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Copyright © 2011 Pearson Education, Inc.
Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 18 Markets for Factors of Production
18.1 The Demand for a Factor of Production
1) The four factors of production that produce goods and services are
A) labor, money, machinery, and land.
B) labor, capital, money, and entrepreneurship.
C) labor, capital, land, and entrepreneurship.
D) labor, investment capital, machinery, and land.
E) labor, stocks, money, and bonds.
Skill: Level 1: Definition
Section: Checkpoint 18.1
Author: WM
AACSB: Reflective thinking
2) Economists define the four factors of production to be
A) land, labor, labor services, and capital.
B) labor, capital, land, and entrepreneurship.
C) labor, labor services, capital, and capital services.
D) entrepreneurship, land, natural resources, and capital.
E) entrepreneurship, natural resources, labor services, and land.
Skill: Level 1: Definition
Section: Checkpoint 18.1
Author: TM
AACSB: Reflective thinking
3) Which of the following is NOT a factor of production?
A) labor
B) capital
C) entrepreneurship
D) bonds
E) land
Skill: Level 1: Definition
Section: Checkpoint 18.1
Author: JC
AACSB: Reflective thinking
2
Copyright © 2011 Pearson Education, Inc.
4) Entrepreneurship differs from the other factors of production because it
A) is not real.
B) is the most important.
C) has only existed since the new economy of the 1990s.
D) is not traded in a factor market.
E) is not paid.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: WM
AACSB: Reflective thinking
5) As a factor of production, any of the gifts of nature are called
A) land.
B) labor.
C) capital.
D) entrepreneurial ability.
E) physical capital.
Skill: Level 1: Definition
Section: Checkpoint 18.1
Author: PH
AACSB: Reflective thinking
6) In the labor market,
A) households demand labor.
B) firms demand labor.
C) firms supply labor.
D) wage are determined only by firms alone.
E) None of the above answers is correct.
Skill: Level 1: Definition
Section: Checkpoint 18.1
Author: SA
AACSB: Reflective thinking
3
Copyright © 2011 Pearson Education, Inc.
7) The demand for a factor of production is called a derived demand because it is derived from
A) the demand for goods and services produced by the factor of production.
B) a table of specific prices and quantities.
C) the ideas of an entrepreneur.
D) a financial market.
E) the supply of the factor of production.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: WM
AACSB: Reflective thinking
8) Derived demand means that the demand for a factor of production is derived from the
A) supply of that factor of production.
B) price of that factor of production.
C) demand for the goods and services the factor of production is used to produce.
D) costs of production.
E) government, which forces large firms to hire at least some minimum number of different
resources.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: JC
AACSB: Reflective thinking
9) The demand for a resource is derived from the
A) price of the resource.
B) supply of the resource.
C) supply of substitute resources.
D) demand for the good or service that the resource is used to produce.
E) supply of complement resources.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: PH
AACSB: Reflective thinking
4
Copyright © 2011 Pearson Education, Inc.
10) What is meant by derived demand?
A) The demand is derived from income, tastes, etc. of sellers.
B) The demand for a resource is derived from the demand for what it can produce.
C) The demand is derived from the price elasticity of demand.
D) The demand exists because the government mandates production of the good.
E) The demand for a good is derived from the supply of the good.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
11) Which of the following factors have a derived demand?
i. labor
ii. capital
iii. raw materials
A) i and ii
B) ii and iii
C) i and iii
D) i, ii, and iii
E) i only
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: CD
AACSB: Reflective thinking
12) Which of the following represents a derived demand? Demand for
A) a taco by Sam when she is hungry.
B) golf balls by Jose who is planning on going golfing with his boss.
C) a grocery clerk by the local Safeway.
D) an automobile by Jack who wants a car to get to school.
E) new clothing by shaniq who is starting a new job.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: SA
AACSB: Reflective thinking
5
Copyright © 2011 Pearson Education, Inc.
13) The demand for carpenters needed to build houses represents a
A) direct demand.
B) derived demand.
C) marginal demand/cost for input.
D) supplied demand.
E) directed supply.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: SA
AACSB: Reflective thinking
14) If the demand for a good increases, the demand for the factors used to produce the good
A) increases.
B) decreases.
C) stays the same.
D) could increase, decrease, or stay the same depending on whether the demand for the good is
elastic, inelastic, or unit elastic.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
15) The value of the marginal product is equal to
A) marginal product × marginal cost.
B) marginal product × product price.
C) marginal revenue × marginal cost.
D) marginal cost × product price.
E) marginal product ÷ product price.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: PH
AACSB: Reflective thinking
6
Copyright © 2011 Pearson Education, Inc.
16) The value of the marginal product of labor is calculated by multiplying the ________ by the
________.
A) quantity of labor; wage rate
B) total product; wage rate
C) marginal product of labor; price of the product
D) wage rate; price of the product
E) marginal product of labor; wage rate
Skill: Level 1: Definition
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
17) The value of marginal product is equal to the
A) additional revenue from selling one more unit of the product.
B) change in total revenue from selling one more unit of product.
C) additional cost of hiring one more unit of a factor of production.
D) change in revenue from hiring one more unit of a factor of production.
E) change in total cost when one more unit of the product is produced.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: WM
AACSB: Reflective thinking
18) If UPS hires another worker, UPS will be able to deliver an additional 20 packages an hour.
The price of each package is $5. The value of this worker's marginal product is equal to
A) $5.
B) $100.
C) $4.
D) 20 packages.
E) $20.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: MR
AACSB: Analytical reasoning
7
Copyright © 2011 Pearson Education, Inc.
19) The total output of candles in Nick's Wicks candle shop increases from 20 per hour to 30 per
hour as he hires the second worker. The price of each candle is $2. The
A) marginal product of the second worker is 20 candles.
B) marginal product of the second worker is 30 candles.
C) value of marginal product of the second worker is $20.
D) value of marginal product of the second worker is $30.
E) value of marginal product of the second worker is $60.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: SA
AACSB: Analytical reasoning
20) The value of the marginal product of labor
A) always increases as more labor is hired.
B) is constant as long as each worker is paid the same wage rate.
C) declines only if each worker is paid more than the previous worker.
D) at some point declines as more workers are hired.
E) at first decreases and then increases as more workers are hired.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: WM
AACSB: Reflective thinking
21) As the quantity of land used increases, its value of marginal product
A) decreases and then eventually increases.
B) increases and then eventually decreases.
C) remains constant.
D) might increase, decrease, or remain constant depending if the rent for the land rises, falls, or
does not change.
E) The premise of the question is wrong because land does not have a value of marginal product.
Skill: Level 4: Applying models
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
8
Copyright © 2011 Pearson Education, Inc.
22) Kevin owns a personal training gym in Laredo, Texas. He charges $41 per session. The
above table shows the marginal product of trainers in Kevin's gym. If Kevin hires one trainer, the
value of the marginal product of this trainer equals
A) 4 clients.
B) $164.
C) $410.
D) $41.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: JC
AACSB: Analytical reasoning
23) Kevin owns a personal training gym in Laredo, Texas. He charges $41 per session. The
above table shows the marginal product of trainers in Kevin's gym. If Kevin hires three trainers,
the value of the marginal product of the third trainer equals
A) 2 clients.
B) $82.
C) 9 clients.
D) $369.
E) $123.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: JC
AACSB: Analytical reasoning
9
Copyright © 2011 Pearson Education, Inc.
24) Kevin owns a personal training gym in Laredo, Texas. He charges $41 per session. The
above table shows the marginal product of trainers in Kevin's gym. If Kevin hires four trainers,
the value of the marginal product of the fourth trainer equals
A) 10 clients.
B) $410.
C) $41.
D) 1 client.
E) $10.25.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: JC
AACSB: Analytical reasoning
25) The table above shows a the total product schedule of Piece a' Pi, a producer of pizza in a
nearby college town. Suppose workers are paid $10 per hour and the price per pizza is $10. The
marginal product of the third worker is
A) 5 pizzas per hour.
B) 17 pizzas per hour.
C) $220 per hour.
D) 7 1/3 pizzas per hour.
E) None of the above answers is correct.
Skill: Level 4: Applying models
Section: Checkpoint 18.2
Author: CD
AACSB: Analytical reasoning
10
Copyright © 2011 Pearson Education, Inc.
26) The table above shows a the total product schedule of Piece a' Pi, a producer of pizza in a
nearby college town. Suppose workers are paid $12 per hour and the price per pizza is $10. The
value of marginal product of the fourth worker is ________ per hour
A) $240
B) $220
C) $20
D) $12
E) $24
Skill: Level 4: Applying models
Section: Checkpoint 18.2
Author: CD
AACSB: Analytical reasoning
27) The table above shows a the total product schedule of Piece a' Pi, a producer of pizza in a
nearby college town. Suppose workers are paid $12 per hour and the price per pizza is $10. The
value of marginal product of the fifth worker is ________ per hour
A) $240
B) $220
C) $24
D) $10
E) $12
Skill: Level 4: Applying models
Section: Checkpoint 18.2
Author: MR
AACSB: Analytical reasoning
11
Copyright © 2011 Pearson Education, Inc.
Number of
workers
Marginal
product
(bats per
hour)
1 8
2 7
3 6
4 5
5 4
The table has the marginal products for workers at Bart's Bats, a baseball bat factory.
28) Using the above table, if the price of a bat is $8, then the value of the marginal product of
labor of the fourth worker is
A) $40.
B) $0.625.
C) $1.375.
D) 5 bats.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: DD
AACSB: Analytical reasoning
29) Using the above table, if the wage rate for a worker in a baseball bat manufacturing plant is
$18 an hour, and the price of a bat is $3, then the firm will hire ________ workers.
A) 1
B) 2
C) 3
D) 4
E) More information is needed to determine how many workers will be hired.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: DD
AACSB: Analytical reasoning
12
Copyright © 2011 Pearson Education, Inc.
30) Using the above table, if the wage rate for a worker in a baseball bat manufacturing plant is
$12 an hour, and the price of a bat is $3, then the firm will hire ________ workers.
A) 1
B) 2
C) 3
D) 4
E) 5
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: DD
AACSB: Analytical reasoning
31) Using the above table, suppose the price of a bat is $3. If the wage rate for a worker in a
baseball bat manufacturing plant is $18 an hour, then the firm will hire ________ workers; if the
wage rate falls to $12 an hour, then the firm will hire ________..
A) 1; 2
B) 2; 4
C) 3; 3
D) 5; 4
E) 3; 5
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: MR
AACSB: Analytical reasoning
32) When hiring labor, to maximize profit a firm hires labor
A) until the value of the marginal product equals the wage rate.
B) if the workers are not unionized.
C) regardless of cost, because the firm definitely needs labor.
D) until the value of the marginal product is greater than the wage rate.
E) until the value of the marginal product equals the marginal revenue from hiring the worker.
Skill: Level 1: Definition
Section: Checkpoint 18.1
Author: WM
AACSB: Reflective thinking
13
Copyright © 2011 Pearson Education, Inc.
33) A profit-maximizing firm hires labor up to the point where
A) price of the product equals the value of marginal product.
B) price of the product equals the wage rate.
C) the wage rate multiplied by the quantity of labor equals the marginal product.
D) the wage rate equals the value of marginal product.
E) marginal revenue equals the wage rate.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
34) The rule for employing a profit-maximizing amount of labor is to continue to hire additional
workers until the additional worker's value of marginal product is
A) less than the wage rate.
B) equal to the wage rate.
C) greater than 1.
D) less than the price of the product.
E) equal to the price of the product.
Skill: Level 1: Definition
Section: Checkpoint 18.1
Author: PH
AACSB: Reflective thinking
35) Suppose the Miami Dolphins are considering adding another backup quarterback to their
roster. If the salary the Dolphins would have to pay equals $500,000 and the value of the
marginal product of the new quarterback equals $800,000, to maximize their profit the Dolphins
should
A) add the new quarterback.
B) add two new quarterbacks.
C) not add the new quarterback.
D) not add the new quarterback and, in fact, get rid of at least one other backup quarterback.
E) Not enough information is given to determine if the Dolphins should hire the quarterback.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: JC
AACSB: Reflective thinking
14
Copyright © 2011 Pearson Education, Inc.
36) Suppose Mongo runs a glue factory in Knuckle, North Dakota. Mongo wants to fire his
cousin Beevo for not working very hard at making glue. If firing Beevo would save Mongo
$6.11 per hour in wages and the value of Beevo's marginal product equals $7.29 per hour, to
maximize his profit, Mongo should
A) fire Beevo.
B) keep Beevo employed.
C) add another worker, Teevo, Beevo's sister, whose value of the marginal product would be
$4.83 per hour and whose wage would be $6.11 per hour.
D) increase the wage he pays Beevo to $7.29 per hour.
E) There is not enough information given to determine what Mongo should do.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: JC
AACSB: Analytical reasoning
37) If the value of the marginal product of the 10th worker is $60, then the
A) quantity of labor demanded when the wage rate is $60 will be 10 workers.
B) wage rate of the 10th worker will be $6.
C) firm will not hire the worker if the wage rate is less than $60.
D) marginal cost of the 10th worker will be $6.
E) quantity of labor demanded when the wage rate is $6 will be 10 workers.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: SA
AACSB: Analytical reasoning
38) If a firm finds itself at the point where the value of the marginal product of labor is greater
than its wage rate, then the firm
A) stops hiring more workers but does not fire any because the firm is maximizing its profit.
B) decreases the number of workers it has hired in order to increase its profit.
C) increases the number of workers it hires in order to increase its profit.
D) increases sales to keep its employees busy.
E) changes its employment of workers and maximizes its profit by hiring the number of workers
that makes the difference between the value of the marginal product and the wage rate as large as
possible.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: WM
AACSB: Reflective thinking
15
Copyright © 2011 Pearson Education, Inc.
39) If the wage rate exceeds the value of marginal product, a firm
A) is maximizing its profit.
B) can increase its profit by hiring more workers.
C) can increase its profit by firing some workers.
D) can increase its profit by increasing the wage rate and not changing its employment.
E) can increase its profit by increasing the wage rate and increasing its employment.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
40) A company finds that the value of marginal product for the current level of employment is
$53 and the wage rate is $45. Which of the following is correct?
A) The firm is employing the profit-maximizing quantity of labor.
B) Too much labor is currently employed and the firm will lay off some workers.
C) Too few workers are currently employed and the firm will hire more workers.
D) The firm should shut down and produce nothing.
E) More information about the price of the product is needed to determine if the firm is hiring the
profit-maximizing amount of labor.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
41) A company finds that the value of marginal product for the current level of employment is
$53 and the wage rate is $53. Which of the following is correct?
A) The firm is employing the profit-maximizing quantity of labor.
B) Too much labor is currently employed and the firm will lay off some workers.
C) Too few workers are currently employed and the firm will hire more workers.
D) The firm should shut down and produce nothing.
E) More information about the price of the product is needed to determine if the firm is hiring the
profit-maximizing amount of labor.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
16
Copyright © 2011 Pearson Education, Inc.
42) A company finds that the value of marginal product for the current level of employment is
$53 and the wage rate is $75. Which of the following is correct?
A) The firm is employing the profit-maximizing quantity of labor.
B) Too much labor is currently employed and the firm will lay off some workers.
C) Too few workers are currently employed and the firm will hire more workers.
D) The firm should shut down and produce nothing.
E) More information about the price of the product is needed to determine if the firm is hiring the
profit-maximizing amount of labor.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
43) The demand curve for labor is the same as the firm's
A) marginal revenue curve.
B) marginal cost curve.
C) value of marginal product of labor curve.
D) wage rate curve.
E) supply of output curve.
Skill: Level 1: Definition
Section: Checkpoint 18.1
Author: PH
AACSB: Reflective thinking
44) A firm's demand for labor curve is also
A) its value of marginal product of labor curve.
B) the demand curve for the good it produces.
C) the supply of labor curve.
D) its marginal cost curve.
E) the supply curve for the good it produces.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
17
Copyright © 2011 Pearson Education, Inc.
45) The demand curve for a factor of production is
A) the same as the factor's supply curve.
B) upward sloping.
C) the same as the factor's value of marginal product curve.
D) vertical.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: SA
AACSB: Reflective thinking
46) If we compare the value of marginal product of labor curve and the demand for labor curve
we see that
A) they are the same thing.
B) the value of marginal product curve is twice as steep.
C) the demand for labor curve has no relationship to the value of marginal product curve.
D) the demand for labor curve is twice as steep but they share the same axes.
E) the demand for labor curve lies above the value of marginal product curve.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: WM
AACSB: Reflective thinking
47) Which of the following statements about a firm's demand for labor curve and its value of
marginal product of labor curve is true?
A) The value of marginal product curve slopes upward and the demand for labor curve slopes
downward.
B) The demand for labor curve shows the amount of labor firms will hire based on the wage rate
while the value of marginal product curve shows the amount of output supplied based on the
wage rate.
C) The value of marginal product curve is steeper than the demand for labor curve.
D) The demand for labor curve is the same as the value of marginal product curve.
E) The value of marginal product curve lies above the demand for labor curve.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: CD
AACSB: Reflective thinking
18
Copyright © 2011 Pearson Education, Inc.
48) The demand for labor curve slopes downward because
A) it takes more workers to produce more output.
B) the value of marginal product of labor diminishes as the quantity of labor employed increases.
C) at lower wages, people are not willing to work as many hours.
D) wages are fixed.
E) the supply of labor curve is upward sloping.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
49) For a firm selling its product in a perfectly competitive market, the demand curve for a factor
of production is downward sloping because
A) of the diminishing marginal product of the factor.
B) to sell more output the firm must lower the price of its product.
C) firms must hire more factors of production if they want to increase their output.
D) a factor's marginal product increases when the price of the factor increases.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
50) A firm's demand for labor curve shifts when there is a change in
i. the supply of labor.
ii. population
iii. the equilibrium wage rate.
A) i only
B) ii only
C) i and iii
D) i and ii
E) ii and iii
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: JC
AACSB: Reflective thinking
19
Copyright © 2011 Pearson Education, Inc.
51) If the marginal product of labor increases, the firm's demand for labor curve
A) does not shift and there is no movement along it.
B) shifts leftward.
C) shifts rightward.
D) does not shift but there is a movement along it.
E) might shift leftward or rightward depending on whether the demand for the firm's product is
elastic or inelastic.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
52) In part, the demand for labor depends on the
A) supply of labor.
B) number of workers available.
C) price of the firm's output.
D) worker's income.
E) wage rate at which the labor supply curve starts to bend backwards.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
53) If the price of the firm's output increases, the demand for labor curve
A) shifts rightward.
B) shifts leftward.
C) remains constant.
D) could shift rightward, leftward, or remain constant.
E) might shift leftward or rightward depending on whether the demand for the firm's product is
elastic or inelastic.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
20
Copyright © 2011 Pearson Education, Inc.
54) If the price of a firm's product falls, the firm's demand for labor curve
A) does not shift and there is no movement along it.
B) shifts leftward.
C) shifts rightward.
D) does not shift but there is a movement along it.
E) might shift leftward or rightward depending on whether the demand for the firm's product is
elastic or inelastic.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
55) If a firm uses new technology that increases its demand for labor, the firm's demand for labor
curve
A) shifts leftward.
B) shifts rightward only if the demand for labor is elastic.
C) shifts rightward no matter if the demand for labor is elastic or inelastic.
D) does not shift but there is a movement along it.
E) shifts rightward only if the demand for labor is inelastic.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: CD
AACSB: Reflective thinking
56) If the wage rate increases, a firm's demand for labor curve
A) does not shift and there is no movement along it.
B) shifts leftward.
C) shifts rightward only if the elasticity of demand for labor is elastic.
D) does not shift but there is a movement along it.
E) shifts rightward only if the elasticity of demand for labor is inelastic.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
21
Copyright © 2011 Pearson Education, Inc.
57) The price of capital falls. Assuming that the firm does not increase the quantity it produces,
in the long run the firm's demand for labor curve
A) does not shift and there is no movement along it.
B) shifts leftward.
C) shifts rightward only if the elasticity of demand for labor is elastic.
D) does not shift but there is a movement along it.
E) shifts rightward only if the elasticity of demand for labor is inelastic.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
22
Copyright © 2011 Pearson Education, Inc.
58) The above figure shows the demand for labor curve for workers at the local Pizza Hut. If the
wage rate is $6 per hour, then the
i. quantity of workers Pizza Hut demands is 10 workers.
ii. Pizza Hut would have been willing to hire the 6th worker even if they had to pay $7 per hour
rather than $6 per hour.
iii. value of the marginal product of the 10th worker is $6 per hour.
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: SA
AACSB: Analytical reasoning
23
Copyright © 2011 Pearson Education, Inc.
59) The above figure shows the initial demand for labor curve at the local Pizza Hut. The wage
rate is $6 an hour. If the demand for pizzas increases so that the price of a pizza rises,
A) at the wage rate of $6 per hour, Pizza Hut hires fewer than 10 workers.
B) Pizza Hut's demand for labor curve shifts rightward.
C) the supply of labor curve shifts rightward.
D) Pizza Hut's demand for labor curve shifts leftward.
E) the supply of labor curve shifts leftward.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: SA
AACSB: Analytical reasoning
60) If the price of movie tickets increases, there is
A) an increase in the demand for actors and actresses.
B) a decrease in the demand for actors and actresses.
C) no change in the demand for actors and actresses.
D) a decrease in the supply of actors and actresses.
E) an increase in the supply of actors and actresses.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: JC
AACSB: Reflective thinking
61) Robotic technology is a substitute for labor in many manufacturing processes. If the price of
robotic technology decreases and the scale of the firm's production does not change, there is
A) a decrease in the demand for labor.
B) an increase in the demand for labor.
C) no change in the demand for labor.
D) an increase in the supply of labor.
E) a decrease in the supply of labor.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: JC
AACSB: Reflective thinking
24
Copyright © 2011 Pearson Education, Inc.
62) If the price of capital falls, in the long run under what circumstance could the demand for
labor increase?
A) The demand for labor can never increase when the price of capital falls.
B) The demand for labor will always increase when the price of capital falls.
C) It increases if the scale of production increases enough.
D) It increases if the demand for labor is inelastic.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
63) If the price of capital rises, in the long run the demand for labor
A) definitely increases.
B) definitely decreases.
C) definitely is unaffected.
D) could increase or decrease, depending on the change in the scale of production.
E) changes only if the supply of labor changes.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
64) Which of the following is a correct statement of the relationship between advances in
technology and the demand for labor?
A) The demand decreases for some types of labor and increases for other types of labor.
B) The demand for labor always decreases when technology advances.
C) The demand for labor always increases when technology advances.
D) Technology advances when the demand for labor advances.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
25
Copyright © 2011 Pearson Education, Inc.
65) The four factors of production that produce goods and services are
A) labor, capital, profits, and entrepreneurship.
B) money, labor, rent, and profit.
C) labor, capital, land, and entrepreneurship.
D) wages, interest, rent, and profit.
E) wages, prices, quantities, and employment.
Skill: Level 1: Definition
Section: Checkpoint 18.1
Author: STUDY GUIDE
AACSB: Reflective thinking
66) The wage paid to labor is
A) a factor output.
B) a factor price.
C) a factor input.
D) an input of the workforce.
E) part of the firm's normal profit.
Skill: Level 1: Definition
Section: Checkpoint 18.1
Author: STUDY GUIDE
AACSB: Reflective thinking
67) The demand for labor is derived from the
A) supply of labor.
B) wage rate.
C) supply of the good the labor is used to produce.
D) demand for the goods and services the labor helps produce.
E) supply of all the other factors of production that can be substituted for labor.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Reflective thinking
26
Copyright © 2011 Pearson Education, Inc.
68) Which of the following is true?
A) The value to a firm of hiring another worker is the worker's value of the marginal product.
B) A firm will hire more workers if the wage rate is greater than the value of the marginal
product.
C) The value of the marginal product is the cost of hiring a worker.
D) The value of the marginal product increases as more workers are hired.
E) The value of the marginal product equals the price of the good produced divided by the
marginal product.
Skill: Level 1: Definition
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Reflective thinking
69) The value of the marginal product of labor is equal to the marginal product of labor
________ the price of a unit of output.
A) divided by
B) multiplied by
C) minus
D) plus
E) squared and then multiplied by
Skill: Level 1: Definition
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Reflective thinking
70) The rule for maximizing profit is to hire labor up to the point at which the value of the
marginal product
A) equals the wage rate.
B) is greater than the wage rate.
C) is less than the wage rate.
D) is a mirror image of the wage rate.
E) equals the price of the product produced.
Skill: Level 1: Definition
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Reflective thinking
27
Copyright © 2011 Pearson Education, Inc.
71) An increase in the price of the firm's output leads to a
A) movement up along the demand for labor curve.
B) movement down along the demand for labor curve.
C) rightward shift of the demand for labor curve.
D) leftward shift of the demand for labor curve.
E) rightward shift of the supply of labor curve.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
18.2 Labor Markets
1) As the wage rate rises, the quantity of labor an individual supplies
A) decreases at all wage rates.
B) initially decreases at low wage rates and then increases at high wage rates.
C) increases at all wage rates.
D) initially increases at low wage rates and then decreases at high wage rates.
E) does not change.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: WM
AACSB: Reflective thinking
2) The supply of labor curve for an individual is
A) upward sloping at all wage rates.
B) downward sloping at all wage rates.
C) upward sloping for lower wage rates and begins to slope downward at higher wage rates.
D) downward sloping for lower wage rates and begins to slope upward at higher wage rates.
E) an upside-down U-shape.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: CD
AACSB: Reflective thinking
28
Copyright © 2011 Pearson Education, Inc.
3) Because leisure time has value to many workers, as wages increase the labor supply curve
A) has a positive slope.
B) bends backwards and has a negative slope.
C) becomes a horizontal line.
D) becomes a vertical line.
E) bends forward and has a positive slope.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: JC
AACSB: Reflective thinking
4) Which of the following statements about the supply of labor is correct?
A) It is perfectly inelastic at whatever quantity individuals are willing to work.
B) An individual's supply of labor curve is always upward sloping, like the supply curves of
other items.
C) It is perfectly price elastic at the current wage rate.
D) An individual's supply of labor curve can bend backwards.
E) The supply of labor curve is shaped like an upside-down U.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
5) When more people remain in school for full-time education and training, the supply of low-
skilled labor ________ and the supply of high-skilled labor ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
29
Copyright © 2011 Pearson Education, Inc.
6) What is the effect on the supply of low-skilled labor of an increase in the number of people
pursuing higher education?
A) It becomes more inelastic.
B) The supply of low-skilled labor decreases.
C) The supply of low-skilled labor increases.
D) It becomes more elastic.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
7) According to a recent prediction in The Wall Street Journal the adult population of Russia will
decline dramatically over the next few decades. If this prediction is correct, the supply of labor in
Russia will
A) increase.
B) not change.
C) decrease.
D) become less elastic.
E) become more elastic.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: JC
AACSB: Reflective thinking
8) If the wage rate increases, then
A) the quantity of labor supplied definitely decreases.
B) there is a movement upward along the supply of labor curve.
C) the supply of labor curve shifts rightward.
D) the supply of labor curve shifts left ward.
E) the quantity of labor supplied definitely increases.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: SA
AACSB: Reflective thinking
30
Copyright © 2011 Pearson Education, Inc.
9) A change in the wage rate
A) shifts the supply of labor curve so that the supply becomes more elastic.
B) shifts the supply of labor curve leftward.
C) shifts the supply of labor curve rightward.
D) does not shift the supply of labor curve but instead leads to a movement along it.
E) either shifts the supply of labor curve leftward or rightward depending whether the demand
for labor curve shifts rightward or leftward.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: TS
AACSB: Reflective thinking
10) Which of the following shift the supply of labor curve leftward?
i. an advancement in technology
ii. a decrease in the price of the product that the labor produces
iii. a decrease in the adult population
A) i and ii
B) ii and iii
C) ii only
D) iii only
E) i, ii, and iii
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: CD
AACSB: Reflective thinking
31
Copyright © 2011 Pearson Education, Inc.
11) The figure above shows the market supply of labor curve. Which of the following might be
the reason the labor supply curve shifted from S0 to S1?
A) an increase in technology
B) a decrease in technology
C) an increase in the number of women in the work force
D) a decrease in the adult population
E) an increase in the wage rate
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: CD
AACSB: Analytical reasoning
12) The figure above shows the market supply of labor curve. Which of the following might be
the reason the labor supply curve shifted from S0 to S1?
A) an increase in technology
B) a decrease in technology
C) a decrease in the number of women in the work force
D) an increase in the adult population
E) an increase in the wage rate.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: MR
AACSB: Analytical reasoning
32
Copyright © 2011 Pearson Education, Inc.
13) Suppose in Chicago, at the going wage rate of $8.00 an hour, the quantity of lifeguards
demanded exceeds the quantity supplied by 13,000 lifeguards. As a result,
A) there is a surplus of lifeguards in Chicago.
B) there is a shortage of lifeguards in Chicago.
C) the lifeguard labor market is in equilibrium in Chicago.
D) wage rates will probably fall in this market.
E) the demand for labor of lifeguards in Chicago will decrease.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: JC
AACSB: Reflective thinking
14) A surplus of workers occurs
A) when the wage rate exceeds the equilibrium wage rate.
B) when the wage rate is less than the equilibrium wage rate.
C) at the equilibrium wage rate.
D) whenever there is a shortage of goods.
E) whenever there is a surplus of goods.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: SB
AACSB: Reflective thinking
15) Suppose in Philadelphia the quantity of economists demanded is less than the quantity
supplied by 2,000 economists. As a result,
A) there is a shortage of economists in Philadelphia.
B) salaries for economists fall.
C) there is equilibrium in this market.
D) the labor supply curve for economists in Philadelphia is vertical.
E) the labor demand curve for economists in Philadelphia shifts rightward.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: JC
AACSB: Reflective thinking
33
Copyright © 2011 Pearson Education, Inc.
16) If the supply of labor increases, then the equilibrium wage rate ________ and the equilibrium
quantity of labor ________.
A) rises; increases
B) might rise, fall, or not change; increases
C) rises; might increase, decrease, or not change
D) falls; increases
E) falls; does not change
Skill: Level 4: Applying models
Section: Checkpoint 18.2
Author: MR
AACSB: Analytical reasoning
17) If the demand for labor decreases, then the equilibrium wage rate ________ and the
equilibrium quantity of labor ________.
A) falls; increases
B) might rise, fall, or not change; increases
C) rises; might increase, decrease, or not change
D) falls; decreases
E) falls; does not change
Skill: Level 4: Applying models
Section: Checkpoint 18.2
Author: MR
AACSB: Analytical reasoning
18) If both the demand for labor and the supply of labor increase, then the equilibrium wage rate
________ and the equilibrium quantity of labor ________.
A) rises; increases
B) might rise, fall, or not change; increases
C) rises; might increase, decrease, or not change
D) falls; increases
E) falls; decreases
Skill: Level 4: Applying models
Section: Checkpoint 18.2
Author: DD
AACSB: Analytical reasoning
34
Copyright © 2011 Pearson Education, Inc.
19) If a union is able to organize workers in a competitive labor market but the union cannot
affect the demand for its members' labor, then the wage rate ________ and the quantity of labor
hired ________.
A) rises; increases
B) rises; decreases
C) rises; does not change
D) does not change; increases
E) falls; decreases
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: MR
AACSB: Reflective thinking
20) If a union restricts the supply of labor, it ________ the wage rate and ________ the level of
employment.
A) raises; decreases
B) raises; increases
C) raises; does not change
D) lowers; decreases
E) lowers; increases
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: MR
AACSB: Analytical reasoning
21) Unions ________ free trade and ________ a higher minimum wage.
A) favor; favor
B) are neutral toward; oppose
C) favor; oppose
D) oppose; favor
E) oppose; oppose
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: MR
AACSB: Reflective thinking
35
Copyright © 2011 Pearson Education, Inc.
22) Which of the following is a method used by unions to increase the demand for their
members' labor?
A) Support import restrictions.
B) Decrease the marginal product of union members.
C) Increase imported goods and services
D) Oppose immigration restrictions.
E) Oppose minimum wage laws.
Skill: Level 1: Definition
Section: Checkpoint 18.2
Author: MR
AACSB: Reflective thinking
23) Which of the following methods is used by unions to increase the demand for the labor of its
members?
A) Decrease the marginal product of union members
B) Support minimum wage laws
C) Support free trade
D) Support laws that increase immigration into the country
E) Decrease demand for the good produced
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: MR
AACSB: Reflective thinking
24) A rise in the minimum wage increases the demand for union labor because this policy change
A) lowers the wage rate paid to union labor.
B) raises the productivity of union labor.
C) lowers the cost of a substitute for union labor.
D) lowers the productivity of union labor.
E) raises the cost of a substitute for union labor.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: MR
AACSB: Reflective thinking
36
Copyright © 2011 Pearson Education, Inc.
25) Unions support immigration restrictions because the restrictions create
A) an increase in the supply of union labor.
B) a decrease in the supply of union labor.
C) unemployment.
D) an increase in the demand for union labor.
E) a decrease in the demand for union labor.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: MR
AACSB: Reflective thinking
26) Which of the following decreases the supply of labor that competes with union labor?
A) an increase in the minimum wage
B) an increase in the demand for imported goods
C) an increase in union members' productivity
D) new laws that restrict immigration
E) All of the above would cause a decrease in the supply of labor.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: MR
AACSB: Reflective thinking
27) Which of the following is NOT a method used by union to increase their members' wages?
A) Limit the supply of non-union workers.
B) Increase the demand for union workers.
C) Support minimum wage increases.
D) Increase union members' productivity.
E) None of the above because they are all methods unions use to increase their members' wages.
Skill: Level 1: Definition
Section: Checkpoint 18.2
Author: MR
AACSB: Reflective thinking
37
Copyright © 2011 Pearson Education, Inc.
28) Which of the following is NOT a method by which unions try to increase the demand for the
labor of their members?
A) increasing the marginal product of union members
B) increasing the supply of the goods produced by union labor
C) supporting minimum wage laws
D) supporting import restrictions
E) supporting immigration restrictions
Skill: Level 1: Definition
Section: Checkpoint 18.2
Author: MR
AACSB: Reflective thinking
29) An individual's labor supply curve eventually bends backward because at a high enough
wage rate,
A) people are willing to work more hours.
B) employers are willing to hire more workers.
C) people desire more leisure time.
D) very few workers are hired.
E) more people enter the labor market to search for jobs.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Reflective thinking
30) How does an increase in the adult population affect the labor market?
A) The demand for labor will become more inelastic.
B) The supply of labor will decrease.
C) The supply of labor will increase.
D) The demand for labor will decrease.
E) The demand for labor will increase.
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Reflective thinking
38
Copyright © 2011 Pearson Education, Inc.
31) The supply of labor curve shifts leftward if
A) the population increases.
B) the demand for labor curve shifts leftward.
C) the supply of labor increases.
D) the wage rate falls.
E) the supply of labor decreases.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
32) If the wage rate is above the equilibrium wage rate, the quantity of labor demanded is
________ the quantity of labor supplied.
A) greater than
B) less than
C) equal to
D) the negative of
E) not comparable to
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
33) The more people who remain in school for full-time education and training, the ________ is
the ________ low-skilled labor.
A) smaller; demand for
B) smaller; supply of
C) larger; supply of
D) larger; demand for
E) less elastic; demand for
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
39
Copyright © 2011 Pearson Education, Inc.
34) If the supply of labor decreases, then the equilibrium wage rate ________ and equilibrium
employment ________.
A) does not change; decreases
B) rises; increases
C) rises; decreases
D) falls; increases
E) falls; decreases
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Analytical reasoning
35) Of the following, a union is LEAST likely to support
A) an increase in the minimum wage rate.
B) laws that restrict immigration into the country.
C) on-the-job training that makes their members’ more productive.
D) laws that increase the quantity of the nation’s imports.
E) programs that boost the demand for the goods and services their members produce.
Skill: Level 1: Definition
Section: Checkpoint 18.2
Author: STUDY GUIDE
AACSB: Reflective thinking
18.3 Capital and Natural Resource Markets
1) Other things remaining the same, the
A) higher the rental rate of capital, the greater the quantity of capital demanded.
B) lower the rental rate of capital, the smaller the quantity of capital demanded.
C) higher the rental rate of capital, the smaller the quantity of capital demanded.
D) rental rate of capital and the quantity of capital demanded are not related.
E) higher the rental rate of capital, the more the demand for capital decreases.
Skill: Level 1: Definition
Section: Checkpoint 18.3
Author: WM
AACSB: Reflective thinking
40
Copyright © 2011 Pearson Education, Inc.
2) When the rental rate for capital falls, the ________ capital ________.
A) demand for; increases
B) demand for; decreases
C) quantity demanded of; increases
D) quantity demanded of; decreases
E) supply of; increases
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: MR
AACSB: Reflective thinking
3) An increase in the rental rate of capital ________ the quantity of capital demanded and
________ the quantity of capital supplied.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: PH
AACSB: Reflective thinking
4) A technological change that raises the marginal revenue product of capital ________ the
rental rate for capital because the ________.
A) raises; supply curve of capital shifts leftward
B) lowers; supply curve of capital shifts rightward
C) raises; demand curve for capital shifts leftward
D) raises; demand curve for capital shifts rightward
E) lowers; demand curve for capital shifts leftward
Skill: Level 4: Applying models
Section: Checkpoint 18.3
Author: MR
AACSB: Reflective thinking
41
Copyright © 2011 Pearson Education, Inc.
5) Which of the following is true about the market for capital?
A) The demand for capital curve is upward sloping and the supply of capital curve is downward
sloping.
B) The supply of capital is perfectly elastic.
C) The supply of capital curve is upward sloping and the demand for capital curve is downward
sloping.
D) The supply of capital curve is vertical and the demand for capital curve is downward sloping.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: CD
AACSB: Reflective thinking
6) Land
A) is a nonrenewable resource.
B) has an elastic supply but not perfectly elastic.
C) is the only factor of production that is not traded in a market.
D) has a perfectly inelastic supply.
E) has a perfectly elastic supply.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: SA
AACSB: Reflective thinking
7) Which of the following is a renewable resource?
i. a forest of pine trees grown by Georgia-Pacific
ii. oil reserves in Saudi Arabia
iii. the Everglades
A) i and ii
B) ii and iii
C) i and iii
D) i, ii, and iii
E) i only
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: CD
AACSB: Reflective thinking
42
Copyright © 2011 Pearson Education, Inc.
8) Considered as a factor of production, coal is a
A) form of physical capital.
B) type of embodied labor.
C) nonrenewable natural resource.
D) renewable natural resource.
E) form of financial capital.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: SB
AACSB: Reflective thinking
9) The rental rate of land is the payment for the resource land. The lower the rental rate, the
greater the
A) demand for land.
B) quantity demanded of land.
C) supply of land.
D) elasticity of supply for land.
E) quantity supplied of land.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: PH
AACSB: Reflective thinking
10) If the supply of a factor is perfectly inelastic, then
A) no more than the existing quantity can be supplied.
B) the supply curve is horizontal.
C) sellers will provide whatever quantity is demanded at the going price.
D) a rise in price results in no quantity being supplied.
E) a fall in price results in no quantity being supplied.
Skill: Level 3: Using models
Section: Checkpoint 18.3
Author: MR
AACSB: Reflective thinking
43
Copyright © 2011 Pearson Education, Inc.
11) The aggregate quantity of land supplied
A) varies depending on its price.
B) depends on the buying and selling decisions of individuals.
C) is constantly increasing.
D) is fixed.
E) is perfectly elastic.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: SB
AACSB: Reflective thinking
12) The market for land
A) has an elastic supply.
B) has a perfectly inelastic supply.
C) determines the equilibrium interest rate.
D) has an upward sloping supply curve.
E) has no equilibrium because both the demand curve and the supply curve are vertical.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: CD
AACSB: Reflective thinking
13) The supply of land is perfectly ________ because no matter the amount of rent offered for
land, the quantity of land is ________.
A) elastic; fixed
B) inelastic; fixed
C) elastic: renewable
D) inelastic; nonrenewable
E) elastic; nonrenewable
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: CD
AACSB: Reflective thinking
44
Copyright © 2011 Pearson Education, Inc.
14) In the market for land, the supply curve is
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
E) U-shaped.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: SB
AACSB: Reflective thinking
15) As the price of land rises, the quantity supplied
A) increases.
B) decreases.
C) at first increases and then decreases.
D) stays the same.
E) at first decreases and then increases.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: WM
AACSB: Reflective thinking
16) In the market for land, an increase in demand ________ the equilibrium rent and ________
the equilibrium quantity.
A) raises; does not change
B) lowers; increases
C) raises; increases
D) does not change; increases
E) does not change; does not change
Skill: Level 3: Using models
Section: Checkpoint 18.3
Author: MR
AACSB: Analytical reasoning
45
Copyright © 2011 Pearson Education, Inc.
17) The supply of nonrenewable natural resources is
A) perfectly inelastic.
B) perfectly elastic.
C) always elastic but not necessarily perfectly elastic.
D) inelastic at high prices and elastic at low prices.
E) elastic at high prices and inelastic at low prices.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: MR
AACSB: Reflective thinking
18) The proposition that the price of a resource is expected to rise at a rate equal to the interest
rate is called the
A) Discounted Value Proposition.
B) derived demand for productive resources.
C) diminishing marginal revenue product.
D) Interest Rate Theory.
E) Hotelling Principle.
Skill: Level 1: Definition
Section: Checkpoint 18.3
Author: MR
AACSB: Reflective thinking
19) According to the Hotelling Principle, the price of an nonrenewable resource is expected to
A) fall slowly over time.
B) fall at a rate equal to the interest rate.
C) fluctuate randomly.
D) rise at a rate equal to the interest rate.
E) remain constant over time.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: MR
AACSB: Reflective thinking
46
Copyright © 2011 Pearson Education, Inc.
20) The price of an nonrenewable resource is expected to rise at a rate equal to the
A) rate of supply.
B) rate of population growth.
C) rate of technological change.
D) rate of demand.
E) interest rate.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: MR
AACSB: Reflective thinking
21) According to the Hotelling Principle, the price of a nonrenewable resource is expected to
A) rise at a rate higher than the interest rate.
B) fall at a rate greater than the interest rate.
C) rise at a rate less than the interest rate.
D) rise at a rate equal to the interest rate.
E) fall at a rate equal to the interest rate.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: MR
AACSB: Reflective thinking
22) If a nonrenewable natural resource's price is expected to increase at a rate faster than the
interest rate, then the
A) owners will sell all that they can today.
B) owners will sell nothing today.
C) consumers will demand nothing today.
D) owners will sell their entire supply.
E) the current price will probably fall.
Skill: Level 3: Using models
Section: Checkpoint 18.3
Author: MR
AACSB: Reflective thinking
47
Copyright © 2011 Pearson Education, Inc.
23) If Saudi Arabia expects the price of oil to rise by a larger percentage than the interest rate,
Saudi Arabia will ________. If Saudi Arabia expects the price of oil to rise by a smaller
percentage than the interest rate, Saudi Arabia will ________.
A) hold oil off the market; want to sell oil today
B) want to sell oil today; hold oil off the market
C) decrease its demand for oil; increase its demand for oil
D) increase its demand for oil; decrease its demand for oil
E) None of the above answers are correct because the interest rate has nothing to do with Saudi
Arabia's decisions in the oil market.
Skill: Level 3: Using models
Section: Checkpoint 18.3
Author: TM
AACSB: Analytical reasoning
24) The price of coal is currently $80 per ton and the interest rate is 10 percent per year. If next
year's expected price is $86 per ton, a firm that owns 1,000 tons of coal
A) will sell all its coal now.
B) will sell none of its coal now but will sell it all next year regardless of the price next year.
C) will sell none of its coal now but might sell it all next year.
D) will sell half of the coal today and half of it next year.
E) might or might not sell the coal today, depending on the price the firm paid for the coal.
Skill: Level 4: Applying models
Section: Checkpoint 18.3
Author: DD
AACSB: Analytical reasoning
25) Over time, the actual (not expected) price of a nonrenewable natural resource
A) falls.
B) rises.
C) stays the same.
D) could rise, fall, or stay the same.
E) first rises and then falls.
Skill: Level 3: Using models
Section: Checkpoint 18.3
Author: SB
AACSB: Reflective thinking
48
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26) The equilibrium quantity of capital is
A) determined by only the supply of capital because the supply is perfectly inelastic.
B) determined by only the supply of capital because the supply is perfectly elastic.
C) expected to increase at the same rate as the interest rate.
D) determined by the supply of capital and the demand for capital.
E) the only factor of production whose quantity is not determined in a market.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: STUDY GUIDE
AACSB: Reflective thinking
27) The supply of each particular block of land is
A) perfectly elastic.
B) unit elastic.
C) elastic but not perfectly elastic.
D) perfectly inelastic.
E) inelastic but not perfectly inelastic.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: STUDY GUIDE
AACSB: Reflective thinking
28) A natural resource is renewable if it
A) never has to rest.
B) can be used repeatedly.
C) cannot be replaced once it has been used.
D) is available at a price of zero.
E) has a perfectly elastic supply.
Skill: Level 1: Definition
Section: Checkpoint 18.3
Author: STUDY GUIDE
AACSB: Reflective thinking
49
Copyright © 2011 Pearson Education, Inc.
29) Oil is an example of
A) a nonrenewable natural resource.
B) a renewable natural resource.
C) physical capital.
D) a resource for which the true value cannot be measured.
E) a resource with a perfectly inelastic demand.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: STUDY GUIDE
AACSB: Reflective thinking
30) The demand for a nonrenewable resource is
A) determined by the value of its marginal product.
B) fixed and cannot change.
C) perfectly inelastic.
D) perfectly elastic.
E) not defined because the resource can be used only once.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: STUDY GUIDE
AACSB: Reflective thinking
31) A producer's supply of a nonrenewable natural resource is
A) always decreasing because the resource is always being used.
B) perfectly inelastic.
C) perfectly elastic.
D) not relevant because nonrenewable resources are used only once.
E) is determined by the value of the resource’s marginal product.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: STUDY GUIDE
AACSB: Reflective thinking
50
Copyright © 2011 Pearson Education, Inc.
18.4 Chapter Figures
The figure above shows a firm's VMP curve.
1) Suppose that a new technology doubles the marginal product of the workers and the price of
the product does not change. As a result, the value of the marginal product of the second worker
A) remains $12..
B) becomes $6.
C) becomes $24.
D) becomes $30.
E) More information about the supply of labor is needed to answer the question.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: TM
AACSB: Analytical reasoning
51
Copyright © 2011 Pearson Education, Inc.
2) Suppose that the price of the product doubles and the marginal product of the workers does
not change. As a result, the value of the marginal product of the second worker
A) remains $12..
B) becomes $6.
C) becomes $24.
D) becomes $30.
E) More information about the supply of labor is needed to answer the question.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: TM
AACSB: Analytical reasoning
3) Suppose that the price of the product rises. As a result,
A) there is a movement upward along the curve, such as a movement from point C to point B.
B) there is a movement downward along the curve, such as a movement from point C to point D.
C) the curve shifts rightward.
D) the curve shifts leftward.
E) More information is needed to answer the question.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: MR
AACSB: Analytical reasoning
4) Suppose that new technology raises the workers' marginal product. As a result,
A) there is a movement upward along the curve, such as a movement from point C to point B.
B) there is a movement downward along the curve, such as a movement from point C to point D.
C) the curve shifts rightward.
D) the curve shifts leftward.
E) More information is needed to answer the question.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: MR
AACSB: Analytical reasoning
52
Copyright © 2011 Pearson Education, Inc.
The figure above shows a labor market in which a union has formed.
5) Labor unions' support for import restrictions represents an attempt to shift the
A) labor demand curve from LD0 to LD1.
B) labor demand curve from LD1 to LD0.
C) labor supply curve from LS0 to LS1.
D) labor supply curve from LS1 to LS0.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: MR
AACSB: Analytical reasoning
6) Labor unions' support for increasing the minimum wage represents an attempt to shift the
A) labor demand curve from LD0 to LD1.
B) labor demand curve from LD1 to LD0.
C) labor supply curve from LS0 to LS1.
D) labor supply curve from LS1 to LS0.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: MR
AACSB: Analytical reasoning
53
Copyright © 2011 Pearson Education, Inc.
7) Labor unions' support for programs that increase their members' marginal products represents
an attempt to shift the
A) labor demand curve from LD0 to LD1.
B) labor demand curve from LD1 to LD0.
C) labor supply curve from LS0 to LS1.
D) labor supply curve from LS1 to LS0.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: MR
AACSB: Analytical reasoning
18.5 Integrative Questions
1) The value of marginal product of labor curve
A) is upward sloping because firms want to hire more workers to increase production.
B) shows the price of a factor of production multiplied by the amount of the factor employed.
C) is the same as a firm's supply of labor curve.
D) is downward sloping because each additional worker brings in a decreasing amount of
revenue.
E) is U-shaped.
Skill: Level 2: Using definitions
Section: Integrative
Author: CD
AACSB: Reflective thinking
2) Which rule does the United Corporation use when maximizing profit?
A) Employ all resources until the value of their marginal products is equal.
B) If the value of the marginal product of labor exceeds the wage rate, hire fewer workers.
C) Hire labor up to point at which the value of marginal product of labor equals the wage rate.
D) Reduce the wage rate until it equals the marginal product of labor.
E) Hire labor up to point at which the value of marginal product of labor equals the price of the
good or service the labor produces for United Corporation.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
54
Copyright © 2011 Pearson Education, Inc.
3) The supply of labor curve for nurses shifts if
A) the wage rate paid nurses increases.
B) there is an increase in the time spent in nursing school.
C) the value of marginal product of nurses increases.
D) the value of marginal product of nurses decreases.
E) the marginal product of nurses decreases.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
4) The demand for labor curve of nurses shifts rightward if the
A) value of marginal product of nurses increases.
B) wage rate paid to nurses rises.
C) supply of labor curve for nurses shifts leftward.
D) wage rate paid to nurses falls.
E) supply of labor curve for nurses shifts rightward.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
5) Which of the following curves is most inelastic?
A) the supply of land
B) the supply of labor for an individual worker
C) the supply of labor for all workers
D) the demand for capital
E) the demand for labor
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
55
Copyright © 2011 Pearson Education, Inc.
18.6 Essay: The Demand for a Factor of Production
1) Why is the demand for labor a "derived demand"?
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: SA
AACSB: Reflective thinking
2) What is the value of marginal product of labor? What is the formula that can be used to
calculate? How does the value of the marginal product affect how much labor a firm hires?
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: CD
AACSB: Communication
3) "As the quantity of labor hired increases, the value of the marginal product stays constant as
long as the wage rate is constant for all workers." Is the previous statement correct or incorrect?
Explain your answer.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: WM
AACSB: Communication
56
Copyright © 2011 Pearson Education, Inc.
4) "The decision to employ an additional unit of labor depends on whether the value of the
marginal product of labor is greater than or less than the wage rate." Is the previous statement
correct or incorrect?
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: SA
AACSB: Reflective thinking
5) What is the relationship between a firm's value of the marginal product curve of labor and its
demand for labor curve? Explain why this relationship exists.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: MR
AACSB: Communication
6) What factors other than the wage rate influence the demand for labor? How is demand
affected by changes in these factors?
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: SB
AACSB: Communication
57
Copyright © 2011 Pearson Education, Inc.
7) What factors shift the demand for labor curve? Briefly describe the effect of each.
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: CD
AACSB: Communication
8) "In order for Charlie Trotter's, an upscale restaurant in Chicago, to maximize profit from the
employment of chefs, the restaurant should hire chefs up to the point where the value of the
marginal product of chefs equals the wage rate for chefs." Is the statement correct or incorrect?
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: JC
AACSB: Reflective thinking
58
Copyright © 2011 Pearson Education, Inc.
9) Why does a profit-maximizing firm hire labor up to the point where the value of the marginal
product equals the wage rate?
Skill: Level 3: Using models
Section: Checkpoint 18.1
Author: JC
AACSB: Communication
59
Copyright © 2011 Pearson Education, Inc.
10) Why do baseball players make so much money, while kindergarten teachers in private
schools make so much less? In your answer, discuss the value of the marginal product and the
actions of profit-maximizing firms.
Skill: Level 5: Critical thinking
Section: Checkpoint 18.1
Author: JC
AACSB: Communication
11) How does a firm's demand for labor change if the price of the firm's product increases?
Relate your answer to the value of the marginal product.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: TS
AACSB: Reflective thinking
60
Copyright © 2011 Pearson Education, Inc.
12) The table below has the marginal product schedule for a firm. If the price of the product is $2
a unit, complete the table. If the wage rate is $8 an hour, how many workers does the firm hire?
Skill: Level 4: Applying models
Section: Checkpoint 18.1
Author: WM
AACSB: Analytical reasoning
61
Copyright © 2011 Pearson Education, Inc.
13) The table above shows the total product schedule for Shines Car Wash. The market for car
washes is perfectly competitive and car washes sell for $5 each. The labor market is competitive
and the wage rate is $50 per day. What is the value of marginal product for each worker? How
many workers does the firm hire to maximize profit?
Skill: Level 4: Applying models
Section: Checkpoint 18.1
Author: CD
AACSB: Analytical reasoning
62
Copyright © 2011 Pearson Education, Inc.
14) The table below has the marginal product schedule for Nick's Pizza.
a. If pizza sells for $8 each, complete the last column of the table.
b. If Nick can hire workers at the going wage rate of $16 an hour, how many workers does Nick
hire?
Skill: Level 4: Applying models
Section: Checkpoint 18.1
Author: SA
AACSB: Analytical reasoning
63
Copyright © 2011 Pearson Education, Inc.
15) Tom and Mary grow tomatoes. They can hire different numbers of college students to help
plant, cultivate, and harvest the tomatoes. The table below gives their marginal product schedule.
a. If the price of a pound of tomatoes is $2 a pound, complete the first value of the marginal
product column in the table. If Tom and Mary must pay their workers $10 an hour, how many
workers do they hire?
b. If the price of a pound of tomatoes falls to $1 a pound, complete the second value of the
marginal product column in the table. If Tom and Mary still must pay their workers $10 an hour,
how many workers do they hire?
c. When the price of a pound of tomatoes falls, what happens to Tom and Mary's demand for
labor curve?
Skill: Level 4: Applying models
Section: Checkpoint 18.1
Author: TS
AACSB: Analytical reasoning
64
Copyright © 2011 Pearson Education, Inc.
16) A worker has a marginal product of 15 units a day, each of which can be sold for $10. Is it
profitable to hire this worker if the wage rate is $100 a day? Briefly explain your answer.
Skill: Level 2: Using definitions
Section: Checkpoint 18.1
Author: TS
AACSB: Analytical reasoning
18.7 Essay: Labor Markets
1) Is it possible for an individual to decrease the quantity of labor he or she supplies when the
wage rate increases? Briefly explain your answer.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: SA
AACSB: Communication
2) In order to spend more time with her children, a young mother decides to work fewer hours as
her pay increases. What does her labor supply curve look like?
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: JC
AACSB: Communication
65
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3) Explain why an individual's labor supply curve is backward bending.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: TS
AACSB: Communication
4) As the population of Las Vegas increased, what happened to the supply of labor and the
supply curve of labor in Las Vegas?
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: JC
AACSB: Reflective thinking
5) What happens to the supply of labor when more people pursue education and training? Be
sure to discuss what happens to both the supply of low-skilled and high-skilled labor.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: PH
AACSB: Communication
66
Copyright © 2011 Pearson Education, Inc.
6) The Small Bookshop hires teenagers who love books. How does each of the following
changes affect the supply and demand for workers for the Small Bookshop?
a. The Big Bookshop, a chain bookstore down the street, offers a higher wage rate.
b. More people buy books from Amazon.com.
c. People watch more television and read fewer books.
d. More older people who love to read move into the area where the Small Bookshop is located.
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: SA
AACSB: Communication
7) What tools can unions use to increase the demand for union labor?
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: MR
AACSB: Communication
8) Why does an increase in the minimum wage increase the demand for union labor?
Skill: Level 2: Using definitions
Section: Checkpoint 18.2
Author: MR
AACSB: Communication
67
Copyright © 2011 Pearson Education, Inc.
9) The above figure represents the market for professional minor-league baseball umpires.
a. If umpires are offered $90 a game, what is the quantity of umpires supplied?
b. If umpires are offered $90 a game, is there a surplus or shortage of games umpired? What
does the shortage or surplus equal?
c. What is the equilibrium wage rate and quantity of umpires?
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: JC
AACSB: Analytical reasoning
68
Copyright © 2011 Pearson Education, Inc.
10) The above figure represents the market for teenage workers at fast-food restaurants in Kansas
City.
a. What is the equilibrium wage rate and employment?
b. Describe the market at a wage rate of $6 per hour.
c. Describe the market at a wage rate of $12 an hour.
d. How would an increase in the number of young, married college graduates, who tend to eat at
fast-food restaurants, affect the figure, the equilibrium wage rate, and employment?
Skill: Level 3: Using models
Section: Checkpoint 18.2
Author: SB
AACSB: Analytical reasoning
69
Copyright © 2011 Pearson Education, Inc.
18.8 Essay: Capital and Natural Resource Markets
1) If the quantity of capital supplied exceeds the quantity of capital demanded, what takes place?
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: JC
AACSB: Reflective thinking
2) Discuss the difference between renewable and nonrenewable resources. Given an example of
each.
Skill: Level 2: Using definitions
Section: Checkpoint 18.3
Author: WM
AACSB: Communication
3) Why is the supply of an nonrenewable natural resource perfectly elastic?
Skill: Level 3: Using models
Section: Checkpoint 18.3
Author: MR
AACSB: Communication
70
Copyright © 2011 Pearson Education, Inc.
4) What is the Hotelling Principle? Have resource prices behaved as the principle predicts?
Skill: Level 3: Using models
Section: Checkpoint 18.3
Author: MR
AACSB: Communication
