Ch. 2 Labor Supply

What is the budget line for consumption (C) and leisure (L) if a person faces a constant wage of $10 per hour, there are 112 hours in the week to work, and she receives nonlabor income of $220 per week? a. L = 10C + 220 b. C + 10L = 1340 c. C = 1340 d. C − 10L = 900 e. 10C − L = 900

C + 10L = 1340

Which of the following is not a property of standard indifference curves in a leisure-consumption model? a. Indifference curves tend to be convex to the origin. b. Indifference curves tend to be downward sloping. c. There is an indifference curve passing through every leisure-consumption bundle. d. Indifference curves intersect one another. e. Higher indifference curves (to the northeast) indicate higher levels of utility.

Indifference curves intersect one another.

Which one of the following conclusions is not supported by the intertemporal substitution hypothesis? a. Hours of work over the life cycle will be inversely related to wages over the life cycle. b. A high wage worker may choose to work 60+ hours a week during her peak wage years in order to retire at a younger age later in life. c. An unemployed person might choose to become a discouraged worker during a low-wage recession with an eye toward returning to the labor market when wages increase. d. Hours of work increase as the wage rises and decline as the wage falls. e. The profile of hours of work over the life cycle will have roughly the same shape as the age-earnings profile.

Hours of work over the life cycle will be inversely related to wages over the life cycle.

Why might it be wrong to include self-proclaimed discouraged workers in calculations of the unemployment rate? a. Discouraged workers receive federal assistance. b. Discouraged workers likely have a job but are discouraged only because they would like a better-paying job. c. Discouraged workers are already included in official unemployment statistics as long as no one else in their household is working. d. By definition, discouraged workers are only temporarily laid-off, and they will return to a job shortly. e. Some discouraged workers are taking advantage of a low-wage period to consume large amounts of leisure.

Some discouraged workers are taking advantage of a low-wage period to consume large amounts of leisure.

All of the following represent an increase in nonlabor income except a. receiving higher dividends from a stock portfolio. b. an increase in a spouse's wage. c. receiving an inheritance from a long-lost uncle who recently passed away. d. having one's property tax bill fall by $1000.a decrease in the income tax rate. e. a decrease in the income tax rate.

a decrease in the income tax rate.

When the wage was $10 per hour, a group of workers supplied 30 hours of work per week on average. The wage then increased to $12 per hour, and the same group of workers supplied 33 hours of work per week on average. What is the elasticity of labor supply for this group of workers? a. 0.5 b. 1.0 c. 0 d. 1.5 e. 2.0

0.5

Of the 500,000 people (age 16+) in a particular country, 300,000 people are in the labor force. Of these, 240,000 are employed and 60,000 are unemployed. What is the unemployment rate? a. 40% b. 35% c. 30% d. 10% e. 20%

20%

Of the 500,000 people (age 16+) in a particular country, 300,000 people are in the labor force. Of these, 240,000 are employed and 60,000 are unemployed. What is the labor force participation rate? a. 25% b. 60% c. 80% d. 48% e. 55%

60%

The consensus estimate of the elasticity of labor supply among females is −0.1. The interpretation of this estimate is what? a. On average, women will increase hours of work by 10% when their wage increases by 1%. b. On average, women will increase hours of work by 1% when their wage increases by 10%. c. On average, women will reduce hours of work by 1% when their wage increases by 10%. d. On average, women will reduce hours of work by 5% when their wage increases by 10%. e. On average, women will reduce hours of work by 10% when their wage increases by 1%.

On average, women will reduce hours of work by 5% when their wage increases by 10%.

How does the presence of an underground labor market bias the government's calculation of the labor force participation rate? a. The official government statistic on labor force participation is too low because people working in the underground labor market should not be counted as being in the labor market. b. The official government statistic on labor force participation is identical to actual labor market participation whether or not there is an underground labor market. c. The official government statistic on labor force participation is too high because people working in the underground labor market should be counted as being in the labor market but unemployed. d. The official government statistic on labor force participation is too low because people working in the underground labor market should be counted as being in the labor market and employed. e. The official government statistic on labor force participation is too high because people working in the underground labor market should not be counted as being in the labor market.

The official government statistic on labor force participation is too low because people working in the underground labor market should be counted as being in the labor market and employed.

What would a person do if the market wage is less than his or her reservation wage? a. The person will be unemployed. b. The person will work as much as possible. c. The person will work more hours as the wage falls further. d. The person will not participate in the labor force. e. The person will enter the labor market.

The person will not participate in the labor force.

The intertemporal substitution hypothesis suggests that hours of work should a. increase immediately prior to retirement. b. steadily increase with age. c. be greatest during peak wage years. d. steadily decrease with age. e. be greater for women than for men.

be greatest during peak wage years.

Due to the discouraged worker effect, the labor force participation rate a. decreases during a recession. b. overcounts the number of workers with a job. c. does not change when the unemployment rate increases. d. overcounts the number of workers wanting a job. e. increases during a recession.

decreases during a recession.

According to the substitution effect, in response to an increase in her wage, a person will a. increase hours worked because leisure has become relatively more expensive than consumption. b. reduce hours worked because she wants to substitute leisure for work. c. reduce hours worked because she wants to substitute work for leisure. d. increase both consumption and hours of leisure. e. increase hours worked because leisure has become relatively less expensive than consumption.

increase hours worked because leisure has become relatively more expensive than consumption.

The reservation wage likely increases when a. one is a discouraged worker. b. the price level (of consumption and wages) increases. c. nonlabor income increases. d. the price of consumption increases. e. the wage increases.

nonlabor income increases.

When the tax rate on wages falls (so that the take-home wage or effective wage increases), the budget line a. rotates in along the leisure axis. b. shifts in, parallel to the old budget line. c. rotates out along the consumption axis. d. shifts out, parallel to the old budget line. e. rotates out along the leisure axis.

rotates out along the consumption axis.

An increase in nonlabor income while holding the wage rate constant a. rotates the budget line in along the consumption axis. b. rotates the budget line in along the leisure axis. c. rotates the budget line out along the leisure axis. d. shifts the budget line up while maintaining the same slope. e. rotates the budget line out along the consumption axis.

shifts the budget line up while maintaining the same slope.

Assuming consumption and leisure are both normal goods, hours worked will fall when the wage increases if a. if the income and substitution effect move in the same direction (i.e., if they are of the same sign). b. the income effect dominates the substitution effect. c. the substitution effect dominates the income effect. d. if the income and substitution effect move in the opposite direction (i.e., if they are of the opposite sign). e. the wage increase is accompanied by an increase in prices.

the income effect dominates the substitution effect.

The single most important phenomenon in the U.S. labor market in the second half of the twentieth century was a. the elimination of child poverty. b. the elimination of the glass ceiling. c. the drastic reduction in the labor force participation rate of males. d. the drastic increase in the labor force participation rate of females. e. the increase in the average number of hours worked each week.

the increase in the average number of hours worked each week.

According to the income effect, an increase in the wage rate will lead the worker to a. work more hours if leisure is a normal good. b. not change hours worked. c. work fewer hours if leisure is an inferior good. d. work more hours and leisure more hours. e. work fewer hours if leisure is a normal good.

work fewer hours if leisure is a normal good.