chapter 18 exam 3 micro
Albert's Taco Shack is a profit-maximizing firm operating in a competitive market. An additional worker costs the firm $300 and has a marginal productivity of 100 tacos. Assuming no other variable costs, what is the marginal cost of a taco?
$3 Feedback: Correct. The marginal cost is the cost of the worker added divided by productivity, so in this case, $300 divided by 100, which equals $3.
Refer to the Table. Suppose this firm charges a price of $20 per unit of output. What wage would prompt the firm to hire 4 (and only 4) workers?
$1,100 The firm would hire 4 workers but not 5 workers when the wage is less than the value of marginal product of labor (VMPL) for 4 workers but greater than the VMPL for 5 workers. The VMPL is calculated as the price of the output multiplied by the marginal product of labor, so for the fourth worker it equals $20/unit x 60 units = $1,200, while for the fifth worker the VMPL = $20/unit x 50 units = $1,000. As a result, any wage between $1,000 and $1,200 would prompt the firm to hire 4 (and only 4) workers.
If workers leave the construction industry due to falling wages, the supply of labor shifts left.
False When workers leave a labor market due to falling wages, there is a movement down the supply curve, not a leftward shift of the supply curve. The decrease in wages may have initially been caused by a leftward shift in the demand for labor in that market
Refer to the Figure. The graph illustrates the market for massage therapists who do sports massage. If wages paid to massage therapists who do Shiatsu massage (a different type of massage) decrease, what happens in the market for massage therapists who do sports massage?
Supply increases from S1 to S2.
For a flower-delivery business, the capital stock would include automobiles and delivery drivers.
False Capital stock in any industry includes the equipment needed to operate a business in that industry but not the labor.
Which of these resulted from the Black Death in fourteenth-century Europe?
Which of these resulted from the Black Death in fourteenth-century Europe?
The store, where Lucy works for $14 per hour, closes, and Lucy gets a job at another store making $13 per hour. Lucy worked 15 hours per week at the old store, but she decides to work 16 hours per week at the new store. For this price range, her labor supply curve is
backward sloping. Lucy's wage has gone down, but she decides to supply more hours of labor. As a result, for these wages, her labor supply curve must be downward, or backward, sloping. At the higher wage, Lucy's income was high enough that she was able to take some of the higher wage as increased leisure, which meant working less than she would if she had been paid less.
How is the value of marginal product of labor determined?
by calculating the revenue earned from hiring one more worker at the equilibrium wage rate The value of the marginal product of labor is the marginal product of labor multiplied by the market price of the good it produces, so the value of the marginal product of labor can be calculated by determining the increase in output for one worker and multiplying that by the market price of the good to calculate the increase in revenue
If the demand for ice cream cones goes down, the value of the marginal product of ice cream shop workers will go
down, and demand for ice cream shop workers will go down. If the demand for ice cream cones goes down, the price of ice cream cones will go down, and since the value of the marginal product of labor (VMPL) depends on the price of the good the workers produce, the VMPL of ice cream shop workers will go down. When the VMPL of ice cream shop workers decreases, the demand for ice cream shop workers decreases.
When the wage for dishwashers in hospitals decreases, the labor supply in the market for restaurant dishwashers will
increase. The supply of labor in any one labor market depends on the opportunities available in other labor markets. If better opportunities arise in a similar market, workers will leave one industry for the other. In this case, hospital dishwashers will leave for the restaurant industry, so the supply of restaurant dishwashers will increase.
In the last half century, inflation-adjusted wages increased by 95 percent in the U.S. As a result, firms reduced the amount of labor they employed by nearly 30 percent.
False In the last half century, inflation-adjusted wages increased by 152 percent in the last half century, and firms increased the amount of labor they employed by 88 percent.
Which of these is the best definition for the term "capital" as it is used by economists?
Goods produced in the past that are being used to produce new goods and services
Technological advances can cause the labor supply curve to shift.
False
A change in the supply of labor has which of these effects on land and capital?
It changes both the marginal productivities and the price of land and capital.
Suppose the equilibrium wage increases by $2 hour. How does this affect the value of the marginal product of labor?
It increases by exactly $2.
Which of these is true of a firm that is competitive in the labor market?
It pays its workers the market wage. In a competitive labor market, wages are set by supply and demand, and each firm pays the same wage.
Which factor(s) of production have both a purchase price and a rental price?
Land and capital only
When economists refer to the factors of production, they are referring to
The inputs that firms use to produce goods and services The factors of production are the inputs that firms use, but are not used up, to produce goods and services. Labor, land, and capital and are factors of production, but things like fuel are not.
The labor supply curve can be used to determine which of the following?
The relative value of work and leisure for a given worker
Which of these occurs when a worker's wage decreases from $15 per hour to $12 per hour?
The worker's opportunity cost for an hour of leisure decreases by $3 per hour.
Suppose that restoration of the Everglades reduces the availability of farmland in Florida. What would happen to the wages earned by workers and rents earned by landowners?
Wages would decrease, and rents would increase. With less land to farm, the demand for farm workers would go down, decreasing wages for those workers. At the same time, the supply of land has decreased, increasing rents.
When will a labor market experience downward pressure on wages?
When there is a surplus of labor.
The marginal product of labor measures which of these?
the additional output per additional unit of labor All marginal measurements refer to a gain or loss from an additional unit of something. Marginal product of labor measures the gain in output from hiring an additional worker.
The marginal productivity of capital is reflected in
the demand curve for capital Just as the demand curve for labor is based on value of the marginal product of labor, the demand curve for capital is based on the value of the marginal product of capital. In this way, marginal productivity of capital is reflected in the demand curve for capital.
When graphing the production function, the quantity of input is indicated on
the horizontal axis.
Refer to the Table. Suppose this firm charges a price of $10 per unit of output and pays workers a wage equal to $500 per week. What is the value of the marginal product of labor for the second worker?
$850 The value of the marginal product of labor is the increase in revenue due to an additional unit of labor, which is calculated as the price per unit of output multiplied by the marginal product of labor. Since output increases from 100 to 185 units when the 2nd worker is hired, the marginal product of labor for the 2nd worker is equal to 85 units. Since the price is of output is $10 per unit, the value of the marginal product of labor for the 2nd unit of labor is $10 x 85 = $850
Refer to the Table. What is the marginal product of the fourth unit of labor?
60 units Marginal product of labor is the increase in output due to an additional unit of labor. Since output increases from 255 to 315 when the 4th unit of labor is added, the marginal product of the third unit of labor is 60 units.
Refer to the Table. What is the marginal product of the third unit of labor?
70 units Feedback: Correct. Marginal product of labor is the increase in output due to an additional unit of labor. Since output increases from 185 to 255 when the 3rd unit of labor is added, the marginal product of the third unit of labor is 70 units.
Which condition would shift the labor supply curve to the left in the market for manicurists?
A decrease in the population through emigration. Immigration is a major source of shifts in the labor supply. When immigrants come to the United States, the supply of labor in the United States increases, shifting labor supply curves to the right. In the same way, emigration (negative immigration) shifts labor supply to the left.
The production function indicates
how much output a firm can produce from a quantity of inputs The production function is the relationship between the quantity of inputs used to make a good and the quantity of output of that good. It shows how much output results from each level of input.
During summer holidays, Brian works at a golf course where he earns $12 per hour while during winter holidays, Brian works for a package delivery company where he earns $15 per hour.
is $15 per hour during winter holidays and $12 per hour during summer holidays
The labor demand curve for a profit-maximizing, competitive firm is downward sloping if the marginal product of labor is
diminishing Competitive, profit-maximizing firms hire up to the point where the value of the marginal product equals the wage, so the labor demand curve is determined by the value of the marginal product of labor, which equals the marginal product of labor multiplied by the price of the final good. Since firms are competitive, the price of the good is assumed constant, so for the labor demand curve to slope downward, the marginal product of labor must be diminishing (decreasing).
The figure shows the labor market for apple pickers. The curve labeled Supply is the labor supply curve, and the curve labeled Demand is the labor demand curve. On the horizontal axis, L1 represents the initial equilibrium quantity of labor in the market. On the vertical axis, W1 represents the initial equilibrium wage Refer to the Figure. If the marginal product of labor increases and the price of apples remains unchanged, `
the labor demand curve will shift right Feedback: Correct. If the marginal product of labor increases, the value of the marginal product of labor (VMPL) will increase, and if VMPL increases, the demand for labor shifts right.
If robots were recognized as having all the rights of humans and paid wages, the amount of their wage would be best approximated by what was previously
the rental price of a robot
When graphing the production function, the quantity of output is indicated on
the vertical axis. The production function shows how the quantity of output, indicated on its vertical axis, changes as the quantity of input, indicated on its horizontal axis, changes.
Refer to the Scenario. Suppose that improved transportation prompts people to move from the cold part of a country to the warm part. In the warm part of the country, the equilibrium quantity of labor
will rise and the equilibrium wage will fall. In this situation, the warm part of the country experiences a rightward shift in the supply of labor, which raises the equilibrium quantity and decreases the equilibrium wage
The figure shows the labor market for apple pickers. The curve labeled Supply is the labor supply curve, and the curve labeled Demand is the labor demand curve. On the horizontal axis, L1 represents the initial equilibrium quantity of labor in the market. On the vertical axis, W1 represents the initial equilibrium wage. Which of these will occur if the price of apples increases?
the equilibrium quantity of labor will increase above L1 and wages will increase. If the price of apples increases, the value of the marginal product of labor (VMPL) will increase, and if VMPL increases, the demand for labor increases. This represents a rightward shift of the demand curve that increases the equilibrium wage and quantity of labor.
Suppose that ten percent of a factory's workers unexpectedly take the day off. If the property of diminishing returns applies to all factors of production, the factory should experience
an increase in the marginal productivity of the remaining workers and a decrease in the marginal productivity of the factory's machines The factory's supply of workers decreases, which leads to a movement along and up its demand for labor. Since the demand for labor is the value of the marginal product of labor (VMPL), and the price of output hasn't changed, the marginal product of labor increases. In contrast, with fewer workers to make use of them, the marginal productivity of the machines decreases.
Jason loses his part-time job paying $12.50 per hour and takes another job paying $12 per hour. In response, he decreases his work week from 12 to 10 hours per week. For this price range, his labor supply curve is
upward sloping. Feedback: Correct. The labor supply curve is the relationship between wages and the quantity of labor supplied. In this case, wages have gone down and the quantity of labor supplied has gone down, which means that there is a direct relationship between wages and labor supply, so the labor supply curve is upward sloping.
Refer to the Scenario. Suppose that improved transportation prompts people to move from the cold part of a country to the warm part. In the cold part of the country, the equilibrium quantity of labor
will fall and the equilibrium wage will rise. In this situation, the cold part of the country experiences a leftward shift in the supply of labor, which lowers the equilibrium quantity and increases the equilibrium wage.
Refer to the Table. Suppose this firm charges a price of $10 per unit of output and pays a wage of $250 per week. What is the marginal profit from the 3rd worker?
$450 Marginal profit from a worker is the marginal revenue from a worker minus marginal cost of that worker. The marginal revenue from the 3rd worker is the extra output of that worker multiplied by the price of the output (so marginal revenue is the same as the value of the marginal product of labor), which, in this case, equals $10 x 70 = 700. The marginal cost of the 3rd worker is the wage of $250. As a result, the marginal profit from the 3rd worker equals $450.
A decrease in population size can be expected to do which of the following?
Decrease the marginal product of land An increase in population leads to more workers to work the land, so the marginal product of land increases. This change puts downward pressure on the demand for land and its rental and purchase prices.
Suppose a labor-augmenting technology were developed for a product that increased the marginal product of labor for all workers. Which of these would increase?
Demand for labor Firms typically hire up to the point where the value of the marginal product of labor equals wage, and the value of the marginal product of labor is determined in part by the marginal productivity of labor and in part by the market price. If marginal productivity increases, that raises the value of the marginal product of labor, giving firms an incentive to hire additional workers, so demand for labor would increase.
The quantity available of one factor of production does not affect the marginal product of other factors.
False Factors of production are linked such that the supply of one factor has an impact on the productivity of other factors. If, for example, the availability of iron-ore goes down, that will impact the productivity of iron workers.
Changes in supply in the labor market always cause a rise in the equilibrium wage.
False Feedback: Correct. The labor market obeys the same rules of pricing as other markets. Changes in supply and demand change prices, which are wages in the labor market. However, a change in the supply could either raise or lower wages, as a decrease in supply increases wages while an increase in supply decreases wages.
If men's preferences for work change such that there is a sudden increase in the number of men who want to be stay-at-home fathers, the marginal product for the men who remain in the workplace would fall, all else equal.
False If more men prefer to stay at home, the supply of labor decreases, which shift the labor supply curve to the left. When the labor supply curve shifts left, the equilibrium quantity decreases, causing a movement up and along the demand curve. Since the demand curve for labor is based on the value of the marginal productivity of labor, the value of the marginal product of labor (VMPL) has increased. Assuming no change in output price, for the VMPL to increase, the marginal product of labor has to increase.
Which of these is true if Harvey's hourly wage increases from $10 to $11 per hour?
Harvey may work fewer hours. An increase in wages allows a worker to make a different trade-off between work and leisure. An increase in wages means the opportunity cost of leisure has increased. Some workers respond to this change by taking less leisure, but some workers respond by taking more leisure because extra wealth from a wage increase allows someone to afford more leisure without sacrificing the purchase of other goods and services. Harvey would choose to work less if he has a backward sloping labor supply curve, but would choose to work more if his labor supply curve was upward sloping.
Which of these statements about the labor market is true?
If the equilibrium wage in a market has changed, the value of the marginal product of labor has changed as well. Since the equilibrium wage equals the value of the marginal product of labor, any change in supply or demand that changes the equilibrium wage necessarily changes the value of the marginal product of labor.
Consider the market for community college graduates. Suppose community college attendance becomes free for students who are enrolling for the first time, and that it takes two years to graduate from community college. If everything else remains the same, what will happen to the equilibrium wage for community college graduates two years from now?
It will decrease. When opportunity costs for any choice decrease, more people are likely to make that choice, so more people will go to community college. At the end of two years, these graduating students will increase the supply of labor, which reduces the wage rate.
Suppose that a university buys up some industrial land near campus and replaces the factories with student housing. What happens to the remaining industrial land near the university?
The marginal product will rise. When the supply of industrial land near the university falls, the supply curve shifts leftward, causing a movement up and along the demand curve. Since the demand curve is based on the value of the marginal product (VMP) of land, moving up the demand curve means that the VMP increases. The VMP is the price of output multiplied by the marginal product, so if the VMP increases, the marginal product must have increased (assuming the that price of the goods created on the land has not changed). Intuitively, if the supply of industrial land decreases, the remaining land is going to be used more productively (say, by replacing one story factories with two story factories).
A firm can only experience diminishing marginal product when the slope of the production function is negative
False Diminishing marginal product leads to a decrease in the slope of the production function: additional increases in inputs bring about smaller increases in output than previously. A decrease in the slope can occur when production is increasing (the slope is positive), production is flat (the slope is zero), or when production is decreasing (the slope in negative).
As the marginal product of land decreases, firms will rent more land.
False The demand curve for land depends on the value of the marginal product of land. If the marginal product of land decreases, the demand curve will shift left, which decreases the equilibrium quantity of land being rented.
If the supply of capital increases, the quantity of capital used in production will rise but the rental price of capital will fall.
True
Suppose a country experiences an increase in the equilibrium quantity of labor and a decrease in the equilibrium wage. What could have caused this change?
An increase in immigration For the equilibrium quantity of labor to increase while the equilibrium wage decreases, there must have been a rightward shift in the supply of labor, and, among the choices, only an increase in immigration causes an increase in the supply of labor.
For a worker, the opportunity cost of an hour of leisure increases by $13 when his or her wage rate
For a worker, the opportunity cost of an hour of leisure increases by $13 when his or her wage rate Opportunity cost is the value of what you give up to make a certain choice. The opportunity cost of leisure is lost wages. This increases by $13 per hour if the wage rate has increased by $13 per hour.
An event that changes the supply of labor in a country alters the earnings of land and capital in that country.
True
Refer to the Figure. What label should be used for the vertical axis of this graph?
wages for farm workers A supply-and-demand curve shows the relationship between output and price. In the labor market, price is the wage paid to workers in the industry, not the price of the product produced.
Which of the following changes would not cause a rightward shift in the labor-demand curve?
A decrease in the price of the good being produced. The labor-demand curve reflects the value of the marginal product of labor (VMPL), which is calculated as the price of the final good multiplied by the marginal product of labor. Therefore, a decrease in the product's price decreases the VMPL and decreases the demand for workers who produce that product. This decrease in demand for workers is represented by a leftward shift of the labor-demand curve. An increase in the product price and an improvement in labor-augmenting technology both cause a rightward shift in the labor-demand curve. An increase in the demand for the good being produced causes an increase in the price of the good, so it also causes a rightward shift in the labor-demand curve.
If the supply of cranberries decreases due to a drought, the demand for workers who pick cranberries decreases.
False Labor demand is the same as the value of the marginal product of labor VMPL. The VMPL is the marginal product of labor times the output price of the firm. Thus, when output prices change, the value of the marginal product of labor changes. An increase in the output price, for instance, raises the value of the marginal product of labor of each worker who produces that output. In this case, the supply of cranberries decreases, shifting the supply of cranberries left and raising the price of cranberries. An increase in the price of cranberries increases the VMPL for workers who pick cranberries, representing an increase in demand for these workers.
When Mike's Barbershop added a fifth barber at a labor cost of $200 per day, the value of the marginal product of labor increased by $200.
False The value of the marginal product of labor is the same as marginal revenue from an additional unit of labor input. To determine this value, you need to know the marginal product of labor and the market price, not the labor cost.
The equilibrium wage for gold miners is not connected to the price of gold on the global market.
False As the price of gold rises or falls, consumer demand for gold rises and falls. When consumer demand changes, so does the demand for labor among gold producers, and changes in the demand for labor impact the equilibrium wage.
The supply of labor in any one market is independent of the opportunities available in other labor markets.
False The supply of labor in any one labor market depends on the opportunities available in other labor markets. If better opportunities arise in a similar market, workers will leave one industry for the other, decreasing the supply of labor in the market that workers are leaving and increasing it in the other.
Suppose that a severe drought hit California, resulting in 50,000 farm workers relocating to Texas from California. Which of these would occur?
Rents for Texas landowners would increase.
Refer to the Figure. The graph illustrates the market for massage therapists who do sports massage. Suppose that the massage profession becomes more attractive to workers because of news reports about the health benefits of standing. Which of these will take place?
Supply increases from S1 to S2. Feedback: Correct. When a work activity becomes more attractive for a reason other than an increase in wages, the number of workers will increase at every wage level. This change is represented by a rightward shift in supply from S1 to S2.
Refer to the Figure. Suppose the intersection of the supply and demand curves occurs when there is a value of $100 on the vertical axis, and the quantity of capital is defined for a limited period of time. Which of the following cannot be true?
The purchase price for a unit of capital is $100. Because the quantity of capital is defined for a limited period of time, the market is for the rental of capital, not purchase. Given that, the rental price of capital is $100, which means that the purchase price of capital must be greater than $100, as purchasing allows use for a longer time than rental. The rental price of capital being $100 also means that the value of the marginal product of capital is also $100, because they are equal in equilibrium. Lastly, if the price of the output good were $1, the marginal product of capital could be 100.
When a firm is competitive in the labor market, the firm can choose which of these?
The quantity of labor it hires but not the wage it pays for labor. In a competitive labor market, wages are set by supply and demand, not the choice of firms. The equilibrium wage influences the quantity of labor the firm hires, but that quantity is up to the firm.
The labor supply curve represents which of these?
The trade-off between work and leisure The labor supply curve represents the trade-off between labor and leisure. The more people value their leisure time, the less labor they will supply
If the demand for labor in a particular industry decreases, the equilibrium wage in that industry will also decrease.
True
Kenny's Auto Depot, which installs spark plugs, is a profit-maximizing firm that operates in a competitive market. The price of installing a spark plug is $25. The marginal productivity of the last worker hired was 2 spark plugs per hour. What is the maximum hourly wage that the last worker hired could expect to receive?
$50 Feedback: Correct. Firms will hire up to the point where the cost of labor is equal to the value of the marginal product of labor. The value of the marginal product of labor is the marginal product of labor, 2 spark plugs in this case, times the market price, $25 per spark plug, so the second worker has a value of the marginal product of labor of $50. If there are no other marginal costs associated with installing the spark plug, the firm would be willing to pay up to $50 per hour to hire the last worker.
Suppose that a competitive firm hires labor up to the point at which the value of the marginal product equals the wage and that labor is the only input that varies for the firm. If the firm pays a wage of $1400 per week and the marginal product of labor equals 20 units per week, then the marginal cost of producing an additional unit of output is
$70 Competitive firms produce the quantity that makes marginal cost equal to price, and they also hire the amount of labor that makes the value of the marginal product of labor (VMPL) equal to the wage. For every firm, VMPL is calculated as price of the output multiplied by the marginal product of labor. Since the wage equals $1,400, the VMPL must equal $1400, and since the marginal product of labor equals 20 units, the price must equal $1,400/20 = $70. Since marginal cost equals price, marginal cost must also be $70.
Refer to the Table. Suppose this firm charges a price of $3 per unit of output and pays workers a wage equal to $290 per week. How many workers should this firm hire to maximize its profit?
1 worker Feedback: Correct. The firm should keep hiring workers as long as the value of marginal product of labor (VMPL) is greater or equal to the wage of $290. The VMPL is calculated as the price of the output multiplied by the marginal product of labor, so for the first worker it equals $3/unit x 100 units = $300, while for the second worker the VMPL = $3/unit x 85 units = $255. As a result, the firm should hire 1 worker.
Refer to the Table. Suppose this firm charges a price of $20 per unit of output and pays workers a wage equal to $1,500 per week. How many workers should this firm hire to maximize its profit?
2 workers Feedback: Correct. The firm should keep hiring workers as long as the value of marginal product of labor (VMPL) is greater or equal to the wage of $1,500. The VMPL is calculated as the price of the output multiplied by the marginal product of labor, so for the second worker it equals $20/unit x 85 units = $1,700, while for the third worker the VMPL = $20/unit x 70 units = $1,400. As a result, the firm should hire 2 workers.
Refer to the Table. Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $400 per week. How many workers should this firm hire to maximize its profit?
2 workers The firm should keep hiring workers as long as the value of marginal product of labor (VMPL) is greater or equal to the wage of $400. The VMPL is calculated as the price of the output multiplied by the marginal product of labor, so for the second worker it equals $5/unit x 85 units = $425, while for the third worker the VMPL = $5/unit x 70 units = $350. As a result, the firm should hire 2 workers.
Refer to the Table. Suppose this firm charges a price of $10 per unit of output and pays workers a wage equal to $550 per week. How many workers should this firm hire to maximize its profit?
4 workers The firm should keep hiring workers as long as the value of marginal product of labor (VMPL) is greater or equal to the wage of $550. The VMPL is calculated as the price of the output multiplied by the marginal product of labor, so for the fourth worker it equals $10/unit x 60 units = $600, while for the fifth worker the VMPL = $10/unit x 50 units = $500. As a result, the firm should hire 4 workers.
Refer to the Table. Suppose this firm charges a price of $10 per unit of output and pays workers a wage equal to $500 per week. What is the value of the marginal product of labor for the third worker?
700 The value of the marginal product of labor is the increase in revenue due to an additional unit of labor, which is calculated as the price per unit of output multiplied by the marginal product of labor. Since output increases from 185 to 255 units when the 3rd worker is hired, the marginal product of labor for the 3rd worker is equal to 70 units. Since the price is of output is $10 per unit, the value of the marginal product of labor for the 3rd unit of labor is $10 x 70 = $700. Additional Resources
Suppose a country experiences a decrease in the equilibrium quantity of labor and an increase in the equilibrium wage. What could have caused this change?
A decrease in the retirement age.
Which of these people has the highest opportunity cost of leisure?
An accountant who earns $150 per hour and who cooks during his leisure time.
Which of these would most likely increase the demand for labor for auto workers?
An increase in the marginal product of autoworkers. Feedback: Correct. Firms typically hire up to the point where the value of the marginal product of labor equals wage, and the value of the marginal product of labor is determined in part by the marginal product of labor and in part by the market price. If marginal product increases, the value of the marginal product of labor also increases, giving firms an incentive to hire additional workers, as long as wages haven't increased or prices decreased.
Real wages rising with the productivity of labor is consistent with
Both economic theory and U.S. economic history Feedback: Correct. For the past half century, real wages have gone up along with productivity. This makes theoretical sense. When productivity increases, that increases profits, and as profits increase, the demand for labor goes up. Rising demand for labor results in wage increases.
A shortage in the availability of frying pans will have which of these effects on the labor market for short-order cooks?
Both equilibrium wages and equilibrium employment will decrease. With a shortage of frying pans, the demand for labor will decrease, resulting in a decrease in wages and employment at the same time.
Which term do economists use to describe a country's stock of equipment and structures?
Capital
The invention of a new industrial robot increases the marginal productivity of labor and shifts the labor demand curve to the right. This invention is an example of labor-saving technology.
False While some inventions are labor-saving, those inventions shift the labor demand curve to the left. When the demand curve shifts to the right because increased productivity increases demand for labor, the technology is called "labor augmenting."
The labor supply curve reflects which of these?
How changes in wages impact the labor-leisure trade-off. The labor supply curve indicates the relationship between wages and the quantity of labor that workers are willing to supply. Since supplying more labor means enjoying less leisure, the labor supply curve also reflects how a change in wages change the trade-off that workers are willing to make between labor and leisure.`
Assume that the market for DVD players is competitive. Suppose that there is labor-augmenting technological progress in the production of DVD players. This development has which of these effects on the labor market for workers in the DVD-player industry?
It increases the demand for workers and increases their equilibrium wage. Unlike labor-saving technological progress, which decreases the demand for labor because workers can be replaced by machines, labor-augmenting progress increases the demand for labor because it makes workers more productive, thereby increasing productivity. When the demand for labor rises, the equilibrium wage also rises.
Suppose that a labor-saving invention shifts the labor demand to the left. This shift occurs because the invention has which of these effects?
It reduces the marginal product of labor. Labor-saving inventions shift the labor demand curve to the left because they reduce the marginal product of labor, leading firms to decrease the number of workers. While this does typically lower the equilibrium wage as well, that is an effect, not a cause.
Suppose the value of the marginal product of capital equipment decreases. If everything else remains the same, what will happen to the equilibrium rental price of capital equipment?
It will decrease.
Which of the following is true?
The demand for a factor of production is a derived demand, while the demand for a good is not. Factor markets resemble other markets for goods and services in some ways, but they are different in one important way: a firm's demand for a factor of production is derived from the demand for the good the firm produces, so it is a derived demand.
Labor demand differs from demand in most markets because
The demand for labor is a derived demand. Feedback: Correct. As in other markets, demand for labor generally slopes downward and an increase in demand is represented by a shift to the right. What distinguishes labor demand is that it is a derived demand.
Imagine that new research convinces consumers that drinking coconut milk provides fewer health benefits than they previously thought. What is the most-likely impact of this occurrence?
The equilibrium wage for coconut shellers goes down. The research will decrease the demand for coconut milk, which decrease the price of coconuts. When there is a decrease in price, the value of the marginal product of labor, which is price times marginal product of labor, also decreases. Since the equilibrium wage equals the value of the marginal product of labor, the equilibrium wage will decrease.
Suppose that the number of nurses in the United States goes up. Holding everything else equal, the wage paid to nurses will fall.
True
Viviane receives a raise at her current part-time job from $24 to $30 per hour. If her labor supply curve is upward sloping, she will work more hours after receiving the pay raise.
True
An increase in a product's price will shift the labor demand curve for workers who produce that product to the right.
True The labor demand curve reflects the value of the marginal product of labor (VMPL), which is calculated as the price of the final good multiplied by the marginal product of labor. Therefore, an increase in the product's price increases the VMPL and increases the demand for workers who produce that product. This increase in demand for workers is represented by a rightward shift of the labor demand curve.
If the demand for labor increases at the same time that the supply of labor decreases, then the opportunity cost of leisure will increase.
True When demand for labor goes up, or the supply of labor goes down, wages go up, so wages will definitely rise when demand increases at the same time that supply decreases. Since the opportunity cost of leisure is foregone wages, when the wage rate goes up, so does the opportunity cost of leisure.
If the price of computers rises, the demand for capital used in the production of computers will increase, raising the rental price of that capital.
True When the price of a good increases, that makes producing that good more profitable, increasing firms' demand for capital used in production. When demand for something increases the price increases, so the price of renting capital will go up.
Refer to the Figure. Which of the following is a possible explanation of the shift of the labor-demand curve from D1 to D2?
a new farm implement has made farm workers more productive When technology makes workers more productive, the marginal product of labor increases, and since the demand for labor depends on the marginal product, the demand for labor increase too.
Refer to the Scenario. During summer holidays, Brian works at a golf course where he earns $12 per hour while during winter holidays, Brian works for a package delivery company where he earns $15 per hour. If Brian takes fewer hours of leisure during summer holidays than during winter holidays, we can assume that his labor supply curve for the range of earnings in this example
has a downward -sloping portion. Brian's wage is lower in the summer than during the winter, and, if he takes fewer hours of leisure during the summer, then he works more during the summer. As a result, a lower wage is associated with more work, which means that a portion of Brian's labor supply curve is downward sloping, or backward bending.
During summer holidays, Brian works at a golf course where he earns $12 per hour while during winter holidays, Brian works for a package delivery company where he earns $15 per hour. If Brian takes fewer hours of leisure during winter holidays than during summer holidays, we can assume that his labor supply curve for the range of earnings in this example
is upward sloping. Brian's wage is higher in the winter than during the summer, and, if he takes fewer hours of leisure during the winter, then he works more during the winter. As a result, a higher wage is associated with more work, which means that Brian's labor supply curve is upward sloping.
When a worker has an upward-sloping labor supply curve, a wage increase will lead to
more hours worked. Feedback: Correct. The labor supply curve is the relationship between wages and the quantity of labor supplied. If the labor supply curve is upward sloping, it means that an increase in wages is associated with an increase in the quantity of labor supplied, which means more hours worked.
To own capital indefinitely requires paying
the purchase price of capital while obtaining use of it for a limited period of time requires paying the rental price of capital The purchase price of capital is the same as the purchase price of any good or service: the amount of money required to own that capital indefinitely. The rental price of capital is the payment required for using capital for a period of time.
