Deck 2: Labour Supply: Individual Attachment to the Labour Market

Question 1

Which among the following countries tends to have the lowest labour force participation rates?

A) France
B) Canada
C) United Kingdom
D) United States
E) There is no enduring ranking, as in some years one country will have higher rates, but in other years another country's rates will surpass them.

Answer 1

A

Question 2

All of the following patterns of labour market behaviour can be analyzed with the income-leisure framework, except:

A) overtime work
B) underemployment
C) moonlighting
D) labour force participation
E) worksharing

Answer 2

E

Question 3

The equation for the unemployment rate (UR) is:

A) UR = (unemployed) / labour force
B) UR = (employed − unemployed) / unemployed
C) UR = (unemployed /employed)
D) UR = (unemployed /population)
E) UR = (employed − unemployed) / labour force

Answer 3

A

Question 4

Which of the following statements concerning the elasticity of labour supply is false?

A) It is generally higher for women than for men.
B) The elasticity of labour supply with respect to income is negative.
C) The overall labour supply for both sexes is likely to be downward sloping.
D) The overall labour supply for both sexes is likely to be upward sloping
E) The compensated elasticity (reflecting the substitution effect) tends to be higher in magnitude than the uncompensated, gross elasticity.

Question 5

In the neo-classical model of labour supply, which of the following is always true?

A) If leisure is a normal good, a wage increase causes a decrease in hours worked.
B) If leisure is a normal good, a wage increase causes an increase in hours worked.
C) The substitution effect causes the worker to work more hours if wages increase.
D) The income effect causes the worker to work more hours if wage increase.
E) The income effect and the substitution effect work in the same direction.

Question 6

Empirical literature on labour supply patterns for married women tends to find all of the following, except:

A) Women with children have lower rates of labour force participation.
B) Participation rate for all women is around 76 percent.
C) Labour market participation rate for married women was highest in the 35-44 age group.
D) The higher the husband's income, the higher the labour force participation rate.
E) The higher the education level, the higher the labour force participation rate.

Question 7

Which of the diagrams given below corresponds to a budget line that involves a wage increase?

A) (a)
B) (b)
C) (c)
D) (d)

Question 8

Which of the following statements most closely applies to the labour force participation decision?

A) It consists of the choice to allocate a portion of one's time to labour market activities as opposed to non-market activities.
B) It doesn't include unemployed workers.
C) It occurs when one is actively seeking work.
D) It includes paid and unpaid work.
E) It occurs when one accepts an employment position and is working.

Question 9

Which of the following statements is false?

A) In periods of high unemployment, added workers (particularly married women) tend to enter the labour force.
B) Discouraged workers contribute to the phenomenon of hidden unemployment.
C) In periods of high unemployment, added workers may increase labour market participation rate.
D) In periods of high unemployment, discouraged workers tend to withdraw from the labour force.
E) In periods of low unemployment, discouraged workers tend to re-enter the labour force.

Question 10

Consider figure 2.98 in the textbook. Given a wage increase from W0 to W1, the distance between I' and I1 represents:

A) The equilibrium choice for hours worked
B) The income effect
C) The net effect of both the substitution effect and the income effect
D) The substitution effect
E) The equilibrium choice for leisure

Question 11

Which one of the following regarding to an individual's budget constraint is correct?

A) The slope of the budget constraint is determined by the reservation wage rate
B) The slope of the budget constraint is higher for a full-time worker than for a part-time worker.
C) The slope of the budget constraint is determined by the market wage rate.
D) The level of non-labour income is higher for a part-time worker than for a full-time worker
E) The level of non-labour income determines the intercept of the budget constraint.

Question 12

An increase in non-market income will have which of the following effects?

A) A downward shift in the income constraint
B) A counter-clockwise rotation in the income constraint, making it flatter
C) An upward shift in the income constraint
D) A clockwise rotation in the income constraint, making it steeper
E) There is no change to the income constraint.

Question 13

For a worker who is deciding how many hours of labour to supply, all of the following are true except that:

A) The marginal rate of substitution between income and leisure is equal to the wage rate.
B) The income effect of a wage change equals the substitution effect.
C) The rate at which she is willing to exchange leisure for income equals the rate at which the market allows her to do it.
D) The worker cannot increase total utility by working more or fewer hours.
E) The slope of the budget line equals the slope of the indifference curve.

Question 14

The portion of the population that is surveyed as potential labour force participants consists of:

A) the entire population of Canada.
B) the civilian non-institutional population.
C) the entire civilian population that is 15 years of age or older.
D) the entire population excluding the Northern territories and those living on native reserves.
E) the unemployed plus the employed population.

Question 15

Our income-leisure model suggests that a worker works overtime because:

A) If he is paid the straight-time equivalent, he will work more hours than over-time hours.
B) He earns over-time premium, which leads to a greater income effect than substitution effect.
C) He is underemployed.
D) He is overemployed.

Question 16

The reservation wage is defined as:

A) the wage rate at which zero hours of labour is supplied by the workers.
B) the minimum wage that an employee is willing to accept for a given job.
C) the equilibrium wage.
D) the wage of the reservation clerk in the tourism industry.
E) the maximum wage that an employer is willing to pay a worker for a given job.

Question 17

Which of the following statements applies to the unemployed population?

A) They are either unable to work, or are on strike.
B) They are jobless.
C) They are working but are underpaid.
D) They are working fewer hours than they would like to.
E) They are jobless but are actively seeking work.

Question 18

Which of the following groups of workers are considered to be part of the labour force?

A) Members of the Canadian military
B) Homemakers
C) Full-time students
D) Discouraged workers
E) The hard-core unemployed

Question 19

Which of the diagrams given below corresponds to a budget line that involves an increase in nonlabour income?

A) (a)
B) (b)
C) (c)
D) (d)

Question 20

Consider the situation of a worker who is 'at the corner equilibrium' i.e., he or she is supplying zero hours of work and consuming 16 hours of leisure. In context of the income-leisure framework, which of the following statements is false?

A) The indifference curve is flatter than the budget line.
B) The indifference curve is steeper than the budget line.
C) Marginally, the worker values an hour of leisure more than she values an hour's worth of income.
D) The marginal rate of substitution is greater than the wage rate in absolute value terms.
E) The rate at which the worker is willing to exchange income for leisure is not equal to the market rate for the exchange of income for leisure.

Question 21

Which of the following diagrams corresponds to a budget line that involves overtime hours with a wage premium?

A) (a)
B) (b)
C) (c)
D) (d)

Question 22

The wage rate at which the individual worker is indifferent between participating and not participating in the labour force is called the:

A) minimum wage.
B) indifference wage.
C) participating wage.
D) utility wage.
E) reservation wage.

Question 23

A major and recurring theme of this textbook is the role of empirical research in labour economics. Conceptual models exist to analyze many labour market phenomena, but often the predictions that emerge are ambiguous. It is the objective of empirical research to test the validity of these predictions, and to try to sort out the multiple effects, which may work simultaneously. Such is the case for the theory of individual labour supply. Discuss the major conceptual implications of this model as well as the results from the empirical literature with correspond to them. The key is to link the predictions, which flow from the model, to the hypotheses that have been examined in the literature. In particular, your response can follow the following outline:
• Without getting bogged down in technical details (i.e., don't give a graph), explain intuitively the role of preferences and constraints in determining the optimal choice of hours worked.
• What is the impact on the choice of hours worked by an individual if the level of non-market income changes?
• Briefly describe the income effect and the substitution effect of a wage change, and relate this to the backward bending supply curve.
• A large number of econometric studies have estimated the shape of the labour supply curve, the sign of the wage elasticity of labour supply, and the income elasticity of labour supply. What have they found, generally speaking, regarding the slope of the supply curve? Does the slope differ between men and women?
• Figure 2.3 in the textbook shows what appears to be a slight negative empirical relationship acros countries between per capita national income and male labour force participation rates, coupled with slight positive empirical relationship across countries between per capita national income and female labour force participation rates. It might be possible to interpret these observed empirical patterns in terms of substitution effects and income effects.

Question 24

Which of the diagrams given below corresponds to a budget line with some nonlabour income?

A) (a)
B) (b)
C) (c)
D) (d)

Question 25

The slope of the indifference curve at the lower left-hand corner of the income/leisure diagram, where zero hours are supplied to the labour market, is equal to:

A) the difference between the market wage and the reservation wage
B) the reservation wage.
C) the slope of the budget constraint.
D) the prevailing market wage.
E) the level of non-market income.

Question 26

Figure 2.5 (b) in the text explains that:

A) If an individual has a lower valuation of leisure, then the slope of his indifference curve is steeper.
B) If an individual has a higher valuation of consumption, then the marginal rate of substitution of consumption over leisure is higher.
C) If an individual has a higher valuation of consumption, then the slope of his indifference curve is flatter.
D) If an individual has a lower valuation of leisure, then the marginal rate of substitution of consumption over leisure is higher.

Question 27

How often is the Canadian census conducted by Statistics Canada?

A) Every year
B) Every five years
C) Every two years
D) There is no regular cycle for taking the census.
E) The census has been discontinued in favour of the Labour Force Survey.

Question 28

Suppose a worker is observed to be working but is forced to work fewer hours than she really wants to work. Which of the following statements is true?

A) She is on an indifference curve which is lower than the one which is tangent to the budget line.
B) She is on an indifference curve which is lower than the one which passes through the point on the budget line corresponding to zero hours of work.
C) The indifference curve that she is on is tangent to the budget line.
D) She is on an indifference curve which is higher than the one which is tangent to the budget line.
E) She is not on an indifference curve.

Question 29

Our income-leisure model suggests that moonlighting may be caused by:

A) overtime premium.
B) underemployment.
C) unemployment.
D) overemployment.

Question 30

What is indicated by a parallel shift of the budget line?

A) The substitution effect
B) A change in the preferences
C) The total effect of a price change
D) The income effect of either a price change or an income change

Question 31

Over the backward bending portion of the labour supply curve,

A) There is no longer a trade-off between income and leisure.
B) The substitution effect of a wage change dominates the income effect.
C) The wage elasticity of labour demand is inelastic.
D) The wage elasticity of labour supply is negative.
E) Leisure becomes an inferior good.