Econ ch. 13 active learning Q's

A firm is unlikely to hire a worker if: • A) the additional revenue generated by hiring the worker is less than his or her wage. • B) the additional output a firms gets by hiring the worker is greater than his or her wage. • C) there are diminishing marginal returns to labor. • D) the minimum wage set by law is less than the equilibrium wage in the market.

Answer: A A firm will not hire a worker if the revenue generated by hiring the worker is less than the cost of hiring the worker.

A labor union in a labor market is analogous to a(n) ________ in an output market. • A) monopsony • B) oligopoly • C) cartel • D) perfect competitor

Answer: C A labor union is a group of sellers that band together to sell their services.

According to the textbook, the best possible solution to the problem of poverty is: • A) a combination of a negative income tax and public employment. • B) to maintain the current system. • C) a negative income tax with the tax credit equal to the poverty threshold. • D) the complete elimination of all efforts to assist the poor.

Answer: A A negative income tax would provide financial assistance and public employment would provide work incentives.

A firm's demand for labor will increase if the: • A) price of the firm's output increases. • B) price of the firm's output decreases. • C) marginal product of labor decreases. • D) wage rate rises.

Answer: A As the price of the firm's output increases, so will the value of the marginal product of labor. Thus, the firm will be willing to hire more workers at each wage rate.

Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour. After the imposition of the minimum wage, employment will equal ________ person-hours per day. • A) 2,000 • B) 4,000 • C) 6,000 • D) 8,000

Answer: A At a wage of $8.00 per hour, the quantity of labor demanded will be 2,000 person-hours per day.

If workers in one part of the labor market unionize, then all else equal, we would expect the wages of unionized workers to ________, and the wages of nonunionized workers to ________. • A) rise; fall • B) rise; remain unchanged • C) remain unchanged; fall • D) fall; remain the same

Answer: A If the union is successful at bargaining for higher wages, then the quantity of workers demanded in that part of the labor market will fall. As a result, workers will move into the nonunionized sector, thereby pushing wages in that sector down.

In professional baseball, some players earn over $20 million per year, while the average salary is about $4 million per year. The most likely explanation for this is that: • A) the market for baseball players is a winner-take-all market. • B) the best players are 5 times better than the average player. • C) owners are overspending on players' salaries. • D) racial discrimination.

Answer: A In a winner-take-all setting, small differences in human capital translate into large differences in pay.

Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour. Prior to the imposition of the minimum wage, employer surplus is ________ per day, and after the imposition of the minimum wage, employer surplus is ________ per day. • A) $9,000; $1,000 • B) $9,000; $5,000 • C) $18,000; $2,000 • D) $18,000; $14,000

Answer: A Prior to the imposition of the minimum wage, employer surplus is given by the area below the demand curve above the equilibrium wage of $6.00 per hour, or 1⁄2 6,000 $3 = $9,000 per day. After the imposition of the minimum wage, employer surplus is given by the area below the demand curve above the minimum wage of $8.00 per hour, or 1⁄2 2,000 $1 = $1,000 per day.

According to John Rawls, if people had to choose an income distribution without any knowledge of their own talents and abilities, they would likely prefer an income distribution that: • A) rewards hard work. • B) rewards innate intelligence • C) rewards creativity. • D) gives everyone an equal share.

Answer: D Because people are risk averse, Rawls argued that most people would prefer to eliminate the risk of having a low income by choosing an equal distribution of income.

The growth in income inequality in the United States since the early 1980s has been driven primarily by the dramatic: • A) increase in real incomes for the top 1 percent of earners. • B) increase in real incomes for the top 10 percent of earners. • C) increase in real incomes for the top 20 percent of earners. • D) decrease in real incomes for the bottom 20 percent of earners.

Answer: A Real earnings for the top 1 percent of earners in the U.S. have more than tripled since the early 1980s.

If the labor market for doctors is perfectly competitive, then an increase in the demand for doctors is likely to cause: • A) doctors' wages to increase. • B) the working conditions of doctors to deteriorate. • C) a persistent shortage of doctors. • D) the supply of doctors to fall.

Answer: A The increase in demand will cause an increase in the equilibrium wage.

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: • A) hire fewer workers. • B) hire more workers. • C) not change the number of workers it hires. • D) either hire more or fewer workers, depending on the price of the firm's output.

Answer: A The last worker hired added more to the firm's cost than to its revenue, so the firm should reduce the size of its labor force.

The value of marginal product of labor equals the • A) marginal product of labor times the net price for which each unit of output sells. • B) total product of labor divided by the net price for which each unit of output sells. • C) marginal product of labor divided by the net price for which each unit of output sells. • D) average product of labor times the wage rate.

Answer: A The value of the marginal product of labor is the dollar value of the additional output a firm gets by employing one additional unit of labor.

A minimum wage law prohibits employers from paying workers less than a specified hourly wage. If the minimum wage is above the equilibrium wage: • A) there will be an excess supply of labor. • B) there will be an excess demand for labor. • C) it creates a price ceiling. • D) employment levels will not fall.

Answer: A Whenever price (here, wage) is above the equilibrium price, the result will be excess supply (here, of workers).

A group of workers who bargain collectively with employers for higher wages and better working conditions is called a: • A) labor monopsony. • B) labor union. • C) labor collective. • D) closed shop.

Answer: B A labor union is a group of workers who bargain collectively with employers for better wages and working conditions.

Suppose that this graph describes the current labor market for high school teachers Suppose supply of labor decreases. At the new equilibrium, wages would be ________ and ________ teachers would be hired. • A) higher; more • B) higher; fewer • C) lower; fewer • D) lower; more

Answer: B As in markets generally, a decrease in supply leads to an increase in price (here, wage) and a decrease in quantity demanded (here, teachers).

Technological advances that increase the marginal product of labor will lead to: • A) a decrease in the demand for labor because the firm won't need as many workers. • B) an increase in the demand for labor because workers will be more productive. • C) no change in demand for labor because the demand for labor depends on the wage. • D) a decrease in the supply of labor because fewer workers can get the job done.

Answer: B As the marginal product of labor increases, so will the value of the marginal product of labor, so the firm will demand more workers at any given wage rate.

Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour. Employment will fall by ________ person-hours per day as a result of the minimum wage. • A) 2,000 • B) 4,000 • C) 6,000 • D) 8,000

Answer: B At the initial equilibrium wage of $6.00 per hour, employment is 6,000 person-hours per day. After the imposition of the minimum wage, employment will fall to 2,000 person-hours per day.

Taken together, factors such as education, training, experience, intelligence, and work habits are known as: • A) statistical discrimination factors. • B) human capital. • C) productivity factors. • D) learned behaviors.

Answer: B Human capital is the amalgam of factors such as education, training, experience, intelligence, energy, work habits, trustworthiness, and initiative that affects the value of a worker's marginal product.

Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. In the absence of any earnings, Leo will receive ________ in cash from each program, for a total of ________ in benefits. • A) $225; $225 • B) $225; $450 • C) $225; $400 • D) $200; $400

Answer: B In the absence of any earnings, Leo will receive $225 from each program for a total of $450 from the two programs.

Food stamps and Medicaid are examples of: • A) cash transfer programs. • B) in-kind transfer programs. • C) welfare programs that have been eliminated. • D) programs created by the Personal Responsibility Act.

Answer: B Since these programs provide specific goods and services, they are termed in-kind transfers.

In 1996, the Personal Responsibility Act: • A) transferred responsibility for welfare programs from the state to the federal level. • B) placed a five-year lifetime limit on welfare payments to any given recipient. • C) increased the federal minimum wage. • D) established the earned income tax credit (or EITC).

Answer: B The Personal Responsibility Act transferred responsibility for welfare programs from the federal to the state level and placed a five-year lifetime limit on welfare payments to any given recipient.

Assume that this graph illustrates a perfectly competitive labor market. Equilibrium in this labor market is at a wage of ________ per hour and an employment level of ________ person- hours per day. • A) $30; 100 • B) $30; 150 • C) $20; 200 • D) $20; 125

Answer: B The labor demand and labor supply curves intersect at a wage of $30 and an employment level of 150 person-hours per day.

Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. If the campus transportation director offers Matt $50 per hour, how much economic surplus will Matt enjoy as a result of accepting the job? • A) $36 per hour • B) $43 per hour • C) $50 per hour • D) $86 per hour

Answer: B The surplus is the difference between the wage Matt would earn ($50 per hour) and his reservation wage ($7 per hour), which is $43 per hour.

In the market for labor, the demand function describes • A) the number of workers who are willing to work at each wage. • B) the output of workers who are paid a given wage. • C) the number of workers a firm is willing to hire at each wage. • D) the demand for the firm's output.

Answer: C As with any demand curve, a labor demand curve depicts the relationship between price (or, here, wage) and quantity demanded (here, the number of workers the firm is willing to hire).

Leo is a welfare recipient who qualifies for two means-tested cash benefit programs. If he does not earn any income, he receives $225 from each program. For each dollar he earns (which his employer is required to report to the welfare agency), his benefit from each program is reduced by 75 cents until the benefit equals zero. If Leo earns $150, then he will receive ________ in total benefits from the two programs. • A) $75. • B) $325. • C) $225. • D)0.

Answer: C For each dollar that he earns, Leo will lose $0.75 from each program, or $1.50 in total. Thus, if he earns $150, he will lose $225 (=$1.50 $150), so that his total benefits will be $450 - $225 = $225.

Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. Now suppose the director offers Matt $50 per hour, but also announces that the earnings from the job will be divided equally among Matt and four other students. Will Matt accept this job? • A) No, because the other students are free riders. • B) No, because it is not fair for Matt to do the work and then have to share the wage. • C) Yes, because $50 divided by five is greater than Matt's reservation wage. • D) Yes, because Matt believes in the Rawlsian theory of justice.

Answer: C Given that the $50 wage now has to be shared among 5 people, Matt's earnings would be $10 per hour. Since this is greater than Matt's reservation wage, his economic surplus from accepting the job would be positive.

Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop's hourly output of coffee varies with the number of workers hired, as shown in the table. Each cup of coffee sells for $2.00. The most the coffee shop would be willing pay the third worker is ________ per hour. • A) $60.00 • B) $45.00 • C) $22.50 • D) $15.00

Answer: C Hiring the third worker increases output by 15 cups per hour, each of which can be sold at a price for $1.50 more than the cost of the ingredients used to make each cup, so VMP of the third worker.

To derive the labor demand curve for a particular market, one should ________ for all the firms in the market. • A) vertically sum the value of the marginal product of labor curves • B) vertically sum the marginal product of labor curves • C) horizontally sum the value of the marginal product of labor curves • D) horizontally sum the marginal product of labor curves

Answer: C Since as each firm's labor demand curve is its VMP curve, adding all of the firms' VMP curves will yield the market demand curve.

According to the textbook, the real mean income of the top 5 percent of families increased by ________ percent from 1980 to 2016. • A)10 • B)13 • C)75 • D)55

Answer: C Since the early 1980s income growth has been much larger for those at the top than for those at the bottom of the income distribution.

In terms of improving the standard of living of the poor, one drawback on the earned income tax credit (EITC) is that: • A) it provides workers with in-kind transfers. • B) it's only available to individuals whose incomes are above a certain threshold. • C) it provides no benefits to people who are unemployed. • D) it gives firms a strong incentive to lay off low-wage workers.

Answer: C The EITC is a policy under which low-income workers receive credits on their federal income tax. Only workers who are employed are eligible to receive the EITC.

Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour. As a result of the imposition of the minimum wage, total economic surplus falls by ________ per day • A) $6,000 • B) $8,000 • C) $12,000 • D) $24,000

Answer: C The loss in total economic surplus is given by: 1⁄2 4,000 $6 = $12,000 per day.

The additional output a firm gets from hiring an additional unit of labor is the • A) value of the marginal product of labor. • B) total product of labor. • C) marginal product of labor. • D) average product of labor.

Answer: C The marginal product labor is defined as the additional output a firm gets by employing one additional unit of labor.

The level of income below which the federal government classifies a family as poor is called the: • A) relative measure of poverty. • B) absolute measure of poverty. • C) poverty threshold. • D) median income threshold.

Answer: C The poverty threshold is the level of income below which the federal government classifies a family as poor.

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 the equilibrium wage will ________, and the equilibrium number of nurses will ________. • A) stay the same; stay the same • B) stay the same; increase • C) increase; stay the same • D) increase; increase

Answer: C The two shifts result in a higher equilibrium wage, but no change in the equilibrium number of nurses.

A program under which the government gives all citizens a substantial lump sum payment that is financed by a tax earned income is termed a(n): • A) positive income tax. • B) in-kind transfer. • C) unearned income tax credit. • D) negative income tax.

Answer: D A negative income tax is a system under which the government grants each citizen a cash payment, financed by an additional tax on earned income.

Jobs in which there is a higher risk of injury or death will: • A) hire risk-averse workers. • B) pay less than otherwise similar jobs. • C) pay the same as otherwise similar jobs. • D) pay more than otherwise similar jobs.

Answer: D All else equal, jobs with less favorable working conditions will pay higher wages.

Differences in wage rates associated with differences in working conditions are called: • A) compensating income differentials. • B) equalizing wage ratios. • C) conditional differentials. • D) compensating wage differentials.

Answer: D Compensating wage differentials is the name given to wage differences that are attributable to difference in working conditions.

In competitive labor markets, ________ demand labor and ________ supply labor. • A) firms; labor unions • B) labor unions; firms • C) workers; firms • D) firms; workers

Answer: D Firms demand labor supplied by workers.

The optimal number of workers for a perfectly competitive firm to hire occurs when • A) total labor cost equals total revenue. • B) diminishing marginal productivity is first experienced. • C) the wage rate equals the marginal product of the last worker. • D) the wage rate equals the value of marginal product of the last worker.

Answer: D Firms will continue to hire workers whenever the value of the marginal product of labor is greater than the wage rate, right up to the point where the value of the marginal product of labor equals the wage rate.

Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop's hourly output of coffee varies with the number of workers hired, as shown in the table. Each cup of coffee sells for $2.00. The dollar value to the coffee shop of hiring the fifth worker is ________ per hour. • A) $1.50 • B) $2.00 • C) $5.00 • D) $7.50

Answer: D Hiring the fifth worker increases output by 5 cups of coffee per hour, each of which can be sold for $1.50 more than the cost of the ingredients used to make each cup, so the value of the 5th worker is $7.50 = 5 $1.50.

A winner-take-all labor market is one in which: • A) large differences in human capital translate into small differences in wages. • B) one worker receives all of the available compensation and the rest receive nothing. • C) small differences in human capital translate into small differences in wages. • D) small differences in human capital translate into large differences in wages.

Answer: D In a winner-take-all market, small differences in human capital will translate into large differences in pay, typically because technology enables these talented individuals to serve broad markets.

Consider the accompanying figure representing the labor market below. Suppose the government passes a minimum wage requiring employers to pay at least $8.00 per hour. Prior to the imposition of the minimum wage, worker surplus is ________ per day, and after the imposition of the minimum wage, worker surplus is ________ per day. • A) $9,000; $1,000 • B) $9,000; $5,000 • C) $18,000; $2,000 • D) $18,000; $14,000

Answer: D Prior to the imposition of the minimum wage, worker surplus is given by the area above the supply curve below the equilibrium wage, or 1⁄2 6,000 $6 = $18,000 per day. After the imposition of the minimum wage, worker surplus is given by the area above the supply curve below the minimum wage up to the new employment level, or (1⁄2 2,000 $2) + (2,000 $6) = $14,000 per day.

The marginal product of the 14th worker is 8 and the firm sells its output for $4 per unit. If labor is the only variable cost, then the value of the 14th worker's marginal product is • A)$2. • B)$4. • C) $12. • D) $32.

Answer: D The value of the marginal product of the 14th worker is found by multiplying the marginal product of the 14th worker (8) by the output price ($4).

Espresso Yourself Coffee Shop hires workers in a competitive labor market to make coffee. The ingredients required to make each cup of coffee cost 50 cents. The coffee shop's hourly output of coffee varies with the number of workers hired, as shown in the table. Each cup of coffee sells for $2.00. The marginal product of the fourth worker is ________ cups of coffee per hour. • A)70 • B)60 • C) 17.5 • D)10

Answer: D When the firm hires the fourth worker, output increases from 60 to 70 cups per hour.