Microeconomics Exam 4

The economic term for a firm that is the sole buyer in a market is

monopsonist.

In a certain labor market, workers are required to have a certain skill-set. There are many workers who have the skill-set, but they can only find employment in one company. That one company is called a

monopsony.

The substitution effect indicates that a profit-seeking firm will use

more of an input whose price has fallen and less of other inputs in producing a given output.

In the diagram, if box E represents government, box C businesses, and box A households, then flows (11) and (12) would represent

net taxes.

Real wages would rise if the

prices of goods and services rose less rapidly than nominal-wage rates.

Which of the following is not an important source of revenue for the federal government?

property taxes

A characteristic of a purely competitive labor market would be

"wage-taker" behavior by workers.

Suppose a competitive firm in both the resource and product markets is using inputs such that the marginal product of labor is 16 and the price of labor is $4 per unit, while the marginal product of capital is 12 and the price of capital is $3 per unit. At the maximum profit equilibrium point, the price of the product is

$0.25.

Answer the question using the table. Figures are in billions of dollars. A usury law that sets the interest rate 4 percent below the market rate of interest will result in a shortage of loanable funds of

$20 billion.

Refer to the labor market diagram, where D is the labor demand curve, S is the labor supply curve, and MRC is the marginal resource (labor) cost curve. If this were a purely competitive labor market, the equilibrium wage rate and level of employment would be

$7 and 5, respectively.

The table represents a personal income tax schedule. The average tax rate at the $60,000 level of income is

15.0 percent.

The table is for a purely competitive market for resources. How many more workers will the firm hire when the wage rate is $15 instead of $30?

2 workers

The share of total income for "capitalists" in America (in the form of rent, interest, and profits) has been about

20 percent.

In 2016, U.S. governments (local, state, and federal) employed approximately how many million workers?

22.4

The graph shows the supply curve for a product before tax (S0) and after an excise tax is imposed (S1). The excise tax on the product is ultimately paid

75 percent by buyers and 25 percent by sellers.

Suppose a single firm has the marginal revenue product schedule for a particular type of labor given in the left table. Assume there are 150 firms with the same marginal-revenue-product schedules for this particular type of labor. How many workers will be hired at equilibrium?

750

A firm faces the labor productivity and cost schedule in the table. How many workers will this profit-maximizing firm employ?

8

Refer to the diagram. If this labor market is monopsonistic, the wage rate and level of employment will be

A and F, respectively.

Refer to the graphs. The formation of an exclusive or craft union, with no change in demand, is depicted by situation

B.

Which of the lines in the diagram represent(s) a proportional tax?

C only

Jack and Jill have identical skills and training, but Jill earns higher wages in her job. Which of the following reasons would best explain why Jill earns more than Jack?

Jack has a chronic illness and would lose health care coverage if he changed jobs.

(Consider This) Which of the following claims is not made by defenders of lotteries?

Lotteries are progressive in nature, with higher income families playing more frequently.

A cost-minimizing firm using two inputs, x and y, will employ inputs so that

MPx/ Px = MPy / Py.

Suppose the demand for strawberries rises sharply, resulting in an increased price for strawberries. As it relates to strawberry pickers, we could expect the

MRP curve to shift to the right.

Which statement best describes the overall tax and transfer systems of the United States?

Our tax system does not by itself reallocate income; transfer payments help redistribute income from rich to poor.

Refer to the graph. An inclusive union or an industrial union will set the wage rate at

Wu.

Which of the following is an exhaustive governmental outlay?

a NASA payment to Boeing Corporation for space hardware

If a single large employer bargains with an inclusive union, the resulting labor market model can best be described as

a bilateral monopoly.

Unions might support a higher minimum wage because

a higher minimum wage makes less-skilled workers less substitutable for union workers

Which of the following is a source of insurable business risk?

accidents to employees

Changes in the equilibrium interest rate will

affect both the size of the domestic output and the allocation of capital goods among industries.

Economic rent refers to the price paid for land and other natural resources that

are fixed in total supply.

Refer to the diagrams. Assume that only wheat can be grown on the three grades of land shown in Figures (a), (b), and (c). Also assume that identical amounts of labor, capital, and other needed inputs are used in farming each grade of land. On the basis of these three figures, we

can say that the land in Figure (c) is most productive.

Which of the following interest rates is usually the highest?

consumer credit-card rate

To firms, resource prices are a major part of

costs.

The American Medical Association, a physicians' union, is a good example of a(n)

craft union.

A union might increase the demand for the labor services of its members by

decreasing the prices of complementary inputs.

The marginal productivity theory of income distribution suggests that

each individual receives income based on his or her contribution to total output.

Which of the following is the largest expenditure item of local governments?

education

If the demand for a product is perfectly inelastic, the incidence of an excise tax will be

entirely on the buyer.

The marginal tax rate is

equal to the change in taxes/change in taxable income.

Government purchases of goods and services are

exhaustive because they directly absorb or employ resources and account for production.

A monopsonistic employer

faces a marginal resource (labor) cost that is greater than the wage rate.

The graph shows a firm that buys its inputs and sells its output in competitive markets. If the firm develops a new technology that increases labor productivity, the equilibrium level of employment for this firm is expected to be

higher than L0.

Empirical studies suggest that, other things equal, the smaller the number of hospitals in a city, the lower are nurses' wages. This is evidence that

hospitals may possess some degree of monopsony power.

Other things equal, an increase in the productivity of capital goods will

increase the demand for loanable funds and increase the equilibrium interest rate.

Refer to the market for loanable funds, as shown in the graph. A decline in the interest rate is likely to

increase the quantity of loanable funds demanded.

The price paid for the use of money is called

interest.

Refer to the diagrams. The firm

is a "wage taker."

The individual firm that hires labor under competitive conditions faces a labor supply curve that

is perfectly elastic.

According to some supporters of the minimum wage, it has very small or even nonexistent negative employment effects because

it reduces turnover among minimum-wage workers, prompts employers to use them more efficiently, and thus raises their average productivity.

Effective usury laws

keep some low-income people from obtaining credit and loans.

Other things equal, if wage rates increase by 20 percent, the greatest decline in employment will occur when labor costs are a

large proportion of total costs and product demand is elastic.

The more inelastic the demand for a resource, the

less elastic its marginal revenue product curve.

If the marginal revenue product (MRP) of labor is less than the wage rate,

less labor should be employed.

Compared to a purely competitive firm, a monopsonist will pay

lower wage rates and hire fewer workers than the purely competitive firm.

A firm will find it profitable to hire workers up to the point at which their

marginal resource cost is equal to their MRP.

In the marginal productivity theory of income distribution, when all markets are purely competitive, the payment for each unit of a resource is equal to its

marginal revenue product.

The major reason that presidents of major corporations receive an average salary of over $1 million a year, while police officers receive an average salary of about $64,540 a year, can best be explained by

noncompeting labor groups.

Refer to the diagram. If demand is D2, a tax of $X per acre will

not affect the quantity of land available to society.

Which action taken by a worker would not be an investment in human capital?

purchasing stock in a pharmaceutical company

In making an investment decision, a business firm is most interested in the

real interest rate.

Other things constant, which of the following is inversely related to inflation?

real wage only

A profit-maximizing firm will

reduce employment if marginal revenue product is less than marginal resource cost.

When economists say that the demand for labor is a derived demand, they mean that it is

related to the demand for the product or service labor is producing.

Real wages in the United States are

relatively high, but not as high as in some other industrially advanced nations.

Capitalist income (corporate profits, interest, and rent) has

remained approximately constant since 1900.

A firm finds that it must increase wages to attract extra workers. The firm will hire labor up to the point where the marginal

revenue product equals the additional cost of hiring an extra worker.

Refer to the table. The resource demand data indicate that the firm is

selling its product in an imperfectly competitive market.

Traveling sales representative Harold Hill only calls on clients four days a week rather than the five days expected by his employer. This is an example of

shirking.

Human capital is best defined as

the productive skills and knowledge that workers acquire from education and training.

A firm will employ more of an input whose relative price has fallen and, conversely, will use less of an input whose relative price has risen. Thus, a fall in the price of capital will increase the relative price of labor and thereby reduce the demand for labor. This describes the

substitution effect.

The strength of the demand for a resource depends on the following factors, except the

supply of the resource.

The demand for farmland will increase if

technological advances make land more productive.

The "future value" of a sum of money refers to

the amount to which some current sum of money will grow over time.

A firm is producing 100 pencils per week. The production process requires labor and capital as inputs. Labor costs $6 per labor hour, and capital costs $12 per machine hour. Currently, the marginal product of labor is 18 pencils and the marginal product of capital is 36 pencils. To minimize the cost of producing this level of output, the firm should use

the current amounts of labor and capital.

The demand for airline pilots results from the demand for air travel. This fact is an example of

the derived demand for labor.

Which of the following generalizations is false? Other things equal,

the interest rate is less on small loans than on larger loans.

A given future value of money would have a smaller present value if

the interest rate used in discounting is higher.

Which of the following represents an uninsurable risk to a business firm?

the possibility that an adverse change in consumer tastes will decrease the demand for the firm's product

All firms have to incur costs because of

the resources they use.

Refer to the labor market diagram, where D is the labor demand curve, S is the labor supply curve, and MRC is the marginal resource (labor) cost curve. If an inclusive union was able to get the monopsonist to pay a $6 wage rate, then

the supply curve would be perfectly elastic for the first four workers and the MRC would be $6 for the first four workers.

The idea of compensating differences is used

to explain wage rate differences based on differing nonmonetary aspects of jobs.

In considering real-world situations, we must recognize the fact that by "wages" in this chapter, we mean the following, except the

total income earned by households.