Deck 15: Employment Relationships

Question 1

As efficiency wage is higher than the market wage, it must reduce the disutility of effort for a worker.

Answer 1

False

Question 2

Spending time and money on education are costs of investing in human capital.

Answer 2

True

Question 3

The country of Zorabia witnesses a huge influx of unskilled illegal immigrants.Which of the following will occur?

A)The equilibrium wage rate in Zorabia will fall.
B)The equilibrium wage rate in the market for unskilled labor in Zorabia will fall.
C)There will be excess demand for labor in the market for unskilled labor in Zorabia.
D)There will be excess supply of labor in the job market for skilled workers.

Answer 3

B

Question 4

The value of the marginal product of labor is given by the product of the marginal product of labor and the market wage rate.

Question 5

The equilibrium wage rate is $10 per hour, and the labor hired at that wage is 100.If the wage rate rises to $11, market forces will push the wage rate further up.

Question 6

Given the value of marginal product of labor, the higher the wage rate, the higher the number of workers employed.

Question 7

Wages and labor are inversely related for people who value leisure more than work.

Question 8

Jill and Daniel graduate from college in the same year in economics and physics respectively and start looking for jobs.They are competitors in the job market.

Question 9

In cases where no employer-specific skills are required for a particular job, a long-term relationship between an employer and an employee is unlikely.

Question 10

Equilibrium wage will increase if quantity of labor demanded rises.

Question 11

The supply curve of labor is less elastic in the long run compared to the short run.

Question 12

Differing productivities, differences in working conditions, and localized employer market power are some of the reasons which explain differences in individual wages.

Question 13

Lisa's hourly pay increases from $8 to $10 as her performance improves.We can conclude that:

A)her marginal cost of leisure declines.
B)her opportunity cost of leisure increases.
C)her opportunity cost of work increases.
D)her marginal cost of work declines.

Question 14

In an enforceable contract one or both parties could invest too little in relationship-specific assets that increase the economic value their joint efforts can create.

Question 15

Michael gets his first job after graduation with a weekly pay of $80.This implies that his productivity is less than $80.

Question 16

Hourly wages solve the problem of monitoring waiters' performances for a restaurant owner.

Question 17

Employers tailor compensation packages to attract employees who will give them a competitive edge in the market.

Question 18

Susan works 60 hours a week while Rachel works 20 hours because she is unable to find full-time work.Which of the following statements is true?

A)Susan is likely to work for an extra hour without a pay hike.
B)Rachel is unlikely to give up another hour's leisure without a pay hike.
C)Susan's opportunity cost of leisure is likely to be lower than Rachel's.
D)Susan is unlikely to give up another hour's leisure without a pay hike.

Question 19

Labor and capital are often complements in production because the use of capital enhances the productivity of the labor and vice versa.

Question 20

Over the long run, migration by workers to higher-wage regions:

A)allows wages to equalize across regions.
B)explains why wage differentials may persist.
C)causes disequilibrium in the labor market.
D)increases wages further in those regions.

Question 21

Which of the following statements is true about investments in general and specific human capital?

A)Firms invest in development of general human capital of their employees.
B)Employees invest in gaining specific human capital.
C)Investment in general human capital of its employees by a firm may turn into a sunk cost if the employee leaves the organization to join another after completing the relevant training.
D)When a firm invests in specific human capital of its employees, the employees become more attractive to other firms whose workplaces are operated and staffed differently.

Question 22

Which of the following is a cost borne by an employee?

A)The cost incurred in looking for alternative job opportunities
B)A fall in overall productivity as a result of hiring the wrong person
C)The cost of training in the new firm
D)The cost of extra work done by existing employees due to an unfilled position

Question 23

_____ represents a firm's demand curve for labor.

A)The value of marginal product
B)Marginal product
C)Marginal revenue curve
D)The horizontal line at the market wage rate

Question 24

Identify the correct statement from the following.

A)Wages offered for a particular type of job are the same across the country.
B)The labor market exhibits rapid adjustment to changes in supply or demand conditions.
C)The labor market usually yields a range of wages rather than a unique equilibrium.
D)Wages exhibit frequent and prompt changes in response to changes in market conditions.

Question 25

Marginal product of labor is:

A)the extra output produced by an additional worker, all else unchanged.
B)the extra wage earned by an additional worker, all else unchanged.
C)the total output produced when an extra worker is hired.
D)the total revenue earned when an extra worker is hired.

Question 26

A competitive firm hires workers as long as:

A)marginal product of labor is positive.
B)value of marginal product of labor is positive.
C)marginal product of labor is greater than the wage rate.
D)value of marginal product of labor is greater than the wage rate.

Question 27

Which of the following assumptions is made while determining equilibrium wage and labor employed in the economy?

A)Information about job vacancies is difficult to obtain for workers.
B)Mobility of workers is limited, i.e., workers can not switch jobs easily.
C)Jobs vary widely in scope and responsibilities.
D)All person-hours of labor are treated as identical.

Question 28

The general health of the population of a country improves as its medical support system improves.Which of the following is a likely outcome of this?

A)Marginal product of labor will increase.
B)Value of marginal product of labor will fall.
C)The equilibrium wage rate will decline.
D)There will be excess supply of labor in the market.

Question 29

A written contract between an employer and an employee creates value as long as:

A)the benefits exceed the costs of forming and enforcing it.
B)the productivity of the employee is equivalent to the wage.
C)on-the-job learning is unimportant.
D)the relationship between the employer and the employee is short-term.

Question 30

Assume that a firm is operating in the short run and all resources are fixed except for labor.The total product curve for this firm will increase at a decreasing rate because:

A)value of marginal product of labor is unchanged as more labor is hired.
B)marginal product of labor will decline as more labor is hired.
C)value of marginal product of labor will increase as more labor is hired.
D)marginal product of labor is unchanged as more labor is hired.

Question 31

A competitive firm produces notebooks which sell in the market at $2 each.The firm hires 40 workers.If the market price of the notebooks increases to $3.5 each, which of the following statements is true?

A)The firm's labor demand curve will become flatter.
B)The firm's labor demand curve will shift outward parallel to itself.
C)The firm's labor demand curve will shift outward parallel to itself.
D)The firm's labor demand curve will become steeper.

Question 32

_____ is an example of specific human capital.

A)High school education
B)A bachelor's degree in Economics
C)On-the-job learning for a sales executive
D)A PhD in astrophysics

Question 33

Andrea invests $20,000 in tuition fees for her three years of college education.Had she worked those three years, she could have earned a total of $8,000.Identify the correct statement from the following.

A)The opportunity cost of her college education is $20,000.
B)The investment cost of college consists of $20,000.
C)The investment cost of her college degree is $28,000.
D)The opportunity cost of her college education is $28,000.

Question 34

An important distinction between the labor market and the market for commodities is:

A)that contracts are arrived at more easily in the former.
B)the individual attributes of the buyer and seller hold far more importance in the former case.
C)that it is impossible to prevent breach of contract in the labor market.
D)that the market for commodities is a matching market while the former is not.

Question 35

Which of the following methods could be used by an employer to align the incentives of an employee with its own interests?

A)Paying market wages
B)Paying efficiency wages
C)Signaling
D)Partially outsourcing human resource functions

Question 36

In which of the following cases is the employment relationship between the employee and the employer likely to resemble a spot market transaction?

A)When hospitals hire clerical staff
B)When a university hires members of faculty
C)When a corporate law firm hires lawyers
D)When unskilled workers are hired on a day-to-day basis for odd jobs

Question 37

In competitive markets, the elasticity of labor supply is:

A)unrelated to time.
B)inversely proportional to time elapsed since a wage change.
C)unity.
D)directly proportional to time elapsed since a wage change.

Question 38

The following figure gives the total product of labor at different levels of labor use per day.The market price of the product is $10 per unit and the market wage rate is $8 per day.
Table 15-1

Refer to Table 15-1.Calculate the value of marginal product of labor when the firm hires 7 workers.

A)$24
B)$30
C)$280
D)$224

Question 39

Which of the following events will cause a downward movement along the value of marginal product of labor curve?

A)An increase in wage rate
B)An increase in price of the product
C)A decrease in wage rate
D)A decrease in price of the product

Question 40

The following figure gives the total product of labor at different levels of labor use per day.The market price of the product is $10 per unit and the market wage rate is $8 per day.
Table 15-1

Refer to Table 15-1.The marginal product of labor is the highest when the firm hires _____ workers.

A)5
B)6
C)7
D)8

Question 41

The _____ of using the market for corporate control make it important to build incentives into executive pay packages that can reduce _____ by better aligning the incentives of shareholders and managers.

A)benefits; principal/agent problems
B)costs and uncertainties; principal/agent problems
C)benefits; influence costs
D)costs and uncertainties; influence costs

Question 42

Which of the following statements is true about efficiency wages?

A)Efficiency wages reduce monitoring cost of the employer.
B)Employees benefit more from efficiency wages than employers.
C)Productivity of the employee is usually unaffected by efficiency wages.
D)Loafing is more rewarding for employees who earn efficiency wages.

Question 43

How does value of marginal product (VMP) of labor determine the number of workers a competitive firm will hire?

Question 44

Options are less than perfect as instruments to induce better performance because:

A)they are most often backdated.
B)they are independent of market volatility.
C)more than 90 percent of options expire worthless.
D)executives often take risky decisions to raise the value of their options.

Question 45

The market wage rate for a car mechanic is $30 per week.Peter, who owns a garage, is in urgent need of a mechanic to head his existing employees.He is willing to hire Alex and pay $8 extra in order to make sure that Alex puts in his best efforts.If Alex accepts the job, which of the following statements will be true?

A)There is no disutility of hard work for Alex as his pay exceeds the market wage rate.
B)Alex has no incentive to put in his best efforts on this job.
C)Alex's disutility of extra effort in this new job is less than the utility from extra pay.
D)Peter's benefit from hiring Alex will be limited as he is paying above the market wage rate.

Question 46

Influence cost is a type of _____ incurred while filling positions that have similar responsibilities but carry different pay.

A)deadweight loss
B)opportunity cost
C)externality
D)social cost

Question 47

A disadvantage of options as instruments of performance-related rewards is:

A)that it exposes the executives to market volatility.
B)that it increases opportunistic behavior on the part of the employees who expect to earn these incentives.
C)that the actual monetary gains from such incentives are usually lower than other performance-related incentives provided by organizations.
D)that once an option has been exercised and the executive has sold her shares it will have no continuing effect on her incentives to make better future decisions.

Question 48

Identify the correct statement from the following.

A)A worker's wage line and productivity line over his lifetime are parallel to each other.
B)The wage line of a worker's lifespan is an upward sloping straight line.
C)The productivity line of a worker's lifespan rises at a decreasing rate.
D)A worker's wage is always equal to his productivity.

Question 49

Which of the following will have a downward impact on efficiency wages?

A)Low monitoring costs
B)Excess supply in the labor market
C)High equilibrium wage rate
D)Excess demand in the labor market

Question 50

What is investment in human capital?

Question 51

In long-term job attachments, a worker's wage:

A)always exceeds his productivity.
B)always falls below his productivity.
C)is lower than his productivity at the beginning, then equals it, and then exceeds the same.
D)is higher than his productivity at the beginning, then equals it, and then falls below the same.

Question 52

Which of the following statements is true of sharecropping?

A)It is an inefficient arrangement if the work of the farmer is not monitored.
B)The higher the profit to the landowner, the higher the share of the farmer.
C)Both the farmer and the landowner will work to maximize farm profits.
D)The higher the profit to the landowner, the lower the share of the farmer.

Question 53

Piece rates are used when:

A)an individual's output is independent of others and can be easily measured.
B)the job involves team production.
C)an individual's output can be affected by random events.
D)monitoring is difficult.

Question 54

A firm that fills its vacancies in the upper levels of the hierarchy with its own employees:

A)avoids opportunistic behavior by employees.
B)uses an internal labor market.
C)avoids the difficult tasks of measuring and comparing the productivities of individual workers.
D)pays them according to their performance rather than seniority.

Question 55

Back-loading of employees' wages helps a company because:

A)they act as incentives for employees to work hard throughout their tenure with the company.
B)they completely eliminate all sorts of opportunistic behavior on the part of the employee throughout his/her tenure with the company.
C)they reduce the actual cost burden of the employee on the company.
D)they prevent opportunistic behavior on the employer's part.

Question 56

_____ allow an individual to buy a company's stock at a pre-determined price on or after a certain future date.

A)Arbitrage
B)Futures contracts
C)Options
D)Spot markets

Question 57

Opportunistic behavior on the part of the employer is possible because:

A)contracts are often incomplete and leave room for implicit understandings between the two parties.
B)employees often reduce their effort level if they are important to the company.
C)it is difficult to monitor all employees and their performances.
D)good quality work can be easily measured.

Question 58

Jason is a salesman who gets 40 percent of the revenue he generates for his company.This is an example of payment by _____.

A)piece rent
B)fixed salary
C)executive compensation
D)share contract

Question 59

Explain why funds available to pay the fixed inputs are equal to the area of the triangle below the value of marginal product of labor (VMP) and above the wage.

Question 60

An employee who has worked with only one organization all her life, and is now close to her retirement age, is unlikely to find an equally profitable position with another company because:

A)her productivity is very low.
B)her firm-specific capital is of little use to other organizations.
C)other organizations can not verify her previous work record.
D)her preference for leisure is likely to be very high.

Question 61

What are the different modes of payments that employers use?

Question 62

Explain how compensation plans like piece rate payment, capitation fees, and hourly payment options resolve the principal/agent problem faced by employers.

Question 63

Why is the labor market called a matching market?

Question 64

The following figure gives the total product of labor at different levels of labor use per day.The market price of the product is $10 per unit and the market wage rate is $8 per day.
Table 15-1

Explain the significance of efficiency wages in solving the principal/agent relationship in employment.

Question 65

What causes employers or employees to behave opportunistically?

Question 66

Why are most contracts incomplete?

Question 67

What are typical components of executive compensation and how do they resolve principal/agent problems between shareholders and executives?

Question 68

If wage falls below the rate determined by the market equilibrium, in which direction will it move and why?

Question 69

Why do firms opt for internal labor markets when they may be able to find more candidates with necessary qualifications outside?