Econ 323 Midterm One
Suppose the wage of labor for a firm increases. What is the effect on the firm's labor demanded and capital demanded if labor and capital are gross complements? A Labor demanded will rise and capital demanded will rise B Labor demanded will fall and capital demanded will fall C Labor demanded will rise and capital demanded will fall D Labor demanded will fall and capital demanded will rise
B
The equilibrium of a competitive labor market is associated with A no unemployment as everyone in the economy has a job. B no unemployment as everyone who wants a job at the equilibrium wage has one. C no unemployment as labor is assumed to be supplied inelastically. D some unemployment as some people do not have a job at the equilibrium wage. E some unemployment as firms are not required to pay the minimum wage.
B
When a payroll tax is imposed, if the labor supply curve is more elastic, then A The wage decrease for workers after the tax will be larger than if the labor supply curve were more inelastic. B The employment decrease after the tax will be larger than if the labor supply curve were more inelastic. C It would be better for workers to have the tax levied on employers. D It would be better for workers to have the tax levied on workers.
B
Why is it the case that a person's labor supply curve may slope downward rather than upward? A The substitution effect of wage change may outweigh the income effect. B The income effect of wage change may outweigh the substitution effect. C A person's labor supply curve always slopes upward.
B
Why is the short-run labor demand curve less elastic relative to the long-run labor demand curve? A Because firms care about changes in wages in the short-run but not in the long run. B Because firms are better able to substitute capital for labor in the long run compared to the short run. C Because labor is a "normal" input. D Because a perfectly competitive firm can always pay lower wages in the long run.
B
The prediction that someone will work less when their unearned income rises is based on the assumption that leisure is a _______ good.
Blank
Consider our graphical model in class with leisure on the x-axis and consumption on the y-axis. If people value consumption more (relative to leisure) after graduating from college, then: A Their budget constraint will become flatter. B Their budget constraint will become steeper. C Their indifference curves will become flatter. D Their indifference curves will become steeper.
C
In our labor demand model, profits will eventually decrease if the firm keeps hiring workers (holding capital fixed) because A the price of capital (r) increases B the price of labor (w) increases C there is diminishing marginal returns to labor D there is diminishing marginal returns to capital
C
Suppose labor and capital are gross complements. A decrease in the price of capital will cause: A A decrease in capital demanded and an increase in the demand for labor. B An increase in capital demanded and an ambiguous effect on demand for labor. C An increase in capital demanded and an increase in the demand for labor. D An ambiguous effect on capital demanded and an increase in demand for labor.
C
Suppose the wage of labor for a firm increases. What is the effect on the firm's labor demanded and capital demanded? A labor demanded will fall and capital demanded will fall. B labor demanded will rise and capital demanded will fall. C labor demanded will fall and capital demanded may rise or fall. D labor demanded may rise or fall and capital demanded will fall.
C
Compared to the labor market outcome when there are no payroll taxes, imposing a payroll tax on labor will typically result in: A firms paying a higher wage. B workers receiving a lower wage net of taxes. C a decrease in overall employment. D all of these are likely outcomes.
D
If a worker's hourly wage rises, she will work A More if the substitution effect dominates the income effect. B More if the income effect dominates the substitution effect. C More if she was out of the labor force to begin with. D All of the above.
A
If labor and capital are not easily substituted for each other in production, this means that technological change (which can be thought of as a decrease in r) will likely A Cause labor demand to shift out. B Cause labor demand to shift in. C Cause labor demand to remain constant. D None of the above.
A
Our key assumption that drives the direction of the income effect on labor supply is: A Leisure is a normal good B Leisure is an inferior good C People always look for a higher income D Leisure and income are perfect substitutes
A
What could have caused the supply curve for commercial architects to shift out? A A decrease in the wages of residential architects. B An increase in the wages of residential architects. C An increase in demand for commercial buildings. D A decrease in demand for commercial buildings.
A
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. B the costs of hiring remain constant. C the labor supply curve shifts to the right. D total employment remains constant. E workers' real wages are unchanged.
A
When the government of Kiribati subsidized coconut production, A Fishing fell because incomes rose. B Fishing fell because there was more time dedicated to coconut production. C Fishing rose because incomes rose. D Fishing rose because there were more fish to catch.
A
When the wage rises, A The substitution effect and the scale effect encourage firms to hire less labor. B The substitution effect and the scale effect encourage firms to hire more labor. C The substitution effect encourages firms to hire less labor but the scale effect encourages firms to hire more labor. D The substitution effect encourages firms to hire more labor but the scale effect encourages firms to hire less labor.
A
Which of the following would result in an increase in the employment level and wage level in some labor market? A An increase in the price of the product being produced. B A decrease in the marginal productivity of workers. C An increase in immigration. D An increase in the wage in a competing industry.
A
From 1970-2009, the labor force participation rate of women A Steadily decreased until the 1990's and then was fairly constant. B Steadily increased until the 1990's and then was fairly constant. C Was fairly constant until the 1990's and then steadily increased. D Was fairly constant until the 1990's and then steadily decreased.
B
If Ben enjoys leisure (relative to consumption) more than Joe, how will their indifference curves compare? A Ben's indifference curves will be upward sloping while Joe's are downward sloping. B Ben's indifference curves will be steeper than Joe's. C Ben's indifference curves will be flatter than Joe's. D Ben's indifference curves will be downward sloping while Joe's are upward sloping.
B
If a person's hourly wage rises and the substitution effect dominates the income effect, A she will work less than before. B she will work more than before. C she will work the same as before. D she may work less, more, or the same as before.
B
If the government raises the tax rate on labor income and the income effect dominates the substitution effect for everyone, then A Hours worked will decline. B Hours worked will increase. C Labor force participation will decline. D Labor force participation will increase.
B
If the price of shoes goes up, then what happens to the market for shoe makers? A The supply of shoe makers will shift out. B The demand for shoe makers will shift out. C The supply of shoe makers will shift in. D The demand for shoe makers will shift in.
B
Suppose that the labor force participation rate in the economy falls. According to our model in class, if this was due to a change in wages then, wages must have: A Increased. B Decreased. C Could have increased or decreased. D Decreased for women while increasing for men.
B
Suppose a firm will spend $1,000 on labor and capital. Labor costs $15 per unit and capital costs $5 per unit. What is the slope of the isocost line (remember this will be negative)?
-3
The table below shows the total number of cakes that could be baked daily at a local bakery, depending on the number of bakers (holding all else fixed). Number of Bakers Total number of Cakes 0 0 1 7 2 12 3 15 4 17 Each cake sells for $10 and all cakes baked are always sold that day. Supposing that the wage of bakers is always $65 per day, how many bakers will the bakery hire?
1
If a person's hourly wage is 10, her unearned income is 50, and there are 16 hours to allocate between leisure and work, what is the Y-intercept of her budget line?
210
The table below shows the total number of cakes that could be baked daily at a local bakery, depending on the number of bakers (holding all else fixed). Number of Bakers Total number of Cakes 0 0 1 7 2 12 3 15 4 17 Each cake sells for $10 and all cakes baked are always sold that day. What is the marginal product of labor (MPE) of the 3rd worker?
3 Cakes
If the price of output is $10 and the wage is $50 per day, how many workers would the firm hire? Labor Hired Total Rev 1 100 2 200 3 280 4 340 5 380
4
If the wage is $20 and the price of output is $5, what is the marginal product of the last unit of labor hired?
4
If the price of output is $10, what is the marginal product of the 3rd worker? Labor Hired Total Rev 1 100 2 200 3 280 4 340 5 380
8
The imposition of a minimum wage on a competitive labor market will likely A create additional employment opportunities because some low-skilled workers will now see their wage increase. B lower the wages of workers earning more than the minimum wage. C create unemployment as some people enter the labor market while some firms reduce the quantity of labor they are willing to employ due to the increased wage. D increase unemployment of high-skilled workers as firms substitute high-skilled labor for low-skilled labor. E lower the unemployment rate of low-income families.
C
Two partners in a household choose between market work and household production by A Having the partner with the higher market wage work first. B Specializing completely (one person works full time, the other not at all). C Having some degree of specialization as long as there is comparative advantage. D Making sure both partners work at least part time.
C
What are the effects of an increase in the productivity of workers in a certain labor market? A Demand for such workers shifts in, causing a decrease in employment and wages. B Supply for such workers shifts in, causing a decrease in employment and an increase in wages. C Demand for such workers shifts out, causing an increase in employment and wages. D Supply for such workers shifts out, causing an increase in employment and a decrease in wages.
C
What happens to the budget constraint when someone's unearned income increases? A It gets steeper compared to the old one. B It gets flatter compared to the old one. C It shifts out parallel to the old one. D It shifts in parallel to the old one.
C
What makes a labor demand curve more elastic (all else equal)? A Being in the short run rather than the long run. B A lower degree of substitutability between labor and capital. C A more elastic demand curve for the product being produced. D All of the above.
C
Which of the following is true regarding mandated benefits? A They usually cause an increase in employment. B They usually have to be done in cases in which employees value the benefit more than it costs firms to provide. C They usually cause a decrease in wages. D They cause a decrease in labor supply and an increase in labor demand.
C
Why does our simple labor supply model suggest women's labor force participation rate has increased over time? A Their unearned income has increased. B Their unearned income has decreased. C Their wages have increased. D Their wages have decreased. E Their education levels have increased.
C
Why does the labor supply of individuals fall under a classic welfare program? A Because the income effect outweighs the substitution effect. B Because the substitution effect outweighs the income effect. C Because income and substitution effects move hours in the same direction. D All of the above.
C
Why might the supply of workers in a particular labor market shift in? A Reservation wages decrease. B Immigration to the country increases. C The wage in a competing labor market rises. D All of the above.
C
Suppose that David can get an hourly wage of $5 for every hour that he works. David also gets $50 from his parents each day he's alive plus $30 from the government for each day he's alive. He can work a maximum of 16 hours per day. David's daily budget constraint in terms of consumption (C) and leisure (L) is:
C= 160 -5L
Firm A and Firm B both produce chairs and sell them for the same price. These firms also pay the same wage for labor. However, because Firm B has a superior technology, its marginal product of labor is always higher than Firm A's. If this is the case, A Firm B will pay a higher wage and hire more workers than Firm A. B Firm B will pay a lower wage and hire fewer workers than Firm A. C Firm B will pay the same wage as Firm A but hire fewer workers than Firm A. D Firm B will pay the same wage as Firm A and hire more workers than Firm A.
D
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: A reduce the wage rate by exactly the amount of the tax. B leave employment levels unchanged. C leave firm profits unchanged. D reduce total output. E generate tax revenue paid to the government.
D
Suppose that a person's unearned income is doubled. If this is the case, A The person will work more because of the substitution effect. B The person will work less because of the substitution effect. C The person will work more because of the income effect. D The person will work less because of the income effect.
D
Suppose the price of machines (capital) that are used in making cars decreases and your friend suggests "This means that car companies will use more capital instead of labor in production, so fewer workers will be hired." Evaluate your friend's argument: A She is correct. B She is incorrect. C She may be correct, but she is not considering the substitution effect. D She may be correct, but she is not considering the scale effect.
D
The key assumption behind our prediction that labor demand curves always slope downward is that A The marginal product of labor is positive for all values of labor employed. B The marginal product of labor is negative for some values of labor employed. C The marginal product of capital is positive for all values of labor employed. D The marginal product of labor declines as labor employed increases.
D
The theory of skill-biased technical change implies that A Low wage earners are most harmed by technological innovation. B Middle wage earners are most harmed by technological innovation. C With technological innovation, the scale effect dominates the substitution effect for low-skill workers. D With technological innovation, the substitution effect dominates the scale effect for low-skill workers. E None of the above.
D
When someone's wage rises, A she will work more. B she will work less. C she will work the same as before. D she may work more, less, or the same as before.
D
When the minimum wage rises, researchers often find that fast food employment does not fall very much. This may be because A Demand for fast food itself is inelastic. B It is hard (expensive) to substitute capital for labor in fast food production. C Other non-wage benefits of fast food workers are cut. D All of the above.
D
When the wage falls, what happens to the budget constraint? A The budget constraint line shifts down parallel to the old constraint line. B The budget constraint line shifts up parallel to the old constraint line. C The budget constraint line becomes steeper. D The budget constraint line becomes flatter.
D
When the government mandates that firms supply a particular benefit, it is usually the case that A the cost of providing the benefit is less than the worker's value of the benefit. B employment will increase. C the wage paid to workers will increase. D the wage will decrease by more than the cost of providing the benefit. E the wage will decrease by less than the cost of providing the benefit.
E
