Deck 31: Work and Wages Neoclassical View of Income Distribution

Question 1

Whats defention of terms:
-compensating differential

Answer 1

higher wages offered in jobs that involve danger, tedium, or significant physical labor

Question 2

Whats defention of terms:
-derived demand

Answer 2

the demand for the factors of production are derived, or arise from, the output or production of goods and services that use the various factors of production

Question 3

Whats defention of terms:
-equilibrium wage rate

Answer 3

the wage rate that clears the labor market

Question 4

Whats defention of terms:
-human capital

Question 5

Whats defention of terms:
-marginal physical product

Question 6

Whats defention of terms:
-marginal revenue product

Question 7

Whats defention of terms:
-accumulated net marginal revenue product

Question 8

Whats defention of terms:
-economic rent

Question 9

Whats defention of terms:
-Euler's theorem

Question 10

Whats defention of terms:
-financial capital

Question 11

Whats defention of terms:
-investment

Question 12

Whats defention of terms:
-marginal productivity rent

Question 13

Whats defention of terms:
-risk

Question 14

Whats defention of terms:
-time preference

Question 15

Discuss the determinants of the labor demand and labor supply curves.
-Why is the demand for the factors of production called

Question 16

Discuss the determinants of the labor demand and labor supply curves.
-Why is the MRP curve downward sloping? What factors cause it to shift? Answer with respect to the MRP for each of the factors of production.

Question 17

Discuss the determinants of the labor demand and labor supply curves.
-Under what conditions is the labor supply curve upward sloping? When is it backward bending? What factors cause the labor supply curve to shift?

Question 18

Explain the relationship between factor prices and factor productivity.
-How can marginal productivity theory be used to explain wage differentials? Give specific examples.

Question 19

Use marginal productivity theory to explain what people earn in the labor market.
-Using diagrams, illustrate
a. why offshore oil workers have higher wages than on-shore oil workers.
b. how human capital raises a worker's wage.
c. why Alaskan workers have higher wages than workers in the lower 48 states.
d. why discrimination raises the wage rate for nondiscriminated workers.

Question 20

Use marginal productivity theory to explain what people earn in the labor market.
-Ceteris paribus, which of the following would tend to cause the wage rate to increase? Draw diagrams to explain your answers.
a. an increase in the labor force participation rate
b. technological advance
c. higher selling prices for output
d. additional education

Question 21

Explain the criticisms of the marginal productivity theory.
-Compare and contrast marginal productivity theory and progressive labor theory. What are the key differences?

Question 22

Explain the criticisms of the marginal productivity theory.
-How do capitalists use marginal productivity to explain wages of workers and the large profits for the owners?

Question 23

Explain the criticisms of the marginal productivity theory.
-Explain the rationale behind the optimal input rule-that is, that firms should hire factors until MRP=MFC. Draw a diagram to illustrate your answer.

Question 24

Use marginal productivity theory to explain prices of capital and natural resources.
-What conditions must hold for the capital market to be in equilibrium? What will happen if the return on capital is less than the rate necessary to overcome risk and time preference? Draw a diagram to illustrate your result.

Question 25

Use marginal productivity theory to explain prices of capital and natural resources.
-Suppose that marginal revenue product of capital is greater than r*, the interest rate necessary to induce saving. However, instead of buying more capital, the firm hires more labor. Would this tend to increase or decrease profits? Why?

Question 26

Explain the concept of economic rent.
-Carefully distinguish between marginal productivity rent and economic rent. When does land command economic rent? marginal productivity rent? Draw a diagram to illustrate your answer.

Question 27

Explain the concept of economic rent.
-Do entrepreneurs "deserve" the money they make? Answer according to marginal productivity theory.

Question 28

Explain the concept of economic rent.
-Economic rents can be earned on all factors of production, not just unimproved land. Explain whether and why each of the following may command economic rent:
a. a Beatles reunion concert
b. Harvard University
c. a burger flipper at MacDonald's
d. our college economics professor
e. your high school history teacher

Question 29

Explain the concept of economic rent.
-Suppose you bought 100 acres of farmland, installed an irrigation system, and built a farmhouse. You then rented the property for $5,000 per month. Five years later, you have made no improvements on the land and you raise the rent to $7,000 per month. Does the rent increase represent pure economic rent? Explain why or why not.

Question 30

List and explain the differences in the approaches of traditional and progressive economists in explaining labor markets and labor market outcomes.
-Compare and contrast the debate over "who gets what" according to traditional and progressive analysis.

Question 31

List and explain the differences in the approaches of traditional and progressive economists in explaining labor markets and labor market outcomes.
-Describe how traditional and progressive analyses think about marginal productivity.

Question 32

The traditional theory economists use to explain factor prices and income distribution is marginal productivity theory. This theory is closely associated with

A) Karl Marx
B) John M. Keynes
C) Adam Smith
D) John Bates blark

Question 33

-In Table 31.1a, what is the marginal physical product (MPP) of the 7^th worker added?

A) $3
B) 40
C) 20
D) $60

Question 34

-In Table 31.1a, what is the marginal revenue product (MRP) of the 7^th worker added?

A) $3
B) 40
C) 20
D) $60

Question 35

-In Table 31.1a, what is total revenue when output is 300?

A) $3
B) $300
C) $900
D) 20

Question 36

-In Table 31.1a, how does marginal physical product change as additional workers are added?

A) marginal physical product increases with each additional worker.
B) marginal physical product decreses with each additional worker.
C) marginal physical product first increases then decreases with each additional worker.
D) marginal physical product first decreases then increases with each additional worker.

Question 37

-Explain what will happen to the data in Table 31.1a if price increases to $5

A) marginal physical product will increase for each level of output.
B) marginal revenue product will increase for each level of output.
C) marginal physical product will decrease for each level of output.
D) marginal revenue product will decrease for each level of output.

Question 38

The income leisure trade off

A) is the basis of the neoclassical theory of labor supply
B) means that individuals would rather work than enjoy leisure.
C) means that individuals enjoy making trades during their leisure time.
D) means that firms can make money in leisure industry.

Question 39

Sam is currently earning $150,000 per year working an 80 hour week. He has just refused a job offer that would increase his salary to $175,000 and require him to work 90 hours per week. What can we say about Sam's labor supply curve?

A) Sam's labor supply curve is upward sloping.
B) Sam does not have a supply curve, because he turned down the job.
C) Sam's labor supply curve is backward bending.
D) Sam places a very low value on leisure at his current wage rate.

Question 40

An increase in the wage will produce a substitution effect and an income effect. What is the substitution effect of a wage change?

A) as the wage increases, the price of leisure becomes more expensive, and workers will consume less leisure.
B) as the wage increases, the price of working becomes more expensive, and workers will substitute more leisure for work.
C) as the wage increases, the opportunity cost of not working becomes less expense, and workers will work less.
D) as the wage increases, price of leisure becomes more expensive, and workers will enjoy more intensive leisure activities.

Question 41

An increase in the wage will produce a substitution effect and an income effect. What is the income effect of a wage change?

A) as the wage increases, workers have more income and will want to work more.
B) as the wage increases, workers have more income and will want to consume more leisure.
C) as the wage increases, workers have more income and will go on more vacations.
D) as the wage increases, workers have more income, and will enjoy more intensive leisure activities.

Question 42

What is human capital?

A) It refers to those who work in financial services.
B) It means that human beings are similar to capital goods.
C) It refers to investments made by workers in education, training and experience.
D) It refers to investments made by employers to substitute new technology and capital for workers.

Question 43

The firm will maximize profits if it hires workers until

A) MRP_L = MC_L
B) MC_L = equilibrium wage rate.
C) MRP_L = price of output
D) equilibrium wage rate = price of output

Question 44

The concept of "time preference" refers to

A) some consumers prefer to shop in the mornings, some prefer to shop in the afternoons.
B) some consumers prefer to shop online because it saves time.
C) some consumers prefer to consume now rather than wait to consume later.
D) some consumers prefer to consume less, because they don't have time to consume more.

Question 45

In economics, the term, "investment," refers to

A) the purchase of stocks and bonds by households.
B) the purchase of plant and equipment done by business firms.
C) plant, equipment and machinery used to produce other goods.
D) the difference between current consumption and current income.

Question 46

The "price" of capital is

A) the interest rate.
B) the capital stock.
C) rent
D) profit

Question 47

The analysis of economic rent assumes that

A) the supply of unimproved land is fixed.
B) the supply of unimpoved land varies directly with the rental price.
C) the supply of unimproved land varies inversely with the rental price.
D) the supply of unimproved land is unlimited.

Question 48

The rent on unimproved land is called

A) marginal productivity rent.
B) economic rent
C) marginal rent.
D) factor rent.

Question 49

The rent on improved land is called

A) marginal productivity rent.
B) economic rent
C) marginal rent.
D) factor rent.

Question 50

The fact that more oil exploration and development occurs when the price of oil increased from $30 per barrel to $130 per barrel suggests that over this price range

A) the supply of oil is fixed.
B) the supply of oil is upward sloping.
C) the supply of oil downward sloping.
D) the supply of oil is perfectly elastic.

Question 51

A key difference between neoclassical theory and the labor theory of value is that

A) neoclassical theory treats production as a process in which three equal inputs - land, labor, and capital - are combined by entrepreneurs to produce products.
B) neoclassical theory treats production as a process in which labor combines inputs - land and capital - to produce products.
C) neoclassical theory treats production as a process in which four equal intputs - land, natural resources, capital, and entrepreneurship - are combined in order to produce products.
D) neoclassical theory and the labor theory of value have the same view of production.

Question 52

In the labor theory of value the term, "means of production" refers to

A) labor
B) capital and raw materials.
C) entrepreneurship
D) the capitalist

Question 53

According to the labor theory of value

A) both labor and capital are productive.
B) labor is productive, but capital is not.
C) capital is productive, but labor is not.
D) neither labor nor capital is productive.