Essentials of Economics 10th Edition Schiller Test Bank Download

Essentials of Economics 10th Edition
Schiller
Full download at link:
Test bank: https://testbankpack.com/p/test-bank-for-essentials-of-

economics-10th-edition-by-schiller-gebhardt-isbn-125923570x-
9781259235702/
Solution Manual: https://testbankpack.com/p/solution-manual-for-

essentials-of-economics-10th-edition-by-schiller-gebhardt-isbn-
125923570x-9781259235702/
Chapter 08_Test Bank KEY

1. Ceteris paribus, the willingness and ability to work specific amounts of time at alternative
wage rates in a given period of time is:
A. Product supply.
B. Product demand.
C. Labor supply.
D. Labor demand.
Higher wage rates are needed to attract workers away from other labor markets, household
activities, and leisure.
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 08-01 Cite the forces that influence the supply of labor.
Topic: LABOR SUPPLY
2. The labor-supply curve depicts the quantity of _____ at alternative _____.

A. Labor supplied; wage rates
B. Labor demanded; wage rates
C. Business sales; price levels
D. Products supplied; price levels
activities, and leisure.
8-1
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Topic: LABOR SUPPLY
3. An upward-sloping supply curve of labor illustrates that the:

A. Supply of labor and the wage rate are inversely related.
B. Quantity of labor supplied and the wage rate are directly related.
C. Quantity of labor supplied and the minimum wage are indirectly related.
D. Quantity of labor supplied and the hours of work per week are inversely related.
An increase in the wage rate will increase the supply of labor.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Topic: LABOR SUPPLY
4. Ceteris paribus, for an upward-sloping labor supply curve, there is an increase in the quantity
of labor supplied when the:
A. Demand for labor increases.
B. Amount of leisure time increases.
C. Tax rate increases.
D. Wage rate increases.
activities, and leisure
AACSB: Analytic
Blooms: Understand
Topic: LABOR SUPPLY
5. The supply curve for labor is upward sloping to the right because as wages _____, the quantity
of _____ rises.
A. Rise; goods purchased
B. Fall; work required
C. Rise; labor supplied
D. Fall; labor demanded
AACSB: Reflective Thinking

Blooms: Understand
Topic: LABOR SUPPLY
8-2
6. According to the upward-sloping labor supply curve, at lower wages:
A. Workers are more willing to supply labor.
B. Workers are less willing to supply labor.
C. There is no opportunity cost of labor.
D. The labor supply curve shifts left.
Lower wages cause workers to shift to other industries or more leisure activities
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR SUPPLY
7. All else remaining constant, or "ceteris paribus," for an upward-sloping labor supply curve, the
quantity of labor supplied varies directly with:
A. Payroll taxes.
B. The value of leisure time.
C. The derived demand for labor.
D. The wage rate.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR SUPPLY
8. The quantity of labor supplied:

A. Is downward sloping.
B. Increases as the wage rate decreases.
C. Increases as the wage rate increases.
D. Is influenced by labor demand.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR SUPPLY
9. An upward-sloping supply curve of labor reflects the:

A. Increasing opportunity cost of labor.
B. Increasing marginal utility of income as a person works more hours.
C. Increasing quantity supplied of labor as prices fall.
D. Decreasing marginal cost of labor as a firm hires more workers.
8-3
As labor earns more the additional utility of labor declines and so it takes a higher wage rate to
induce workers to supply labor.
AACSB: Analytic
Blooms: Understand
Topic: LABOR SUPPLY
10. The opportunity cost of working is the:

A. Wage rate.
B. Value of leisure time that must be given up.
C. Expense of maintaining a household and maintaining a decent living.
D. Amount of consumption that is made possible.
As we work more hours our leisure time becomes more scarce and thus more valuable.
AACSB: Analytic
Blooms: Understand
Topic: LABOR SUPPLY
11. The opportunity cost of working is the:

A. Wage rate plus the value of fringe benefits earned in the process.
B. Wage rate earned in the process but not the fringe benefits.
C. Personal satisfaction gained from working.
D. Value of leisure time that is given up in the process.
AACSB: Analytic
Blooms: Understand
Topic: LABOR SUPPLY
12. An individual's labor-supply curve reveals how he or she chooses to allocate:

A. Limited dollars between luxuries and necessities.
B. Scarce money between goods and services.
C. Scarce time between labor and leisure.
D. Limited time between work at one job and work at another.

Blooms: Understand
Topic: LABOR SUPPLY
13. A higher wage rate causes:
8-4
A. A shift in an individual's labor supply curve.
B. A shift in the derived demand for labor.
C. A movement down the MRP curve.
D. The opportunity cost of leisure to increase.
AACSB: Analytic
Blooms: Understand
Topic: LABOR SUPPLY
14. Generally, as the number of hours worked increases, the marginal utility of leisure time tends
to:
A. Increase.
B. Remain the same.
C. Decrease.
D. Become zero or less.
AACSB: Analytic
Blooms: Understand
Topic: LABOR SUPPLY
15. As a person works more hours and leisure time declines, the opportunity cost of labor _____
and the marginal utility of income _____.
A. Falls; falls.
B. Falls, rises.
C. Rises; falls.
D. Rises; rises.

Blooms: Understand
Topic: LABOR SUPPLY
16. People tend to give up watching TV in order to study for an exam when the:
A. Marginal utility of watching TV exceeds the marginal utility of studying.
B. Wage rate falls.
C. Marginal utility of studying exceeds the marginal utility of watching TV.
D. Total utility of studying exceeds the total utility of watching TV.
8-5
As a rational consumer you tend to allocate your time so that the expected marginal utility of the
last unit of time spent for each activity is identical and so if the marginal utility of studying
exceeds that of watching TV you will study.
AACSB: Analytic
Blooms: Understand
Topic: LABOR SUPPLY
17. As a person works more, the number of additional hours that he is willing to work is
determined by the trade-off between increasing:
A. Marginal utility for income and decreasing marginal utility for leisure.
B. Marginal utility for leisure and decreasing marginal utility for income.
C. Total utility for leisure and decreasing total utility for income.
D. Marginal utility for both income and leisure.
last unit of time spent for each activity is identical and so you will spend additional hours
working if the marginal utility exceeds each alternative until the decreasing marginal utility of
income falls below other alternatives. By having less leisure time (as the result of working
more), the last hour of leisure time becomes more valuable. By working and earning more, the
last dollar earned becomes less valuable.

Blooms: Understand
Topic: LABOR SUPPLY
18. Work may not seem appealing because of the opportunity cost it creates, which is the:
A. Leisure time that must be given up in order to work.
B. Wages that the worker must give up by not working.
C. Financial cost to the worker of driving to work, parking, buying lunch, etc.
D. Amount of utility the worker receives when working.
If the marginal utility of leisure is greater than the marginal utility of work a rational consumer
will take leisure.

Blooms: Understand
Topic: LABOR SUPPLY
19. Which of the following is a reason why workers typically require higher wages in order to
work additional hours?
A. The decreasing opportunity cost of labor.
B. The decreasing value of leisure time that is given up.
C. The diminishing marginal utility of additional income.
8-6
D. The diminishing marginal revenue product of labor.
last unit of time spent for each activity is identical and so therefore the expected last hour of
work equals the additional utility which means a higher wage is required.

Blooms: Understand
Topic: LABOR SUPPLY
20. The market supply of labor:

A. Is a horizontal line.
B. Refers to the amount of labor businesses hire at various wages.
C. Shifts to the right when more workers enter the labor market.
D. Shifts to the right when wages decrease.
Since the market supply of labor is made up on individual labor supply curves, it follows that as
workers enter the market the labor supply curve for the market will shift to the right.

Blooms: Understand
Topic: LABOR SUPPLY
21. The market supply of labor depends on the:

A. Number of employers.
B. Marginal revenue product of labor.
C. Price of the product being produced.
D. Number of available workers.
The number of available workers are those that are willing and have the ability to do the specific
work.
AACSB: Analytic
Blooms: Understand
Topic: LABOR SUPPLY
22. Ceteris paribus, if additional immigrants come to the United States with marketable skills,
and they decide to enter the labor market:
A. There is movement up the labor supply curve.
B. The labor supply curve shifts to the right.
C. There is movement down the labor supply curve.
D. The labor supply curve shifts to the left.
8-7
With additional immigrants entering the workforce this would add individual supply curves and
shift the labor supply curve to the right.

Blooms: Understand
Topic: LABOR SUPPLY
23. Which of the following will decrease the market supply of labor, ceteris paribus?
A. An increase in immigration.
B. A decrease in labor productivity.
C. A decrease in the willingness of people to work.
D. An increase in the marginal revenue product of labor.
If people prefer leisure to work this will shift the market supply curve to the left.

Blooms: Understand
Topic: LABOR SUPPLY
24. Ceteris paribus, if the cost of daycare increases causing some workers to leave the labor
market and stay home with their children:
A. There is movement up the labor supply curve.
B. There is movement down the labor supply curve.
C. The labor supply curve shifts to the right.
D. The labor supply curve shifts to the left.
An increase in the cost of daycare would encourage some workers to desire more leisure time
and that would decrease the labor force.

Blooms: Understand
Topic: LABOR SUPPLY
25. Which of the following will not shift the labor supply curve to the right, ceteris paribus?
A. An increase in the wage rate.
B. An increase in immigration.
C. An improvement in working conditions.
D. A number of college students decide to leave school and start working.
An increase in the wage rate will cause a change in labor quantity supplied, not a change in
supply.

Blooms: Analyze
Difficulty: 3 Hard
8-8
Topic: LABOR SUPPLY
26. The quantities of labor employers are willing and able to hire at alternative wage rates is the:
A. Marginal physical product of labor.
B. Government employment minimum.
C. Supply of labor.
D. Demand for labor.
Employers must be willing and able to hire a certain number of employees at specific wage rates.

Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 08-02 Explain why the labor demand curve slopes downward.
Topic: LABOR DEMAND
27. If a firm can hire six workers at $12 per hour but in order to hire the 7th worker it must pay
all its workers $14 per hour then the additional cost of that worker is:
A. $14
B. $26
C. $84
D. $98
The additional cost is $26 since the total cost when the 7th worker was hired would increase
from $72 (12 x 6) to $98 (14 x 7).
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
28. The demand for labor is a derived demand because:

A. labor is hired based on when the MRP is equal to the wage rate
B. we demand what labor produces and not labor itself.
C. all products must have some labor embodied in them.
D. labor is a variable input.
Derived demand means that we demand what the factor produces and not the factor itself.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
29. If the demand for labor is a derived demand, then the demand for airplane pilots depends on
the:
A. Amount of training that pilots receive.
B. Cost of hiring a pilot.
8-9
C. Desire for airline travel.
D. How many pilots there are.
Derived demand means that we demand what the factor produces and not the factor itself.

Blooms: Understand
Topic: LABOR DEMAND
30. A firm's demand for labor is referred to as a derived demand because it is derived from the:
A. Marginal physical product of labor.
B. Demand for the product that labor produces.
C. Wages labor receives from the firm.
D. Supply of labor.
The demand for labor is a derived demand because it depends on the demand for the product or
service that it produces.

Blooms: Understand
Topic: LABOR DEMAND
31. If consumers want to increase the wages and the number of jobs for strawberry pickers they
should:
A. Insist that the government establish a minimum wage for strawberry pickers.
B. Boycott strawberries until wages increase.
C. Insist that sellers raise the price of strawberries.
D. Buy more strawberries.
While establishing a minimum wage would increase the strawberry picker’s wages it would cut
the number of jobs so the best way to increase wages and jobs is to buy more strawberries.

Blooms: Understand
Topic: LABOR DEMAND
32. The labor demand curve slopes _____ to the right, which means that quantity of labor
demanded will increase as the wage rate _____.
A. Upward; falls
B. Upward; increases
C. Downward; falls
D. Downward; increases
8-10
Since the demand for labor is an inverse relationship, as the price of labor falls the quantity
demanded will rise.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
33. The quantity demanded of labor depends on the:

A. Supply of labor.
B. Marginal cost of output.
C. Prevailing rate of interest.
D. Wage rate.
The labor demand curve depicts the relationship between the wage rate (price) and the quantity
of labor demanded.

Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR DEMAND
34. Other things being equal, higher wage rates will:

A. Decrease the quantity supplied of labor.
B. Shift the labor supply curve to the right.
C. Increase the quantity demanded of labor.
D. Decrease the quantity demanded of labor.
Higher wages means a higher price and therefore a decrease in the quantity demanded of labor.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
35. Which of the following does not affect labor demand?

A. The marginal revenue product of the last worker hired.
B. The productivity of workers.
C. The demand for the products that labor produces.
D. The supply of labor.
The supply of labor is depended on the availability and willingness of workers to enter the labor
force.
AACSB: Analytic
Blooms: Understand
8-11
Topic: LABOR DEMAND
36. A firm's demand for labor is downward sloping because:

A. Total output decreases as more workers are hired.
B. The firm must raise wages to hire more workers.
C. The marginal physical product of labor decreases as more labor is hired.
D. The price of the product declines as the firm produces and sells more.
As additional labor is added the additional productivity declines and so it will only be cost
effective to employ if it costs less.

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
37. The marginal revenue product curve and marginal physical product curve have similar shapes
because:
A. MRP is equal to MPP times price, if the product price is constant.
B. MPP is equal to MRP times price, if the product price is constant.
C. MPP is equal to MRP times the wage rate.
D. MRP is equal to MPP plus product price.
The marginal revenue product is found by multiplying the marginal physical product times the
price and if the price is constant the curves will have the same shape.

Blooms: Understand
Topic: LABOR DEMAND
38. The marginal revenue product of labor curve is the firm's:

A. MPP of labor curve divided by the wage rate.
B. Labor demand curve.
C. Total revenue curve.
D. Labor supply curve.
The marginal revenue product curve is the relationship between the price of labor and the
quantity demanded.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
39. Marginal _____ product sets _____ dollar limit on the wage rate an employer will pay.
A. Physical; an upper
B. Physical; a lower
8-12
C. Revenue; an upper
D. Revenue; a lower
Marginal revenue product measures the additional value that each laborer adds to the total value
and therefore sets the maximum value that the firm will pay for each unit.
AACSB: Analytic
Blooms: Understand
Difficulty: 3 Hard
Topic: LABOR DEMAND
40. MRP for a perfectly competitive firm is equal to:

A. MPP times the wage rate.
B. MPP divided by the wage rate.
C. MPP divided by marginal revenue.
D. MPP times the price of the product.
Since a perfectly competitive firm only sees a flat wage rate the firm will only hire labor so long
as the price times the marginal physical product is less than the cost of the laborer.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
41. In order to calculate marginal revenue product, it is necessary to know the:

A. Price of the product and the marginal physical product.
B. Marginal physical product and the unit price of the factor.
C. Marginal revenue and the amount of the product produced.
D. Cost of the factor and the marginal revenue.
The marginal physical product is the physical output and that times the price equals the marginal
revenue product.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR DEMAND
42. The law of diminishing returns states that, ceteris paribus, the MPP of labor declines as:
A. Additional land, raw materials, and other factors of production are employed.
B. The wage rate falls.
C. The product price declines.
D. More labor is employed.
With the exception of one factor if all other factors of production are held constant beyond some
point the variable factor will experience diminishing returns.
8-13
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
43. The demand for labor is downward sloping because of:

A. Diminishing marginal returns to labor.
B. Rising marginal physical product.
C. Falling marginal cost.
D. Rising price.
Since additional units of labor produce less and less output the producer who demands the labor,
would pay less for each additional unit.

Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR DEMAND
44. The marginal revenue product of labor is:

A. The additional output from hiring one more worker.
B. The additional revenue a firm receives from hiring one more worker.
C. Equal to the marginal physical product of labor times the wage rate.
D. Equal to the price of the product times the wage rate.
As additional labor is added the marginal revenue product of each unit declines as the marginal
physical product declines.
AACSB: Analytic
Blooms: Remember
Topic: LABOR DEMAND
45. Which of the following is the correct formula for calculating the marginal revenue product of
labor?
A. The change in total output divided by the change in the quantity of labor.
B. The change in the quantity of labor divided by the change in total revenue.
C. The change in total revenue divided by the change in the quantity of labor.
D. The percentage change in total revenue divided by the percentage change in the quantity of
labor.
Marginal revenue product of labor is defined as the change in total revenue when one more
laborer is used in production.
AACSB: Analytic
Blooms: Understand
8-14
Topic: LABOR DEMAND
46. The law of diminishing returns states that, ceteris paribus, the MPP of labor declines as:
A. Additional land, raw materials, and other factors of production are employed.
B. The wage rate falls.
C. The product price declines.
D. More labor is employed.
With the exception of one factor if all other factors of production are held constant beyond some
point the variable factor will experience diminishing returns.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
47. The labor demand curve is downward sloping because:

A. Each individual worker tends to be more valuable as more workers are hired.
B. Each individual worker tends to be less valuable as more workers are hired.
C. Marginal physical product increases as more workers are hired.
D. The amount of available labor declines as the wage rate declines.
When workers are hired the additional value declines so the workers become less valuable.

Blooms: Understand
Topic: LABOR DEMAND
48. When the law of diminishing returns applies, which of the following would rise with
increased employment of labor, ceteris paribus?
A. Marginal cost
B. Fixed costs
C. The wage rate
D. Marginal revenue
Since it would take more and more labor to produce at the same level of output the additional
cost of the added labor per unit would rise.

Blooms: Understand
Topic: LABOR DEMAND
49. The marginal product of additional units of labor eventually diminishes because, ceteris
paribus:
A. Additional labor is usually less skilled and less experienced.
B. The law of diminishing marginal utility is a factor.
8-15
C. Additional labor has fewer fixed factors of production to work with.
D. Laborers are lazy.
Since the fixed factors of production must be spread over more and more units of variable
production, the marginal product will decline.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
50. According to the law of diminishing returns, as more workers are hired:
A. Marginal utility declines.
B. Opportunity cost increases.
C. Marginal revenue product increases.
D. Marginal physical product declines.
If all factors of production are constant except one which is varied, beyond some point it will
produce less and less additional output.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
51. A firm should continue to hire workers until the:

A. MRP is equal to demand.
B. MPP is equal to the number of workers hired.
C. MRP is equal to the market wage rate.
D. MRP is equal to zero.
When the MRP is equal to the market wage rate then the marginal revenue is equal to the
marginal cost and profits are maximized.

Blooms: Understand
Topic: THE HIRING DECISION
52. When making the hiring decision, firms should compare the:
A. Wage rate to the MRP of the worker.
B. Wage rate to the price of the product.
C. MPP to the MRP.
D. Price of the product to the MPP of the worker.
As each individual worker is hired the MRP declines but so long as it is greater than the wage
rate it is profitable for the worker to be hired.
8-16
Blooms: Analyze
Difficulty: 3 Hard
53. If the MPP of an additional unit of labor is 4 units per hour, product price is constant at $9
per unit, and the wage rate is $35 per hour, then:
A. An additional unit of labor should not be employed because it costs more than it is worth.
B. An additional unit of labor should be employed.
C. The employer should raise wages and hire additional workers.
D. In order to earn a profit, the price of the product must decrease.
If the MPP is 4 units per hour and the product price is $9 per unit the MRP is $36 which is one
dollar more than the wage rate.

Blooms: Analyze
Difficulty: 3 Hard
54. If the MPP of the last worker hired is 3 units per hour, product price is constant at $5 per
unit, and the wage rate is $18 per hour, then:
A. The last worker hired is profitable for the firm.
B. The employer should raise wages and hire more workers.
C. The last worker hired should not be employed because she costs more than she is worth.
D. In order to earn a profit, the price of the product must decrease.
If the MPP is 3 units per hour and the product price is $5 per unit the MRP is $15 which is three
dollars less than the wage rate.

Blooms: Analyze
Difficulty: 3 Hard
55. Assume a university pays the football coach significantly more than the university's
president. This makes good economic sense if the coach:
A. Is more popular.
B. Has a higher level of education.
C. Has been employed at the university longer than the president.
D. Brings more revenue to the university than the president.
From strictly an economic perspective if the additional revenue that the coach brings in to the
university is greater than the additional revenue that the President brings in, then the coach
should be paid more than the President.

8-17
Blooms: Understand
56. Tiger Woods is paid high endorsement fees by companies because:

A. His agent insists on it.
B. His marginal physical product is very low.
C. His marginal revenue product is very high.
D. He cannot live on the money made from playing golf because he has too many girlfriends.
Tiger Woods’ marginal physical product for advertising is very high which translates into high
marginal revenue product.

Blooms: Understand
57. The determinants of the market demand for labor include:

A. Marginal physical productivity.
B. Individual preferences.
C. Income and wealth.
D. The number of available workers.
If labor becomes more productive that would shift the market demand for labor.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-03 Describe how the equilibrium wage and employment level are determined.
Topic: MARKET EQUILIBRIUM
58. The market demand for labor depends on all of the following except:
A. the number of employers.
B. the marginal revenue product of labor in each firm and industry.
C. the marginal physical product of workers.
D. Each worker's willingness to work at alternative wage rates.
Each worker’s willingness to work at alternative wage rates is a factor of labor supply.
AACSB: Analytic
Blooms: Understand
Difficulty: 3 Hard
59. Which of the following will increase the market demand for labor, ceteris paribus?
A. A decrease in the price of output produced by labor.
B. An increase in the productivity of labor.
C. An increase in the wage paid to labor.
8-18
D. A decrease in the number of available workers.
An increase in the productivity of labor would shift the demand curve for labor to the right.

Blooms: Understand
60. Which of the following will decrease the market demand for labor, ceteris paribus?
A. A decrease in immigration.
B. An increase in labor productivity.
C. A decrease in the price of the product produced by labor.
D. A decrease in the wage rate.
A decrease in the price of the product would cause the producer to cut back on the quantity
demanded of labor.

Blooms: Analyze
61. The market equilibrium wage occurs where:

A. Demand intersects the marginal cost curve.
B. Marginal physical product equals marginal revenue product.
C. All workers and all employers are satisfied with the wage.
D. Market demand for labor intersects the market supply of labor.
When the demand for labor equals the supply of labor the market is said to be in equilibrium.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
62. Which of the following is true about the equilibrium market wage for a particular industry?
A. All workers in this industry are satisfied with the wage.
B. There is no unemployment in this industry at this wage.
C. There is a surplus of workers in this industry since the wage is high.
D. All employers in this industry are satisfied with the wage.
When the market is at equilibrium all who wish to work at that wage are working.

Blooms: Understand
8-19
63. The equilibrium level of employment is determined by:

A. The market demand for labor and the market supply of labor.
B. The intersection of MPP and MRP.
C. Government regulations.
D. Collusion by the most powerful employers in a market.
When the demand for labor equals the supply of labor the market is said to be in equilibrium.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
64. The equilibrium wage will definitely rise if:

A. Demand for labor decreases and the supply of labor is constant.
B. Supply of labor increases and the demand for labor is constant.
C. Demand for labor increases and the supply of labor is constant.
D. Both the supply of labor and the demand for labor increase.
If the demand curve for labor increases or shifts to the right, this will drive the price and the
quantity of labor up.

Blooms: Understand
65. The equilibrium quantity of labor will definitely increase if:

A. Demand for labor decreases and the supply of labor is constant.
B. Supply of labor increases and the demand for labor is constant.
C. Supply of labor decreases and the demand for labor is constant.
D. Supply of labor decreases and the demand for labor increases.
If the supply of labor increases this would shift the supply curve to the right and the price of
labor would fall while the quantity increases.

Blooms: Understand
66. Which of the following would cause the equilibrium price of labor to increase?
A. A decrease in the price of the product that labor is helping to produce.
B. The use of a larger stock of capital with the labor force.
C. An increase in the desire for leisure.
D. A more efficient method of combining labor and capital in the production process.
8-20
An increase in the desire for leisure by labor would mean that a higher wage rate would need to
be officered to induce labor to work. This would be characterized by the labor supply curve
shifting upward which would produce a higher equilibrium price of labor..

Blooms: Understand
67. In a competitive labor market, at wages above equilibrium, the:

A. Quantity supplied of labor is greater than the quantity demanded.
B. Labor-supply curve will shift to the left.
C. Quantity demanded of labor is greater than the quantity supplied.
D. MRP of labor curve shifts to the right.
If more labor is supplied then demanded the surplus will cause the price of labor to fall.

Blooms: Analyze
Difficulty: 3 Hard
68. When people are standing in line for jobs and there are more applicants than jobs, then the
job market is characterized by a:
A. Shortage of jobs from the point of view of the buyer in the labor market.
B. Surplus of jobs from the point of view of the seller in the labor market.
C. Shortage of labor.
D. Surplus of labor.
If more workers are willing and able to work at the prevailing wage rate than demanded the wage
rate will fall.
AACSB: Analytic
Blooms: Understand
69. An increase in the labor productivity is best illustrated by:

A. An upward shift of the MRP curve.
B. A downward shift of the MPP curve.
C. A leftward shift of the labor-supply curve.
D. A rightward shift of the labor-supply curve.
If the MRP curve shifts to the right or up then the MPP curve must have also shifted in the same
fashion which indicates that labor is more productive.
AACSB: Analytic
Blooms: Understand
8-21
70. If labor productivity rises, then wages:

A. Will decrease and the number of jobs will decrease.
B. Will decrease, but the number of jobs will not change.
C. Can increase without a decrease in the number of jobs.
D. Can increase, but only if the number of jobs decrease.
If the marginal revenue product of labor improves, the employer will hire a greater quantity of
labor at any given wage rate.

Blooms: Analyze
Difficulty: 3 Hard
71. An increase in the equilibrium price in the product market results in:
A. A decrease in the quantity of labor hired.
B. An upward shift in the MPP curve.
C. An upward shift in the MRP curve.
D. A reduction in wages.
If the product price rises then at each unit of input more MRP is received which means a shift in
the MRP curve.

Blooms: Analyze
Difficulty: 3 Hard
72. Both wages and employment can increase at the same time as long as the:
A. Marginal physical product of labor decreases.
B. Number of available workers increases.
C. The price of the product being produced decreases.
D. Marginal revenue product of labor increases.
If the MRP increases then either the market price of the product or the MMP has increased which
would mean the marginal revenue is now greater than the marginal costs.

Blooms: Analyze
Difficulty: 3 Hard
73. A minimum wage:

A. Is set below the equilibrium wage.
B. Can create a surplus of workers.
8-22
C. Is established by the intersection of labor demand and labor supply.
D. Causes the quantity demanded of workers to be greater than the quantity supplied.
A minimum wage creates a floor below which the wage rate cannot fall. This will cause a surplus
when the price floor is above the equilibrium wage, since more work will be supplied than
demanded.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-04 Depict how a legal minimum wage alters market outcomes.
74. When the minimum wage is established above the equilibrium wage, then:
A. Shortages of jobs result, since sellers move down the labor-supply curve.
B. Surpluses of jobs result, since sellers move up the labor-supply curve.
C. Shortages of labor result, since buyers move down the labor-demand curve.
D. Surpluses of labor result, since buyers move up the labor-demand curve.
A minimum wage creates a floor below which a wage cannot be paid and then causes a surplus
because more will want to work than the firms will demand.

Blooms: Analyze
Difficulty: 3 Hard
75. If the government decides to raise the minimum wage, ceteris paribus:
A. All workers are better off.
B. All workers are worse off.
C. Some workers are better off and some are worse off.
D. Workers are not affected by a minimum wage increase, only by a decrease.
The workers who are employed will be better off because they will enjoy a higher wage then
they might otherwise however not all those who are willing to work at that wage will find work.
AACSB: Analytic
Blooms: Understand
76. When the minimum wage is raised, ceteris paribus:

A. Additional workers are able to find jobs, but some are still unemployed.
B. All workers are better off.
C. Unemployment is reduced.
D. There are fewer jobs available.
8-23
The workers who are employed will be better off because they will enjoy a higher wage then
they might otherwise however not all those who are willing to work at that wage will find work.

Blooms: Understand
77. If the government eliminates a minimum wage, ceteris paribus, then:

A. Wages will rise, but employment will fall.
B. Wages will fall, but employment will rise.
C. Both wages and employment will fall.
D. Both wages and employment will rise.
If the price floor is removed the wage rate will fall to the equilibrium point where all those who
want to work will be working.

Blooms: Understand
78. A minimum wage impacts the labor market by causing:

A. An increase in the quantity of labor supplied and a decrease in the quantity of labor
demanded.
B. A decrease in both the quantity of labor supplied and the quantity of labor demanded.
C. An increase in both the quantity of labor supplied and the quantity of labor demanded.
D. A decrease in the quantity of labor supplied and an increase in the quantity of labor
demanded.
Since the minimum wage is above market equilibrium more labor will be supplied than
demanded.

Blooms: Understand
79. The impact on the labor market due to an increase in the minimum wage:
A. Is significant since it increases employment.
B. Cannot be measured unless the increase is more than $1.
C. Depends on factors such as the size of the increase and the state of the economy.
D. Is significant since it reduces unemployment.
If the minimum wage is raised in the long-run prices will rise but that burden will be carried by
all workers, not just those on minimum wage.
8-24
Blooms: Understand
80. Labor unions are able to maintain _____ wages for union members by _____ the market.
A. Above-equilibrium; excluding some workers from
B. Above-equilibrium; including all workers in
C. Below-equilibrium; excluding some workers from
D. Below-equilibrium; including all workers in
In order to get wages above market equilibrium a union attempts to limit the number of people in
the workforce.

Blooms: Understand
81. Unions influence a labor market by doing all of the following except:
A. Raising the wages for workers in the nonunion market.
B. Excluding some workers from the unionized market.
C. Increasing the labor supply curve in the nonunion market.
D. Attaining above-equilibrium wages for union members.
While unions may indirectly raise wages in nonunion markets because of causing a general
increase in wages, it is not normally the focus of their efforts.

Blooms: Understand
82. What do government imposed price floors not cause?
A. Reduces the quantity of labor demanded.
B. increases the quantity of labor supplied
C. Cause some workers to be better off.
D. Create a market shortage.
While the minimum wage may bring increased benefits for some, more people will desire work
then the market will supply.

8-25
Blooms: Understand
83. The opportunity wage refers to the:

A. Income an individual loses when he or she quits a job.
B. Highest wage an individual would earn in his or her best alternative job.
C. Value of goods and services that could be purchased with a certain individual's income.
D. Income equivalent of a volunteer worker.
The amount of other wages that must be sacrificed to receive the current wage.
AACSB: Analytic
Blooms: Understand
Learning Objective: 08-05 Explain why wages are so unequal.
Topic: POLICY PERSPECTIVES
84. When a worker's MRP is difficult to measure, for example, a college professor or corporate
CEO, wages can be determined by the:
A. Supply of labor alone.
B. Minimum wage.
C. Wages the worker would receive in his or her best alternative job.
D. Average wage of government workers.
The amount of other wages that must be sacrificed to receive the current wage. Is a good way to
measure the MRP when it is difficult to measure.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
85. The following table shows how apple output changes as additional apple pickers are hired.
Calculate marginal physical product, total revenue, and marginal revenue product. The price of
apples is $4 per basket.
Table 8.1—Apple Production
8-26
In Table 8.1, what is the marginal physical product of the 2nd apple picker?
A. 2 baskets per day.

B. 6 baskets per day.
C. 10 baskets per day.
D. 24 baskets per day.
Since the second picker adds 6 units of output to the total product the MPP is 6. Refer To: Table
8.1

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
In Table 8.1, what is the marginal physical product of the 3rd apple picker?

8-27
Since the third picker adds 5 units of output to the total product the MPP is 5. Refer To: Table
8.1

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
In Table 8.1, what is the marginal physical product of the 4th apple picker?

Since the 4th picker adds 4 units of output to the total product the MPP is 4. Refer To: Table 8.1

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
8-28
In Table 8.1, what is the marginal physical product of the 5th apple picker?

Since the 5th picker adds 3 units of output to the total product the MPP is 3. Refer To: Table 8.1

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
In Table 8.1, what is the marginal revenue product of the 2nd apple picker?
A. $6.
B. $10.
C. $24.
D. $40.
8-29
Since the 2nd apple picker adds 5 units of MPP and the price is $4 per unit the MRP is $24.
Refer To: Table 8.1

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
In Table 8.1, if the equilibrium wage is $20 per day, how many apple pickers will the firm hire?
A. 2.
B. 3.
C. 4.
D. 5.
At 3 units of labor the MRP would equal $20 and the producer’s profits would be maximized.
Refer To: Table 8.1

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
8-30
A. 2.
B. 3.
C. 4.
D. 5.
Refer To: Table 8.1

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
A. 2.
B. 3.
C. 4.
8-31
D. 5.
Refer To: Table 8.1

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
In Table 8.1, as more apple pickers are hired, the firm's rate of production:
A. Is characterized by economies of scale.

B. Experiences increasing marginal physical productivity.
C. Experiences diminishing returns.
D. Experiences increasing marginal revenue productivity.
If the variable input labor is increased then beyond some point the firm will experience
diminishing returns. Refer To: Table 8.1

Blooms: Understand
Topic: LABOR DEMAND
8-32
In Table 8.1, if the price of apples increases to $6 per basket and the equilibrium wage is $30 per
day, how many apple pickers will the firm hire?
A. 2.
B. 3.
C. 4.
D. 5.
At $6 per basket the 3rd apple picker will add a MRP of $30 and that would equal the wage.
Refer To: Table 8.1

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
In Table 8.1, if the price of apples increases to $8 per basket and the equilibrium wage is $48 per
day, how many apple pickers will the firm hire?
A. 2.
8-33
B. 3.
C. 4.
D. 5.
At $8 dollars per basket the 2nd apple picker will add a MRP of $48 and that would equal the
wage. Refer To: Table 8.1

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
In Table 8.1, if the price of apples increases to $10 per basket and the equilibrium wage is $40
per day, how many apple pickers will the firm hire?
A. 2.
B. 3.
C. 4.
D. 5.
At $10 per basket the 4th apple picker will add a MRP of $40 and that would equal the wage.
Refer To: Table 8.1

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
97. Figure 8.1
8-34
In Figure 8.1, the equilibrium wage rate is:
A. $12 per hour.

B. $16 per hour.
C. $20 per hour.
D. $24 per hour.
The labor supplied is equal the labor demanded at $16 per hour. Refer To: Figure 8.1

Blooms: Understand
Topic: LABOR DEMAND
98. Figure 8.1
8-35
In Figure 8.1, at equilibrium, ____ workers are employed and ____ workers are unemployed.
A. 48; 28.
B. 68; 28.
C. 48; 0.
D. 68; 0.
At the equilibrium wage rate of $16 per hour all those who wish work are working. Refer To:
Figure 8.1

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
99. Figure 8.1
8-36
In Figure 8.1, at equilibrium, the wage rate is ____ per hour and ____ workers are employed.
A. $12; 68.
B. $12; 40.
C. $16; 68.
D. $16; 96.
At the intersection of the supply and demand curves the equilibrium wage rate is $16 per hour
and 68 workers are employed. Refer To: Figure 8.1

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
100. Figure 8.1
8-37
In Figure 8.1, unemployed labor at the equilibrium wage is equal to:
A. Zero workers.
B. 40 workers.
C. 68 workers.
D. 116 workers.
At the equilibrium wage rate all those who wish to work are working and so there is no
unemployment in that labor market. Refer To: Figure 8.1

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
101. Figure 8.1
8-38
In Figure 8.1, a minimum wage of $20 will result in a:
A. Surplus of 56 workers.
B. Shortage of 56 workers.
C. Surplus of 28 workers.
D. Shortage of 28 workers.
At a wage rate of $20 per hour 96 people will be seeking work but only 40 will be demanded.
Refer To: Figure 8.1

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
102. Figure 8.1
8-39
In Figure 8.1, a minimum wage of $20 will result in a surplus of _____ workers.
A. 28
B. 56
C. 68
D. 96
At a wage rate of $20 per hour 96 people will be seeking work but only 40 will be demanded

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
103. Figure 8.2
8-40
In Figure 8.2, the equilibrium wage rate is ____ and the number of unemployed workers is ____.
A. W1; 0.
B. W1; 1350.
C. W2; 0.
D. W2; 1350.
At a wage rate of W1 all those who want to work are working and there is no unemployment.

Blooms: Apply
Topic: LABOR DEMAND
104. Figure 8.2
8-41
In Figure 8.2, the equilibrium wage rate is ____ and the number of workers employed is ____.
A. W1; 900.
B. W1; 1350.
C. W2; 900.
D. W2; 1350.
At the equilibrium wage rate 1,350 people will want to work and be employed. Refer To: Figure
8.2

Blooms: Apply
Topic: LABOR DEMAND
105. Figure 8.2
8-42
In Figure 8.2, at a wage of W2 there is a:
A. Surplus of labor equal to 450 workers.

B. Surplus of labor equal to 1050 workers.
C. Shortage of labor equal to 1050 workers.
D. Shortage of labor equal to 600 workers.
At a wage of W2 , 1,950 will want to work but only 900 would be hired. Refer To: Figure 8.2

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
106. Figure 8.2
8-43
Refer to Figure 8.2. The number of workers employed in this market at a wage rate of W2 is:
A. 1950 workers.
B. 1350 workers.
C. 1050 workers.
D. 900 workers.

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
107. Figure 8.2
8-44
Refer to Figure 8.2. A minimum wage of W2 will result in a surplus of ____ workers.
A. 1950
B. 1350
C. 1050
D. 900

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
108. Figure 8.3
8-45
In Figure 8.3, at a wage rate of $30 per hour, this firm will hire _____ workers.
A. 3
B. 5
C. 6
D. 8
If the market wage rate is $30 per hour then the 7th worker would cost more than the 7 could
produce per worker. Refer To: Figure 8.3

Blooms: Apply
Difficulty: 3 Hard
Topic: LABOR DEMAND
109. Figure 8.3
8-46
In Figure 8.3, for the 1st through the 6th worker:
A. MRP is greater than or equal to the equilibrium wage rate and these workers will be hired.
B. MRP is less than the equilibrium wage rate and these workers will not be hired.
C. MPP is less than the equilibrium wage rate and these workers will not be hired.
D. The equilibrium wage rate is too high and the firm does not accept the wage.
Since the value added by the workers is greater than or equal to their cost they will be hired.

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
110. Figure 8.3
8-47
In Figure 8.3, for the 7th through the 10th worker:
A. MRP is greater than or equal to the equilibrium wage rate and these workers will be hired.
B. MRP is less than the equilibrium wage rate and these workers will not be hired.
C. MPP is greater than the equilibrium wage rate and these workers will be hired.
D. The equilibrium wage rate is too high and the firm does not accept the wage.
Since the value added by the workers is less than their cost they will not be hired. Refer To:
Figure 8.3

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
111. Figure 8.3
8-48
In Figure 8.3, the 7th worker will:
A. Be hired since the MRP is greater than the wage rate.

B. Not be hired since the MRP is greater than the wage rate.
C. Be hired since the MRP is less than the wage rate.
D. Not be hired since the MRP is less than the wage rate.
Since the additional cost of the 7th worker is greater than the additional revenue the firm’s
profits would decline if the worker was hired. Refer To: Figure 8.3

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
112. Figure 8.3
8-49
In Figure 8.3, the 5th worker will:
A. Be hired since the MRP is greater than the wage rate.

B. Not be hired since the MRP is greater than the wage rate.
C. Be hired since the MRP is less than the wage rate.
D. Not be hired since the MRP is less than the wage rate.
Since the additional cost of the 5th worker is less than the additional revenue the firm’s profits
would increase if the worker was hired. Refer To: Figure 8.3

Blooms: Analyze
Difficulty: 3 Hard
Topic: LABOR DEMAND
113. Figure 8.4—Shifts of labor supply and labor demand
8-50
Refer to Figure 8.4. A significant number of immigrants enter the labor market.
A. A
B. B
C. C
D. D
An increase in the market population would shift the supply curve to the right. Refer To: Figure
8.4

Blooms: Understand
8-51
Topic: LABOR DEMAND
Refer to Figure 8.4. Demand increases for the product that labor produces.
A. A
B. B
C. C
D. D
8-52
An increase in demand for the product produced by the laborer would shift the demand curve to
the right. Refer To: Figure 8.4

Blooms: Understand
Topic: LABOR DEMAND
Refer to Figure 8.4. Price decreases for the final product that labor produces.
8-53
A. A
B. B
C. C
D. D
A decrease in the product that labor produces would shift the demand curve for labor to the left.

Blooms: Understand
Topic: LABOR DEMAND
8-54
Refer to Figure 8.4. The number of employers decreases.
A. A
B. B
C. C
D. D
If the number of employers decreases then the market demand for labor will shift to the left.

Blooms: Understand
8-55
Topic: LABOR DEMAND
Refer to Figure 8.4. Working conditions become less pleasant.
A. A
B. B
C. C
D. D
8-56
If working conditions become less pleasant then the market supply of labor will decline. Refer
To: Figure 8.4

Blooms: Understand
Topic: LABOR DEMAND
Refer to Figure 8.4. Union members go on strike.
8-57
A. A
B. B
C. C
D. D
If members of a union go on strike and leave the workforce then the market supply of labor will
shift to the left. Refer To: Figure 8.4

Blooms: Understand
Topic: LABOR DEMAND
119. One News Wire article in the text, titled "HP to Cut 27,000 Jobs" reports that the company
will reduce the number of workers making PCs since people are using smaller hand-held devices
like tablets and smartphones.. This article describes a labor market where labor demand is:
A. Unaffected by the use of tablets and smartphones.
B. A contrived demand.
C. An integrated demand.
D. A derived demand.
Since the demand for land lines is declining then the demand for the resources to make them also
declines.

Blooms: Analyze
Difficulty: 3 Hard
120. One News Wire article in the text reports the effects of the minimum wage. From an
economic perspective, a minimum wage is:
A. An equilibrium wage.
B. A price ceiling.
C. A price floor.
D. The only effective means for rewarding workers' efforts.
Since the equilibrium wage rate is below the minimum wage rate the restriction acts like a floor.

Blooms: Remember
Difficulty: 1 Easy
Topic: CHANGING MARKET OUTCOMES
121. One News Wire article in the text reports the effects of the minimum wage. In economic
terms, a minimum wage that is set above the market equilibrium wage:
A. Creates unemployment.
B. Creates additional jobs.
C. Is the only effective means for rewarding workers' efforts.
8-58
D. Must be sufficient to support a family.
As long as a minimum wage is set above the market equilibrium rate, more people will want to
work than firms will want to hire and that will increase unemployment.

Blooms: Understand
122. At higher wage rates, less labor is supplied.
FALSE
The higher the wage rate the more labor supplied.

Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR SUPPLY
123. The labor-supply curve is downward sloping because of the law of diminishing marginal
returns.
FALSE
The labor-supply curve is upward sloping reflecting the fact that at higher wage rates more labor
will be supplied.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR SUPPLY
124. As the opportunity cost of working increases, workers require higher rates of pay.
TRUE
If the opportunity cost increase then it will require a higher wage to increase the quantity of labor
supplied.

Blooms: Understand
Topic: LABOR SUPPLY
125. Since people are paid wages to work, the opportunity cost of working is zero.
8-59
FALSE
Opportunity cost represents what is given up and the more given up the higher the wage.
AACSB: Analytic
Blooms: Understand
Topic: LABOR SUPPLY
126. An increase in the wage rate will always cause more labor to be supplied.
FALSE
At some point an increase in the wage rate will cause labor to desire more leisure rather than
work.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR SUPPLY
127. One of the determinants of the market supply of labor is the number of workers in the labor
market.
TRUE
As the supply of labor in a market increases the labor supply curve shifts to the right
AACSB: Analytic
Blooms: Understand
Difficulty: 1 Easy
Topic: LABOR SUPPLY
128. The concept of derived demand means that, for example, the demand for cotton pickers is
determined from the demand for clothing made of cotton.
TRUE
The demand for a secondary good is always depended on the demand for a final good.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR DEMAND
129. Ceteris paribus, a firm will hire more workers the higher the wage rate.
FALSE
8-60
A labor market will supply more workers at higher wage rates.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR DEMAND
130. The demand for labor depends on worker productivity.
TRUE
Since worker productivity is a determinant of demand as it increases the demand curve for labor
shifts to the right.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
131. Marginal physical product increases as more workers are hired.
FALSE
If all other factors of production are held fixed then as workers are hired the marginal physical
product decreases.

Blooms: Understand
Topic: LABOR DEMAND
132. The law of diminishing returns indicates that the marginal physical product tends to fall as
additional workers are hired.
TRUE
If all other factors of production are held fixed then as workers are hired the marginal physical
product decreases.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
133. The marginal revenue product sets a lower limit on the wage rate an employer will pay.
FALSE
8-61
The marginal revenue product determines the highest wage that a firm is willing to pay its
workers.
AACSB: Analytic
Blooms: Understand
134. Marginal revenue product determines the highest wage that a firm is willing to pay its
workers.
TRUE
So long as the marginal revenue product is greater than the wage rate a firm will hire workers.
AACSB: Analytic
Blooms: Understand
135. A producer in a competitive labor market will continue hiring workers until the MRP for the
last worker hired equals the market wage rate.
TRUE
So long as the marginal revenue product is greater than the wage rate a firm will hire workers.
AACSB: Analytic
Blooms: Understand
136. The MRP curve is the labor supply curve for the firm.
FALSE
The labor supply curve is determined by the supply of labor.
AACSB: Analytic
Blooms: Understand
137. At the intersection of labor demand and labor supply, some people who are willing to work
for the equilibrium wage will not be employed.
FALSE
8-62
At market equilibrium there is no shortage or surplus of labor.
AACSB: Analytic
Blooms: Understand
138. At the equilibrium wage, the quantity demanded of labor equals the quantity supplied.
TRUE
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
139. At the equilibrium wage, there is still some unemployment because the wage is so low.
FALSE

Blooms: Understand
140. If labor productivity increases, wages can rise without sacrificing jobs.
TRUE
If labor productivity increases then at each level of input more output is produced which would
mean the MRP is greater which would cover more costs.
AACSB: Analytic
Blooms: Understand
141. A minimum wage creates a shortage of workers.
FALSE
A market with a price ceiling (wage set about the equilibrium price) will mean that more labor is
supplied then demanded and a surplus will result.
8-63
AACSB: Analytic
Blooms: Understand
142. A minimum wage reduces the quantity of labor demanded and increases the quantity of
labor supplied.
TRUE
A market with a price ceiling (wage set about the equilibrium price) will mean that more labor is
supplied then demanded and a surplus will result.
AACSB: Analytic
Blooms: Understand
143. All workers are better off when a minimum wage is imposed.
FALSE
Since with a price ceiling more labor will be supplied then demanded some worker will not be
able to fined work.
AACSB: Analytic
Blooms: Understand
144. In order to maintain an above-equilibrium wage for its members, a union must exclude
some workers.
TRUE
By limiting the available work force a union is able to maintain a wage above the equilibrium
wage.
AACSB: Analytic
Blooms: Understand
145. It is easy to measure the value of a CEO by calculating his or her marginal revenue
product.
FALSE
8-64
It is very difficult to measure a CEO’s pay because of the elusiveness of the marginal revenue
product.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
146. If it difficult to measure the MRP of a CEO, this means that the CEO should not be paid
very much because he or she brings little value to the company.
FALSE
It is very difficult to measure a CEO’s pay because of the elusiveness of the marginal revenue
product.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
147. Folly Farms has no control over the wage it pays its laborers or the price it gets per bushel.
The following table shows the relationship between the number of workers the farm hires and its
output.
The selling price per bushel is $10 and each worker cost $100 per day. What is the marginal
physical product of each worker? What is the total revenue of each unit of input? What is the
marginal revenue product of each worker? What is the profit per unit of input? After which
worker does the law of diminishing returns take effect? In order to maximize profit, how many
workers will the farm hire?
Instructions: If you are entering any negative numbers, be sure to include a negative sign (-) in
front of those numbers.
Folly Farms
Marginal Marginal
Total
Wage Per Total
Labor
Physical Revenue Profit
Product(bushels
Days $100 Revenue
Input(Workers per day)
Product Product
Per day)
0 0 0 00 0
0 100
1 100 10 100 0
8-65
14 140
2 200 24 240 40
15 150
3 300 39 390 90
13 90
4 400 52 520 120
9 90
5 500 61 610 110
5 50
6 600 66 660 60
-2 -20
7 700 64 640 -60
If the market price per bushel increases to $12 how many workers will the farm hire?
Folly Farms
Marginal Marginal
Total
Wage Per Total
Labor
Physical Revenue Profit
Product(bushels
Days $100 Revenue
Input(Workers per day)
Product Product
Per day)
0 0 0 0 0
10 120
1 100 10 120 20
14 168
2 200 24 288 88
15 180
3 300 39 468 168
13 156
4 400 52 624 224
9 108
5 500 61 732 232
5 60
6 600 66 792 192
-2 -24
7 700 64 768 -68
8-66
Blooms: Analyze
Difficulty: 3 Hard
148. What would we expect to occur to the wage rate and number of persons hired if they
workers formed a union?
We would expect the wage rate to go up and the number of workers to decline because the higher
wage would cause a producer to reduce output so as to increase the MMP so that the higher wage
rate would be compensated for by the higher MMP and MRP.

Blooms: Analyze
Difficulty: 3 Hard
149. The market supply curve for labor is upward sloping and the market demand curve for labor
is downward sloping yet for a single firm the demand curve is flat. Explain.
Since a single firm in a competitive market has no control over the market wage rate to the single
firm the demand curve appears flat.

Blooms: Understand
150. Leonard is offered a job in Colorado, working for a Fortune 500 company. He also received
an offer to work in Miami for a smaller technology company. Both companies offered about the
same salary but Miami has beautiful year round weather and beaches. If Leonard decides to take
the job in Colorado, he will forgo the wonderful climate that Miami offers. This represents:
A. Trade-offs
B. Opportunity costs
C. Neither A or B
D. Both A and B
Leonard is weighing out his opportunity costs which are also known as trade-offs.

Blooms: Understand
Topic: LABOR SUPPLY
8-67
151. The demand for labor is dependent on the demand for the final product or service.
TRUE
There is a direct relationship between the demand for labor and the demand for the product or
service that they produce.

Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR DEMAND
152. According to the Pay Scale College Salary Report, 2015, which of the following degrees
have the highest median starting salaries?
A. History
B. Finance
C. Sociology
D. Economics
Economics degrees pay substantially better than Sociology and History degrees whereas starting
salaries for Finance degrees are slightly less than Economic degrees.

Blooms: Remember
Difficulty: 1 Easy
Topic: DERIVED DEMAND
153. ABC Company implemented advanced technical training for its employees which increased
the productivity of their labor force. This is likely to result in which of the following?
A. Increased wages
B. Increased marginal revenue product
C. Increase in demand for the workers
D. All of the above are correct answers
Training and education of the workforce will make them more productive which will increase
their demand, wages and marginal revenue product.

Blooms: Understand
154. The marginal physical product is the change in:

A. total revenue associated with an additional unit of labor.
B. total output associated with an additional unit of labor.
8-68
C. total amount of labor used.
D. total profit earned.
The marginal physical product is tha change in total output that occurs when an additional
worker is hired.

Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR DEMAND
155. Unions are able to maintain above-equilibrium wages by:

A. increasing labor supply.
B. convincing firms to hire more workers.
C. excluding some workers.
D. lowering costs of capital.
In order to get and maintain an above-equilibrium wage, a union must exclude some workers.
AACSB: Analytic
Blooms: Understand
156. An economist would argue that the best way to improve the wages of agricultural workers is
for
A. consumers to demand more of the agricultural products.
B. growers to raise the price of agricultural products so they can pay more to their workers.
C. the government to impose a higher minimum wage for agricultural workers.
D. None of the statements above would lead to increased wages for agricultural workers.
Only an increase in demand will definitely increase wages for workers. The increased demand
for agricultural products provides the incentive for growers to increase production; this, in turn,
will increase the demand for agricultural workers and will result in higher wages.
AACSB: Analytic
Blooms: Understand
157. When we say that the demand for labor is a derived demand, we mean that the demand is:
A. based on commonly derived ethical norms applicable to our society.
B. derived from commonly understood rules of economic theory.
C. derived from the value of the additional goods and services that are produced when a firm
hires labor.
D. a derivative of the overall socioeconomic and political system, including all of its
philosophical aspects.
8-69
The demand for labor is "derived" or determined form the demand for the good it is used to
produce.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
158. A highly paid college football coach earns such a salary by:
A. winning more games.
B. attracting more fans to games.
C. causing more alumni to make donations.
D. All of the above.
All of these will tend to increase the coach’s marginal revenue product, which will in turn lead to
a high salary.
AACSB: Analytic
Blooms: Understand
159. The demand curve for labor is downward-sloping because:

A. firms are greedy and only hire more workers if they can get a deal.
B. average productivity is rising.
C. marginal productivity is rising.
D. marginal productivity is falling.
Because marginal physical product falls, the demand for labor curve slopes downward.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR DEMAND
160. A firm will only hire an additional worker if:

A. marginal revenue product is less than average revenue product.
B. marginal revenue product is increasing; otherwise, the additional worker will diminish
productivity.
C. marginal revenue product is less than the additional cost associated with hiring the worker.
D. marginal revenue product is greater than or equal to the additional cost associated with hiring
the worker.
8-70
Firms will hire additional workers as long as their marginal revenue product at least covers the
additional cost of hiring them. .
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
161. If a firm hires an additional worker:
A. total output will rise, provided marginal physical product is greater than zero.
B. total output will rise only if marginal physical product is also increasing.
C. total output will rise only if marginal physical product is negative.
D. total output will remain the same because the firm is at an equilibrium.
If marginal physical product is positive, total output will increase when a firm hires an additional
worker.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
162. Deciding an appropriate salary for a CEO is difficult because:

A. CEOs have to earn more than all other employers.
B. there are very few potential CEOs.
C. the marginal revenue product of CEOs is hard to measure.

D. CEOs are not easy to replace.
The salary of a CEO should be linked to MRP, but this is hard to obsrve for CEOs.
AACSB: Analytic
Blooms: Understand
163. An increase in the minimum wage tends to have which of the following effects?
A. It increases the wages of workers and the number of workers with jobs.
B. It causes a shortage of workers, because an increased number of workers seek jobs.
C. It decreases the number of workers obtaining jobs while increasing the number of workers
seeking jobs.
8-71
D. It increases the number of workers while decreasing the wages of workers.
An increase in the mimimum wage will increase the quantity of labor supplied and decrease the
quantity of labor demanded.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
164. The labor supply curve relates the quantity of labor supplied to the:
A. quantity demanded.
B. price of goods.
C. number of workers.
D. wage rate.
The labor supply shows the relationship between the wage rate and the quantity of laboe
supplied.

Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR DEMAND
165. Over time, an increase in the number of workers hired will tend to _______ the marginal
physical product.
A. increase
B. decrease
C. not change
D. double
The law of diminishing returns states that as more workers are added, the marginal product will
eventually start to decrease.
The law of diminishing returns states that as more workers are added, the marginal physical
product will eventually start to decrease.
AACSB: Analytic
Blooms: Understand
Topic: LABOR DEMAND
8-72
166. The change in total revenue from adding one more unit of a resource is called:
A. marginal physical product.
B. marginal revenue product.
C. marginal profit.
D. marginal cost.
Marginal revenue product is the change in total associated with one additional unit of input.

Blooms: Remember
Difficulty: 1 Easy
Topic: LABOR DEMAND
167. A minimum wage tends to create a market:
A. collapse.
B. surplus.
C. shortage.
D. failure.
A minimum wage tends to create a situation in which the amount of worker hours supplied is
greater than the amount of worker hours demanded.

Blooms: Remember
Difficulty: 1 Easy
168. Why do engineering majors earn higher salaries than sociology majors?
A. There is a shortage of people to fill available engineering jobs.
B. Students with higher-level math skills are high demand.
C. In the market for engineers, the quantity demanded is greater than quantity supplied.
D. All of statements are correct.
All of these statements relate to the fact that graduates with engineering degrees earn more than
their liberal arts counterparts.
8-73
AACSB: Analytic
Blooms: Understand
Chapter 08_Test Bank Summary
Category # of Questions
AACSB: Analytic 71
AACSB: Reflective Thinking 97
Accessibility: Keyboard Navigation 133
Blooms: Analyze 31
Blooms: Apply 14
Blooms: Remember 25
Blooms: Understand 98
Difficulty: 1 Easy 26
Difficulty: 2 Medium 97
Difficulty: 3 Hard 44
Learning Objective: 08-01 Cite the forces that influence the supply of labor. 35
Learning Objective: 08-
71
02 Explain why the labor demand curve slopes downward.
35
03 Describe how the equilibrium wage and employment level are determined.
19
04 Depict how a legal minimum wage alters market outcomes.
Learning Objective: 08-05 Explain why wages are so unequal. 8
Topic: CHANGING MARKET OUTCOMES 16
Topic: DERIVED DEMAND 1
Topic: LABOR DEMAND 73
Topic: LABOR SUPPLY 32
Topic: MARKET EQUILIBRIUM 29
Topic: POLICY PERSPECTIVES 5
Topic: THE HIRING DECISION 13
8-74

Essentials of Economics 10th Edition Schiller Test Bank Download

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Essentials of Economics 10th Edition Schiller Test Bank Download

Uploaded by

Copyright:

Available Formats

Essentials of Economics 10th Edition

Full download at link:

Test bank: https://testbankpack.com/p/test-bank-for-essentials-of-

Solution Manual: https://testbankpack.com/p/solution-manual-for-

Chapter 08_Test Bank KEY

2. The labor-supply curve depicts the quantity of _____ at alternative _____.

3. An upward-sloping supply curve of labor illustrates that the:

An increase in the wage rate will increase the supply of labor.

AACSB: Reflective Thinking

8. The quantity of labor supplied:

9. An upward-sloping supply curve of labor reflects the:

10. The opportunity cost of working is the:

11. The opportunity cost of working is the:

12. An individual's labor-supply curve reveals how he or she chooses to allocate:

AACSB: Reflective Thinking

13. A higher wage rate causes:

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

20. The market supply of labor:

AACSB: Reflective Thinking

21. The market supply of labor depends on the:

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

28. The demand for labor is a derived demand because:

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

33. The quantity demanded of labor depends on the:

AACSB: Reflective Thinking

34. Other things being equal, higher wage rates will:

35. Which of the following does not affect labor demand?

36. A firm's demand for labor is downward sloping because:

AACSB: Reflective Thinking

AACSB: Reflective Thinking

38. The marginal revenue product of labor curve is the firm's:

40. MRP for a perfectly competitive firm is equal to:

41. In order to calculate marginal revenue product, it is necessary to know the:

43. The demand for labor is downward sloping because of:

AACSB: Reflective Thinking

44. The marginal revenue product of labor is:

47. The labor demand curve is downward sloping because:

AACSB: Reflective Thinking

AACSB: Reflective Thinking

51. A firm should continue to hire workers until the:

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

56. Tiger Woods is paid high endorsement fees by companies because:

AACSB: Reflective Thinking

57. The determinants of the market demand for labor include:

AACSB: Reflective Thinking

AACSB: Reflective Thinking

61. The market equilibrium wage occurs where:

AACSB: Reflective Thinking

63. The equilibrium level of employment is determined by:

64. The equilibrium wage will definitely rise if:

AACSB: Reflective Thinking

65. The equilibrium quantity of labor will definitely increase if:

2. The labor-supply curve depicts the quantity of _ at alternative _.