Question 1

A firm's demand curve for labor slopes downwards because

Accepted Answer

A) of the law of diminishing marginal returns. 
B) firms supply less labor as the wage rate rises. 
C) workers supply less labor services as the wage rate falls. 
D) of rising marginal product. 
A) of the law of diminishing marginal returns. 
B) firms supply less labor as the wage rate rises. 
C) workers supply less labor services as the wage rate falls. 
D) of rising marginal product. A

Question 2

Despite evidence that companies will find it more profitable to use a commission system of compensation rather than a salary system, many companies continue to pay their workers salaries.Which of the following is one reason why firms choose a salary system?

Accepted Answer

A) Most business owners and managers are not trained economists; therefore, they are unaware of the research that shows a commission system is more profitable than a salary system. 
B) Firms often use salary systems to overcome their principal-agent problems. 
C) Firms that have salary systems do not have to use compensating differentials to attract employees to do hazardous jobs. 
D) Many workers dislike risk and prefer to be paid a salary rather than to be paid by commission. 
A) Most business owners and managers are not trained economists; therefore, they are unaware of the research that shows a commission system is more profitable than a salary system. 
B) Firms often use salary systems to overcome their principal-agent problems. 
C) Firms that have salary systems do not have to use compensating differentials to attract employees to do hazardous jobs. 
D) Many workers dislike risk and prefer to be paid a salary rather than to be paid by commission. D

Question 3

A firm's labor demand curve is also its marginal revenue product curve.For both the perfectly competitive firm and the output price maker, the labor demand curve slopes downwards.However, there is a difference in the reasons why the labor demand curve slopes downwards.What is this difference?

Accepted Answer

A perfectly competitive firm can sell all its output at a constant price.This means that its marginal revenue product falls as additional units of labor are hired only because of the law of diminishing returns.This law states that in the presence of a fixed factor, ultimately each additional unit of labor will be less productive than previous units.A firm with market power has to lower its selling price to sell more, so its marginal revenue product falls as additional units of labor are hired because of diminishing returns and a falling marginal revenue.

Question 4

The supply curve of a uniquely talented actor or superstar athlete will be perfectly inelastic.

Accepted Answer

A) True 
 B)False

Question 5

What happens to the equilibrium wage and quantity of labor if output price rises?

Accepted Answer

A) The equilibrium wage and the equilibrium quantity of labor rise. 
B) The equilibrium wage and the equilibrium quantity of labor fall. 
C) The equilibrium wage falls and the equilibrium quantity of labor rises. 
D) The equilibrium wage rises and the equilibrium quantity of labor falls. 
A) The equilibrium wage and the equilibrium quantity of labor rise. 
B) The equilibrium wage and the equilibrium quantity of labor fall. 
C) The equilibrium wage falls and the equilibrium quantity of labor rises. 
D) The equilibrium wage rises and the equilibrium quantity of labor falls.

Question 6

In 2015, the foreign-born population in the United States was almost half of the total U.S.population.

Accepted Answer

A) True 
 B)False

Question 7

Scenario 17-1
In academia, professors in some disciplines receive higher salaries than others. For example, professors teaching in business schools receive higher salaries than professors in the English department. Suppose at Unity College, assistant professors in the business school earn $80,000 while assistant professors in the English department earn $50,000. Now suppose the government passes comparable worth legislation that requires academic institutions to pay all faculty the same salaries.
-Refer to Scenario 17-1.Following the passage of comparable worth legislation, Unity College responds by placing salaries for all assistant professors at $80,000.Which of the following is the result of the legislation?

Accepted Answer

A) The supply of English professors increases; the market for business professors is not affected. 
B) The demand for English professors decreases; the market for business professors is not affected. 
C) There will be a surplus in the market for English professors and a shortage in the market for business professors. 
D) There will be a surplus in the market for English professors and the market for business professors will not be affected. 
A) The supply of English professors increases; the market for business professors is not affected. 
B) The demand for English professors decreases; the market for business professors is not affected. 
C) There will be a surplus in the market for English professors and a shortage in the market for business professors. 
D) There will be a surplus in the market for English professors and the market for business professors will not be affected.

Question 8

Figure 17-3
  
-Refer to Figure 17-3.Which of the panels in the diagram best represents an individual's labor supply curve?

Accepted Answer

A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D 
A) Panel A 
B) Panel B 
C) Panel C 
D) Panel D

Question 9

Compensating differentials are

Accepted Answer

A) non-monetary benefits from being employed, such as health-care benefits. 
B) wages paid to workers where the supply of labor is great relative to demand. 
C) higher wages that compensate workers for unpleasant aspects of a job. 
D) higher wages that compensate the more experienced workers in a field. 
A) non-monetary benefits from being employed, such as health-care benefits. 
B) wages paid to workers where the supply of labor is great relative to demand. 
C) higher wages that compensate workers for unpleasant aspects of a job. 
D) higher wages that compensate the more experienced workers in a field.

Question 10

Wally, Vijay, Sandra, and Consuela make up a software development team at Javasoft.The firm is considering implementing one of two incentive compensation schemes.In scheme A, each programmer receives an annual bonus if he or she meets all individual programming deadlines.In scheme B, members of the team share equally in a joint bonus if the team meets all of its product delivery deadlines.All four employees are equally talented but Wally is a slacker who does as little work as he can get away with.Which scheme might team members prefer? Which scheme will management prefer?

Accepted Answer

Team members (except Wally)prefer scheme

Question 11

One reason why the average salary of Major League Baseball players is higher than the average salary of college professors is

Accepted Answer

A) the careers of most baseball players are much shorter than the careers of most college professors. 
B) the marginal revenue product of baseball players is greater than the marginal revenue product of college professors. 
C) college professors accept lower salaries in exchange for better working conditions. 
D) competition among baseball club owners forces player salaries to be much higher than the players' marginal revenue products. 
A) the careers of most baseball players are much shorter than the careers of most college professors. 
B) the marginal revenue product of baseball players is greater than the marginal revenue product of college professors. 
C) college professors accept lower salaries in exchange for better working conditions. 
D) competition among baseball club owners forces player salaries to be much higher than the players' marginal revenue products.

Question 12

Which of the following variables will not cause the market supply curve of labor to shift?

Accepted Answer

A) increases in population 
B) a favorable change in consumer tastes 
C) a change in the labor participation rate of women 
D) an increase in the number of people between the ages of 16 and 65 
A) increases in population 
B) a favorable change in consumer tastes 
C) a change in the labor participation rate of women 
D) an increase in the number of people between the ages of 16 and 65

Question 13

What is the shape of the labor supply curve implied by the following statements?
a."I'm sorry, kids, but now that I'm earning more, I just can't afford to come home early in the afternoon, so I won't be here when you get home from school."
b."They can pay me a lot or they can pay me a little.I'll still put in my 8 hours a day."
c."Now that I have received a salary increase, I am going to work 36 hours instead of 40 hours a week"

Accepted Answer

a.upward s

Question 14

In general, the supply curve for a natural resource

Accepted Answer

A) is vertical. 
B) is horizontal. 
C) slopes downward to reflect decreasing available quantities over time. 
D) slopes upward. 
A) is vertical. 
B) is horizontal. 
C) slopes downward to reflect decreasing available quantities over time. 
D) slopes upward.

Question 15

In many European countries, it is much easier for unemployed workers to receive generous wage replacement income from their governments than it is in the United States.

Accepted Answer

A) True 
 B)False

Question 16

In the medical profession, pediatricians receive lower salaries than cardiologists.Suppose the government passes comparable worth legislation that requires hospitals to pay pediatricians the same salaries as cardiologists.Explain the effect of this legislation and illustrate your answer with demand and supply graphs for the following two scenarios:
a.hospitals respond by placing salaries at a level between the two existing salaries
b.hospitals respond by placing pediatricians' salaries at the initial level of cardiologists.

Accepted Answer

a.Refer to the diagrams below.
Panel A

Question 17

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labor is the only input.If hiring another worker would increase output by three units per hour, then to maximize profits the firm should

Accepted Answer

A) not change the number of workers it currently hires. 
B) not hire an additional worker. 
C) hire another worker. 
D) There is not enough information to answer the question. 
A) not change the number of workers it currently hires. 
B) not hire an additional worker. 
C) hire another worker. 
D) There is not enough information to answer the question.

Question 18

Figure 17-6
   
Figure 17-6 shows two different compensation schemes for the Vortex Vacuum Cleaner Company.
Under Scheme I, the firm pays a consistent wage of $2,500 per month to all its salespeople for sales up to 20 vacuum cleaners. For sales of 21-30 vacuum cleaners, its salespeople earn $125 per vacuum cleaner, with wages capped at $3,750 per month for sales over 30 vacuum cleaners. If a salesperson has three consecutive months of sales below 20 vacuum cleaners, the person loses his or her job.
Scheme II represents a straight commission, with salespeople earning a commission of $125 per vacuum cleaner sold, with no wage cap.
-Refer to Figure 17-6.Under Scheme I,

Accepted Answer

A) workers compete with each other to see who can sell more than 20 vacuum cleaners in the shortest possible time. 
B) workers have no incentive to sell more than 30 vacuum cleaners. 
C) workers signal their productivity to the firm by consistently selling above 30 vacuum cleaners. 
D) the incentive to increase productivity only occurs for sales of fewer than 20 vacuum cleaners or more than 30 vacuum cleaners. 
A) workers compete with each other to see who can sell more than 20 vacuum cleaners in the shortest possible time. 
B) workers have no incentive to sell more than 30 vacuum cleaners. 
C) workers signal their productivity to the firm by consistently selling above 30 vacuum cleaners. 
D) the incentive to increase productivity only occurs for sales of fewer than 20 vacuum cleaners or more than 30 vacuum cleaners.

Question 19

The total value to society of having garbage removed is greater than the value of baseball games.Why, then, are baseball players paid more than garbage collectors?

Accepted Answer

A) Although the total value of garbage removal is greater than the total value of baseball, wages are determined by average values. 
B) Garbage removal results in significant external benefits that are not captured in the price paid for garbage removal. As a result, wages of garbage collectors do not reflect their social benefits. 
C) There is greater competition in the garbage collection industry than there is in Major League Baseball. 
D) Wages do not depend on total values but marginal values. The marginal revenue product of baseball players exceeds the marginal revenue product of garbage collectors. 
A) Although the total value of garbage removal is greater than the total value of baseball, wages are determined by average values. 
B) Garbage removal results in significant external benefits that are not captured in the price paid for garbage removal. As a result, wages of garbage collectors do not reflect their social benefits. 
C) There is greater competition in the garbage collection industry than there is in Major League Baseball. 
D) Wages do not depend on total values but marginal values. The marginal revenue product of baseball players exceeds the marginal revenue product of garbage collectors.

Question 20

The marginal revenue product of labor is defined as

Accepted Answer

A) the change in the firm's revenue as a result of selling one more unit of output. 
B) the change in the firm's output as a result of hiring one more worker. 
C) the change in the firm's profit as a result of hiring one more worker. 
D) the change in the firm's revenue as a result of hiring one more worker. 
A) the change in the firm's revenue as a result of selling one more unit of output. 
B) the change in the firm's output as a result of hiring one more worker. 
C) the change in the firm's profit as a result of hiring one more worker. 
D) the change in the firm's revenue as a result of hiring one more worker.

A firm's demand curve for labor slopes downwards because

Despite evidence that companies will find it more profitable to use a commission system of compensation rather than a salary system, many companies continue to pay their workers salaries.Which of the following is one reason why firms choose a salary system?

A firm's labor demand curve is also its marginal revenue product curve.For both the perfectly competitive firm and the output price maker, the labor demand curve slopes downwards.However, there is a difference in the reasons why the labor demand curve slopes downwards.What is this difference?

The supply curve of a uniquely talented actor or superstar athlete will be perfectly inelastic.

What happens to the equilibrium wage and quantity of labor if output price rises?

In 2015, the foreign-born population in the United States was almost half of the total U.S.population.

Figure 17-3 -Refer to Figure 17-3.Which of the panels in the diagram best represents an individual's labor supply curve?

Compensating differentials are

One reason why the average salary of Major League Baseball players is higher than the average salary of college professors is

Which of the following variables will not cause the market supply curve of labor to shift?

In general, the supply curve for a natural resource

In many European countries, it is much easier for unemployed workers to receive generous wage replacement income from their governments than it is in the United States.

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labor is the only input.If hiring another worker would increase output by three units per hour, then to maximize profits the firm should

The total value to society of having garbage removed is greater than the value of baseball games.Why, then, are baseball players paid more than garbage collectors?

The marginal revenue product of labor is defined as

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

Public Choice, Taxes, and the Distribution of Income

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Exam 17: The Markets for Labor and Other Factors of Production

A firm's demand curve for labor slopes downwards because

Despite evidence that companies will find it more profitable to use a commission system of compensation rather than a salary system, many companies continue to pay their workers salaries.Which of the following is one reason why firms choose a salary system?

A firm's labor demand curve is also its marginal revenue product curve.For both the perfectly competitive firm and the output price maker, the labor demand curve slopes downwards.However, there is a difference in the reasons why the labor demand curve slopes downwards.What is this difference?

The supply curve of a uniquely talented actor or superstar athlete will be perfectly inelastic.

What happens to the equilibrium wage and quantity of labor if output price rises?

In 2015, the foreign-born population in the United States was almost half of the total U.S.population.

Figure 17-3 -Refer to Figure 17-3.Which of the panels in the diagram best represents an individual's labor supply curve?

Compensating differentials are

One reason why the average salary of Major League Baseball players is higher than the average salary of college professors is

Which of the following variables will not cause the market supply curve of labor to shift?

In general, the supply curve for a natural resource

In many European countries, it is much easier for unemployed workers to receive generous wage replacement income from their governments than it is in the United States.

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labor is the only input.If hiring another worker would increase output by three units per hour, then to maximize profits the firm should

The total value to society of having garbage removed is greater than the value of baseball games.Why, then, are baseball players paid more than garbage collectors?

The marginal revenue product of labor is defined as

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

Public Choice, Taxes, and the Distribution of Income

Filters