ECON CHAPTER 6

Most economists generally argue ______ trying to block technological advances because these technological advances ______. A. in favor of; cause the economy to grow to rapidly B. in favor of; increase wage inequality C. against; are necessary for improved standards of living D. against; promote wage equality

C. against; are necessary for improved standards of living Technological advances are a major reason why economies grow. Thus economists promote technological advances as a way to improve living standards.

Unemployment insurance contributes to structural unemployment by: A. keeping wages above the market-clearing level. B. keeping wages below the market-clearing level. C. allowing unemployed workers to search longer or less intensively for jobs. D. forcing unemployed workers to take the first job offered to them.

C. allowing unemployed workers to search longer or less intensively for jobs. Unemployment insurance makes workers more selective in their job search, which lengthens the time of mismatch between workers and jobs.

Initially, workers in the shoe industry and the computer industry earn the same wage. Reductions in trade barriers give domestic consumers access to cheaper shoes produced abroad, which causes domestic shoe prices fall. At the same time, foreign consumers purchase more computers, raising the relative price of computers. As a result of these changes, the demand for labor in the shoe industry ______ and the demand for labor in the computer industry ______. A. increases;increases B. increases; decreases C. decreases; increases D. decreases; decreases

C. decreases; increases In this case, fewer workers are demanded in the declining shoe industry, while more workers are demanded in the growing computer industry

People who say that they would like to have a job, but have not made an effort to find a job in the past four weeks, are called ______ workers. A. unemployed B. involuntary part-time C. discouraged D. chronically unemployed

C. discouraged Discouraged workers are people who say they would like to have a job but have not made an effort to find one in the past four

The introduction of a new technology that increases the productivity of labor will: A. increase the supply of labor. B. decrease the supply of labor. C. increase the demand for labor. D. decrease the demand for labor

C. increase the demand for labor. Increased worker productivity means more output per worker is produced, which in turn causes firms to want to hire or demand more workers.

An increase in the price of the output produced by labor will: A. increase the supply of labor. B. decrease the supply of labor. C. increase the demand for labor. D. decrease the demand for labor.

C. increase the demand for labor. When the price that the firm can sell output increases, more workers will be desired. The labor demand curve shifts to the right.

In the market for labor, the price of labor is the: A. same as price of the product produced by the labor. B. real wage. C. marginal product of labor. D. number of hours employed per year.

B. real wage. In the market for labor, the "price" is the real wage paid to workers in exchange for their services

Which of the following is an example of structural unemployment? A. Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year. B.Marsha was laid off from her job with the airline because the recession has reduced the demand for airline travel. She expects to get her job back when the economy picks up. C Alan, a software engineer, lost his job when the internet startup he worked for went bankrupt. He interviewed . with five companies in the area before taking a job with another firm in the industry. D.Jim had a job as an engineer, but quit when his wife was transferred to another state. He looked for a month before finding a new job that he liked.

A. Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year. Dora lost her job because the industry she worked in was most likely moved out of the country. The job may never come back, so she should train in another field or move to find work.

Who from among the following is counted as employed? A. Ray wants to work forty hours per week, but can only find work for twenty hours per week. B. Anna Marie spends all of her time taking care of her children at home. C. Frank would like to work, but has not looked for work because he believes no jobs are available. D. Martin has been offered several jobs in the past four weeks, but has chosen not to accept any of the offers.

A. Ray wants to work forty hours per week, but can only find work for twenty hours per week. Ray is working, so he is considered "employed."

Periods of unusually low production in an economy result in ______ unemployment. A. cyclical B. environmental C. structural D. frictional

A. cyclical Cyclical unemployment results from a dip in the business cycle.

Government health and safety regulations or anti-discrimination laws can reduce real wages by: A. decreasing the demand for labor. B. decreasing the supply of labor. C. reducing employer costs. D. increasing worker productivity.

A. decreasing the demand for labor. Government laws and regulations sometimes discourage employers from hiring. These laws and regulations effectively shift the demand for labor to the left.

Susan Suarez would like to work forty hours per week, but can only find twenty hours per week of work. In the official employment statistics, Susan is classified as: A. employed. B. unemployed. C. out of the labor force. D. underemployed.

A. employed. Although this worker might be considered to be "underemployed," there is no such designation in labor statistics. The designation is "employed" or "unemployed."

The costs of unemployment are lowest (and perhaps even negative) for ______ unemployment. A. frictional B. cyclical C. structural D. cyclical and structural

A. frictional Frictional unemployment is acceptable because it gives workers time to find a better match between their skills and the jobs offered.

Martha did not like her job as a receptionist, so she quit and is looking for one that better suits her artistic talents. Ting Pei would like to work, but employers are not willing to hire him because he does not speak English. Martha is ______ unemployed and Ting Pei is ______ unemployed. A. frictionally; structurally B. structurally; frictionally C. cyclically; structurally D. structurally; cyclically

A. frictionally; structurally Martha expects to be out of work for a short while as she finds a better fit for her talents. Ting Pei, on the other hand, might be out of work for a long time as he learns a new language that will make him more employable.

Holding other factors constant, if oil prices rise relative to the prices of other products, then the real wages of oil workers will ______ and employment of oil workers will _____. A. increase; increase B. increase;decrease C. decrease; not change D. decrease; increase

A. increase; increase If oil prices rise, then producers of oil will be more inclined to hire workers and there will be more demand for oil workers (demand shifts right). As a result, wages and employment will increase.

Holding other factors constant, if the education and skills of the typical worker in an economy increases, then the real wages of workers will ______ and employment of workers will _____. A. increase; increase B. increase;decrease C. decrease; not change D. decrease; increase

A. increase; increase If worker quality increases, then more workers are desired because they are more productive. Demand for labor will shift right, increasing wages and employment.

Holding other factors constant, if computers allow factory workers to manufacture more products per hour, then the real wages of factory workers will ______ and employment of factory workers will _____. A. increase; increase B. increase;decrease C. decrease; not change D. decrease; increase

A. increase; increase If workers become more productive, then producers of computers will be more inclined to hire workersso the demand for labor shifts right. Wages and employment will increase.

Real wages increased in industrialized countries in the twentieth century because the demand for labor: A. increased more rapidly than the supply of labor increased. B. increased more slowly than the supply of labor increased. C. increased, while the supply of labor decreased. D. decreased, while the supply of labor increased.

A. increased more rapidly than the supply of labor increased. Labor markets follow the same principles as goods and services markets: when both supply and demand rise at the same time, it is certain that quantity will increase but uncertain whether price will rise or fall. When wages rose in this case, the demand shift was greater than the supply shift.

Holding other factors constant, technological progress ______ the real wage and ______ employment. A. increases; increases B. increases; decreases C. increases; does not change D. decreases; increases

A. increases; increases Technical progress almost always increases worker productivity, which makes workers more desirable to employers. The demand for labor will shift right and therefore puts upward pressure on wages and increase employment too.

Holding other factors constant, an increase in the capital stock ______ the real wage and ______ employment. A. increases; increases B. increases; decreases C. increases; does not change D. decreases; increases Increases in the capital

A. increases; increases stock make workers more productive, which increases the demand for labor and puts upward pressure on wages and increases employment.

Labor unions contribute to structural unemployment by: A. keeping wages above the market-clearing level. B. keeping wages below the market-clearing level. C. allowing unemployed workers to search longer or less intensively for jobs. D. forcing unemployed workers to take the first job offered to them.

A. keeping wages above the market-clearing level. Labor unions artificially restrict the supply of workers in an effort to keep wages above the market-clearing level.

Minimum wage laws contribute to structural unemployment by: A. keeping wages above the market-clearing level. B. keeping wages below the market-clearing level. C. allowing unemployed workers to search longer or less intensively for jobs. D. forcing unemployed workers to take the first job offered to them.

A. keeping wages above the market-clearing level. Minimum wage laws distort the efficient working of labor markets by keeping wages above market- clearing levels. Thus, these laws contribute to structural unemployment.

When unemployment insurance benefits exceed the wages a worker could earn when employed, the worker will have an incentive to: A. remain unemployed longer than otherwise. B. have his/her unemployment insurance benefits cancelled. C. accept the first job offered. D. decrease his/her reservation price.

A. remain unemployed longer than otherwise. The more generous are unemployment benefits, the less hurried job seekers are. This lengthens periods of unemployment.

A Luddite is: A. someone who opposes the introduction of new technologies. B. a worker whose real wage rises as a result of globalization. C. a fictional character from American folk history. D. a consumer who refuses to buy imported goods, even if they are cheaper.

A. someone who opposes the introduction of new technologies. A Luddite is someone who opposes the introduction of new technologies.

Long-term increases in productivity that have increased the demand for labor, and raised real wages, have resulted primarily from ______ and _____. A. technological progress; a modernized capital stock B. technological progress; an increased labor supply C. a modernized capital stock; skill-biased technological change D. a modernized capital stock; an increased labor supply

A. technological progress; a modernized capital stock Technological progress and a modernized capital stock will increase worker efficiency, which increases the demand for labor and puts upward pressure on wages.

Larger increases in the demand for labor than in the supply of labor explain: A. the substantial increase in real wages. B. the slowdown in real wage growth. C. increasing wage inequality. D. skill-biased

A. the substantial increase in real wages. technological change. When both labor supply and labor demand rise at the same time, it is certain that quantity will increase but uncertain whether wages will rise or fall. If wages rise, we know the demand shift was larger than the supply shift.

Data for an economy show that the unemployment rate is 6 percent, the participation rate 60 percent, and 200 million people 16 years or older are not in the labor force. How many people are unemployed this economy? A. 12.0million B. 18.0 million C. 28.8 million D. 43.2 million

B. 18.0 million Since the participation rate is 60 percent, 40 percent are not participating in the labor market. So the 200 million people are not participatingrepresent 40 percent of the working-age population, or(0.40*x) = 200,000,000, where x is the working-age population. Then x = 200,000,000/0.40 = 500,000,000, or 500 million. With 200 million of these 500 million people being outside the labor force, there must be 300 million in the labor force. Unemployment is 6 percent of 300 million, or 18.0 million.

Data for an economy show that the unemployment rate is 6 percent, the participation rate is 60 percent, and 200 million people 16 years or older are not in the labor force. How many people are in the working- age population in this economy? A. 333 million B. 500 million C. 800 million D. 1.20 billion

B. 500 million Since the participation rate is 60 percent, 40 percent are not participating in the labor market. So the 200 million people are not participating represent 40 percent of the working-age population, or (0.40*x) = 200,000,000, where x is working-age population. Then x = 200,000,000/0.4 = 500,000,000, or 500 million.

Who from among the following would be counted as unemployed? A. A person with a part-time job who wants and is looking for a full-time job. B. A person who is willing to work and has looked for a job in the last week. C. A person who is willing to work but has not looked for a job in two months. D. All of these people would be counted as unemployed.

B. A person who is willing to work and has looked for a job in the last week. For a person to be classified as unemployed, he or she must be willing to work and have recently looked for work.

Which of the following events would increase the unemployment rate, if nothing else changed? A. Unemployed workers leave the labor force. B. Employed workers leave the labor force. C. Workers from outside the labor force become employed. D. Unemployed workers become employed.

B. Employed workers leave the labor force. The unemployment rate is computed as the number of unemployed divided with the labor force. When employed workers leave the labor force, as often happens at retirement, the denominator in the unemployment rate computation decreases, making the unemployment rate go up, ceteris paribus.

Who from among the following would be classified as employed? A. Brenda Smith, an 18 year old full-time college student. B. Mario Faubert, a NHL hockey player at home sick with the flu. C. Jack Little, a 21 year old new college graduate actively looking for his first job. D. Sarah Lopez, a retired public school teacher. Mario Faubert is employed because he is in the labor force and has a job.

B. Mario Faubert, a NHL hockey player at home sick with the flu.

Slower growth in labor demand in combination with increases in labor supply explains ____________ accompanied by __________. A. a slowdown in real wage growth; a decline in employment B. a slowdown in real wage growth; rapid employment growth C. a slowdown in real wage growth; increasing wage inequality D. accelerated real wage growth; a decline in employment

B. a slowdown in real wage growth; rapid employment growth When both labor supply and labor demand rise at the same time, it is certain that quantity will increase but uncertain whether wages will rise or fall. If the demand shift was smaller than the supply shift there is downward pressure on real wages but an increase in employment.

Government regulations that increase the cost to the employer of hiring workers will: A. increase the demand for labor. B. decrease the demand for labor. C. increase the supply of labor. D. decrease the supply of labor.

B. decrease the demand for labor. If government regulations increase, e.g., like requiring drug testing for all workers, it decreases demand for workers. Businesses sometimes replace workers with machines as a result.

Income lost by the unemployed is an example of the ______ cost of unemployment, while the additional spending to control crime is an example of the _____ cost of unemployment. A. social;psychological B. economic; social C. economic; psychological D. psychological; economic

B. economic; social Unemployment creates more than just economic costs such as lost income, it also causes social costs such as by hiring more police to control crime.

Increasing wage inequality results when international trade leads to ______ wages for workers in exporting industries and ______ wages for workers in importing industries. A. higher; higher B. higher; lower C. lower; no change in D. lower; higher

B. higher; lower In industries where U.S. foreign competition is weak, workers see increasing wages due to increased demand for such workers with globalization. Conversely, in industries where foreign competition is strong, U.S. workers see falling real wages due to decreased demand for such workers. This phenomenon increases wage inequality.

If the existence of alternative opportunities makes people become less willing to work in poultry processing plants, then the real wage of unskilled workers in poultry processing plants is predicted to ______ and the employment of unskilled workers in poultry processing plants is predicted to ______. A. increase;increase B. increase; decrease C. increase; not change D. decrease; decrease

B. increase; decrease If the work setting becomes more favorable outside of poultry processing plants, then the supply of workers will shift left and there will be more competition for the remaining poultry processing workers, causing wages will increase and employment to decrease.

Factors increasing the U.S. labor supply and thereby contributing to the slowdown in real-wage growth that began in the 1970s include ______ and _____. A. skill-biased technological change; globalization B. increased labor force participation by women; the coming-of-age of the baby-boom generation C. technological progress; diminishing returns to labor D. increasing wage inequality; globalization

B. increased labor force participation by women; the coming-of-age of the baby-boom generation The expanded role of women in the labor force and huge numbers in the baby-boom generation shifted labor supply out greatly. That shift put downward pressure on wage rates in the U.S.

The increase in wage inequality resulting from globalization can be reversed through: A. revoking the principle of comparative advantage. B. increases in worker mobility. C. decreases in worker mobility. D. making markets more competitive.

B. increases in worker mobility. Increased worker mobility, both within the country and internationally, induces workers to move to higher-paying industries and move away from lower-paying industries.

As the real wage decreases, the quantity of labor demanded ______ and the quantity of labor supplied _______. A. increases;increases B. increases; decreases C. decreases; decreases D. decreases; increases

B. increases; decreases As real wages decrease, firms desire more employees. Conversely, as real wages decrease, fewer people find it worthwhile to work or workers desire fewer hours.

Assume that the union wage already exceeds the market-clearing wage. If the union wage is increased, holding other factors constant, then the number unemployed ______ and the number employed _____. A. increases;increases B. increases; decreases C. increases; does not change D. decreases; increases

B. increases; decreases At wages above the market clearing level, more workers are supplied than demanded. If the wage goes up from there, the number unemployed will increase further because more labor will be supplied and even less will be demanded. The decrease in the quantity of labor demand is the same thing as a decrease in the number of employed.

The duration of an unemployment spell is a measure of the: A. income lost while unemployed. B. length of time a spell of unemployment lasts. C. number of times during a year a worker becomes unemployed. D. number of workers unemployed during a specific period of time.

B. length of time a spell of unemployment lasts. An unemployment spell is a period during which an individual is continuously unemployed.

Globalization ______ the wages of workers in the exporting industries and ______ the wages of workers in the import-competing industries. A. raises; raises B. raises; lowers C. raises; does not change D. lowers; raises

B. raises; lowers In industries where U.S. foreign competition is weak, like airplanes and chemicals, workers see increasing wages due to increased demand for such workers with globalization. Conversely, in industries where foreign competition is strong, like textiles, U.S. workers see falling real wages due to decreased demand for such workers.

Health and safety regulations in the labor market: A. are always efficient because they improve working conditions. B. should be evaluated by comparing their costs to their benefits. C. are necessarily inefficient if they impose additional costs on employers. D. can lead to an increase in frictional unemployment.

B. should be evaluated by comparing their costs to their benefits. There are trade-off when making the workplace safer, so both costs and benefits of new regulations should be considered.

Technological change that affects the marginal products of high-skilled and low-skilled workers differently is called ______ technological change. A. capital-labor B. skill-biased C. marginal-productivity D. high-low

B. skill-biased Technological change that affects the marginal products of high-skilled and low-skilled workers differently is called skill-biased technological change.

The introduction of word processing software that increases the demand for workers with computer skills relative to those without such skills is an example of: A. increasing reservation prices B. skill-biased technological change. C. the diminishing marginal product of labor. D. globalization.

B. skill-biased technological change. Computer skills are in growing demand in the modern economy. This is an example of skill-biased technological change.

A long-term mismatch between the skills of some workers and the jobs available is a principal cause of ______ unemployment. A. cyclical B. structural C. global D. frictional

B. structural Structural unemployment results from "structural" changes in the economy, which result from changes in supply, demand and globalization.

Arthur is an unskilled worker who is currently unemployed. He has been offered a job that pays $40 a day, but he is currently receiving unemployment insurance benefits equal to $50 a day, so he chooses not to accept the job and to continue looking for a better job. Arthur is ______ unemployed. A. frictionally B. structurally C. cyclically D. not

B. structurally Arthur is being very selective in picking a job because he has unemployment insurance that pays him more than working would. According to the definition, he is structurally unemployed.

Cyclical unemployment is: A. the additional unemployment not captured in official statistics resulting from discouraged workers and involuntary part-time workers. B. the extra unemployment that occurs during periods of recession. C. short-term unemployment that is associated with the process of matching workers with jobs. D. long-term and chronic unemployment that exists even when the economy is producing at a normal rate.

B. the extra unemployment that occurs during periods of recession. Cyclical unemployment is the extra unemployment that occurs during periods of recession.

Structural unemployment will decrease when: A. the minimum wage is increased. B. the minimum wage is decreased. C. unemployment insurance benefits are increased. D. union wages are increased.

B. the minimum wage is decreased. If the minimum wage is decreased, employers will want to hire more workers or increase the quantity of labor demanded. This opens job opportunities for those who are looking for work.

A person 16 years or older who does not work, but is actively looking for work, is officially classified as: A. employed. B. unemployed. C. chronicallyunemployed. D. out of the labor force.

B. unemployed. This is the definition of "unemployed."

Which of the following is an example of cyclical unemployment? A. Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year. B.Marsha was laid off from her job with the airline because the recession reduced demand for airline travel. She expects to get her job back when the economy picks up. C. George is an unskilled worker who mows lawns in the summer, but is unemployed the rest of the year. D.Jim had a job as an engineer, but quit when his wife was transferred to another state. He looked for a month before finding a new job that he liked.

B.Marsha was laid off from her job with the airline because the recession reduced demand for airline travel. She expects to get her job back when the economy picks up. This is cyclical unemployment because it was caused by a period of recession.

The labor force equals the number of people:

Both Employed and Unemployed

Data for an economy shows that the unemployment rate is 10%, the participation rate 80 percent, and 200 million people 16 years or older are not in the labor force. How many people are in the working-age population in this economy? A. 250 million B. 800 million C. 1.0 billion D. 1.6 billion

C. 1.0 billion Since the participation rate is 80 percent, 20 percent are not participating in the labor market. So the 200 million people are not participating represent 20 percent of the working-age population, or (0.20*x) = 200,000,000, where x is the working-age population. Then x = 200,000,000/0.20 = 1,000,000,000, or 1 billion

The towns of Jekyll and Hyde each have a labor force of 2,000 people. In Jekyll, 500 people were unemployed for the entire year, while the rest of the labor force was employed continuously. In Hyde, every member of the labor force was unemployed for three months and was employed for nine months. The average duration of unemployment spells over the year was ______ months in Jekyll and ______ months in Hyde. A. 3;3 B. 3;9 C. 12;3 D. 12;9

C. 12;3 An unemployment spell is the average duration of unemployment per worker. In Jekyll, workers were out of work for 12 months, on average, whereas in Hyde it averaged 3 months.

In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs, but wanted jobs. What is the unemployment rate in this town? A. 10.0% B. 11.0% C. 13.7 % D. 14.5%

C. 13.7 % To compute the unemployment rate you must know the number unemployed and divide it by the labor force. The labor force is 73, taking out those 10 children who are too young to work and the 17 people who are not in the labor force (retired, full-time students, and homemakers). We know 63 are working, so 10 must be unemployed. Ten divided by 73 is 13.7%.

Data for an economy show that the unemployment rate is 6 percent, the participation rate 60 percent, and 200 million people 16 years or older are not in the labor force. How many people are employed in this economy? A. 30million B. 188 million C. 282 million D. 300 million

C. 282 million Since the participation rate is 60 percent, 40 percent are not participating in the labor market. So the 200 million people are not participating represent 40 percent of the working-age population, or(0.40*x) = 200,000,000, where x is the working-age population. Then x = 200,000,000/0.40 = 500,000,000, or 500 million. With 200 million of these 500 million people being outside the labor force, there must be 300 million in the labor force. Unemployment is 6 percent of 300 million, or 18.0 million. Thus, 300 million minus 18 million equals 282 million employed.

In a country with 200 million people aged 16 years and older, 120 million are in the labor force, and 114 million are employed, what is the participation rate? A. 40percent B. 57percent C. 60 percent D. 95 percent

C. 60 percent To find the participation rate, divide the labor force by the number of people 16 and older, i.e., 120,000,000/ 200,000,000 = 0.60, or 60 percent.

In an economy of 100 people in the labor force, if 10 people are unemployed for 4 weeks during the year, and 30 people are unemployed for 8 weeks during the year, and the rest are employed continuously throughout the year, then the average duration of unemployment in this economy is: A. 5weeks. B. 6weeks. C. 7 weeks. D. 8 weeks.

C. 7 weeks. To find average duration of unemployment, count the number worker-weeks that the unemployed were out of work and divide by the number of unemployed. In this case: (10*4) + (30*8) = 280/40 = 7.

Data for an economy shows that the unemployment rate is 10%, the participation rate 80 percent, and 200 million people 16 years or older are not in the labor force. How many people are in the labor force in this economy? A. 80million B. 200 million C. 800 million D. 1.0 billion

C. 800 million Since the participation rate is 80 percent, 20 percent are not participating in the labor market. So the 200 million people are not participating represent 20 percent of the working-age population, or (0.20*x) = 200,000,000, where x is the working-age population. Then x = 200,000,000/0.20 = 1,000,000,000, or 1 billion. With 200 million of these 1 billion people being outside the labor force, there must be 800 million are in the labor force.

In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs, but wanted them.What is the participation rate in this town? A. 63.0% B. 72.0% C. 81.1% D. 87.5%

C. 81.1% To compute the participation rate you need to know the labor force and divide it by those in the age-eligible population. The age-eligible population is 90, taking out the 10 children who are too young to work. The labor force is 73, taking out the 17 people who are not in the labor force (retired, full-time students, and homemakers). Thus, the participation rate is 73/90 = 0.811, or 81.1%.

Who from among the following would be classified as out of the labor force? A. A person with a part-time job who wants and is looking for a full-time job. B. A person who is willing to work and has looked for a job in the last week. C. A person who is willing to work but has not looked for a job in two months. D. None of these people would be classified as out of the labor force.

C. A person who is willing to work but has not looked for a job in two months. For a person to be classified as out of the labor force, he or she must not be actively looking for work.

Who of the following would be considered a discouraged worker? A. Ray wants to work forty hours per week, but can only find work for twenty hours per week. B. Anna Marie has been looking for a job every day for the last month, but has not been hired. C. Frank would like to work, but has not looked for work because he believes no jobs are available. D. Melissa has a Ph.D. in physics, but is currently employed full time driving a taxi.

C. Frank would like to work, but has not looked for work because he believes no jobs are available. Frank would be considered a discouraged worker because he has not looked for work in the past 4 weeks.

Assume the minimum wage exceeds the market-clearing wage. If there is an increase in the supply of labor then the number of workers who are unemployed will ______, and the number of workers who are employed will _______. A. increase;increase B. increase;decrease C. increase, not change D. decrease; increase

C. increase, not change In this case, the labor supply curve shifts rightward but the market price cannot react due to the minimum wage law. The result is higher unemployment but no change in the number of workers employed.

Macroland produces dishes and glassware. Before trade, a set of dishes sells for $100 and a set of glasses sells for $50. When Macroland opens to trade, foreign demand for domestically produced china is strong, raising the price of a set of dishes to $125. But foreign competition reduces the demand for domestically produced glasses, so they now sell for $25 a set. Assuming workers cannot move between industries, the wages of workers producing dishes will ______ and the wages of workers producing glasses will ____. A. increase;increase B. increase; not change C. increase; decrease D. decrease; increase

C. increase; decrease Workers in the dishes industry see increasing wages because the strong demand for dishes increases the demand for workers. Conversely, the glasses industry sees decreasing wages due to reduced demand for glasses and therefore less demand for workers.

Assume the union contract wage exceeds the market-clearing wage. If there is an increase in the labor supply, then the number of unemployed workers will ______ and the number of employed workers will _______. A. increase;increase B. increase;decrease C. increase; not change D. decrease; increase

C. increase; not change Union contracts that exceed the market-clearing wage cause unemployment. If labor supply increases, unemployment will increase because wages cannot fall. The number of workers employed will not change as the demand for labor and wages both stay the same.

An increase in the size of the working-age population: A. increases labor demand. B. decreases labor demand. C. increases labor supply. D. decreases labor supply.

C. increases labor supply. When the working-age population increases, the potential labor supply increases.

According to the principle of diminishing returns to labor, if the amount of capital and other inputs are held constant, employing additional workers: A. increases output at an increasing rate. B. increases output at a constant rate. C. increases output at a decreasing rate. D. decreases output at an increasing rate

C. increases output at a decreasing rate. This is the definition of "diminishing returns to labor."

Globalization and skill-biased technological change have contributed to: A. the long-term growth in real wages. B. the slowdown in productivity since 1973. C. increasing wage inequality. D. high rates of employment in Western Europe.

C. increasing wage inequality. Skill-based technological differences are increased by the recent globalization of economies. Wage inequality has increased as higher-skilled workers gained at the expense of the lower-skilled workers.

Frictional unemployment may be economically beneficial if: A. its psychological costs are borne only by the unemployed worker. B. losses in economic output are small. C. it leads to a better match between worker and job. D. the social costs are limited to smaller tax revenues collected.

C. it leads to a better match between worker and job. Frictional unemployment allows some "slippage" in the job market, much like what happens in the apartment rental market. If there were never openings in either market, there would be no opportunities to "trade up."

Jim Brown would like to work, but has not looked for work in the past four weeks because he does not believe any jobs are available. In the official employment statistics, Jim is classified as: A. employed. B. unemployed. C. out of the labor force. D. underemployed.

C. out of the labor force. If a prospective worker has not looked for work in four weeks then that person is considered to be out of the labor force.

The labor force divided by the working age population equals the: A. unemployment rate. B. employment rate. C. participation rate. D. population rate.

C. participation rate. The participation rate is the number of people employed and unemployed divided by the population aged 16 years and older.

The value of the marginal product of labor equals the marginal product of labor times the: A. real wage. B. nominalwage. C. price of output. D. quantity of labor.

C. price of output. The value of the marginal product of labor equals the marginal product of labor times the price of output.

From an economic perspective, the best response to increased wage inequality is to: A. block future technological change. B. stop all international trade. C. provide transition aid to disadvantaged workers. D. make skill-biased technological change illegal.

C. provide transition aid to disadvantaged workers. Globalization has increased the size of markets, which is generally good. To help the displaced workers who have seen a decline in the demand for their labor, transition aid can be used to provided retraining and relocation

The minimum payment you are willing to accept to do a job is your: A. nominal wage. B. real wage. C. reservation price. D. value of marginal product.

C. reservation price. The minimum payment you are willing to accept to do a job is your reservation price.

The two most important factors contributing to increased productivity in industrialized countries in the twentieth century were: A. higher relative prices and a larger labor supply. B. higher relative prices and technological progress. C. technological progress and increases in the capital stock. D. technological progress and increases in the labor supply.

C. technological progress and increases in the capital stock. Industrial countries invested heavily in human and physical capital in the twentieth century. These investments greatly increased productivity.

The unemployment rate equals the number of people: A. unemployed. B. unemployed divided by the number employed. C. unemployed divided by the labor force. D. unemployed plus

C. unemployed divided by the labor force. discouraged workers divided by the labor force. The unemployment rate equals the number of people unemployed divided by the labor force.

The number of unemployed divided by the labor force equals the: A. labor-force participation rate. B. employment rate. C. unemployment rate. D. duration rate.

C. unemployment rate. The unemployment rate is the number of unemployed divided by the labor force.

The demand for labor increases when the: A. real wage increases. B. real wage decreases. C. value of the marginal product of labor increases. D. value of the marginal product of labor decreases

C. value of the marginal product of labor increases. The demand for labor increases when the value of the output rises. Economists call this an increase in the "value of marginal product." Note that the quantity of labor demanded will increase when real wages decrease, however that describes a movement along a stationary demand for labor curve rather than a shift of the curve itself.

Who from among the following would be classified as out of the labor force? A. Brenda Smith, an 18 year old college student employed part-time at a fast food restaurant. B. Mario Faubert, a NHL hockey player at home sick with the flu. C. Jack Little, a 21 year old new college graduate actively looking for his first job. D. Amanda Pie, a full-time homemaker.

D. Amanda Pie, a full-time homemaker. Amanda Pie is out of the labor force because she is not employed or actively looking for work.

Which of the following is an example of frictional unemployment? A. Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year. B.Marsha was laid off from her job with the airline because the recession has reduced the demand for airline travel. She expects to get her job back when the economy picks up. C. George is an unskilled worker who mows lawns in the summer, but is unemployed the rest of the year. D. Hector looked for a job for five weeks after finishing college. He turned down several jobs that didn't fit his. skills, but now has a job that requires the expertise he gained in college.

D. Hector looked for a job for five weeks after finishing college. He turned down several jobs that didn't fit his. skills, but now has a job that requires the expertise he gained in college. Hector faces frictional unemployment because it takes him a while to match his skills with those skills desired in the labor market.

An "unemployment spell" is a period during which: A. the unemployment rate is less than 10 percent. B. the unemployment rate exceeds 15 percent. C. an unemployed individual leaves the labor force and then returns. D. an individual is continuously unemployed.

D. an individual is continuously unemployed. An unemployment spell is a period during which an individual is continuously unemployed.

Leaving the labor force or finding a job are two ways that: A. a person can become a discouraged worker. B. a person can become an involuntary part-time worker. C. an unemployment spell can begin. D. an unemployment spell can end.

D. an unemployment spell can end. Leaving the labor force would mean a person was no longer actively looking for work, and therefore no longer counted in the labor force. Finding a job changes a person's status from unemployed to employed. Both of these would end an unemployment spell.

Workers whose spells of unemployment are broken up by brief periods of employment or withdrawal from the labor force are referred to as ______ workers A. short-term unemployed B. discouraged C. long-term unemployed D. chronically unemployed

D. chronically unemployed Workers whose spells of unemployment are broken up by brief periods of employment or withdrawal from the labor force are referred to as chronically unemployed workers.

An increase in unemployment insurance benefits will: A. increase the demand for labor. B. decrease the demand for labor. C. increase job search efforts of unemployed workers. D. decrease job search efforts of unemployed workers.

D. decrease job search efforts of unemployed workers. If unemployment insurance benefits go up, as they often do under political pressure, unemployed workers will be more selective in the job they accept. This decreases job search efforts.

A war destroys much of the capital stock in the country of Omega. As a result, holding other factors constant, the real wage in Omega will ______ and employment in Omega will ______. A. increase;increase B. increase;decrease C. increase; not change D. decrease; decrease

D. decrease; decrease A smaller capital stock in Omega causes workers to be less productive, which decreases the demand for labor and puts downward pressure on wages. With lower wages, workers desire fewer hours of work and employment decreases too.

Holding other factors constant, if food prices decline relative to the prices of other products, then the real wages of agricultural workers will ______ and employment of agricultural workers will _____. A. increase;increase B. increase;decrease C. decrease; not change D. decrease; decrease

D. decrease; decrease If food prices decline then the producers of food will be less inclined to hire workers, so the demand for labor shifts left Wages and employment will decrease.

If there is a floor on wages created by a minimum wage, union contracts, or other factors, then a decline in the marginal productivity of low-skilled workers will ______ the demand for low-skilled workers and ______ the number of unemployed workers. A. increase;increase B. increase;decrease C. decrease; decrease D. decrease; increase

D. decrease; increase Declining marginal productivity of low-skilled workers makes them less desirable and decreases the demand for them. The market price cannot react due to the wage floor so the result is higher unemployment.

Holding other factors constant, if a larger proportion of the population enters the labor force as a result of a growing social acceptance of women working, then the real wages of workers will ______ and employment of workers will _____. A. increase;increase B. increase;decrease C. decrease; not change D. decrease; increase

D. decrease; increase If social attitudes become more accepting of women workers, then the supply of labor shifts right. The number of workers will grow but increased competition for jobs will decrease wages

As a result of a war in the country of Omega, refugees flee to the country of Alpha to seek employment. Holding other factors constant, the influx of refugees will ______ the real wage in Alpha and ______ employment in Alpha. A. increase;increase B. increase;decrease C. decrease; decrease D. decrease; increase

D. decrease; increase The work force in Alpha has increased, which increases the supply of labor and puts downward pressure on real wages but increases employment levels in Alpha.

Skill-biased technological change increases wage inequality by altering the ______ high-skilled workers relative to low-skilled workers. A. reservation price of B. mobility of C. supply of D. demand for

D. demand for High-skilled workers find the demand for their services has increased whereas low-skilled workers see the opposite. The result is greater wage inequality.

If the price of tables sold by All-Oak Table Co. increases from $400 to $500, then the: A. supply of labor to All-Oak Table Co. increases. B. supply of labor to All-Oak Table Co. decreases. C. demand for labor by All-Oak Table Co. decreases. D. demand for labor by All-Oak Table Co. increases.

D. demand for labor by All-Oak Table Co. increases. The value of the final good has fallen, so as a result, the demand for labor decreases.

If the price of TVs produced by XYZ-TV Company falls from $1,000 to $750 per TV set, then the:

D. demand for labor by the XYZ-TV Company decreases. When prices fall for the goods and services produced by workers, the demand for labor falls too.

Features of the labor market that are likely to cause structural unemployment include all of the following except: A. labor unions. B. minimumwagelaws. C. unemployment compensation. D. differences in the skills and experience of workers.

D. differences in the skills and experience of workers. Labor unions, minimum wage laws and unemployment compensation are structural impediments to smooth running labor markets and they impede labor market adjustments.

Two groups of workers not counted as unemployed in the official unemployment statistics are ______ workers. A. chronically unemployed and short-term unemployed B. chronically-unemployed and discouraged C. chronically unemployed and involuntary part-time D. discouraged and involuntary part-time

D. discouraged and involuntary part-time Official statistics count discouraged workers as being out-of-the labor force; involuntary part-time workers are counted as employed.

The participation rate is the number of people: A. employed divided by the labor force. B. employed divided by the population aged 16 years and older. C. employed and unemployed divided by the labor force. D. employed and unemployed divided by the population aged 16 years and older.

D. employed and unemployed divided by the population aged 16 years and older. The participation rate is the number of people employed and unemployed divided by the population aged 16 years and older.

Each person who is 16 years or older is considered to be in one of the following categories: A. employed, unemployed, or discouraged worker. B. part-time worker, full-time worker, or unemployed. C. part-time worker, full-time worker, or out of the labor force. D. employed, unemployed, or out of the labor force.

D. employed, unemployed, or out of the labor force. For economic measurement purposes, workers are sorted into 3 categories: employed, unemployed, or out of the labor force.

Heterogeneity and the dynamic nature of labor markets are the principal causes of ______ unemployment. A. cyclical B. chronic C. structural D. frictional

D. frictional Workers are regularly coming and going from the labor force because there is so much variety in the labor market. For example, people retire every day and workers move from time-to-time, both of which are dynamic.

An increase in the demand for workers producing computers for export versus producing agricultural products that can be imported more cheaply from abroad is an example of how increasing wage inequality can result from: A. the diminishing marginal product of labor. B. the diminishing marginal product of capital. C. increasing reservation prices. D. globalization.

D. globalization. Globalization puts downward wage pressure on industries where foreign competition is strong and upward wage pressure on industries where foreign competition is weak. This phenomenon often increases wage inequality

Two explanations for increasing wage inequality are ______ and ________. A. technological progress; a modernized capital stock B. increased labor supply; a slowdown in productivity growth C. increased worker mobility; transition aid D. globalization; skill-biased technological change

D. globalization; skill-biased technological change Globalization has expanded international markets, which has induced "outsourcing" of low wage work. At the same time, highly skilled workers have become relatively more valuable, which has increased their incomes.

Skill-biased technological has different effects on the marginal products of ______ workers and ______ workers. A. male;female B. union;nonunion C. government; private-sector D. higher-skilled; lower-skilled

D. higher-skilled; lower-skilled Skill-based technological differences occur among many groups, but the groups most affected by the recent globalization are the higher-skilled at the expense of the lower-skilled.

Firms will hire additional workers as long as the wage: A. is less than the marginal product of labor. B. equals the marginal product of labor. C. is greater than the marginal product of labor. D. is less than the value of the marginal product of labor.

D. is less than the value of the marginal product of labor. This is an application of the marginal benefit-marginal cost rule.

Structural unemployment is increased when the wage is kept above the market-clearing wage by: A. unemployment insurance. B. workermobility. C. skill-biased technological change. D. labor unions.

D. labor unions. Labor unions keep wages artificially above market-clearing levels. Because of this, unions add impede the smooth adjustment of markets to changing conditions.

Structural unemployment is: A. the additional unemployment not captured in official statistics resulting from discouraged workers and involuntary part-time workers. B. the extra unemployment that occurs during periods of recession. C. short-term unemployment that is associated with the process of matching workers with jobs. D. long-term and chronic unemployment that exists even when the economy is producing at a normal rate.

D. long-term and chronic unemployment that exists even when the economy is producing at a normal rate. Structural unemployment is long-term and chronic unemployment that exists when the economy is producing at a normal rate.

Globalization can increase wage inequality in the United States if international competition is primarily in industries requiring ______ workers. A. many B. few C. highly-skilled D. low-skilled

D. low-skilled The U.S. has a comparative disadvantage in those industries that employ low-skilled workers. Globalization puts downward wage pressure on workers in those industries.

Involuntary part-time workers are: A. chronically unemployed. B. considered out of the labor force. C. short-term unemployed workers. D. not counted as unemployed.

D. not counted as unemployed. Involuntary part-time workers would like to work full-time but cannot find suitable positions. Since they are working, they are considered "employed."

The marginal product of labor is the additional: A. wage paid for an additional hour of work. B. wage paid for an additional worker employed. C. labor employed to produce one more unit of output. D. output produced by one more worker.

D. output produced by one more worker. The marginal product of labor is the additional output produced by one more worker.

Depression and lost self-esteem are examples of the ______ costs of unemployment, while the lost income and tax revenue are examples of the ______ costs of unemployment. A. social;psychological B. economic; social C. economic; psychological D. psychological; economic

D. psychological; economic Unemployment creates more than just economic costs such as lost income and tax revenue, it also causes psychological costs such as lost self-esteem among others.

Frictional unemployment is: A. the unemployment that results when people retire or leave the labor force. B. the additional unemployment not captured in official statistics resulting from discouraged workers and involuntary part-time workers. C. the extra unemployment that occurs during periods of recession. D. short-term unemployment that is associated with the process of matching workers with jobs.

D. short-term unemployment that is associated with the process of matching workers with jobs. Frictional unemployment is short-term unemployment that is associated with the process of matching workers with jobs.

The demand for labor depends on ______ and _______. A. the supply of labor; the marginal product of labor B. the supply of labor; the price of output produced C. the rate of price inflation; the price of the output produced D. the marginal product of labor; the price of output produced

D. the marginal product of labor; the price of output produced When a business hires workers, the business is interested in both the productivity of the worker and the price of the output the worker produces.