Deck 17: Wage Determination

Question 1

Which of the following is a characteristic of a purely competitive labor market?

A) Individual employers and individual workers are "wage makers."
B) The good or service workers produce is sold in a purely competitive product market.
C) Many workers with identical skills supplying a particular type of labor.
D) All of these are characteristics of a purely competitive labor market.

Answer 1

Many workers with identical skills supplying a particular type of labor.

Question 2

Which is an example of a change in product demand that increases labor demand?

A) Access to computers increases the productivity of mail-order businesses, thus increasing the demand for their workers.
B) Tourism increases in popularity, increasing the demand for workers at tourist resorts.
C) A decrease in the price of trucks decreases the cost of transporting goods, thus increasing the demand for truckers.
D) A change in work rules increases output per worker in the auto industry, thus increasing the demand for auto workers.

Answer 2

Tourism increases in popularity, increasing the demand for workers at tourist resorts.

Question 3

Which is an example of a change in productivity that increases labor demand?

A) Mail-order catalog sales rise, thus increasing the demand for workers in the mail-order business.
B) Sport utility vehicles increase in popularity, thus increasing the demand for the workers who make them.
C) A decrease in the price of lumber decreases the cost of building homes, thus increasing the demand for construction workers.
D) A technological change increases output per worker in the computer industry, thus increasing the demand for computer workers.

Answer 3

A technological change increases output per worker in the computer industry, thus increasing the demand for computer workers.

Question 4

Which is an example of a change in the price of another resource that increases labor demand?

A) Software sales rise, thus increasing the demand for software developers.
B) Snowboarding increases in popularity, thus increasing the demand for the workers who make snowboards.
C) A decrease in the price of wood decreases the cost of furniture, thus increasing the demand for furniture workers.
D) A technological change increases output per worker in the computer industry, thus increasing the demand for computer workers.

Question 5

Which is an example of a change in product demand that decreases labor demand?

A) An increase in the price of paper increases the cost of making books, thus decreasing the demand for bookbinders.
B) The widespread availability of self-serve gas pumps reduces the demand for workers pumping gas.
C) An increase in the price of steel increases the cost of producing cars and trucks, thus decreasing the demand for automobile workers.
D) A decline in productivity in retailing decreases the demand for retail sales workers.

Question 6

Which is an example of a change in productivity that decreases labor demand?

A) A financial crisis in Asian nations reduces the demand for exports to Asia, thus decreasing the demand for domestic workers in the computer industry.
B) Tattoos fade in popularity, thus decreasing the demand for tattoo artists.
C) More government regulation decreases output per worker in the fast food industry, thus decreasing demand for fast food workers.
D) An increase in the price of construction equipment reduces the demand for construction equipment operators.

Question 7

Which is an example of a change in the price of another resource that decreases labor demand?

A) A decline in the demand for computers in Europe reduces the demand for workers in the domestic computer industry.
B) The rise of hair salons for both men and women reduces the demand for barbers.
C) A decrease in the educational skills of manufacturing workers decreases the demand for such workers.
D) An increase in the price of chemical equipment increases the cost of producing fertilizer, thus decreasing the demand for workers who make fertilizer.

Question 8

- Refer to the above graph. Suppose that a competitive firm in long-run equilibrium faces a market wage W₀ as shown. Suddenly, the price of the output it produces increases. If other things remain the same, the short-run effect of this change in price would be to:

A) increase the firm's demand for labor from MRP₁ to MRP₃.
B) decrease the firm's demand for labor from MRP₁ to MRP₂.
C) increase the market wage rate to W₁ and decrease the quantity of labor the firm demands to point A.
D) decrease the market wage rate to W₂ and increase the quantity of labor the firm demands to point B.

Question 9

-Refer to the above graph. Suppose that a competitive firm in long-run equilibrium faces a market wage W₀ as shown. Suddenly, the price of the product it produces decreases. If other things remain the same, the short-run effect of this change in price would be to:

A) increase the firm's demand for labor from MRP₁ to MRP₃.
B) decrease the firm's demand for labor from MRP₁ to MRP₂.
C) increase the market wage rate to W₁ and decrease the quantity of labor the firm demands to point A.
D) decrease the market wage rate to W₂ and increase the quantity of labor the firm demands to point B.

Question 10

The level of employment in the monopsony labor market shown above will be:

A) A.
B) B.
C) C.
D) D.

Question 11

Refer to the above graph. Under monopsony in the hiring of labor services, the wage rate will be:

A) W₁ and Q₁ workers will be hired.
B) W₂ and Q₂ workers will be hired.
C) W₂ and Q₁ workers will be hired.
D) W₃ and Q₁ workers will be hired.

Question 12

-Refer to the above graphs. If union workers decide to take more leisure, while the prices of the products produced by union workers increase, this situation is depicted in graph:

A) A.
B) B.
C) C.
D) D.

Question 13

- Refer to the above graphs. The formation of an exclusive or craft union, with no change in demand, is depicted by situation:

A) A.
B) B.
C) C.
D) D.

Question 14

- Refer to the above graphs. If union workers decide to take more leisure, while the prices of the products produced by union workers decrease, this situation is depicted in graph:

A) A.
B) B.
C) C.
D) D.

Question 15

In the above graph, unemployment created by the minimum wage is:

A) B - A.
B) B - 0.
C) B - E.
D) 0.

Question 16

In the labor market shown above, if a minimum wage level is set at W_m, it will cause:

A) employment to decrease from C to A.
B) employment to decrease from C to B.
C) employment to decrease from B to A.
D) BC workers to be hired.

Question 17

Senator Approxmire opposes a proposal requiring that the monopsonist pay a minimum wage of at least W_min, stating: "Even if the labor market is monopsonistic, economic theory unambiguously demonstrates that imposing a minimum wage causes employment to fall."
Senator Approxmire is:

A) correct because the law of demand states that as the wage rises, the firm demands less labor.
B) incorrect because the monopsonist would offer a wage of W_A, which is higher than W_min, and maintain its employment at L₁.
C) incorrect because the monopsonist's effective MRC curve becomes ABCD, which means that it would choose to hire more workers, from L₁ to L₂, following the imposition of the minimum wage.
D) correct because the graph indicates that at the wage of W_min, the monopsonist would not make a profit from hiring labor and so would not hire any at all.