Deck 6: The Labour Market

Question 1

The income effect of a real wage increase is observed when

A) the higher wage causes workers to take more leisure and work fewer hours.
B) the higher wage causes workers to take less leisure and work more hours.
C) leisure's higher opportunity cost causes workers to take less leisure and work more hours.
D) leisure's higher opportunity cost causes workers to take more leisure and work more hours.

Answer 1

A

Question 2

A reason why a firm's demand for labour curve slopes downward is that,holding everything else constant,

A) the extra cost of hiring additional units of labour increases as a firm hires more units of labour.
B) as more labour is hired, labour's marginal product falls due to diminishing marginal returns.
C) the firm's demand curve for the product produced by the labour is downward sloping.
D) each additional unit of labour hired is less efficient than previously hired units.

Answer 2

B

Question 3

Figure 6.3

Refer to Figure 6.3.Holding other variables constant,if the economy is originally in equilibrium at the intersection of D₂ and S₂ and households increase their preference for leisure over labour,the economy would move to the new equilibrium point represented by

A) w₁ and L₂.
B) w₃ and L₂.
C) w₂ and L₂.
D) w₂ and L₁.

Answer 3

B

Question 4

If the real wage is below the equilibrium real wage,there would be a ________ of workers and the real wage would ________.

A) surplus; decline
B) surplus; rise
C) shortage; decline
D) shortage; rise

Question 5

Figure 6.3

Refer to Figure 6.3.Holding other variables constant,a decrease in households' wealth accompanied by an increase in the capital stock will definitely result in

A) an increase in the equilibrium quantity of labour.
B) a decrease in the equilibrium quantity of labour.
C) an increase in the equilibrium real wage.
D) a decrease in the equilibrium real wage.

Question 6

Figure 6.1

Refer to Figure 6.1.Holding other variables constant,a decrease in the capital stock will result in a

A) shift from curve D₁ to curve D₂.
B) shift from curve D₂ to curve D₁.
C) movement from point A to point B.
D) movement from point B to point A.

Question 7

Figure 6.2

Refer to Figure 6.2.Holding other variables constant,an increase in the real wage will result in a

A) movement from point A to point B.
B) movement from point B to point A.
C) shift from curve S₁ to curve S₂.
D) shift from curve S₂ to curve S₁.

Question 8

In the short run,the labour supply curve for most people slopes upward because

A) labour supply experiences increasing marginal returns.
B) the substitution effect is completely offset by the income effect.
C) there is a direct relationship between the quantity of labour supplied and the quantity of labour demanded.
D) the substitution effect is stronger than the income effect.

Question 9

If Alberto Reyes increases his work hours when his real wage increases,then

A) the substitution effect of the wage increase outweighs the income effect.
B) the income effect of the wage increase outweighs the substitution effect.
C) leisure is an inferior good to Alberto.
D) the substitution effect of the wage increase is completely offset by the income effect.

Question 10

The marginal product of labour is

A) the extra revenue a firm receives from adding one more unit of labour, holding everything else constant.
B) the extra output a firm receives from adding one more unit of labour, holding everything else constant.
C) the extra income a firm receives from adding one more unit of labour, holding everything else constant.
D) the supply of labour for a firm.

Question 11

The combined effect of a real wage increase is that

A) the income effect always dominates, leading to fewer hours worked at a higher wage.
B) the substitution effect always dominates, leading to more hours worked at a higher wage.
C) if the substitution effect outweighs the income effect, the labour supply curve slopes downward, but if the income effect outweighs the substitution effect, the labour supply curve slopes upward.
D) if the substitution effect outweighs the income effect, the labour supply curve slopes upward, but if the income effect outweighs the substitution effect, the labour supply curve slopes downward.

Question 12

Figure 6.3

Refer to Figure 6.3.Holding other variables constant,a decrease in income taxes accompanied by an increase in the skill level of workers will result in a

A) shift from curve D₁ to curve D₂ and a shift from curve S₁ to curve S₂.
B) shift from curve D₂ to curve D₁ and a shift from curve S₁ to curve S₂.
C) shift from curve D₁ to curve D₂ and a shift from curve S₂ to curve S₁.
D) shift from curve D₂ to curve D₁ and a shift from curve S₂ to curve S₁.

Question 13

Changes in all of the following will shift the demand curve for labour,except

A) the real wage rate.
B) the quantity of capital.
C) the technology of production.
D) the skill level of workers.

Question 14

Figure 6.2

Refer to Figure 6.2.Holding other variables constant,a decrease in households' wealth will result in a

A) movement from point A to point B.
B) movement from point B to point A.
C) shift from curve S₁ to curve S₂.
D) shift from curve S₂ to curve S₁.

Question 15

Figure 6.1

Refer to Figure 6.1.Holding other variables constant,an increase in the skill level of workers will result in a

A) shift from curve D₁ to curve D₂.
B) shift from curve D₂ to curve D₁.
C) movement from point A to point B.
D) movement from point B to point A.

Question 16

Figure 6.1

Refer to Figure 6.1.Holding other variables constant,an improvement in technology will result in a

A) shift from curve D₁ to curve D₂.
B) shift from curve D₂ to curve D₁.
C) movement from point A to point B.
D) movement from point B to point A.

Question 17

Figure 6.2

Refer to Figure 6.2.Holding other variables constant,an increase in income taxes will result in a

A) movement from point A to point B.
B) movement from point B to point A.
C) shift from curve S₁ to curve S₂.
D) shift from curve S₂ to curve S₁.

Question 18

Figure 6.1

Refer to Figure 6.1.Holding other variables constant,an increase in the real wage rate will result in a

A) shift from curve D₁ to curve D₂.
B) shift from curve D₂ to curve D₁.
C) movement from point A to point B.
D) movement from point B to point A.

Question 19

If the real wage is above the equilibrium real wage,there would be a ________ of workers and the real wage would ________.

A) surplus; decline
B) surplus; rise
C) shortage; decline
D) shortage; rise

Question 20

The substitution effect of a real wage increase is observed when

A) the higher wage causes workers to take more leisure and work more hours.
B) the higher wage causes workers to take more leisure and work fewer hours.
C) leisure's higher opportunity cost causes workers to take less leisure and work more hours.
D) leisure's higher opportunity cost causes workers to take more leisure and work fewer hours.

Question 21

The economy is considered to be at full employment when

A) the frictional unemployment rate is zero.
B) the structural unemployment rate is zero.
C) the cyclical unemployment rate is zero.
D) the unemployment rate is zero.

Question 22

Daniel was just laid off from his teaching job at the local high school due to budget cuts resulting from the reduction in tax revenue during the recent economic downturn.Daniel would best be categorized as

A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) seasonally unemployed.

Question 23

Emily lost her job as a typesetter for the local newspaper when the newspaper's owner finally decided to computerize all printing operations.Emily has been searching,unsuccessfully,for another typesetting job in her small town.Emily would best be categorized as

A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) seasonally unemployed.

Question 24

________ arises from a persistent mismatch between the job skills or attributes of workers and the requirements of jobs.

A) Structural unemployment
B) Frictional unemployment
C) Natural unemployment
D) Cyclical unemployment

Question 25

________ is short-term unemployment that arises from the process of matching the job skills of workers to the requirements of jobs.

A) Structural unemployment
B) Frictional unemployment
C) Natural unemployment
D) Cyclical unemployment

Question 26

Most economists believe that the natural rate of unemployment in Canada is equal to a measured unemployment rate of

A) 4% to 5%.
B) 7% to 8%.
C) 5% to 6%.
D) 6% to 7%.

Question 27

Jonathan quit his job as a shoe salesman and is actively searching for employment in the field in which he has a bachelor's degree,accounting.Jonathan would best be categorized as

A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) seasonally unemployed.

Question 28

Reducing ________ unemployment may be beneficial for an economy,but reducing ________ unemployment to zero would definitely reduce the efficiency of the economy.

A) structural and frictional; cyclical
B) frictional and cyclical; structural
C) the natural rate of; cyclical
D) structural and cyclical; frictional

Question 29

The natural rate of unemployment consists of

A) frictional unemployment plus structural unemployment.
B) frictional unemployment plus cyclical unemployment.
C) structural unemployment plus cyclical unemployment.
D) frictional unemployment plus structural unemployment plus cyclical unemployment.

Question 30

Explain what will happen to the equilibrium real wage and quantity of labour for each of the following scenarios,and use a graph of the aggregate labour market to show the changes.
a. The government decreases income tax rates.
b. The skill level of workers increases.
c. A hurricane destroys a large portion of the capital stock.
d. Workers increase their preference of labour over leisure.
e. A technological change occurs that increases the productivity of all workers,and at the same time the government increases income tax rates.
f. The overall skill level of workers decreases,and at the same time household wealth increases.

Question 31

Figure 6.3

Refer to Figure 6.3.Holding other variables constant,if the economy is originally in equilibrium at the intersection of D₁ and S₁ and firms experience an increase in technology of production,the economy would move to the new equilibrium point represented by

A) w₁ and L₂.
B) w₃ and L₂.
C) w₂ and L₂.
D) w₂ and L₃.

Question 32

If cyclical unemployment is eliminated in the economy,then

A) the unemployment rate is below the natural rate of unemployment.
B) the unemployment rate is above the natural rate of unemployment.
C) the unemployment rate is equal to the natural rate of unemployment.
D) the economy must be close to entering a recession.

Question 33

________ is the difference between the actual level of unemployment and the level of unemployment in normal times,when the economy is neither in a boom nor in a recession.

A) Structural unemployment
B) Frictional unemployment
C) Natural unemployment
D) Cyclical unemployment

Question 34

High unemployment rates persisted for several years after the official end of the Great Recession.The long duration of unemployment for many workers can be viewed as being consistent with an increase in ________ unemployment,and therefore an increase in the natural rate of unemployment.

A) frictional
B) cyclical
C) structural
D) seasonal

Question 35

________ unemployment is short term,but ________ unemployment can last for longer periods because workers need time to acquire new skills.

A) Cyclical; frictional
B) Structural; seasonal
C) Seasonal; frictional
D) Frictional; structural

Question 36

Unemployment due to factors such as weather or fluctuations in demand for certain goods and services during different times of the year is called ________ unemployment.

A) frictional
B) structural
C) cyclical
D) seasonal

Question 37

What is the substitution effect of a wage increase? What is the income effect of a wage increase? Explain under what conditions the labour supply curve will be upward sloping and when it will be downward sloping.

Question 38

Luke was earning $60 per hour and working 40 hours per week.Luke's wage rose to $70 per hour,and as a result,he now works 50 hours per week.What can you conclude from this information about the substitution and income effects of a wage increase for Luke?

Question 39

Because it takes time for workers to search for a job and for firms to search for new employees,there will always be some workers who are

A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) seasonally unemployed.

Question 40

Workers who are unemployed for long periods of time are more likely to be unemployed for ________ reasons than for ________ reasons.

A) frictional; cyclical and structural
B) structural; frictional and cyclical
C) cyclical; frictional
D) cyclical; structural

Question 41

Suppose the separation rate is 3% and the finding rate is 24%.
a. What is the natural rate of unemployment?
b. If the separation rate remains at 3% and the finding rate doubles,what is the new natural rate of unemployment?
c. If the separation rate is cut in half and the finding rate remains at 24%,what is the new natural rate of unemployment?
d. Which has more impact: a doubling of the finding rate or a halving of the separation rate?

Question 42

Workers who are unemployed for long periods of time are more likely to be unemployed for ________ reasons than for ________ reasons.

A) cyclical; frictional or structural
B) frictional; structural or cyclical
C) structural; frictional or cyclical
D) frictional or structural; cyclical

Question 43

Which of the following is not one of the primary reasons structural and frictional unemployment vary?

A) demographics
B) technological change
C) employee preferences
D) sectoral shifts

Question 44

Explain what causes the three types of unemployment.What advice for finding a job would be appropriate for someone in each type of unemployment?

Question 45

How might employment insurance increase the efficiency of labour markets and the economy? How might it reduce the efficiency of labour markets and the economy?

Question 46

Holding other factors constant,decreasing the amount and duration of unemployment benefits would likely

A) decrease cyclical unemployment and the natural rate of unemployment.
B) increase structural unemployment and the natural rate of unemployment.
C) increase frictional unemployment and the natural rate of unemployment.
D) decrease the natural rate of unemployment.

Question 47

If the rate of job finding equals 19%,and the natural rate of unemployment is 5%,then the rate of job separation equals

A) 1%.
B) 5.26%.
C) 20.8%.
D) 26.3%.

Question 48

When new technology eliminates existing jobs but simultaneously creates jobs making new and better products elsewhere in the economy,economists refer to this situation as

A) the classical dichotomy.
B) technological balance.
C) creative destruction.
D) sectoral shifts.

Question 49

In countries with very restrictive labour laws,many firms are reluctant to hire workers.This reluctance can

A) reduce cyclical unemployment and the natural rate of unemployment.
B) reduce structural unemployment and the natural rate of unemployment.
C) reduce frictional unemployment and the natural rate of unemployment.
D) increase the natural rate of unemployment.

Question 50

From 2005-2008,the unemployment rate in Canada was significantly different from the rates in France,Germany,and Italy.This is often attributed to the idea that the rate of ________ unemployment in these European countries was ________ than it was in Canada.

A) frictional; lower
B) structural; higher
C) cyclical; lower
D) seasonal; higher

Question 51

If the rate of job finding equals 7%,and the rate of job separation equals 1%,then the natural rate of unemployment is

A) 7%.
B) 8.75%.
C) 12.5%.
D) 14.3%.

Question 52

As the workforce ages,

A) structural and frictional unemployment increase.
B) cyclical unemployment declines.
C) cyclical unemployment increases.
D) the natural rate of unemployment declines.

Question 53

Over the past 40 years,employment in service-producing industries had increased significantly and employment in goods-producing industries has declined significantly.Economists would refer to this process as

A) the classical dichotomy.
B) production parity.
C) demographic imbalance.
D) sectoral shifts.

Question 54

Holding other factors constant,the implementation of a federal job retraining program would likely

A) reduce cyclical unemployment and the natural rate of unemployment.
B) reduce structural unemployment and the natural rate of unemployment.
C) reduce frictional unemployment and the natural rate of unemployment.
D) increase the natural rate of unemployment.

Question 55

If the rate of job separation equals 2%,and the natural rate of unemployment is 10%,then the rate of job finding equals

A) 5%.
B) 16.7%.
C) 18%.
D) 20%.

Question 56

________ is(are)the process by which new technology destroys existing jobs,but simultaneously creates jobs by making newer and better products elsewhere in the economy.

A) Tech cycles
B) Technological change
C) Creative destruction
D) Recursive tech

Question 57

Holding other factors constant,building an on-line job database to help workers find jobs would likely

A) reduce cyclical unemployment and the natural rate of unemployment.
B) reduce structural unemployment and the natural rate of unemployment.
C) reduce frictional unemployment and the natural rate of unemployment.
D) increase the natural rate of unemployment.

Question 58

If total employment increased from 17 710 000 in July to 17 769 000 in April,then we know for sure that

A) 59 000 jobs were during that time frame.
B) the unemployment rate deceased during that time frame.
C) the change in employment was 59 000 during that time frame.
D) All of the above answers are correct interpretations of the information.

Question 59

The economy reaches full employment when

A) every employee has a job.
B) structural unemployment is zero.
C) cyclical unemployment is zero.
D) frictional unemployment is zero.

Question 60

The birthrate in Canada decreased during the 1960s,and as a result

A) structural and frictional unemployment increased.
B) cyclical unemployment declined.
C) cyclical unemployment increased.
D) the natural rate of unemployment declined.

Question 61

What factors can cause the natural rate of unemployment to change?

Question 62

Some policymakers claim that raising the minimum wage will result in economic growth.If increasing the minimum wage would actually generate economic growth,we would expect to eventually see nominal wages ________ and unemployment ________.

A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall

Question 63

Compared to receiving an equilibrium wage,workers who receive efficiency wages are ________ likely to take actions that will get them fired and are ________ likely to switch jobs.

A) more; more
B) more; less
C) less; more
D) less; less

Question 64

Discuss the likely impact of each of the following on the unemployment rate and on the natural rate of unemployment.
a. The length of time workers are eligible to receive employment insurance benefits is extended by 26 weeks.
b. The government decides to increase access to disability benefits.

Question 65

If firms pay efficiency wages,they pay wages that

A) are mandated by the government.
B) will eventually lower the unemployment rate.
C) motivate workers to increase their productivity.
D) are lower than average to ensure maximum profit.

Question 66

Figure 6.4

Refer to Figure 6.4.An efficiency wage in this economy would be represented by a real wage of ________ and an employment level of ________.

A) w₁; L₁
B) w₁; L₂
C) w₂; L₁
D) w₂; L₃

Question 67

An efficiency wage is ________ and results in ________.

A) equal to the equilibrium wage; full employment
B) above the equilibrium wage; a surplus of labour
C) below the equilibrium wage; a shortage of labour
D) above or below the equilibrium wage; a surplus or shortage of labour

Question 68

If a minimum wage is set above the equilibrium market wage,

A) lower-skilled workers will have an easier time finding jobs.
B) the quantity of labour demanded will be below the quantity of labour supplied.
C) the quantity of labour supplied will be below the quantity of labour demanded.
D) highly skilled workers will have a harder time finding jobs.

Question 69

How does a real wage above the equilibrium wage cause unemployment?

Question 70

Explain how efficiency wages,labour unions,and minimum wage laws affect labour markets.

Question 71

Because labour unions contribute to keeping real wages ________ their equilibrium levels,higher unionization rates will tend to contribute to ________ unemployment rates.

A) above; higher
B) above; lower
C) below; higher
D) below; lower

Question 72

Demand and supply of labour are given by:
LD = 250 - 4w
LS = 50 + w
where w is the real wage and LD and LS are the quantities of labour demanded and labour supplied,respectively.
a. What are the equilibrium wage and quantity of employment?
b. If the government imposed a minimum wage of $45,what would be the new quantities of labour and demanded and supplied?
c. How many people would lose their jobs because of the minimum wage,and how many people are now unemployed?
d. Draw a graph to show your results of parts (a),(b),and (c).

Question 73

Suppose that the labour movement has a revival in Canada and the majority of workers join labour unions.As a result we would expect

A) the unemployment rate to fall.
B) the unemployment rate to rise.
C) no change in the unemployment rate, but a decrease in the natural rate of unemployment.
D) an increase in the unemployment rate, but a decrease in the natural rate of unemployment.

Question 74

Some policymakers claim that raising the minimum wage leads to higher employee morale and productivity.In this sense,an increased minimum wage would be operating like

A) an equilibrium real wage.
B) an efficiency wage.
C) a full employment wage.
D) a sticky wage.

Question 75

Figure 6.4

Refer to Figure 6.4.If the actual wage in this economy is represented by w₂,employment in this economy is represented by

A) L₁.
B) L₂.
C) L₃.
D) 0.

Question 76

Figure 6.4

Refer to Figure 6.4.Equilibrium in this market is represented by a real wage of ________ and quantity of labour ________.

A) w₁; L₁
B) w₁; L₂
C) w₂; L₁
D) w₂; L₃

Question 77

Minimum wage laws create unemployment for low-skilled workers because the legal minimum wage is set

A) above the market wage, causing the quantity of labour supplied to be greater than the quantity of labour demanded.
B) below the market wage, causing the quantity of labour supplied to be greater than the quantity of labour demanded.
C) above the market wage, causing the quantity of labour supplied to be less than the quantity of labour demanded.
D) below the market wage, causing the quantity of labour supplied to be less than the quantity of labour demanded.