Deck 14: Labor Markets

Question 1

Consider two situations: In situation A the production of widgets is monopolized by a single firm.In situation B the production of widgets is perfectly competitive.In both situations the supply of labor to widget makers is infinitely elastic at a wage of w.In this case,the product

A)will be the same in the two cases.
B)will be higher in case B than in case A.
C)will be higher in case A than in case B.
D)From the information given it is not possible to make a definite statement about the marginal value product of labor.

Answer 1

C

Question 2

A price discriminating monopsonist could increase its profits by

A)paying the minimum wages possible.
B)hiring as little capital as possible.
C)paying lower wages to workers with inelastic supply of labor curves than to workers with elastic curves.
D)paying lower wages to workers with elastic supply of labor curves than to workers with inelastic curves.

Answer 2

C

Question 3

The slope of an individual's "consumption?leisure" budget constraint is

A)24 hours minus the number of leisure hours.
B)total consumption divided by the wage rate.
C)the real wage rate.
D)the negative of the real wage rate.

Answer 3

D

Question 4

If an individual's supply of labor curve is "backward bending," then

A)the substitution effect always dominates the income effect.
B)the income effect always dominates the substitution effect.
C)the substitution effect dominates at low real wage levels and the income effect dominates at high real wage levels.
D)the income effect dominates at low real wage levels and the substitution effect dominates at high real wage levels.

Question 5

The opportunity cost of leisure is approximated by

A)the price of leisure activities (such as theater tickets).
B)an individual's hourly real wage rate.
C)commuting expense.
D)an individual's total income.

Question 6

"Compensating wage differentials" arise because

A)workers possess different skills.
B)workers prefer some jobs to others.
C)firms pay higher wages for workers with higher marginal productivities.
D)firms discriminate in hiring.

Question 7

Which of the following strategies that a union might pursue would result in the lowest wage rate for its members?

A)Maximizing the total wage bill.
B)Maximizing employment of its members.
C)Restricting union membership severely.
D)Maximizing the total economic rent obtained by its members.

Question 8

A monopsonist that faces a labor supply curve of the form l = 4w and has a constant marginal revenue product of 50 per unit of l,will opt for the following,w,l combination

A)w = 10 l = 40.
B)w = 25 l = 100.
C)w = 50 l = 200.
D)w = 100 l = 400.

Question 9

Adoption of a guaranteed annual income with benefits (B)given by B = 20,000 -.5 (earnings)
Would be expected to reduce work effort by low wage workers because

A)the income effect would outweigh the substitution effect of the plan.
B)the substitution effect would outweigh the income effect of the plan.
C)both substitution and income effects would operate to reduce work effort.
D)the plan would make working financially unattractive.

Question 10

If an individual is maximizing his or her utility,his or her marginal rate of substitution of leisure hours for consumption will be

A)equal to one divided by his or her wage rate.
B)greater than one divided by his or her wage rate.
C)equal to his or her wage rate.
D)less than his or her wage rate.

Question 11

Which of the following best explains why the elasticity of supply of labor for an individual with a Cobb-Douglas utility function (for consumption and leisure)is zero?

A)Income and substitution effects are precisely offsetting.
B)The elasticity of substitution of leisure for consumption is zero.
C)Leisure is an inferior good.
D)Consumption is subject to diminishing marginal utility.

Question 12

For a monopsonistic hirer of labor the gap between labor's marginal revenue product and its wage rate will be greater

A)the more elastic the supply curve for labor.
B)the more inelastic the supply curve for labor.
C)the more elastic the firm's demand for labor.
D)the more inelastic the firm's demand for labor.

Question 13

If an individual's supply of labor curve is positively sloped throughout,then

A)the substitution effect always dominates the income effect.
B)the income effect always dominates the substitution effect.
C)the substitution effect dominates at low real wage levels and the income effect dominates at high real wage levels.
D)the income effect dominates at low real wage levels and the substitution effect dominates at high real wage levels.

Question 14

A monopolist union that desired to maximize its total wage bill (w  l)would offer that quantity of labor for which

A)labor's marginal productivity is zero.
B)labor's wage falls to zero.
C)the quantity of labor hired is as great as possible given the firm's demand curve.
D)the marginal revenue from providing one more worker to the market is zero.

Question 15

When an individual's wage rises,the income effect tends to

A)increase hours worked.
B)decrease hours worked.
C)leave hours worked unchanged.
D)it is impossible to predict what will happen to hours worked.

Question 16

When an individual's wage rises,the substitution effect tends to

A)increase hours worked.
B)decrease hours worked.
C)leave hours worked unchanged.
D)it is impossible to predict what will happen to hours worked.

Question 17

If a firm is a monopsonistic hirer of labor

A)its marginal expense for labor is greater than the market wage.
B)its marginal expense for labor is equal to the market wage.
C)its marginal expense for labor is less than the market wage.
D)it is a price taker in the labor market.

Question 18

The fact that more women have chosen to work as real wages rise is evidence that,for them

A)leisure is an inferior good.
B)income and substitution effects of higher real wages work in the same direction.
C)income and substitution effects of higher real wages may work in opposite directions.
D)income and substitution effects may work in opposite directions but that the substitution effect is stronger.