Question 1

The quantity of labor supplied is dependent on the size of the working population and the wage rate.

Accepted Answer

The size of the working population and the wage rate are two of the main factors that determine the quantity of labor supplied in an economy. Other factors may include the availability of alternative employment opportunities, government regulations, and cultural attitudes towards work.

Question 2

Anything that influences a good's price or the marginal physical product of labor will influence wages.

Accepted Answer

Wages are influenced by various factors, including the price of the good being produced and the marginal physical product of labor. For example, if the price of the good increases, demand for labor may increase, driving up wages. Similarly, if the marginal physical product of labor increases, firms may be willing to pay higher wages to attract more productive workers.

Question 3

The salary of an athlete like Peyton Manning is in part a reward for his unique ability-something economists call economic rent.

Accepted Answer

Economic rent refers to an excess payment made for a resource that is in limited supply and has a unique ability. In the case of Peyton Manning, his exceptional talent and limited number of individuals with such talent make him a valuable resource, and the excess payment he receives in the form of his salary is considered economic rent.

Question 4

Expenditures for attending college can be viewed as an investment in human capital.

Accepted Answer

Expenditures for college can be viewed as an investment in human capital because they are intended to increase an individual's skills, knowledge, and abilities, which can lead to higher income and career opportunities in the future.

Question 5

Wages will tend to be high in labor markets where supply is relatively high and demand is relatively weak.

Accepted Answer

Wages will tend to be high in labor markets where supply is relatively low and demand is relatively high.

Question 6

Since women earn less on average than men, we would expect that the substitution effect of a wage change would be more likely to dominate for women and the income effect would be more likely to dominate for men.

Accepted Answer

The substitution effect is the change in the quantity of labor supplied due to a change in the wage rate, holding income constant. The income effect is the change in the quantity of labor supplied due to a change in income, holding the wage rate constant. Since women earn less on average than men, a wage increase would have a greater substitution effect for women than for men. This is because women would be more likely to increase their labor supply in response to a wage increase in order to earn more income. Conversely, a wage increase would have a greater income effect for men than for women. This is because men would be more likely to decrease their labor supply in response to a wage increase in order to enjoy more leisure time.

Question 7

The substitution effect makes workers want to work less when the wage increases.

Accepted Answer

The substitution effect of a wage increase makes workers want to work more, as their increased wage makes work more attractive compared to leisure activities. The income effect, on the other hand, may cause workers to work less as they have more income and can afford to work fewer hours.

Question 8

If the income effect of a change in the wage dominates the substitution effect, then workers will want to work more when the wage increases.

Accepted Answer

If the income effect dominates the substitution effect, workers may choose to work less as their wage increases because they can maintain the same standard of living with less work.

Question 9

The substitution effect is thought to dominate the behavior of low-wage workers.

Accepted Answer

The substitution effect occurs when an increase in wages makes the worker more likely to work additional hours or take a job instead of leisure time. Low-wage workers are more likely to be motivated by wage increases because they have fewer alternative income sources, making them more sensitive to changes in wages. Therefore, the substitution effect is thought to dominate their behavior.

Question 10

The income effect is thought to offset the substitution effect among very high wage earners.

Accepted Answer

The income effect is the change in consumption due to a change in purchasing power, while the substitution effect is the change in consumption due to a change in relative prices. Among very high wage earners, the income effect may be stronger than the substitution effect, meaning that they may not respond as strongly to changes in prices because their increasing income allows them to afford more goods regardless of the price. Therefore, the income effect may offset the substitution effect for this demographic.

Question 11

One implication of human capital theory is that college graduates should earn substantially less than high school graduates.

Accepted Answer

This statement is false. Human capital theory actually suggests that college graduates should earn more than high school graduates due to their higher level of education, training, and skills.

Question 12

An individual's supply curve is backward bending.

Accepted Answer

An individual's supply curve can bend backward when the income effect dominates the substitution effect, which means that as the price of a good or service increases, the individual may choose to work less and enjoy their leisure time more. As a result, the quantity supplied of the good or service may decrease, creating a backward bending supply curve.

Question 13

Earnings of some highly skilled or highly specialized persons can be classified as economic rents.

Accepted Answer

Economic rent refers to the income earned by an individual or business by possessing a unique skill or resource. Highly skilled or specialized persons can earn economic rent due to their unique and in-demand abilities or knowledge. Therefore, the statement is true.

Question 14

Wages are comparatively low in markets where demand for labor is low and supply is high.

Accepted Answer

When demand for labor is low and supply is high, employers have more options for hiring and can afford to pay lower wages. This creates a situation where wages are comparatively low in such markets.

Question 15

In reality, there is not one labor market, but many.

Accepted Answer

There are multiple labor markets based on factors such as occupation, location, and industry. Each market has different supply and demand dynamics that influence wages and employment opportunities.

Question 16

An investment in yourself is an investment in what economists call human capital.

Accepted Answer

Economists refer to the skills, knowledge, and education that individuals possess as human capital, and investing in oneself can help to build and improve one's human capital.

Question 17

Economic rents can lead to large wage differentials.

Accepted Answer

Economic rents are profits or incomes that exceed what is necessary to keep a resource in its current use. When there is a shortage of a certain resource or skill, such as a highly skilled worker, they can command higher wages due to the scarcity of their expertise. This can create large wage differentials between workers with different levels of skill or expertise.

Question 18

The supply of workers in an industry is influenced by the available working population and the nonmonetary attractiveness of the job.

Accepted Answer

The available working population and the nonmonetary attractiveness of the job are two key factors that influence the supply of workers in an industry. Other factors may also come into play, such as the level of education and training required for the job, the availability of alternative job opportunities, and the overall state of the economy.

Question 19

The monetary return on a college education is considered economic rent.

Accepted Answer

Economic rent refers to the excess payment made to a factor of production over what is necessary to keep it in its current use. The monetary return on a college education is typically considered an investment return, not economic rent.

Question 20

Spending on an education is considered an investment because it involves a sacrifice of current income for higher expected future income.

Accepted Answer

Investing in education often leads to higher paying careers and increased earning potential in the future, making it a wise investment despite the initial sacrifice of current income.

Quiz 19: Labor and Entrepreneurship: the Human Inputs