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Exploring Economics 6th Edition Sexton Test Bank
Exploring Economics 6th Edition Sexton Test Bank
Student: ___________________________________________________________________________
1. The salaries of college professors are partly determined by the demand for college education.
True False
2. The demand for cake decorators has no relationship to the demand for cakes.
True False
3. The concept of derived demand indicated that the demand for a final good or service will be determined by
the price of the inputs used to produce that final good or service.
True False
4. The demand for labor is derived from the demand for final goods which that labor is used to produce.
True False
5. The additional revenue a firm obtains from hiring one more unit of input is called the marginal revenue
product.
True False
6. The marginal resource cost is the amount by which an additional unit of input decreases the firm's variable
costs.
True False
7. The law of diminishing marginal product is a reason why the demand curve for labor is downward sloping.
True False
8. As more workers are hired to harvest grapes in a vineyard, the fields become overcrowded. As a result, the
marginal product of labor is likely to diminish.
True False
9. The intersection of the market demand for labor and the market supply for labor determines the equilibrium
wage rate.
True False
10. The marginal resource cost of input is the amount that an extra unit of that input adds to the firm's total
costs.
True False
11. Other things being equal, if the quantity of labor supplied is less than the quantity of labor demanded, wages
will tend to fall.
True False
12. An increase in the price of a firm's output will shift the firm's demand curve for labor to the right, other
things being equal.
True False
13. A decrease in the price of a firm's output will shift the firm's demand curve for labor to the right, other
things being equal.
True False
14. A decrease in the productivity of labor will shift the demand curve for labor to the left, other things being
equal.
True False
15. Increases in income from sources other than employment can cause the labor supply curve to shift to the
left.
True False
16. The demand curve for capital is downward sloping because of the increasing marginal cost of capital.
True False
17. While unions represent only a fraction of the unskilled workers in the U.S. labor market, any wage increase
won by unionized workers is most likely shared with non-union unskilled workers.
True False
18. Ultimately, the source of growth in real wages is the growth in labor productivity.
True False
19. If the demand for opera singers increases faster than the supply, wages will rise.
True False
20. At higher interest rates, fewer people or firms will want to borrow. At lower interest rates, fewer people or
firms will want to save.
True False
22. Other things being equal, an increase in labor productivity will shift the labor supply curve to the right.
True False
24. In the last 60 years, the percentage of workers in union jobs has increased substantially.
True False
25. If the demand for softballs increases, one could expect the demand for leather to increase. This is due to
the:
A. principle of diminishing marginal product.
B. change in the opportunity cost of producing a softball.
C. reduction in the cost of producing softballs.
D. demand for an input being a derived demand.
26. The price of any productive resource is ____ related to ____ the final good or service:
A. inversely; demand for
B. directly; demand for
C. directly; supply of
D. not; supply of
27. Which of the following best illustrates the concept of "derived demand"?
A. An increase in the wages of autoworkers leads to an increase in the demand for robots in automobile
factories.
B. An auto firm decides to supply more minivans when there is a decrease in the demand for station wagons.
C. An increase in the price of gasoline leads to an increase in the demand for small cars.
D. An automobile firm faces an increase in the demand for cars it supplies to the market, which leads to an
increase in the demand for autoworkers.
28. Mr. Calhoun owned land on which cotton could be grown, but which he had been unable to rent for years.
Suddenly he was getting offers from cotton farmers to lease his land. Which of the following best explains this
change in circumstances?
A. The price of cotton decreased.
B. The price of cotton increased.
C. The productivity of the land increased.
D. Property taxes on the land increased.
30. The major reason the market demand curve for labor slopes downward is because:
A. at lower wage rates, workers are less willing to supply labor to the market.
B. at lower wage rates, workers are more willing to supply labor to the market.
C. of the law of diminishing marginal product.
D. of the law of diminishing marginal resource cost.
33. For a firm that is competitive in both product and factor markets, the value of the marginal product of labor:
A. is constant and equal to the market wage.
B. increases, causing the labor supply curve to slope upward.
C. declines because the marginal product of labor diminishes as the number of workers rises.
D. declines because a competitive firm must lower product price in order to increase sales.
35. When a profit-maximizing firm makes a decision to employ a worker, that decision is based on:
A. the individual contribution that the worker makes to the profit of the firm.
B. the average productivity of the firm's labor force.
C. the familial relationship between the employer and the employee.
D. the total output produced by the firm.
36. The contribution of an additional worker to a firm's ____, is the worker's contribution to revenue minus the
worker's ____.
A. profits; wage
B. output; wage
C. profits; marginal productivity
D. output; marginal productivity
37. A worker's contribution to the firm's revenue is measured directly by the worker's:
A. value of marginal product.
B. marginal product multiplied by his/her wage.
C. marginal product minus his/her wage.
D. contribution to total output.
38. Based on the table below, how many workers will the firm employ in order to maximize profits?
A. 14
B. 15
C. 16
D. 17
39. Based on the table below, how many workers will the firm employ in order to maximize profits?
A. 4
B. 5
C. 6
D. 7
40. When labor is a firm's only variable input in its production process, a profit-maximizing firm will continue
to employ additional workers as long as:
A. the marginal product of labor > 0.
B. the marginal revenue product of labor < the marginal resource cost.
C. the marginal revenue product of labor > the marginal resource cost.
D. none of the above.
41. Which of the following statements are true regarding profit maximizing firms?
A. They will attempt to maximize the difference between total revenues and total costs.
B. They will use more of a resource as long as the MRC is greater than the MRP.
C. They will only produce where MRP is positive and MRC is negative.
D. none of the above.
42. The profit-maximizing firm should continue hiring additional labor as long as:
A. MRC < MRP.
B. MRC > MRP.
C. MRC = MRP.
D. the MP of labor > 0.
44. Which of the following would cause the demand for carpenters to increase?
A. a decrease in immigration
B. an increase in the demand for housing
C. an increase in the price of lumber
D. a decrease in the productivity of carpenters
45. Based on the table below, how many workers will the firm employ in order to maximize profits?
A. 12
B. 13
C. 14
D. 15
46. Based on the table below, how many workers will the firm employ in order to maximize profits?
51. A backward-bending portion of an individual labor supply curve is most likely to be observed:
A. at lower wages.
B. at higher wages.
C. in manufacturing industries.
D. in service industries.
52. In the backward-bending portion of a labor supply curve:
A. a worker will increase the quantity of labor supplied in response to an increase in the wage.
B. the substitution effect of a wage change outweighs the income effect.
C. the income effect of a wage change outweighs the substitution effect.
D. the substitution effect of a wage change equals the income effect.
54. Which of the following would certainly increase the demand for labor?
A. an increase in demand for the final product and an increase in the productivity of labor
B. an increase in demand for the final product and a decrease in the productivity of labor
C. a decrease in demand for the final product and an increase in the productivity of labor
D. a decrease in demand for the final product and a decrease in the productivity of labor
55. If leisure is a normal good for a worker, and the income effect of a wage change dominates the substitution
effect, then if wages increase:
A. there will be a decrease in the quantity of labor supplied by the worker.
B. there will be an increase in the quantity of labor supplied by the worker.
C. there will be no change in the quantity of labor supplied by the worker.
D. the worker's individual supply curve will shift to the left.
59. The relationship between the wage rate and the quantity of labor that employers wish to hire in total is
called:
A. the market supply curve for labor.
B. the market demand curve for labor.
C. an individual demand curve for labor.
D. an individual supply curve for labor.
60. The relationship between the wage rate and the quantity of labor that workers wish to supply in total is
called:
A. the market supply curve for labor.
B. the market demand curve for labor.
C. an individual demand curve for labor.
D. an individual supply curve for labor.
61. Which of the following will not result in a leftward shift of the market demand curve for labor?
A. a decrease in labor productivity
B. a decrease in demand for the firm's product
C. an increase in the wage rate
D. a decrease in the firm's product price
62. Which of the following will not result in a rightward shift of the market supply curve for labor?
A. an increase in immigration
B. an increase in labor productivity
C. an increase in the working-age population
D. a decrease in nonwage income
63. Which of the following will result in a leftward shift of the market supply curve for labor?
A. an increase in immigration
B. a decrease in labor productivity
C. an increase in the working-age population
D. an increase in nonwage income
64. Job amenities:
A. have no impact on the supply of labor.
B. are not part of the compensation workers receive from employers.
C. help determine the position of the labor supply curve.
D. never affect the monetary wages paid to workers.
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If the government was to impose a wage rate of WA on the computer software
programming industry:
A. the imposed wage would have no effect on the market for computer programmers.
B. a shortage of software programmers would result.
C. a quantity of Q4 software programmers would be demanded in the marketplace.
D. there would be pressure from market forces for the wage to fall.
67. Exhibit 16-1
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If the wage law were enacted, in the market for computer programmers a ____ would
result.
A. shortage of Q6 - Q5
B. shortage of Q6 - Q4
C. surplus of Q6 - Q5
D. surplus of Q6 - Q4
68. Exhibit 16-1
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If the law were not enacted, the prevailing wage rate and quantity of labor at
equilibrium in the market for computer software programmers would be:
A. WA and Q4, respectively.
B. WA and Q5, respectively.
C. WA and Q6, respectively.
D. WC and Q5, respectively.
69. Exhibit 16-1
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If the law was to impose a wage rate of WA on the K-12 teachers market:
A. the quantity of K-12 teachers demanded would decrease.
B. a surplus of K-12 teachers would soon result.
C. a quantity of Q3 teachers would be supplied to the marketplace.
D. all of the above would occur.
70. Exhibit 16-1
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If a wage rate of WA for teachers were imposed by the government on schools, the
expected result would be:
A. a teacher shortage of Q3 - Q1.
B. a teacher shortage of Q3 - Q2.
C. a teacher surplus of Q2 - Q1.
D. a teacher surplus of Q3 - Q1.
71. Exhibit 16-1
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If the wage law was not enacted, the prevailing wage rate and quantity of labor in the
marketplace for K-12 teachers at equilibrium would be:
A. WB and Q2, respectively.
B. WA and Q2, respectively.
C. WA and Q3, respectively.
D. WB and Q1, respectively.
72. Economists refer to expenditures on training, education, and skill development designed to increase the
productivity of an individual as:
A. overhead expenditures.
B. investments in human capital.
C. marginal revenue product.
D. investments in social capital.
73. Which of the following is the best example of an investment in human capital?
A. an increase in the number of hours worked per week by worker in a job employing low-skilled labor
B. the purchase of company stock by a worker
C. a summer internship at a law firm filled by someone attending law school
D. payments into a retirement pension plan by a skilled laborer
74. Which of the following is the best example of an investment in human capital?
A. the purchase of an industrial development bond
B. a graduate student who completed 24 semester units in economics last year
C. the purchase of a lawn mower by a homeowner
D. an unemployed stockbroker who drives a cab in order to pay his bills
75. An increase in the demand for a product will cause output to:
A. increase and the demand for the resources used to produce the product to rise.
B. increase and the demand for the resources used to produce the product to fall.
C. decline, while the demand for the resources used to produce the product remains constant.
D. increase and the price of resources used to produce the product to increase if their supply is perfectly elastic.
76. Which of the following most clearly illustrates the concept of "derived demand"?
A. An increase in the price of steak causes the demand for poultry to increase.
B. An increase in the demand for new houses leads to an increase in the demand for construction workers.
C. An increase in consumer income leads to an increase in the demand for services provided by the government.
D. An increase in the demand for new cars causes the demand for used automobiles to rise.
78. Other things being equal, an increase in the labor force resulting from increased immigration tends to:
A. increase wages.
B. decrease wages.
C. decrease the demand for labor.
D. increase the demand for labor.
81. Which of the following might shift an individual's supply curve of labor to the left?
A. winning the lottery
B. a decrease in non-wage income
C. due to falling sales, businesses are less willing to hire additional workers
D. a decrease in derived demand
82. The labor ____ curve(s) will shift if there is a change in productivity or a change in the demand for the final
product.
A. supply
B. demand
C. supply and demand
D. None of the above are correct. Changes in productivity and the demand for final products do not affect the
labor market.
83. Other things being equal, an increase in the workplace amenities, such as increased health care and more
generous vacation options, would tend to shift the labor supply curve to the ____.
A. left, increasing wages.
B. right, increasing wages.
C. left, decreasing wages.
D. right, decreasing wages.
84. Other things being equal, a decrease in the workplace amenities, such as decreased health care and less
generous vacation options, would tend to shift the labor supply curve to the ____, thereby causing the market
wages to ____.
A. right; fall
B. right; increase
C. left; fall
D. left; rise
85. Where monopsony exists, ____ workers will be hired at ____ wages than if perfect competition prevailed in
a labor market.
A. fewer; lower
B. fewer; higher
C. more; lower
D. more: higher
90. Which landmark legislation protected the right of workers to organize and bargain collectively?
A. Landrum-Griffen Act
B. Taft-Hartley Act
C. Wagner Act
D. Walsh-Healy Act
91. Which of the following is not a reason it is harder to unionize in the fast growing service industry?
A. Service sector jobs are often in small firms, making it difficult to organize large numbers of employees
across the industry.
B. Service industry jobs are often standardized, reducing the need for unions to negotiate working conditions.
C. Employees in the service sector often work more closely with management.
D. Service industry jobs are more varied, making it harder to negotiate as a group.
93. In the diagram, when unions successfully increase the wages of its members, the supply curve in the union
sector shifts from ____ and ____ workers lose their jobs as a result.
A. S1 to S2; L3 - L1
B. S2 to S1; L3 - L1
C. S1 to S2; L2 - L1
D. S2 to S1; L2 - L1
94. Unionization provides ____ in given occupations, and as a result, wage rates in these occupations have a
tendency to ____.
A. barriers to entry; decrease
B. barriers to entry; increase
C. ease of entry; decrease
D. ease of entry; increase
96. The provisions of which of the following labor legislation allowed the president to seek a court injunction to
prevent a strike for 80 days if the nation's economy is at risk?
A. Landrum-Griffen Act
B. Taft-Hartley Act
C. Wagner Act
D. Walsh-Healy Act
97. The most significant factor enabling unions to negotiate increased wages for its members is likely:
A. that unions increase the demand for labor.
B. that unions decrease the supply of labor in the union sector.
C. that unions increase the marginal product of labor.
D. that unions increase the supply of labor in the union sector.
98. Not all similarly skilled workers are included in unions. As a result, wages for unionized workers tend to be
____ than for nonunion workers. Additionally, as a significant number of skilled workers seek work in the
nonunion sector, the supply curve for nonunion labor shifts to the ____, thereby ____ wages for nonunion
workers.
A. higher; right; reducing
B. higher; left; reducing
C. lower; right; increasing
D. lower; left; increasing
99. Unions, by nature, must ____ their membership in order to ____ wages.
A. open; lower
B. open; raise
C. restrict; lower
D. restrict; raise
100. Firms with union contracts do a large portion of the painting jobs in the county. If the painters' union wins
a 12 percent wage increase, what will most likely happen in the non-unionized part of the painters' labor
market?
A. Nonunion painters will also get 12 percent wage increases.
B. There will be no change in the nonunionized part of the painters' labor market because these sectors are not
connected.
C. Wage rates in the nonunion sector are likely to fall.
D. Many nonunion painters will likely find work for a firm with a union contract.
102. If the demand for software engineers ____ slower than does supply, wages of software engineers will
____.
A. increases; remain constant
B. increases, rise
C. increases; fall
D. decreases; fall
103. Which of the following is not part of an argument that unions lead to increased productivity?
A. reduction in worker turnover
B. improved morale
C. employees with more motivation
D. benefits from featherbedding
104. Which of the following will contribute to higher wage rates for labor?
A. increased productivity
B. increases in capital formation
C. a decrease in the supply of labor
D. all of the above
105. Which of the following does not contribute to increased worker productivity?
A. technological advances
B. increased capital formation
C. improvements in workers' skills
D. increased labor supply
106. Which of the following will not contribute to higher wage rates for labor?
A. increased unionization and decreased nonunionization of employees in the economy
B. a rapid increase in the demand for labor
C. significantly relaxed immigration standards
D. increases in technological advances that are substitutes for labor
107. Other things being equal, a ____ supply of workers tends to ____ real wages.
A. larger; decrease
B. smaller; decrease
C. larger; increase
D. smaller; not change
108. If labor demand rises faster than labor supply, it is expected that real wages will ____.
A. stay the same
B. decrease
C. increase
D. Not enough information is available to determine the impact on real wage rates.
109. A payment for a resource above its opportunity cost is known as:
A. an interest payment.
B. a sunk cost.
C. featherbedding.
D. an economic rent.
114. If the rate of interest increases, firms will most likely respond by:
A. increasing investment.
B. decreasing investment.
C. not changing investment.
D. increasing their capital stock.
115. The demand curve for loanable funds is downward sloping because:
A. people save more at higher interest rates.
B. more investments are profitable at low interest rates than at high interest rates.
C. future income is more valuable now at higher interest rates than at lower interest rates.
D. usury laws increase the quantity of funds demanded at low interest rates but do not affect the quantity of
funds demanded at high interest rates.
122. The demand curve for capital is ____ and its supply curve is ____.
A. downward sloping; downward sloping
B. upward sloping; upward sloping
C. downward sloping; upward sloping;
D. upward sloping; downward sloping
123. Exhibit 16-2
The following lists possible capital investments that a business might pursue.
Refer to Exhibit 16-2. If the interest rate is 5 percent, which projects would the business not invest in?
A. 1
B. 2
C. 3
D. 4
The following lists possible capital investments that a business might pursue.
Refer to Exhibit 16-2. If the interest rate is 8 percent, which projects would the business not invest in?
A. 1, 2, 3, and 4
B. 1, 2, and 3
C. 2 and 4
D. 1 and 2
The following lists possible capital investments that a business might pursue.
The following lists possible capital investments that a business might pursue.
Refer to Exhibit 16-2. How many projects would the firm invest in if the interest rate is 5 percent?
A. 0
B. 1
C. 2
D. 3
The following lists possible capital investments that a business might pursue.
Refer to Exhibit 16-2. If the interest rate is 15 percent, how many projects would the firm invest in?
A. 0
B. 1
C. 2
D. 3
128. A decrease in the demand for the output that an input produces will cause the input's:
A. supply curve to shift to the right.
B. supply curve to shift to the left.
C. demand curve to shift to the right.
D. demand curve to shift to the left.
135. Which of the following would shift the supply of labor to the right?
A. A decrease in population.
B. A decrease in immigration.
C. A decrease in non-wage income.
D. A decrease in the quality of on-the-job amenities.
136. If there is both a decrease in immigration and an increase in workers' non-wage incomes,
A. the supply of labor will increase.
B. the supply of labor will decrease.
C. the supply of labor will remain unchanged.
D. the effect on the supply of labor will be indeterminate.
138. Decreases in the demand curve for labor may arise from ____ in labor productivity or from ____ in the
price of the good.
A. increases; increases.
B. increases; decreases.
C. decreases; increases.
D. decreases; decreases
139. Increases in income from other sources than employment can cause the labor ____ curve to shift ____.
A. demand; right.
B. demand; left.
C. supply; right.
D. supply; left.
140. Which of the following is false?
A. An increase in labor productivity will shift the demand curve for labor to the right.
B. An increase in wage will lead to an increase in the supply of labor.
C. A decrease in the nonwage income of workers would shift the labor supply curve to the right.
D. If job amenities deteriorate, it would lead to a reduction, or leftward shift, in the labor supply curve.
141. A change in technology that increases the marginal physical product of an input will:
A. shift the input demand curve to the left.
B. shift the input demand curve to the right.
C. result in a movement down along the input demand curve.
D. result in a movement up along the input demand curve.
143. If labor is the only variable input, an additional worker increases output from 72 to 78 units, and the
product price is $6, the marginal revenue product from an additional worker:
A. is $6.
B. is $36.
C. is $78
D. is $432.
144. Which of the following would not shift the demand for resource Z?
A. A decline in the price of resource Z.
B. A decline in the price of substitute resource A.
C. An increase in the productivity of resource Z.
D. An increase in the price of the product resource Z is used to produce.
145. Bob's Baubles, Inc., sells its product for $3 each in a perfectly competitive market. If it increases its
workforce from 1,000 to 1,001, its output goes from 615 to 625 per day. Its marginal revenue product for the
1,001st worker is:
A. $3.
B. $1, 845.
C. $30.
D. $3,003
146. Bob's Baubles, Inc., sells its product for $3 each in a perfectly competitive market. If it increases its
workforce from 1,000 to 1,001, its output goes from 615 to 625 per day. Bob should hire the 1,001st worker
only if:
A. the wage is more than $30 per day.
B. the wage is $30 or less per day.
C. the wage is less than $10 per day.
D. the wage is less than $3 per day.
147. If the demand for labor increased but more slowly than the supply
A. wages would rise.
B. wages would fall.
C. there would be an increase in the amount of laborers employed.
D. both (b) and (c) would result.
150. If an increase occurs in the demand for the output of industry A, we would expect all of the following to
happen except:
A. an increase in the profits of industry A.
B. a decrease in prices of inputs used in the production of A.
C. an increase in the output of industry A.
D. an increase in the demand for inputs used in the production of A.
156. The effect of unions tends to ____ output in the union sector and ____ output in the non-union sector.
A. increase; increase.
B. increase; decrease.
C. decrease; increase.
D. decrease; decrease.
157. In an industry where some firms were unionized and others were not, the union would oppose which of the
following?
A. A decrease in the price of a complementary input.
B. An increase in the price of a substitute input.
C. An increase in demand for the goods produced by the industry.
D. A shift in industry production overseas, where the union has no power.
158. Unions tend to:
A. shift labor from the union sector to the non-union sector of the economy.
B. shift labor from the non-union sector to the union sector of the economy.
C. decrease wages in the union sector.
D. increase wages in the non-union sector.
159. If, beginning from a competitive labor market, some workers form a union and negotiate a higher rate for
themselves, which of the following is likely to happen?
A. Competition will force the wage rate in the non-union sector to increase to the level of the union wage.
B. The marginal product of labor curve will increase in the unionized sector.
C. Employment will move from the union to the non-union sector over time.
D. Employment will increase in the union sector because workers will be attracted by the higher union wage.
164. Which of the following is not likely to incorporate a great deal of economic rent?
A. the salary paid to Paula Abdul as a judge on American Idol
B. the price for dinner at a nice restaurant in a major city
C. rental of beachfront property during the summer
D. sale of piece the parquet floor previously in the famous Boston Garden
165. Would an increase in the productivity of labor lead to an increase or a decrease in the demand for labor?
Why?
166. The firm represented in the table below participates in a perfectly competitive market for their product as
well as for labor. Complete the chart and answer the following questions.
Marginal Marginal
Physical Revenue
Product Product of Wage Rate
Quantity Total of Labor Product Labor (MRC)
of Labor Output (MPP) Price (MRP) per day
0 0 --- --- --- ---
1 10 10 $10 100 $55
2 19 $
3 27 $
4 34 $
5 40 $
6 45 $
7 49 $
8 52 $
a. If the firm represented in the table above is currently employing two units of labor, should they hire a third? Why or why not?
b. If the firm represented in the table above is currently employing four units of labor, should they hire a fifth? Why or why not?
c. If the firm represented in the table above is currently employing seven units of labor, should they hire an eighth? Why or why not?
d. At what level of employment will the firm be maximizing profit? If they hire one additional unit of labor, what will be the cost?
167. Would the owner of a profit-maximizing fast-food establishment hire another worker for $55 per day if
that worker added faster service, increasing sales and revenue by $98 per day? Why or why not?
168. Would the owner of a profit-maximizing fast-food establishment hire another worker for $55 per day if
that worker added faster service, increasing sales and revenue by $50 per day? Why or why not?
169. If the private-sector wage of biologists was significantly greater than that of music professors, what might
happen if a university tried to pay its entire faculty the same salary?
170. In many communities across the country it is very difficult for firms to hire sufficient numbers of entry
level workers. If firms do not wish to raise money wages, what else might they do to attract workers?
171. How does monopsony power evolve? What factors might aid its continued presence?
172. Discuss the factors behind the recent decline in labor union membership.
173. Unions have found it particularly difficult to organize workers in service-based industries. Why?
174. Even though non-union workers maybe just as skilled as union workers, wages are almost 15 percent
higher in union jobs. Why?
175. If a large number of skilled workers retire at about the same time through early retirements or buyouts,
what will happen to the wages of skilled workers, other things being equal?
176. In Japan, the market value of the land is approximately four times that of all the land in the United States,
even though Japan is only about the size of California. The most likely explanation for this fact is?
1. The salaries of college professors are partly determined by the demand for college education.
TRUE
2. The demand for cake decorators has no relationship to the demand for cakes.
FALSE
3. The concept of derived demand indicated that the demand for a final good or service will be determined by
the price of the inputs used to produce that final good or service.
FALSE
4. The demand for labor is derived from the demand for final goods which that labor is used to produce.
TRUE
5. The additional revenue a firm obtains from hiring one more unit of input is called the marginal revenue
product.
TRUE
6. The marginal resource cost is the amount by which an additional unit of input decreases the firm's variable
costs.
FALSE
7. The law of diminishing marginal product is a reason why the demand curve for labor is downward sloping.
TRUE
8. As more workers are hired to harvest grapes in a vineyard, the fields become overcrowded. As a result, the
marginal product of labor is likely to diminish.
TRUE
9. The intersection of the market demand for labor and the market supply for labor determines the equilibrium
wage rate.
TRUE
10. The marginal resource cost of input is the amount that an extra unit of that input adds to the firm's total
costs.
TRUE
11. Other things being equal, if the quantity of labor supplied is less than the quantity of labor demanded, wages
will tend to fall.
FALSE
12. An increase in the price of a firm's output will shift the firm's demand curve for labor to the right, other
things being equal.
TRUE
13. A decrease in the price of a firm's output will shift the firm's demand curve for labor to the right, other
things being equal.
FALSE
14. A decrease in the productivity of labor will shift the demand curve for labor to the left, other things being
equal.
TRUE
15. Increases in income from sources other than employment can cause the labor supply curve to shift to the
left.
TRUE
16. The demand curve for capital is downward sloping because of the increasing marginal cost of capital.
FALSE
17. While unions represent only a fraction of the unskilled workers in the U.S. labor market, any wage increase
won by unionized workers is most likely shared with non-union unskilled workers.
FALSE
18. Ultimately, the source of growth in real wages is the growth in labor productivity.
TRUE
19. If the demand for opera singers increases faster than the supply, wages will rise.
TRUE
20. At higher interest rates, fewer people or firms will want to borrow. At lower interest rates, fewer people or
firms will want to save.
TRUE
22. Other things being equal, an increase in labor productivity will shift the labor supply curve to the right.
FALSE
24. In the last 60 years, the percentage of workers in union jobs has increased substantially.
FALSE
25. If the demand for softballs increases, one could expect the demand for leather to increase. This is due to
the:
A. principle of diminishing marginal product.
B. change in the opportunity cost of producing a softball.
C. reduction in the cost of producing softballs.
D. demand for an input being a derived demand.
26. The price of any productive resource is ____ related to ____ the final good or service:
A. inversely; demand for
B. directly; demand for
C. directly; supply of
D. not; supply of
27. Which of the following best illustrates the concept of "derived demand"?
A. An increase in the wages of autoworkers leads to an increase in the demand for robots in automobile
factories.
B. An auto firm decides to supply more minivans when there is a decrease in the demand for station wagons.
C. An increase in the price of gasoline leads to an increase in the demand for small cars.
D. An automobile firm faces an increase in the demand for cars it supplies to the market, which leads to an
increase in the demand for autoworkers.
28. Mr. Calhoun owned land on which cotton could be grown, but which he had been unable to rent for years.
Suddenly he was getting offers from cotton farmers to lease his land. Which of the following best explains this
change in circumstances?
A. The price of cotton decreased.
B. The price of cotton increased.
C. The productivity of the land increased.
D. Property taxes on the land increased.
30. The major reason the market demand curve for labor slopes downward is because:
A. at lower wage rates, workers are less willing to supply labor to the market.
B. at lower wage rates, workers are more willing to supply labor to the market.
C. of the law of diminishing marginal product.
D. of the law of diminishing marginal resource cost.
33. For a firm that is competitive in both product and factor markets, the value of the marginal product of labor:
A. is constant and equal to the market wage.
B. increases, causing the labor supply curve to slope upward.
C. declines because the marginal product of labor diminishes as the number of workers rises.
D. declines because a competitive firm must lower product price in order to increase sales.
35. When a profit-maximizing firm makes a decision to employ a worker, that decision is based on:
A. the individual contribution that the worker makes to the profit of the firm.
B. the average productivity of the firm's labor force.
C. the familial relationship between the employer and the employee.
D. the total output produced by the firm.
36. The contribution of an additional worker to a firm's ____, is the worker's contribution to revenue minus the
worker's ____.
A. profits; wage
B. output; wage
C. profits; marginal productivity
D. output; marginal productivity
37. A worker's contribution to the firm's revenue is measured directly by the worker's:
A. value of marginal product.
B. marginal product multiplied by his/her wage.
C. marginal product minus his/her wage.
D. contribution to total output.
38. Based on the table below, how many workers will the firm employ in order to maximize profits?
A. 14
B. 15
C. 16
D. 17
39. Based on the table below, how many workers will the firm employ in order to maximize profits?
A. 4
B. 5
C. 6
D. 7
40. When labor is a firm's only variable input in its production process, a profit-maximizing firm will continue
to employ additional workers as long as:
A. the marginal product of labor > 0.
B. the marginal revenue product of labor < the marginal resource cost.
C. the marginal revenue product of labor > the marginal resource cost.
D. none of the above.
41. Which of the following statements are true regarding profit maximizing firms?
A. They will attempt to maximize the difference between total revenues and total costs.
B. They will use more of a resource as long as the MRC is greater than the MRP.
C. They will only produce where MRP is positive and MRC is negative.
D. none of the above.
42. The profit-maximizing firm should continue hiring additional labor as long as:
A. MRC < MRP.
B. MRC > MRP.
C. MRC = MRP.
D. the MP of labor > 0.
44. Which of the following would cause the demand for carpenters to increase?
A. a decrease in immigration
B. an increase in the demand for housing
C. an increase in the price of lumber
D. a decrease in the productivity of carpenters
45. Based on the table below, how many workers will the firm employ in order to maximize profits?
A. 12
B. 13
C. 14
D. 15
46. Based on the table below, how many workers will the firm employ in order to maximize profits?
51. A backward-bending portion of an individual labor supply curve is most likely to be observed:
A. at lower wages.
B. at higher wages.
C. in manufacturing industries.
D. in service industries.
52. In the backward-bending portion of a labor supply curve:
A. a worker will increase the quantity of labor supplied in response to an increase in the wage.
B. the substitution effect of a wage change outweighs the income effect.
C. the income effect of a wage change outweighs the substitution effect.
D. the substitution effect of a wage change equals the income effect.
54. Which of the following would certainly increase the demand for labor?
A. an increase in demand for the final product and an increase in the productivity of labor
B. an increase in demand for the final product and a decrease in the productivity of labor
C. a decrease in demand for the final product and an increase in the productivity of labor
D. a decrease in demand for the final product and a decrease in the productivity of labor
55. If leisure is a normal good for a worker, and the income effect of a wage change dominates the substitution
effect, then if wages increase:
A. there will be a decrease in the quantity of labor supplied by the worker.
B. there will be an increase in the quantity of labor supplied by the worker.
C. there will be no change in the quantity of labor supplied by the worker.
D. the worker's individual supply curve will shift to the left.
59. The relationship between the wage rate and the quantity of labor that employers wish to hire in total is
called:
A. the market supply curve for labor.
B. the market demand curve for labor.
C. an individual demand curve for labor.
D. an individual supply curve for labor.
60. The relationship between the wage rate and the quantity of labor that workers wish to supply in total is
called:
A. the market supply curve for labor.
B. the market demand curve for labor.
C. an individual demand curve for labor.
D. an individual supply curve for labor.
61. Which of the following will not result in a leftward shift of the market demand curve for labor?
A. a decrease in labor productivity
B. a decrease in demand for the firm's product
C. an increase in the wage rate
D. a decrease in the firm's product price
62. Which of the following will not result in a rightward shift of the market supply curve for labor?
A. an increase in immigration
B. an increase in labor productivity
C. an increase in the working-age population
D. a decrease in nonwage income
63. Which of the following will result in a leftward shift of the market supply curve for labor?
A. an increase in immigration
B. a decrease in labor productivity
C. an increase in the working-age population
D. an increase in nonwage income
64. Job amenities:
A. have no impact on the supply of labor.
B. are not part of the compensation workers receive from employers.
C. help determine the position of the labor supply curve.
D. never affect the monetary wages paid to workers.
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If the government was to impose a wage rate of WA on the computer software
programming industry:
A. the imposed wage would have no effect on the market for computer programmers.
B. a shortage of software programmers would result.
C. a quantity of Q4 software programmers would be demanded in the marketplace.
D. there would be pressure from market forces for the wage to fall.
67. Exhibit 16-1
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If the wage law were enacted, in the market for computer programmers a ____ would
result.
A. shortage of Q6 - Q5
B. shortage of Q6 - Q4
C. surplus of Q6 - Q5
D. surplus of Q6 - Q4
68. Exhibit 16-1
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If the law were not enacted, the prevailing wage rate and quantity of labor at
equilibrium in the market for computer software programmers would be:
A. WA and Q4, respectively.
B. WA and Q5, respectively.
C. WA and Q6, respectively.
D. WC and Q5, respectively.
69. Exhibit 16-1
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If the law was to impose a wage rate of WA on the K-12 teachers market:
A. the quantity of K-12 teachers demanded would decrease.
B. a surplus of K-12 teachers would soon result.
C. a quantity of Q3 teachers would be supplied to the marketplace.
D. all of the above would occur.
70. Exhibit 16-1
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If a wage rate of WA for teachers were imposed by the government on schools, the
expected result would be:
A. a teacher shortage of Q3 - Q1.
B. a teacher shortage of Q3 - Q2.
C. a teacher surplus of Q2 - Q1.
D. a teacher surplus of Q3 - Q1.
71. Exhibit 16-1
Several congressmen and senators have been greatly concerned about the fairness of salaries in the marketplace.
They are contemplating enacting a law that would fix the wage rate at WA. Their aides, who were all excellent
economics students, have returned with the results of an investigation into the matter, as portrayed below.
Refer to Exhibit 16-1. If the wage law was not enacted, the prevailing wage rate and quantity of labor in the
marketplace for K-12 teachers at equilibrium would be:
A. WB and Q2, respectively.
B. WA and Q2, respectively.
C. WA and Q3, respectively.
D. WB and Q1, respectively.
72. Economists refer to expenditures on training, education, and skill development designed to increase the
productivity of an individual as:
A. overhead expenditures.
B. investments in human capital.
C. marginal revenue product.
D. investments in social capital.
73. Which of the following is the best example of an investment in human capital?
A. an increase in the number of hours worked per week by worker in a job employing low-skilled labor
B. the purchase of company stock by a worker
C. a summer internship at a law firm filled by someone attending law school
D. payments into a retirement pension plan by a skilled laborer
74. Which of the following is the best example of an investment in human capital?
A. the purchase of an industrial development bond
B. a graduate student who completed 24 semester units in economics last year
C. the purchase of a lawn mower by a homeowner
D. an unemployed stockbroker who drives a cab in order to pay his bills
75. An increase in the demand for a product will cause output to:
A. increase and the demand for the resources used to produce the product to rise.
B. increase and the demand for the resources used to produce the product to fall.
C. decline, while the demand for the resources used to produce the product remains constant.
D. increase and the price of resources used to produce the product to increase if their supply is perfectly elastic.
76. Which of the following most clearly illustrates the concept of "derived demand"?
A. An increase in the price of steak causes the demand for poultry to increase.
B. An increase in the demand for new houses leads to an increase in the demand for construction workers.
C. An increase in consumer income leads to an increase in the demand for services provided by the government.
D. An increase in the demand for new cars causes the demand for used automobiles to rise.
78. Other things being equal, an increase in the labor force resulting from increased immigration tends to:
A. increase wages.
B. decrease wages.
C. decrease the demand for labor.
D. increase the demand for labor.
81. Which of the following might shift an individual's supply curve of labor to the left?
A. winning the lottery
B. a decrease in non-wage income
C. due to falling sales, businesses are less willing to hire additional workers
D. a decrease in derived demand
82. The labor ____ curve(s) will shift if there is a change in productivity or a change in the demand for the final
product.
A. supply
B. demand
C. supply and demand
D. None of the above are correct. Changes in productivity and the demand for final products do not affect the
labor market.
83. Other things being equal, an increase in the workplace amenities, such as increased health care and more
generous vacation options, would tend to shift the labor supply curve to the ____.
A. left, increasing wages.
B. right, increasing wages.
C. left, decreasing wages.
D. right, decreasing wages.
84. Other things being equal, a decrease in the workplace amenities, such as decreased health care and less
generous vacation options, would tend to shift the labor supply curve to the ____, thereby causing the market
wages to ____.
A. right; fall
B. right; increase
C. left; fall
D. left; rise
85. Where monopsony exists, ____ workers will be hired at ____ wages than if perfect competition prevailed in
a labor market.
A. fewer; lower
B. fewer; higher
C. more; lower
D. more: higher
90. Which landmark legislation protected the right of workers to organize and bargain collectively?
A. Landrum-Griffen Act
B. Taft-Hartley Act
C. Wagner Act
D. Walsh-Healy Act
91. Which of the following is not a reason it is harder to unionize in the fast growing service industry?
A. Service sector jobs are often in small firms, making it difficult to organize large numbers of employees
across the industry.
B. Service industry jobs are often standardized, reducing the need for unions to negotiate working conditions.
C. Employees in the service sector often work more closely with management.
D. Service industry jobs are more varied, making it harder to negotiate as a group.
93. In the diagram, when unions successfully increase the wages of its members, the supply curve in the union
sector shifts from ____ and ____ workers lose their jobs as a result.
A. S1 to S2; L3 - L1
B. S2 to S1; L3 - L1
C. S1 to S2; L2 - L1
D. S2 to S1; L2 - L1
94. Unionization provides ____ in given occupations, and as a result, wage rates in these occupations have a
tendency to ____.
A. barriers to entry; decrease
B. barriers to entry; increase
C. ease of entry; decrease
D. ease of entry; increase
96. The provisions of which of the following labor legislation allowed the president to seek a court injunction to
prevent a strike for 80 days if the nation's economy is at risk?
A. Landrum-Griffen Act
B. Taft-Hartley Act
C. Wagner Act
D. Walsh-Healy Act
97. The most significant factor enabling unions to negotiate increased wages for its members is likely:
A. that unions increase the demand for labor.
B. that unions decrease the supply of labor in the union sector.
C. that unions increase the marginal product of labor.
D. that unions increase the supply of labor in the union sector.
98. Not all similarly skilled workers are included in unions. As a result, wages for unionized workers tend to be
____ than for nonunion workers. Additionally, as a significant number of skilled workers seek work in the
nonunion sector, the supply curve for nonunion labor shifts to the ____, thereby ____ wages for nonunion
workers.
A. higher; right; reducing
B. higher; left; reducing
C. lower; right; increasing
D. lower; left; increasing
99. Unions, by nature, must ____ their membership in order to ____ wages.
A. open; lower
B. open; raise
C. restrict; lower
D. restrict; raise
100. Firms with union contracts do a large portion of the painting jobs in the county. If the painters' union wins
a 12 percent wage increase, what will most likely happen in the non-unionized part of the painters' labor
market?
A. Nonunion painters will also get 12 percent wage increases.
B. There will be no change in the nonunionized part of the painters' labor market because these sectors are not
connected.
C. Wage rates in the nonunion sector are likely to fall.
D. Many nonunion painters will likely find work for a firm with a union contract.
102. If the demand for software engineers ____ slower than does supply, wages of software engineers will
____.
A. increases; remain constant
B. increases, rise
C. increases; fall
D. decreases; fall
103. Which of the following is not part of an argument that unions lead to increased productivity?
A. reduction in worker turnover
B. improved morale
C. employees with more motivation
D. benefits from featherbedding
104. Which of the following will contribute to higher wage rates for labor?
A. increased productivity
B. increases in capital formation
C. a decrease in the supply of labor
D. all of the above
105. Which of the following does not contribute to increased worker productivity?
A. technological advances
B. increased capital formation
C. improvements in workers' skills
D. increased labor supply
106. Which of the following will not contribute to higher wage rates for labor?
A. increased unionization and decreased nonunionization of employees in the economy
B. a rapid increase in the demand for labor
C. significantly relaxed immigration standards
D. increases in technological advances that are substitutes for labor
107. Other things being equal, a ____ supply of workers tends to ____ real wages.
A. larger; decrease
B. smaller; decrease
C. larger; increase
D. smaller; not change
108. If labor demand rises faster than labor supply, it is expected that real wages will ____.
A. stay the same
B. decrease
C. increase
D. Not enough information is available to determine the impact on real wage rates.
109. A payment for a resource above its opportunity cost is known as:
A. an interest payment.
B. a sunk cost.
C. featherbedding.
D. an economic rent.
114. If the rate of interest increases, firms will most likely respond by:
A. increasing investment.
B. decreasing investment.
C. not changing investment.
D. increasing their capital stock.
115. The demand curve for loanable funds is downward sloping because:
A. people save more at higher interest rates.
B. more investments are profitable at low interest rates than at high interest rates.
C. future income is more valuable now at higher interest rates than at lower interest rates.
D. usury laws increase the quantity of funds demanded at low interest rates but do not affect the quantity of
funds demanded at high interest rates.
122. The demand curve for capital is ____ and its supply curve is ____.
A. downward sloping; downward sloping
B. upward sloping; upward sloping
C. downward sloping; upward sloping;
D. upward sloping; downward sloping
123. Exhibit 16-2
The following lists possible capital investments that a business might pursue.
Refer to Exhibit 16-2. If the interest rate is 5 percent, which projects would the business not invest in?
A. 1
B. 2
C. 3
D. 4
The following lists possible capital investments that a business might pursue.
Refer to Exhibit 16-2. If the interest rate is 8 percent, which projects would the business not invest in?
A. 1, 2, 3, and 4
B. 1, 2, and 3
C. 2 and 4
D. 1 and 2
The following lists possible capital investments that a business might pursue.
The following lists possible capital investments that a business might pursue.
Refer to Exhibit 16-2. How many projects would the firm invest in if the interest rate is 5 percent?
A. 0
B. 1
C. 2
D. 3
The following lists possible capital investments that a business might pursue.
Refer to Exhibit 16-2. If the interest rate is 15 percent, how many projects would the firm invest in?
A. 0
B. 1
C. 2
D. 3
128. A decrease in the demand for the output that an input produces will cause the input's:
A. supply curve to shift to the right.
B. supply curve to shift to the left.
C. demand curve to shift to the right.
D. demand curve to shift to the left.
135. Which of the following would shift the supply of labor to the right?
A. A decrease in population.
B. A decrease in immigration.
C. A decrease in non-wage income.
D. A decrease in the quality of on-the-job amenities.
136. If there is both a decrease in immigration and an increase in workers' non-wage incomes,
A. the supply of labor will increase.
B. the supply of labor will decrease.
C. the supply of labor will remain unchanged.
D. the effect on the supply of labor will be indeterminate.
138. Decreases in the demand curve for labor may arise from ____ in labor productivity or from ____ in the
price of the good.
A. increases; increases.
B. increases; decreases.
C. decreases; increases.
D. decreases; decreases
139. Increases in income from other sources than employment can cause the labor ____ curve to shift ____.
A. demand; right.
B. demand; left.
C. supply; right.
D. supply; left.
140. Which of the following is false?
A. An increase in labor productivity will shift the demand curve for labor to the right.
B. An increase in wage will lead to an increase in the supply of labor.
C. A decrease in the nonwage income of workers would shift the labor supply curve to the right.
D. If job amenities deteriorate, it would lead to a reduction, or leftward shift, in the labor supply curve.
141. A change in technology that increases the marginal physical product of an input will:
A. shift the input demand curve to the left.
B. shift the input demand curve to the right.
C. result in a movement down along the input demand curve.
D. result in a movement up along the input demand curve.
143. If labor is the only variable input, an additional worker increases output from 72 to 78 units, and the
product price is $6, the marginal revenue product from an additional worker:
A. is $6.
B. is $36.
C. is $78
D. is $432.
144. Which of the following would not shift the demand for resource Z?
A. A decline in the price of resource Z.
B. A decline in the price of substitute resource A.
C. An increase in the productivity of resource Z.
D. An increase in the price of the product resource Z is used to produce.
145. Bob's Baubles, Inc., sells its product for $3 each in a perfectly competitive market. If it increases its
workforce from 1,000 to 1,001, its output goes from 615 to 625 per day. Its marginal revenue product for the
1,001st worker is:
A. $3.
B. $1, 845.
C. $30.
D. $3,003
146. Bob's Baubles, Inc., sells its product for $3 each in a perfectly competitive market. If it increases its
workforce from 1,000 to 1,001, its output goes from 615 to 625 per day. Bob should hire the 1,001st worker
only if:
A. the wage is more than $30 per day.
B. the wage is $30 or less per day.
C. the wage is less than $10 per day.
D. the wage is less than $3 per day.
147. If the demand for labor increased but more slowly than the supply
A. wages would rise.
B. wages would fall.
C. there would be an increase in the amount of laborers employed.
D. both (b) and (c) would result.
150. If an increase occurs in the demand for the output of industry A, we would expect all of the following to
happen except:
A. an increase in the profits of industry A.
B. a decrease in prices of inputs used in the production of A.
C. an increase in the output of industry A.
D. an increase in the demand for inputs used in the production of A.
156. The effect of unions tends to ____ output in the union sector and ____ output in the non-union sector.
A. increase; increase.
B. increase; decrease.
C. decrease; increase.
D. decrease; decrease.
157. In an industry where some firms were unionized and others were not, the union would oppose which of the
following?
A. A decrease in the price of a complementary input.
B. An increase in the price of a substitute input.
C. An increase in demand for the goods produced by the industry.
D. A shift in industry production overseas, where the union has no power.
158. Unions tend to:
A. shift labor from the union sector to the non-union sector of the economy.
B. shift labor from the non-union sector to the union sector of the economy.
C. decrease wages in the union sector.
D. increase wages in the non-union sector.
159. If, beginning from a competitive labor market, some workers form a union and negotiate a higher rate for
themselves, which of the following is likely to happen?
A. Competition will force the wage rate in the non-union sector to increase to the level of the union wage.
B. The marginal product of labor curve will increase in the unionized sector.
C. Employment will move from the union to the non-union sector over time.
D. Employment will increase in the union sector because workers will be attracted by the higher union wage.
164. Which of the following is not likely to incorporate a great deal of economic rent?
A. the salary paid to Paula Abdul as a judge on American Idol
B. the price for dinner at a nice restaurant in a major city
C. rental of beachfront property during the summer
D. sale of piece the parquet floor previously in the famous Boston Garden
165. Would an increase in the productivity of labor lead to an increase or a decrease in the demand for labor?
Why?
An increase in productivity would lead to an increase in the marginal revenue product of labor. With a higher
marginal revenue product we would expect to see an increase in demand. A firm would be likely to utilize more
labor and less of other resources if labor has become more productive.
166. The firm represented in the table below participates in a perfectly competitive market for their product as
well as for labor. Complete the chart and answer the following questions.
Marginal Marginal
Physical Revenue
Product Product of Wage Rate
Quantity Total of Labor Product Labor (MRC)
of Labor Output (MPP) Price (MRP) per day
0 0 --- --- --- ---
1 10 10 $10 100 $55
2 19 $
3 27 $
4 34 $
5 40 $
6 45 $
7 49 $
8 52 $
a. If the firm represented in the table above is currently employing two units of labor, should they hire a third? Why or why not?
b. If the firm represented in the table above is currently employing four units of labor, should they hire a fifth? Why or why not?
c. If the firm represented in the table above is currently employing seven units of labor, should they hire an eighth? Why or why not?
d. At what level of employment will the firm be maximizing profit? If they hire one additional unit of labor, what will be the cost?
Marginal Marginal
Physical Revenue
Product Product of Wage Rate
Quantity Total of Labor Product Labor (MRC)
of Labor Output (MPP) Price (MRP) per day
0 0 --- --- --- ---
1 10 10 $10 100 $55
2 19 9 $10 90 $55
3 27 8 $10 80 $55
4 34 7 $10 70 $55
5 40 6 $10 60 $55
6 45 5 $10 50 $55
7 49 4 $10 40 $55
8 52 3 $10 30 $55
a. If the firm is currently employing two units of labor, it should hire a third because the marginal revenue from doing so exceeds the
marginal resource cost.
b. If the firm is currently employing four units of labor, it should hire a fifth because the marginal revenue from doing so exceeds the
marginal resource cost.
c. If the firm is currently employing seven units of labor, it should not hire an eighth because the marginal revenue from doing so is less
than the marginal resource cost.
d. The firm maximizes profit by employing five units of labor. If a sixth unit of labor were to be hired, the costs of employing that
additional individual would cost more than would be added to revenues.
167. Would the owner of a profit-maximizing fast-food establishment hire another worker for $55 per day if
that worker added faster service, increasing sales and revenue by $98 per day? Why or why not?
Yes, it would make good business sense to employ the additional worker because they would add $43 to
revenues beyond their costs. This would increase the profitability of the business.
168. Would the owner of a profit-maximizing fast-food establishment hire another worker for $55 per day if
that worker added faster service, increasing sales and revenue by $50 per day? Why or why not?
No, hiring this employee would lead to a reduction in profits by $5, adding more to overall costs than to
revenues.
169. If the private-sector wage of biologists was significantly greater than that of music professors, what might
happen if a university tried to pay its entire faculty the same salary?
Those individuals, who are able to command higher wages outside of the university, would likely leave the
world of academia to accept positions elsewhere. This would likely result in a shortage of biologists and a
surplus of music professors on campus.
170. In many communities across the country it is very difficult for firms to hire sufficient numbers of entry
level workers. If firms do not wish to raise money wages, what else might they do to attract workers?
Firms could enhance the amenities associated with offered positions. For example, they could provide tuition
incentives, vacation time, personal time, and health or dental benefits.
171. How does monopsony power evolve? What factors might aid its continued presence?
Monopsony may arise because a person within a given locality has only a relatively few choices of where to
work. However, if the individual was willing to move, or the number of buyers of services potentially is
enlarged, then the role of a monopsony is diminished. So monopsony power is more likely to be present where
movement and search costs impede workers from seeking employment in different locales.
172. Discuss the factors behind the recent decline in labor union membership.
Several possible reasons explain the recent decline in labor union membership. Some of these are: U.S. workers
moving out of manufacturing into the service sector, where unions typically have a smaller presence; the
deregulation of heavily unionized industries; global competition; and new laws regarding safer work places.
173. Unions have found it particularly difficult to organize workers in service-based industries. Why?
Unions have found that the service industry is largely composed of small firms. Since worker tasks are
generally more varied in the service sector than in that of manufacturing, it makes it harder for workers to
negotiate as a group. Also, many of these workers in small firms find unions less appealing because they are
able to forge more personal relationships with management and owners.
174. Even though non-union workers maybe just as skilled as union workers, wages are almost 15 percent
higher in union jobs. Why?
When unions become successful in obtaining higher wages through bargaining or restricting memberships,
employment in the union sector will fall as a result of rise in wages. Equally skilled workers who are unable to
find jobs in the union sector will then seek employment in the non-union sector. This increases supply of labor,
thereby decreasing wages in the non-union sector.
175. If a large number of skilled workers retire at about the same time through early retirements or buyouts,
what will happen to the wages of skilled workers, other things being equal?
The supply of skilled workers would shift to the left, thereby increasing the wage rates in skilled professions
and decreasing the quantity of skilled labor in the marketplace. The higher wage rates would motivate
individuals to improve their workplace skills and eventually move into those positions.
176. In Japan, the market value of the land is approximately four times that of all the land in the United States,
even though Japan is only about the size of California. The most likely explanation for this fact is?
There is a greater demand for land in Japan relative to supply than in the United States.
The demand for a factor of production is derived from the underlying demand for the final good or service,
which the factor helps produce. A firm wishes to employ the factor for what the factor will add to the
profitability of the firm. Therefore an increase in the price of the final good or service, which increases the
profitability of production, will also lead to an increase in demand for factors.