Econ 3821 Final
Suppose a "fully effective" worker can produce 20 units per hour in a particular firm. The firm's wage-productivity relationship is given by the table below. If the actual wage is $7, the wage cost per effective unit of labor is
$14
A firm can hire 20 workers for $10 per hour, but finds it must raise the wage to $11 to attract another worker. If it must pay all its workers the same wage, the marginal wage cost of the 21st worker is
$31
Which one of the following is NOT typically offered as an explanation for efficiency wages?
An employer will not pay a wage that exceeds the market rate.
Which one of the following might cause a person's demand for human capital to increase?
An increase in the college wage premium.
Refer to the following diagram representing earnings stream with and without a college education.
Area 1 represents the direct cost of college education.
Consider an individual who planned to take a one-year vocational training. The direct and indirect costs of the training totals $6,000. The training would increase her annual earnings by $4,000 for the next two years. Suppose the interest rate is 10%. If the person plans to retire at the end of the second year after the training, the net present value of this investment is approximately equal to:
942
Which of the following best exemplifies a piece-rate compensation scheme?
Jose's pay is proportional to the number of wiring harnesses he assembles each day.
Which of the following equalities holds when the profit-maximizing quantity of labor is employed in the short run?
MRP = MWC
Which one of the following helps to explain the observed relationship between age and mobility?
Older workers tend to have more specific human capital and on-the-job training.
The above graph shows a person's demand (D) and supply (S) (of funds) curves for human capital. An increase in the availability of grants and scholarships that the person may receive
Shift the horizontal supply curve (S) downward.
One of the following does NOT explain why the short run demand for labor curve of an imperfectly competitive firm is downward sloping.
The firm has to decrease the wage rate to attract more workers to its workforce.
Consider the labor demand (a) and labor supply (b) schedules of a firm give below:
The firm is a monopsony.
Which of the following best describes the output effect of a wage increase?
The firm's marginal cost increases, the firm desires to produce less output, and therefore less labor is required.
White-collar workers
are less likely to unionize because unionization may be an obstacle to their ambitions.
Refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits. If the isoprofit line shifts from line 1 to line 2, then
as the firm moves from line 1 to line 2, it could provide more fringe benefits while paying the same wage rate.
The long run labor demand curve is more elastic than the short run labor demand curve
because of the substitution effect
Assume the two labor demand curves are identical and that all union workers who lose their job as a result of the union wage increase from Wn to Wu find jobs in the nonunion sector. The area corresponding to the efficiency loss is. Assumed competitive
c'abd'.
A firm selling output in an imperfectly competitive product market
its marginal revenue product (MRP) is less than the value marginal product (VMP).
Suppose the wage is currently W1 and L1 is the level of employment. If this market is characterized by delayed supply responses, in the immediate period the wage will
rise and employment will remain unchanged.
Refer to the following diagram. Initially, wage rates are WM in Country M and WU in Country U. Subsequent migration results in an equalization of wage rates. Migration causes the value of output in Country U to
rise by area kijl. (offers higher wages for ess labor)
Using the model of demand for human capital and the supply of investment funds for human capital, the distribution of earnings gap narrow due to
scholarships offered to students from low-income families.
Starting from an equilibrium position in the labor market, an increase in product demand
shifts the market labor demand curve to the right. As a result, the equilibrium wage and employment levels will rise.
The nonunion wage rate may fall as the result of a union wage increase because of the
spillover effect.
At a given market wage rate, an imperfectly competitive firm hires fewer workers than a perfectly competitive firm does.
true
Research by Borjas on relatively recent immigrants to the U.S. suggests that they
typically do not catch up to the earnings of native-born workers, even after several years.
Refer to the following diagram, in which EC is the employer concession curve and UR is the union resistance curve. The UR curve will shift up if the expected costs of a strike to the
union are reduced.
"The industry mix of national output has changed from manufacturing to services." This fact is most consistent with the
structural-change hypothesis.
For a perfectly competitive firm,
the MRP decreases as the number of workers increases.
All of the following suggest that unions may improve productivity and efficiency
unions provide workers a voice with which to communicate to management & union wage pressure may force management to adopt more efficient techniques to maintain profitability & union workers protected by seniority rules are more likely to pass on knowledge to new workers.
"The extra output, measured in dollars, that accrues to society when an additional unit of labor is employed" best describes
value of marginal product.
Refer to the following graph, in which π1 and π2 are a firm's isoprofit curves. The monopoly union outcome is given by point ū. An efficient labor contract entails
wage and employment levels along the line xy
In equilibrium regarding job safety
worker A will work for firm X; worker B will work for firm Y.
Assume that the labor market is perfectly competitive. Suppose the firm's product demand is given by the column labeled D2. If the wage rate rises from $100 to $130, the firm will reduce the quantity of labor employed by _____ unit(s).
2
Refer to the following diagram. Wages in both the union and nonunion sectors are initially $10. The union then negotiates a wage rate of $12. The post-negotiation nonunion wage is not yet known. The pure union wage advantage in this market is
20%
If union workers in a given occupation are paid $20 per hour while nonunion workers receive $16 per hour, the measured union wage advantage is
25%
Consider the following table representing the short run production function and product demand schedule of a firm. If the market wage rate is fixed at $90 per unit of labor, i.e., MWC=$90, how many units of labor the firm will hire to maximize its profit.
3
Consider the following schedule representing the production function of a firm operating in a perfectly competitive product market: What is the value of B?
32
Consider the labor demand (a) and labor supply (b) schedules of a firm give below: This firm will hire ___ units of labor to maximize its profit.
3; at this level of employment MWC > wage rate.
Assume that the labor market is perfectly competitive. Suppose the firm's product demand is given by the column labeled D1. If the wage rate is $125, the firm will achieve maximum profit by hiring _____ workers.
4
Consider the following schedule representing the production function of a firm operating in a perfectly competitive product market: If the firm is a wage taker and the market wage rate is $25 per unit of labor, how many units of labor will the firm employ?
4
Which one of the following best represents the principal-agent problem in the employer-employee relationship?
A worker leaves work early without permission.
Which one of the following is a true statement?
About 30% of geographic job-related moves are accompanied by a change in occupation.
Refer to the following diagram of a monopsonistic labor market. If this firm sells its output in a competitive market (so that MRP = VMP), the allocative efficiency loss in the labor market is given by area
CAB.
If an increase in the wages of unskilled workers reduces the demand for skilled workers, we may conclude that unskilled and skilled workers are gross substitutes.
False
For labor input levels between X and Y,
For labor input levels between X and Y,
All else equal, which of the following will increase the demand for labor in a particular market?
an increase in the number of employers
Which of the following is a true statement?
The monopolist's demand for labor curve is less elastic (steeper) than a firm operating in a perfectly competitive product market.
Which of the following would tend to increase labor supply to a particular job?
The perceived status of the job improves.
Which one of the following is a true statement?
The union wage advantage is bigger for workers with less education than for workers with more education.
Which one of the following does help to explain why union workers receive more fringe benefits than nonunion workers?
The unionized firm is willing to pay both higher wages and fringe benefits to avoid the costs of a strike & The higher incomes of union workers allow them to "purchase" more fringe benefits & As collective voice institutions, unions may better formulate fringe benefit proposals, inform their membership of their worth, and communicate these desires to the firm.
Following the downturn in air travel following the September 11, 2001, terrorist attacks, several thousand highly paid Seattle-based union workers were laid off from airplane manufacturer Boeing. Many of these workers left the Seattle area to accept jobs paying less than their Boeing jobs. What can we conclude from their actions?
They believed that they would be better off than if they had remained in Seattle.
Suppose a proposed law will ban migration into the United States. Considering who gains and who loses from migration, economic theory suggests that, in general,
U.S. businesses would object to the law, and U.S. workers would support it.
Which one of the following conditions is required for allocative efficiency?
Value of marginal product is the same in all alternative employments of a given type of labor.
Suppose in the above diagram, MRPu represents the marginal revenue product of untrained workers. The marginal revenue product increases to MRPt if the worker receives training. The x-axis indicates the time period, training period and posttraining period. The wage rate during the training period will be ____ in the case of firm-specific training and ___ in the case of general training.
W2; W1
Refer to the following graph, in which Wc is the competitive wage and Ic is the union's utility level at the competitive wage and employment level. If this market is best represented by the "monopoly union" model, the union will bargain for
Wb and the firm will respond by hiring Q2 workers.
Refer to the following diagram. Initially, wage rates are WM in Country M and WU in Country U. Subsequent migration results in an equalization of wage rates. For Country M capital owners, migration causes a collective loss equal to area
WebcWM.
Because migration typically involves present sacrifice in order to obtain a greater stream of future earnings, many economists consider migration to be
an investment in human capital.
Refer to the table below. There are initially 28 workers in market A and 63 workers in market B, as indicated by the shaded cells. All markets are assumed competitive and there is perfect information and costless migration; jobs in markets A and B are identical in all nonwage aspects. Given the initial situation, which one of the following may be expected to occur?
Workers will migrate from A to B. (L and VMP is higher in B)
Refer to the following diagram. Assume all migration is costless. If wages are initially $10 in country X and $25 in country Y, then we should expect a relative price advantage in country
X, eventually resulting in greater export sales to Y and thus greater derived demand for labor in X.
The average product of labor is maximum when labor input is ____ units
Y
As a result of the matching between workers and firms, firm X will pay regarding job safety
a higher wage and provide less job safety than firm Y.
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.
In industry A, all displaced workers remain in the union sector waiting to be recalled. In industry B, all displaced workers seek work in the nonunion sector. All else constant, the
allocative efficiency loss is greater in industry A.
Which of the following can be predicted to increase the demand for labor?
an increase in product demand
For a firm selling output in an imperfectly competitive market, its labor demand curve will
decline because of diminishing marginal productivity and because product price declines as output increases.
Assume that skilled labor and energy are substitutes in production. An increase in energy prices is then predicted to
decrease the demand for skilled labor if the output effect outweighs the substitution effect.
Evidence indicates that, on balance, union wage policies tend to
decrease the wage gap between unskilled and skilled workers by seeking equal absolute wage increases for all workers rather than equal relative wage increases.
In the textile industry, industrial robots and assembly line workers are gross substitutes. Accordingly, the drop in the price of robots has
decreased the demand for assembly line workers.
Because there is a _______ marginal rate of substitution of fringe benefits for wages, a worker's wage-fringe indifference curves are typically _______.
diminishing; convex to the origin
Assume that information is perfect, mobility between jobs is costless, and that all nonwage aspects of the two are identical. The outcome shown in the diagram Market A = $10 and Market B = $12
does not represent an equilibrium. The supply of labor in market A will shift leftward, and that in market B will shift rightward until the wage rates equalize.
Investment in education may reduce
due to an increase in interest rate
The firm's isoprofit curve, P, is shown as concave to the origin, reflecting the assumption that
each successive increase in job safety comes at an increasing expense to the firm.
In the equation for the net present value of migration, , the term "E2" refers to
earnings from the new job.
If job X pays more than identical job Y, then the wage rates will
equalize if information is perfect and mobility is costless.
A firm in a perfectly competitive labor market, irrespective of the structure of the product market, has control over the wage rate that it pays to workers, i.e., can reduce the wage rate to hire more workers.
false
The demand for human capital curve slopes downward because of the increasing marginal rate of return of education.
false
"Any worker for whom the present value of lifetime earnings will increase by migration will choose to move." This statement is
false;there may be psychic costs of moving that deter migration.
According to models of asymmetric information, strikes are more likely when
firm profitability is highly variable and uncertain.
The indirect costs of education include
foregone earnings
If labor unions are successful in their lobbying efforts to have the WTO include labor and environmental standards in future agreements
foreign labor and product costs would rise, thereby increasing the demand for unionized workers in the U. S.
The share of fringe benefits in total employee compensation
grew steadily from 1960 through the present.
A person who faces discrimination in the labor market
has a lower demand for human capital because discrimination reduces his/her likelihood of transforming the skills & knowledge acquired through education into incremental earnings.
The demand for labor increases
if the product demand increases
In deciding whether or not to go to college, one would compare the discounted value of
incremental earnings to the discounted value of the indirect and direct costs
Suppose a firm decides to raise pay as a way to reduce worker turnover.The resulting pay differential
is an equilibrium differential.
Suppose that, as a result of a decrease in the market supply of labor, the wage rate has risen 10%. After adjusting its employment level, a firm finds its total wage bill has decreased. This occurrence indicates that the firm's labor demand
is elastic over this range of wages.
Assuming workers and jobs are identical, if information is perfect and job search and migration are costless, then
labor will flow among employers until all wages are equal.
Compared to the long-run labor demand curve, the firm's short-run curve is typically
less elastic
All else equal, the imperfectly competitive seller's labor demand curve is
less elastic than that of a perfectly competitive seller.
Compared to the 1950s, current union membership as a percent of the labor force in the U.S. is
lower in the private sector and higher in the public sector.
Compared to a monopsonist that sells its output in a competitive product market, an otherwise identical monopsonist with monopoly power in the product market will pay
lower wage
Compared to present-oriented people, individuals who are more future-oriented tend to have _______ discount rates and consequently tend to obtain _______ education and earnings.
lower; more
Sam left his job as an auto mechanic to accept a position in his local Sears store as an auto parts salesman. This is an example of
occupational mobility.
The market labor demand curve is less elastic than the simple horizontal summation of the demand curves of individual firms. This is because
one has to take into account that the expansion of industry output causes market price to reduce.
Consider the following table representing the short run production function and product demand schedule of a firm. Based on the information given in the table, we can suggest that the firm
operates in an imperfectly competitive product market.
The hedonic theory of wages predicts that
other things equal, workers who value job safety least will tend to work for firms that have the highest cost of providing safe jobs.
With respect to family earnings, on the average, family migration initially
raises the earnings of the primary mover but reduces the earnings of the "trailing" spouse.
Which one of the following union lobbying activities, if successful, would increase the demand for union labor? Lobbying for legislation that
raises the price of a substitute resource.
Refer to the following diagram. Wages in both the union and nonunion sectors are initially $10. The union then negotiates a wage rate of $12. The post-negotiation nonunion wage is not yet known. The threat effect would be modeled by
raising the nonunion wage above its equilibrium level, decreasing the measured union wage advantage.
For employers, the chief advantage of royalties and commissions is that these pay policies
reduce shirking where work effort is costly to observe.
Which of the following actions might a union use to try to restrict the growth of labor supply?
reduce the number of qualified workers
The employer's share of the Social Security and Medicare components of the payroll tax has increased, from 6.13% in 1980 to its current rate of 7.65%. Because employers pay no payroll tax on many fringe benefits, this change in tax rates has effectively
reduced the "price" of fringe benefits, reducing the slope of the wage-fringe isoprofit line.
There will be a shortage of labor in a particular market if
the current wage is below the wage that would clear the market.
In the equation for the net present value of migration, , the term "C" refers to
the direct and indirect monetary costs of moving.
The marginal rates of return—the extra return from additional education -- declines for successive years of education because
the extra knowledge and skills produced by education or schooling declines as the amount (year) of schooling increases. & rising costs of education; the indirect costs of education increases as one acquires more years of schooling. & falling benefits of education; additional years of schooling lowers the number of years for the stream of incremental earnings.
A firm might choose to pay its employees a wage higher than that which would clear the market because
the higher wage raises the opportunity cost of shirking.
According to the human capital model, a student would attend college for one more additional year if
the internal rate of return is greater than the market interest rate.
The above diagram represents a monopsonistic labor market. At the profit maximizing level of employment,
the level of employment is Q1 and the wage rate is W1.
According to the law of diminishing returns,
the marginal product of labor first increases and eventually starts to decline as more workers are added to a fixed capital in the short-run production process.
The effectiveness of profit-sharing plans may be diminished because
the plans are tied to group performance, so the link between profit-sharing and worker productivity is not always clear-cut.
A union leader told its membership that a wage increase, while resulting in some layoffs, would nonetheless increase the total incomes of its membership. The firm replied that a wage increase would reduce the total incomes of its membership. We can conclude that
the union believes that labor demand is inelastic, while the firm believes it to be elastic.
The extra output in dollar terms that the society gains when an extra worker is employed is
the value marginal product.
At the profit-maximizing level of employment for a monopsonist,
the wage is less than marginal wage cost.
Efficient allocation of labor is achieved when
there is perfect competition in the product market and perfect competition in the labor market.
Compared to the allocatively efficient amount, a monopsonist tends to hire
too few workers because marginal wage cost exceeds the wage rate.
