Question 1

Other things equal,which of the following will have the most elastic own-wage elasticity of demand?

Accepted Answer

A

Question 2

If two inputs are gross complements,the cross-wage elasticity of demand for the two inputs will be

Accepted Answer

Gross complements have a negative cross-wage elasticity of demand, meaning if the wage (price) of one input increases, the demand for the complementary input decreases.

Question 3

If an increase in the minimum wage leads to higher aggregate earnings by the workers affected,then the own-wage elasticity of demand is

Accepted Answer

If an increase in the minimum wage leads to higher aggregate earnings by the workers affected, it means that the employers cannot easily replace these workers with cheaper substitutes. Therefore, the demand for these workers is likely to be inelastic. Hence, the own-wage elasticity of demand is inelastic.

Question 4

The short run own-wage labor demand elasticity

Accepted Answer

The answer of The short run own-wage labor demand elasticity
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Question 5

Other things equal,an elastic demand for an industry's output will tend to make the industry's own-wage elasticity of demand

Accepted Answer

If the demand for an industry's output is elastic, it means that consumers are price-sensitive and will reduce their purchases significantly in response to a small increase in price. This, in turn, will put pressure on the industry to lower its prices to remain competitive. Therefore, the industry's own-wage elasticity of demand (i.e. the responsiveness of its demand to changes in wages paid to its workers) will be high, as the industry needs to control labor costs to keep the prices of its products low.

Question 6

If the own-wage elasticity of demand for professors is -0.5,then an increase in the wage of professors from $45,000 to $55,000 will cause the quantity demanded to fall by

Accepted Answer

The own-wage elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in its own price. In this case, the own-wage elasticity of demand for professors is -0.5, which means that a 1% increase in the wage of professors will lead to a 0.5% decrease in the quantity demanded of professors.

To calculate the percentage change in quantity demanded, we can use the following formula:

% change in quantity demanded = own-wage elasticity of demand x % change in wage

Here, the % change in wage is:

% change in wage = (new wage - old wage) / old wage x 100%

% change in wage = ($55,000 - $45,000) / $45,000 x 100%

% change in wage = 22.2%

Substituting the values in the formula, we get:

% change in quantity demanded = -0.5 x 22.2% = -11.1%

Therefore, an increase in the wage of professors from $45,000 to $55,000 will cause the quantity demanded to fall by 10%.

Question 7

Own-wage elasticity of labor demand tends to

Accepted Answer

Own-wage elasticity of labor demand tends to decrease with skill level because higher-skilled workers are often more difficult to substitute with other inputs, making the demand for their labor less sensitive to wage changes.

Question 8

Moving from the upper to the lower portion of a straight labor demand curve,the elasticity

Accepted Answer

The elasticity of the labor demand curve typically decreases as we move down the curve, changing from elastic (where percentage changes in quantity demanded are greater than percentage changes in wages) to inelastic (where percentage changes in quantity demanded are less than percentage changes in wages).

Question 9

Cross wage elasticities of demand are

Accepted Answer

Cross wage elasticities of demand can have either positive or negative magnitude depending on whether the goods are substitutes or complements. If the goods are substitutes, an increase in the wage rate of one good will lead to an increase in the demand for the other good, resulting in a positive cross elasticity of demand. On the other hand, if the goods are complements, an increase in the wage rate of one good will decrease the demand for the other good, resulting in a negative cross elasticity of demand. Therefore, cross wage elasticities of demand can be either positive or negative in magnitude.

Question 10

If labor is a small percentage of the total costs of an industry,this will tend to make the own-wage elasticity of labor demand

Accepted Answer

If labor is a small percentage of total costs, then changes in wages will have a relatively small impact on the overall costs of production. Therefore, firms are less likely to adjust their demand for labor in response to changes in wage rates, resulting in a low own-wage elasticity of labor demand.

Question 11

Empirical estimates of the short-run employment effects of minimum wage increases

Accepted Answer

Empirical estimates suggest that the short-run employment effects of minimum wage increases are very low, with a small decrease in employment for every increase in the minimum wage. This is because employers may take time to adjust to the new minimum wage, and may instead rely on other cost-cutting measures, such as reducing hours or benefits, before resorting to laying off workers. The extent of the employment effects also varies by demographic, with teen employment being more sensitive to minimum wage increases than adult employment.

Question 12

Along a straight-line demand curve for labor

Accepted Answer

The elasticity of demand for labor along a straight-line demand curve increases as the wage rises because the percentage change in quantity demanded becomes larger relative to the percentage change in wage as we move up the curve.

Question 13

Own-wage elasticities of demand are

Accepted Answer

Own-wage elasticities of demand are always negative, reflecting the law of demand: as the wage (price of labor) increases, the quantity of labor demanded decreases, and vice versa.

Question 14

If Industry A can substitute capital for labor easily and Industry B cannot,then (other things equal)

Accepted Answer

Industry A's ability to easily substitute capital for labor when labor becomes more expensive (i.e., when wages increase) means it is more responsive to changes in the wage rate. This results in a higher own-wage elasticity of demand for labor in Industry A compared to Industry B, which cannot as easily substitute capital for labor.

Question 15

The own-wage elasticity of demand measures

Accepted Answer

The own-wage elasticity of demand is calculated as the percentage change in the quantity of labor demanded divided by the percentage change in wages. This measures how sensitive the demand for labor is to changes in the wage rate.

Question 16

If the quantity of steel workers demanded falls from 30,000 to 20,000 when the equilibrium wage increases from $9.00 per hour to $11.00 per hour,then the own-wage elasticity of demand for these workers is

Accepted Answer

The own-wage elasticity of demand is calculated using the formula: (Percentage change in quantity demanded) / (Percentage change in wage). Here, the quantity demanded decreases from 30,000 to 20,000, which is a 33.33% decrease ((20,000-30,000)/30,000). The wage increases from $9.00 to $11.00, which is a 22.22% increase ((11-9)/9). The elasticity is -33.33% / 22.22% = -1.5. However, given the options provided, the closest and correct answer is -2.0, indicating a potential mistake in the calculation or in the interpretation of the options. The correct calculation should be: ((20,000 - 30,000) / 30,000) / ((11 - 9) / 9) = (-10,000 / 30,000) / (2 / 9) = -1/3 / 2/9 = -1/3 * 9/2 = -3/2 = -1.5. This discrepancy suggests an error in the initial explanation, as none of the options exactly match -1.5. The correct approach to calculate the elasticity is indeed to use the formula mentioned, but the precise calculation or the interpretation of the options seems to have been misunderstood in this explanation.

Question 17

If the quantity of auto workers demanded decreases from 66,000 to 54,000 when the equilibrium wage increases from $12.00 per hour to $14.00 per hour,then the own-wage elasticity of demand for these workers is

Accepted Answer

Calculate the own-wage elasticity of demand using the formula:
own-wage elasticity of demand = ((new quantity demanded - old quantity demanded) / ((new quantity demanded + old quantity demanded)/2)) / ((new wage - old wage) / ((new wage + old wage)/2))

Plugging in the given values, we get:
((54,000 - 66,000) / ((54,000 + 66,000)/2)) / (($14.00 - $12.00) / (($14.00 + $12.00)/2)) = (-12,000 / 60,000) / (2 / 13) = -0.3

Since the elasticity is greater than 1 in absolute value, the demand for auto workers is elastic.

Question 18

According to empirical estimates,when wages are increased by 10%,the quantity of labor demanded typically falls by about

Accepted Answer

Empirical estimates suggest that when wages are increased by 10%, the quantity of labor demanded falls by around 5% in the short run and around 10% in the long run. This phenomenon is explained by the fact that when wages increase, firms find it more expensive to hire workers and may substitute capital for labor, leading to a decrease in labor demand. In the short run, firms may not be able to adjust their production processes quickly enough to fully substitute capital for labor, but in the long run, they can invest in new machinery and technology to reduce their dependence on labor. Hence, the elasticity of labor demand is higher in the long run than in the short run.

Question 19

Empirical estimates of cross-wage elasticities show that

Accepted Answer

Empirical estimates have shown that the cross-wage elasticity for well-educated labor tends to be higher than that for unskilled labor, indicating that well-educated labor is more likely to be complementary with capital than is unskilled labor. This suggests that the two factors of production (skilled labor and capital) are more likely to be used together.

Question 20

If teenagers and adults are substitutes in production,and the wage of teenagers falls,then

Accepted Answer

The relationship between teenagers and adults could be either gross substitutes or gross complements, which means that the employment of adults could either rise or fall. If they are gross substitutes, then as the wage of teenagers falls, firms will substitute teenagers for adults, leading to a fall in adult employment. However, if they are gross complements, then firms will use more teenagers and adults together, leading to an increase in adult employment as well. Since we don't know the exact nature of their relationship, option C is the best answer.

Quiz 4: Labor Demand Elasticities