Deck 12: Labour Market Applications

Question 1

In a monopsony labour market, effective minimum wage legislation:

A)redistributes income from minimum wage employees to firms.
B)redistributes income from minimum wage workers to consumers.
C)increases employment in minimum wage industries.
D)reduces market efficiency.

Answer 1

increases employment in minimum wage industries.

Question 2

The distribution of wealth and income:

A)is a sign of divine justice.
B)can be improved upon.
C)reflects the handiwork of human beings.
D)stems directly from traditions and customs.

Answer 2

reflects the handiwork of human beings.

Question 3

The negative income tax provides low income people with:

A)a lump sum transfer and low marginal income tax rate.
B)a guaranteed job in a high wage sector.
C)a lump sum transfer and high marginal income tax rate.
D)a lump sum transfer and 100% marginal income tax rate.

Answer 3

a lump sum transfer and low marginal income tax rate.

Question 4

The link between the redistribution and efficiency:

A)is weak.
B)is in the purview of political scientists, not economists.
C)is not analyzed by economists.
D)represents a tradeoff.

Question 5

Standard welfare systems are:

A)inefficient because they discourage recipients from working.
B)ineffective programs for encouraging technological innovation.
C)effective institutions for equalizing the income distribution.
D)efficient because they rely on lump sum taxes.

Question 6

A wage floor in a two- sector model does all of the following except:

A)reallocate workers to the low wage sector.
B)allocate workers to their most productive jobs.
C)reduce wages for unprotected workers.
D)cause some workers to be underemployed.

Question 7

Which of the following are not determinants of income distribution?

A)preferences
B)fairness
C)human capital investments
D)luck

Question 8

Which set of institutions guarantees that input owners receive their VMP?

A)perfect competition
B)cooperative ownership
C)voluntary not- for- profit agencies
D)the U.N. Charter

Question 9

In market 1, the demand for labour is w₁ = 100 - z₁, where w₁ is the wage rate and z₁ is the number of workers. Similarly, in market 2 the demand for labour is w₂ = 100 - z₂. There are 100 workers to be allocated to the two markets, and workers are concerned only with their expected wage. If the two labour markets are competitive, then in equilibrium workers are allocated to the two markets in which of the following ways?

A)60 workers to market 1 and 40 to market 2
B)70 workers to market 1 and 30 to market 2
C)50 workers to market 1 and 50 to market 2
D)40 workers to market 1 and 60 to market 2

Question 10

The topping- up mechanism:

A)applies only to market economies.
B)is clearly inconsistent with Pareto optimality.
C)applies only to command economies.
D)refers to environmental friendliness.

Question 11

In Canada, women typically earn less than men in the same occupation. One general explanation for the wage difference is that

A)supply of women is larger and men and women compete in different markets
B)demand for men is smaller and men and women compete in the same market
C)demand for men is Smaller and men and women compete in different markets
D)supply of women is larger and men and women compete in the same market

Question 12

Minimum wages typically apply to unskilled workers. Which of the following would lead unionized workers to push for higher minimum wages

A)higher minimum wages mean union workers provide less effort
B)excess supply in one market is accompanied by excess demand in another
C)unionize workers try to do what's best for all workers
D)higher minimum wages cause inflation and push- up union wages

Question 13

A union wage is like a minimum wage in that it does all of the following except:

A)increase employment in monopsony markets.
B)decrease employment in competitive markets.
C)increase income equality.
D)increase efficiency in monopsony markets.

Question 14

In the Canadian economy, wage rates for various types of labor are determined primarily by:

A)the federal government.
B)the provincial governments.
C)the supply and demand for the various types of labor.
D)businesses.

Question 15

Superstar markets exist in:

A)PC sales but not in CD market.
B)athletics but not entertainment.
C)book sales but not in the market for clerical jobs.
D)music but not in academia.

Question 16

The market for superstars is best characterized by:

A)"there is plenty of talent in Hollywood but there is only one Tom Cruise."
B)"Tiger Woods is not paid at marginal cost for his performance".
C)"Kylie Minogue is paid $4 million per concert".
D)"five bad actors don't make one Tom Hanks."

Question 17

The supply of labour to a monopsonistic firm is w = 10 + z, where w is the wage rate and z is quantity of labour. The firm's MRP = 70 - z. The firm employs only labour. Relative to the monopsony equilibrium, the aggregate payment to labour will not decrease if the maximum wage is:

A)less than $60.
B)less than $55.
C)less than $50.
D)less than $45.

Question 18

An individual has zero non- labour income and a wage rate of $5 per hour, which allows the individual to attain an indifference curve. If the social objective is to allow the individual to attain a higher indifference curve, then a:

A)lump- sum transfer is the cheapest way to attain the objective.
B)negative income tax is the cheapest way to attain the objective.
C)topping up mechanism is the cheapest way to attain the objective.
D)wage subsidy is the cheapest way to attain the objective.

Question 19

The size of everyone's slice of the economic pie is determined by:

A)input endowments.
B)input endowments and prices.
C)prices formed in the input markets.
D)tradition.

Question 20

A fundamental reality of the market system is that:

A)intentions are rewarded.
B)hard work is rewarded.
C)intelligence is rewarded.
D)scarcity is rewarded.

Question 21

The efficient transfer mechanism:

A)is similar to the topping- up mechanism.
B)cannot be employed to help poor people.
C)is easy to implement in real world.
D)is using a lump- sum transfer to insure efficiency.

Question 22

Consider a labour market initially in competitive equilibrium. The introduction of an effective minimum wage:

A)will decrease employment.
B)may increase employment.
C)will decrease the wage rate in the long run.
D)will reduce the average earnings of those employed in the initial competitive equilibrium.

Question 23

After the reunification of East and West Germany wage rates

A)rose in the west and fell in the east
B)fell in both the east and west
C)rose in both the east and west
D)fell in the west and rose in the east

Question 24

The current prevalence of the market for superstars:

A)is the proliferation of large networks.
B)cannot be explained by economists.
C)is a passing fad.
D)is consistent with the advent of the internet.

Question 25

In a competitive labour market inefficiency is signaled by:

A)decreased profit to firms.
B)increased income equality.
C)increased profit to firms.
D)unemployment or underemployment.

Question 26

Most labour markets are characterized by:

A)mechanisms similar to the ones operating in the markets for superstars.
B)pricing at marginal cost.
C)incomes constrained by the ability to produce large volumes of goods and services.
D)perfect competition.

Question 27

A monopsony is characterized by the presence of:

A)a single buyer in the input market.
B)a single seller in the output market.
C)a competitive buyer in the input market.
D)a competitive seller in the output market.

Question 28

An efficient transfer mechanism:

A)attempts to transfer as much income as possible.
B)is not redistributional in nature.
C)is an income- maintenance institution.
D)is necessarily Pareto optimal.

Question 29

The negative income tax:

A)is a tax on the poor.
B)is a utility- maintenance mechanism.
C)is a combination of the efficient transfer mechanism and the topping- up mechanism.
D)is not a transfer mechanism.

Question 30

Minimum wages set above the equilibrium wage causing increase in total labor income if

A)demand for labor is elastic
B)supply of labor is inelastic
C)demand for labor is inelastic
D)supply of labor is elastic

Question 31

Which of the factors below does not influence the distribution of income?

A)government policies such as minimum wage
B)the presence of labour markets
C)preferences of the actors involved
D)the distribution of talent

Question 32

The supply of labour to a monopsonistic firm is w = 10 + z, where w is the wage rate and z is quantity of labour. The firm's MRP = 70 - z. The firm employs only labour and a minimum wage is imposed on the firm. Relative to the initial monopsony equilibrium, the minimum wage will induce the firm to increase employment if the minimum wage is:

A)less than $30.
B)less than $50.
C)larger than $20, but less than $40.
D)larger than $30, but less than $50.

Question 33

An income maintenance mechanism is represented by:

A)economics of superstars.
B)the taxation system.
C)the minimum wage.
D)the topping- up mechanism.

Question 34

The topping- up mechanism:

A)does not offer any perverse incentives.
B)is similar with the negative income tax.
C)can function in the most general set of circumstances.
D)encourages potential recipients to give up work.

Question 35

In a monopsony labour market without minimum wage legislation, a firm's MFC is:

A)flatter than the supply of labour at all wages.
B)identical to the supply of labour at all wages.
C)horizontal while the wage is greater than the supply of labour.
D)steeper than the supply of labour at all wages.

Question 36

A wage- setting union in a monopsonistic market:

A)can raise both wages and employment above the level set by the monopsonist.
B)can raise wages above the level set by the monopsony but only if it allows employment to fall below the level set by the monopsonist.
C)gains its wage and employment demands by presenting the employer with a perfectly inelastic supply of labour.
D)can raise wages to what would be the competitive level but no higher.

Question 37

The reason for the efficient transfer mechanism being impractical:

A)it focuses on income levels, not utility.
B)is not related to the ability to assess people's budget line.
C)is related to the lack of fairness.
D)is the impossibility of identifying the appropriate utility curve for each person.

Question 38

Historical records suggest that that the Black Death of the 14th and 15th centuries

A)decreased labor productivity
B)increased labor productivity
C)reduced labor's share of output
D)caused a shift of wealth from peasants to landowners

Question 39

The topping- up mechanism:

A)is not unlike the welfare system present in western economies.
B)does not apply to emerging market economies.
C)focuses on utility levels, not income levels.
D)can hardly be considered an income- maintenance program.

Question 40

Economists rank various methods of redistribution:

A)by their ability to minimize the adverse consequences in terms of efficiency.
B)according to their ethical content.
C)using the Pareto efficiency criterion.
D)according to their implicit degree of fairness.

Question 41

The concept of Pareto optimality:

A)helps philosophers assess what is just in terms of distribution of incomes.
B)represents an yardstick used to measure how well the markets distribute income.
C)is synonymous with economic efficiency.
D)brings about the consensus on what is fair in terms of distribution of wealth and income.

Question 42

At one point in time, a company had monopsony power in the town of Cornwall's labor market. But over time, new businesses moved to the area and the monopsony power was broken. What happened when the company lost its monopsony power?

A)Wage rates in Cornwall decreased.
B)Workers left the town in search of another monopsony market.
C)Wage rates in Cornwall increased.
D)The price of goods sold by the Cornwall company decreased.

Question 43

In a competitive labour market, effective minimum wage legislation:

A)increases market efficiency.
B)redistributes income from consumers to minimum wage workers.
C)redistributes income from firms to minimum wage employees.
D)increases employment in minimum wage industries.

Question 44

In market 1, the demand for labour is w₁ = 100 - z₁, where w₁ is the wage rate and z₁ is the number of workers. Similarly, in market 2 the demand for labour is w₂ = 100 - z₁. There are 100 workers to be allocated to the two markets, and workers are concerned only with their expected wage. Supposing that there is a minimum wage of $80 in market 1, and assuming that workers must choose to work in market 2 at a market clearing wage, or to search for work in market 1, the allocation of workers to the two markets which equalizes the expected wage rates in the two markets is:

A)45 workers to market 1 and 55 to market 2.
B)55 workers to market 1 and 45 to market 2.
C)60 workers to market 1 and 40 to market 2.
D)40 workers to market 1 and 60 to market 2.

Question 45

An income maintenance program:

A)creates incentives for new labourers ti join the workforce.
B)tries to provide equal utility to all individuals.
C)tries to equalize incomes across individuals.
D)tries to undermine the market.

Question 46

The markets playing the most important role in the distribution of income are:

A)the money market.
B)the political markets.
C)the goods & services market.
D)the input markets.

Question 47

A potential explanation for wage differences between men and women is that most employers have a preference from the workers. if that explanation is correct which of the following would not be true?

A)Women will self select into firms that don't discriminate
B)the marginal product of female labor would rise
C)As female labor force participation increased the gap between wages would increase
D)Firms are maximizing profits

Question 48

The topping- up mechanism:

A)insures Pareto optimality.
B)is the most efficient transfer mechanism available.
C)is also called the negative income tax.
D)is a version of the welfare system.

Question 49

The fact that Lady Gaga earns tens of millions of dollars every year:

A)is due to the lack of substitutability between quality and quantity.
B)is highly unfair.
C)cannot be explained by the mechanism driving the New York Times bestseller list.
D)is a matter of luck.

Question 50

Consider the labour market in which there is just one employer, a monopsonist. The introduction of an effective minimum wage:

A)will cause the firm to go out of business.
B)will fix the wage rate in the long run.
C)will change the level of employment.
D)will decrease the wage rate in the long run.

Question 51

The challenge facing redistributionists is to redistribute income:

A)in the face of entrenched interests.
B)as quickly as possible.
C)in a society of apathetic voters.
D)while reducing adverse efficiency effects.

Question 52

Which of the following generate deadweight losses to consumers and firms?

A)the efficient transfer mechanism
B)the market for superstars
C)minimum wages
D)rent control but not taxes

Question 53

In a monopsony labour market with minimum wage legislation, a firm's MFC is:

A)identical to the supply of labour at all wages.
B)horizontal while the wage is greater than the supply of labour.
C)steeper than the supply of labour at all wages.
D)flatter than the supply of labour at all wages.

Question 54

In the markets for superstars:

A)the individuals competing are relatively numerous.
B)the difference in talent between the ones that make it an those that don't is significant.
C)highly talented individuals earn disproportionately higher wages.
D)the homogeneity of incomes is similar with the ones of many professions.

Question 55

An increase in the percentage of the labor force that is unionized:

A)will cause average wages for all workers to rise because strike threats promote wage increases.
B)does not imply higher average wages for union members.
C)will cause average wages for all workers to rise because union labor is more productive.
D)will cause average wages for all workers to rise because profit levels are lowered to increase wages.

Question 56

Minimum wage brings about inefficiency:

A)because workers now fight for the better paying jobs.
B)because it is geared toward the poor.
C)because higher wages lead to letdown.
D)because labour is no longer put to its most productive uses.

Question 57

Suppose that the equilibrium wage in the low- skilled labor market is $6.25 per hour. Further, suppose the federal government raises the minimum wage to $6.00 an hour from its present level of
$5.15. The government's action of increasing the minimum wage will result in:

A)a shortage of low- skilled labor.
B)an increase in unemployment.
C)a decrease in unemployment.
D)neither a shortage nor a surplus of labor in the low- skilled labor market.

Question 58

In market 1, the demand for labour is w₁ = 100 - z₁, where w₁ is the wage rate and z₁ is the number of workers. Similarly, in market 2 the demand for labour is w₂ = 100 - z₁. There are 100 workers to be allocated to the two markets, and workers are concerned only with their expected wage. Now suppose that there is a minimum wage in market 1 equal to $80, and that market 2 is again perfectly competitive. If 50 workers choose to work in market 2, and 50 choose to search for work in market 1, then the wage rate in market 2 will be $50, and the expected wage rate in market 1 will be:

A)$32.
B)$40.
C)$50.
D)$55.

Question 59

Which of the following is not an aspect of the argument for reducing inequality in the income distribution?

A)People are self- interested.
B)Moral judgments must be impersonal.
C)People accept risk.
D)Impersonal judgments lead to equal incomes.

Question 60

The supply of labour to a monopsonistic firm is w = 10 + z, where w is the wage rate and z is quantity of labour. The firm's MRP = 70 - z. The firm employs only labour. The wage rate which maximizes the firm's profit is:

A)$20.
B)$40.
C)$30.
D)$50.

Question 61

A head tax imposed on each individual in the country will:

A)cause a shift along the supply curve.
B)reduce the nominal wage rate.
C)cause a shift of the supply curve.
D)increase the nominal wage rate.

Question 62

One seemingly valid explanation for wage differentials between men and women is

A)women have a lower value of leisure than men
B)men are physically larger and therefore more productive
C)men generally have more work experience than women of the same age
D)consumers value the goods produced by men more than those produced by would

Question 63

Provide a few examples illustrating how luck plays a role in the distribution of income.

Question 64

Male athletes typically earn more than female athletes because

A)male athletes perform better than female athletes
B)sports are typically watched by men and men prefer to watch men play sports
C)male athletes self select into high- paying sports
D)male athlete higher probability of injury

Question 65

In competitive markets, economic actors are paid the value of their marginal product. Does this mean that markets are more important in determining the level of income than sheer talent?

Question 66

Discuss the effect of a head tax imposed on each individual in the country on the supply of labor of each employee.

Question 67

The negative income tax:

A)is similar with the topping- up mechanism.
B)provide a simple scheme to redistribute income to poorer members of society.
C)introduces less inefficiency than the one associated with the topping- up mechanism.
D)encourages potential recipients to give up work.

Question 68

Even in the unlikely case in which all individuals in the economy would be identical in terms of abilities, their preferences and therefore their choices would affect the distribution of income. Illustrate this process through a few examples.

Question 69

Which of the following affect the distribution of income?

A)inheritance but not luck.
B)rules and regulations
C)fairness.
D)talent but not effort.

Question 70

Outline the main difficulties with implementing an efficient transfer mechanism in practice.

Question 71

Martina has the following utility function: U(C, L)= (CL)^1/2 where C is the quantity of goods consumed and L is the number of hours of leisure. Martina requires eight hours of rest each day. Therefore she has 16 hours available for work. Let H be the number of hours employed such that H = 16 - L. Let P be the price of C and W be the hourly wage.
i)Assume she is required to pay an income tax of T = 0.3( Y - 60)where Y is her pretax income. How many hours per day will she work at P = $1 and W = $10?
ii)Assume there is no income tax but her terms of employment change. She is now paid time and a half for work in excess of 6 hours per day. How many hours per day will she choose to work at P = $1, W = $10, and overtime of W' = $15?

Question 72

Comment on the following statement: "A family with lower income but more children than another family is necessarily worse off."

Question 73

The supply of labour to a monopsonistic firm is w = 10 + z, where w is the wage rate and z is quantity of labour. The firm's MRP = 70 - z. The firm employs only labour. The minimum wage which will induce the firm to hire the largest number of workers is:

A)$45.
B)$40.
C)$35.
D)$50.

Question 74

Which of the following are reasons for altering the redistribution of income?

A)Reduce poverty.
B)Income distribution rests too much on luck.
C)Market distribution is inefficient.
D)Government redistribution is not just.

Question 75

The distribution of income depends primarily on:

A)political power.
B)initial endowments.
C)hours worked.
D)prevailing input prices.

Question 76

Explain why wage differentials based solely on discrimination is inconsistent with profit maximizing behavior.

Question 77

Discuss the tradeoff between equity and efficiency. What is the economist's job in this context?

Question 78

A monopsonist uses only labor (L)to produce her output (Q)which she sells in a competitive market at the fixed price P=3. The production function is Q=15L²- 0.2L³ and the labor supply function is w=144+23.4L.
a)Determine the profit- maximizing values of L, Q, and w.
b)Explain why you have chosen the answer that maximizes profit instead of one that minimizes it.

Question 79

Discuss the nature of the inefficiency of the topping- up system.

Question 80

Minimum wage laws:

A)create underemployment.
B)decrease unemployment.
C)transfer wealth to the unemployed.
D)are ineffective in dealing with the unemployment issue.