Exam 19: Factor Markets and the Distribution of Income

Mary is considering hiring another worker in an assembly line for MP3 speakers. Mary knows the average product of labor is 15 speakers per day. She also believes that the next worker hired will produce an extra 12 speakers per day. A speaker sells for $10. Assuming that the market for speakers is perfectly competitive, Mary should hire another worker:

Suppose that two police officers are identical in every way. One officer is employed in Chicago, a metropolis of 5 million people, and the other officer is employed in Madison, Indiana, a town of 25,000 people. Which officer is likely to receive the higher wage? What is a likely source of this wage difference?

Suppose the factor market for computer engineers is competitive in India and the United States, but Indian engineers earn one-fifth of what American engineers earn. This means that in India engineers are price takers, but engineers in America are not.

According to the marginal productivity theory of income distribution, if a unit of labor is paid more than a unit of capital, it is because at the equilibrium quantity of each factor, the value of the marginal product of labor is greater than the value of the marginal product of capital.

Above-equilibrium wages paid by some employers as an incentive for better performance are called compensating differentials.

A decrease in the demand for pastry chefs may come about because of an increase in the:

When each factor is paid an amount equal to the value of the marginal product of the last unit of that factor employed in the factor market as a whole, this is:

A firm's demand curve for labor is:

In the U.S. labor market, Hispanics have the lowest median earnings.

In the U.S. labor market, African Americans have the lowest median earnings.

Market forces tend to work against discrimination.

John is an entrepreneur who owns an auto body repair shop. John's business is booming, and his salary is rising. John's labor supply curve will be _____ if the substitution effect is _____ the income effect.

In terms of labor supply, the income effect of a higher wage causes a(n):

At Hamill Manufacturing of Pennsylvania highly skilled senior machinists are paid $70,000, excluding benefits, but the average skilled machinist generates approximately $137,000 in value added. This is partially because diminishing returns to labor cause the value of the marginal product of the last machinist hired to be less than the average of all of the machinists currently employed.

Which of the following groups has the HIGHEST median earnings in the U.S. labor market?

The trade-off between work and leisure underlying the supply of labor involves the substitution effect and the _____ effect.

Which of the following formulas is CORRECT?

In terms of labor supply, the substitution effect of a higher wage causes a(n):

An example of the substitution effect dominating the income effect occurs when people take summer vacations rather than winter vacations, even though their pay is the same year-round.

Use the following to answer questions: -(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the Marginal Product of Labor and Demand, the total product of labor is shown for the hourly production of power cords. Assume that the market for power cords is perfectly competitive. If the price of a power cord is $2 and the market wage rate is $100 per hour, the profit-maximizing quantity of labor is _____ workers.