Econ chap 1-4
Labor demand and supply are given by w = 50 - 3ED and w = 10 + ES. Given these, 10 workers are employed at an hourly wage of $20. What is the hourly tax revenue with a payroll tax of $5?
$43.75
Longer life expectancies.
Which of the following is not a candidate for explaining why the labor force participation rate of older men (aged 55-64) has steadily fallen for many decades?
A market-clearing wage at which everyone has a job.
Which of the following is not an appropriate definition of an equilibrium wage?
Some people (and possibly many) will quit working.
Which of the following is the most likely implication of the government offering a cash grant to any non-working persons?
The short-run elasticity of labor demand equals the slope of the short-run labor demand curve.
Which of the following statements about the short-run elasticity of labor demand is not true?
Hours of work increase early in the life cycle and decrease as retirement approaches but are not very sensitive to the wage between the two extremes.
Which of the following statements best describes the empirical evidence regarding the life cycle model of labor supply?
U=2√C+2√L
Which of the following utility (U) functions implies that C and L are both goods, in the sense that they strictly increase utility? (Hint: For both C and L to be goods, utility must increase when either C or L increases.)
The EITC.
Which of the following welfare designs is expected to have the least damaging labor supply incentives?
Higher market wage rates.
Which of the following would tend to decrease the hours of labor demanded by competitive firms?
has a positive slope at low wage levels and has a negative slope at high wage levels
With hours of work graphed on the x-axis and the wage graphed on the y-axis, the backward-bending labor supply curve
Labor demand and supply are given by w=40-1.8ED and w=10+1.2ES respectively. In this case, the equilibrium wage rate is $22 and total employment is 10. How much, in dollar terms, are the maximum gains from trade within the labor market?
150 Reason: Yes, it is the triangle from $40 down to $10 and then over to E = 10. To calculate the area: gains = 0.5 x ($40 - $10) x 10 = $150.
Labor demand and supply are given by w=30-3ED and w=5+2ES. What condition can be used to determine employment following a payroll tax of t per hour?
30 - 3ED = 5 + t + 2ES
Native labor demand and supply are given by the following functions (employment in 1000s): w = 19 - ED and w = 10 + 0.5ES. Before immigration, therefore, 6,000 native workers are employed at a wage of $13. If 2,000 substitutable immigrants then enter the market and supply labor perfectly inelastically, how many natives will be employed after the immigrants enter?
5,333
demand is perfectly inelastic.
A binding minimum wage decreases the quantity of labor demanded, unless
Is the same per every hour worked.
A budget constraint that is linear implies that the wage
Which of the following is not a component of Obamacare
A drastic change in how Medicare is funded.
The government should use the tax code to redistribute economic gains from the wealthy to the poor.
Which of the following is a normative statement?
is far above the federal minimum wage.
A living wage ordinance passed by a local (city) government typically sets a minimum wage that
flattens the budget line as the net wage is lower, which reduces the incentive to work.
A typical welfare program provides cash assistance to non-workers. If a recipient also works, the value of the cash assistance is reduced (eventually to $0) based on the amount of earnings. "Taxing back" the cash grant in this way
greater (in absolute value)
According to Marshall's rules of derived demand, labor demand is more elastic the __________ the elasticity of substitution.
It increases the price of a good, if set above the equilibrium price.
According to standard economic theory, price floor in a competitive market has which of the following effects?
firm's
All of Marshall's rules of derived demand, as stated in the book, begin with "labor demand is more elastic ...". A more elastic labor demand curve is in the ________ favor as the firm would respond very negatively to higher union wage demands.
Age 65+
Among men, which group's labor force participation behavior changed the most during the 20th Century?
it has simple assumptions with testable predictions.
An economic model is most useful when
on the validity of its testable predictions.
An economic model should be mostly judged
Which of the following does not reflect an employment subsidy?
An employment subsidy does not affect the size of a firm's workforce.
all labor and capital combinations that are all associated with the same total cost to the firm.
An isocost line plots
all labor and capital combinations that are all associated with the same level of output for the firm.
An isoquant line plots
Angela in the workforce
Angela is a mom and the primary caretaker of her children; she held a part-time job this week. Her cousin, Glenn lives with Angela's family and has ceased looking for work for the past five week, after a 6-month-long spell of futile search. Which of the following statements is true in this scenario?
1.25
At a wage of $10 per hour, Carla is willing to work 24 hours per week. If her wage increases to $12 per hour, Carla would then be willing to work 30 hours per week. What is Carla's elasticity of labor supply when considering this wage increase?
The real minimum wage is fixed during time periods when the government does not actively increase the legislated minimum wage.
Because the minimum wage is not indexed to inflation, which of the following is not true?
Increasing capital and decreasing labor.
Capital and labor both have positive marginal products. It would only be possible to hold output constant under which of the following scenarios?
σ is the percent change in hours of work divided by the percent change in the wage rate.
Define labor supply elasticity, typically indicated by σ.
a brief time span that a firm cannot increase or reduce the size of its plant or purchase or sell equipment.
Definition of short run
Labor demand and supply are given by w=30-3ED and w=5+2ES. Which of the following is the equilibrium without a tax?
E* = 5; w* = $15/hr.
change the wage rate.
Elasticity is used to measure responsiveness in the industry to
-1.0.
Empirical estimates of the long-run elasticity of labor demand hover around
-0.5.
Empirical estimates of the short-run elasticity of labor demand hover around
which drew people into the labor force and would have significantly reduced caseloads with or without welfare reform.
Federal welfare reform signed into law by President Clinton in 1996 (commonly called PRWORA) imposed stricter eligibility rules, required welfare recipients to be engaged in work or educational activities, and limited benefits to 24 consecutive months with a lifetime cap of 60 months. From 1996 - 2000, welfare caseloads were reduced dramatically. Although there is support for attributing this reduction to the new PRWORA rules, the effects of PRWORA on work incentives is hard to measure in part because the US economy experienced a tremendous boom during this time,
in almost all developed nations.
Female labor force participation rates have increased dramatically over the last 30 to 50 year
consumers want to purchase their goods and services.
Firms actually hire workers because
Leisure will increase.
For a wage increase, if the income effect outweighs the substitution effect,
a higher minimum wage will greatly increase their permanent income.
For many teenagers who earn the minimum wage, all of the following are true, except
Being on the indifference curve that is as far from the origin as possible.
Graphically maximizing utility means
The budget line stays the same except the amount of consumption when all time is spent on leisure shifts up by the amount of the grant.
How does the budget line change when a person is offered a cash grant from the government if the person otherwise does not work?
capital and labor are perfect complements.
IF the wage goes up, competitive firms will continue using the same ratio of capital to labor if
constant.
If MPE for a competitive firm were constant, e.g., 8, VMPE would be
the negative cross elasticity will increase the demand for these workers.
If a certain group of workers is a complement with robots and the price of robots decreases,
Leisure does not increase his utility.
If an individual's indifference curve map consisted of a series of horizontal lines, i.e., with slopes of zero, what would this reveal about his preferences?
A wage increase when her wage is low.
If leisure is a normal good to Jessica, which of the following would tend to increase her labor supply?
The agent will increase at least 1 of their goods (leisure, consumption, or both).
If non-labor income increases
The agent will increase at least 1 of their goods (leisure, consumption, or both).
If non-labor income increases,
4
If the labor supply function is given by w=5+E and the labor demand function is w=15-E, how much excess labor supply will there be with a minimum wage at $12/hour?
diminishing
If the marginal utility of consumption is: MUC=10C-0.5, what does this imply about the utility function of the agent?
Overtime; their utility is 39000
If the wage-hours combinations are limited to 2 options, full-time (work 40 hours and C=500) and overtime (work 50 hours and C=650), which would this agent choose? Assume the utility function is U=C⋅L and they have 110 hours in their budget.
fewer men working are and more women are working.
In 1948, 84% of American men and 31% of American women over age 16 worked. By 2017, the labor force changed to
decreases the quantity of labor it demands.
In Figure 3-3, when the wage increases from $18/hour to $22/hour, the firm
maximized.
In Table 3-1, when this firm employs 4 workers, marginal product of labor (MPE) is all of the following, except
would not hold if VMPE was increasing.
In order to maximize profits, a competitive firm that competitively hires labor at the constant wage of w chooses to hire workers up to the point where w=VMPE. This condition
the income effect dominates the substitution effect at high wage levels.
In terms of economic analysis, the backward-bending labor supply curve comes about if
increased from below 60% in 1980 to above 70% in the 2000s.
In the United States and in Canada, female labor force participation rates have
its labor input.
In the short run, a competitive firm chooses
Raising the payroll tax, as depicted in Figure 4-7, from $0/hr. to higher and higher rates will do what to dead weight loss?
Increase dead weight loss uniformly.
Neither is in the labor force
Janet is a stay-at-home mom who neither held a job nor looked for one this week. Her dad, Chuck, is 80, lives with Janet's family and neither worked nor looked for work this week. Who (if either) of them is in the labor force?
His budget constraint bowing inward toward the origin.
Larry's labor-leisure choice looks like Figure 2-8. Increasing his wage entails all of the following, except
all municipal workers and workers in firms that have business dealings with the city.
Living wage ordinances passed by a local (city) government typically apply to
labor and capital.
Marshall's first rule of derived demand is that labor demand is more elastic the greater the elasticity of substitution. In this case, the "elasticity of substitution" refers to the elasticity of substitution betwee
the greater the supply elasticity of other factors of production.
Marshall's fourth rule of derived labor demand states that the demand for labor is more elastic
the elasticity of demand for the firm's output.
Marshall's second rule of derived labor demand is that labor demand is more elastic the greater
labor's demand for higher wages is more readily granted by the firm when labor costs are small.
Marshall's third rule of derived labor demand could be expressed as "the importance of being unimportant." This implication of this law is that
the greater labor's share in total costs.
Marshall's third rule of derived labor demand is that labor demand is more elastic
What is meant by wage convergence when talking about labor migration?
Migration naturally results in wage differences across locations being competed away, leading to more equal wages regardless of location.
an MRS that is less than the wage in absolute value.
On Figure 2-6, all points on the line between P and E are associated with
All are non-optimal points, having too little leisure.
On Figure 2-6, what do points F, A, and Y have in common?
changes in hours work are sensitive to the time span under consideration--a day, a week, or a month.
One difficulty in estimating labor supply elasticities is in measuring hours of work accurately. Specifically, the problem is that
The punishment to firm's caught paying less than the minimum wage is fairly light.
Over 2% of workers surveyed report earning less than the federal minimum wage even though their job description requires them to be paid the minimum wage. What is the predominant reason for this non-compliance?
Increased by 2.7 FTE workers.
Over the time period examined by Card and Krueger in their NJ-PA minimum wage study, employment in the experimental group (NJ) increased by how much relative to the control group (PA)?
economic analysis, without relying on value judgments or beliefs regarding what is good or what is bad
Positive economic statements are statements that stem from
Mandated benefits laws require firms to do what?
Provide something costly to each worker they employ
The increase in the salaries of engineers is a sign of inflation.
Some people are willing to become engineers for $40,000 and others are only willing to do so for $50,000. Which of the following would not explain this behavior
which combination of E and K the firm will choose, to produce q=75.
Specifying a production function, e.g., q=10(EK)1/2, entails making assumptions about all of the following, except
The firm will hire fewer workers in order to pay F less often.
Suppose a firm pays an hourly wage rate of w and a fixed cost of F for every worker employed. How will the firm adjust its workforce when F increases?
Rob values leisure relatively more than Steve.
Suppose leisure (x-axis) - consumption (y-axis) indifference curves are plotted on the same graph for Rob and Steve. Further assume that Rob's indifference curves are steeper than Steve's. Which of the following statements best describes the relative value of leisure between the two.
-1.0
Suppose the current competitive wage in an industry is $20 per hour. At this wage, total annual hours of employment in the industry is 1.2 million hours. If the hourly wage increases to $25 per hour, total annual hours of employment in the industry would fall to 0.9 million hours. What is the elasticity of labor demand in the industry?
lose their job, move to the uncovered sector, and compete the uncovered sector's wage down.
Suppose the minimum wage covers all workers except for those in an uncovered sector. When the minimum wage increases is the covered sector, the workers who remain in the uncovered sector will likely see a decrease in their wage because some workers in the covered sector will
choose 110 hours of leisure
Suppose the total hours of leisure available to an agent is 110 hours. In Figure 2-10, if the |MRS| exceeds the wage everywhere along the segment from H to E, the agent wil
The heights of both lines making larger upward movements than in the early 1970s.
The acceleration of wage and employment growth during the mid 1970s is shown graphically (on Figure 1-3) in the form of what?
procyclical
The added worker effect implies that the labor force participation rate is
secondary workers enter the labor force during economic contractions to offset a bad labor market outcome of the main breadwinner.
The added worker effect suggest that
Indiana and Illinois both have labor demand for paralegals given by the function, w=80,000 -2E. Labor supply is perfectly inelastic in both the states. There are currently 10,000 paralegals in Indiana and 16,000 in Illinois. If immigration is prohibited, therefore, each paralegal in Indiana earns $60,000 per year while each paralegal in Illinois earns $48,000 per year. If immigration is allowed between the two states, all except which one of the following will occur?
The annual salary of every paralegal in each state will increase.
Marginal revenue.
The concept of VMPE, in the input (labor) choice problem, is analogous to what concept in a firm's output (quantity) choice problem?
non-workers giving up on their job search and exiting the labor force because they feel their efforts would not generate a job offer.
The discouraged worker effect refers to
the percent change in the capital/labor ratio resulting from a 1 percent change in the price of labor relative to the price of capital.
The elasticity of substitution is
expected, as firms have more options in the long-run to account for changes in labor costs.
The empirical estimates of the short-run and long-run elasticities of labor demand suggest that the long-run elasticity is more elastic than the short-run elasticity. This empirical result is
how much output is produced by any combination of labor and capital.
The firm's production function, f(E,K), specifies
firms will want to hire more workers when labor is cheap and fewer workers when labor is expensive.
The general nature of the labor demand curve is best described as
people allocate their time over the life cycle so as to take advantage of changes in the price of leisure (i.e., changes in the wage).
The intertemporal substitution hypothesis suggests that
the amount of labor the firm wants to hire at any given wage in order to maximize firm profits.
The labor demand curve represents
how many hours of work do people want to provide firms at various wage rates.
The labor supply curve is determined by asking
the two workers are likely to place different monetary valuations on their time.
The leisure-consumption indifference curves across two workers are likely to have different slopes because
fallen from 55 to 42 hours
The length of the average workweek in manufacturing has _________ since 1948
fallen from 55 to 42 hours
The length of the average workweek in manufacturing has _________ since 1948.
both the supply and the demand equations are likely shifting at the same tim
The main problem that an instrumental variables estimation technique is trying to address when estimating supply or demand parameters is that
The sum of all individuals' hours of labor supplied.
The market labor supply curve shows, for different wage levels,
whether you are a union member or not.
The minimum wage varies over all of the following, except
firms do not make hiring decisions according to the theory in that they do not calculate each worker's value of marginal product.
The most common criticism of marginal productivity theory is that
E=6.1
The prices of labor and capital are $10/unit and $8/unit, respectively. The rate of technical substitution (slope of the isoquant in the employment-capital space) is always K/E. Which employment level (E) will the firm choose if it maximizes profit to incur $100 in total costs?
an increasing number of elderly workers exiting the labor force.
The sharp increase in Alaska's employment and wages during the mid-1970s (shown on Figure 1-3) would be (theoretically) consistent with any of the following statements except:
the wage and rental rates are both constants.
The slope of an isocost line is constant because
a one percent change in the wage.
The sort-run elasticity of labor demand is defined as the percentage change in short-run employment resulting from
How many individuals moved to Alaska from other U.S. states during the 1970s
The time series line in Figure 1-3 (page 7 of the text) shows all of the following phenomena, except
labor force participation rates and hours of work.
The two factors that respond to evolutionary wage changes are
The number of respondents in the labor force.
The unemployment rate is calculated by dividing the number of unemployed respondents by
bad
The utility function could be stated in terms of consumption and hours of labor, rather than leisure without disrupting the labor-leisure choice model. In this alternative utility function, hours of labor would be
the dollar value of output created by the firm when it employs one more unit of labor; typically expressed as p x MPE.
The value of marginal product is
What is the best empirical description of migration and wage convergence across states in the United States?
There is evidence of wage convergence, but the convergence is slow.
The sticker-price of college tuition will be lower.
Think of education as a good that individuals "buy" from universities (education "producers") at an equilibrium price ("tuition"). A tuition subsidy given from the government to college students would have all of the following effects except:
the same input combination produces 2 different levels of output
Two isoquants that intersect would mean that
If movement between 2 markets is frictionless, migration is expected to occur, unless
VMPE is equal in both markets.
neoclassical model of labor-leisure choice
What framework do economists use to analyze labor supply behavior?
wage
When a competitive firm adds a marginal hour of labor, all of the following go up, except
because a profit-maximizing firm will likely change its total expenditures.
When a competitive firm encounters a wage change, the optimal isocost line for the firm shifts
because a profit-maximizing firm will likely change its total expenditures.
When a competitive firm encounters a wage change, the optimal isocost line for the firm shifts,
idiosyncratic tendencies, such as one person's tendency to want to work or to leisure.
When estimating labor supply elasticities over the life cycle, a fixed effects method helps control for
rotate isocost lines counter clockwise about their horizontal intercepts.
When graphing an isocost line, an increase in r would
the same costs before and after a wage change.
When the market wage falls, the profit maximization theory requires that the firm incur
increasing employment and output.
When the price of labor falls, the firm responds by
workers should choose to work more hours during high-wage periods and to work fewer hours during low-wage periods.
When workers allocate time to work using the life cycle framework, the main conclusion is that
value of marginal product of labor
When you obtain the dollar value of what each additional worker produces by multiplying the marginal product of labor times the price of the output, the quantity is called the
Lifetime limits on the receipt of various types of welfare programs Benefit-receiving families to engage in work-related activities Tightened eligibility requirements for most families
Which of the following are features of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996?
Comparing newly eligible households' participation to see if it's more than similar non-eligible households.
Which of the following forms of evidence would be the most convincing, with respect to the EITC's labor force participation incentives?
Male HS grads
Which of the following groups had the highest rate of labor force participation in 2010, according to table 2-3?
In competitive equilibrium
an efficient allocation of resources is generated
His budget constraint bowing inward toward the origin.
arry's labor-leisure choice looks like Figure 2-8. Increasing his wage entails all of the following, except
In a competitive labor market
it does not matter whether a payroll tax is imposed on workers or firms.
in a competitive labor market
it does not matter whether a payroll tax is imposed on workers or firms.
the additional units of output created by the firm when it employs one more unit of labor.
marginal product of labor
Mississippi, Georgia, and Arkansas all had
relatively low wages in 1950 and relatively fast growth throughout 1950-1990.
A labor market equilibrium resolves
the desire of workers wanting higher wages, and firms desire to hire for lower wages.
Economists argue in favor of open trade markets because
the efficient distribution of income maximizes economic opportunities.
Referring to Figure 4-9, if point R is to the left of point P, this means all of the following, except
the mandated benefit is not costly to firms.
Labor demand and supply are given by w=60-2ED and w=6+1.6ES respectively. What is the marketing clearing wage and employment level?
w = $30 and E = 15
