Microeconomics: Chapter 13

If demand for the product you make were to suddenly decline, you would expect the equilibrium price of the product to fall, which would lead to:

a decrease in the VMP of each worker.

Taken together, factors such as education, training, experience, intelligence, and work habits are known as:

human capital.

The value of marginal product curve is downward sloping because:

of the law of diminishing returns.

Jobs in which there is a higher risk of injury or death will:

pay more than otherwise similar jobs.

A firm's demand for labor will increase if the:

price of the firm's output increases.

Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour. After the imposition of the minimum wage, employment will equal ______ person-hours per day.

2,000

Those who do not favor programs aimed at reducing inequality argue that these programs:

reduce people's incentive to work hard.

If the elasticity of labor demand is greater than one, then imposing a minimum wage above the equilibrium wage will cause:

the firms' total wage bill to fall.

Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour. As a result of the imposition of the minimum wage, total economic surplus falls by ______ per day

$12,000

Jen is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 p.m., Tuesdays and Thursdays. Her reservation wage for this job is $15 per hour. If the department chair offers Jen $150 per week, how much economic surplus will she enjoy as a result of accepting the job?

$120 per week

Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour. Prior to the imposition of the minimum wage, worker surplus is ______ per day, and after the imposition of the minimum wage, worker surplus is ______ per day.

$18,000; $14,000

Paper Pushers Inc. hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company's hourly output varies with the number of workers hired, as shown in the table. If the market price of each page is $5, the first worker's VMP is ______ per hour, and the third worker's VMP is ______ per hour.

$200; $150

Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop's hourly output of coffee varies with the number of workers hired, as shown in the table. Each cup of coffee sells for $2.00. The most the coffee shop would be willing pay the third worker is ______ per hour.

$22.50

Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. If Leo earns $150, then he will receive ______ in total benefits from the two programs.

$225

Suppose the MC Hammer Company produces hammers. The number of hammers it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each hammer can be sold for $2 more than the cost of the materials needed to produce it. What is the value of the marginal product of the 2nd worker hired each hour?

$32

Suppose the Fluffy Pillow Company produces pillows. The number of pillows it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each pillow can be sold for $2 more than the cost of the materials needed to produce it. What is the value of the marginal product of the 2nd worker hired each hour?

$36

Gino's Pizza shop hires workers in a competitive market to make pizza. The ingredients required to make each pizza cost $5. Daily output at Gino's Pizza varies with the number of workers hired, as shown in the table: If pizzas sell for $8 each, what is the value marginal product for the 4th worker?

$48 per day

Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop's hourly output of coffee varies with the number of workers hired, as shown in the table. Each cup of coffee sells for $2.00. The dollar value to the coffee shop of hiring the fifth worker is ______ per hour.

$7.50

Consider the accompanying figure representing the labor market below. In the absence of any government intervention, the equilibrium wage is ______ per hour, and the equilibrium employment level is ______ workers per hour.

$8; 400

Jen is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 p.m., Tuesdays and Thursdays. Her reservation wage for this job is $15 per hour. Now suppose the department chair announces that the $150 per week earnings from the job will be divided equally among Jen and 299 other students in the department. How much economic surplus will Jen enjoy each week if she accepts the job?

-$29.50

Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. Now suppose the director offers Matt $50 per hour, but also announces that Matt's earnings will be divided equally among Matt and the 99 other students who live in Matt's dorm. What will be Matt's economic surplus from accepting the job?

-$6.50 per hour

Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop's hourly output of coffee varies with the number of workers hired, as shown in the table. Each cup of coffee sells for $2.00. The marginal product of the fourth worker is ______ cups of coffee per hour.

10

Gino's Pizza shop hires workers in a competitive market to make pizza. The ingredients required to make each pizza cost $5. Daily output at Gino's Pizza varies with the number of workers hired, as shown in the table: The marginal product of the 3rd worker is ______ pizzas per day.

18

Consider the accompanying figure representing the labor market below. If a minimum wage of $12 per hour is imposed in this labor market, then:

200 workers will lose their jobs.

Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the following table: If each case sells for $5 more than the cost of the materials used in producing it, and the competitive market wage is $625/week, then how many workers should Sam hire each week?

4

Inga and Ron both work for the same firm on the same career ladder. Each has the same stock of human capital except for one difference: Inga has worked at the firm for 10 continuous years but Ron has had two leaves of absence mixed in with his 10 years of experience with the firm. One should expect:

Inga to earn more than Ron.

Suppose Sarah has been offered a position as web designer at Firm A and Firm B. Both firms require their employees to work for 9 hours a day, but Firm A allows its employees to have a flexible work schedule, while Firm B requires its employees to be at work from 9am to 5pm. Otherwise, the jobs are identical. You would expect:

Sarah's wages to be lower at Firm A than at Firm B.

Jen is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 p.m., Tuesdays and Thursdays. Her reservation wage for this job is $15 per hour. If the department chair offers Jen $150 per week, will Jen accept this job?

Yes, accepting the job means a positive economic surplus for Jen.

Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. Suppose the campus transportation director offers Matt $50 per hour. Will Matt accept this job?

Yes, accepting the job means a positive economic surplus for Matt.

The union wage premium refers to the:

amount by which union wages exceed nonunion wages.

A decrease in demand for a firm's output results in a(n):

decrease in labor demand.

If technological developments increase the marginal product of labor, then the:

demand for labor will increase.

Consider the accompanying figure representing the labor markets shown below. If the government imposes a minimum wage above $6 per hour, then total earnings will ______.

fall

According to John Rawls, if people had to choose an income distribution without any knowledge of their own talents and abilities, they would likely prefer an income distribution that:

gives everyone an equal share.

Suppose that this graph describes the current labor market for high school teachers: Suppose supply of labor decreases. At the new equilibrium, wages would be ______ and ______ teachers would be hired.

higher; fewer

Suppose the market wage for cashiers increases from $7 per hour to $9 per hour. As a result, Pat, who is a cashier, now works five more hours per week. On the other hand Chris, who is also a cashier, now works five fewer hours per week. Chris's behavior illustrates the ______ effect of a wage increase.

income

Paper Pushers Inc. hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company's hourly output varies with the number of workers hired, as shown in the table. If the price of each page increases, then the demand for workers will

increase because the value of the marginal product of labor will increase.

Assume that the graph below describes the current labor market for nurses in a mid-sized city and that the labor market is perfectly competitive. If supply shifts from S0 to S1 and demand shifts from D0 to D1, then the equilibrium wage will ______, and the equilibrium number of nurses will ______.

increase; stay the same

The value of a worker's marginal product of labor:

is higher for workers with more human capital.

Union membership in the United States probably ______ an important explanation for why workers with similar qualifications earn different incomes because union membership rates are relatively ______.

is not; low

Suppose males place less importance on the social approval of their job and more on the income they receive. The gender wage gap would therefore be ______ than if this difference did not exist because of ______.

larger; compensating wage differentials

Males major in engineering much more frequently than females. Starting salaries for engineers (male or female) are much higher than average. As a result, the observed gender wage gap for all college graduates will be ______ than the gender wage gaps in specific majors because ______.

larger; males and females choose different majors

The value of marginal product of labor equals the

marginal product of labor times the net price for which each unit of output sells.

Ben and Ashley are identical in every way except for one: Ashley has a master's degree and Ben does not. You would expect Ashley to be paid:

more than Ben.

Consider the accompanying figure representing the labor market below. If a minimum wage of $12 per hour is imposed in this labor market then worker surplus will ______ and employer surplus will ______.

rise; fall

If workers in one part of the labor market unionize, then all else equal, we would expect the wages of unionized workers to ______, and the wages of nonunionized workers to ______.

rise; fall

Suppose the market wage for cashiers increases from $7 per hour to $9 per hour. As a result, Pat, who is a cashier, now works five more hours per week. On the other hand Chris, who is also a cashier, now works five fewer hours per week. Pat's behavior illustrates the ______ effect of a wage increase.

substitution

To say that a given welfare program is means-tested implies that:

the more income one earns, the smaller the size of the benefit.

The reason people in Professor Rawls' thought experiment would choose an equal distribution of income is that:

they fear ending up in a disadvantaged position themselves.

Assume that the average male wage rate is 20 percent higher than the average female wage rate. One can infer that:

this is evidence of discrimination only if all factors affecting productivity are equal.

One reason nonunionized firms do not always drive unionized firms out of business is that:

unionized firms hire more selectively, employing workers with greater human capital.

For people with very low incomes, the Earned Income Tax Credit operates like a(n):

wage subsidy.