Deck 11: The Labor Market

Question 1

Which of these is NOT a characteristic of a competitive labor market?

A) Information is widely available and accurate.
B) Firms are price makers.
C) No employee is considered special or unique.
D) There is easy entry into and exit from the market.

Answer 1

B

Question 2

An assumption of the competitive labor market model is that

A) labor is homogenous.
B) capital is more important than labor.
C) the labor market is a monopsony.
D) there is no equilibrium wage rate.

Answer 2

A

Question 3

In competitive labor markets, we assume that

A) firms operate in markets with many sellers and few buyers.
B) workers have differentiated skills.
C) firms operate in markets with few sellers and many buyers.
D) information in the industry is widely available and accurate.

Answer 3

D

Question 4

Which of these is NOT a characteristic of a competitive labor market?

A) numerous buyers and sellers
B) interchangeable workers
C) accurate and widely available information
D) workers are preferable to machines

Question 5

Which of these is NOT an assumption of competitive labor markets?

A) Information about the going wage rate is known by workers and firms.
B) All employees are regarded as being equally productive.
C) Each firm sets its own wage rate for its workers.
D) Each firm can sell all its output at the prevailing market price.

Question 6

In a competitive labor market, if a new manufacturing plant seeks to build its labor force, it is assumed that

A) each applicant has a unique skill set.
B) the jobs available at the manufacturing plant represent the best possible opportunity for each applicant.
C) applicants have the ability to negotiate their wage based on their qualifications.
D) the quantity of workers available is greater than the quantity of workers that are required.

Question 7

The _____ shows the amount of time an individual is willing to work at various wage rates.

A) labor supply curve
B) labor demand curve
C) supply of jobs
D) labor survey

Question 8

In economics, the term _____ encompasses all activities that do not involve paid work.

A) pastime
B) leisure
C) vacation
D) hobbies

Question 9

Nonwork-related activities are known in economics as

A) inefficient.
B) leisure.
C) nonwage income.
D) personal satisfaction.

Question 10

Which of these would NOT be considered to be leisure?

A) searching for a parking place at the football game
B) caring for your sick aunt
C) having a dinner meeting with a client
D) playing golf with your brother

Question 11

The _____ effect explains why individuals would prefer work to leisure when wages rise.

A) income
B) substitution
C) money
D) complement

Question 12

If Larry is given a $2-per-hour pay increase, and in response, he decides to work less overtime, then

A) Larry's labor supply curve is flat.
B) Larry's labor supply curve is upward sloping.
C) the income effect is dominating the substitution effect.
D) the substitution effect is dominating the income effect.

Question 13

If Tamara is given a $3-per-hour pay increase, and in response, she decides to work more hours, then

A) Tamara's work hours are represented on the upward-sloping portion of her labor supply curve.
B) Tamara's work hours are represented on the downward-sloping portion of her labor supply curve.
C) the income effect is dominating the substitution effect.
D) Tamara's labor supply curve is flat.

Question 14

The substitution effect shows a _____ relationship between wages and hours worked, whereas the income effect shows a _____ relationship.

A) negative; positive
B) negative; negative
C) positive; negative
D) positive; positive

Question 15

As wages rise, if an employee works the same number of hours as before, then the

A) substitution effect dominates the income effect.
B) substitution effect and the income effect are of equal magnitude.
C) income effect dominates the substitution effect.
D) employee's income will fall.

Question 16

The substitution effect for labor supply states that people work

A) less as wages rise because their ability to purchase goods increases.
B) more as wages rise because their ability to purchase goods increases.
C) less as wages rise because the opportunity cost of leisure increases.
D) more as wages rise because the opportunity cost of leisure increases.

Question 17

The income effect for labor supply states that people work

A) less as wages rise because their ability to purchase goods increases.
B) more as wages rise because their ability to purchase goods increases.
C) less as wages rise because the opportunity cost of leisure increases.
D) more as wages rise because the opportunity cost of leisure increases.

Question 18

An individual's supply of labor is _____ to the wage rate.

A) directly related
B) inversely related
C) backward bending with relation
D) not related

Question 19

Theoretically, how would an individual working at minimum wage react to an increase in the minimum wage, ceteris paribus?

A) The individual would increase working hours.
B) The individual would decrease working hours.
C) The individual would quit working.
D) The increase would not change the behavior of the individual.

Question 20

(Figure: Labor Supply Curve) Based on the graph, we see that this person is willing to supply _____ hours of labor at wage rate W₁ than at W₂ and _____ hours of labor at wage rate W₃ than at W₂.

A) more; more
B) more; fewer
C) fewer; fewer
D) fewer; more

Question 21

(Figure: Labor Supply Curve) The figure below is a _____ curve.

A) labor indifference
B) labor demand
C) reservation wage
D) labor supply

Question 22

(Figure: Labor Supply Curve) Based on the graph, the substitution effect is shown by segment

A) ab.
B) ac.
C) bc.
D) abc.

Question 23

(Figure: Labor Supply Curve) Based on the graph, the income effect is shown by segment

A) ab.
B) ac.
C) bc.
D) abc.

Question 24

When people choose leisure over work as wages rise, they are indicating that

A) the income effect is stronger than the substitution effect.
B) the substitution effect is stronger than the income effect.
C) wages are too high for their skill level.
D) they are lazier and are avoiding risk.

Question 25

You are willing to work 30 hours per week at your standard wage rate. You would be willing to work an extra 10 hours each week if you could get an additional $5 per hour. This information reflects your

A) marginal propensity to work.
B) demand for labor.
C) demand curve.
D) supply of labor.

Question 26

The substitution effect means that

A) leisure and work are perfect substitutes.
B) leisure and work are perfect complements.
C) if wages increase, hours of work increase.
D) if wages increase, hours of work decrease.

Question 27

The income effect means that

A) leisure and work are perfect substitutes.
B) leisure and work are perfect complements.
C) if wages increase, hours of work increase.
D) if wages increase, hours of work decrease.

Question 28

When the individual labor supply curve is positively sloped, the _____ effect dominates and higher wages lead to _____ hours worked.

A) income; more
B) substitution; more
C) substitution; fewer
D) income; fewer

Question 29

When the individual labor supply curve is backward bending, the _____ effect dominates and higher wages lead to _____ hours worked.

A) income; more
B) substitution; more
C) income; fewer
D) substitution; fewer

Question 30

(Table) Based on the table, at what wage rate is the supply curve backward bending?
$\begin{array}{c}\text { Labor Supply Schedule }\\\begin{array}{|c|c|}\hline \text { Wage rate (\$/hr.) } & \text { Hours of work (per week) } \\\hline 10 & 26 \\\hline 15 & 32 \\\hline 25 & 36 \\\hline 35 & 40 \\\hline 45 & 41 \\\hline 50 & 38 \\\hline\end{array}\end{array}$

A) after $25 per hour
B) after $15 per hour
C) after $35 per hour
D) after $45 per hour

Question 31

(Table) Based on the table, what must be TRUE about the labor supply curve for wage rates up to $45 per hour?
$\begin{array}{c}\text { Labor Supply Schedule }\\\begin{array}{|c|c|}\hline \text { Wage rate (\$/hr.) } & \text { Hours of work (per week) } \\\hline 10 & 26 \\\hline 15 & 32 \\\hline 25 & 36 \\\hline 35 & 40 \\\hline 45 & 41 \\\hline 50 & 38 \\\hline\end{array}\end{array}$

A) As the wage rate rises, more hours of leisure are consumed.
B) The income effect dominates the substitution effect.
C) The substitution effect dominates the income effect.
D) As the wage rate rises, hours of work decrease.

Question 32

(Table) Based on the table, what must be TRUE about the labor supply curve for wage rates above $45 per hour?
$\begin{array}{c}\text { Labor Supply Schedule }\\\begin{array}{|c|c|}\hline \text { Wage rate (\$/hr.) } & \text { Hours of work (per week) } \\\hline 10 & 26 \\\hline 15 & 32 \\\hline 25 & 36 \\\hline 35 & 40 \\\hline 45 & 41 \\\hline 50 & 38 \\\hline\end{array}\end{array}$

A) Workers substitute work for leisure.
B) The income effect dominates the substitution effect.
C) The substitution effect dominates the income effect.
D) As the wage rate rises, more hours of work are available.

Question 33

(Table) Based on the table, at what wage rate is the supply curve backward bending?
$\begin{array}{c}\text { Labor Supply Schedule }\\\begin{array}{|c|c|}\hline \text { Wage Rate (S/hr.) } & \text { Hours of Work (per week) } \\\hline 20 & 30 \\\hline 30 & 40 \\\hline 40 & 50 \\\hline 50 & 40 \\\hline 60 & 30 \\\hline\end{array}\end{array}$

A) after $20 per hour
B) after $30 per hour
C) after $40 per hour
D) after $50 per hour

Question 34

(Table) Based on the table, what must be TRUE about the labor supply curve as the wage rate rises from $20 to $30 per hour?
$\begin{array}{c}\text { Labor Supply Schedule }\\\begin{array}{|c|c|}\hline \text { Wage Rate (S/hr.) } & \text { Hours of Work (per week) } \\\hline 20 & 30 \\\hline 30 & 40 \\\hline 40 & 50 \\\hline 50 & 40 \\\hline 60 & 30 \\\hline\end{array}\end{array}$

A) As the wage rate rises, more hours of leisure are consumed.
B) The income effect dominates the substitution effect.
C) The substitution effect dominates the income effect.
D) As the wage rate rises, hours of work decrease.

Question 35

(Table) Based on the table, what must be TRUE about the labor supply curve as the wage rate rises from $50 to $60 per hour?
$\begin{array}{c}\text { Labor Supply Schedule }\\\begin{array}{|c|c|}\hline \text { Wage Rate (S/hr.) } & \text { Hours of Work (per week) } \\\hline 20 & 30 \\\hline 30 & 40 \\\hline 40 & 50 \\\hline 50 & 40 \\\hline 60 & 30 \\\hline\end{array}\end{array}$

A) As wages increase, fewer hours of leisure are consumed.
B) The income effect dominates the substitution effect.
C) The substitution effect dominates the income effect.
D) As the wage rate rises, more hours of work are available.

Question 36

You have recently earned an hourly pay raise. As your wages increase, the opportunity cost of going to the beach rather than working

A) increases.
B) decreases.
C) stays the same.
D) is limited by the income effect.

Question 37

As your hourly wages increase, ceteris paribus, your _____ increases.

A) purchasing power
B) incentive to be unproductive
C) marginal utility
D) productivity

Question 38

The market labor supply curve is

A) positively sloped.
B) negatively sloped.
C) perfectly flat.
D) backward bending.

Question 39

Theoretically, an increase in the minimum wage would lead to which response in labor supplied to the market, ceteris paribus?

A) an increase in the number of people seeking work
B) a decrease in the number of people seeking work
C) a reduction in job seeking
D) no change in market response

Question 40

Which of these would shift the market labor supply curve to the right?

A) a higher wage rate
B) fewer fringe benefits
C) better public transportation
D) an increase in income tax rates

Question 41

Factors that might shift the market supply curve for an industry include all of these EXCEPT

A) demographic changes.
B) nonmonetary factors.
C) inflation.
D) wages paid in other industries.

Question 42

All of these would explain a change in labor supply EXCEPT a(n)

A) decrease in productivity.
B) increase in population.
C) increase in job status or prestige.
D) decrease in immigration.

Question 43

Suppose that the labor force participation rate increases. The labor supply curve should shift _____, and the number of workers available at any given wage rate will _____.

A) left; decrease
B) left; increase
C) right; decrease
D) right; increase

Question 44

Suppose that a law passes that causes working conditions throughout the economy to improve. The labor supply curve should shift ____, and the number of workers available at any given wage rate will _____.

A) left; decrease
B) left; increase
C) right; decrease
D) right; increase

Question 45

Suppose that wages in the automobile industry increase. The labor supply curve for other types of manufacturing jobs should shift ____, and the number of workers available at any given wage rate will _____.

A) left; decrease
B) left; increase
C) right; decrease
D) right; increase

Question 46

An increase in the number of immigrants will shift the labor _____ curve to the _____.

A) demand; right
B) demand; left
C) supply; right
D) supply; left

Question 47

Applegate University announces that its employees can now take college courses free of charge. This change will eventually lead to a(n)

A) increase in labor demand.
B) increase in labor supply.
C) decrease in labor demand.
D) decrease in labor supply.

Question 48

Which change will cause the market labor supply curve of industry A to shift to the right?

A) an increase in wages paid in industry B
B) a decrease in the average benefit package paid to workers in industry A
C) an increase in nonwage income for all workers in the market
D) an increase in immigration that results in more workers being available to industry A

Question 49

Which change will cause the market labor supply curve of industry A to shift to the left?

A) an increase in nonwage income paid in industry B
B) an increase in the average benefit package paid to workers in industry A
C) an increase in nonwage income for all workers in the market
D) an increase in immigration that results in more workers being available to industry A

Question 50

If Congress were to increase the minimum age at which people can receive Social Security benefits by five years, it would be expected that

A) equilibrium wage rates would rise.
B) fewer workers would want to obtain a college education.
C) the supply of labor would increase.
D) the demand for workers would rise.

Question 51

An increase in population will

A) not affect the market labor supply curve.
B) shift the market labor supply curve to the right.
C) shift the market labor supply curve to the left.
D) shift the market demand curve to the right.

Question 52

Free health insurance offered by an employer is referred to as a(n)

A) internal payment.
B) fixed cost.
C) nonwage benefit.
D) transaction cost.

Question 53

Which factor does NOT cause the market labor supply curve to shift?

A) demographic changes
B) nonwage income
C) changes in the MRP of workers
D) nonwage aspects of jobs

Question 54

Which factor will NOT shift the labor supply curve to the left?

A) mandatory school attendance to the age of 23
B) mandatory retirement at the age of 59
C) religious rules against working on Wednesdays and Thursdays
D) a new miracle drug that increases longevity

Question 55

Which event will NOT shift the labor supply curve to the right?

A) an increase in the population
B) delayed retirement by large portions of senior citizens
C) an increase in nonwage benefits, such as a new 50% discount on merchandise
D) a boom in the stock market that increases income from investments

Question 56

An increase in the _____ will NOT increase the supply of labor.

A) number of two-income households
B) nonwage aspects of a job
C) wage rate for a job
D) deportation of immigrants

Question 57

If the fast-food industry provided free meals for all relatives of its employees, the

A) demand for fast-food workers would increase.
B) quantity supplied of fast-food workers would increase.
C) quantity demanded of fast-food workers would decrease.
D) supply of fast-food workers would increase.

Question 58

Suppose that a law passes that causes working conditions throughout the economy to improve. The labor supply curve should shift _____, and the number of workers available at any given wage rate will _____.

A) left; decrease
B) left; increase
C) right; decrease
D) right; increase

Question 59

(Figure: Labor Supply) Based on the figure, the income effect begins to dominate above a wage of

A) $15.
B) $25.
C) $35.
D) $45.

Question 60

(Figure: Labor Supply) Based on the figure, the substitution effect ceases to dominate the income effect at a wage of

A) $15.
B) $25.
C) $35.
D) $45.

Question 61

Due to an increase in the market wage rate for restaurant waiters, the supply of such waiters has

A) decreased.
B) not changed.
C) increased.
D) decreased in elasticity.

Question 62

Which situation would be classified as leisure according to its economic definition?

A) John relaxes on the beach while performing his duties as a paid lifeguard.
B) Irena reads her book while waiting for the next customer to come into her store.
C) Trevor goes mountain climbing on his day off from work.
D) Maria texts with her friends while on her lunch break.

Question 63

The demand for labor that arises from consumer demand for the firm's product and the productivity of labor is called _____ demand.

A) secondary
B) primary
C) derived
D) direct

Question 64

Derived demand suggests that

A) labor demand is derived from demand for the product a firm produces.
B) labor demand will shift in a random fashion.
C) labor demand is derived from the supply of labor.
D) the labor demand curve will be upward sloping.

Question 65

The idea that the demand for labor is a derived demand means that

A) most households derive their income from their labor.
B) the demand consumers have for goods and services depends on the income they earn.
C) the demand for labor depends on the demand for the product the labor produces.
D) firms' profits are derived from their employees' labor.

Question 66

The marginal physical product of labor is

A) the change in output a firm receives from hiring an additional worker.
B) the extra revenue a firm receives from hiring an additional worker.
C) set equal to the going wage rate for labor.
D) always positive.

Question 67

XYZ Company is currently experiencing a backlog at its loading dock. A manager figures that if she were to hire an extra worker for $100 per day, then sales volumes would increase by $400, due to the removal of the congestion on the dock. The worker's marginal revenue product is

A) $100.
B) $300.
C) $400.
D) $500.

Question 68

(Table) The amount of labor and corresponding output are provided in the table. The price per unit of output is $11.50. The wage paid per day is $115. To maximize economic profit, how many people should the firm hire?
$\begin{array}{|c|c|}\hline \text { Labor } & \text { Output } \\\hline 0 & 0 \\\hline 1 & 7 \\\hline 2 & 19 \\\hline 3 & 34 \\\hline 4 & 47 \\\hline 5 & 57 \\\hline\end{array}$

A) 2 workers
B) 3 workers
C) 4 workers
D) 5 workers

Question 69

(Table) The amount of labor and corresponding output are provided in the table. The price per unit of output is $11.50. The wage paid per day is $115. Assuming labor is the only cost of production, the wages paid per day are $115. The economic profit earned by this profit-maximizing firm is
$\begin{array}{|c|c|}\hline \text { Labor } & \text { Output } \\\hline 0 & 0 \\\hline 1 & 7 \\\hline 2 & 19 \\\hline 3 & 34 \\\hline 4 & 47 \\\hline 5 & 57 \\\hline\end{array}$

A) $80.50.
B) $90.
C) $110.50.
D) $125.

Question 70

(Table) Based on the table, what is the value of A?
$\begin{array}{|c|c|c|c|}\hline \text { Units of Labor } & \begin{array}{c}\text { Quantity of } \\\text { Output }\end{array} & \text { Product Price } & \begin{array}{c}\text { Marginal } \\\text { Revenue Product }\end{array} \\\hline 1 & 20 & \$ 10 & \\\hline 2 & 28 & 10 & \text { A } \\\hline 3 & 35 & 10 & \text { B } \\\hline 4 & 41 & 10 & \text { C } \\\hline 5 & \text { D } & 10 & \$ 30 \\\hline 6 & 35 & 10 & \\\hline\end{array}$

A) $280
B) $28
C) $80
D) $8

Question 71

(Table) Based on the table, what is the value of B?
$\begin{array}{|c|c|c|c|}\hline \text { Units of Labor } & \begin{array}{c}\text { Quantity of } \\\text { Output }\end{array} & \text { Product Price } & \begin{array}{c}\text { Marginal } \\\text { Revenue Product }\end{array} \\\hline 1 & 20 & \$ 10 & \\\hline 2 & 28 & 10 & \text { A } \\\hline 3 & 35 & 10 & \text { B } \\\hline 4 & 41 & 10 & \text { C } \\\hline 5 & \text { D } & 10 & \$ 30 \\\hline 6 & 35 & 10 & \\\hline\end{array}$

A) $350
B) $35
C) $70
D) $7

Question 72

(Table) Based on the table, what is the value of C?
$\begin{array}{|c|c|c|c|}\hline \text { Units of Labor } & \begin{array}{c}\text { Quantity of } \\\text { Output }\end{array} & \text { Product Price } & \begin{array}{c}\text { Marginal } \\\text { Revenue Product }\end{array} \\\hline 1 & 20 & \$ 10 & \\\hline 2 & 28 & 10 & \text { A } \\\hline 3 & 35 & 10 & \text { B } \\\hline 4 & 41 & 10 & \text { C } \\\hline 5 & \text { D } & 10 & \$ 30 \\\hline 6 & 35 & 10 & \\\hline\end{array}$

A) $410
B) $41
C) $60
D) $6

Question 73

(Table) Based on the table, what is the value of D?
$\begin{array}{|c|c|c|c|}\hline \text { Units of Labor } & \begin{array}{c}\text { Quantity of } \\\text { Output }\end{array} & \text { Product Price } & \begin{array}{c}\text { Marginal } \\\text { Revenue Product }\end{array} \\\hline 1 & 20 & \$ 10 & \\\hline 2 & 28 & 10 & \text { A } \\\hline 3 & 35 & 10 & \text { B } \\\hline 4 & 41 & 10 & \text { C } \\\hline 5 & \text { D } & 10 & \$ 30 \\\hline 6 & 35 & 10 & \\\hline\end{array}$

A) 42
B) 43
C) 44
D) 45

Question 74

(Table) Based on the table, if the wage rate is $25, how many workers should this firm hire?
$\begin{array}{|c|c|c|c|}\hline \text { Units of Labor } & \begin{array}{c}\text { Quantity of } \\\text { Output }\end{array} & \text { Product Price } & \begin{array}{c}\text { Marginal } \\\text { Revenue Product }\end{array} \\\hline 1 & 20 & \$ 10 & \\\hline 2 & 28 & 10 & \text { A } \\\hline 3 & 35 & 10 & \text { B } \\\hline 4 & 41 & 10 & \text { C } \\\hline 5 & \text { D } & 10 & \$ 30 \\\hline 6 & 35 & 10 & \\\hline\end{array}$

A) 3 workers
B) 4 workers
C) 5 workers
D) 6 workers

Question 75

(Table) Based on the table, if the wage rate is $65, how many workers should this firm hire?
$\begin{array}{|c|c|c|c|}\hline \text { Units of Labor } & \begin{array}{c}\text { Quantity of } \\\text { Output }\end{array} & \text { Product Price } & \begin{array}{c}\text { Marginal } \\\text { Revenue Product }\end{array} \\\hline 1 & 20 & \$ 10 & \\\hline 2 & 28 & 10 & \text { A } \\\hline 3 & 35 & 10 & \text { B } \\\hline 4 & 41 & 10 & \text { C } \\\hline 5 & \text { D } & 10 & \$ 30 \\\hline 6 & 35 & 10 & \\\hline\end{array}$

A) 1 worker
B) 2 workers
C) 3 workers
D) 4 workers

Question 76

(Table) Based on the table, if the wage rate is $75, how many workers should this firm hire?
$\begin{array}{|c|c|c|c|}\hline \text { Units of Labor } & \begin{array}{c}\text { Quantity of } \\\text { Output }\end{array} & \text { Product Price } & \begin{array}{c}\text { Marginal } \\\text { Revenue Product }\end{array} \\\hline 1 & 20 & \$ 10 & \\\hline 2 & 28 & 10 & \text { A } \\\hline 3 & 35 & 10 & \text { B } \\\hline 4 & 41 & 10 & \text { C } \\\hline 5 & \text { D } & 10 & \$ 30 \\\hline 6 & 35 & 10 & \\\hline\end{array}$

A) 1 worker
B) 2 workers
C) 3 workers
D) 4 workers

Question 77

For the competitive firm in the labor market, the value of the marginal product is equal to the marginal revenue product because marginal

A) revenue equals marginal cost.
B) revenue equals the product price.
C) physical product of labor equals the wage rate.
D) physical product of labor equals the product price.

Question 78

A sweatshop in California can sell socks for $0.50 a pair, and $0.10 of the price covers all nonlabor costs. If a worker can produce twenty pairs of socks per hour, how much can the sweatshop owner afford to pay the worker?

A) $4 per hour
B) $8 per hour
C) $3.75 per hour
D) $10 per hour

Question 79

If the twelfth worker hired is able to produce 10 units a day of a product that sells for $16 per unit, the competitive firm will hire this worker if his or her wages are _____ per day.

A) $161 or less
B) $160 or less
C) $162 to $200
D) over $200

Question 80

(Table) Based on the table, the marginal physical product of the third worker is
$\begin{array}{|c|c|c|c|c|}\hline L & T P & \boldsymbol{M P P L} & \boldsymbol{P} & \boldsymbol{M R P L} \\\hline 0 & 0 & 0 & \$ 10 & \$ 0 \\\hline 1 & 6 & 6 & \$ 10 & \$ 60 \\\hline 2 & 13 & 7 & \$ 10 & \$ 70 \\\hline 3 & 22 & & \$ 10 & \$ 90 \\\hline 4 & 35 & 13 & \$ 10 & \\\hline 5 & 47 & & \$ 10 & \$ 120 \\\hline 6 & 57 & 10 & \$ 10 & \$ 100 \\\hline 7 & 65 & 8 & \$ 10 & \$ 80 \\\hline 8 & & 6 & \$ 10 & \$ 60 \\\hline 9 & 76 & 5 & \$ 10 & \$ 50 \\\hline 10 & 80 & 4 & \$ 10 & \$ 40 \\\hline\end{array}$

A) 11.
B) 10.
C) 9.
D) 8.