Econ Exam 1
8. Along a straight-line demand curve for labor A) demand becomes more elastic as the wage rises. B) the elasticity of demand remains constant. C) the slope becomes more negative as the wage rises. D) demand becomes less elastic as the wage rises.
A
8. Public goods are goods A) that are available to an additional consumer at no cost B) donated by their owner for public use C) that are not scarce D) that can only be produced by the government
A
9. Labor markets differ from most other markets because A) labor services must be rented, not bought or sold B) price and quantity information must be exchanged C) contracts exist between buyers and sellers D) resources are allocated
A
9. Which of these persons is officially classified as being "not in the labor force"? A) Meredith, who would start looking for work if she thought she could get a good job. B) Alex, who was fired from his job two months ago and is searching for a new job. C) Lexi, who has never worked but just started looking for work two weeks ago. D) Derrick, who is working at a low wage job that does not challenge him
A
5. If all parties gain from a transaction A) the transaction will be redistributional B) the transaction must be a Pareto improvement C) the government must mandate that transaction D) the transaction will not be voluntary for some parties
B
5. In the short run, A) employment levels cannot change. B) a firm cannot add on to an assembly line or introduce new machines to the production process. C) wage rates and product prices cannot change. D) a firm cannot hire new workers.
B
6. If more people enter the labor market for architects, then A) both the wage rate and the employment level will decrease B) the wage rate will decrease and the employment level will increase. C) both the wage rate and the employment level will increase D) the wage rate will increase and the employment level will decrease
B
6. The short run own-wage labor demand elasticity A) includes only part of the substitution effect. B) includes only part of the scale effect. C) includes both scale and substitution effects. D) includes all the scale effect.
B
7. Economists generally assume that workers maximize A) their leisure time B) their utility C) their income D) their nonpecuniary benefits
B
10. Economic rent is A) the amount by which a worker's wage exceeds his or her reservation wage. B) the income a worker receives from his or her labor. C) a worker's wage rate. D) the value of a worker's labor services.
A
10. If income is held constant and the wage rate increases, the desired hours of work will A) increase B) decrease. C) stay the same. D) change ambiguously.
A
12. The labor market does NOT A) ensure that all workers are hired B) coordinate employment decisions. C) respond to price signals D) allocate workers to jobs
A
18. When the price of capital increases, the quantity of ________ demanded will ________, but the effect on ________ is ambiguous A) capital; decrease; labor B) labor; decrease; capital C) capital; increase; labor D) labor; increase; capital
A
19. 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 A) elastic B) neither elastic nor inelastic. C) zero D) inelastic
A
2. If the firm hires to a point where the marginal expense of labor is greater than the marginal revenue product of labor, then A) profits could be increased by reducing employment. B) profits are maximized. C) profits could be increased by increasing employment. D) total cost must be greater than total revenue.
A
23. Workers in an industry are probably underpaid if A) employers have difficulty hiring and retaining qualified workers. B) firms in the industry are making a positive profit. C) the workers cannot afford to quit their jobs. D) the workers could receive a higher salary in another occupation.
A
8. When deciding the salary of a sports star, A) the team will hire the sports star if doing so will increase the team's revenues. B) the team must consider how much the sports star will cause revenues to increase. C) the team estimates the sports star's marginal product; because this is a guess, sports stars are generally underpaid. D) the team must consider how much money the sports star should earn
B
9. A professor declared "with the recent drop in the value of my stock portfolio, I will have to put off retirement by another two years." This decision reflects A) the substitution effect. B) the income effect. C) the portfolio effect. D) the effect of a budget constraint with a spike.
B
4. Which of the following is NOT a distinguishing characteristic of the labor market? A) There are numerous institutions and regulations applicable to employment relationships that do not exist in other markets B) Non-pecuniary factors loom larger in employment transactions than they do in markets for commodities C) Labor services can only be rented D) Unlike in commodity markets, non-pecuniary factors are generally unimportant in employment transactions E) Unlike in commodity markets, non-pecuniary factors are generally important in employment transactions
D
5. The labor force is made up of A) all members of society B) employed workers, unemployed workers, and retired workers C) all members of society who are at least 16 years of age D) all members of society who are at least 16 years old and are either employed or unemployed
D
7. # Workers Total Pot Produced Per Day 1 6 2 13 3 18 4 21 5 23 6 22 Referring to the table above, which of the following answers is INCORRECT? If pot sell for $20 each, then A) the marginal revenue product of labor equals the marginal product of labor multiplied by the additional revenue that is received per unit of output. B) the marginal product of the third worker is five units. C) the marginal revenue from selling the eighteenth unit is $20. D) the marginal revenue product of labor of the second worker is $260.
D
8. Which of the following occurs if a firm pays workers more than the market wage? A) Its application rate will be higher than usual B) Its quit rate will be lower than usual. C) It will have a surplus of labor. D) All of above occur.
D
9. If two inputs are complements in production, A) then the inputs can be either gross complements or gross substitutes. B) then the inputs cannot be used at the same time. C) then the inputs are gross substitutes. D) then the inputs are gross complements.
D
3. Output is produced with capital and labor. If the price of capital goes up, A) the firm will use more labor per unit of output produced. B) the price of output will fall. C) None of the above will result when the price of capital goes up. D) output will be increased.
A
3. If the salaries of accountants increase and other conditions remain the same, then A) a firm will move to the right along its labor demand curve for accountants B) the labor demand curve for accountants will shift to the left C) a firm will move to the left along its labor demand curve for accountants D) the labor demand curve for accountants will shift to the right
C
5. The own-wage elasticity of demand measures A) percentage change in wages divided by percentage change in quantity of labor demanded. B) change in wages divided by change in quantity of labor demanded. C) percentage change in quantity of labor demanded divided by percentage change in wages. D) change in quantity of labor demanded divided by change in wages.
C
6. If the hourly wage is $50 and the price of output is $25, then, in the short run, A) the firm should reduce employment until the wage falls to $25. B) the firm should add workers if they add 1/2 or more units to output. C) the firm should add workers if they add 2 or more units to output.
C
7. 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 A) positive B) zero C) low D) high
C
8. A person who receives time-and-a-half overtime for working more than 8 hours per day will have a ________ which is ________ beyond 8 hours of labor. A) budget constraint; flatter B) indifference curve; flatter C) budget constraint; steeper D) indifference curve; steeper
C
2. If a single small firm's demand for secretaries increases, then A) its wage rate will increase and its employment level will remain the same B) both its wage rate and its employment level will remain the same C) its wage rate will increase and its employment level will increase. D) its wage rate will remain the same and its employment level will increase
D
2. Other things equal, an elastic demand for an industry's output will tend to make the industry's own-wage elasticity of demand A) positive B) low C) zero D) high
D
20. Own-wage elasticities of demand are A) positive for gross complements, negative for gross substitutes. B) always positive. C) either positive or negative. D) always negative.
D
4. It has been said that CEOs (Chief Executive Officers who are in charge of their firms) are overpaid. Which of the following would be evidence (if true) that they are, in fact, overpaid? A) CEOs make many times what their workers make. B) CEOs' salaries have increased very rapidly. C) When CEOs leave their jobs to take new jobs, their new jobs pay more. D) Firms find that they can find equally qualified persons for a lower salary.
D
4. If the firm operates in a competitive labor market, A) it faces a horizontal labor supply curve, and the marginal expense of labor equals the market wage. B) it faces a positively sloped labor supply curve, and the marginal expense of labor is less than the market wage. C) it must compete against other employers by offering a generous compensation package. D) it faces a vertical labor supply curve, and it competes against other employers by moving to the lowest attainable point on the labor supply curve.
A
6. Nonpecuniary factors do NOT include A) a worker's hourly wage rate B) annoyance caused by a rude co-worker C) an inflexible work schedule that requires commuting during the worst rush-hour traffic D) eyestrain caused by having to stare continually at a computer terminal
A
6. The opportunity cost of leisure A) is the wage that one could earn by working an additional hour. B) is the amount of income that would be necessary to hold an individual's utility level constant were they to work an additional hour (that is, give up an hour of leisure time). C) is equivalent to the individual's non-labor income. D) is directly related to the individual's level of leisure consumption per time period
A
7. An increase in the wage rate when the substitution effect dominates will ________ labor force participation and ________ hours of work. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase
A
7. If the price of capital increases in an industry and the scale effect dominates, A) wages and employment levels will both decrease. B) wages and employment levels will both increase. C) wages will increase and employment levels will decrease. D) wages will decrease and employment levels will increase.
A
9. If teenagers and adults are substitutes in production, and the wage of teenagers falls, then A) they could be either gross substitutes or gross complements, and the employment of adults could rise or fall. B) they must be gross substitutes, and the employment of adults will rise. C) they must be gross complements, and the employment of adults will fall. D) they must be gross substitutes, and the employment of adults will fall.
A
10. Which type of transaction is NOT Pareto improving? A) Some parties gain and no one loses B) Some parties gain and some parties lose, and the gains are larger than the losses C) Some parties gain and some parties lose, but the gainers fully compensate the losers for their losses D) All affected parties gain
B
11. Moving from the upper to the lower portion of a straight labor demand curve, the elasticity A) could change from inelastic to elastic, or from elastic to inelastic. B) changes from elastic to inelastic. C) stays the same. D) changes from inelastic to elastic.
B
12. On the portion of a worker's labor supply curve that is backward-bending, A) the substitution effect outweighs the income effect. B) the income effect outweighs the substitution effect. C) the income effect is negative. D) the substitution effect is negative.
B
14. When the price of capital increases, a firm will A) employ more labor because labor has become relatively cheaper. B) employ more, less, or the same amount of labor. C) employ less labor due to the increase in costs. D) employ the same amount of labor.
B
15. If the labor market is competitive and coverage is complete, then legislation to enact a minimum wage above the equilibrium wage level would A) decrease both wages and employment. B) increase wages and decrease employment C) decrease wages and increase employment. D) increase both wages and employment.
B
18. A worker's hourly wage is $25 and output sells for $5 a unit. What is the minimum marginal product a worker must produce in order for a competitive employer to break even when hiring the worker? A) 1/5 B) 5 C) 25 D) 125
B
18. If the absolute elasticity of labor demand is 2.0, then an eight percent increase in the wage will A) decrease employment by 4%. B) decrease employment by 16%. C) increase employment by 16%. D) increase employment by 4%.
B
19. Diminishing marginal returns occur because A) the best employees will always be hired first. B) hiring more employees means that each has less capital with which to work. C) hiring more employees means that they will subdivide tasks and therefore become more D) it is more difficult to manage a firm as the size of the workforce and capital stock both grow.
B
2. A wage increase creates a substitution effect which leads the worker to desire ________ leisure, and an income effect which leads the worker to desire ________ leisure. A) more; less B) less; more C) less; less D) more; more
B
2. Economists generally assume that A) people pursue their objectives in a consistent fashion B) people both pursue their objectives in a consistent fashion and are forced to make choices due to scarcity C) people are forced to make choices due to scarcity D) habit-bound people are irrational
B
21. If every worker wants ten dollars more per hour to work, then wages will A) go up by $10 B) go up by less than $10. C) go up by more than $10. D) go down as employment falls.
B
24. A worker's income is equal to his A) wage rate multiplied by hours worked B) earnings plus employee benefits plus unearned income C) earnings D) wages plus benefits
B
3. Improvements in equity A) can be scientifically evaluated B) involve comparing the welfare lost by some against the welfare gained by others C) generally increase efficiency D) are impossible if the initial distribution is Pareto Optimal
B
4. If leisure is a normal good, then an increase in non-labor income will cause desired hours of work to A) increase B) decrease C) stay the same D) either decrease or increase
B
4. 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 A) inelastic B) elastic C) neither elastic nor inelastic. D) zero
B
5. A person with ________ indifference curves is most likely to decide not to participate in the labor force. A) flat B) steep C) straight D) upward-sloping
B
11. Indifference curves drawn with leisure and income on the axes have negative slopes A) because people are willing to give up income to obtain more leisure and vice versa. B) if a person likes leisure more than income C) because they cannot cross one another D) unless one of the goods is inferior.
A
12. Declining marginal product of labor A) is needed if competitive firms are to stop hiring workers at some point. B) mainly exists because workers get tired after many hours of work. C) allows firms to make the most profit. D) implies workers get more productive as more of them are hired.
A
12. If Industry A can substitute capital for labor easily and Industry B cannot, then (other things equal) A) Industry A's own-wage elasticity of demand will be higher than Industry B's. B) Industry B's own-wage elasticity of demand will be higher than Industry A's. C) the industries' own-wage elasticities of demand will be equal. D) we cannot predict which firm's own-wage elasticity of demand will be higher.
A
12. Pareto efficiency implies that A) all mutually beneficial transactions have taken place B) only people facing price distortions still wish to undertake transactions C) all legal transactions have taken place D) the distribution of income is equitable
A
13. An employer who is a monopolist in the product market, other things being equal, will probably A) hire fewer employees than a perfect competitor would. B) hire more employees than a perfect competitor would. C) hire fewer workers at a higher wage than a perfect competitor would. D) hire the same number of employees as a perfect competitor, due to competitiveness in the labor market
A
14. Through the substitution effect, a decrease in the wage rate will cause ________ in the quantity of leisure desired. A) an increase B) a decrease C) no change D) an ambiguous change
A
14. Which of the following events could explain why wages and employment could fall in a competitive labor market? A) The demand curve shifts left and down. B) The supply curve shifts left and up. C) The supply curve shifts right and down. D) The demand curve shifts right and up.
A
15. When wages increase, the substitution effect implies that employment will ________ and the scale effect implies that employment will ________. A) decrease; decrease B) increase; increase C) increase; decrease D) decrease; increase
A
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 A) -2.0 B) -0.5 C) -0.2 D) -5.0 E) -0.4
A
16. When the price of labor falls, the quantity of ________ demanded will ________, but the effect on ________ is ambiguous. A) labor; increase; capital B) labor; decrease; capital C) capital; decrease; labor D) capital; increase; labor
A
17. Which of the following events will cause the labor demand curve to shift up and to the right? A) an increase in product demand B) all of the above shift the labor demand curve up C) a lower wage D) an increase in the supply of labor
A
3. An increase in nonlabor income due to a rise in the value of stocks and bonds will cause A) a pure income effect. B) a pure substitution effect. C) both an income and a substitution effect. D) neither an income nor a substitution effect.
A
1. An individual's reservation wage A) is determined by supply and demand in the labor market. B) is the value of the marginal hour of leisure time if the individual does no work. C) is the amount of money the individual earns by working an additional hour. D) decreases as non-labor income increases
B
1. If two inputs are gross complements, the cross-wage elasticity of demand for the two inputs will be A) one B) negative C) zero D) positive
B
20. A worker's total compensation consists of A) wages B) earnings plus in-kind benefits plus deferred benefits C) earnings D) earnings plus in-kind benefits
B
10. Cross wage elasticities of demand are A) positive for gross complements, negative for gross substitutes. B) always positive in magnitude C) either positive or negative in magnitude. D) always negative in magnitude.
C
10. For two substitutes in production, if the substitution effect dominates, A) then the inputs could be either gross complements or gross substitutes. B) then the inputs cannot be used at the same time. C) then the inputs are gross substitutes. D) then the inputs are gross complements.
C
11 . # Workers Total Pot Produced Per Day 1 6 2 13 3 18 4 21 5 23 6 22 Referring to the table above, if wages are $50.00 per day and pot sell for $20.00 each, how many growers will the firm hire? A) five B) two C) four D) three E) one
C
13. If a worker's desired hours of labor do not change after a decrease in his wage rate, then A) his income effect dominates his substitution effect. B) his substitution effect dominates his income effect. C) his income and substitution effects are of equal magnitude. D) his income and substitution effects are small in absolute value.
C
13. If the salaries of accountants increase and other conditions remain the same, then A) the labor demand curve for accountants will shift to the right B) the labor demand curve for accountants will shift to the left C) a firm will move to the left along its labor demand curve for accountants D) a firm will move to the right along its labor demand curve for accountants
C
13. Other things equal, which of the following will have the most elastic own-wage elasticity of demand? A) All steel firms in California. B) All steel firms in the world. C) A steel firm with one plant in California. D) All steel firms in the United States
C
17. In the long run, a profit-maximizing firm will select capital and labor so that A) the marginal product of labor equals the marginal product of capital. B) labor equals capital. C) the wage divided by the marginal product of labor equals the rental cost of a unit of capital divided by the marginal product of capital. D) the wage equals the rental cost of a unit of capital.
C
22. Which of the following events will cause a surplus of workers? A) more workers wanting to work at higher wages B) an increase in the supply of workers C) a wage above the market-clearing wage D) a decrease in the demand for workers
C
3. If a firm hires another unit of labor, output goes up by 12 units. The wage rate for the unit of labor is $6. What is the firm's cost of producing another unit of output using labor? A) $18 B) $9 C) $0.50 D) $1.50
C
1. A competitive industry hires 1000 workers. The 1000th worker adds $500 a week to their employer's revenue. If a monopoly took over the industry, then the 1000th worker would likely A) add more than $500 a week to their employer's revenue. B) still add $500 a week to their employer's revenue. C) uncertain; it depends on the shape of the demand curve for output. D) add less than $500 a week to their employer's revenue.
D
1. Economic rationality A) implies that there is no such thing as a free lunch B) implies that people's behavior does not adapt when incentives change C) can be directly proven D) implies that people have an objective and pursue it in a consistent fashion
D
1. If the price of a product decreases due to a decrease in demand, then A) the firm moves to the left along the labor demand curve B) the labor demand curve shifts to the right C) the firm moves to the right along the labor demand curve D) the labor demand curve shifts to the left
D
11. If the price of a product decreases due to a decrease in demand, then A) the labor demand curve shifts to the right B) the firm moves to the right along the labor demand curve C) the firm moves to the left along the labor demand curve D) the labor demand curve shifts to the left
D
11. If there are costs associated with employee turnover, and to reduce these costs, a firm increases the wage it pays its employees, then the firm's profits A) must decrease B) must increase if the turnover rate falls by three percent or more C) must increase if turnover costs fall D) could increase or decrease, depending on the amount in the wage increase and the change in the turnover rate
D
14. Other things equal, the own-wage elasticity of demand for a category of labor is higher when A) the supply of other factors of production is highly inelastic. B) the cost of employing the category of labor is a small share of the total costs of production. C) the price elasticity of demand for the product being produced is low. D) other factors of production can be easily substituted for the category of labor.
D
15. If skilled workers are gross complements with low-skilled immigrant labor, then, when there is an increase in low-skilled immigrant labor, A) skilled workers wages will go down and their employment will go down. B) skilled workers wages will go down but their employment will go up. C) skilled workers wages will go up and their employment will go down. D) skilled workers wages will go up and their employment will go up.
D
16. If two inputs are substitutes in production, and an increase in the price of one input shifts the demand curve for the other input to the left, then A) the scale effect is less than the substitution effect, and the two are gross substitutes. B) the scale effect is greater than the substitution effect, and the two are gross substitutes. C) the scale effect is less than the substitution effect, and the two are gross complements. D) the scale effect is greater than the substitution effect, and the two are gross complements.
D
17. If an increase in the minimum wage leads to higher aggregate earnings by the workers affected, then the own-wage elasticity of demand is A) elastic B) uncertain; more information is needed C) of unit elasticity D) inelastic
D
19. If a union negotiates an industry-wide agreement to set wages above the equilibrium level, A) there will be neither a shortage nor a surplus of labor in the industry. B) the industry's demand curve for labor will shift inward. C) there will be a shortage of labor in the industry. D) there will be a surplus of labor in the industry.
D