Deck 10: Wage Determination

Question 1

Marginal revenue product is the increase in:

A) total revenue from a decrease in the price of the product.
B) marginal revenue from a decrease in the price of the product.
C) marginal revenue from the use of an additional unit of a resource.
D) total revenue from the use of an additional unit of a resource.

Answer 1

D

Question 2

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.

Answer 2

C

Question 3

Refer to the above graph.What will shift D₁ to D₂?

A) An increase in productivity
B) A decrease in product demand
C) An increase in the price of complementary input
D) A decrease in the price of a substitute input (if the substitution effect is greater than the output effect)

Answer 3

A

Question 4

Why is the demand for labor referred to as a "derived" demand?

A) It stems from the drive to minimize production costs to achieve economic efficiency.
B) It is based on the demand for the output labor produces.
C) It results from decreases in the supply of labor.
D) It arises from the shortages in labor markets.

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

An increase in the demand for computers leads to an increase in demand for computer programmers.This situation arises because:

A) programmers minimize the costs of production.
B) the supply of programmers has decreased.
C) the demand for programmers is a derived demand.
D) of producer sovereignty in resource markets.

Question 7

A firm's demand curve for labor:

A) is its marginal product curve.
B) will shift to the left if the price of the output the labor is producing should fall.
C) is perfectly elastic if the firm is selling its product in a purely competitive market.
D) reflects a direct (positive)relationship between the number of workers hired and the money wage rate.

Question 8

An example of derived demand is the demand for:

A) new automobiles.
B) used automobiles.
C) labor used to produce automobiles.
D) foreign instead of domestic automobiles.

Question 9

Refer to the above graph.What will shift D₁ to D₂?

A) An increase in the price of a complementary input
B) A decrease in the demand for the product produced by the labor
C) An increase in the price of a substitute input (if the output effect is greater than the substitution effect)
D) An increase in the price of a substitute input (if the substitution effect is greater than the output effect)

Question 10

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.

Question 11

Derived demand is the demand:

A) that arises because of monopoly control of resources in a market.
B) for a product based on the tastes and preferences of consumers.
C) derived from consumer satisfaction with a product.
D) for a resource to produce a product.

Question 12

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 13

Refer to the above graph.What will shift D₁ to D₂?

A) An increase in the price of a substitute input (if the output effect is greater than the substitution effect)
B) An increase in the price of a substitute input (if the substitution effect is greater than the output effect)
C) A decrease in the price of a substitute input (if the substitution effect is greater than the output effect)
D) An increase in the price of a complementary resource

Question 14

Marginal revenue product describes the:

A) output produced by the last unit of input employed.
B) revenue received for the last unit of output produced.
C) price a consumer paid for the last unit of output produced.
D) revenue received for the output produced by the last unit of labor employed.

Question 15

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.

Question 16

An example of derived demand is the demand for:

A) housing by consumers.
B) machines by businesses.
C) paper products by households.
D) agricultural products by foreign consumers.

Question 17

Refer to the above graph.What will shift D₁ to D₂?

A) A decrease in productivity
B) An increase in product demand
C) An increase in the price of complementary input
D) A decrease in the price of a substitute input (if the substitution effect is greater than the output effect)

Question 18

Refer to the above graph.What will shift D₂ to D₁?

A) An increase in productivity
B) A decrease in product demand
C) A decrease in the price of complementary input
D) An increase in the price of a substitute input (if the substitution effect is greater than the output effect)

Question 19

The marginal revenue product of labor in a competitive market decreases as a firm increases the quantity of labor used because of the:

A) law of diminishing returns.
B) law of diminishing marginal utility.
C) homogeneity of the product.
D) free mobility of resources.

Question 20

Refer to the above graph.What will shift D₁ to D₂?

A) An increase in the price of a substitute input (if the output effect is greater than the substitution effect)
B) A decrease in the price of a substitute input (if the substitution effect is greater than the output effect)
C) A decrease in the price of a substitute input (if the output effect is greater than the substitution effect)
D) An increase in the price of a complementary resource

Question 21

A firm is both hiring labor and selling output in purely competitive markets and is maximizing profits.It is currently operating in the elastic range of its MRP curve.If the wage rate increases,its total spending on wages at the new equilibrium will:

A) be larger.
B) be smaller.
C) be unchanged.
D) change,but it is impossible to determine the direction.

Question 22

From 2008 to 2018,it is estimated that there will be a fall in demand for:

A) sewing machine operators.
B) medical assistants.
C) desktop publishers.
D) personal care aides.

Question 23

Suppose capital is readily substitutable for labor and that the price of capital falls.We can conclude that the:

A) substitution effect will tend to reduce the demand for labor.
B) output effect will tend to reduce the demand for labor.
C) demand for labor will necessarily decline.
D) demand for labor will necessarily increase.

Question 24

The more inelastic the demand for a resource,the:

A) less elastic its marginal revenue product curve.
B) more elastic its marginal revenue product curve.
C) greater the potential for resource substitution.
D) greater the productivity of the resource.

Question 25

Gambling increases in popularity,thus increasing the demand for card dealers at casinos.This would be caused by which change in a determinant of labor demand?

A) An increase in labor productivity
B) An increase in product demand
C) A decrease in the price of another resource
D) An increase in the price of another resource

Question 26

If the price of labor falls relative to the price of capital,and as a result the quantity of capital employed decreases,it can be concluded that:

A) the substitution effect is greater than the output effect.
B) the output effect is greater than the substitution effect.
C) the income effect is greater than the output effect.
D) labor cannot be easily substituted for capital.

Question 27

In a purely competitive industry,a decrease in a firm's marginal revenue product for an economic resource could result from a(n):

A) decrease in demand for the firm's final product.
B) decrease in the price of the economic resource.
C) decrease in the supply of the economic resource.
D) increase in the marginal productivity of the resource.

Question 28

An increase in the price of aluminum increases the cost of producing aluminum products and reduces the demand for aluminum workers.This decrease in labor demand would be caused by which change in a determinant of labor demand?

A) A fall in labor productivity
B) An increase in product demand
C) A decrease in product demand
D) An increase in the price of another resource

Question 29

If the price of a good increases,then in the market for labor that is used to make this product:

A) employment will decrease.
B) the labor supply will increase.
C) the marginal product (MP)of labor will increase.
D) the marginal revenue product (MRP)of labor will increase.

Question 30

A technological improvement that causes an increase in the marginal product of a resource will:

A) decrease the demand for the resource.
B) increase the demand for the resource.
C) decrease the marginal revenue product.
D) increase the marginal resource cost.

Question 31

In a purely competitive industry,which of the following could cause a firm's marginal revenue product for an economic resource to increase?

A) An increase in demand for the firm's product
B) A reduction in the price of the resource
C) An increase in the elasticity of the firm's supply curve
D) A decrease in the price of the product produced by the resource

Question 32

The demand for a resource will increase if the:

A) price of the resource increases.
B) quantity of the resource decreases.
C) price of the output the firm is producing increases.
D) price of the output the firm is producing decreases.

Question 33

The demand for labor will most likely increase when the price of a:

A) complementary input increases,provided the substitution effect is greater than the output effect.
B) substitute input decreases,provided the output effect is greater than the substitution effect.
C) substitute input increases,provided the output effect is greater than the substitution effect.
D) substitute input decreases,provided the substitution effect is greater than the output effect.

Question 34

In percentage terms,which occupation is expected to be the fastest growing from 2008 to 2018?

A) Photographic processing machine operators
B) Sewing machine operators
C) Home health aides
D) Biomedical engineers

Question 35

Of the 10 fastest-growing occupations in percentage terms,it is estimated for 2008-2018 that the top seven will be related to:

A) energy and mining.
B) banking and finance.
C) health and computers.
D) government.

Question 36

Other things being equal,how would the market for personal computers be affected by a large increase in productivity in the computer industry?

A) A decrease in price and a leftward movement along the supply curve
B) A decrease in price and a rightward movement along the demand curve
C) A decrease in price and a rightward movement along the supply curve
D) An increase in price and a rightward movement along the demand curve

Question 37

The demand for labor will decrease in response to:

A) increased productivity.
B) better training of all laborers.
C) a decrease in the supply of labor.
D) decreased demand in markets for consumer goods and services.

Question 38

Which would decrease a firm's demand for a particular resource?

A) A decrease in the productivity of the resource
B) A decrease in the price of the particular resource
C) An increase in the demand for the firm's product
D) An increase in the price of the product the resource produces

Question 39

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 40

In a purely competitive market for economic resources,a firm's marginal revenue product for a factor could decrease as a result of a(n):

A) increase in the resource's marginal product.
B) decrease in the demand for the firm's product.
C) increase in the prices of all other resource inputs.
D) decrease in the supply for the economic resource.

Question 41

What will the elasticity of resource demand be if unit wages rise by 5 percent and the number of employed workers falls by 12 percent?

A) 0.42
B) 1.60
C) 2.40
D) 6.00
Elasticity of resource demand is the absolute value of the percentage change in quantity of workers divided by the percentage change in resource price.In this case,elasticity is |-0.12/0.05| = 2.40.

Question 42

Other things being equal,if a formerly competitive firm attains a high degree of monopoly power,its resource demand curve will:

A) become perfectly inelastic.
B) remain perfectly elastic.
C) become more elastic.
D) become more inelastic.

Question 43

The demand for labor would most likely become more elastic as a result of:

A) a decrease in the elasticity of the demand for the product that the labor produces.
B) a decrease in the time for employers to make technological changes or purchase new equipment.
C) a decrease in the proportion of labor costs to total costs.
D) an increase in the proportion of labor costs to total costs.

Question 44

A change in a factor's price will have a greater effect on the quantity of the factor demanded the:

A) smaller the change in the factor's price.
B) smaller the factor's share of total cost of production.
C) more elastic is the demand for the product the factor helps to make.
D) more inelastic is the demand for the product the factor helps to make.

Question 45

If a factor of production has many close substitutes,we would expect that its price elasticity of demand would be:

A) unity.
B) zero.
C) greater than one.
D) less than one but greater than zero.

Question 46

A firm is observed using 15 units of input X when the price of X is $2,and 10 units of X when its price increases to $4.What is the elasticity of demand for input X in this price range?

A) 0.5
B) 0.6
C) 1.67
D) 2.0
Elasticity of resource demand is the absolute value of the change in quantity of workers divided by the change in resource price.In this case,elasticity is |[(10 - 15)/(10 + 15)]/[(4 - 2)/(4 + 2)]| = 0.6.

Question 47

Other things being equal,the elasticity of demand for labor will be greater the:

A) smaller the proportion of total costs accountable for by labor costs.
B) smaller the elasticity of demand for the product it produces.
C) larger the number of close substitute resources available.
D) more rapid the decline in its marginal productivity.

Question 48

The demand for labor would most likely become more elastic as a result of:

A) a decrease in the elasticity of the demand for the product that the labor produces.
B) an increase in the time for employers to make technological changes or purchase new equipment.
C) a decrease in the proportion of labor costs to total costs.
D) an increase in the proportion of labor cost to total costs.

Question 49

A computer manufacturer's elasticity of demand for labor is not likely to be affected by the:

A) supply of computers.
B) price elasticity of demand for computers.
C) ratio of labor cost to other resource costs in the firm.
D) ease of substituting capital for labor in producing computers.

Question 50

What will the elasticity of resource demand be if unit wages rise by 8 percent and the number of employed workers falls by 5 percent?

A) 0.63
B) 1.60
C) 2.90
D) 4.00
Elasticity of resource demand is the absolute value of the percentage change in quantity of workers divided by the percentage change in resource price.In this case,elasticity is |0.05/-0.08| =0.63.

Question 51

Other things being equal,the demand for a factor of production will be less elastic if the demand for the final product it produces is:

A) elastic.
B) inelastic.
C) unitary elastic.
D) perfectly elastic.

Question 52

Other things being equal,a labor union will find it harder to get a wage increase for its members the:

A) less elastic is the demand for the product labor produces.
B) easier it is to substitute other resources for labor.
C) greater the amount of unionization in the industry.
D) less elastic is the demand for labor.

Question 53

In firm X,labor costs are 85 percent of production costs,while in firm Y labor costs are 40 percent of production costs.A 20 percent increase in wages would increase production costs by:

A) 23 percent in firm X and 20 percent in firm Y.
B) 19 percent in firm X and 15 percent in firm Y.
C) 15 percent in firm X and 6 percent in firm Y.
D) 17 percent in firm X and 8 percent in firm Y.
In firm X,production costs would increase by 0.85 * 0.2= 0.17 (i.e. ,17 percent),whereas in firm Y production costs would increase by 0.4 * 0.2 = 0.08 (i.e. ,8 percent).

Question 54

If labor costs are 60 percent of production costs,then a 15 percent increase in wage rates would increase production costs by:

A) 60 percent.
B) 45 percent.
C) 15 percent.
D) 9 percent.
If total production costs are $100,labor's share is $60.If wages go up 15 percent,the wage bill becomes $60 * 1.15 = $69.Total production costs rise to $109,which is a 9 percent increase.

Question 55

Other things being the same,if the demand for labor is inelastic:

A) decreases in wage rates will result in greater payrolls.
B) increases in wage rates will result in greater payrolls.
C) increases in wage rates will result in smaller payrolls.
D) decreases in wage rates will increase both employment and worker incomes.

Question 56

The elasticity of demand for labor varies:

A) directly with changes in the interest rate.
B) directly with labor's share of the total cost of the product.
C) inversely with the elasticity of demand for the final product.
D) inversely with the ease of substituting labor for other productive factors.

Question 57

Which will not directly be a determinant of the price elasticity of demand for labor?

A) The price of labor
B) The substitutability of other resources for labor
C) The elasticity of demand for the product it produces
D) The total cost of labor as a proportion of the total cost of producing units of output

Question 58

A union representative observed that if the union members' wages were increased by some proportion,the workers would eventually suffer a greater than proportional decline in employment.This statement could best be explained if:

A) the new wages are to take effect immediately.
B) union labor can easily be replaced with capital.
C) union labor is an insignificant portion of the total cost of production.
D) the demand for the final product the workers produce is relatively inelastic.

Question 59

In which case below will the elasticity of demand for laborers who produce yo-yos be most inelastic? The price elasticity of demand for yo-yos is:

A) 5,and labor's share of total costs is 20 percent.
B) 5,and labor's share of total costs is 75 percent.
C) 0.1,and labor's share of total costs is 20 percent.
D) 0.1,and labor's share of total costs is 75 percent.

Question 60

Which would result in a decrease in the elasticity of demand for a particular resource?

A) A decrease in the rate at which the marginal product of that resource declines.
B) An increase in the elasticity of demand for the product that the resource helps to produce.
C) A decrease in the percentage of the firm's total costs accounted for by the resource.
D) An increase in the substitutability of other resources for the particular resource.

Question 61

Refer to the above graph.It shows a firm that buys its inputs and sells its output in competitive markets.If labor productivity decreases,the equilibrium level of employment for this firm is expected to be:

A) L₀.
B) zero.
C) lower than L₀.
D) higher than L₀.

Question 62

A firm is faced with the following schedules of employment,revenue,and wages. How many workers will be employed by the profit-maximizing firm?

A) 6
B) 7
C) 8
D) 9

Question 63

Refer to the above graph.If the MRC decreased:

A) quantity would increase.
B) quantity would decrease.
C) the firm would operate as a monopsonist.
D) the firm would increase the supply of labor.

Question 64

If all firms in an industry are price takers in the market for resource A,then:

A) the price of resource A will increase if a single firm increases its output.
B) more efficient firms will produce at levels where the marginal revenue product of the last unit of resource A is higher.
C) less efficient firms will produce where the marginal revenue product of the last unit of resource A is higher.
D) the marginal product of the last unit of resource A will be the same in all firms in the industry.

Question 65

If the supply of labor in a purely competitive labor market decreases,the labor:

A) supply curve for a single employer will shift downward.
B) supply curve for a single employer will shift upward.
C) demand curve for a single employer will shift upward.
D) demand curve for a single employer will shift downward.

Question 66

A characteristic of a purely competitive labor market would be:

A) many firms competing in hiring workers.
B) firms hiring different types of labor.
C) wage-maker behavior by the firms.
D) price-maker behavior by the firms.

Question 67

Suppose two workers can harvest $46 and three workers can harvest $60 worth of apples per day.On the basis of this information we can say that the:

A) marginal product of each of the first two workers is 23.
B) marginal revenue product of each of the first two workers is $23.
C) marginal revenue product of the third worker is $14.
D) third worker should not be hired.

Question 68

A firm's labor input,total output of labor,and product price schedules are given below.Labor is the only variable input. Refer to the above table and information.What is the marginal revenue product of the fifth worker?

A) $6
B) $7
C) $8
D) $9
The marginal revenue product is the change in revenue earned due to the hiring of one more input.In this case,the fifth worker adds 4 units of output and $9 of revenue because revenue rises from $152 to $161.

Question 69

If the supply of labor in a purely competitive labor market increases,the labor:

A) supply curve for a single employer will shift downward.
B) supply curve for a single employer will shift upward.
C) demand curve for a single employer will shift upward.
D) demand curve for a single employer will shift downward.

Question 70

Refer to the above graph.If the MRC increased:

A) quantity would increase.
B) quantity would decrease.
C) the firm would operate as a monopsonist.
D) the firm would increase the supply of labor.

Question 71

If the wage rate in a purely competitive labor market increases,it will cause the:

A) marginal resource cost curve for a single competitive firm in the industry to shift rightward.
B) marginal resource cost curve for a single competitive firm in the industry to shift leftward.
C) labor supply curve for a single competitive firm to shift downward.
D) labor supply curve for the industry to shift rightward.

Question 72

A characteristic of a purely competitive labor market would be:

A) "price-maker" behavior by the firms.
B) "wage-taker" behavior by workers.
C) a few firms competing for labor services.
D) significant differences among workers in the level of work skills.

Question 73

If the wage rate in a purely competitive labor market decreases,it will cause the:

A) labor supply curve for the industry to shift rightward.
B) labor supply curve for a single competitive firm to shift leftward.
C) marginal resource cost for a single competitive firm in the industry to decrease.
D) marginal resource cost for a single competitive firm in the industry to increase.

Question 74

A firm's labor input,total output of labor,and product price schedules are given below.Labor is the only variable input. Refer to the above table and information.How many workers will the firm hire if the wage rate is $8 per day?

A) 3
B) 4
C) 5
D) 6
The marginal revenue product is the change in revenue earned due to the hiring of one more input.In this case,the fifth worker adds 4 units of output and $9 of revenue because revenue rises from $152 to $161,but the worker only costs $8.At higher levels of workers,the marginal revenue product is less than $8.

Question 75

A firm in a purely competitive product market finds it must increase wages to attract extra workers.The firm will hire labor up to the point where the marginal:

A) product of labor equals the wage rate.
B) revenue product of labor equals the wage rate.
C) revenue product of labor starts to decline.
D) revenue product is less than the cost of hiring an extra worker.

Question 76

A firm has a single wage rate.At present 10 workers are employed at $50 per day.Wages are raised to $55 per day to attract an extra worker.The marginal labor cost per day is:

A) $5.
B) $10.
C) $55.
D) $105.
The 11th worker costs $55,but all 10 other workers require a $5 increase in wage.Thus,the total increase is $105.

Question 77

Refer to the above graph.It shows a firm that buys its inputs and sells its output in competitive markets.If the firm develops a new technology that increases labor productivity,the equilibrium level of employment for this firm is expected to be:

A) L₀.
B) zero.
C) lower than L₀.
D) higher than L₀.

Question 78

A firm operating in a purely competitive labor market has the following marginal revenue product schedule. If the wage rate decreases from $17 to $13,by how much will the firm expand employment? Refer To: 10-69

A) 5 workers
B) 4 workers
C) 3 workers
D) 2 workers
At the wage rate of $17 the firm hires 4 workers.At the lower wage rate of $13 the firm hires 6 workers.In both cases the wage rate is below (or equal to)the MRP.

Question 79

Refer to the above graph.The producer illustrated:

A) is a monopsonist since MR = P for every unit sold.
B) is a pure competitor in the output market since it must pay the market wage.
C) is a monopsonist in its output market since it has control over the market wage rate.
D) hires labor in a competitive market since it must pay each worker W*,the market wage rate.

Question 80

In pure competition,a profit-maximizing firm will equate the marginal revenue product of labor with the:

A) wage rate.
B) profits produced by the employment of an extra worker.
C) cost of producing one extra unit of output.
D) price received from selling one extra unit of output.