Deck 9: Price Takers and the Competitive Process

Question 1

How does competition from nonunion firms and foreign producers affect the ability of a union to increase the wages of its members?

A) Such competition reduces the ability of a union to achieve wage increases.
B) Such competition does not affect the ability of a union to achieve wage increases.
C) Such competition will increase the strength of a union if it produces a product sold in the domestic market but reduce the strength of the union if it produces an export product.
D) The effect of this type of competition will be entirely dependent on the elasticity of demand for labor in the domestic market.

Answer 1

Such competition reduces the ability of a union to achieve wage increases.

Question 2

Union membership as a share of the work force is ____ in states with right-to-work laws. (Fill in the blank)

A) above the national average.
B) below the national average.
C) greater than 50 percent.
D) close to 100 percent.

Answer 2

below the national average.

Question 3

What percentage of the non-farm labor force in the United States belonged to a labor union in recent years?

A) Less than 10 percent.
B) Approximately 11 percent.
C) Approximately 28 percent.
D) More than 40 percent.

Answer 3

Approximately 11 percent.

Question 4

Since 1970, union membership, as a percent of the labor force, has

A) remained virtually unchanged.
B) increased slightly.
C) declined steadily.
D) increased significantly.

Question 5

A strike, or the threat of one, is most likely to be effective when

A) demand for the firm's product is strong.
B) foreign competition for the product is high.
C) the firm has a high product inventory.
D) demand for the product produced by the union workers is highly elastic.

Question 6

Which of the following states had the highest incidence of union membership as a percent of all wage and salary workers in recent years?

A) New York, Hawaii, and Alaska
B) South Carolina, North Carolina, and Mississippi
C) Arkansas, North Carolina, and Texas
D) California, Florida, and Georgia

Question 7

Which of the following is true about union membership?

A) Women are more highly unionized than men.
B) A higher percent of white workers belong to unions than do African-American workers.
C) The proportion of government employees belonging to a union is substantially higher than the proportion of private-sector workers who are union members.
D) There is little difference in incidence of unionization among occupational categories.

Question 8

Over the last five decades, the proportion of workers belonging to a union

A) decreased substantially in the private sector.
B) was approximately constant in the private sector.
C) decreased substantially in the government sector.
D) was approximately constant in the government sector.

Question 9

While most industrial categories have experienced a decline in the percentage of workers unionized, which one of the following categories has seen a significant increase in unionization?

A) Retail trades.
B) The hotel and restaurant industry.
C) The government sector.
D) Automobile manufacturing.

Question 10

Firms will be much more willing to consent to significant wage increases when

A) right-to-work laws are present.
B) the demand for the final product is weak.
C) the firm has low product inventory.
D) the demand for the final product is elastic.

Question 11

Which of the following is most likely to belong to a union?

A) A government employee.
B) A salesperson.
C) A chef at a four-star restaurant.
D) A taxi driver.

Question 12

Which of the following groups is most highly unionized?

A) Private wage and salary workers.
B) Government employees.
C) Technical, sales, and service workers.
D) Women.

Question 13

Which of the following factors will make it easier for a labor union to increase the wages of its members?

A) A highly inelastic demand for the products produced by the union labor.
B) A readily available supply of similar products produced by nonunion labor.
C) Low tariffs and strong competition from foreign firms producing the products supplied by the union labor.
D) A reduction in the demand for the products produced by the union labor.

Question 14

Which of the following states had the lowest incidence of union membership as a percent of all wage and salary workers in recent years?

A) New York, Hawaii, and Alaska
B) South Carolina, North Carolina, and Arkansas
C) Illinois, Michigan, and Ohio
D) Nevada, Hawaii, and Alaska

Question 15

Since 1970, union membership, as a percent of the labor force,

A) has remained virtually unchanged.
B) has increased, as more government workers have decided to unionize.
C) has decreased.
D) has gone through wild swings both up and down.

Question 16

Most studies indicate that during the last two decades, the wages of union members have been approximately

A) 5 percent higher than the wages of similar nonunion workers.
B) 14 to 19 percent higher than the wages of similar nonunion workers.
C) 34 to 39 percent higher than the wages of similar nonunion workers.
D) 64 to 69 percent higher than the wages of similar nonunion workers.

Question 17

Union membership as a percent of the nonagricultural labor force ____ in 1970 to approximately ____ in recent years. (Fill in the blanks)

A) fell from approximately 30 percent; 11 percent
B) rose from approximately 15 percent; 22 percent
C) fell from more than 40 percent; 10 percent
D) rose from approximately 8 percent; 40 percent

Question 18

Which of the following states had the highest incidence of union membership as a percent of all wage and salary workers in recent years?

A) New York
B) Arkansas
C) North Carolina
D) California

Question 19

Laws that prohibit collective bargaining agreements requiring a worker to join a union as a condition of employment are called

A) collective bargaining agreements.
B) minimum wage laws.
C) union shop laws.
D) right-to-work laws.

Question 20

Which of the following most accurately indicates changes in the size of the union sector in the United States?

A) As a share of the labor force, union membership grew substantially during 1935 through 1955 but has declined substantially since the mid-1950s.
B) As a share of the labor force, union membership declined substantially during 1935 through 1955 but has grown substantially since the mid-1950s.
C) As a share of the labor force, union membership has steadily grown from less than 10 percent in 1935 to more than 40 percent today.
D) Union membership has been approximately 20 percent of the labor force during the last five decades.

Question 21

Since the demand for a narrowly defined product class (Fords, for example) is more elastic than the demand for a broadly defined product class (all automobiles), a union will be better able to raise the wages of its members without causing a reduction in their employment when

A) it can organize an entire industry, rather than just selective firms within the industry.
B) it concentrates its organizational efforts on a single firm, ignoring the rest of the industry.
C) the demand for the product is highly elastic.
D) there are many good substitutes for union labor.

Question 22

Union membership will be more attractive from the worker's viewpoint if

A) the demand for the union labor is highly inelastic.
B) the supply of union labor is highly elastic.
C) only a few of the firms in the industry are unionized.
D) the membership dues charged by the union are extremely high.

Question 23

Which of the following will tend to lower the ability of a union to increase the wages of its members?

A) Strong competition from nonunion labor.
B) Threat of a strike.
C) Increased demand for union labor.
D) All of the above.

Question 24

Which of the following factors will reduce considerably the ability of a union to raise the wages of its workers?

A) An elastic demand for the goods produced by union labor.
B) A five-year apprenticeship before one can qualify for jobs held by union members.
C) High tariffs on goods produced by the union labor.
D) Favoritism in the allocation of government contracts to firms that employ union labor.

Question 25

Which of the following statements is true for the U.S. economy?

A) Higher wages in the unionized sectors of the economy push up wages in the nonunion sectors as well.
B) Inflation tends to accelerate when the proportion of the labor force that is unionized increases.
C) Union workers currently receive wages that are 15 to 20 percent higher, on average, than similar nonunion workers.
D) When we compare similar union and nonunion workers, we find virtually no difference in the wages they receive.

Question 26

The demand for unionized labor will generally be more elastic, and it will be more difficult for the union to achieve above-equilibrium wages when

A) there are no close substitutes for the unionized workers.
B) the domestic producers of the good produced by the unionized workers face weak competition from foreign suppliers of the good.
C) the cost of employing the unionized workers is a large part of the total cost of the product that they produce.
D) the demand for the product produced by the unionized workers is highly inelastic.

Question 27

"If a union is only able to organize a few of the firms in an industry, it is unlikely that the union can substantially increase the wages of its members." This statement is

A) false; unions tend to be stronger when they concentrate on only a few producers in an industry.
B) false; the demand for unionized workers will be more inelastic if only a few firms in the industry are unionized.
C) false; all unions can increase the wages of their members.
D) essentially correct.

Question 28

As the football season approaches, the threat of a player strike would give

A) both players and management an incentive to bargain seriously.
B) only the players an incentive to bargain seriously.
C) only management an incentive to bargain seriously.
D) neither party much incentive to bargain seriously.

Question 29

Which of the following factors will reduce considerably the ability of a union to raise the wages of its workers?

A) An elastic demand for the goods produced by union labor.
B) Weak foreign competition for the product union labor helps to produce.
C) High tariffs on goods produced by the union labor.
D) Favoritism in the allocation of government contracts to firms that employ union labor.

Question 30

Which of the following will tend to increase the ability of a union to increase the wages of its members?

A) Almost all of the firms in the industry are unionized.
B) Foreign competition for the product produced by the union labor is intense.
C) There is a reduction in the demand for union labor.
D) The demand for the product produced by the union labor is highly elastic.

Question 31

Which of the following will limit the ability of a union to push the wages of its members much above competitive levels?

A) The presence of nonunion firms that produce the same product as the unionized labor.
B) Foreign competition in the market for the product produced by the unionized labor.
C) A highly elastic demand for the product supplied by the unionized labor.
D) All of the above.

Question 32

When a union successfully raises the wages of its members, it will also

A) increase total productivity, which will generally increase in proportion to the wage rate.
B) encourage employers to purchase more of the union labor.
C) increase the share of income allocated to labor as opposed to capital.
D) increase the employer's incentive to find substitutes for union labor.

Question 33

The demand for union labor is usually determined by

A) the number of union members.
B) the strength of the union.
C) the total value of the union labor in the production process.
D) market conditions outside the union's direct control.

Question 34

The demand for unionized labor will generally be more elastic, and it will be more difficult for the union to achieve above-equilibrium wages when

A) there are many close substitutes for the unionized workers.
B) trade barriers limit the importation of the product produced by the unionized workers.
C) the cost of employing the unionized workers is a small part of the total cost of product that they produce.
D) the demand for the product produced by the unionized workers is highly inelastic.

Question 35

The experience of the Teamsters in the late 1970s and early 1980s suggests that

A) there are few restraints on the ability of a strong union to increase the wages of its members.
B) product market competition with goods made from (or services provided by) nonunion labor significantly limits the ability of a union to get increased wages for its members.
C) higher wages tend to stimulate aggregate demand, which makes it easier for a union to gain still higher wages.
D) wages are established by the relative skill of union and management negotiators, independent of market conditions.

Question 36

How does competition from nonunion firms and foreign producers affect the ability of a union to increase the wages of its members?

A) Such competition makes it easier for the union to achieve wage increases.
B) Such competition reduces the ability of a union to achieve wage increases.
C) Such competition does not affect the ability of a union to achieve wage increases.
D) Such competition will increase the strength of a union if it produces a product sold in the domestic market but will reduce the strength of the union if it produces an export product.

Question 37

Which of the following would be an expected result of substantially higher wages in the U.S. automobile industry?

A) An increase in the real wages of workers outside the industry.
B) An increase in the price of automobiles produced in the United States.
C) A reduction in the demand for foreign-produced automobiles.
D) An increase in the profit rate of U.S. automobile producers.

Question 38

A union representing a group of workers will tend to be stronger when

A) there are no good substitutes for the labor services of the unionized workers.
B) the domestic producers of the good produced by the unionized workers face intense competition from foreign suppliers of the good.
C) the cost of employing the unionized workers is a large part of the total cost of the product that they produce.
D) the demand for the good produced by the unionized workers is highly elastic.

Question 39

When a union successfully raises the wages of its members, it will also

A) increase total productivity, which must rise in proportion to the wage rate.
B) encourage employers to find a substitute for the union labor.
C) raise the wages of nonunion workers.
D) increase the share of income allocated to labor as opposed to capital.

Question 40

Which of the following is most likely to be associated with a strong union?

A) The demand for the products produced by the unionized labor is highly elastic.
B) There are few good substitutes for the products produced by the unionized labor.
C) It is easy to substitute capital for the labor of the union members.
D) Union labor composes a large proportion of the total cost of the product that they help produce.

Question 41

The share of the labor force that was unionized fell from more than 30 percent in the 1950s to less than 15 percent in the 2000s. During this time period, the share of national income allocated to labor (in contrast to capital)

A) decreased by approximately 10 percent.
B) decreased by more than 15 percent.
C) increased by 10 percent.
D) was virtually unchanged.

Question 42

Data on the relationship between the percentage of the workforce unionized and the share of national income allocated to labor suggest that unionization has

A) greatly altered the labor-capital distribution of national income.
B) increased the share of national income allocated to labor.
C) had a positive effect on the wages of nonunion workers.
D) had no significant impact on the share of income going to labor.

Question 43

The share of the labor force that was unionized increased from 7.4 percent in 1930 to more than 30 percent in 1955. During these 25 years, the share of national income allocated to labor (in contrast to capital)

A) increased approximately 10 percent.
B) increased 17.6 percent.
C) fell 20 percent.
D) was virtually unchanged.

Question 44

List some factors that might make the threat of a strike more effective.

Question 45

What characteristics of both the product market and the labor market enhance the likelihood that a union will be effective?

Question 46

To the extent that unions can transfer profits from unionized employers to union workers, they will

A) reduce the incentive of unionized employers to invest in fixed capital and research.
B) increase employment in the unionized sector.
C) reduce the incentive of nonunion firms to invest and expand their output.
D) increase the productivity of labor in the long run.

Question 47

Why is it that the airline pilots union will likely be stronger and more effective than the fruit pickers union?

Question 48

What is the primary source of higher real wages?

A) Labor unions.
B) The threat of a strike by a union.
C) Increases in productivity.
D) Increases in the supply of money.

Question 49

As the percentage of the labor force belonging to a union fell in the United States during the 1955 through early 2000 period, the share of national income going to labor

A) increased 10 percent.
B) remained approximately the same.
C) decreased 10 percent.
D) decreased 20 percent.

Question 50

In a strike, what does the union have to lose? What does management lose?

Question 51

A former union employee states: "We were on strike for two years. I know the eventual wage increase we received will never make up for the wages I lost, but I think the strike was worth it. We forced the company to give in to our demands." Evaluate these comments.

Question 52

Regarding the impact of unions on wages of all workers, which of the following statements is correct?

A) Approximately 50 percent of our national income is allocated to human capital, while the remaining 50 percent is allocated to physical capital in the form of rents, interest, and corporate profits.
B) As union membership as a share of the U.S. labor force has declined during the last three decades, the share of national income allocated to physical capital has risen.
C) Unions have consistently opposed minimum wage legislation because it tends to cause unemployment.
D) During the past several decades, the share of output going to capital has been virtually constant, even though union membership as a share of the labor force has decreased.

Question 53

An increase in the percentage of the labor force that is unionized will cause average wages for all workers to rise because

A) union labor is more productive.
B) profit levels are lowered to increase wages.
C) strike threats promote wage increases.
D) This is a trick question because greater unionization does not imply higher average wages.

Question 54

The share of the labor force that was unionized increased from approximately 10 percent in 1930 to more than 30 percent in 1955. During these 25 years, the share of national income allocated to labor (in contrast to capital)

A) remained virtually constant.
B) increased approximately 10 percent.
C) increased between 15 and 25 percent.
D) increased 17.6 percent.

Question 55

Which of the following is most likely to occur if a union can transfer profits from a unionized employer to union workers?

A) The investment expenditures of the unionized employer will tend to fall.
B) Employment in the nonunion sector will tend to fall.
C) The costs of the unionized employer will tend to fall.
D) The output of the unionized employer will tend to increase.

Question 56

What common goals, if any, do labor and management share?

Question 57

Which of the following statements is true concerning the impact of unions on wages of all workers?

A) The share of income going to labor has increased during periods when union membership has increased as a proportion of the U.S. labor force.
B) Inflation in the United States has tended to accelerate as the proportion of the U.S. labor force that is unionized has increased.
C) Higher wages in the unionized sectors of an economy will also push up wages in the nonunion sectors.
D) High real wages cannot be achieved and sustained without increases in output per worker hour.

Question 58

Union membership has fluctuated during the last several decades. Which of the following statements best describes the effect of unions on the share of total output allocated to labor?

A) The share of output going to labor has been virtually constant, even though union membership as a share of the labor force has fluctuated.
B) The share of total output going to labor has followed the same pattern as the business cycle in recent years.
C) The share of total output going to labor rose as union membership rose from 1945 to 1960 and fell as union membership declined during the 1960 through 2000 period.
D) The share of total output going to labor has increased substantially, even though during the last several decades union membership has declined.

Question 59

Measured as a share of the labor force, union membership was at its highest level in the United States during the

A) 1930s.
B) 1950s.
C) 1970s.
D) 1990s.

Question 60

If a firm operates in a competitive industry and its unionized labor force is successful in bargaining for a wage increase, where is the firm likely to get the money to pay the higher wages?

Question 61

In competitive price-taker markets, firms

A) can sell all of their output at the market price.
B) produce differentiated products.
C) can influence the market price by altering their output level.
D) are large relative to the total market.

Question 62

Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should

A) shut down during the winter, even if it is able to cover its variable costs during that period.
B) continue operating during the winter months if it is able to cover its variable costs.
C) go a out of business immediately; losses should never be tolerated.
D) lower its prices during the summer months.

Question 63

Use the figure to answer the following question(s).
Figure 9-4
At the market price of $6 in Figure 9-4, indicate the firm's total revenue and total cost at its profit-maximizing level of output.

A) total revenue, $30 million; total cost, $22.5 million (approx.)
B) total revenue, $30 million; total cost, $30 million
C) total revenue, $40 million; total cost, $30 million
D) total revenue, $48 million; total cost, $38 million (approx.)

Question 64

When we say that a firm is a price taker, we are indicating that the

A) firm takes the price established in the market then tries to increase that price through advertising.
B) firm can change output levels without having any significant effect on price.
C) demand curve faced by the firm is perfectly inelastic.
D) firm will have to take a lower price if it wants to increase the number of units that it sells.

Question 65

Use the figure to answer the following question(s).
Figure 9-4
Figure 9-4 indicates the cost conditions for a firm operating in a price-taker market. If the market price of the firm's product is $6, what action will maximize the firm's profit?

A) go out of business since it cannot make a profit
B) produce an output of 3 million
C) produce an output of 5 million
D) produce an output of 6 million

Question 66

Use the figure to answer the following question(s).
Figure 9-5
If the market price in Figure 9-5 fell to $2.50, what should the firm do?

A) raise its price
B) shut down and wait for conditions to improve
C) continue operating in the short run if it expects conditions to improve
D) go out of business immediately

Question 67

Use the figure to answer the following question(s).
Figure 9-5
If the market price in Figure 9-5 increases to $4, what output should the firm produce, and what would be the firm's maximum profit?

A) output, 3; maximum profit, $3 loss
B) output, 5; maximum profit, zero
C) output, 5; maximum profit, slightly less than $5
D) output, 6; maximum profit, slightly less than $6

Question 68

Figure 9-2
Figure 9-2 illustrates a firm

A) capable of earning economic profit.
B) that is only able to break even when it maximizes profit.
C) taking economic losses.
D) that should shut down immediately.

Question 69

When market conditions in a price-taker market are such that firms cannot cover their production costs,

A) the firms will suffer long-run economic losses.
B) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits.
C) some firms will go out of business, causing prices to rise until the remaining firms can cover their production costs.
D) all firms will go out of business, since consumers will not pay prices that enable firms to cover their production costs.

Question 70

Use the figure to answer the following question(s).
Figure 9-5
The cost conditions for a profit-maximizing firm operating in a price-taker market are indicated in Figure 9-5. If the market price was $3, what output should the firm produce, and what would be the firm's maximum profit?

A) output, 3; maximum profit, $3 loss
B) output, 5; maximum profit, zero
C) output, 5; maximum profit, $5
D) output, 6; maximum profit, $6

Question 71

If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect

A) the demand for the products of this industry to increase.
B) the market price of the products of this industry to decrease in the short run but not in the long run.
C) the firms in the industry to make long-run economic profit.
D) competition to force producers to pass the lower production costs on to consumers in the long run.

Question 72

When firms in a price-taker market are temporarily able to charge prices that exceed their production costs,

A) the firms will earn long-run economic profit.
B) additional firms will be attracted into the market until price falls to the level of per-unit production cost.
C) the firms will earn short-run economic profits that will be offset by long-run economic losses.
D) the existing firms must be colluding or rigging the market, otherwise, they would be unable to charge such high prices.

Question 73

Figure 9-1
Figure 9-1 shows the marginal and average total cost curves for a firm producing product A. What would be the minimum price this firm could charge and still continue to supply A to the market in the long run?

A) $4
B) $5
C) $6
D) $8

Question 74

Which of the following is a primary difference between price searchers and price takers?

A) Price searchers maximize profits, but price takers do not.
B) Price searchers have to cut their price to sell additional output, but price takers do not.
C) The market demand for goods produced by price searchers is downward sloping, while the market demand for goods produced by price takers is horizontal.
D) Profit-maximizing price searchers will expand output to the quantity where marginal revenue equals marginal cost, but price takers will not.

Question 75

Use the figure to answer the following question(s).
Figure 9-4
If the market price of the product in Figure 9-4 rose to $8, indicate the firm's profit-maximizing output and total revenue.

A) output, 5 million; total revenue, $30 million
B) output, 5 million; total revenue, $40 million
C) output, 6 million; total revenue, $10 million (approx.)
D) output, 6 million; total revenue, $48 million

Question 76

Use the figure to answer the following question(s).
Figure 9-3
Figure 9-3 depicts the cost curves of a firm in a price-taker industry. At what output would the firm's per-unit cost be at a minimum?

A) 100
B) 125
C) 150
D) an output greater than 150

Question 77

Use the figure to answer the following question(s).
Figure 9-3
For Figure 9-3, if the market price is $30, indicate the firm's profit-maximizing output and maximum profit.

A) profit-maximizing output, 125; maximum profit, zero
B) profit-maximizing output, 125; maximum profit, between $1,000 and $1,250
C) profit-maximizing output, 150; maximum profit, $1,500
D) profit-maximizing output, 150; maximum profit, between $1,250 and $1,500

Question 78

When the price of a product rises, the increase in quantity supplied will generally be greater in the long run than the short run because

A) producers maximize short-run, not long-run, profits.
B) over time, new firms will enter the industry and old firms will expand their operations in response to the price increase.
C) consumers are less resistant to higher prices in the long run than in the short run because they have fewer options in the long run.
D) consumer income will expand in the long run, causing resource prices to rise, which will induce producers to increase output.

Question 79

In price-taker markets, individual firms have no control over price. Therefore, the firm's marginal revenue curve is

A) a downward-sloping curve.
B) indeterminate.
C) constant at the market price of the product.
D) precisely the same as the firm's total revenue curve.

Question 80

If marginal revenue exceeds marginal cost, a price-taker firm should

A) expand output.
B) reduce output.
C) lower its price.
D) do both a and c.