day care workers go up, the cost of day care services will also go up. This will lead to a decrease in the demand for day care services, and thus a decrease in the demand for day care workers.

Question 6

An increase in the minimum wage will decrease employment more when

Accepted Answer

The answer of An increase in the minimum wage will...

Question 7

If the absolute elasticity of labor demand is 2.0, then an eight percent increase in the wage will

Accepted Answer

The formula for calculating the percentage change in employment is given by: Percentage change in employment = (Percentage change in wage) × (Absolute elasticity of labor demand). 
In this case, the percentage change in wage is 8% and the absolute elasticity of labor demand is 2.0. Therefore, the percentage change in employment will be (-8%) × (2.0) = -16%. 
This means that the increase in wage will lead to a decrease in employment by 16%. Hence, option C is the correct answer.

Question 8

The introduction of new forms of capital generally

Accepted Answer

The introduction of new forms of capital generally increases the productivity of labor and hence increases the own-wage elasticity of labor demand. When the demand for labor is more elastic (i.e. more responsive to changes in wage rates), even small changes in wage rates can result in significant changes in the quantity of labor demanded.

Question 9

For a given increase in the minimum wage, which of the following would likely result in a smaller decrease in teenage employment?

Accepted Answer

If teenager labor represents a small fraction of the cost of making goods, the increase in minimum wage would have a smaller impact on overall production costs, leading to a smaller decrease in teenage employment.

Question 10

In a simple economy, there are 100 workers. 50 workers produce clothing: one worker produces one unit of clothing. The other 50 workers produce food: one worker produces one unit of food. By trading goods, each person consumes 0.5 unit of clothing and 0.5 unit of food. A technological improvement enables one worker to produce two units of clothing. The results are that 40 workers will be producing 80 units of clothing and 60 workers will be producing food and that each person consumes 0.8 units of clothing and 0.6 units of food. Which of the following is true?

Accepted Answer

The increase in productivity means fewer workers are needed to produce the same amount of clothing, thus reducing the demand for clothing workers overall, despite the increase in production efficiency.

Question 11

A city mandates that all businesses who sell goods and services to the city must pay at least a living wage to their workers that is substantially above what low-skilled workers are currently being paid. Which of the following will result in a greater decrease in employment of low-skilled workers who were working for the affected businesses?

Accepted Answer

If higher-skilled workers are readily available at the higher wage, businesses may choose to let go of low-skilled workers and replace them with higher-skilled workers who are willing to work for the higher wage. This would result in a greater decrease in employment of low-skilled workers who were working for the affected businesses. Option A and B are less relevant to the impact on low-skilled workers while option D is inconsistent with the assumption that low-skilled workers are currently being paid a low wage.

Question 12

Output is produced with capital and labor. If the price of capital goes up

Accepted Answer

If the price of capital goes up, the cost of using capital (i.e. machines, equipment, etc.) increases relative to labor. This will make labor relatively cheaper and encourage firms to use more labor per unit output, leading to an increase in the overall use of labor.

Question 13

Which of the following factors would allow a union to raise wages while losing fewer jobs?

Accepted Answer

If modernizing plants is unlikely because the demand for output is not growing, firms are less likely to substitute labor with capital, allowing unions to raise wages with a smaller impact on employment.

Question 14

Other things equal, the own-wage elasticity of demand for a category of labor is higher when

Accepted Answer

When other factors of production can be easily substituted for the category of labor, the demand for that labor becomes more elastic. This is because if the price of the category of labor increases, firms can easily substitute it for other factors of production. As a result, the demand for that category of labor is more sensitive to changes in its wage.

Question 15

In an industry, when the price of electricity goes up, the company employs more low-skilled workers. This implies

Accepted Answer

When the price of electricity increases, the company substitutes low-skilled labor for electricity, indicating that the substitution effect is stronger than the scale effect.

Quiz 4: Labor Demand Elasticities