Deck 12: Labor Markets and Labor Unions

Question 1

As the wage rate increases, the income effect tends to reduce the quantity of labor supplied to the market.

Answer 1

True

Question 2

Jason can maximize his satisfaction by allocating time among market work, nonmarket work, and leisure so that the final marginal utilities per hour spent in each activity are identical.

Answer 2

True

Question 3

In what three ways do people use their time?

A) market work, selling labor in the labor market, and leisure
B) producing their own goods and services, nonmarket work, and market work
C) nonwork, work, and leisure
D) market work, nonmarket work, and leisure
E) market work, nonwork, and leisure

Answer 3

D

Question 4

Leisure is

A) subject to the law of diminishing marginal utility
B) usually considered an inferior good
C) a complementary good with nonmarket work
D) a complementary good with market work
E) an irrational way to spend valuable time

Question 5

Leisure time is not subject to diminishing marginal utility.

Question 6

The amount of time an individual is willing to offer for a wage depends on the

A) all of the following
B) value of time devoted to leisure activities
C) boredom, discomfort, and aggravation associated with work
D) value of time devoted to nonmarket work
E) satisfaction gained from goods purchased with the wages

Question 7

Abby maximizes utility by allocating time among leisure, market work, and nonmarket work so that the

A) total utility of each is equal
B) average utility of each is equal
C) total utility per hour of each is equal
D) marginal utility per hour of each is equal
E) maximum amount of goods and services can be acquired

Question 8

Leisure is

A) not subject to the law of diminishing utility because you can never have enough leisure time
B) not subject to the law of diminishing utility because you can derive utility only from goods and services
C) subject to the law of diminishing utility, just as the consumption of goods and services is
D) subject to the law of diminishing utility only if it involves the consumption of goods and services
E) not considered in maximizing utility

Question 9

Which of the following is not a form of nonmarket work?

A) working on your car at home
B) doing your laundry in a laundromat
C) making bread for a dinner at your sister's house
D) caring for your sister's children as a favor
E) babysitting for a fee

Question 10

The amount of time an individual is willing to sell on the labor market varies positively with the value of leisure time.

Question 11

The quantity of labor an individual supplies to any market

A) always increases as the market wage rate rises
B) is contingent upon the wage rates offered in other labor markets
C) always decreases as the market wage rate rises
D) could never be zero over the realistic range of wage rates
E) depends only on the opportunity cost of the individual's time in other labor markets

Question 12

A worker's labor supply depends on, among other things, his ability, his preference for the task, and the opportunity cost of his time.

Question 13

A consumer maximizes utility by allocating time so that the expected marginal utilities of the last unit of time spent in each activity are identical.

Question 14

An extra hour of market work is an attractive use of your time

A) because of the utility generated by goods made possible through the extra work
B) solely because of the personal satisfaction it generates
C) when the disutility of income generated by the extra work exceeds the utility
D) when the net utility of the extra goods made possible and the extra work is greater than zero
E) only when you do not enjoy leisure time

Question 15

Work is an attractive use of your time

A) if the utility of consumption made possible by work exceeds the disutility of work itself
B) whenever you are paid a wage equal to or greater than the minimum wage
C) whenever you derive utility from the consumption made possible through work
D) unless time spent working is a source of disutility
E) only when marginal utility is negative for an additional unit of leisure

Question 16

If Dian chooses a job with a lower income over one with a higher income, she cannot be maximizing utility.

Question 17

If the quantity of labor Sam supplies to a job is zero over the realistic range of wages, Sam

A) is either unwilling or unable to perform the job
B) has not been hired to do the job
C) has not been hired to do the job at the going market wage rate
D) is unable to perform the job
E) is unwilling to perform the job

Question 18

Nonmarket work includes time spent

A) producing goods and services for your employer
B) pursuing hobbies and crafts
C) engaging in strenuous physical exercise to reduce your weight
D) producing your own goods and services
E) managing your own firm

Question 19

Market work includes activities such as

A) practicing your golf game
B) studying for an economics exam
C) teaching a college economics course
D) picking up empty cans for the bottle deposit
E) picking strawberries for your own use

Question 20

Every individual has a labor supply curve in each market where there is a possible use for his/her labor.

Question 21

A newly acquired microwave oven and a food processor will increase Chuck's productivity in the kitchen. Accordingly, he will

A) cook more and eat out less
B) cook less and eat out more
C) buy more ready-to-eat foods
D) be more likely to hire a cook
E) increase the quality of what he cooks but may or may not cook more

Question 22

People who can earn higher market wages

A) have a greater net utility associated with nonmarket work
B) supply more hours to market work than people with lower wages
C) are less likely to perform nonmarket work
D) are more likely to view leisure as an inferior good
E) experience less disutility associated with market work

Question 23

As the wage rate increases, the substitution effect causes workers to supply more time to market work and the income effect causes them to supply less time to market work.

Question 24

The individual supply curve of labor is backward bending because the substitution effect offsets the income effect at higher wage rates.

Question 25

If Marie buys a sailboat, which increases the productivity of her leisure time, she

A) increases her productivity of nonmarket work
B) increases her productivity of market work
C) will spend less time in nonmarket work
D) will spend less time in leisure activities
E) will spend more time in market work to pay for the boat's maintenance

Question 26

People who are more productive in market work

A) produce less for themselves
B) spend more time engaged in nonmarket work
C) work fewer hours in market work and enjoy more leisure
D) are more likely to acquire skills and education through nonmarket work
E) are attracted to market employment at lower wages

Question 27

The demand for labor curve bends backward whenever the income and substitution effects work in opposite directions.

Question 28

Individuals maximize utility in allocating their time only when

A) any change in their use of time reduces their total satisfaction
B) they consciously and carefully weigh the expected marginal utilities per unit
C) they consciously and carefully weigh the actual marginal utilities per unit of time spent in each activity
D) the expected average utility of each activity is equal
E) people make a concerted effort to measure satisfaction

Question 29

A college dean has a __________ opportunity cost of __________ than a college student working in a minimum-wage job.

A) lower; leisure
B) lower; nonmarket work
C) lower; market work
D) higher; nonmarket work
E) higher; market work

Question 30

People who gain greater enjoyment from leisure activities

A) allocate more time to leisure
B) allocate more time to market work
C) allocate more time to nonmarket work
D) generally earn higher market wages
E) generally earn lower market wages

Question 31

People who can earn higher market wages, other things constant, will

A) provide more labor to nonmarket work
B) be more inclined to supply their labor to market work than to nonmarket work
C) be more inclined to supply their labor to nonmarket work than to market work
D) provide more labor to nonmarket work even if the market can provide the services more cheaply
E) provide less labor to market work and more labor to nonmarket work

Question 32

If a person's labor supply curve is positively sloped, the income effect outweighs the substitution effect.

Question 33

People make mistakes in allocating their time

A) because they always act irrationally
B) despite always having expectations fulfilled
C) only when leisure is a normal good
D) because acquiring information is costly
E) more often when the cost of making a mistake is high

Question 34

If Jin-Ho buys a personal computer to maintain household financial records and prepare budgets, he

A) will spend less time in nonmarket work
B) will spend more time engaged in leisure activities
C) will increase the productivity of market work
D) is less likely to hire tax preparation services on the market
E) is less likely to prepare his own income tax returns at home

Question 35

Jamal maximizes utility by allocating his time among leisure, market work, and household work so that

A) expected marginal utility is equal among all three
B) expected total utility per hour is equal among all three
C) expected marginal utility per hour is equal among all three
D) the maximum amount of goods and services can be acquired
E) expected total utility of each use is equal

Question 36

Which of the following would be considered leisure?

A) picking strawberries for your own use
B) running a 10-mile training session
C) studying for a college mathematics class
D) changing the oil and oil filter on your car
E) weeding your garden

Question 37

If the substitution effect dominates the income effect, then an increase in the wage rate will increase the quantity of labor supplied by an individual.

Question 38

If leisure is a normal good, then a decrease in income __________ the time allocated to __________.

A) decreases; market work
B) decreases; leisure
C) decreases; nonmarket work
D) increases; leisure
E) increases; market work, nonmarket work, and leisure time

Question 39

People make mistakes in allocating their time

A) only when leisure time is an inferior good
B) because expectations are not always fulfilled
C) more often when the cost of making a mistake is high
D) only when economists remove the assumption that individuals are rational
E) because information is free and readily available

Question 40

A college student working in a minimum-wage job has a __________ opportunity cost of __________ than a college dean.

A) lower; market work
B) lower; leisure
C) higher; market work
D) higher; nonmarket work
E) higher; leisure

Question 41

Because leisure is a normal good, an increase in income

A) decreases the demand for leisure time and reduces the amount of time allocated to market work
B) decreases the demand for leisure time and increases the amount of time allocated to market work and/or nonmarket work
C) increases the demand for leisure time and reduces the amount of time allocated to market work and nonmarket work
D) increases the demand for leisure time and increases the amount of time allocated to market work and nonmarket work
E) has no impact on the demand for leisure time

Question 42

The income effect of a decrease in the wage rate causes the quantity of labor supplied to

A) increase
B) increase only if the individual desires more leisure time
C) increase only if the substitution effect outweighs the income effect
D) decrease
E) decrease only if the substitution effect is weaker than the income effect

Question 43

By itself, the substitution effect of an increase in the wage rate will

A) always lead to an increase in the quantity of labor supplied
B) always lead to a decrease in the quantity of labor supplied
C) lead to an increase in the quantity of labor supplied only if leisure is like a normal good
D) lead to an increase in the quantity of labor supplied only if leisure is not a normal good
E) lead to an increase in the quantity of labor supplied only if the income effect works in the same direction

Question 44

The substitution effect of a decrease in the wage rate causes the quantity of labor supplied to

A) increase
B) increase only if the individual desires more leisure time
C) increase only if the substitution effect outweighs the income effect
D) decrease
E) decrease only if the individual lowers the value of leisure time

Question 45

If my wage rate increases, utility maximization requires that my quantity of labor supplied

A) increase
B) decrease
C) increase if the income effect dominates the substitution effect
D) increase if the substitution effect dominates the income effect
E) increase if the substitution effect equals the income effect

Question 46

As the wage rate decreases, the amount of time spent on market work usually

A) increases because the opportunity cost of nonmarket work increases
B) increases because of the substitution effect
C) decreases because of the income effect
D) decreases because the value of leisure time increases
E) decreases because the opportunity cost of leisure declines

Question 47

As the wage rate falls, a utility-maximizing individual's quantity of labor supplied

A) increases
B) decreases
C) increases if the income effect outweighs the substitution effect
D) decreases if the substitution effect outweighs the income effect
E) decreases if the income effect outweighs the substitution effect

Question 48

Which of the following statements would be represented by a backward-bending labor supply curve?

A) A $50,000-a-year professor works more hours than a $20,000-a-year professor.
B) The CEO of a major computer manufacturer works more hours than the union workers.
C) The owners of a successful business work fewer days than do their employees.
D) Hospital janitors work fewer hours than does the chief of obstetrics.
E) High-ranking executives are more likely to work past 5:00 p.m. than are middle managers.

Question 49

An increase in the wage rate will lead to a reduction in the quantity of labor supplied if

A) the substitution effect outweighs the income effect
B) the income effect outweighs the substitution effect
C) the opportunity costs of leisure do not increase
D) the opportunity costs of working always increase
E) workers are irrational because otherwise they would be violating the law of supply

Question 50

The average work week in the United States has declined to fewer than 40 hours even though wage rates have been increasing. The best explanation of this phenomenon is that

A) the labor supply curve shifted to the right
B) the labor demand curve shifted to the right
C) the income effect of rising wages outweighed the substitution effect
D) the income effect of rising wages could not outweigh the substitution effect
E) none of the above

Question 51

NARRBEGIN: Exhibit 12-1
Exhibit 12-1

Along which part of the labor supply curve in Exhibit 12-1 does the income effect of a wage change outweigh the substitution effect?

A) between points a and b
B) between points a and c
C) between points b and c
D) between points b and d
E) between points c and d

Question 52

If nonmarket work is a normal good, then an increase in income __________ the time allocated to __________.

A) decreases; market work
B) decreases; leisure
C) increases; market work
D) increases; leisure
E) increases; nonmarket work

Question 53

For a typical person who is currently earning a low wage rate, the

A) substitution effect of a wage rate increase usually is stronger than the income effect
B) substitution effect of a wage rate increase usually is weaker than the income effect
C) income effect of a wage rate increase is usually zero
D) substitution effect of a wage rate increase is usually zero
E) substitution and income effects of a wage rate increase tend to work in the same direction

Question 54

If the substitution effect is always greater than the income effect, then an individual's labor supply curve will

A) bend backward
B) always have a positive slope
C) always have a negative slope
D) be vertical
E) be horizontal

Question 55

The substitution effect in the labor supply decision refers to

A) substituting leisure for work as the wage rate rises
B) substituting market work for nonmarket work as the wage rate falls
C) working more hours as the wage rate falls
D) working fewer hours as the wage rate rises
E) substituting market work for leisure or nonmarket work as the wage rate rises

Question 56

The income and substitution effects of a change in the wage rate

A) always work in the same direction
B) always work in opposite directions
C) work in opposite directions only if the change is a decrease
D) work in the same direction only if the change is an increase
E) work in the same direction only if the change is a decrease

Question 57

Along a backward-bending labor supply curve, the

A) income effect always dominates the substitution effect
B) substitution effect always dominates the income effect
C) substitution effect is always equal to the income effect
D) substitution effect dominates the income effect at high wage rates
E) substitution effect dominates the income effect at low wage rates

Question 58

People generally view leisure

A) as an inferior good
B) as a normal good
C) as a source of disutility
D) as more valuable per unit the more they have of it
E) as unrelated to utility maximization

Question 59

NARRBEGIN: Exhibit 12-1
Exhibit 12-1

Along which part of the labor supply curve in Exhibit 12-1 does the substitution effect of a wage change outweigh the income effect?

A) between points a and b
B) between points a and c
C) between points b and c
D) between points b and d
E) between points c and d

Question 60

At a low wage rate,

A) there is no substitution effect
B) there is no income effect
C) the substitution effect usually outweighs the income effect
D) the income effect usually outweighs the substitution effect
E) the disutility of market work is usually high

Question 61

NARRBEGIN: Exhibit 12-3
Exhibit 12-3

In Exhibit 12-3, which of the following is true when the wage rate increases from $9 to $11?

A) The substitution effect will cause the person to work more hours.
B) The income effect will cause the person to work more hours.
C) The substitution effect will cause the person to work fewer hours.
D) The income effect will cause the person to work the same number of hours.
E) The substitution effect will cause the person to work the same number of hours.

Question 62

Which of the following would reduce the supply of an athletic trainer's services at today's wage rate, other things constant?

A) a reduction in the individual's income from other sources
B) an improvement in the quality of the work environment
C) an increase in the amount of control the trainer has over the use of time on the job
D) a trainer's future earning possibilities go down due to a new negative image associated with this work
E) an increase in the trainer's preference for this type of work

Question 63

NARRBEGIN: Exhibit 12-3
Exhibit 12-3

In Exhibit 12-3, which of the following is true at a wage rate of $7?

A) The income effect dominates the substitution effect.
B) The substitution effect dominates the income effect.
C) The income effect exactly offsets the substitution effect.
D) No labor is supplied.
E) The individual will supply 30 hours of labor.

Question 64

NARRBEGIN: Exhibit 12-4
Exhibit 12-4

In Exhibit 12-4, when the wage rate rises above $12, the substitution effect outweighs the income effect.

Question 65

Other things equal, the wage rate will be higher in a job that requires close monitoring by a supervisor since few individuals are eager to work in such an environment.

Question 66

NARRBEGIN: Exhibit 12-4
Exhibit 12-4

Consider Exhibit 12-4. If the wage rate is $9, how many hours per week will this person work?

A) 30 hours
B) 36 hours
C) 40 hours
D) 45 hours
E) 48 hours

Question 67

A person who wins a large sum of money in the state lottery is likely to

A) increase the amount of market work offered at each wage rate
B) not change the amount of work offered at each wage rate
C) decrease the amount of work offered at each wage rate
D) substitute market work for leisure time due to the substitution effect
E) substitute market work for leisure time due to the income effect

Question 68

A large inheritance from a relative will tend to

A) cause movement up and to the right along your labor supply curve
B) cause movement down and to the left along your labor supply curve
C) shift your labor supply curve outward
D) shift your labor supply curve inward
E) make the income effect of a wage increase positive

Question 69

Sharon wants a career as an accountant. During the summer she turns down a job painting houses at $6 an hour to work in an accounting office for $4 an hour. Which of the following would not explain her choice?

A) Accounting is more prestigious.
B) The summer accounting job will help her get a full-time job in accounting when she graduates.
C) She prefers to work inside.
D) She would face the law of diminishing marginal utility if she had more goods.
E) She dislikes the messiness of painting.

Question 70

NARRBEGIN: Exhibit 12-4
Exhibit 12-4

In Exhibit 12-4, how much will the employer have to pay per hour to get this worker to work 48 hours per week?

A) $6
B) $7
C) $9
D) $12
E) less than $12

Question 71

NARRBEGIN: Exhibit 12-4
Exhibit 12-4

In Exhibit 12-4, when the wage rate increases from $9 to $12, the substitution effect outweighs the income effect.

Question 72

Which of the following statements regarding labor supply is false?

A) Jerry's labor supply curve can bend backward if the income effect of a higher wage rate outweighs the substitution effect.
B) Bob's labor supply curve will not bend backward if the wage rate is never so high that the income effect outweighs the substitution effect.
C) If there is a wage rate above which the income effect is at least as great as the substitution effect, the labor supply curve will be vertical or bend backward.
D) The labor supply curve will slope upward if the income effect dominates the substitution effect.
E) Hayden's offer to work more hours as the result of a wage increase suggests that the substitution effect dominates the income effect.

Question 73

College students often spend summers in internships that pay little or no income because internships provide benefits in the form of higher future incomes.

Question 74

The market labor supply curve is

A) the sum of individual labor supply curves at each quantity of labor
B) the sum of individual labor supply curves at each wage rate
C) the average of all individual labor supply curves
D) the sum of the upward-sloping portions of individual labor supply curves
E) the sum of the downward-sloping portions of individual labor supply curves

Question 75

NARRBEGIN: Exhibit 12-2
Exhibit 12-2

In Exhibit 12-2, which of the following is true at a wage rate of $14?

A) The income effect dominates the substitution effect.
B) The substitution effect dominates the income effect.
C) No labor is supplied.
D) The income effect equals the substitution effect.
E) The supply curve is horizontal.

Question 76

Bob and Mary each have a Ph.D. in economics. Bob has a job in private industry at which he earns $90,000 a year. Mary earns half that much as a college professor. Which of the following could not explain Mary's career choice?

A) She experiences diminishing marginal utility.
B) She enjoys the flexibility of her schedule.
C) She enjoys teaching.
D) She enjoys the informal atmosphere of a college.
E) She likes having her summers free to do research.

Question 77

NARRBEGIN: Exhibit 12-3
Exhibit 12-3

In Exhibit 12-3, which of the following is true when the wage rate increases from $11 to $13?

A) The substitution effect will cause the person to work more hours.
B) The income effect will cause the person to work more hours.
C) The substitution effect will cause the person to work fewer hours.
D) The income effect will cause the person to work the same number of hours.
E) The substitution effect will cause the person to work the same number of hours.

Question 78

NARRBEGIN: Exhibit 12-2
Exhibit 12-2

In Exhibit 12-2, which of the following is true at a wage rate of $20?

A) The income effect dominates the substitution effect.
B) The substitution effect dominates the income effect.
C) No labor is supplied.
D) The income effect equals the substitution effect.
E) The supply curve is horizontal.

Question 79

NARRBEGIN: Exhibit 12-1
Exhibit 12-1

Along which part of the labor supply curve in Exhibit 12-1 does the income effect of a wage change just equal the substitution effect?

A) between points a and b
B) between points a and c
C) between points b and c
D) between points b and d
E) between points c and d

Question 80

NARRBEGIN: Exhibit 12-2
Exhibit 12-2

In Exhibit 12-2, which of the following is true if the wage rate decreases from $14 to $6 per hour?

A) The income effect dominates the substitution effect.
B) The substitution effect dominates the income effect.
C) No labor is supplied.
D) The income effect equals the substitution effect.
E) The supply curve is horizontal.