Econ Mid Term 2 Multiple Choice

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The slope of the wage-schooling locus provides an estimate of the

C) economic return to an additional year of schooling.

Suppose 40 percent of all potential workers are highly skilled and contribute $50,000 to the firm each year. The remaining 60 percent of potential workers are less-skilled and contribute only $30,000 to the firm each year. Schooling costs a highly skilled worker y per year, while it costs a less-skilled worker y per year. What range of y will support a signaling equilibrium?

D) $10,000 < y < $20,000

In 2017, approximately what percent of adults in the United States had received more education than a high school degree?

D) 67%

Suppose there are two types of jobs-safe and risky. Safe jobs currently pay $10 per hour. Risky jobs currently pay $20 per hour. The government intervenes in the market, mandating that all firms offer safe jobs and pay a wage of $10 per hour. Which of the following is true?

D) Firms that originally offered risky jobs are hurt by the policy.

Which statement about human capital is false?

D) Human capital has a low rate of return.

Which of the following is not a property of isoprofit curves graphed in Probability of Injury (x-axis) versus Wage (y-axis) space?

D) Isoprofit curves going up along the y-axis yield higher profits.

When the government imposes a payroll tax on employers (and not on workers), which of the following effects will not come about?

D) Real wages will remain fixed if the labor market is competitive.

Which of the following does not describe a perfectly discriminating monopsonist?

D) The firm uses fewer hours of labor than it would if it were in a competitive market.

The market-clearing wage differential between a safe and risky job is $5000. Which of the following is not true?

D) The per-worker cost for any firm to change technologies to offer safe jobs in place of risky jobs is $5000.

Which of the following is not an accurate summary of the equilibrium associated with a single competitive labor market?

D) Total firm surplus equals total worker surplus.

What is the stopping rule for choosing one's years of schooling?

D) end one's schooling when the rate of return to one more year of schooling equals the worker's rate of discount

The assumption that a firm operates in a competitive labor market means that the firm

D) faces a constant wage regardless of how much labor it employs.

A profit-maximizing monopsonist

D) hires fewer workers and pays its workers less than it would if it were operating in a competitive labor market.

What does not enter into the present value calculation of a college degree?

D) lifetime wages of noncollege graduates

If labor supply is perfectly inelastic, the imposition of a payroll tax legislated to be paid by firms will do all of the following except

D) reduce total output

If labor supply of unskilled workers is perfectly inelastic, then

D) the labor supply curve of unskilled workers is vertical at the total number of unskilled workers in the market.

A standard hedonic wage function might show what relationship?

D) the relationship between the wage and the probability of injury faced by the worker

The equilibrium hedonic wage function is most likely

D) upward sloping as firms that offer riskier jobs usually pay higher wages.

If the supply of unskilled domestic labor and the supply of unskilled immigrant labor are both perfectly inelastic, then the typical market equilibrium will be such that

D) wages paid to unskilled domestic labor will be less under immigration than under no immigration.

In Probability of Injury (x-axis) versus Wage (y-axis) space, isoprofit curves slope upward because

E) in order to keep profits constant, a higher wage must be offset by the firm saving money by not investing as much in preventing on-the-job injuries.

By all accounts, the annual economic gains to immigration in the United States are

E) relatively small at about $46 billion, or 0.24% of GDP.

When the government mandates that firms supply a particular benefit, it is usually the case that

E) the wage will decrease by less than the cost of providing the benefit.

The general schooling model predicts that schooling increases

E) when ability is held constant and the discount rate increases.

A firm has the choice of offering "dirty" jobs that are likely to cause severe health problems for its workers or of offering "clean" jobs by installing safety equipment at a cost of $5 per hour per employee that will substantially reduce the chances of health problems. The firm will

E) willingly install the safety equipment if workers are willing to be paid $7 per hour less in a clean job than in a dirty job.

If the U.S. system of unemployment insurance did not exist, one would predict that

E) workers in jobs that face seasonal cycles of unemployment would be paid higher wages.

In a noncompetitive labor market, the firm pays a wage that is less than the workers' value of marginal product because

A) the marginal cost of labor curve is above the labor supply curve.

The value of life is calculated by comparing

A) wages to risk levels.

Assume that the market-clearing wages are $10 per hour in a safe job and $18 per hour in a risky job. Then, at the completion of a war, many ex-soldiers who enjoy risky ventures enter the labor market. Which of the following is not a likely outcome of this change?

A) Many firms that currently offer risky jobs will begin offering safe jobs.

) Which of the following statements regarding the Affordable Care Act (ACA) is true?

A) The ACA could have negative employment effects as some firms will not expand above having 50 workers in order to avoid the mandate.

Why do workers typically pursue their education while young?

A) There is more time to benefit from the higher wages that are typically associated with more education.

Which of the following reasons is not a likely explanation as to why college completion rates are greater, on average, for whites than for blacks?

A) Tuition costs are lower for whites than blacks.

Assuming that workers are fully aware of their working conditions, which of the following will not happen when the government mandates pollution control to protect workers' health?

A) Worker utility will increase.

Estimates of the compensating wage differentials associated with particular job characteristics are valid only if

A) all other factors that influence worker's wages are held constant.

In the standard theory of compensating differentials, a worker's reservation price is the

A) amount of money it takes to entice the worker into accepting a risky job.

One implication of the theory of compensating differentials is that jobs in states with high income tax rates are likely to

A) be associated with more fringe benefits.

The supply curve of labor to risky jobs reveals.

A) how many workers are willing to offer their labor to the risky job as a function of the wage differential between the risky job and the safe job.

Labor force participation rates tend to

A) increase with education level for both men and women.

If immigrant workers are complementary to native workers, then

A) native workers will be better off with open borders.

When the government imposes a payroll tax on workers,

A) the effects are identical to the effects had the government imposed the tax on employers.

When graphing a worker's indifference curves in Probability of Injury (x-axis) versus Wage (y-axis) space, Al's indifference curves are steeper than Pete's indifference curve. In this case,

B) Al requires a greater wage increase than Pete in order to willingly take on more risk.

Suppose an economy exhibits general conditions of downward-sloping labor demand, upward-sloping supplies of domestic and immigrant labor, and a competitive labor market.

B) Domestic workers who keep their job will experience an increase in earnings.

When a worker and firm are matched on the hedonic wage function, it is implied that

B) the worker-firm match is efficient in the sense that neither the worker nor the firm could become better off with a different match.

The wage-schooling locus is

B) upward sloping because education is generally productive.

Many immigrants and many American high school dropouts possess very few skills. What impact will these low-skill immigrants likely have on the labor market opportunities of American high school dropouts?

B) Immigration of low-skilled workers is associated with lower wages paid to American high school dropouts.

Which of the following does not characterize a perfectly discriminating monopsonist?

B) The firm hires more workers than it would if it were a competitive firm.

What is implied when the wage-schooling profile is drawn as a concave (i.e., increasing at a decreasing rate) function?

B) The marginal return to schooling is positive but falling as years of schooling increases.

Which is the distinguishing feature of the standard cobweb model?

B) Wages and employment levels adjust slowly over time.

The standard cobweb model makes which two assumptions?

B) Workers are myopic, and job adjustments take time.

Selection bias is a problem when trying to estimate the return to education in a standard human capital model. In this context, what does selection bias refer to?

B) Workers self-select education levels and jobs based on their abilities and preferences.

The general consensus from analysis of the Tennessee Student/Teacher Achievement Ratio (STAR) experiment suggests that students assigned to small classrooms of 13-17 students, compared to other students assigned to classrooms of 22-27 students, experienced

B) an increase in both academic achievement and college attendance.

Which of the following would result in a short-run increase in the wage rate in a competitive labor market?

B) an increase in the output price

Under normal circumstances, the equilibrium compensation wage differential is the wage

B) marginal worker into a risky job.

The equilibrium of a competitive labor market is associated with

B) no unemployment as everyone who wants a job at the equilibrium wage has one.

If ability is positively related to schooling, then estimating the returns to education directly from the wage-schooling profile will likely

B) overestimate the return to schooling.

A perfectly discriminating monopsonist

B) pays each worker his or her reservation wage.

Present value calculations allow one to determine the

B) present-day costs and/or benefits of various options.

Empirically, women who are married to a spouse who has access to health insurance earn higher wages and are less likely to be offered employer-sponsored health insurance than are married women whose spouse does not have access to health insurance. This pattern

B) supports the theory of compensating differentials as it indicates there is a trade-off between wages and benefits.

Holding all else fixed, the greater is one's discount rate,

B) the fewer years of schooling one completes.

As the interest rate increases,

B) the present value of future benefits decreases.

Which of the following would prevent a single equilibrium wage existing across all labor markets?

B) workers having various skills and preferences

Paula is considering going to law school. If she does, she will spend $60,000 on tuition and books to get a college education (during the first time period), $120,000 on tuition and books to get a law degree (during the second time period), and her law degree will earn her $620,000 during the remainder of her work-life (during the third time period). Paula's time preference for money is associated with a per-period interest rate of 20 percent. Approximately what is Paula's present value of obtaining a law degree?

C) $270,500

Suppose 40 percent of all potential workers are highly skilled and contribute $50,000 to the firm each year. The remaining 60 percent of potential workers are less skilled and contribute only $30,000 to the firm each year. When schooling is not used as a signaling device, how much is the firm willing to pay a worker chosen at random?

C) $38,000

In 2017, approximately what percent of adults in the United States had not graduated from high school?

C) 8%

Roughly speaking, the estimated return to a year of education in the United States is roughly

C) 9%

Abby's reservation price for working in a risky job is $5 per hour while Rudy's reservation price for working in a risky job is $8 per hour. Characterize Abby and Rudy's job selections if safe jobs pay $12 per hour and risky jobs pay $18 per hour.

C) Abby works a risky job while Rudy works a safe job.

Which group tends to have the highest unemployment rate in the United States?

C) Blacks

When the government imposes safety regulations on a particular job or labor market, what is most likely to happen?

C) Wages will fall but utility will increase if workers misperceive on-the-job risk.

Standard economic theory suggests which of the following in terms of labor migration across states in the United States?

C) Workers are likely to migrate from low-wage states to high-wage states.

Risk-averse workers

C) are willing to accept large wage decreases in exchange for a safer work environment.

A monopsonist is a

C) firm that is the single purchaser of a factor of production.

Twin studies are helpful in producing an unbiased estimate of the returns to schooling, because twins are likely to

C) have similar abilities.

The correlation between wages and the probability of encountering a fatal injury while on the jobs can be used to calculate the value of

C) life.

The cost of offering safe versus risky jobs in the highway construction industry vary across firms. In the end, we would expect the market equilibrium to

C) match workers who dislike risk to firms that find it cheapest to offer safe jobs.

The wage-schooling locus fails to allow researchers to test the theory that people choose education levels to maximize lifetime earnings because of self-selection. In this context, self-selection refers to

C) people letting their ability dictate, in part, how much education they complete.

A perfectly discriminating monopsonist pays each worker his or her reservation wage. This results in

C) the firm receiving all of the surplus.

A potential implication of OSHA regulation is that

C) the hedonic wage function may no longer exists at the riskiest levels.

In order for the compensating differential associated with a risky job to be negative (so that a risky job pays less than a nonrisky job), it must be that

C) the number of risky jobs is less than the number of workers who prefer the risky job.

Having the government regulate workplace safety would most likely improve economic efficiency if

C) workers are unable to correctly judge the risk associated with a particular job.

Suppose 1 in 200 pilots flying Space-Race aircraft die each year while only 1 in 500 pilots flying Subspace Gliders die each year. Moreover, the average salary of Space-Race pilots is $115,000 while the average salary of Subspace Glider pilots is $109,000. Given this information, what is the implied statistical value of a life of a pilot?

E) $2,000,000

A hedonic wage function could be applied to which of the following job characteristics?

E) All of the above can be represented with a hedonic wage function.

People decide how much schooling to receive based on

E) All of the above factors influence how much schooling one receives.

Which of the following has not been identified by research that tries to address the self-selection issue regarding the returns to schooling?

E) All of the above have been identified by the research on the returns to schooling.

Compared to the labor market outcome when there are no payroll taxes, imposing a payroll tax on labor will typically result in

E) All of these are possible outcomes.

In order to use schooling as a signal,

E) All of these are required for schooling to serve as a signal.

Why might people choose to go to college?

E) All of these options are reasons people might choose to go to college.

Which of the following statements regarding immigration is true?

E) Consumers benefit from immigration via lower prices.

Ability bias can arise when estimating compensating wage differentials associated with various job characteristics. What is ability bias in this context?

E) High-skilled workers are likely to have higher wages than unskilled workers, but they are also likely to trade some of their higher wages for better job amenities.

Suppose a law firm negotiates a very low price for each of its 1000 employees to be members at the athletic club that is located next to the law firm. Which of the following is not

E) If the typical individual gym membership costs $50 per month, the law firm should expect to save $50,000 per month in wages.

Suppose all 18-year-olds are identical in every way except that some have easy access to credit (i.e., they face a low interest rate when borrowing money) while others have a difficult time accessing credit (i.e., they face a high interest rate when borrowing money). Which of the following statements is not true?

E) No one without easy access to credit will go to college.

If unskilled domestic labor and unskilled immigrant labor are substitutes in the production process, then a more open immigration policy will likely result in all but which of the following?

E) The demand curve for unskilled labor shifts up (out).


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