978-1319066604 Chapter 19 Part 3

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177.

Lakisha’s labor supply curve is downward sloping for wage rates greater than $40 per

hour and upward sloping for wage rates less than $40 per hour. If leisure is a normal

good for Lakisha and if the wage is _____, the substitution effect of a wage increase is

_____ than the income effect.

A)

greater than $40; greater

B)

equal to $18; less

C)

greater than $40; less

D)

greater than $20; less

178.

Which statement is TRUE?

A)

Leisure is usually a normal good.

B)

Leisure is usually an inferior good.

C)

All other things unchanged, an increase in income will decrease the demand for

leisure.

D)

The demand for leisure is perfectly inelastic.

179.

The _____ effect of a _____ wage causes individuals to substitute _____.

A)

substitution; higher; labor for leisure

B)

income; higher; labor for leisure

C)

substitution; lower; labor for leisure

D)

complementary; constant; leisure for labor

180.

A wage _____ raises the quantity of labor supplied through a strong _____ effect.

A)

decrease; substitution

B)

increase; substitution

C)

increase; income

D)

decrease; complement

181.

A higher wage _____ the price of _____ and _____ workers’ incomes. The result pulls

the quantity of labor supplied in _____ direction(s).

A)

increases; leisure; increases; opposite

B)

increases; leisure; increases; the same

C)

reduces; work effort; reduces; opposite

D)

reduces; labor; increases; the same

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182.

Assume that Stan just received a promotion and raise. In terms of labor supply, the

substitution effect of a higher wage will lead him to:

A)

supply fewer hours of labor.

B)

supply more hours of labor.

C)

substitute leisure for work.

D)

reduce work time to zero.

183.

In terms of labor supply, the income effect of a higher wage causes a(n):

A)

decrease in leisure time.

B)

increase in the quantity of labor supplied.

C)

decrease in the quantity of labor supplied.

D)

reduction of leisure time to zero.

184.

A backward-bending supply curve of labor shows that at relatively low wages the _____

effect dominates the _____ effect, and the supply curve has a _____ slope.

A)

income; substitution; positive

B)

income; substitution; negative

C)

substitution; income; positive

D)

substitution; income; negative

185.

A backward-bending supply curve of labor shows that at relatively high wages the

_____ effect dominates the _____ effect, and the supply curve has a _____ slope.

A)

income; substitution; positive

B)

income; substitution; negative

C)

substitution; income; positive

D)

substitution; income; negative

186.

The _____ effect of a _____ wage causes individuals to substitute _____.

A)

substitution, higher; labor for leisure

B)

income; lower; leisure for labor

C)

substitution; lower; labor for leisure

D)

complementary; constant; leisure for labor

187.

A wage _____ reduces the quantity of labor supplied through the _____ effect.

A)

decrease; income

B)

increase; substitution

C)

increase; income

D)

decrease; complement

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188.

The trade-off between work and leisure underlying the supply of labor involves the

substitution effect and the _____ effect.

A)

production

B)

elasticity

C)

income

D)

complementary

189.

The trade-off between work and leisure underlying the supply of labor involves the

income effect and the _____ effect.

A)

substitution

B)

elasticity

C)

production

D)

wage

190.

In terms of labor supply, the substitution effect of a higher wage causes a(n):

A)

increase in leisure time.

B)

increase in the quantity of labor supplied.

C)

substitution of leisure for work.

D)

reduction of work time to zero.

191.

In terms of labor supply, the substitution effect of a higher wage causes a(n):

A)

increase in leisure time.

B)

decrease in the quantity of labor supplied.

C)

substitution of work for leisure.

D)

reduction of work time to zero.

192.

Beyond some point, a higher wage may induce an individual to work _____, and the

labor supply curve may then _____.

A)

more; bend backward

B)

less; bend backward

C)

more; slope downward

D)

harder; become vertical

193.

Consider the labor market for accountants. As more people earn accounting degrees, we

should expect to see a(n):

A)

shift to the right of the labor supply curve.

B)

shift to the right of the labor demand curve.

C)

increase in labor along a stable labor supply curve.

D)

increase in labor along a stable labor demand curve.

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194.

An increase in wealth will cause the labor supply curve to:

A)

shift leftward if leisure is a normal good.

B)

slope downward if the substitution effect dominates the income effect.

C)

slope upward only if leisure is an inferior good.

D)

bend backward if the income effect outweighs the substitution effect of a change in

wealth and if leisure is a normal good.

195.

A leftward shift in the labor supply curve will result if:

A)

people begin to value leisure more highly.

B)

people have less nonlabor income.

C)

transit costs to and from work decline.

D)

the population increases.

196.

Which factor will NOT shift the labor supply curve?

A)

a change in attitude toward work

B)

changes in a spouse’s income

C)

changes in expectations about future wealth

D)

a change in the wage rate

197.

A leftward shift in the labor supply curve might result from:

A)

people valuing leisure more highly.

B)

people having less wealth.

C)

increasing work opportunities for women and minorities.

D)

an increase in the population.

198.

Which factor will NOT shift the labor supply curve?

A)

a change in preferences and social norms

B)

changes in wealth

C)

changes in opportunities

D)

a change in the wage rate

199.

An input differs from a factor of production in that the former gets used up in

production, while the latter is an enduring source of income for its owner.

A)

True

B)

False

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200.

Capital, the factor of production, includes physical capital (such as buildings and

machines), human capital (improvement in labor by education and knowledge), and

financial capital (such as stock market investments).

A)

True

B)

False

201.

The importance of human capital has been increased by technological progress.

A)

True

B)

False

202.

Approximately 71% of income generated in the United States goes to corporate profit.

A)

True

B)

False

203.

Suppose that the factor market for computer engineers is competitive in India and the

United States, but Indian engineers earn one-fifth of what American engineers earn.

This means that engineers in India are price takers, but engineers in America are not.

A)

True

B)

False

204.

A profit-maximizing producer employs each factor of production up to the point at

which the value of the marginal product of the last unit of the factor employed is equal

to the price per unit of output.

A)

True

B)

False

205.

Assume that perfect competition exists in output and factor markets. The P = MC rule

for profit maximization implies the same level of labor use that would be implied by

using the VMPL = W rule.

A)

True

B)

False

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206.

Your boss is trying to decide whether to buy out a rival company and asks for your

advice. The boss says that she will buy the rival if there is evidence that the rival is

operating inefficiently. (Your company will then improve its efficiency and increase

profits.) She will not buy the rival if there is evidence that the rival is already operating

efficiently. Your boss gives you the following data on the rival’s operations: The

average product of labor is 4, the marginal product of the last worker hired is 10, the

wage is $20, and the price of output is $5. Based on this information, you should tell

your boss to buy the rival.

A)

True

B)

False

207.

If a perfectly competitive firm chooses its level of output so that price equals marginal

revenue, the value of the marginal product of labor will equal the wage rate.

A)

True

B)

False

208.

If the demand for orange juice increases, the derived demand for orange grove workers

will decrease.

A)

True

B)

False

209.

Although improved technology can either increase or decrease the demand for a factor

of production, the usual effect of technological progress is to reduce demand for labor,

holding everything else constant.

A)

True

B)

False

210.

The clearest sign of discrimination against an individual is that that individual is paid

less than the value of his or her marginal productivity.

A)

True

B)

False

211.

According to the marginal productivity theory of income distribution, in a competitive

economy each factor of production is paid its equilibrium value of the marginal product.

A)

True

B)

False

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212.

The marginal productivity theory of income distribution is based on the assumption that

factor markets are perfectly competitive.

A)

True

B)

False

213.

According to the marginal productivity theory of income distribution, every factor of

production is paid a wage equal to the equilibrium value of its average product.

A)

True

B)

False

214.

According to the marginal productivity theory of income distribution, every factor of

production is paid a wage equal to the equilibrium value of its marginal product.

A)

True

B)

False

215.

The marginal productivity theory of income distribution assumes that factor markets are

oligopolies.

A)

True

B)

False

216.

The marginal productivity theory of income distribution assumes that factor markets are

perfectly competitive.

A)

True

B)

False

217.

The equilibrium value of the marginal product of a factor is the additional value

produced by the most productive unit of that factor employed in the factor market as a

whole.

A)

True

B)

False

218.

The equilibrium value of the marginal product of a factor is the additional value

produced by the last unit of that factor employed in the factor market as a whole.

A)

True

B)

False

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219.

According to the marginal productivity theory of income distribution, if a unit of labor

is paid more than a unit of capital, it is because, at the equilibrium quantity of each

factor, the value of the marginal product of labor is equal to the value of the marginal

product of capital.

A)

True

B)

False

220.

According to the marginal productivity theory of income distribution, if a unit of labor

is paid more than a unit of capital, it is because, at the equilibrium quantity of each

factor, the value of the marginal product of labor is proportionately greater than the

value of the marginal product of capital.

A)

True

B)

False

221.

At Hamill Manufacturing of Pennsylvania, highly skilled senior machinists are paid

$70,000, excluding benefits, but the average skilled machinist generates approximately

$137,000 in value added. This difference means that the marginal productivity theory of

income distribution doesn’t hold.

A)

True

B)

False

222.

At Hamill Manufacturing of Pennsylvania, highly skilled senior machinists are paid

$70,000, excluding benefits, but the average skilled machinist generates approximately

$137,000 in value added. This is partially because diminishing returns to labor cause the

value of the marginal product of the last machinist hired to be greater than the average

of all of the machinists employed.

A)

True

B)

False

223.

At Hamill Manufacturing of Pennsylvania, highly skilled senior machinists are paid

$70,000, excluding benefits, but the average skilled machinist generates approximately

$137,000 in value added. This is partially because diminishing returns to labor cause the

value of the marginal product of the last machinist hired to be less than the average of

all of the machinists currently employed.

A)

True

B)

False

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224.

At Hamill Manufacturing of Pennsylvania, highly skilled senior machinists are paid

$70,000, excluding benefits, but the average skilled machinist generates approximately

$137,000 in value added. This is due partially to the fact that the wage rate includes

other costs, such as employee benefits, that have to be added to the $70,000 salary.

A)

True

B)

False

225.

Over the past 30 years, the premium for workers with advanced degrees has decreased.

A)

True

B)

False

226.

One objection to the marginal productivity theory of income distribution is the existence

of large disparities in income between factors of production that should receive the same

payment.

A)

True

B)

False

227.

One objection to the marginal productivity theory of income distribution is the absence

of large disparities in income between men and women and various ethnic groups.

A)

True

B)

False

228.

An objection to the marginal productivity theory of income distribution is that many

people believe it is a moral justification for the unequal distribution of income.

A)

True

B)

False

229.

Wage differences between men and women and among various ethnic groups are proof

that the marginal productivity theory of income distribution is invalid.

A)

True

B)

False

230.

The U.S. labor market shows large differences in the median earnings of workers across

ethnicities and gender.

A)

True

B)

False

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231.

In the U.S. labor market, women of all ethnicities have the highest median earnings of

any of the major demographic groups discussed in the chapter.

A)

True

B)

False

232.

In the U.S. labor market, Hispanic men have the highest median earnings of any

demographic group.

A)

True

B)

False

233.

In the U.S. labor market, African-Americans have the lowest median earnings of any of

the major demographic groups discussed in the chapter.

A)

True

B)

False

234.

In the U.S. labor market, Hispanics have the lowest median earnings of any of the major

demographic groups discussed in the chapter.

A)

True

B)

False

235.

Median earnings in the U.S. labor market are highest for White men, followed by

African-Americans, followed by women (regardless of ethnicity), and then Hispanics.

A)

True

B)

False

236.

In the United States, the median earnings of Hispanics are greater than the median

earnings of African Americans.

A)

True

B)

False

237.

Wage differentials that arise because of innate differences in ability or talent are

consistent with the marginal productivity theory of income distribution.

A)

True

B)

False

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238.

Wage differences across jobs reflecting the fact that some jobs are less pleasant or safe

than others are called efficiency wages.

A)

True

B)

False

239.

Wage differences across jobs reflecting the fact that some jobs are less pleasant or safe

than others are called compensating differentials.

A)

True

B)

False

240.

The fact that Tom Brady, the quarterback of the New England Patriots, is paid more

than is a high school football coach is an example of a wage disparity caused by

compensating differentials.

A)

True

B)

False

241.

The fact that Tom Brady, the quarterback of the New England Patriots, is paid more

than is a high school football coach is an example of a wage disparity most likely caused

by differences in ability and talent.

A)

True

B)

False

242.

A lumberjack cutting giant redwoods in California being paid more than is a person

cutting and selling small Christmas trees is an example of wage disparity due primarily

to compensating differentials.

A)

True

B)

False

243.

A lumberjack cutting giant redwoods in California being paid more than is a person

cutting and selling small Christmas trees is an example of wage disparity due primarily

to differences in human capital.

A)

True

B)

False

Page 52

244.

Holly and Emily both have a bachelor’s degree in nursing from the same college. Both

have been nurses for eight years. Holly works from 11 P.M. until 7 A.M., and Emily

works from 7 A.M. until 3 P.M. Holly’s salary is $1,000 per month higher than is

Emily’s salary. This is an example of an efficiency wage disparity.

A)

True

B)

False

245.

Holly and Emily both have a BS in nursing from the same college. Both have been

nurses for eight years. Holly works from 11 P.M. until 7 A.M., and Emily works from 7

A.M. until 3 P.M. Holly’s salary is $1,000 per month higher than is Emily’s salary. This

is an example of a wage disparity due to a compensating differential.

A)

True

B)

False

246.

Differences in talent and ability of workers resulting in differences in their wages is

consistent with the marginal productivity theory of income distribution.

A)

True

B)

False

247.

Differences in the attractiveness of different types of jobs resulting in differences in

wages is not consistent with the marginal productivity theory of income distribution.

A)

True

B)

False

248.

Workers with more human capital usually generate a higher value of the marginal

product.

A)

True

B)

False

249.

Regardless of gender and ethnicity, more education is associated with higher median

earnings.

A)

True

B)

False

250.

Unions are organizations of workers that try to raise wages and improve working

conditions for their members through collective bargaining with employers.

A)

True

B)

False

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251.

The fact that members of labor unions often have higher wages than do workers who are

not members of a union is proof that the marginal productivity theory of income

distribution is not valid.

A)

True

B)

False

252.

In 2015, the median weekly earnings of union members was roughly 25% higher than

the median weekly earnings of workers not represented by unions.

A)

True

B)

False

253.

In 2015, the median weekly earnings of union members was actually lower than the

median weekly earnings of workers not represented by unions.

A)

True

B)

False

254.

In 2015, fewer than 10% of the employees of private businesses were represented by

unions.

A)

True

B)

False

255.

An efficiency wage is higher than the equilibrium wage to motivate the employee to

work hard.

A)

True

B)

False

256.

Above-equilibrium wages paid by some employers as an incentive for better

performance are called compensating differentials.

A)

True

B)

False

257.

Above-equilibrium wages paid by some employers as an incentive for better

performance are called efficiency wages.

A)

True

B)

False

Page 54

258.

Efficiency wages reduce unemployment.

A)

True

B)

False

259.

Compensating differentials are used to motivate employees and to reduce worker

turnover.

A)

True

B)

False

260.

Unions and efficiency wages usually lead to wages that are below the equilibrium level.

A)

True

B)

False

261.

Market forces tend to work against discrimination.

A)

True

B)

False

262.

When interferences in the labor market raise the wage above the equilibrium level,

employers may discriminate because there are more job applicants than jobs.

A)

True

B)

False

263.

Firms that engage in discrimination are usually more profitable than firms that don’t

discriminate.

A)

True

B)

False

264.

The opportunity cost of an hour of leisure is always assumed to be equal to the

minimum wage.

A)

True

B)

False

265.

The opportunity cost of an hour of leisure increases if the hour of leisure time is spent in

an unproductive activity and decreases if the hour of leisure time is spent in a productive

activity.

A)

True

B)

False

Page 55

266.

The opportunity cost of an hour of leisure is the hourly wage rate.

A)

True

B)

False

267.

Decisions about labor supply result from decisions about time allocation, which deals

with determining how many hours to spend on different activities.

A)

True

B)

False

268.

In the labor market, households demand labor and firms supply goods and services.

A)

True

B)

False

269.

In the labor market, households supply labor and firms demand labor.

A)

True

B)

False

270.

In markets for goods and services, households demand goods and services and firms

supply goods and services.

A)

True

B)

False

271.

In the markets for goods and services, households demand labor and firms supply labor.

A)

True

B)

False

272.

If John’s wage increases from $10 to $12 per hour, his opportunity cost of leisure has

decreased.

A)

True

B)

False

273.

If John’s wage increases from $10 to $12 per hour, his opportunity cost of leisure has

increased.

A)

True

B)

False

Page 56

274.

If John’s wage increases from $10 to $12 per hour, his opportunity cost of leisure has

decreased or increased, depending on what he does with an hour of leisure.

A)

True

B)

False

275.

When wages increase, if the substitution effect dominates, the quantity of labor supplied

will increase.

A)

True

B)

False

276.

When wages increase, if the income effect dominates, the quantity of labor supplied will

increase.

A)

True

B)

False

277.

If the hourly wage increases from $8 to $10 an hour and in response Jim increases the

number of hours that he works from 44 to 46, the substitution effect is dominant.

A)

True

B)

False

278.

If the hourly wage increases from $8 to $10 an hour and in response Jim increases the

number of hours that he works from 44 to 46, the income effect is dominant.

A)

True

B)

False

279.

Judy’s individual labor supply curve is positively sloped, so for Judy, the income effect

dominates the substitution effect.

A)

True

B)

False

280.

Andy’s individual labor supply curve is positively sloped, so for Andy, the substitution

effect dominates the income effect.

A)

True

B)

False

Page 57

281.

If an individual labor supply curve is negatively sloped, the substitution effect

dominates the income effect.

A)

True

B)

False

282.

An example of the substitution effect dominating the income effect occurs when people

take summer vacations rather than winter vacations, even though their pay is the same

year-round.

A)

True

B)

False

283.

A backward-bending labor supply curve is possible only if leisure is an inferior good.

A)

True

B)

False

284.

As stock prices rise and workers’ wealth increases, workers will increase the quantity

supplied of labor because they will want to buy more stock.

A)

True

B)

False

285.

A change in the wage rate will shift the supply curve in the market for labor.

A)

True

B)

False

286.

Since the 1960s, the number of women in the labor force has decreased.

A)

True

B)

False

287.

Since the Great Recession, which began in 2008, the U.S. labor supply curve has shifted

to the left because many workers were disillusioned by bad job prospects and left the

labor force.

A)

True

B)

False

288.

The invention of labor-saving appliances has decreased the supply of labor in the United

States.

A)

True

B)

False

Page 58

289.

If the age at which a person can receive Social Security benefits increases from 67 to 70,

the supply of labor will increase.

A)

True

B)

False

290.

(Table: Production Function for Shaheer’s Framing Shop) Use Table: Production

Function for Shaheer’s Framing Shop. Shaheer runs a shop that custom-frames pictures

for his customers. The table shows his daily production function. He can hire a worker

at a daily competitive wage of $60, and he sells a custom frame at a competitive price of

$10.

I. Calculate the marginal product of labor for each worker in the first empty column.

II. Calculate the value of the marginal product of labor for each worker in the second

empty column.

291.

The corn-based ethanol boom has dramatically increased the price of farm acreage.

Using the concept of derived demand, explain how this happened. What is the role of

the elasticity of supply of land in the increased price for land?

Page 59

292.

(Table: Framing Shop Production Function) Use Framing Shop Production Function.

Shaheer runs a custom picture-framing shop. The table shows his daily production

function. He can hire a worker at a daily competitive wage of $70, and he sells a custom

frame at a competitive price of $10.

I. Complete the table by calculating the value of the marginal product of labor (VMPL)

for each worker.

II. How many workers would Shaheer hire to maximize his profit?

293.

(Table: Framing Shop Employment and Production) Use Framing Shop Employment

and Production. Shaheer runs a custom picture-framing shop. The table shows his daily

production function. He can hire a worker at a daily competitive wage of $70, and he

sells a custom frame at a competitive price of $10.

I. How many workers should Shaheer hire to maximize his profit?

II. Suppose Shaheer is able to employ more sophisticated tools, which allow his workers

to be twice as productive.