Deck 13: Factor Markets: With Emphasis on the Labor Market

Question 1

The term "derived demand" refers to the idea that a change in the

A)demand for one good, say, tennis racquets, will affect the demand for related goods, say, tennis balls.
B)demand for a good is affected by the supply of that good.
C)demand for a good will affect the demand for the factors used to produce that good.
D)supply of a factor will affect the demand for that factor.

Answer 1

demand for a good will affect the demand for the factors used to produce that good.

Question 2

Most economists believe that the supply curve of labor in the aggregate is extremely elastic.

Answer 2

False

Question 3

The market demand curve for labor is the horizontal summation of the firms' demand curves (MRP curves)for labor.

Answer 3

False

Question 4

The elasticity of demand for labor measures the percentage change in quantity demanded of labor that occurs as a result of a percentage change in the wage rate.

Question 5

Marginal revenue product (MRP)is the

A)additional output generated by employing an additional factor unit.
B)additional profit generated by employing an additional factor unit.
C)additional revenue generated by employing an additional factor unit minus the additional cost.
D)additional revenue generated by employing an additional factor unit.
E)total revenue from the sale of a product divided by the total output of the product.

Question 6

The supply of labor in a particular labor market can change as a result of changes in wage rates in other labor markets.

Question 7

For a factor price taker, the demand for labor curve is horizontal at the going market wage.

Question 8

For a given labor market, an increase in the MPP of labor will shift the demand curve for labor rightward.

Question 9

Between two wages, an individual's supply curve of labor will be upward sloping if the individual's substitution effect outweighs the income effect between those two wages.

Question 10

For a product price taker, VMP equals MR.

Question 11

According to the substitution effect, as the wage rate rises the monetary reward from working increases and workers will want to work more.

Question 12

The least-cost rule states that a firm minimizes costs by buying factors in the combination at which the MRP-to-price ratio for each is the same.

Question 13

Marginal productivity theory states that if a firm sells its product in a perfectly competitive product market it will necessarily pay its factors their VMP.

Question 14

When a firm decides whether or not to relocate its production to another country, they must consider both the pay of the workers and the marginal productivity of the workers.

Question 15

A firm that is a price taker in a factor market faces a(n)__________ supply curve of factors.

A)upward-sloping
B)horizontal
C)downward-sloping
D)vertical

Question 16

The higher the labor cost to total cost ratio, the lower the elasticity of demand for labor.

Question 17

What looks like discrimination in the labor markets is always just a problem of the high cost of information.

Question 18

The demand for factors (which arises from the demand for the products that the factors help produce)is called a(n)__________ demand.

A)derived
B)indirect
C)secondary
D)expressed

Question 19

Labor supply is a reflection of the number of persons who can actually do a job.

Question 20

Employers use screening mechanisms, such as GPA, because they lack complete information about job applicants.

Question 21

Marginal revenue product is equal to marginal revenue multiplied by

A)average fixed cost.
B)marginal physical cost.
C)marginal physical revenue.
D)average total cost.
E)marginal physical product.

Question 22

The firm's factor demand curve is the

A)MRP curve if the firm is a price taker (perfectly competitive firm).
B)MFC curve if the firm is a price taker (perfectly competitive firm).
C)VMP curve if the firm is a price searcher (monopolist, monopolistic competitor, oligopolist).
D)MFC curve if the firm is a price searcher (monopolist, monopolistic competitor, oligopolist).

Question 23

A firm will maximize its profits by hiring factors up to the point at which

A)MR = MC, if the firm is a monopolist, monopolistic competitor, or oligopolist.
B)P = MC, if the firm is a perfect competitor.
C)MRP = MFC.
D)VMP = MFC, if the firm is a price searcher (monopolist, etc.).

Question 24

Why does the marginal revenue product (MRP)curve slope downward for a perfectly competitive firm?

A)Because MRP = MR x MPP.  After some point, as more of a factor is employed, the lower its MPP is; thus MRP declines.
B)Because MRP = MFC x MPP. After some point, as more of a factor is employed, the lower its MFC is; thus MRP declines.
C)Because MRP = MR x MPP. After some point, MR declines for a product price taker; thus, MRP declines.
D)Because MRP = MFC x MR. After some point, MFC and MR decline; thus, MRP declines.

Question 25

A firm that is perfectly competitive will continue to hire factor units as long as

A)MRP
B)MRP > MFC.
C)VMP
D)MC > MR.

Question 26

For a factor price taker, the factor supply curve is __________, whereas the market factor supply curve is __________.

A)horizontal; vertical
B)vertical; horizontal
C)upward sloping; horizontal
D)horizontal; upward sloping
E)upward sloping; upward sloping

Question 27

Exhibit 26-1 Refer to Exhibit 26-l. What dollar value goes in blank (A)?

A)$160
B)$96
C)$48
D)$35

Question 28

Exhibit 26-1 Refer to Exhibit 26-1. For this firm, the demand curve for factor X is

A)downward-sloping.
B)upward-sloping.
C)vertical.
D)horizontal.
E)There is not enough information given to determine the shape of the factor X demand curve.

Question 29

Exhibit 26-1 Refer to Exhibit 26-1. The data show that marginal revenue is __________ price, thus we are dealing with a(n)__________ competitive firm.

A)greater than; perfectly
B)equal to; imperfectly
C)equal to; perfectly
D)less than; perfectly

Question 30

Exhibit 26-1 Refer to Exhibit 26-l. What dollar value goes in blank (B)?

A)$36
B)$17
C)$144
D)$136

Question 31

Suppose a factor price taker purchases one unit of factor X for $10. At what price would it purchase the second unit, and what would marginal factor cost (MFC)equal?

A)It would purchase the second unit for $10, and MFC equals $10.
B)There is not enough information to know what it would purchase the second unit for, and thus we do not know what MFC equals.
C)It would purchase the second unit for $10, but there is not enough information to know what MFC equals.
D)There is not enough information to know what it would purchase the second unit for, but MFC equals $10.

Question 32

One way to calculate marginal revenue product is

A)MR x MPP.
B)MPP\MR.
C)MR + MPP.
D)MPP - MR.

Question 33

A firm's factor demand curve is also its _______________________ curve.

A)average physical product
B)marginal physical product
C)average revenue product
D)marginal revenue product

Question 34

Exhibit 26-1 Refer to Exhibit 26-1. What dollar value goes in blank (D)?

A)$6
B)$28
C)$46
D)$18

Question 35

Exhibit 26-1 Refer to Exhibit 26-1. What dollar value goes in blank (C)?

A)$300
B)$10
C)$30
D)$80

Question 36

Marginal factor cost (MFC)is

A)the additional cost generated by producing an additional unit of output.
B)the additional revenue generated by employing an additional factor unit.
C)the additional cost generated by employing an additional factor unit.
D)total cost from the production of a product divided by the total number of factor units used.

Question 37

The marginal factor cost (MFC)curve for a factor price taker is

A)vertical.
B)horizontal.
C)downward sloping.
D)upward sloping.

Question 38

Marginal revenue product is equal to marginal revenue multiplied by

A)average physical product.
B)marginal physical product.
C)average total cost.
D)marginal cost.

Question 39

The addition to total cost that results from employing one additional unit of a resource is called

A)average factor cost.
B)marginal factor cost.
C)average total cost.
D)marginal cost.

Question 40

If for a firm MRP > MFC, then the firm

A)is maximizing profits and should continue producing its current output.
B)is minimizing factor costs and therefore is maximizing profits.
C)should produce more output by increasing the quantity of factors employed.
D)should produce less output by decreasing the quantity of factors employed.

Question 41

For a product price searcher (such as a monopolist),

A)P > MR, therefore VMP
B)P = MR, therefore VMP = MRP.
C)P > MR, therefore VMP > MRP.
D)P

Question 42

The wage rate increases 8 percent, and the quantity demanded of labor falls by 14 percent. The absolute value of the elasticity of demand for labor is

A)0.57.
B)1.75.
C)0.25.
D)5.00.

Question 43

Value marginal product (VMP)equals

A)P x MPP.
B)P\MPP.
C)P x MFC.
D)MR x MFC.

Question 44

For a perfectly competitive firm, a decrease in the price of the product it sells will shift

A)the demand curve of its product to the left.
B)the demand curve of its product to the right.
C)its MRP curve to the left.
D)its MRP curve to the right.

Question 45

Value marginal product (VMP)is

A)a measure of additional revenue minus additional cost as a result of additional output.
B)the price of the product multiplied by the additional output resulting from an additional factor unit employed.
C)the marginal revenue of the product divided by the additional output resulting from an additional factor unit employed.
D)the value of an additional unit of product as measured in terms of additional factor cost.
E)the total value of the total output of a firm divided by the total quantity of output.

Question 46

Elasticity of demand for labor measures the percentage change in quantity demanded of labor that is brought about by a percentage change in the

A)demand for the product produced by labor.
B)price of the product.
C)quantity supplied of labor.
D)wage rate.
E)price of substitute factors.

Question 47

Exhibit 26-2 ​

Refer to Exhibit 26-2. What factor quantity should the firm purchase?

A)Q₁
B)Q₂
C)Q₁ + Q₂
D)Q₃
E)Q₃ - Q₁

Question 48

Firm X is a monopolistic competitive firm and a factor price taker. For this firm at the profit-maximizing factor quantity,

A)VMP = MRP > MFC = factor price.
B)VMP>  MRP = MFC > factor price.
C)VMP > MRP = MFC = factor price.
D)VMP

Question 49

If a firm is a factor price taker in the labor market,

A)it must pay higher wages in order to hire additional workers.
B)it can hire all the workers it wants to at the going wage rate.
C)it must hire all workers who apply for a job.
D)it will continue to hire workers as long as MFC > MRP.

Question 50

Which of the following will cause a firm's factor demand curve to shift to the left?

A)a decrease in factor costs
B)an increase in factor costs
C)a decrease in marginal physical product
D)an increase in marginal physical product

Question 51

Applying the least-cost rule to two factors, a firm will

A)maximize profits at the output at which MRP = MFC.
B)minimize costs when the MPP of factor A equals the MPP of factor B.
C)minimize costs when the MRP of factor A equals the MRP of factor B.
D)minimize costs when the MPP of factor A divided by the price of A equals the MPP of factor B divided by the price of B.

Question 52

The firm's factor demand curve is the

A)same as its factor supply curve.
B)same as its MRP curve.
C)VMP curve if the firm is a price searcher (monopolist, monopolistic competitor, oligopolist).
D)same as its marginal factor cost curve.

Question 53

The market demand curve for labor is

A)the horizontal summation of the firms' demand curves for labor, derived exactly the same way the product market demand curve is derived from the consumers' demand curves.
B)the vertical summation of the firms' demand curves for labor.
C)any one firm's demand curve labor multiplied horizontally by the number of firms in the labor market.
D)not the horizontal summation of the firms' demand curves for labor because higher wage rates result in a higher price for the goods produced.

Question 54

For a perfectly competitive firm, when the price of the product it sells rises, its MRP of labor curve __________, while its VMP of labor curve __________.

A)stays where it is; shifts to the right
B)shifts to the right; shifts to the right
C)shifts to the right; stays where it is
D)shifts to the left; shifts to the left

Question 55

Exhibit 26-2 ​

Refer to Exhibit 26-2. What type of firm are we dealing with?

A)definitely a product price searcher (monopolist, oligopolist, etc.)
B)definitely a product price taker (perfectly competitive firm)
C)definitely a factor price taker
D)definitely a factor price searcher

Question 56

If the MPP of the last unit of labor hired equals 6 and the MPP of the last unit of capital hired equals 8, and the price of labor is $4 per unit and the price of capital is $4 per unit, then the firm

A)is minimizing its costs with this combination of factors.
B)is maximizing its profits with this combination of factors.
C)should hire more labor and less capital in order to minimize its costs.
D)should hire more capital and less labor in order to minimize its costs.

Question 57

Which of the following can bring about an increase in the demand for labor?

A)an increase in the demand for the product that labor produces
B)a decrease in the marginal physical product of labor
C)a decrease in the price of labor (wage rate)
D)an increase in the price of labor (wage rate)

Question 58

A firm obeys the least-cost rule for factors X and Y by equating

A)MRPx to MRPy.
B)MPPx\Px to MPPy\Py.
C)Px\MPPx to Py\MPPy.
D)MFCx to MFCy.

Question 59

A measure of the value that one unit of a factor adds to the firm's output is value __________ product.

A)average
B)marginal
C)variable
D)fixed

Question 60

For a perfectly competitive firm,

A)VMP > MRP.
B)VMP
C)VMP = MRP.
D)There is not enough information to answer the question.

Question 61

If, at a particular wage rate in a competitive market, the quantity demanded of labor exceeds the quantity supplied of labor, then

A)the supply curve will shift to the left, the demand curve will shift to the right, and the surplus of labor will be eliminated.
B)since wages are so low, the quantity supplied of workers will decrease further, and the quantity demanded will increase further.
C)the wage rate will fall since the labor market is experiencing a surplus.
D)the supply curve will shift to the right, the demand curve will shift to the left, and the shortage of labor will be eliminated.
E)the wage rate will rise since the labor market is experiencing a shortage.

Question 62

Which of the following assumptions is likely to be met in the real world?

A)Demand for labor is identical in every labor market.
B)Nonpecuniary factors in each job are not the same.
C)All labor is homogeneous.
D)All labor has zero costs of mobility.

Question 63

Which of the following statements is true?

A)The higher the labor cost-total cost ratio, the lower the elasticity of demand for labor.
B)The lower the labor cost-total cost ratio, the higher the elasticity of demand for labor.
C)The more substitutes for labor, the higher the elasticity of demand for labor.
D)The fewer substitutes for labor, the higher the elasticity of demand for labor.

Question 64

The nonmoney benefits a person may receive in a job are sometimes referred to by economists as

A)nonpayment benefits.
B)pecuniary benefits.
C)nonpecuniary benefits.
D)internal payments.

Question 65

Which of the following can cause an increase in real wages?

A)a technological advance that increases the quality of the capital goods used by labor.
B)decreased demand for labor.
C)an increase in the price level.
D)a technological decline that decreases the quality of the capital goods used by labor.

Question 66

Which of the following is a reason why wage rates differ?

A)In the short run, demand conditions are the same in all labor markets.
B)Some jobs have special nonpecuniary aspects.
C)Labor is homogeneous.
D)Products are homogeneous.

Question 67

A decrease in the wage rate

A)shifts the supply curve of labor rightward.
B)increases the quantity supplied of labor.
C)shifts the supply curve of labor leftward.
D)decreases the quantity supplied of labor.

Question 68

The market supply curve of labor

A)slopes downward, indicating that as the wage rate falls, the quantity supplied of labor rises.
B)slopes upward, indicating that as the wage rate rises, the quantity supplied of labor rises.
C)is vertical, indicating that the quantity supplied of labor is independent of the wage rate.
D)slopes upward, indicating that as the wage rate falls, the quantity supplied of labor rises.

Question 69

If the demand for a product that labor produces is highly elastic, a small percentage increase in price will __________ quantity demanded of the product by a relatively __________ percentage, which, in turn, will __________ the demand for the labor that produces the product.

A)increase; small; slightly reduce
B)decrease; small; greatly increase
C)decrease; large; greatly increase
D)decrease; large; greatly reduce
E)increase; large; greatly reduce

Question 70

The marginal productivity theory states that

A)as variable inputs are added to a fixed quantity of other inputs eventually the additional output produced by each additional variable input will decrease.
B)inputs will be used most efficiently when the additional output gained from each type of input is exactly the same.
C)firms in perfectly competitive product and factor markets will pay factors their marginal revenue products.
D)marginally productive inputs (that is, inputs that are not particularly productive)will not be heavily utilized.

Question 71

Suppose a sailboat factory and a fishing boat factory exist in the same town. Employees at both factories have the same skills and are initially paid the same wage rate. If the sailboat manufacturer increases the hourly wage paid to his employees, then the

A)demand for sailboats will increase and the supply will decrease.
B)quantity supplied of labor at the sailboat factory will increase.
C)supply of labor at the fishing boat factory will increase.
D)demand for sailboats will decrease and the supply will increase.

Question 72

Suppose there are two labor markets, A and B, and labor is homogeneous between markets. The wage rate in labor market A falls relative to the wage rate in labor market B. What happens in labor market B?

A)The supply curve of labor shifts leftward.
B)The supply curve of labor shifts rightward.
C)The demand curve for labor shifts leftward.
D)The demand curve for labor shifts rightward.

Question 73

If the wage rate increases from $15 to $17 and, as a result, the quantity demanded of labor decreases from 700 workers to 650 workers, then the absolute value of the elasticity of demand for labor is

A)0.78.
B)2.30.
C)4.50.
D)0.22.
E)1.56.

Question 74

Suppose that all the necessary conditions exist for the realization of equal wage rates in every labor market, but that currently the wage rate in market X is higher than the wage rate in market Y. We expect that eventually the wage rate

A)in market X will increase more.
B)in market Y will decrease.
C)in market X will decrease and the wage rate in market Y will increase.
D)will not change in either market, because something out of the ordinary must have caused the wage rates in the two markets not to be equal.

Question 75

Assume the following conditions hold: (1)the demand for every type of labor is the same, (2)there are no special nonpecuniary aspects to any job, (3)all labor is ultimately homogeneous and can costlessly be trained for different types of employment, (4)all labor is mobile at zero cost. Given these conditions,

A)wage rates will be the same in most labor markets.
B)the demand for labor will be less in some labor markets than in others.
C)wage rates will be the same in all labor markets.
D)wage rates will be the same in very few labor markets.

Question 76

If, at a particular wage rate in a competitive market, the quantity supplied of labor exceeds the quantity demanded of labor, then

A)the supply curve will shift to the left, the demand curve will shift to the right, and the surplus of labor will be eliminated.
B)since wages are so high, the quantity supplied of workers will increase further, and the quantity demanded will decrease further.
C)some workers will begin to accept lower wages and, as a result, employers will begin to hire more workers.
D)the supply curve will shift to the right, the demand curve will shift to the left, and the shortage of labor will be eliminated.

Question 77

Suppose it has just been discovered that working for long periods of time at a computer terminal causes eye strain, poor posture, and stress. We would expect, ceteris paribus , that the supply curve of computer programmers would shift __________ and the wage rate paid to programmers would __________.

A)rightward; decrease
B)rightward; increase
C)leftward; decrease
D)leftward; increase

Question 78

Firm A has a higher labor cost-total cost ratio than Firm B. If both firms employ the same type of labor, and the wage rate rises by $1, then Firm A's product price will most likely ____________ than Firm B's product price.

A)rise by more
B)fall by more
C)fall by less
D)rise by less

Question 79

The lower the elasticity of demand for a product,

A)the higher the ratio of labor costs to total costs.
B)the lower the ratio of labor costs to total costs.
C)the lower the elasticity of demand for the labor that produces the product.
D)the higher the elasticity of demand for the labor that produces the product.

Question 80

Which of the following conditions is not necessary for wage rates to be identical in every labor market in both the short run and the long run?

A)Demand for labor is different in each market.
B)Nonpecuniary factors in each job are the same.
C)All labor is homogeneous.
D)All labor has zero costs of mobility.