ECO 311 - CH 5 Multiple Choice

Slope of Line Segment OD:

(1) Avg. Product of Labor @ Labor Y. (2) Marginal Product of Labor @ Labor Y.

Labor Inputs between X and Y:

(1) Marginal Product of Labor is falling. (2) Avg. Product of Labor is rising.

Overall Long-Run Elasticity of Labor Demand in the United States:

1.0

Short Run:

A period in which one resource is fixed.

When deriving the market demand curve for a particular type of labor, ONE MUST:

Account for the variation in market price as industry output expands.

Which of the following would lead to an INCREASE in the demand for labor?

An increase in product demand.

Which of the following would lead to an increase in the demand for labor?

An increase in the price of a gross substitute for labor.

Law of Diminishing Marginal Returns:

As more labor is added to fixed stock of capital, Marginal Product of labor must eventually fall. (Begins to fall at Output level X)

When is Marginal Product of Labor = 0 ?

At labor point Z.

Long-Run Labor Demand Curve incorporates:

Both the Substitution Effect and Output Effect.

The decline in prices of personal computers has reduced the demand for labor at a particular firm - At this firm, we may conclude:

Computers and Labor are gross substitutes.

Imperfectly Competitive Demand:

Considered less elastic than the demand of a perfectly competitive seller.

Skilled Labor and Energy are Substitutes in production - An increase in energy prices is predicted to:

Decrease the demand for skilled labor if the output effect outweighs the substitution effect.

Energy and Unskilled Labor are Gross Complements - An increase in the price of energy will:

Decrease the demand for unskilled labor, decreasing the unskilled wage.

Industrial Robots and Assembly Line Workers are gross substitutes - The drop in the price of Robots has:

Decreased the demand for Assembly Line Workers.

As a result of a Decrease in Market Supply of Labor, wage rate has risen 10%. After adjusting for employment, firm finds its Total Wage Bill has decreased. This indicates firm's labor demand is:

Elastic over this range of wages.

Short-Run Labor Demand of Competitive Firm:

Equates to the MRP labor curve, provided MP labor < AP labor.

Marginal Revenue Product Schedule:

Equates to the firms Labor Demand schedule, provided the firm is operating the zone of production.

"To find the market demand curve for a particular type of labor, simply sum the labor demand curves of all employers of that type of labor." This statement is:

FALSE - although the price of output for any individual firm may be constant, this may not be the case for all firms taken collectively.

The Contingent Work Force:

Has grown about 4x as fast as the rest of the work force over the last two decades.

Monopoly:

Hires fewer workers, reflecting decision to produce less output.

As a result of an Increase in Market Supply of Labor, wage rate has fallen 10%. After adjusting for employment, firm finds its Total Wage Bill has decreased. This indicates firm's labor demand is:

Inelastic over this range of wages.

Long-Run Response to Drop in Wage exceeds Short-Run Response because of all of the following EXCEPT:

It is more difficult to substitute capital for labor in the long run than the short run (FALSE)

Imperfectly Competitive Market:

Labor demand curve will decline because of diminishing marginal productivity and because product prices decline as output increases.

In short-run, profit-maximizing quantity of labor is employed when:

MRP labor = MWC labor

Long-Run Labor Demand vs. Short-Run Labor Demand

Short-Run Labor Demand Curve is: Less elastic.

Competitive Firms will never choose to operate in which stages?

Stage I or Stage III.

Economist finds that labor demand is less elastic in Country Y:

Supported by Capital and Labor being less easily substituted for one another In Country X than Country Y.

Economist finds that labor demand is more elastic in Country X:

Supported by Product Demand Elasticity is higher in Country X than Country Y.

In Stage One of Production Theory:

The Avg. Productivity of Labor for both Labor and Capital increase.

Substitution Effect - Wage Increase

The cost of labor is relatively higher, causing the firm to use relatively less labor.

Substitution Effect - Wage Decrease

The cost of labor is relatively lower, causing the firm to use relatively more labor.

Value of Marginal Product:

The extra output, measured in dollars, that accrues to society when an additional unit of labor is employed.

Output Effect - Wage Decrease

The firm's marginal cost decreases, the firm desires to produce more output, and therefore more labor is required.

Output Effect - Wage Increase

The firm's marginal cost increases, the firm desires to produce less output, and therefore less labor is required.

Skilled labor will benefit from an increase in the wage rate paid to unskilled labor if:

The substitution effect outweighs the output effect.

Union Leader: wage increase results in some layoffs, but would increase total income of union. Firm: wage increase would reduce the total incomes of memberships

Union believes labor demand is INELASTIC. Firm believes labor demand in ELASTIC.

Long-Run Substitution Effect of Wage Decrease:

and the Output Effect both increase the quantity of labor demanded.

The Zone of Production:

consists of labor inputs over the range of - YZ.