ECO 9.3-9.5 Quiz Review

What is true about the equilibrium wage rate?

Some workers may be willing to work only at a wage rate above the equilibrium wage rate.

What is true when wages are above the market-clearing wage?

The larger the gap between the current market wage and the market-clearing wage, the greater will be the amount of unemployment.

What is true of the natural rate of unemployment?

The natural rate of unemployment is lower than the actual rate of unemployment during a recession.

________ keeps the market wage above the level that would clear the labor market.

Wage rigidity

What can wage rigidity cause?

Wage rigidity can cause unemployment.

For the textile industries of England in 1811, the invention of new technology that allowed workers to complete tasks that had previously taken hours in minutes resulted in a(n) ________ in these industries.

decrease in the demand for labor

Areas where whole industries disappear will most likely experience ________ in the number of possible workers.

decreases

Wages that are higher than the current market wage ________.

dissuade workers from shirking

Frictional unemployment exists because ________.

firms and workers have imperfect information about each other and the state of the economy

Unemployment arising from job search is called ________.

frictional unemployment

In a perfectly competitive labor market, at the equilibrium wage rate, ________.

frictional unemployment is zero

At a fixed level of worker productivity, ________.

higher wages reduce profits

Collective bargaining can ________.

increase unemployment

Downward wage rigidity is likely to ________ in an economy.

increase unemployment

Areas where whole industries disappear will most likely experience ________ in the wage rate for some and ________ in the wage rate for other workers.

increase, decreases

The natural rate of unemployment ________.

is the average of the unemployment rate in a country over time

International trade generally ________.

leads to lower unemployment, causes economic dislocation, and leads to lower wage rates; aka leads to all of the above

Excessive dependence on cheap foreign imports can cause a(n) ________ in certain sectors of the economy.

left shift in the domestic labor demand curve

Recessions are periods of ________.

left shifts in the labor demand curves

A reduction in wage is most likely to ________.

lower worker productivity

Rapid unemployment increases ________.

may happen in one area but not in adjacent areas

Unemployment normally arises when ________.

wages are above the market-clearing wage level

Collective bargaining between unions and employers often leads to ________.

wages that are higher than what workers would have received at equilibrium

Downward wage rigidity arises when ________.

workers and firms resist wage cuts

If the natural rate of unemployment in a country is 6 percent and the unemployment rate in the country is 8 percent, the cyclical unemployment in the country must be ________.

2 percent

Scenario: Consider Country A with a population of 2 million people. In Country A, there are 1.5 million people employed; 0.3 million younger than 18, in school or retired; 0.1 million voluntarily unemployed; and 0.1 million people officially unemployed. Refer to the scenario above. Suppose that, given the numbers in the initial scenario, 20 percent of the people reported as officially unemployed are actually only looking for jobs with wages above the market clearing wage rate. What is the true unemployment rate, given this information?

5.1 percent

Scenario: Consider Country A with a population of 2 million people. In Country A, there are 1.5 million people employed; 0.3 million younger than 18, in school or retired; 0.1 million voluntarily unemployed; and 0.1 million people officially unemployed. Refer to the scenario above. What is the current unemployment rate in Country A?

6.25 percent (the number of people officially unemployed divided by the labor force)

What is true about a higher wage?

A higher wage can raise profits if productivity is directly proportional to wages.

What is true of cyclical unemployment?

Cyclical unemployment is the deviation of the actual unemployment rate from the natural rate of unemployment.

________ increase workers' productivity and improve the profitability of a firm.

Efficiency wages

What is true about what firms do to reduce costs?

Firms usually tend to lay off workers instead of cutting wages to reduce costs.

What explains why frictional unemployment exists in an economy?

It takes time for an unemployed worker to find a firm with a well-matched job vacancy.

What people would be classified as being voluntarily unemployed?

Joey, who would be willing to work for $20 an hour but the market clearing wage rate is $15 an hour.

What is true about what leads to unemployment?

Lack of information relating to the job market can lead to unemployment.

What is true about minimum wages?

Minimum wages are normally set above the labor market-clearing wage rate.

What is true about technological innovation and unemployment?

Technological innovation can cause unemployment in a single industry.

What is true about technological innovation and wages?

Technological innovation can cause wages to fall for some workers in an economy.

Scenario: Consider Country A with a population of 2 million people. In Country A, there are 1.5 million people employed; 0.3 million younger than 18, in school or retired; 0.1 million voluntarily unemployed; and 0.1 million people officially unemployed. Refer to the scenario above. If the market clearing wage rate in Country A decreases, what is most likely to happen to the number of voluntarily unemployed people and the number of officially unemployed people?

The number of voluntarily unemployed people would increase, and the number of officially unemployed people would decrease.

What is true about the presence of unemployment in an economy?

There always exists some amount of unemployment in an economy.

If the labor market is perfectly competitive, ________.

a worker willing to work at the equilibrium wage rate can instantly find work

Minimum wage laws ________.

can give rise to wage rigidity

Minimum wages ________.

can increase unemployment in an economy

Efficiency wages ________.

can lead to wage rigidity

Downward wage rigidity ________.

causes the wage to be above the market-clearing wage

Contract negotiations between an employer and a labor union representing workers are referred to as ________.

collective bargaining

Unemployment that arises when there is a mismatch between the quantity of labor demanded and the quantity of labor supplied is referred to as ________.

structural unemployment

Shifts in the demand curve of labor due to increased competition from Chinese imports are comparable to shifts in the demand curve due to ________.

technological developments that replace manual labor