ECON 227 M1 (OCT 2017)

Assume the price of labor (W) equals $10 and the price of capital (C) equals $36. Also suppose that at the current mix of labor and capital, MPL =5 and MPK =12. Using the rule for cost minimization, which of the following correctly describes what the firm should do to its labor and capital mix? A) Increase L and decrease K. B) Decrease L and increase K. C) Increase both L and K. D) L and K should not change.

A

3) Which type of transaction is NOT Pareto improving? A) Some parties gain and some parties lose, and the losses are larger than the gains. B) Some parties gain and some parties lose, but the gainers fully compensate the losers for their losses. C) Some parties gain and no one loses. D) All affected parties gain.

A

Which area pays the highest real wage? A) Nominal Wage $100; Consumer Price Index for Area 25 B) Nominal Wage $120; Consumer Price Index for Area 40 C) Nominal Wage $150; Consumer Price Index for Area 75 D) Nominal Wage $50; Consumer Price Index for Area 50

A

A government contractor hires a worker to help build a road for an annual wage of $50,000. The worker's annual output is worth $60,000. If the worker did not have this job, the worker would have produced $40,000 a year in an alternative job and would have been paid $40,000 a year. The surplus generated by using this worker to build the road is A) $10,000. B) $20,000. C) $40,000. D) $50,000.

B

Some economists are against minimum wage laws because: A) Minimum wage laws will inevitably result in excess demand for labor at the newly- established minimum wage B) Economists are notorious for having disregard for the poor C) Minimum wage laws may block transactions that parties might be willing to make at a lower wage D) Economists argue that "money cannot buy happiness, so paying these people more will not necessarily increase their utility."

C

When a competitive firm hired nine workers, its profits were $100. When it hired 10 workers, its output went from 9 to 11 units. Each unit of output sold for $10 while the wage of each worker was $12. What is the firm's new profit level? A) $20 B) $8 C) $108 D) $12

C

1. Positive economic models typically assume A) people cannot get everything they want and so must make choices. B) people undertake a particular course of action if the marginal benefits of that action outweigh the marginal costs. C) people are often inconsistent and inflexible when making their choices. D) both a and b.

D

2) An economist creates an economic model describing how wages will respond when the government imposes higher taxes on workers. According to positive economics, this model is a good model if the model A) has sufficiently realistic assumptions about workers and employers. B) is flexible enough to explain the outcome if wages go up or down. C) is theoretically correct even if its predictions are wrong. D) accurately predicts how wages in the aggregate adjust to higher taxes.

D

5) If there are costs associated with employee turnover, and to reduce these costs, a firm increases the wage it pays its employees, then A) the firm's profits must decrease. B) the firm's profits must increase if turnover costs fall. C) the firm's profits must increase if the turnover rate falls by three percent or more. D) the firm's profits could increase or decrease, depending on the amount in the wage increase and the change in the turnover rate.

D

A person's real wages are: A) what is really reported on their paycheck after taxes have been taken out. B) the same thing as their discretionary income. C) always equal to their nominal wages D) nominal wages divided by some index of prices.

D

Because workers choose between various employers offering the same type of job based primarily on wages, A) the market demand curve is downward sloping. B) the market supply curve is upward sloping. C) the firm supply curve is vertical. D) the firm supply curve is horizontal.

D

If demand increases while supply is constant A) a shortage will exist at the original equilibrium wage. B) the equilibrium wage will increase. C) the wage will rise, causing labor demand to decrease to its original position. D) both A and B.

D

If the price of capital rises and the long-run demand for labor curve shifts right, one can infer that A) the scale effect dominated the substitution effect. B) the substitution effect dominated the scale effect. C) labor and capital are gross substitutes. D) both b and c.

D

It has been said that teaching assistants to professors are underpaid. Which of the following would be evidence (if true) that they are underpaid? A) There is a surplus of teaching assistants. B) Teaching assistants are paid far less than professors, even though they are doing similar work. C) Teaching assistants are made to work more than other workers in their job. D) Professors have a hard time finding qualified teaching assistants.

D

Consider a hypothetical firm operating in competitive product and labor markets. Suppose that at present the product price is P = $10, the marginal product of labor is MPL = 15 units of output per day, and the daily wage rate is W = $90 per day. The firm should A) adjust P, or W, or both in order to equate marginal revenue product to the marginal expense of labor. B) increase employment because that will increase profit C) reduce employment because that will increase profit. D) not alter the employment level, as the firm is already earning a profit of $60 for each worker employed.

B

If the hourly wage is $50 and the price of output is $25 then in the short run A) the firm should add workers if they add 1/2 or more units to output. B) the firm should add workers if they add more than 2 units to output. C) the firm should hire two workers. D) the firm should reduce employment until the wage falls to $25.

B

When the price of labor falls, the quantity of ________ demanded will ________, but the effect on ________ is ambiguous. A) labor; decrease; capital B) labor; increase; capital C) capital; increase; labor D) capital; decrease; labor

B

Which of the following events could explain why wages and employment could fall in a competitive labor market? A) The demand curve shifts right and up. B) The demand curve shifts left and down. C) The supply curve shifts left and up. D) The supply curve shifts right and down.

B

Which of the following events will cause the labor demand curve to shift up and to the right? A) a lower wage B) an increase in product demand C) an increase in the supply of labor D) all of the above shift the labor demand curve up

B

4) In Job X, the employer gets a gross benefit of $600 a week from employing a worker (this is the highest wage the employer will pay). The worker is willing to work for the employer if paid $400 a week or more. Which of the following is Pareto efficient? A) a law mandating a minimum wage of $650 a week B) a law mandating a maximum wage of $300 a week C) a law allowing the employer to pay whatever wage they want D) a law mandating a chauffeured car, costing $250 a week and valued by the worker at $10, be provided by the employer

C