Chapter 11: The Labor Market

Demand for labor

Demand for labor is derived from the demand for the firm's product and the productivity of labor.

Income effect

Higher wages mean that you can maintain the same standard of living by working fewer hours. The impact on labor supply is generally negative.

Union shop

Nonunion hires must join the union within a specified period of time.

Monopolistic exploitation of labor

Occurs when workers are paid less than the value of their marginal product because the firm has monopoly power in the product market.

The cost of using an additional unit of an input is called the marginal: A) product of labor. B) physical product cost. C) factor cost. D) revenue product.

factor cost

Benefits of union membership include all of the following, EXCEPT: A) collective bargaining power. B) flexible job descriptions. C) greater job security. D) protection from arbitrary management decisions.

flexible job descriptions

Theoretically, how would an individual working at minimum wage react to an increase in the minimum wage, ceteris paribus? A) increase the hours of work the individual is willing to work B) decrease the hours of work the individual is willing to work C) quit working D) The increase would not change the behavior of an individual.

increase the hours of work the individual is willing to work

Supply of Labor

the amount of time an individual is willing to work at various wage rates.

Which theory of economic discrimination states that women tend to have to work in certain low-paying jobs, leading to a wage differential versus men? A) the insider-outsider theory B) Becker's theory of discrimination C) the job crowding hypothesis D) the dual labor market hypothesis

the job crowding hypothesis

The act that makes it unlawful to refuse to hire a person based on their race, color, religion, sex, or national origin is the: A) Equal Pay Act of 1963. B) Smoot Hawley Tariff Act. C) Civil Rights Act of 1964. D) Affirmative Action Act.

Civil Rights Act of 1964

"The only solution to exploitation is revolution." Which economist would have made this statement? A) Henry George B) Karl Marx C) Adam Smith D) Groucho Marx

Karl Marx

Segmented labor markets

Labor markets split into separate parts. This leads to different wages paid to different sectors even though both markets are highly competitive.

Marginal Cost Factor (MCF)

The added cost associated with hiring one more unit of labor. For competitive firms, it is equal to the wage; but for monopsonists, it is higher than the new wage (N) because all existing workers must be paid this higher new wage , making MFC>W

Marginal and physical product of labor

The additional output a firm receives from employing an added unit of labor

Elasticity of demand for labor

The percentage change in the quantity of labor demanded divided by the percentage change in the wage rate.

Marginal revenue product

The value of another worker to the firm is equal to the marginal physical product of labor (MPP) times marginal revenue (MR).

Value of the marginal product

The value of the marginal product of labor (VMP) is equal to marginal physical product of labor times price or MPPxP.

Economic discrimination

When workers of equal ability are paid different wages or in any other way discriminated against because of race, color, religion, gender, age, national origin, or disability.

Closed shop

Workers must belong to the union before they can be hired.

A perfectly competitive firm will hire workers up to the quantity at which the wage rate equals the: A) marginal revenue product of labor. B) average physical product of labor. C) marginal factor cost of labor. D) price of the extra output produced.

marginal revenue product of labor

What percentage of families with small children are two-earner households? A) less than I 0% B) 10-25% C) 25-50% D) more than 50%

more then 50%

Monopsony

A labor market with one employer

Substitution effect

Higher wages mean that the value of work has increased, and the opportunity costs of leisure are higher, hence work is substituted for leisure.

The MAIN difference between the concepts of marginal revenue prod uct (MRP) and the value of marginal product (VMP) is that VMP: A) applies to firms selling in competitive markets, while MRP applies to firms selling in all markets. B) applies to monopolists and MRP applies to all markets. C) applies to firms selling in all markets, while MRP applies to firms selling in competitive markets. D) measures a worker's net contribution to revenue, and MRP measures a worker's gross contribution to revenue.

applies to firms selling in competitive markets, while MRP applies to firms selling in all markets.

Which of the following is NOT a reason for labor demand curve shifts? A) a change in the price of a related input B) a change in the market wage rate C) changes in labor productivity D) changes in demand for the final product

changes in demand for the final product

When workers of equal ability and productivity are paid different wages: A) diminishing returns set in. B) profits are maximized. C) losses are minimized. D) economic discrimination takes place.

economic discrimination takes place

If a sector of an industry is unionized: A) wages in that sector will decrease. B) employment in that sector will increase. C) employment in the nonunion sector will increase. D) wages in the nonunion sector will increase.

employment in the nonunion sector will increase.

When the individual labor supply curve bends backwards, the _____ dominates and higher wages lead to _____ hours worked. A) income; more B) substitution; more C) income; fewer D) substitution; fewer

income;fewer

In recent years, the United States has produced a growing share of: A) intangible, manufactured goods. B) intangible services. C) tangible, manufactured goods. D) tangible services.

intangible services

In economics, the term ____ encompasses all activities that do not involve paid work. A) pastime B) leisure C) vacation D) hobbies

leisure

The "substitution effect" for labor supply states that people work: A) less as wages rise because their ability to purchase goods increases. B) more as wages rise because their ability to purchase goods increases. C) less as wages rise because the opportunity cost of leisure increases. D) more as wages rise because the opportunity cost of leisure increases.

more as wages rise because the opportunity cost of leisure increases.

Robotic manufacturing has made labor demand for factory workers: A) more elastic. B) less elastic. C) perfectly elastic. D) perfectly inelastic.

more elastic

The purpose of right-to-work laws is to outlaw: A) yellow dog contracts. B) union shops. C) unfair labor practices by employers. D) secondary boycotts.

union shops

If the wages of the employees at Nike increase by 25% and the quantity of labor demanded decreases by I 0%, the elasticity of demand for labor is: A) 0.4. B) 2.5. C) 25.0. D) 4.0.

2.5

Agency shop

Employees are not required to join the union, but must pay dues to compensate the union for its services.

Suppose the demand for labor is highly elastic. Which would BEST describe the effect of a minimum wage law that increased the wage rate by I 0%? A) More workers would be hired. B) Firms would not substitute capital for labor. C) Total wages earned by workers would rise. D) Employment opportunities would drop by more than 10%.

Employment opportunities would drop by more than 10%

Right-to-work laws

Laws created by the Taft-Hartley Act that permitted states to output union shops.

In imperfect labor markets

MRP is not equal to VMP

All of the following would explain a change in labor supply, EXCEPT: A) a decrease in productivity. B) an increase in population. C) an increase in job status or prestige. D) a decrease in immigration.

a decrease in productivity