Question 1

If Nicole is more educated and better trained than Tom, economists would use the ___________________ model to predict that Nicole should earn the higher wage.

Accepted Answer

The human capital model states that education and training increase an individual's productivity and earning potential. Therefore, if Nicole is more educated and better trained than Tom, economists would predict that Nicole would earn the higher wage based on the human capital model. The other answer options are not directly related to the situation described.

Question 2

Why might I expect a job as a college professor to pay a wage lower than the wage one could receive in the private sector?

Accepted Answer

The wage for a college professor may be lower than in the private sector due to positive compensating differentials. These can include the benefits of job security, academic freedom, and the opportunity for research and other intellectual pursuits, which may be more highly valued by some individuals than higher wages.

Question 3

Late-night employees working in a 24-hour store often earn more than similar employees who work the day shift. What explains this difference in pay?

Accepted Answer

Late-night employees working in a 24-hour store face different working conditions, such as working during unconventional hours and a higher risk of safety concerns (e.g., robberies). These working conditions are compensated with a positive compensating differential, which means that they receive higher pay than similar employees who work the day shift.

Question 4

Using a compensating differential wage theory, why do some individuals earn more than others?

Accepted Answer

Compensating differential wage theory suggests that workers are paid more to compensate for undesirable job attributes, such as dangerous working conditions.

Question 5

What theory would lead you to be suspicious of a job advertisement that reads: "Help Wanted! Fun and exciting job with excellent pay"?

Accepted Answer

Compensating differentials suggest that workers are willing to accept lower pay for less desirable jobs, while demanding higher pay for jobs that are more unpleasant or risky. A job that is advertised as "fun and exciting" would likely attract many applicants without needing to offer high pay, which raises suspicion that the advertisement may be overstating the positive aspects of the job to compensate for less desirable job features.

Question 6

What theory would justify a job advertisement that reads: "Help Wanted! Dangerous job but excellent pay and benefits"?

Accepted Answer

Compensating differentials theory states that workers are willing to take on dangerous or unpleasant jobs if they are compensated with higher wages and better benefits. This job advertisement is using this theory by offering excellent pay and benefits in exchange for the risky nature of the job.

Question 7

Nicole, a woman, is more educated and better trained than Tom, a male. Despite these differences in education and training, Tom still earns more because he is a coal miner, whereas Nicole is a secretary. Which model best explains the fact that Tom earns more than Nicole?

Accepted Answer

The model of compensating differentials explains that people are willing to work in jobs with higher risks or unpleasant conditions only if they are compensated with higher pay. In this scenario, Tom is a coal miner, a job that is more risky and unpleasant than being a secretary, and therefore he receives compensation in the form of higher wages. This model takes into account both the education and training differences, as well as the job characteristics.

Question 8

What theory would suggest that learning material on your own generates the same benefits as those achieved by formally attending classes and receiving a degree?

Accepted Answer

The human capital theory suggests that the knowledge and skills acquired through education and training are valuable assets that can increase an individual's productivity and earning potential. Learning material on your own can also contribute to the acquisition of human capital, which can generate the same benefits as those achieved through formal education.

Question 9

Some employers are willing to provide job training for workers. However, an employer might require the worker to pay for the training when the training is:

Accepted Answer

Employers are more likely to require workers to pay for training when it involves general skills that could be used in any job for any employer, as these skills enhance the worker's employability elsewhere and do not exclusively benefit the current employer.

Question 10

An employee gains work experience by staying in a job for a long period of time. What would an economist expect to happen to this employee's wages?

Accepted Answer

According to the human capital theory, as employees gain more experience they become more productive and more valuable to the company. This increased productivity should result in higher wages. Therefore, an economist would expect an employee's wages to increase as they gain more experience.

Question 11

As the mayor of a local town, I have the power to repeal workplace safety laws. How would repealing all workplace safety laws affect the wages of construction workers building the local school?

Accepted Answer

The answer of As the mayor of a local town,...

Question 12

Some employers are willing to provide job training for workers. The employer might be willing to pay for the training when:

Accepted Answer

Employers are more likely to pay for training that is specific to their operations or needs, as this directly benefits them by enhancing the worker's productivity and effectiveness within their specific context.

Question 13

As the mayor of a local town, I have the power to repeal workplace safety laws. How would repealing all workplace safety laws affect the wages of kindergarten teachers, who work in relatively safe jobs, at the local school?

Accepted Answer

Repealing workplace safety laws would have little effect on kindergarten teachers' wages because their jobs are already relatively safe, so there are minimal negative compensating differentials involved.

Question 14

Leroy has a cause: He loves cats. As an economist, he could earn $100,000 as a faculty member, but instead he decides to devote his time to the Humane Society as its chief economist. Knowing nothing else, what do you expect his salary with the Humane Society to be, and why?

Accepted Answer

Compensating differential theory suggests that individuals will be willing to accept lower pay if they value non-monetary benefits of their job, such as the satisfaction of working for a cause they believe in. Therefore, it is likely that Leroy would be willing to accept a lower salary as the chief economist of the Humane Society in order to do meaningful work that aligns with his values.

Question 15

The popular TV shows Ice Road Truckers and Ax Men portray workers engaged in dangerous jobs such as driving big trucks over ice and cutting down big trees. What would you expect the salary of these workers to be, and why?

Accepted Answer

These workers would likely earn a high salary because they have dangerous jobs. Jobs that involve a higher level of risk often come with higher pay as compensation for the risk taken.

Question 16

What theory might partially explain why an ugly person might earn less than a beautiful person?

Accepted Answer

Compensating differential theory suggests that individuals who have less desirable jobs are compensated with higher wages to make up for the unappealing nature of their work. In the context of physical appearance, the theory implies that attractive people may earn less than unattractive people because the attractiveness serves as a form of compensation in itself. In other words, people may be willing to accept lower wages in exchange for the perceived benefits of being physically attractive.

Question 17

Coal mining is a dangerous occupation. Which example correctly depicts the effects of new safety regulations on the negative compensating differential for the job of a coal miner?

Accepted Answer

The passage of workplace safety laws decreases the severity of the negative compensating differentials for coal mining jobs. This means that coal miners will not need to be compensated as much for the risk they take on the job, as the risk has been mitigated through safety regulations.

Question 18

As a college student, you realize that you have become an expert at playing video games. If you saw a commercial on TV seeking applications for video-game testers (your dream job), what would you expect the job to pay?

Accepted Answer

The answer of As a college student, you realize that...

Question 19

I'm a physician in New York City, my favorite city in the world. What would be some of the non-monetary determinants of my wages?

Accepted Answer

While the physician's education would typically lead to higher wages, the desirability of the location (New York City) may cause wages to be reduced due to increased competition and saturation of the market. Therefore, option C, "My wages are higher because of my education, but they are reduced because of the desirability of my location," is the best choice.

Question 20

When comparing individuals' wages, what effect do differences in their levels of education and training have?

Accepted Answer

Education and training can explain some of the differences in wages between individuals because higher education and specialized training often lead to higher productive capacity and more valuable skills in the labor market, which can result in higher wages. However, other factors such as experience, talent, demand, and supply for certain occupations, and discrimination can also affect wage differences. So, education and training only partially explain the existence of income inequality.

Quiz 15: Income, Inequality, and Poverty