Chapter 11: The Labor Market

Use the table to answer the questions. How many workers would the firm hire if it were required to pay a wage of $14/h? number of workers at $14/h: _____ workers If the Federal minimum wage were suddenly increased to $20/h, how many workers would the firm then employ? number of workers at $20/h: _____ workers

4; 3

The labor demand is a/an _____________ demand

Derived

The marginal revenue product of labor is equal to:

MP_L × P.

When the income effect dominates, an individual's labor supply curve

slopes downward.

The _________________ measures how people respond to a change in relative prices when the wage rises.

substitution effect

Which graph shows the scenario where the substitution effect dominates labor supply decisions?

Graph A

Which graph shows the scenario where the income effect dominates labor supply decisions only at high wages?

Graph D

Alena manages a small theme park. She hires one more custodian at $450 per week, and her park is cleaner and more attractive. As a result of this improvement, ticket sales rise by 40 tickets per week. Tickets sell for $12. Use the Rational Rule for Employers to determine if hiring the extra custodian was a good move.

Yes, it was a good move because it added more to revenue than to cost.

Why does an employer's labor demand curve slope downward?

diminishing marginal product

The marginal product of labor is the

extra production that occurs from hiring an extra worker.

Marginal revenue product is the

marginal revenue from hiring an additional worker.

An employer's labor demand curve is equal to the

marginal revenue product curve.

The marginal revenue from hiring an additional worker is known as

marginal revenue product.

In a labor market, workers _____ labor, and employers _____ labor.

supply; demand

An employer should hire one more worker if

the marginal benefit exceeds the marginal cost.

The graphs show individual labor supply curves for two different people. Use the graphs to answer the questions. In Graph 1, _____ dominates the _____. In Graph 2, _____ dominates the _____.

the substitution effect; the income effect the income effect; the substitution effect

The Rational Rule for Employers implies that they keep hiring until

the wage equals the marginal revenue product of the last worker hired.

In a perfectly competitive labor market, employers will not pay less than the market wage because at a wage below the equilibrium

they would not be able to hire anyone.

Use the data in Table: Wendy's Windows to answer the question. If Wendy uses the Rational Rule for Employers, how many workers will she hire?

three

In a labor market graph, _____ is measured on the vertical axis, and _____ is measured on the horizontal axis.

wage; hours of labor

When making labor supply decisions, your options are

working or leisure.