Question 1

Dan and Dave are both college graduates. Dan is a patrolman and Dave is a detective in the same police precinct. While Dan's job is inherently more dangerous than Dave's, Dave passed a difficult exam to gain promotion to detective. Dave earns more than Dan because

Accepted Answer

Dave passed a difficult exam to become a detective, indicating that he has acquired more human capital (specific knowledge and skills) than Dan, who is a patrolman. This human capital and specialized training make Dave more productive and valuable to the police department, allowing him to earn a higher salary.

Question 2

Which of the following is not an explanation for why better educated workers earn more, on average, than less educated workers?

Accepted Answer

Choice C states that skilled labor is becoming a substitute for unskilled labor, which increases the earnings of workers with more education. This explanation is not typically given as a reason for why better educated workers earn more, so it is the correct answer. Choices A, B, and D are commonly cited explanations for the wage gap between more and less educated workers.

Question 3

Which of the following does not explain the "beauty premium" differences in wages?

Accepted Answer

Option C does not explain the "beauty premium" differences in wages, as it claims that employers prefer average-looking people and pay them higher wages than better-looking people, which is contrary to the "beauty premium" phenomenon.

Question 4

Which of the following statements is not correct?

Accepted Answer

The human capital theory suggests that additional education increases a worker's productivity, leading to higher wages. Therefore, a government policy that pays for additional schooling for all workers would increase their human capital and, in turn, increase their wages. This statement is contrary to choice C, which implies that the human capital theory would not support such a policy.

Question 5

The human-capital theory explanation for why people invest in education has been challenged by a theory that suggests

Accepted Answer

The theory that suggests schooling acts only as a signal of ability challenges the human-capital theory explanation for why people invest in education, which emphasizes the productivity and income benefits of education.

Question 6

A signaling theory of education suggests that educational attainment

Accepted Answer

A signaling theory of education suggests that education serves as a signal of an individual's productivity and ability, and that educational attainment is correlated with natural ability. Additionally, individuals with higher levels of education may be more productive in high-skilled jobs and may earn higher wages, further signaling their productivity. Therefore, both options A and B are correct. Option C, however, is not supported by signaling theory as it suggests that education boosts the productivity of low-ability workers, which is not necessarily the case according to the theory.

Question 7

Which of the following is an economic explanation for the "beauty premium"?

Accepted Answer

The "beauty premium" refers to the phenomenon that some people, typically women, who are above-average in attractiveness may receive higher wages than their peers who are of average or below-average attractiveness. This is because customers may prefer to deal with better-looking employees, which could lead to increased sales for the employer.

Question 8

When employers sort employment applications into high-ability and low-ability people based on whether or not the applicant has a college degree (irrespective of major), they are providing evidence in support of the

Accepted Answer

The practice of sorting employment applications based solely on whether or not the applicant has a college degree (regardless of major) supports the signaling theory of education. This theory argues that education serves as a signal to employers of an individual's qualities, such as intelligence, work ethic, and determination, which cannot be easily observed. In this case, having a college degree serves as a signal to employers that the applicant possesses desirable qualities, even if the actual education obtained is not directly relevant to the job.

Question 9

Which of the following examples best describes the signaling theory of education?

Accepted Answer

The answer of Which of the following examples best describes...

Question 10

Which of the following theories explains why increased education translates into higher wages?

Accepted Answer

According to this theory, education helps workers acquire knowledge, skills, and abilities that increase their productivity, making them more valuable in the labor market, and resulting in higher wages.

Question 11

The "beauty premium" can be explained by the fact that

Accepted Answer

Studies have shown that physical attractiveness can impact the value of a worker's marginal product, particularly in occupations that require frequent interactions with customers or clients. This "beauty premium" can lead to higher wages and greater opportunities for attractive workers in these fields.

Question 12

According to the human-capital view, education

Accepted Answer

The human-capital view posits that education increases an individual's knowledge and skills, thereby enhancing their productivity in the workforce. This increased productivity can ultimately lead to higher lifetime earnings. Therefore, the correct choice is C, enhanced productivity.

Question 13

Of the theories listed below, which do the best job of explaining why educated people are paid more than uneducated people?

Accepted Answer

The human-capital theory suggests that education and training increase productivity, thus leading to higher wages. However, the signaling theory also explains that education serves as a signal to employers of a worker's ability and dedication, resulting in higher wages. This theory explains why even if two individuals have equal productivity, the one with higher education is likely to earn more.

Question 14

Which of the following explains the "beauty premium" differences in wages?

Accepted Answer

People who spend time on their personal appearance may send a signal that they are more productive workers.

Question 15

Which of the following might explain the beauty premium found by labor economists Hamermesh and Biddle?

Accepted Answer

All three options could potentially explain the beauty premium found by Hamermesh and Biddle. Good looks may be an innate ability for certain jobs, leading to higher productivity and wages for those who possess this trait. Alternatively, good looks may be perceived as an indicator of other desirable traits (such as attention to detail) that translate to higher wages. Lastly, it is possible that employers may be discriminating against average-looking people in favor of better-looking applicants, though this is difficult to prove definitively. Therefore, it is likely that a combination of these factors contribute to the beauty premium.

Question 16

Suppose that a college student receives an offer for a summer internship with a stock brokerage firm. Unfortunately for the student, the internship is unpaid. Is it ever economically beneficial to accept an unpaid job?

Accepted Answer

Accepting an unpaid internship can be economically beneficial if the experience gained increases the student's human capital, which in turn can increase future earnings potential. However, if the opportunity cost (such as working a paid job) is too high, it may not be worth it. Signaling to future employers is also a consideration, but not necessarily the primary factor in this decision.

Question 17

Which theory is supportive of the idea that increasing educational levels for all workers would raise all workers' productivity and therefore their wages?

Accepted Answer

Human-capital theory suggests that investing in education and training can improve workers' productivity and lead to higher wages. Therefore, increasing educational levels for all workers can raise their productivity and wages. Option A (compensating differentials) refers to the idea that different jobs pay different wages due to differences in working conditions or other non-monetary factors. Option B (efficient-market hypothesis) suggests that market prices reflect all available information, including information about workers' skills and education levels. Option D (signaling theory) suggests that education serves as a signal to employers of workers' abilities and potential productivity, which may increase their wages. However, human-capital theory is more directly supportive of the idea that increasing education can improve productivity and wages.

Question 18

George and Brad are waiters at a local restaurant. The female customers think that George is better looking than Brad. If George earns more than Brad, this could be an example of each of the following except

Accepted Answer

A compensating differential is a wage premium paid to compensate workers for undesirable job characteristics such as dirty or dangerous work. The fact that George earns more than Brad cannot be explained by customer preferences, discrimination, or a beauty premium because these factors are not directly related to the characteristics of the job.

Question 19

The belief that education makes a person more productive and thereby raises his or her wage is referred to as the

Accepted Answer

The belief that education makes a person more productive and therefore increases their earning potential is known as the human-capital view of education. It asserts that investing in education, knowledge, and training will enhance human capital, resulting in improved productivity and higher wages. The signaling view of education suggests that education is merely a signal of an individual's inherent abilities rather than an actual increase in productivity, whereas the natural-ability view of education posits that one's earnings are determined primarily by inherent abilities rather than education or training. The unmeasured-variables view of education contends that other variables, such as innate talent or social networks, influence both education level and earnings.

Question 20

George and Brad are waiters at a local restaurant. The female customers prefer to be seated at the tables that George waits on because they think George is better looking than Brad. If George earns more than Brad because of his better looks, this is an example of

Accepted Answer

This scenario describes a beauty premium, which is the concept that more physically attractive people tend to earn higher wages than their less attractive counterparts, even when controlling for other factors such as education and experience. This is not based on effort or human capital, but rather on societal biases towards physical appearance.

Quiz 19: Earnings and Discrimination