Deck 17: Wage Determination

Question 1

The long-run trend of real wages

A)cannot be determined from available data on nominal wages and the price level.
B)has been downward because the price level has risen faster than nominal wages.
C)has been upward.
D)has been downward because labor's share of the domestic income has fallen.

Answer 1

has been upward.

Question 2

Since 1960, real hourly compensation in the United States has approximately

A)remained the same.
B)risen by 40 percent.
C)doubled.
D)tripled.

Answer 2

doubled.

Question 3

According to international comparisons, which nation had the highest hourly pay in U.S.dollar terms in 2013?

A)United States
B)Germany
C)Australia
D)Sweden

Answer 3

Sweden

Question 4

A firm that is hiring labor in a purely competitive labor market and selling its product in a purely competitive product market will maximize its profit by hiring labor until

A)marginal revenue product is zero.
B)marginal revenue product exceeds marginal resource (labor) cost by the greatest amount.
C)marginal resource cost is zero.
D)marginal revenue product equals marginal resource (labor) cost.

Question 5

According to international comparisons, which of these nations was not in the top 5 for hourly pay in U.S.dollar terms in 2013?

A)Sweden
B)Germany
C)Australia
D)United States

Question 6

Over the long run, real earnings per worker can increase only at about the same rate as the economy's rate of growth of

A)total output.
B)stock of capital.
C)output per worker.
D)international trade.

Question 7

Marginal revenue product (MRP) of labor refers to the

A)increase in total revenue resulting from selling an additional unit of output.
B)amount by which a firm's total resource cost increases when it employs one more unit of labor.
C)increase in total revenue resulting from hiring one more unit of labor.
D)price at which additional units of labor can be employed in a monopsonized labor market.

Question 8

The productivity and real wages of workers in industrially advanced economies have risen historically partly because

A)workers have acquired less education and training over time.
B)workers have been able to use larger quantities of capital equipment.
C)over time, the capital equipment used by workers has deteriorated in quality.
D)the supply of labor has increased.

Question 9

The market supply curve for labor is upsloping because

A)of diminishing returns.
B)employers as a group must pay higher wage rates to obtain more workers.
C)of declining MRC.
D)each employer is a "wage taker."

Question 10

Marginal resource cost refers to the

A)increase in total revenue resulting from the sale of the extra output of one more worker.
B)price at which additional units of a resource can be hired in an imperfectly competitive resource market.
C)increase in total cost resulting from producing one more unit of output.
D)amount by which a firm's total resource cost increases as the result of hiring one more unit of the resource.

Question 11

The real wage will rise if the nominal wage

A)falls more rapidly than the general price level.
B)increases at the same rate as labor productivity.
C)increases more rapidly than the general price level.
D)falls at the same rate as the general price level.

Question 12

If the nominal wage rises by 4 percent and the price level rises by 7 percent, the real wage will

A)be unaffected.
B)rise by 3 percent.
C)fall by 3 percent.
D)rise by 11 percent.

Question 13

Increases in the productivity of labor result partly from

A)the law of diminishing returns.
B)improvements in technology.
C)reductions in wage rates.
D)increases in the quantity of labor.

Question 14

Which of the following is correct?

A)The nominal wage may fall, but the real wage can never decline.
B)The real wage may fall, but the nominal wage can never decline.
C)Both the nominal and the real wage must always rise.
D)The nominal and the real wage may both fall.

Question 15

If the nominal wage rises by 6 percent and the price level falls by 2 percent, the real wage will

A)be unaffected.
B)rise by 4 percent.
C)fall by 4 percent.
D)rise by 8 percent.

Question 16

If a firm is hiring a certain type of labor under purely competitive conditions,

A)its labor demand curve will be perfectly elastic at the market-determined wage rate.
B)the labor supply curve will lie above the marginal labor cost curve.
C)the labor supply and marginal labor (resource) cost curves will coincide and be upsloping.
D)the labor supply and marginal labor (resource) cost curves will coincide and be perfectly elastic.

Question 17

If the nominal wages of carpenters rose by 5 percent in 2013 and the price level increased by 3 percent, then the real wages of carpenters

A)decreased by 2 percent.
B)increased by 2 percent.
C)increased by 3 percent.
D)increased by 8 percent.

Question 18

Real wages in the United States are

A)the highest in the world.
B)relatively high, but not as high as in some other industrially advanced nations.
C)much higher than output per worker.
D)higher than nominal wages.

Question 19

A firm operating in a purely competitive resource market faces a resource supply curve that is

A)perfectly inelastic.
B)perfectly elastic.
C)highly inelastic.
D)highly elastic.

Question 20

Real wages in the United States in the long run

A)show no discernible relationship to output per worker.
B)have increased at about the same rate as increases in output per worker.
C)have increased slower than increases in output per worker.
D)have increased faster than increases in output per worker.

Question 21

A craft union attempts to increase wage rates by

A)equating the MRP and the MRC curves.
B)shifting the labor supply curve to the left.
C)shifting the labor supply curve to the right.
D)shifting the MRP curve to the right.

Question 22

Suppose the MRP of a firm's 12th worker is $22 and the worker's marginal wage cost is $16.We can say with certainty that the firm

A)is hiring labor in a competitive labor market at a wage rate of $16.
B)is hiring labor in a monopsonistic labor market.
C)will find it profitable to hire fewer workers.
D)will find it profitable to hire more workers.

Question 23

If an industrial union is formed to bargain with a monopsonistic employer, then in this labor market,

A)the resulting wage rate will always be above the competitive level.
B)employment may either increase or decrease.
C)employment will increase.
D)employment will decrease.

Question 24

Occupational licensing

A)functions essentially the same as inclusive unionism.
B)attracts large numbers of workers and therefore depresses wages.
C)often restricts occupational entry and raises the incomes of license holders.
D)has been declared illegal in the majority of states.

Question 25

Assume the Ajax Mining Company hires 80 percent of the nonunion labor force of Mother Lode, New Mexico.Also, suppose that this labor force is highly immobile.Economists would describe this employer as a(n)

A)monopolist.
B)oligopolist.
C)monopsonist.
D)monopolistic competitor.

Question 26

A monopsonistic employer's marginal resource (labor) cost curve

A)is always more elastic than the labor supply curve.
B)coincides with the labor supply curve.
C)lies below the labor supply curve because the higher wage paid to an additional worker must also be paid to all other employed workers.
D)lies above the labor supply curve because the higher wage paid to an additional worker must also be paid to all other employed workers.

Question 27

Which of the following is not correct?

A)Other things equal, a monopsonist will pay a lower wage rate than will a firm hiring labor competitively.
B)A monopsonistic employer will pay workers a wage rate equal to their MRP.
C)A purely competitive seller will pay workers a wage rate equal to their MRP.
D)An imperfectly competitive seller will employ additional workers as long as the MRP of additional workers exceeds their MRC.

Question 28

A monopsonist's wage cost in hiring an additional worker is the

A)worker's wage rate.
B)worker's wage rate plus the wage increases paid to all workers already employed.
C)worker's wage rate adjusted for the lower price that must be charged for the extra output.
D)marginal wage cost less the wage rate.

Question 29

Empirical studies suggest that, other things equal, the smaller the number of hospitals in a city, the lower are nurses' wages.This is evidence that

A)the labor markets of nurses are purely competitive.
B)hospitals may possess some degree of monopsony power.
C)the minimum wage does not apply to nurses.
D)labor unions have been ineffective in increasing the wages of nurses.

Question 30

If a firm is a monopsonist in the hiring of both labor and capital, it will obtain the profit-maximizing quantities of labor and capital when

A)MRPL / PL = MRPC /PC = 1.
B)MRPL / MRCL = MRPC / MRCC = 1.
C)the MRP of labor equals the MRP of capital.
D)the MRC of labor equals the MRC of capital.

Question 31

A profit-maximizing firm will

A)expand employment if marginal revenue product equals marginal resource cost.
B)reduce employment if marginal revenue product equals marginal resource cost.
C)reduce employment if marginal revenue product is less than marginal resource cost.
D)expand employment if marginal revenue product is less than marginal resource cost.

Question 32

The critical feature of a monopsonistic labor market is that the employer

A)has a perfectly elastic demand curve for labor.
B)can hire any number of workers it chooses at the going wage rate.
C)faces an upsloping labor supply curve.
D)faces a perfectly inelastic labor supply curve.

Question 33

Occupational licensing has much the same effect as

A)inclusive unionism.
B)exclusive unionism.
C)bilateral monopoly.
D)monopsony.

Question 34

Labor unions may attempt to raise wage rates by

A)increasing the supply of labor.
B)forcing employers, under the threat of a strike, to pay above-equilibrium wage rates.
C)decreasing the demand for labor.
D)increasing the price of complementary resources.

Question 35

Inclusive unionism is practiced mostly by

A)professional and semiprofessional employees.
B)small unions consisting of skilled workers, such as the bricklayers.
C)industrial unions.
D)craft unions.

Question 36

"Player drafts" of professional athletes

A)increase the competitiveness of the labor market for professional athletes.
B)reduce the profitability of professional sports franchises.
C)promote monopsony in the hiring of professional athletes.
D)increase salaries of professional athletes.

Question 37

Which of the following is most likely to be an example of monopsony?

A)the market for fast-food workers in a large summer resort town
B)the market for card dealers in Las Vegas
C)the market for Major League Baseball umpires
D)the market for retail sales clerks in a major city

Question 38

Which of the following tactics is most associated with the demand-enhancement union model?

A)reducing the price of inputs that are substitutes for union workers
B)lobbying for increases in public expenditures on the product it is producing
C)restricting the number of workers allowed to work in the industry
D)increasing the price of products that are complements for the one it is producing

Question 39

A monopsonistic employer

A)has a perfectly elastic labor supply curve.
B)is necessarily a monopolist in the product market.
C)faces a marginal resource (labor) cost that is greater than the wage rate.
D)faces a marginal resource (labor) cost that is less than the wage rate.

Question 40

In monopsony,

A)each firm employs a small portion of the total supply of labor.
B)the workforce is highly mobile.
C)the wage rate paid by the employer varies directly with the number of workers employed.
D)the employer is a "wage taker."

Question 41

Critics of the minimum wage argue that as an antipoverty device, it is "poorly targeted." By this they mean that

A)the minimum wage only applies to a small percentage of the labor force.
B)many who benefit from the minimum wage are teenagers or not poor.
C)the government has been unable to enforce the minimum wage.
D)the average level of wages in the economy is considerably higher than the minimum wage.

Question 42

Construction workers frequently sponsor political lobbying in support of greater public spending on highways and public buildings.One reason for this is to

A)restrict the supply of construction workers.
B)increase the elasticity of demand for construction workers.
C)increase the demand for construction workers.
D)increase the price of substitute inputs.

Question 43

Unions often oppose increases in the prices of complementary inputs.(For example, truck drivers may oppose increases in taxes on diesel fuel.) They do this because increases in the prices of complementary inputs might

A)increase the supply of competing labor through the output effect.
B)increase the supply of competing labor through the substitution effect.
C)decrease the demand for union labor through the output effect.
D)decrease the demand for union labor through the substitution effect.

Question 44

In a labor market characterized by bilateral monopoly, the wage rate will

A)be logically indeterminate.
B)be established at the level desired by the union.
C)be established at the level desired by the employer.
D)always be established at the competitive level.

Question 45

Labor unions are restrained in their wage demands because

A)legislation limits annual increases in nominal wages to 6 percent.
B)the labor demand curve is downsloping.
C)marginal wage cost curves lie above labor supply curves in most labor markets.
D)most unions deal with monopsonists who have superior bargaining power.

Question 46

Critics of minimum-wage legislation argue that it

A)keeps inefficient producers in business.
B)reduces employment.
C)undermines incentives to work.
D)is deflationary.

Question 47

Unions might support a higher minimum wage because

A)their constitutions obligate them to do so.
B)they feel a higher minimum wage will lower labor's tax payments for welfare programs.
C)a higher minimum wage makes less-skilled workers less substitutable for union workers.
D)the minimum wage is better targeted than are alternative income-maintenance programs.

Question 48

If a single large employer bargains with an inclusive union, the resulting labor market model can best be described as

A)a cartel.
B)countervailing power.
C)a bilateral monopoly.
D)an internal labor market.

Question 49

Noncompeting groups of workers are the result of

A)differences in the age-earnings profiles of workers.
B)differences in the "job tastes" of workers.
C)differences in the innate and acquired abilities of workers.
D)geographic immobility.

Question 50

Craft unions

A)attempt to organize workers at all skill levels in a firm or industry.
B)have been declared illegal by federal legislation.
C)only organize workers who have a particular set of skills.
D)attempt to increase the supply of their particular type of labor.

Question 51

Wage differentials may result from all the following except

A)differences in the nonmonetary aspects of various occupations.
B)differences in the education and skills of workers.
C)geographic and sociological immobility of workers.
D)the tendency of qualified workers to move from lower pay jobs to higher pay jobs.

Question 52

If the minimum wage is set too high, in some labor markets we can expect to see

A)a shortage of labor.
B)an increase in on-the-job training.
C)a surplus of labor.
D)a decline in wage costs.

Question 53

If all workers were homogeneous, all jobs were equally attractive to workers, and labor markets were perfectly competitive,

A)compensating differences would cause wage differentials.
B)noncompeting groups of workers would result in wage differentials.
C)all workers would receive the same wage rate.
D)worker mobility would occur such that wage differentials would widen.

Question 54

According to some supporters of the minimum wage, it has very small or even nonexistent negative employment effects because

A)the demand for minimum-wage labor is highly elastic.
B)it reduces turnover among minimum-wage workers, prompts employers to use them more efficiently, and thus raises their average productivity.
C)it encourages teenagers to stay in school.
D)employers substitute lower fringe benefits for higher pay, keeping their compensation costs the same.

Question 55

A union might increase the demand for the labor services of its members by

A)decreasing the demand for the product it is producing.
B)decreasing the prices of complementary inputs.
C)decreasing the prices of substitute inputs.
D)increasing the prices of complementary inputs.

Question 56

Bilateral monopoly occurs where

A)a monopsonistic employer bargains with an inclusive union.
B)a monopsonistic employer bargains with an exclusive union.
C)a craft union bargains with a purely competitive employer.
D)an industrial union bargains with a purely competitive employer.

Question 57

Suppose all workers are identical but working for Ajax is more pleasant than working for Acme.In all other nonwage aspects, the two firms offer the same job characteristics.We would expect

A)wage rates at Ajax to be higher than at Acme.
B)wage rates at Ajax to be lower than at Acme.
C)wage rates at Ajax and Acme to be the same.
D)workers at Ajax would have to be monitored more closely than those at Acme.

Question 58

Many economists are critical of the minimum wage because they believe that it

A)hurts the efforts of labor unions.
B)reduces the number of available job opportunities.
C)conflicts with policies designed to equalize the distribution of income.
D)causes labor shortages in affected markets.

Question 59

Authoritative estimates suggest that currently union workers on the average

A)achieve no wage advantage over nonunion workers in the same occupation.
B)realize a 5 percent wage advantage over nonunion workers in the same occupation.
C)realize a 20-30 percent wage advantage over nonunion workers in the same occupation.
D)realize a 15 percent wage advantage over nonunion workers in the same occupation.

Question 60

Minimum-wage legislation is less likely to have adverse effects on employment when the

A)affected labor market is monopsonistic.
B)economy has high unemployment.
C)derived demand for labor is shifting to the left.
D)demand for labor is relatively elastic.

Question 61

Compensating differences in wages pay workers for

A)differences in worker training and skills.
B)differences in the nonmonetary characteristics of jobs.
C)geographic immobility.
D)discrimination in hiring and firing.

Question 62

The idea of efficiency wages is that

A)the wages of each type of labor must be proportionate to their marginal products.
B)the wages of each type of labor must be equal to their marginal products.
C)firms might get greater work effort by paying above-equilibrium wage rates.
D)workers are more diligent when paid below-equilibrium wages.

Question 63

According to age-earnings data,

A)lower-educated workers have similar earnings at age 65 as higher-educated workers.
B)investments in education result in higher earnings.
C)high earnings are due to motivation and innate ability, rather than education.
D)there is no clear relationship between education and worker productivity.

Question 64

Human capital is best defined as

A)the productive skills and knowledge that workers acquire from education and training.
B)the substitution of labor for machinery in the production process.
C)any piece of machinery that must be combined with labor to be productive.
D)the exchange of money for real assets.

Question 65

The idea of compensating differences is used

A)by inclusive unions as an argument in bargaining for wage rate increases.
B)to justify the application of minimum wages to low-wage labor markets.
C)to explain the divergence between wage rates and marginal resource cost.
D)to explain wage rate differences based on differing nonmonetary aspects of jobs.

Question 66

Which of the following factors is not relevant in explaining the persistence of wage differentials?

A)labor immobility
B)compensating differences
C)free public education
D)noncompeting groups

Question 67

Which of the following is a market imperfection that might explain persistent wage differentials within an occupation?

A)geographical immobility of workers
B)readily available information about job opportunities and pay
C)principal-agent problems
D)compensating wage differentials

Question 68

Jack and Jill have identical skills and training, but Jill earns higher wages in her job.Which of the following reasons would best explain why Jill earns more than Jack?

A)Jack has a chronic illness and would lose health care coverage if he changed jobs.
B)Jill suffers from gender discrimination in the workplace.
C)Jack has better access to information about available jobs in his field.
D)Jill is reluctant to move to a new city because she wants to live near family.

Question 69

Compensating differences in wages

A)compensate workers for differences in their human capital.
B)reward workers differently based on differences in the desirability of jobs.
C)describe the tendency for the wages of all occupations to adjust to the median level.
D)do not exist if jobs have different nonmonetary characteristics.

Question 70

The concept of investment in human capital indicates that

A)union workers are better educated and more productive than nonunion workers.
B)expenditures on education can be explained in essentially the same way as expenditures on machinery and equipment.
C)worker productivity correlates negatively with annual earnings.
D)the level of education is unrelated to the level of one's income.

Question 71

Which of the following is a market imperfection that might explain persistent wage differentials within an occupation?

A)movement of labor from lower-wage to higher-wage jobs
B)readily available information about job opportunities and pay
C)principal-agent problems
D)discrimination

Question 72

The earnings of highly educated workers

A)rise more slowly than those of less-educated workers.
B)rise more rapidly than those of less-educated workers.
C)rise at about the same rate as those of less-educated workers.
D)stagnate earlier than do those of less-educated workers.

Question 73

The principal-agent problem arises in labor markets because

A)a firm may realize excessively large profits.
B)workers may provide less-than-expected work effort.
C)compensating wage differences do not pay for differences in the nonmonetary aspects of jobs.
D)human capital investments vary among workers.

Question 74

Economists regard expenditures on education as investments because

A)they are subject to tax deductions at the same rate as are expenditures on machinery and equipment.
B)education is economically beneficial at the same time it is being acquired.
C)such expenditures are current costs that are intended to enhance future earnings.
D)they differ from expenditures on health and worker mobility.

Question 75

Which one of the following best exemplifies the principal-agent problem in the employer-employee relationship?

A)A worker takes 20-minute coffee breaks although the employer allots only 15 minutes for this purpose.
B)A worker is on the job 50 hours per week although only 40 hours are required for promotion.
C)A worker opts for early retirement in response to the firm's incentive plan.
D)A worker's productivity is independent of the wage paid.

Question 76

In the context of labor markets, shirking refers to

A)the nonmonetary disadvantages of certain jobs.
B)the neglecting or evading of work.
C)the elimination of monitoring costs.
D)any scheme where pay is directly related to worker output.

Question 77

Traveling sales representative Harold Hill only calls on clients four days a week rather than the five days expected by his employer.This is an example of

A)equalizing differences.
B)a nonmonetary job disadvantage.
C)shirking.
D)the free-rider problem.

Question 78

Which of the following involves the creation of human capital?

A)The XYZ Corporation upgrades the machinery on its assembly line.
B)Jones receives apprenticeship training as a carpenter.
C)Smith buys 30 shares of common stock.
D)A retired person decides to reenter the labor force.

Question 79

Which of the following is not an example of a market imperfection that might explain persistent wage differentials within an occupation?

A)geographic immobility of workers
B)discrimination
C)noncompeting groups
D)poor information about job opportunities and pay

Question 80

The principal-agent problem arises primarily because

A)principals and agents share a common interest, leading to free-rider problems.
B)principals and agents are in an adversarial role, sharing no common interests.
C)principals pursue some of their own objectives, which may conflict with the objectives of the agents.
D)agents pursue some of their own objectives, which may conflict with the objectives of the principals.