Deck 17: The Markets for Labor and Other Factors of Production

Question 1

For a firm that is a price taker in the market for labor,the marginal revenue product of labor equals the

A)marginal product of labor multiplied by the wage rate.
B)marginal product of labor multiplied by the product price.
C)marginal product of labor divided by the wage rate.
D)marginal product of labor multiplied by the marginal cost of production.

Answer 1

marginal product of labor multiplied by the product price.

Question 2

Holding the price of a firm's output constant,if the marginal product of labor increases

A)the marginal revenue product of labor decreases.
B)the marginal revenue product of labor also increases.
C)the marginal products of other inputs also increase.
D)the marginal revenue product of labor may increase or decrease.

Answer 2

the marginal revenue product of labor also increases.

Question 3

The benefit to the firm from hiring one additional worker is called the

A)marginal revenue product of labor.
B)marginal revenue.
C)marginal profit.
D)total revenue.

Answer 3

marginal revenue product of labor.

Question 4

The demand for labor depends primarily on the additional output produced as a result of hiring an additional worker and

A)the additional revenue received from selling the output produced as a result of hiring an additional worker.
B)the payment made to the worker for producing the additional output.
C)the elasticity of demand for the output produced by the worker.
D)the number of workers willing to produce the additional output.

Question 5

The change in a firm's revenue as a result of hiring one more worker

A)is the definition of the marginal product of labor.
B)is equal to the firm's marginal cost.
C)is the definition of the marginal revenue product of labor.
D)will be negative if the demand for the firm's output is inelastic.

Question 6

The demand for labor is different from the demand for final goods and services because

A)the demand for labor is derived from the demand for the good or service the labor is used to produce.
B)it is a demand for people,not inanimate objects.
C)the demand for labor is more inelastic than the demand for the goods and services produced with this labor.
D)the law of demand does not apply to the demand for labor.

Question 7

One difference between the labor market and markets for goods and services is

A)the demand in the labor market is inelastic; the demand for goods and services may be elastic or inelastic.
B)the supply of labor is perfectly inelastic because the quantity supplied is constant.The elasticity of supply for goods and services is different in different markets.
C)concepts of fairness arise more frequently in labor markets than in the markets for goods and services.
D)in the labor market,firms are suppliers while households are demanders.

Question 8

What is a factor market?

A)It is a market where financial instruments are traded.
B)It is a market where stocks and bonds are traded.
C)It is a market producers buy consumption and capital goods.
D)It is a market where resources used to produce final goods are traded.

Question 9

A firm's demand curve for labor slopes downwards because

A)of the law of diminishing marginal returns.
B)firms supply less labor as the wage rate rises.
C)workers supply less labor services as the wage rate falls.
D)of rising marginal product.

Question 10

Hotspur Incorporated,a manufacturer of microwaves,is a price taker in both the input and output markets.To maximize its profit,Hotspur will hire labor up to the point where

A)the marginal product of labor is no longer positive.
B)all economies of scale have been exhausted.
C)the marginal revenue product of labor equals the wage rate.
D)the marginal revenue product of labor equals the output price.

Question 11

The term "derived demand" refers to

A)the demand for financial products called derivatives.
B)the demand for a factor of production that is derived from the demand for the good the factor produces.
C)a firm's estimated demand curve derived from sales data.
D)a demand curve that derives from the availability of resources.

Question 12

The marginal revenue product of labor is defined as

A)the change in the firm's revenue as a result of selling one more unit of output.
B)the change in the firm's output as a result of hiring one more worker.
C)the change in the firm's profit as a result of hiring one more worker.
D)the change in the firm's revenue as a result of hiring one more worker.

Question 13

A firm should hire more workers to increase its profits if

A)the marginal product of labor is greater than the wage the firm will pay these workers.
B)the wage rate is less than the marginal revenue product of labor.
C)there is enough capital and other resources for the workers to use.
D)the demand for labor is elastic.

Question 14

Major League Baseball teams are similar to other firms in that they use factors of production to produce a product (baseball games).An example of capital used by teams to produce their products is

A)the money teams earn from television contracts and ticket sales.
B)the land on which baseball games are played.
C)the labor of baseball players.
D)the ballparks where the games are played.

Question 15

The marginal product of labor is

A)the payment made to workers for their contribution to the output they produce.
B)equal to the demand for labor.
C)the change in a firm's revenue as a result of hiring one more worker.
D)the additional output a firm produces as a result of hiring one more worker.

Question 16

An increase in the demand for orthodontic services leads to

A)an increase in the supply of orthodontists.
B)lower prices for orthodontic care.
C)an increase in the demand for orthodontists.
D)a rise in the rates of dental insurance.

Question 17

The demand curve for labor is also

A)the demand curve for the output produced with labor since the demand for labor is a derived demand.
B)the marginal product of labor curve.
C)the marginal revenue product of labor curve.
D)the supply curve for the output labor is used to produce.

Question 18

As more output is produced,the marginal product of labor declines

A)because of the law of diminishing returns.
B)if firms reduce the wage paid to labor.
C)if the firm's output supply curve is inelastic.
D)because the firm's marginal revenue declines.

Question 19

Which of the following describes a difference between the marginal product of labor and the marginal revenue product of labor?

A)The marginal product of labor declines as each additional worker is hired because of the law of diminishing returns.The marginal revenue product of labor declines as each additional worker is hired because of diseconomies of scale.
B)The marginal product of labor declines as each additional worker is hired because of the law of diminishing returns.The marginal revenue product increases as each additional worker is hired because of increases in the productivity of labor.
C)The marginal product of labor is inelastic.The marginal revenue product of labor is elastic.
D)The marginal product of labor measures the change in output as additional workers are hired.The marginal revenue product measures the change in revenue as additional workers are hired.

Question 20

Adrian Gonzalez and other star baseball players earn millions of dollars annually.These salaries are due to

A)the greed of players and their agents.
B)the demand and supply of labor in the market for baseball players.
C)the elastic demand for jobs in Major League Baseball.
D)the irrational behavior of team owners.

Question 21

Which of the following is not held constant along a firm's demand curve for labor?

A)the quantity of other inputs used by the firm
B)the wage rate
C)changes in technology
D)the price of the product produced by the firm

Question 22

Figure 17-1 Figure 17-1 shows the marginal revenue product for Becca's Baubles,a producer of hand-beaded bracelets.
Refer to Figure 17-1.If the wage rate is $20,how many workers should Becca hire?

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

Question 23

Table 17-1
Hotspur Incorporated,a manufacturer of microwave ovens,is a price taker in its input and output markets.The firm hires labor at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80.Table 17-1 shows the relationship between the quantity of labor it hires and the quantity of microwave ovens it produces.
Refer to Table 17-1.What is Hotspur's profit maximizing quantity of labor?

A)2 workers
B)3 workers
C)5 workers
D)6 workers

Question 24

Figure 17-1 Figure 17-1 shows the marginal revenue product for Becca's Baubles,a producer of hand-beaded bracelets.
Refer to Figure 17-1.Suppose the market price of bracelets falls to $2.What happens to the curve given in the diagram?

A)Nothing,because labor's productivity has not changed.
B)There will be a movement along the curve.
C)The curve shifts to the left.
D)We cannot answer the question without knowing if Becca would want to hire more workers.

Question 25

An increase in a perfectly competitive firm's demand for labor could be caused by

A)a decrease in the market wage rate.
B)an increase in the amount of human capital among the labor force.
C)an increase in the supply of labor.
D)a decrease in the market price of the product the firm produces.

Question 26

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit.Assume that labor is the only input.If the last worker hired produces four units of output per hour,then to maximize profits the firm should

A)not change the number of workers it currently hires.
B)lay off some workers.
C)hire another worker.
D)There is not enough information to answer the question.

Question 27

Table 17-2
Table 17-2 lists data for the production of Apple iPods.Apple is assumed to be a price maker,so to increase its sales of iPods the firm must lower its price.MPL and MRPL refer to the marginal product of labor and the marginal revenue product of labor,respectively.
Refer to Table 17-2.What are the price and quantity of workers that result in the maximum amount of revenue Apple would earn from selling iPods?

A)$180; 1
B)$140; 2
C)$120; 2
D)$120; 4

Question 28

The marginal product of labor curve is the demand curve for labor.

Question 29

Table 17-2
Table 17-2 lists data for the production of Apple iPods.Apple is assumed to be a price maker,so to increase its sales of iPods the firm must lower its price.MPL and MRPL refer to the marginal product of labor and the marginal revenue product of labor,respectively.
Refer to Table 17-2.What are the price and quantity of workers that result in the maximum amount of profit Apple would earn from selling iPods?

A)$140; 2
B)$160; 2
C)$140; 3
D)$180; 1

Question 30

Marginal revenue product falls as more labor is hired because

A)the price of the product must fall for a perfectly competitive firm to sell more.
B)the wage rate rises as more workers work more hours.
C)the marginal product of labor is negative as additional units of labor are hired.
D)the marginal product of labor falls as a result of the law of diminishing returns.

Question 31

An increase in the supply of capital,which is a complement to labor,will lead to

A)a decrease in the quantity of labor demanded.
B)an increase in the demand for labor.
C)a decrease in the demand for labor.
D)an increase in the quantity of labor demanded.

Question 32

The market demand curve for labor

A)is determined by adding up the quantity of labor demanded by each firm at each wage,holding constant the other variables that affect the willingness of firms to hire workers.
B)is the same as the market demand curve for the product labor produces because it is a derived demand.
C)is determined by adding up the demand for labor by each firm at each wage,holding constant the other variables that affect the willingness of firms to hire workers.
D)is perfectly inelastic because there is a finite number of workers in the market for labor.

Question 33

Table 17-2
Table 17-2 lists data for the production of Apple iPods.Apple is assumed to be a price maker,so to increase its sales of iPods the firm must lower its price.MPL and MRPL refer to the marginal product of labor and the marginal revenue product of labor,respectively.
Refer to Table 17-2.What are the quantity of labor and marginal revenue product of labor that will maximize the profit Apple would earn from selling iPods?

A)2; $160
B)3; $340
C)2; $680
D)3; $140

Question 34

A decrease in the amount of human capital acquired by workers will lead to decrease in the supply of labor.

Question 35

An increase in the price of grape juice causes an increase in the marginal revenue product of labor used to produce grape juice.

Question 36

Figure 17-1 Figure 17-1 shows the marginal revenue product for Becca's Baubles,a producer of hand-beaded bracelets.
Refer to Figure 17-1.If Becca can sell her bracelets at $3 each,what is the marginal product of the 4th worker?

A)$36
B)12 bracelets
C)36 bracelets
D)$144

Question 37

Suppose a competitive firm is paying a wage of $12 an hour.Assume that labor is the only input.If hiring another worker would increase output by four units per hour,then to maximize profits the firm should

A)not change the number of workers it currently hires.
B)hire the extra worker.
C)layoff some workers.
D)There is not enough information to answer the question.

Question 38

Table 17-1
Hotspur Incorporated,a manufacturer of microwave ovens,is a price taker in its input and output markets.The firm hires labor at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80.Table 17-1 shows the relationship between the quantity of labor it hires and the quantity of microwave ovens it produces.
Refer to Table 17-1.What is the amount of revenue added as a result of hiring the fourth worker?

A)$1,200
B)$7,200
C)15 microwaves
D)90 microwaves

Question 39

Which of the following factors will not cause the labor demand curve to shift?

A)increases in human capital
B)changes in technology
C)change in the price of the product produced with labor
D)the wage rate

Question 40

Table 17-1
Hotspur Incorporated,a manufacturer of microwave ovens,is a price taker in its input and output markets.The firm hires labor at a constant wage rate of $800 per week and sells microwave ovens at a constant price of $80.Table 17-1 shows the relationship between the quantity of labor it hires and the quantity of microwave ovens it produces.
Refer to Table 17-1.What is the amount of profit added as a result of hiring the fourth worker?

A)$7,200
B)$1,200
C)$800
D)$400

Question 41

The market supply curve for labor is

A)derived from the market supply curve for the output produced with labor.
B)perfectly inelastic if leisure is an inferior good.
C)determined by adding up the quantity of labor supplied by each worker at each wage,holding constant all other variables that affect the willingness of workers to supply labor.
D)determined by adding up the wages each worker is willing to work for at a given quantity supplied,holding constant all other variables that affect the willingness of workers to supply labor.

Question 42

The income effect of a wage increase will cause a worker to devote

A)more time to labor and more time to leisure.
B)more time to labor and less time to leisure.
C)less time to labor and more time to leisure.
D)less time to labor and less time to leisure.

Question 43

The demand for labor is a derived demand.Explain what is meant by the term "derived demand."

Question 44

In order for a labor supply curve to be backward bending at high wages

A)leisure must be an inferior good.
B)the substitution effect of a wage increase must be greater than the income effect.
C)workers must have an irrational response to wage increases.
D)the income effect of a wage increase must be greater than the substitution effect.

Question 45

For most low-wage earners,

A)the income effect of a wage rate increase is likely to be larger than the substitution effect.
B)the substitution effect of a wage rate increase is likely to equal the income effect.
C)the opportunity cost of leisure is high.
D)the substitution effect of a wage rate increase is likely to be larger than the income effect.

Question 46

Figure 17-2
Refer to Figure 17-2.Which of the following is true if the wage rate increases from W0 to W1?

A)The income effect is larger than the substitution effect.
B)The substitution effect is larger than the income effect.
C)The income effect and the substitution effect are equal.
D)The supply curve is unit-elastic.

Question 47

The labor supply curve

A)shows the relationship between the wage rate and the quantity of labor supplied.
B)shows the quantity of jobs supplied at various wage rates.
C)is unit-elastic.
D)is U-shaped.

Question 48

Because leisure is a normal good,an increase in the wage rate will result in

A)an increase in the quantity of labor supplied because of both the substitution effect and the income effect.
B)a decrease in the quantity of labor supplied because of the substitution effect and an increase in the quantity of labor supplied because of the income effect.
C)an increase in the quantity of labor supplied because of the substitution effect and a decrease in the quantity of labor supplied because of the income effect.
D)an increase in the quantity of labor supplied because of the substitution effect.At low wages the income effect causes an increase in the quantity of labor supplied,but at high wages the income effect causes a decrease in the quantity of labor supplied as the wage rises.

Question 49

An increase in the supply of capital,which is a substitute to labor,will lead to a decrease in the demand for labor.

Question 50

The wage rate is the opportunity cost of

A)working.
B)working overtime.
C)leisure.
D)consumption.

Question 51

Along an upward sloping labor supply curve,as the wage rate increases,the opportunity cost of leisure ________,causing individuals to supply a ________ quantity of labor.

A)increases; greater
B)increases; lower
C)decreases; greater
D)remains constant,constant

Question 52

Which of the following helps to explain why the supply curve of labor is upward sloping?

A)The supply curve of labor is a derived supply curve; since the output supply curve is upward-sloping so is the labor supply curve.
B)As the wage rate rises,the income effect causes the quantity of labor supplied to increase.
C)The substitution effect of a price change makes a good more expensive relative to other goods.
D)As the wage rate rises,the opportunity cost of leisure rises.

Question 53

Which of the following statements is true?

A)As the wage rate rises,the substitution effect decreases the opportunity cost of leisure and causes a worker to devote more time to working and less time to leisure.
B)As the wage rate rises,the substitution effect increases the opportunity cost of leisure and causes a worker to devote more time to working and less time to leisure.
C)As the wage rate rises,the income effect increases the opportunity cost of leisure and causes a worker to devote more time to working and less time to leisure.
D)As the wage rate rises,the income effect causes a worker to devote more time to work and less time to leisure.

Question 54

Table 17-3

Refer to Table 17-3.The Hair Cuttery,a new hair salon,is ready to start hiring.The table above shows the relationship between the number of hairdressers the firm hires and the quantity of haircuts it produces.
a.Suppose the price of haircuts is $8.Complete the table by filling in the values for marginal product and marginal revenue product.
b.The Hair Cuttery is an input price-taker.Suppose the wage paid to hairdressers is $40 per day.What is the profit-maximizing number of hairdressers?
c.Suppose the wage rate rises to $60 per day.
(i)What happens to the firm's demand curve for hairdressers?
(ii)What happens to the profit-maximizing quantity of hairdressers?
d.Suppose the wage rate is $40 per day and the price of haircuts is now $10.
(i)What happens to the firm's demand curve for hairdressers?
(ii)What happens to the profit-maximizing quantity of hairdressers?

Question 55

Explain how the market for opticians is affected as a result of the development of laser technology which reduces the demand for glasses and contact lenses.In your explanation be sure to show the connection between the market for glasses and contact lenses and the market for opticians.

Question 56

Figure 17-2
Refer to Figure 17-2.Which of the following is true at W2?

A)The income effect is larger than the substitution effect.
B)The substitution effect is larger than the income effect.
C)The income effect and the substitution effect are equal.
D)The supply curve is positively sloped.

Question 57

Leisure is

A)an inferior good.
B)a complementary good to labor.
C)wasteful to society.
D)a normal good.

Question 58

The typical labor supply curve is upward-sloping but it is possible for the curve to be backward bending - negatively sloped - at very high wage levels.Which of the following would cause a backward bending supply curve?

A)This would occur when the income effect from an increase in the wage becomes larger than the substitution effect.
B)This would occur when the substitution effect from an increase in the wage becomes larger than the income effect.
C)This would occur if leisure is an inferior good.
D)This would occur when a large number of workers choose leisure rather than employment at low wages; only a very large increase in the wage will lead these workers to prefer employment to leisure.

Question 59

In general,the labor supply curve

A)slopes downward because firms will hire fewer workers at higher wages.
B)slopes upward because as the wage rises the opportunity cost of leisure increases.
C)is vertical at the equilibrium wage rate.
D)is perfectly elastic at the equilibrium wage rate.

Question 60

Francis Crawford recently received a 20 percent wage increase and desires to work less.We can conclude that at his current wage his supply of labor curve

A)has a positive slope.
B)has a negative slope.
C)is U-shaped.
D)is vertical.

Question 61

Which of the following factors has significantly increased the supply of labor in the United States since 1950?

A)a large increase in the substitution effect as a result of higher wages
B)a low birth rate and an aging population
C)an increase in the number of people who have received college degrees
D)an increase in the labor force participation rate of women

Question 62

If the income effect of a wage increase equals the substitution effect,the labor supply curve is horizontal at the equilibrium wage.

Question 63

Which of the following variables will not cause the market supply curve of labor to shift?

A)increases in population
B)a favorable change in consumer tastes
C)a change in the labor participation rate of women
D)an increase in the number of people between the ages of 16 and 65

Question 64

The substitution effect of a wage decrease examines the effect of the decrease in wage income on a worker's ability to consume goods and services.

Question 65

What are the three most important variables that cause the market supply curve of labor to shift?

Question 66

What is the shape of the labor supply curve implied by the following statements?
a."I'm sorry,kids,but now that I'm earning more,I just can't afford to come home early in the afternoon,so I won't be here when you get home from school."
b."They can pay me a lot or they can pay me a little.I'll still put in my 8 hours a day."
c."Now that I have received a salary increase,I am going to work 36 hours instead of 40 hours a week"

Question 67

How will an increase in labor productivity affect equilibrium in the labor market?

A)The supply of labor will increase and the equilibrium wage and quantity of labor will increase.
B)The demand for jobs will increase and the equilibrium wage and quantity of labor will increase.
C)The demand for labor will increase and the equilibrium wage and quantity of labor will increase.
D)The demand for labor will decrease because fewer workers will be needed to produce the same output.The equilibrium wage and quantity of labor will decrease.

Question 68

All else equal,if job turnover has people leaving jobs and finding new jobs in the same industry,this will

A)increase the demand for labor and the supply of labor.
B)increase the demand for labor and decrease the supply of labor.
C)decrease the supply of labor,but not change the demand for labor.
D)not change demand or supply in the labor market.

Question 69

In many European countries it is much easier than in the United States for unemployed workers to receive generous wage replacement income from their governments.

Question 70

Michael Spence proposed the signaling hypothesis.According to this hypothesis,

A)workers signal their desire to work for a particular firm by the way they answer questions in job interviews.
B)employers signal their preferences for the type of employee they wish to hire through job ads and the questions they ask during job interviews.
C)employers view a college education as a signal that potential workers have certain desirable qualities.
D)high wages are a signal that workers have skills that are highly valued by employers.

Question 71

Daniel Hammermesh and Stephen Donald studied the determinants of the earnings of college graduates years after they graduated.Which of the following is one result of their study?

A)The earnings of identical twins were about 9 percent higher than the earnings of all other students.
B)Students who had taken 15 credits of upper-division science and mathematics courses and earned high grades in these courses earned about 10 percent more than students who took no upper-division classes in these subjects.
C)Students who took more Advanced Placement (AP)courses while still in high school earned significantly more income for each AP course they passed with a grade of 4 or 5.
D)Students who took at least three economics courses earned about 9 percent more income than students who took no college economics courses.

Question 72

If the labor supply is unchanged,an increase in the demand for labor will

A)increase the equilibrium wage and decrease the number of workers employed.
B)increase the equilibrium wage and increase the quantity of jobs demanded.
C)decrease the equilibrium wage and increase the number of workers employed.
D)increase the equilibrium wage and increase the number of workers employed.

Question 73

Suppose the labor market is in equilibrium.Which of the following statements is false?

A)The equilibrium wage rate is equal to the marginal revenue product of labor.
B)At the equilibrium wage,the quantity of labor demanded equals the quantity of labor supplied.
C)Some workers will earn more than the equilibrium wage.
D)At the equilibrium wage,the demand for labor is equal to the supply of labor.

Question 74

If the number of employees who quit,are fired,or retire increases while the hiring of new employees declines,this indicates that the

A)labor demand curve is shifting to the right.
B)labor supply curve is shifting to the right.
C)labor demand curve is shifting to the left.
D)labor supply curve and labor demand curve are both shifting to the right.

Question 75

Increases in population shift the market supply curve for labor to the right.

Question 76

a.What are the two effects of an increase in the wage rate on an individual's labor supply decision? Briefly explain each effect.
b.Explain how a labor supply curve could be backward-bending.

Question 77

Which of the following summarizes the impact of population growth on the labor market?

A)This will increase the labor supply,reduce the equilibrium wage and increase the quantity of labor demanded.
B)There will be an increase in the demand for labor.As a result,the wage rate will rise and the quantity of workers supplied will decrease.
C)There will be an increase in the demand for jobs.This will result in an increase in the equilibrium wage rate and a movement along the labor supply curve.
D)There will be an increase in both the demand for labor and the supply of labor.As a result,the equilibrium wage will not change.

Question 78

If the demand for labor is unchanged,an increase in the supply of labor will lead to

A)a decrease in the quantity of labor demanded and a decrease in the equilibrium wage.
B)an increase in the quantity of labor demanded and a decrease in the equilibrium wage.
C)an increase in the quantity of labor demanded and an increase in the equilibrium wage.
D)a decrease in the quantity of labor demanded and an increase in the equilibrium wage.

Question 79

In recent years unemployment rates in several European countries have been higher than unemployment rates in the United States.Many economists believe that European unemployment rates have been higher because

A)of the different methods used to measure unemployment.If similar methods were used,unemployment rates in Europe and the United States would be about the same.
B)European firms hire many seasonal workers from other countries,and this tends to inflate unemployment rates in their countries.
C)unemployment benefits are more generous in Europe than in the United States.
D)the size of the military is much higher in the United States and all military personnel are classified as employed.

Question 80

Which of the following would cause an increase in the equilibrium wage?

A)The supply of labor increases more than the demand for labor.
B)The supply of jobs increases more than the demand for jobs.
C)The demand for labor increases faster than the supply of labor.
D)The supply of labor increases and the demand for labor decreases.