Chapter 13

For people with very low incomes, the Earned Income Tax Credit operates like a(n):

wage subsidy

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. Suppose that several years ago the supply of nurses in this city was S0. What might explain the change from S0 to S1?

Increased employment opportunities outside of nursing

Which of the following is not a reason why unionized firms can successfully compete with nonunionized firms?

Unionized firms are legally protected from price competition with nonunionized firms.

If demand for the product you make were to suddenly decline, you would expect the equilibrium price of the product to fall, which would lead to:

a decrease in the VMP of each worker.

Food stamps and Medicaid are examples of:

in-kind transfer programs.

Suppose the market wage for cashiers increases from $7 per hour to $9 per hour. As a result, Pat, who is a cashier, now works five more hours per week. On the other hand Chris, who is also a cashier, now works five fewer hours per week. Chris's behavior illustrates the ______ effect of a wage increase.

income

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 values income and not the source of the income, then if he can only earn $400 he will choose to:

not work and accept the benefits.

The value of marginal product curve is downward sloping because:

of the law of diminishing returns.

Jobs in which there is a higher risk of injury or death will:

pay more than otherwise similar jobs.

In 1996, the Personal Responsibility Act:

placed a five-year lifetime limit on welfare payments to any given recipient.

The level of income below which the federal government classifies a family as poor is called the:

poverty threshold

A firm's demand for labor will increase if the:

price of the firm's output increases.

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.

$22.50

Suppose the MC Hammer Company produces hammers. The number of hammers it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each hammer can be sold for $2 more than the cost of the materials needed to produce it. What is the value of the marginal product of the 2nd worker hired each hour?

$32

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

$32

Suppose the Fluffy Pillow Company produces pillows. The number of pillows it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each pillow can be sold for $2 more than the cost of the materials needed to produce it. What is the value of the marginal product of the 2nd worker hired each hour?

$36

Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the following table: If each case sells for $3 more than the cost of the materials used in producing it, then the most Sam would pay the 5th worker is ______ per week.

$360

Suppose the Tasty Taco Company produces tacos. The number of tacos it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each taco can be sold for 50 cents more than the cost of the ingredients needed to produce it. What is the value of the marginal product of the 4th worker hired each hour?

$5

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 Matt's earnings will be divided equally among Matt and the 99 other students who live in Matt's dorm. What will be Matt's economic surplus from accepting the job?

-$6.50 per hour

Which of the following factors is not part of an individual's stock of human capital?

Employment status

Consider the accompanying figure representing the labor market below. If a minimum wage of $12 per hour is imposed in this labor market, then:

200 workers will lose their jobs

A labor union in a labor market is analogous to a(n) ______ in an output market.

Cartel

Suppose Sarah has been offered a position as web designer at Firm A and Firm B. Both firms require their employees to work for 9 hours a day, but Firm A allows its employees to have a flexible work schedule, while Firm B requires its employees to be at work from 9am to 5pm. Otherwise, the jobs are identical. You would expect:

Sarah's wages to be lower at Firm A than at Firm B.

An in-kind transfer payment is:

a benefit in the form of a good or service.

If the labor market for doctors is perfectly competitive, then an increase in the demand for doctors is likely to cause:

doctors' wages to increase.

An arbitrary preference by an employer for one group of workers over another is termed:

employer discrimination

The general rule governing the hiring of workers is to:

equate marginal labor costs to marginal labor benefits.

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.

higher; fewer

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 ______.

increase; stay the same

The value of a worker's marginal product of labor:

is higher for workers with more human capital.

Those who do not favor programs aimed at reducing inequality argue that these programs:

reduce people's incentive to work hard.

Consider the accompanying figure representing the labor market below. If a minimum wage of $12 per hour is imposed in this labor market then worker surplus will ______ and employer surplus will ______.

rise; fall

A firm is unlikely to hire a worker if:

the additional revenue generated by hiring the worker is less than his or her wage.

If the elasticity of labor demand is greater than one, then imposing a minimum wage above the equilibrium wage will cause:

the firms' total wage bill to fall.

Means-tested welfare benefits provide recipients with a strong incentive to:

underreport their earnings.

One reason nonunionized firms do not always drive unionized firms out of business is that:

unionized firms hire more selectively, employing workers with greater human capital.

Jen is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 p.m., Tuesdays and Thursdays. Her reservation wage for this job is $15 per hour. If the department chair offers Jen $150 per week, how much economic surplus will she enjoy as a result of accepting the job?

$120 per week

Paper Pushers Inc. hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company's hourly output varies with the number of workers hired, as shown in the table. If the market price of each page is $5, the first worker's VMP is ______ per hour, and the third worker's VMP is ______ per hour.

$200; $150

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.

$225

Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the following table: The marginal product of the fourth worker is _______ cases per week.

130

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?

$43 per hour

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 only values income and not how the income was acquired, then he must earn ______ to be as well off as when he earns nothing and receives benefits.

$450

Gino's Pizza shop hires workers in a competitive market to make pizza. The ingredients required to make each pizza cost $5. Daily output at Gino's Pizza varies with the number of workers hired, as shown in the table: If pizzas sell for $8 each, what is the value marginal product for the 4th worker?

$48 per day

Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the following table: If each case sells for $5 more than the cost of the materials used in producing it, then the value of marginal product of the 2nd worker is ______ per week.

$750

Jen is offered a job answering the phone in the State U economics department during lunchtime, from noon to 1 p.m., Tuesdays and Thursdays. Her reservation wage for this job is $15 per hour. Now suppose the department chair announces that the $150 per week earnings from the job will be divided equally among Jen and 299 other students in the department. How much economic surplus will Jen enjoy each week if she accepts the job?

-$29.50

Gino's Pizza shop hires workers in a competitive market to make pizza. The ingredients required to make each pizza cost $5. Daily output at Gino's Pizza varies with the number of workers hired, as shown in the table: The marginal product of the 3rd worker is ______ pizzas per day.

18

Suppose the Tasty Taco Company produces tacos. The number of tacos it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each taco can be sold for 50 cents more than the cost of the ingredients needed to produce it. If the hourly wage for people who make tacos is $8, then how many workers should the Tasty Taco Company hire each hour?

2

Suppose the MC Hammer Company produces hammers. The number of hammers it can produce each hour depends on the number of workers it hires, as shown in the accompanying table. In addition, each hammer can be sold for $2 more than the cost of the materials needed to produce it. If the hourly wage for people who make hammers is $17 per hour, then how many workers should the MC Hammer Company hire each hour?

3

Sam owns a candy factory and hires workers in a competitive labor market to pack cases of candy. The company's weekly output of cases of candy varies with the number of workers hired, as shown in the following table: If each case sells for $5 more than the cost of the materials used in producing it, and the competitive market wage is $625/week, then how many workers should Sam hire each week?

4

Inga and Ron both work for the same firm on the same career ladder. Each has the same stock of human capital except for one difference: Inga has worked at the firm for 10 continuous years but Ron has had two leaves of absence mixed in with his 10 years of experience with the firm. One should expect:

Inga to earn more than Ron.

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

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. Suppose the campus transportation director offers Matt $50 per hour. Will Matt accept this job?

Yes, accepting the job means a positive economic surplus for Matt.

According to the textbook, the best possible solution to the problem of poverty is:

a combination of a negative income tax and public employment.

The union wage premium refers to the:

amount by which union wages exceed nonunion wages.

When the government transfers resources to the poor in the form of a good or service, it is called:

an in-kind transfer

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.

Charlie is getting a divorce. He selects a female lawyer at a large law firm because he believes they are more aggressive in obtaining favorable settlements in divorce cases. Charlie's behavior is an example of ______ discrimination.

customer

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

decrease in labor demand

Paper Pushers Inc. hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company's hourly output varies with the number of workers hired, as shown in the table. As Paper Pushers Inc. hires more workers each hour, the marginal product of labor ______.

decreases

If technological developments increase the marginal product of labor, then the:

demand for labor will increase

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.

Consider the accompanying figure representing the labor markets shown below. If the government imposes a minimum wage above $6 per hour, then total earnings will ______.

fall

Consider the accompanying figure representing the labor market below. The imposition of a $12 per hour minimum wage causes total economic surplus in this labor market to ______ by ______.

fall $800

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. When Leo's earnings are less than $300, each extra dollar he earns causes his total income (earnings plus benefits) to:

fall by 50 cents

The earned income tax credit (or EITC):

gives low-income workers credits on their federal income taxes.

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

Paper Pushers Inc. hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company's hourly output varies with the number of workers hired, as shown in the table. If the price of each page increases, then the demand for workers will

increase because the value of the marginal product of labor will increase.

Curly just graduated from State U and has three job offers: teaching at a prestigious private high school nine months a year with summers off, working forty hours a week at a bank in a small city, and working more than sixty hours a week for a high-powered investment firm in New York. Suppose all of the jobs currently offer exactly the same annual salary, and that most people prefer leisure to work, all else equal. In order to attract workers, the ______ would have to offer a ______ salary than the others.

investment firm; higher

Paper Pushers Inc. hires workers in a competitive labor market. Apart from labor, the company has no other variable inputs. The company's hourly output varies with the number of workers hired, as shown in the table. The VMP of the sixth worker is ______ than the VMP of the fourth worker because ______.

less; of the law of diminishing returns

Curly just graduated from State U and has three job offers: teaching at a prestigious private high school nine months a year with summers off, working forty hours a week at a bank in a small city, and working more than sixty hours a week for a high-powered investment firm in New York. The annual salary for each of these offers is probably:

lowest at the high school, in the middle at the bank, and highest at the investment firm.

Consumer discrimination exists when consumers are willing to pay ______ for a good or service produced by the favored group, even though the quality of the good or service is ______.

more; the same

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 ______.

rise; fall

A winner-take-all labor market is one in which:

small differences in human capital translate into large differences in wages.

In the market for labor, the demand function describes

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

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.

The reason people in Professor Rawls' thought experiment would choose an equal distribution of income is that:

they fear ending up in a disadvantaged position themselves.