Week 4 Knowledge Check

A gamble that offers a 1 percent chance of winning $699.93 and a 99 percent chance of losing $7.07 would be classified as a(n):

fair gamble

Obi-wan is considering whether to buy a lightsaber. With probability 0.50 he will value the lightsaber at $4,000, and with probability 0.50 he will value it at $1,000. If new lightsabers sell for $2,500, then buying a new lightsaber is a:

fair gamble

In a perfectly competitive labor market, if the value of marginal product of the last worker hired is $20 and the wage rate is $25, then the firm should:

hire fewer workers

Pat goes to the local electronics store to learn about high-end audio equipment. The salesperson spends an hour talking with Pat and demonstrating equipment. Pat then leaves and orders an audio system on the internet for $250 less than the price at the store. Pat's behavior:

illustrates the free-rider problem

A reduction in workers' marginal productivity would result in:

a reduction in the equilibrium wage rate.

Technological advances that increase the marginal product of labor will lead to:

an increase in the demand for labor because workers will be more productive

To derive the labor demand curve for a particular market, one should ______for all the firms in the market.

horizontally sum the value of the marginal product of labor curves

A decrease in demand for a firm's output results in a(n):

decrease in labor demand

Suppose it is observed that the equilibrium wage and employment level have both risen in a competitive labor market. One can infer that the:

demand for labor has increased.

Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50. The probablility of nice weather is 60 percent and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. If Mel is risk-neutral, then in the absence of trip insurance, the most she will be will to pay for the cruise is:

$1,220

Suppose Mo is considering whether to see Zombie Revenge III at her local movie theater. Tickets cost $12 each, but MO isn't sure how much she's going to like the movie. There's a 40 percent chance she'll get $20 worth of enjoyment from seeing the movie, and there's a 60 percent chance she'll only get $10 worth of enjoyment from seeing the movie. Mo's expected value of seeing the move is:

$2

Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. The expected starting salary for a college graduate with a bachelor's degree in economics is:

$40,000

There are two employers in Bucolic that hire people who do not have a high school degree: a grocery store and a hardware store. The grocery store pays $10 per hour and the hardware store pays $12 per hour. People who work at either store can work as many hours as they want at those wages. Assume that it takes two hours to interview for a job. Lee works at the grocery store, but would like to work at the hardware store. If Lee interviews at the hardware store, there is a 10 percent probability of being hired. Assume that Lee is risk-neutral. How many hours must Lee anticipate working at the hardware store to justify interviewing for the job?

100 hours

Suppose that the salary range for recent college graduates with a bachelor's degree in economics is $30,000 to $50,000, with 25 percent of jobs offering $30,000 per year, 50 percent offering $40,000 per year and 25 percent offering $50,000 per year and that in all other respects, the jobs are equally satisfying. Assume that in this market, a job offer remains open for only a short time so that continuing to search requires an applicant to reject any current job offer. Who will accept an offer of $30,000?

Graduates who are risk-adverse

Kyle works for a perfectly competitive firm where he receives a wage rate of $15. From this, one can infer that:

Kyle's value of marginal product is at least $15

Alex, who is risk-neutral, is looking for a one-bedroom apartment to rent for the month of August while he's on vacation in Seattle. All of the one-bedroom apartments in the neighborhood where he wants to stay are of equal quality, but 70 percent rent for $700 per month, 20 percent rent for $600 per month, and 10 percent rent for $500 per month. The first apartment Alex finds rents for $700 per month. Suppose Alex is risk-averse. If the cost to Alex of searching for another apartment is $40, then will he search for another apartment?

No, because searching for another apartment is a fair gamble.

If a gamble has an expected value of $10, then one can predict that:

all risk-neutral people will take the gamble

The general rule governing the hiring of workers is to:

equate marginal labor costs to marginal labor benefits

In order to maximize its profits, a firm that hires workers in a perfectly competitive labor market will hire workers until the:

extra revenue generated from hiring another worker equals the extra cost of hiring that worker.

Suppose that there is not enough parking at an urban university. Sometimes students come to campus, spend a few minutes searching for a parking spot, and then decide that going to class isn't worth the effort of continuing to search for a parking spot, so they go home. Assume that all professors give midterm exams on the same day. You would expect the optimal amount of time spent searching for a parking spot on that day to _____ because ______.

increase; the marginal benefit of search is higher

In a competitive labor market, the equilibrium wage rate is determined by:

labor demand and labor supply

Suppose that this graph describes the current labor market for high school teachers: Why might the supply curve in this market shift to the left?

more attractive employment opportunities become available in other professions

This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase. Suppose the marginal cost and marginal benefit curves were MCo and MBo several decades ago. However, because information about this product is now available online the:

optimal amount of information will increase

The free-rider problem occurs when:

people who do not pay for a good or service cannot be excluded from enjoying it

The optimal amount of information to acquire before making a purchase is:

the amount

In the market for labor, the demand function describes

the number of workers a firm is willing to hire at each wage.

Mel is thinking of going on a cruise. Mel values a cruise in nicer at $2,000 and values a cruise in bad weather at $50. The probablility of nice weather is 60 percent and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. The amount of money that Mel is willing to pay for trip insurance will be:

the same regardless of whether she is risk-averse or risk-neutral

Suppose that this graph describes the current labor market for high school teachers: Given an initial wage of w*, then immediately following a decrease in supply:

there will be a shortage of high school teachers

Suppose that this graph describes the current labor market for high school teachers: If the wage is w*, then:

there will be neither a shortage nor a surplus of certified teachers

Assume that the graph below describes the current labor market for nurses in a mid-sized city and that the labor market is perfectly competitive. If supply shifts from S0 to S1 and demand shifts from D0 to D1, then

wages will have to rise to $60 to avoid a nursing shortage.