Smartbook 8

Why is the supply of labor faced by an individual firm in a purely competitive labor market perfectly elastic?

Each of the many firms employs such a small fraction of the total available supply of labor that it cannot influence the wage rate.

What is used to measure the sensitivity of resource quantity to changes in resource prices along a fixed resource demand curve?

Elasticity of resource demand

Which of the following exemplifies the substitution effect in regard to substitute resources?

A decline in the price of machinery prompts a firm to substitute machinery for labor, allowing it to produce output at the lower cost of machinery.

Which of the following is an example of the substitution effect in regard to substitute resources?

A firm can produce some specific amount of output using a relatively small amount of labor and a relatively large amount of capital or vice versa.

Which of the following exemplifies the concept of "quantities of other resources" as contributing to the marginal product of a particular resource?

A greater amount of capital and land resources used with labor will increase labor's marginal productivity and thus labor demand.

Supporters of a minimum wage argue that it can increase wage rates without causing significant unemployment in which type of labor market?

A low-pay labor market with monopsony power

Which of the following are among the reasons for the high productivity of labor?

Access to abundant natural resources Advanced technology Labor quality

What is the rule that guides profit-seeking firms when deciding to hire more labor or use more of a specific resource?

Add additional units of the resource when each successive unit adds more to a firm's total revenue than it adds to its total cost

The following statement is true about what type of market: the lower price accompanying each increase in output (total product) applies not only to the marginal product of each successive worker but also to all prior output units that otherwise could have been sold at a higher price.

An imperfectly competitive market

Which of the following is true concerning resource productivity and demand?

An increase in the productivity of a resource will increase the demand for the resource and vice versa.

Which of the following are examples of incentive pay plans?

Commissions Bonuses Piece rates

______ is one of four reasons given why labor supply conditions differ in various labor markets.

Compensating differences

What are piece rates?

Compensation paid according to the units of output a worker produces

What can shift the resource demand curve?

Resource productivity Product demand Prices of other resources

Why is a purely competitive seller's resource demand curve more elastic than an imperfectly competitive seller operating in a monopoly, oligopoly, or monopolistic competition?

Sellers in imperfect competition must lower prices to sell more, thus expanding labor by a lower percentage than purely competitive sellers.

Which of the following groups are considered "labor" by economists?

Small-business owners Professional individuals, such as lawyers, physicians, dentists, and teachers Blue- and white-collar workers of all varieties

What is the marginal product?

The additional output from using one more unit of labor

What is marginal resource cost?

The amount that each additional unit of a resource adds to the firm's total resource cost.

How do firms approach the amount of resources they use over the long run?

They can vary the amounts of all the resources they use.

Which of the following identifies how the productivity of any resource may be altered over the long run?

Through the quality of the variable resource By the quantities of other resources Through technological advance

True or false: The level of derived demand for a good or service used in the production of other goods and services is based upon that input's level of productivity in helping reduce the cost of producing the finished product.

True

Which of the following describes a strategy used by workers to avoid competing with one another in the labor market and instead to sell their services collectively?

Unionization

Which of the following statements best describes the effect of unions on monopsony labor markets?

Unions cause firms to negotiate wages.

When does a firm's decision to employ more or fewer workers affect the wage rate it pays those workers?

When the firm hires most of the available supply of a particular type of labor

Which of the following best describes the ease of resource substitutability as a determinant of the elasticity of resource demand?

When there are few substitute resources, the more inelastic demand is for the resource currently being used.

Which of the following are characteristics of a labor market monopsony?

Workers in the monopsony market have little choice but to work for the monopsony firm. There is only a single buyer of a certain type of labor. The firm is a wage maker.

Which of the following statements describe the principal-agent problem?

Workers may take unauthorized breaks. Workers may provide less than the agreed-upon effort. The interests of firms and workers are not identical.

When the last dollar spent on each resource yields the same marginal product ______.

a firm is producing a specific output with the least-cost combination of resources

A monopsony is a market in which ______ substantial buying (hiring) power.

a single firm has

The general or average level of wages, like the general level of prices, includes

a wide range of different wage rates.

Unlike the least-cost rule where as long as the ratios of both equations are the same and equal (ex. 20/4 = 10/2 = 5/1 = 5), when the ratio between the two equations for the profit-maximizing rule each always equal 1 (ex. 10/10 = 5/5), then the purely competitive firm has ______.

achieved profit maximization

The total or market labor demand curve for a particular labor service is found by __________ the labor demand curves of all individual firms in the industry.

adding

When a firm hires most of the available supply of a certain type of labor, its decision to employ more or fewer workers ______.

affects the wage rate it pays to those workers.

If an increase in the quantity of one resource used in the production process requires an increase in the quantity used of another resource and vice versa, then the resources ______.

are complementary

The incentive pay plan resolves the principal-agent problem by ______.

basing worker compensation more closely to output or performance

A _______ monopoly is a combination of the monopsony model and the inclusive or industrial unionism model.

bilateral

The personal stock of knowledge, know-how and skills that enables a person to be productive and to earn income is known as human

capital

Adding other resources, inventing new machinery, and improving the quality of the labor force are all methods of ______.

changing productivity over the long run

When an increase in the quantity used of one resource leads to an increase in the use of another resource in the same production process and vice versa, the resources used are called

complementary resources

The change in direction for labor demand will be reliant upon whether labor and capital are production ______.

complements substitutes

Under pure competition, product price is ______, therefore the downward slope of the demand curve is due solely to the decline in the resource's marginal product, or the law of ______.

constant; diminishing returns

To firms, resource prices represent

cost

A union whose members possess a particular skill, such as carpentry, masonry or plumbing is what type of union?

craft union

Because the demand for labor is a(n) __________ demand, the elasticity of the _______ for the output (product) that the labor is producing will influence the elasticity of the demand for labor.

derived, demand

The level of substitutability of a resource is a primary ______.

determinant of resource elasticity

Ease of substitutability, elasticity of product demand and the ratio of resource cost to total cost are all factors that ______.

determine the elasticity of resource demand

The difference between the wage rate received by one group of workers and the wage rate received by another group of workers is called a wage

differential

Hourly pay, annual salaries, bonuses, commissions, and royalties are all examples of ______, whereas paid vacations, health insurance, and pensions are examples of ______.

direct money payments; benefits

The determinants of the elasticity of resource demand are ______.

ease of resource substitutability elasticity of product demand ratio of resource cost to total cost

The _________ of resource demand is the sensitivity of resource quantity to changes in resource prices.

elasticity

If a person agrees that resources should be paid based upon the value of their creation, then income payments based on marginal revenue product provide a fair and ______ distribution of society's income.

equal

Each individual firm will maximize its profits or minimize losses by hiring a specific type of labor up to the point where the marginal revenue product is ______ marginal resource cost.

equal to

In a competitive labor market, the MRC of labor is ______ the market wage rate.

equal to

The point at which the market labor demand curve and the market labor supply curve intersect determines the ______ wage rate and level of labor ______ in a purely competitive labor market.

equilibrium; employed

When unions artificially restrict the supply of labor to increase wage rates, this is referred to as

exclusive

Unions whose members possess a particular skill such as carpentry, masonry or plumbing are known as

exclusive unions

The principal-agent problem, when applied to all paid employees, refers to _______ as the principal and ______ as the agent.

firms; workers

The ___________(greater/less) the level of productivity of labor, the greater the demand for that labor.

greater

In a competitive labor market, the level of employment would be ______ and the wage rate would be ______ than in a monopsonistic labor market.

greater; higher

One of the criticisms of the minimum wage is that it is a poorly targeted measure for reducing ______.

household poverty

Market _________ is one of four reasons why demand and supply conditions differ in various labor markets.

imperfections

A union that raises wage rates by organizing all available workers and threatening to withhold labor via a strike is using the

inclusive union model

Technological improvements ______ the ______ of other resources.

increase; quality

When unions use the "craft union model" to increase the demand for union labor, they can _____ wage rates by _____ the supply of labor.

increase; reducing

Health, education, and training help to improve the ______ in advanced economies.

labor quality

A firm's nonlabor costs include implicit and explicit payments to ______.

land, capital, and entrepreneurship

A firm's decision to employ workers will affect the wage rate paid to those workers, because if a firm is ______, it will pay higher wages to attract labor away from other employment or from leisure.

large in relation to the size of the labor market

The imperfectly competitive seller produces ______ of a product and demands ______ resources than a purely competitive seller does when resource prices fall.

less; fewer

In the _______ run, firms can vary the amounts of all the resources they use.

long

The ______ is the amount that each additional unit of a resource adds to the firm's total resource cost.

marginal resource cost

A firm in a purely competitive labor market maximizes its profit by hiring workers to the point at which its wage rate equals ______.

marginal revenue product (MRP)

A firm's demand schedule for labor or any input to produce a good or service can also be known as its ______.

marginal revenue product schedule

No current consensus exists on the employment or unemployment effects of the present level of the ______ wage.

minimum

Since the passage of the Fair Labor Standards Act in 1938, the US has had a federal

minimum wage

A change in quantity of a resource demanded is represented by ______.

movement from one point to another on a fixed resource demand curve

A(n) ______ is the amount of money received per hour, day, or year in return for labor services performed without any adjustment for inflation.

nominal wage

Groups of workers whose skills, abilities, education, and training differ from other groups and thus are not in competition with those groups for employment are called

noncompeting groups

Legislation that prohibits workers from practicing a given trade before meeting certain requirements is known as ______.

occupational licensing

To attract labor away from other employment or from leisure, assuming the firm is large in relation to the labor market, it will have to:

pay higher wages

Real hourly compensation is calculated as wages and salaries ______.

plus employers' contributions to social insurance and private benefit plans

The primary tool used by unions to increase the use of union-produced goods and services is

political lobbying

According to the output effect, when union labor and another resource are complementary, a ______ for the other resource will increase demand for union labor.

price decrease

Changes in quantity of a resource demanded are caused by a change in the ______.

price of a specific resource

What is it called when a firm in a purely competitive market is unable to influence the market price no matter how much output the firm produces?

price taker

Every firm will maximize its profits or minimize its losses by hiring up to the point at which marginal revenue _________ is equal to marginal

product, input

The demand for labor, or for any other resource, depends on its ______.

productivity

The strength of the demand for any resource will depend on the ______ of the resource and the market ______ of the good or service that the resource helps produce. (Enter one word for each blank)

productivity price

Because resource demand is derived from product demand, the strength of the demand for any resource will depend on the _____.

productivity of the resource in helping to create a good or service market value or price of the good or service it helps produce demand for the good or service it helps produce

The marginal _________ of any resource will vary with the _________ of other resources used with it

productivity, quanity

The expenditures that firms incur in acquiring economic resources flow to households in the form of ______.

profit wages rent interest

What type of market is described by a constant product price and a downward sloping resource demand curve caused by a decline in marginal product?

pure competition

In a(n) ______ labor market, many firms compete with one another to hire a specific type of labor.

purely competitive

The quantity of goods and services a worker can obtain with nominal wages is referred to as the ______.

real wage

When unions are successful in raising wages, they also ______.

reduce employment in unionized firms

The derived demand for an input will rise when it is highly productive in ______. (Check all that apply.)

reducing the costs to produce a product producing a highly valued commodity

Through long apprenticeships, very high initiation fees and limits on the number of new members admitted, unions artificially ______.

restrict labor supply

To maximize profit, a firm should add additional units of a specific resource as long as each successive unit adds more to the firm's total _______ than it adds to the firm's total _____

revenue, cost

In a purely competitive labor market, total cost (wages plus other income payments) equals total ______ . Therefore, a firm earns only a(n)

revenue, normal profit

The degree to which resources are ________ is a fundamental determinant of elasticity.

substitutable

When the relative cost of labor rises, a decision must be made whether to substitute and decrease the use of labor and increase the use of another resource input such as machines in order to produce the same amount of output at a lower cost. This statement describes the ______ effect.

substitution

When the relative cost of a resource used to produce a product decreases, such as the cost of machinery, a decision must be made whether to increase the use of more machines and decrease the use of another resource input such as labor in order to produce the same amount of output at a lower cost. This is called the

substitution effect

On the _________side of the labor market, workers are not homogeneous in their mental and physical capacities or in their education and training.

supply

The _______ curve for each type of labor slopes upward, indicating that employers as a group must pay higher wage rates to obtain more workers.

supply

Recall that _______ advances increase the quality of other resources.

technological

True or false: In the "demand enhancement model," a union attempts to increase the wage rate of its members either by increasing demand for the products the union helps to produce or by altering the prices paid for inputs.

true

True or false: When a monopsonist pays a higher wage to attract an additional worker it must then pay that new higher wage to all the workers it is currently employing as well.

true

In some labor markets, workers _______ and sell their labor services collectively.

unionize

Where monopsony labor market outcomes might have occurred, ______ have sprung up to counteract that power by forcing firms to negotiate wages.

unions

The MRP=MRC rule tells us that in pure competition a firm will hire workers ______.

up to the point at which the market wage rate (its MRC) is equal to its MRP

A monopsonist's supply curve is _________(upward/downward) - sloping because as it attempts to hire and attract more workers, it must pay _________(higher/lower) wage rates.

upward, higher

When a product is in high demand with customers based on its value (quality) or price, the demand for the resources to produce that product will be ______.

very high

A firm in a purely competitive labor market maximizes its profit by hiring workers to the point at which its _______ rate or MRC equals MRP.

wage

A MRP schedule (table) is also a firm's demand for labor because each point on the schedule or curve indicates the number of workers the firm would have to hire at each possible

wage rate

In a purely competitive labor market, each firm employs such a small fraction of the total available supply of a specific type of labor that no single firm can influence the

wage rate

The substitution effect of resources indicates that a firm ______.

will purchase more of an input whose relative price has declined, and conversely, use less of an input whose relative price has increased

Noncompeting groups refers to groups of workers ______ and each representing several occupations for which the members of the group qualify

with varying degrees of mental, physical, educational and training capacities

Which of the following are all policies or legislation by which unions have, over the years, increased wage rates by reducing the supply of labor?

Enforcing a shorter workweek Encouraging compulsory retirement Restriction of permanent immigration Reduction of child labor

Wages are the price that employers pay to improve human capital.

False

True or false: The marginal revenue product (MRP) of the imperfectly competitive seller falls for two reasons, MP diminishes and product price falls as output decreases.

False *output increases

Which of the following statements is agreed upon by all economists?

Firms will not hire workers who cost more per hour than the value of their hourly output.

Which of the following are the effects of a competitive labor market on employment levels and wage rates as compared to those of a monopsony labor market?

Higher wage rates Higher level of employment

Which of the following are examples of wages?

Hourly pay Company-sponsored health insurance Bonuses

How do resource price cuts influence imperfectly and perfectly competitive sellers?

Imperfectly competitive sellers are less responsive to resource price cuts.

Which of the following statements have been used to support the minimum wage?

In a low-pay labor market with some monopsony power, the minimum wage can increase wage rates without causing significant unemployment. A higher wage may reduce labor turnover, increasing the average productivity of firm's workers. A higher wage might prompt firms to find more productive tasks for low-paid workers, thus raising their productivity.

Which of the following best describes the main goal of the incentive pay plan?

It resolves the principal-agent problem.

Which of the following is true about the marginal productivity of any resource?

It will vary with the quantities of other resources used with it

Which of the following are methods that unions use to artificially restrict labor supply?

Limiting quantity of new members High initiation fees Long apprenticeships

n an imperfectly competitive market, a _____________ price accompanying each increase in output (total product) applies not only to the marginal __________ of each successive worker but also to all prior output units that otherwise could have been sold at a(n) ____________ price.

Lower, product, higher

Which of the following equations represent the profit-maximizing combination of resources for a firm?

MRPL / PL= MRPC / PC = 1 MRPL / PL= MRPC / PC = 10 / 10 = 5 / 5

What is it called when income is distributed in society according to the contribution of the resource to society's output?

Marginal productivity theory of income distribution

Which of the following describes the marginal resource (labor) cost of a monopsonist?

Marginal resource cost will exceed the wage rate.

______ is one of four reasons given why labor demand conditions differ in various markets.

Marginal revenue productivity

Which of the following occurs in a purely competitive labor market?

Numerous firms compete with one another to hire a specific type of labor.

Which of the following describes the concept of elasticity of product demand?

Other things equal, the greater the price elasticity of product demand, the greater the elasticity of resource demand.

How does an industrial (inclusive) union influence wage rates?

By organizing all available workers and threatening to withhold labor via a strike

Resource prices are a major factor in determining households' ______.

Income

What does a perfectly horizontal (flat) supply curve indicate in a labor supply and labor demand graph for an individual firm?

Individual firms cannot affect wage rates no matter how many or how few employees they hire.

Which of the following statements are true of the equipment available to workers in advanced economies in comparison to the equipment available in developing economies?

It is more technologically advanced. It is more plentiful.

Which of the following are criticisms of the minimum wage?

It is poorly targeted to reduce household poverty. An above-equilibrium minimum wage will cause employers to hire fewer workers.

Which of the following union models attempts to increase the demand for union labor by raising demand for the products union members produce and or altering the prices of related inputs?

The demand-enhancement model

What is the relationship between the elasticity of demand for the output that labor is producing and the elasticity of the demand for labor?

The elasticity of the demand for the labor's output will influence the elasticity of the demand for labor.

What determines the equilibrium wage rate and level of employment in a purely competitive labor market?

The intersection of the market labor demand curve and the market labor supply curve

Why does the marginal resource cost exceed the wage rate for a monopsonist?

The monopsonist is the only employer in the labor market and must pay an ever-increasing wage rate to attract more workers.

Why are unions hesitant to demand excessive increases in wage rates?

The number of union workers employed falls as wages rise.

Which of the following best describes derived demand?

The orders for farm tractors by farmers to grow crops

Which of the following effects occurs when union labor and another resource are complementary, and a price decrease for the other resource increases the demand for union labor?

The output effect

Which of the following are inversely related and are present when the cost of an input changes?

The substitution and output effects.

What curve shows the various total amounts of the resource that firms will purchase or hire at various resource prices?

The total, or market demand curve for a specific resource

How do firms' expenditures on economic resources affect households?

These expenditures become income for the households that supply the resources.

Diminishing marginal returns imply that beyond a certain point ______.

the marginal product of labor declines

Human capital refers to ______.

the personal stock of knowledge, know-how and skills that enables a person to be productive and to earn income

Derived demand for a resource depends on ______.

the price or value received from the product it produces the productivity of the resource used to create the good or service

The derived demand for resources by producers for a product will be low when ______.

the product is selling poorly

In order to obtain the greatest profit, the firm must produce _______.

the profit-maximizing output with the least costly combination of resources

In a purely competitive labor market,

the supply of labor faced by an individual firm is perfectly elastic.

True or false: In a purely competitive labor market, market supply and market demand establish the wage rate.

true