Exam 18: Factor Markets and the Distribution of Income

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

As the _____ of labor used in production increases, ceteris paribus, eventually the _____ will _____.

The marginal productivity theory of income distribution is based on the assumption that factor markets are perfectly competitive.

An input differs from a factor of production in that the former gets used up in production, while the latter is an enduring source of income for its owner.

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

The fact that members of labor unions often have higher wages than workers who are not members of a union is proof that the marginal productivity theory of income distribution is not valid.

Use the following to answer question : -(Table: Droids and Moisture Output) Look at the table Droids and Moisture Output. Luke Skywalker uses droids to operate a moisture farm in a perfectly competitive market on the planet Tatooine. A barrel of moisture sells for 50 republic credits. A droid costs 675 republic credits per month to rent. How many droids should Luke rent?

Suppose the government increases the child tax credit, which increases the after-tax income of families with children. How will this decision affect the amount of labor supplied by parents, assuming that leisure is a normal good?

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 greater than the average of all of the machinists employed.

If the hourly wage increases from $8 to $10 an hour and in response Jim increases the number of hours that he works from 44 to 46, the income effect is dominant.

Holly and Emily both have a BS in nursing from the same college. Both have been nurses for eight years. Holly works from 11 P.M. until 7 A.M., and Emily works from 7 A.M. until 3 P.M. Holly's salary is $1,000 per month higher than Emily's salary. This is an example of a wage disparity due to a compensating differential.

When labor is hired in a competitive market, the value of the marginal product of labor is computed by:

In the factor market for land, equilibrium rental prices will be _____ the value of marginal product of land.

Suppose a firm sells a good for a perfectly competitive price of $5. The equilibrium wage rate is $10. The first worker it hires produces five units. Two workers produce a total of nine units. Given this information, the firm will:

Which of the following is NOT a factor of production at a college?

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 $4 and the wage rate is $160 per hour, the profit-maximizing quantity of labor is _____ worker(s).

A shift in demand for a given factor of production will NOT occur if:

Assume that perfect competition exists in output and factor markets. The P = MC rule for profit maximization implies the same level of labor use that would be implied by using the VMPL = W rule.

The opportunity cost of an hour of leisure is the hourly wage rate.

The equilibrium value of the marginal product of a factor is the additional value produced by the last unit of that factor employed in the factor market as a whole.