EC 460 Labor Economics Exam 1 Practice Problems

Moving from the upper to the lower portion of a straight labor demand curve, the elasticity A) changes from elastic to inelastic. B) changes from inelastic to elastic. C) stays the same. D) could change from inelastic to elastic, or from elastic to inelastic.

A

Employee subsidies will be most effective at raising the effective wage of the poor when A) demand for labor is elastic. B) supply for labor is inelastic. C) both A and B D) neither A nor B

C

Redistributional transactions A) are never voluntary. B) should not occur. C) are usually facilitated by the government. D) are not Pareto efficient.

C

A competitive firm uses two inputs: capital and labor. At its current level of hiring of both inputs, capital's marginal product is 12 while labor's marginal product is 18. Capital's cost (C) is $8 per unit while labor's cost (W) is $9. In the long run, to produce the same output at a lower cost, the firm should A) hire more labor and less capital. B) hire less labor and less capital. C) hire more labor and more capital. D) hire less labor and more capital.

A

A decrease in quasi-fixed costs would probably lead to a(n) ________ in the number of employees hired and a(n) ________ in the number of overtime hours worked. A) increase; decrease B) increase; increase C) decrease; decrease D) decrease; increase

A

A mandated increase in overtime pay is likely to A) raise the average costs of labor, even if all overtime hours were eliminated. B) cause an increase in labor hours due to the scale effect. C) cause employers to increase straight-time hourly wages to compensate (because of the "package" agreed upon). D) cause an increase in labor hours due to the substitution effect.

A

A monopsony can hire one worker at a wage of $5, two workers at a wage of $6 each, three workers at $7 each, and so on (each added worker adding one dollar to the wage rate). If the marginal revenue product for all workers is $16, what wage will it pay? A) $10 B) $11 C) $16 D) $17

A

A regression shows how the ________ is affected by the ________. A) dependent variable; independent variable B) independent variable; cross-section C) independent variable; dependent variable D) independent variable; error term

A

After general training, the employee's wage will be A) equal to his or her marginal product of labor. B) greater than his or her marginal product of labor, due to the training received. C) less than his or her marginal product of labor, to pay for the cost of the training received. D) either greater or less than his or her marginal product of labor.

A

If Industry A can substitute capital for labor easily and Industry B can not, then (other things equal) A) Industry A's own-wage elasticity of demand will be higher than Industry B's. B) Industry B's own-wage elasticity of demand will be higher than Industry A's. C) the industries' own-wage elasticities of demand will be equal. D) we cannot predict which firm's own-wage elasticity of demand will be higher.

A

If employers are paid a subsidy of $0.75 per hour for hiring teenage workers, then A) the teenagers' wage rate will usually increase by less than $0.75 per hour. B) the teenagers' wage rate will usually increase by more than $0.75 per hour. C) the teenagers' wage rate will usually increase by exactly $0.75 per hour. D) the teenagers' wage rate will usually decrease.

A

If two inputs are substitutes in production and an increase in the price of one input shifts the demand curve for the other input to the left then A) the scale effect is greater than the substitution effect and the two are gross complements. B) the scale effect is less than the substitution effect and the two are gross complements. C) the scale effect is greater than the substitution effect and the two are gross substitutes. D) the scale effect is less than the substitution effect and the two are gross substitutes.

A

Initially, when a firm hires a fourth worker, its wage rate goes from $80 a worker to $90. The marginal revenue product of the fourth worker is $100. Then the government imposes a minimum wage of $90 a worker. If the firm now hires the fourth worker, its profits will A) will increase by $10. B) will increase by $20. C) will decrease by $10. D) will decrease by $20.

A

Other things equal, an elastic demand for an industry's output will tend to make the industry's own wage elasticity of demand A) high. B) low. C) positive. D) zero.

A

Studies show that most of a payroll tax is paid by workers in the form of lowered wages. If true, these studies imply A) the supply of labor curve is very steep. B) the supply of labor curve is very flat. C) it would be better if employers were made to pay all of the tax. D) the demand for labor curve is very steep.

A

Technological progress implies that A) everyone could be better off if gainers compensate losers. B) everyone will be better off. C) there must be losers. D) losers lose more than gainers gain.

A

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

A

A firm employs 10 workers at a weekly wage of $500. If it employs an eleventh worker, it has to raise all of its workers wage to $520. The eleventh worker adds $750 a week to revenues. If the firm hires the eleventh worker, its weekly profits will A) go up by $230. B) go up by $30. C) go up by $23. D) go down by $270.

B

A firm is currently employing 10 workers. To hire an 11th worker, it must raise its weekly pay by $5 and pay the 11th worker $100. What is the marginal expense of the hiring the 11th worker? A) $100 B) $150 C) $105 D) $5

B

A quasi-fixed cost of labor is a cost that A) is expected to change over time. B) is proportional to the number of hours worked. C) is proportional to the number of workers hired. D) is proportional to the amount of capital used.

C

Cross wage elasticities of demand are A) always positive in magnitude. B) always negative in magnitude. C) either positive or negative in magnitude. D) positive for gross complements, negative for gross substitutes.

C

Cross-sectional data concerns A) one behavioral unit at many points in time. B) many behavioral units at many points in time. C) many behavioral units at a single point in time. D) one behavioral unit at one point in time.

C

If a firm offers specific training to its workers, when the training is over, A) workers will most likely be paid a wage that is equal to their marginal product. B) workers will most likely be paid a wage that is greater than their marginal product, to compensate for the training. C) workers will most likely be paid a wage that is less than their marginal product. D) workers will most likely be paid a wage that is less than their wage before training.

C

If a single small firm's demand for secretaries increases, then A) its wage rate will increase and its employment level will remain the same. B) its wage rate will increase and its employment level will increase. C) its wage rate will remain the same and its employment level will increase. D) both its wage rate and its employment level will remain the same.

C

If skilled workers are gross complements with low-skilled immigrant labor, then when there is an increase in supply of low-skilled immigrant labor A) skilled workers wages will go down but their employment will go up. B) skilled workers wages will go down and their employment will go down. C) skilled workers wages will go up and their employment will go up. D) skilled workers wages will go up and their employment will go down.

C

If teenagers and adults are substitutes in production, and the wage of teenagers falls, then A) they must be gross substitutes and the employment of adults will fall. B) they must be gross complements and the employment of adults will fall. C) they could be either gross substitutes or gross complements and the employment of adults could rise or fall. D) they must be gross substitutes and the employment of adults will rise.

C

If the price of a product decreases due to a decrease in demand, then A) the firm moves to the left along the labor demand curve. B) the firm moves to the right along the labor demand curve. C) the labor demand curve shifts to the left. D) the labor demand curve shifts to the right.

C

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

C

Output is produced with capital and labor. If the price of capital goes up A) the price of output will fall. B) output will be increased. C) the firm will use more labor per unit output. D) none of the above will result when the price of capital goes up.

C

Pareto efficiency implies that A) all legal transactions have taken place. B) the distribution of income is equitable. C) all mutually beneficial transactions have taken place. D) only people facing price distortions still wish to undertake transactions

C

Specific training is paid for by A) the employer. B) the employee. C) both the employer and the employee. D) neither the employer nor the employee.

C

The labor force is made up of A) all members of society. B) all members of society who are at least 16 years of age. C) all members of society who are at least 16 years old and are either employed or unemployed. D) employed workers, unemployed workers, and retired workers.

C

The marginal product of labor tells us A) which employee is the most productive. B) the average output produced by each employee. C) the additional output produced by the last employee hired. D) how much money the firm can make from hiring each employee.

C

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

C

Workers will bear less of a payroll tax if A) the supply of labor curve is steeper. B) employers are made to pay more of the tax. C) the supply of labor curve is flatter. D) employers are made to pay less of the tax.

C

A regression estimates that Q = 35 - 0.1 *X, where Q is the quit rate, X is the number of employees at the firm, and the firm sizes in the data set range from 50 to 100. If the firm has 350 employees then A) its quit rate is predicted to be 70%. B) its quit rate is predicted to be 35%. C) its quit rate is predicted to be 0%. D) we cannot predict the quit rate using this linear model.

D

If the labor market is competitive and coverage is complete, then legislation to enact a minimum wage above the equilibrium wage level would A) increase both wages and employment. B) decrease both wages and employment. C) decrease wages and increase employment. D) increase wages and decrease employment.

D

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

D

Labor markets differ from most other markets because A) contracts exist between buyers and sellers. B) price and quantity information must be exchanged. C) resources are allocated. D) labor services must be rented, not bought or sold.

D

Omitted variable bias exists if the omitted variable is A) unrelated to the dependent variable or the independent variable. B) related to the dependent variable, but unrelated to the independent variable. C) related to the independent variable, but unrelated to the dependent variable. D) related to both the independent variable and the dependent variable.

D

The labor market does NOT A) allocate workers to jobs. B) coordinate employment decisions. C) respond to price signals. D) ensure that all workers are hired.

D

Two employers pay a wage of $10 an hour. Employer A is a monopsony while Employer B hires in a competitive labor market. Both firms sell their output in competitive markets. Which of the following will be true? A) The marginal worker in both firms will add the same to the firm's revenue. B) If a worker left Employer A and joined Employer B, the economy would be better off C) Employer A has a higher average wage cost per worker than Employer B D) It will cost employer A more to hire another worker

D

When a firm hires a fourth worker, its wage rate goes from $80 a worker to $90. The marginal revenue product of the fourth worker is $100. If the firm hires the fourth worker, its profits A) will increase by $10. B) will increase by $20. C) will decrease by $10. D) will decrease by $20.

D

When the price of capital increases, a firm will A) employ more labor because labor has become relatively cheaper. B) employ less labor due to the increase in costs. C) employ the same amount of labor. D) employ more, less, or the same amount of labor.

D

When wages increase, the substitution effect implies that employment will ________ and the scale effect implies that employment will ________. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

D

Workers with firm-specific training are ________ likely to be laid off than are workers with general training because ________ A) more; they are paid less than workers with general training. B) more; their wage is less than their marginal product. C) less; they are paid less than workers with general training. D) less; their wage is less than their marginal product.

D

A public school currently it pays all teachers the same, regardless of their area of expertise. At $70,000, it hires good teachers in all areas except science. Because science is a field in demand, the school can only hire poor science teachers. It would have to pay science teachers $90,000 to hire good science teachers. If one out of five teachers is a science teacher, what is the marginal expense of getting a good science teacher instead of a poor one, maintaining the equal wage policy at the school? A) $90,000 B) $100,000 C) $20,000 D) $450,000

B

A regression estimates that Q = 35 - 0.1*X, where Q is the quit rate, X is the number of employees at the firm. Both t-statistics are greater than two, and the firm sizes range from 50 to 100. This indicates that doubling the number of employees from 50 to 100 will reduce the quit rate by A) 50% points. B) 5% points. C) 35% points. D) 10% points.

B

According to empirical estimates, when wages are increased by 10% the quantity of labor demanded typically falls by about A) 3% in the short run, but 6% in the long run. B) 5% in the short run, but 10% in the long run. C) 10% in the short run, but 20% in the long run. D) more in the short run than in the long run.

B

An employer who is a monopolist in the product market will probably A) hire more employees than a perfect competitor would. B) hire fewer employees than a perfect competitor would. C) hire the same number of employees as a perfect competitor, due to competitiveness in the labor market. D) hire fewer workers at a higher wage than a perfect competitor would.

B

For two substitutes in production, if the substitution effect dominates A) then the inputs are gross complements. B) then the inputs are gross substitutes. C) then the inputs could be either gross complements or gross substitutes. D) then the inputs can not be used at the same time.

B

If a union negotiates an industry-wide agreement to set wages above the equilibrium level, A) the industry's demand curve for labor will shift inward. B) there will be a surplus of labor in the industry. C) there will be a shortage of labor in the industry. D) there will be neither a shortage nor a surplus of labor in the industry.

B

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

B

If the price of capital increases in an industry and the scale effect dominates, A) wages and employment levels will both increase. B) wages and employment levels will both decrease. C) wages will increase and employment levels will decrease. D) wages will decrease and employment levels will increase.

B

If the quantity of auto workers demanded decreases from 66,000 to 54,000 when the equilibrium wage increases from $12.00 per hour to $14.00 per hour, then the own-wage elasticity of demand for these workers is A) inelastic. B) elastic. C) zero. D) neither elastic nor inelastic.

B

In the long run a profit-maximizing firm will select capital and labor so that A) the marginal product of labor equals the marginal product of capital. B) the wage divided by the marginal product of labor equals the rental cost of a unit of capital divided by the marginal product of capital. C) labor equals capital. D) the wage equals the rental cost of a unit of capital.

B

Other things equal, the own-wage elasticity of demand for a category of labor is higher when A) the price elasticity of demand for the product being produced is low. B) other factors of production can be easily substituted for the category of labor. C) the supply of other factors of production is highly inelastic. D) the cost of employing the category of labor is a small share of the total costs of production.

B

Own-wage elasticities of demand are A) always positive. B) always negative. C) either positive or negative. D) positive for gross complements, negative for gross substitutes.

B

Statistical discrimination is A) using statistics to judge the average characteristics of a group of workers. B) judging one person according to a group to which he or she belongs. C) using statistics in hiring. D) firing people due to low average productivity.

B

The marginal product of a new worker is 80 units and the marginal expense of a new worker is $800. The marginal product of hiring current workers another hour is 10 units and the marginal expense of hiring current workers another hour is $12. If the firm wants to increase its profits without changing its level of output, it should A) hire more workers, and have current workers work less hours. B) have current workers more hours, and hire less workers. C) be indifferent between hiring new workers or hiring current workers more hours. D) not make any changes.

B

Which of the following event will likely lead a firm to use overtime rather than hire new workers A) the firm gets rid of its pension plan. B) the firm starts to pay for health insurance. C) the marginal productivity of all workers, new and current, increases 20%. D) both overtime and base pay increase 20%.

B

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

B

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

B

Which of the following is a positive statement? A) mutually beneficial trade is good B) minimum wage laws are not Pareto efficient C) all workers should earn, at a minimum, a living wage D) all persons who cannot produce enough to earn a living wage should not be allowed to work

B