Question 1

If Alan Shaw reduces his work hours when his salary increases, then

Accepted Answer

A)  the income effect of his salary increase dominates the substitution effect. 
B)  the substitution effect of his salary increase dominates the income effect. 
C)  the income effect of his salary increase is completely offset by the substitution effect. 
D)  leisure is an inferior good to Alan.

Question 2

Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labour is the only input. If hiring another worker would increase output by three units per hour, then to maximise profits the firm should

Accepted Answer

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

Question 3

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

Accepted Answer

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

Question 4

An individual's labour supply curve shows

Accepted Answer

A)  the maximum wage rates offered to that individual by various potential employers. 
B)  the relationship between wages and the quantity of labour that she is willing to supply. 
C)  the relationship between wages and the quantity of labour that a firm is willing to employ. 
D)  the relationship between the quantity of hours worked and total income earned by that individual.

Question 5

If it is difficult for a firm to attribute the output it produces to a particular worker, then

Accepted Answer

A)  its employees are likely to form a union. 
B)  a commission system of compensation will be preferable to a salary system. 
C)  a salary compensation system will be preferable to a commission system. 
D)  a piece-rate system of compensation will be preferable to a salary system.

Question 6

Some superstar athletes in the sports industry earn very high levels of income relative to other occupations, and over time the wage differential has been increasing. What could have caused this?

Accepted Answer

A)  The supply of star athletes has decreased. 
B)  The supply of star athletes has increased due to university athletic programs. 
C)  Technological advances such as cable television has increased the demand for sports entertainment. 
D)  The market power of athletes' unions has increased.

Question 7

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

Accepted Answer

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

Question 8

-Refer to Figure 12-4. Which of the following is true at W2?

Accepted Answer

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 9

What is the difference between labour's marginal product and marginal revenue product?

Accepted Answer

A)  The marginal product of labour is the increase in output as a result of hiring an additional worker, while the marginal revenue product of labour is the increase in profit as a result of hiring an additional worker. 
B)  The marginal revenue product of labour is the dollar value of hiring an additional worker, while the marginal product of labour is the increase in the firm's physical output as a result of hiring an additional worker. 
C)  The marginal product of labour is the additional labour's contribution to the firm's total output, while the marginal revenue product is the additional labour's contribution to the firm's total sales revenue. 
D)  Labour's marginal product is a measure of labour's productivity, while labour's marginal revenue product is a measure of labour's ability to sell the firm's products.

Question 10

-Refer to Table 12-1. The marginal product of the fourth unit of labour is

Accepted Answer

A)  300. 
B)  75. 
C)  60. 
D)  15.

Question 11

Which of the following economists is best known for exploring the application of economic analysis to human resources issues?

Accepted Answer

A)  Edward Lazear 
B)  Claudia Goldin 
C)  David Hammermesh 
D)  Alan Krueger

Question 12

The combined effect (both income and substitution) of a wage increase is that

Accepted Answer

A)  the substitution effect always dominates, leading to more work at a higher wage. 
B)  the income effect always dominates, leading to less work at a higher wage. 
C)  if the substitution effect outweighs the income effect, the labour supply curve slopes upward, but if the income effect outweighs the substitution effect, the labour supply curve is backward bending. 
D)  if the substitution effect outweighs the income effect, the labour supply curve is backward bending, but if the income effect outweighs the substitution effect, the labour supply curve slopes upward.

Question 13

The application of economic analysis to human resources issues is called personnel economics.

Accepted Answer

A) True 
 B)False

Question 14

The marginal revenue product of capital is

Accepted Answer

A)  the cost to the firm of renting an additional unit of capital. 
B)  the change in the firm's revenue as a result of employing one more unit of capital, such as a machine. 
C)  the economic rent received by hiring an additional unit of capital. 
D)  the revenue generated by substituting capital for labour in the production process.

Question 15

A firm's labour demand curve is also its marginal revenue product curve. For both the perfectly competitive firm and the output price maker, the labour demand curve slopes downwards. However, there is a difference in the reasons why the labour demand curve slopes downwards. What is this difference?

Accepted Answer

The answer of A firm's labour demand curve is also...

Question 16

If Molly Bee increases her work hours when her wage increases, then

Accepted Answer

A)  the income effect of the wage increase outweighs the substitution effect. 
B)  the substitution effect of the wage increase outweighs the income effect. 
C)  leisure is an inferior good to Molly. 
D)  Molly is spending beyond her means.

Question 17

Refer to Table 12-1. Suppose the output price is $3. If the firm represented in the table is maximising its profit by hiring six workers, what is the wage rate?

Accepted Answer

A)  $120 
B)  $65 
C)  $40 
D)  There is insufficient information to answer the question.

Question 18

The difference between the salaries paid to movie stars and to actors who play supporting roles is much greater today than it was in the 1930s and 1940s. What factor explains this increase in relative salaries over time?

Accepted Answer

A)  Technological advances in the entertainment industry increase the revenue that successful movies can earn. This has increased the movie studios' willingness to pay high salaries to movie stars. 
B)  Agents of movies stars are effective in obtaining large salaries for their clients today. Few movie stars had agents to negotiate for them in the 1930s and 1940s. 
C)  The studio system that dominated the industry in the 1930s and 1940s no longer exists. The studio system allowed movie studios to sign actors to long-term contracts that kept salaries down. 
D)  There was no actors' union in the 1930s and 1940s. The rise of strong actors' unions has caused salaries of movies stars to be greater today than in previous years.

Question 19

Suppose you have worked at a local sandwich shop for six months and now you plan to ask your manager for a raise. How can you convince your manager that you are worth more money than you are currently being paid?

Accepted Answer

A)  by threatening to quit if he refuses to give you a raise 
B)  by demonstrating to your manager the marginal revenue product your employment contributes to the sandwich shop 
C)  by explaining to him how difficult it is for you to save enough money to go to university 
D)  by convincing him that you are a dedicated worker and ready to take on more responsibilities at the shop

Question 20

If you own a $1000 face value bond with one year remaining to maturity and a five per cent coupon rate, and new bonds are paying 12 per cent, what is the most you can get for your old bond?

Accepted Answer

A)  $1120 
B)  $1000 
C)  $937.50 
D)  impossible to determine without additional information

Exam 12: The Market for Labour and Other Factors of Production