57) In less-developed countries the ________ effect leads to ________.
A) input-substitution; labor intensive production
B) input-substitution; mechanized production
C) output effect; labor intensive production
D) input effect; mechanized production
58) The short-run labor demand curve is
A) more elastic than the long-run labor demand curve.
B) less elastic than the long-run labor demand curve.
C) either more or less elastic than the long-run labor demand curve.
D) perfectly elastic (horizontal).
59) The long-run labor demand curve is
A) more elastic than the short-run labor demand curve.
B) less elastic than the short-run labor demand curve.
C) either more or less elastic than the short-run labor demand curve.
D) perfectly elastic (horizontal).
Recall the Application about the salaries paid in Major League Baseball to answer the
following question(s). Some Major League Baseball players are free agents, meaning they
are free to negotiate a contract with any team. Other players are journeymen and
apprentices, who are restricted to a single team.
60) Recall the Application. On average, free agents in Major League Baseball tend to be paid a
salary ________ their marginal revenue product.
A) significantly higher than
B) significantly lower than
C) close to
D) unrelated to
61) Recall the Application. On average, apprentices in Major League Baseball tend to be paid a
salary ________ their marginal revenue product.
A) significantly higher than
B) significantly lower than
C) close to
D) unrelated to
62) Marginal revenue product is the additional revenue for the firm when it hires one additional
unit of labor.
63) Marginal revenue product equals marginal revenue times the price of output.
64) For a perfectly competitive firm, the marginal-revenue product curve is the same as the firm’s
short run demand for labor curve.
65) According to the output effect, a decrease in the wage will decrease production costs, so the
price of final goods will decrease and the demand for labor will decrease.
66) The input-substitution effect associated with an increase in the wage implies that as the wage
increases, a firm will substitute other inputs for the relatively expensive labor.
67) The output effect is the change in labor supply due to a change in the quantity of output
produced.
68) The input-substitution effect associated with an increase in the wage implies that as the wage
increases, a firm will substitute other inputs for the relatively expensive labor.
69) Explain why the marginal revenue product of labor curve is the firm’s short-run demand
curve for labor.
70) Why is the demand for labor downward sloping in the short-run?
71) What is the output effect?
72) What is the input-substitution effect?
10.2 The Supply of Labor
1) The relationship between the wage and the quantity of labor that a given worker is willing to
provide is called
A) individual labor demand.
B) market labor demand.
C) individual labor supply.
D) market labor supply.
2) The price of an hour of leisure time is
A) the income that could have been earned in that hour.
B) zero.
C) the minimum wage rate.
D) determined by the value of the activity the person engages in during that hour of leisure.
3) The price of an hour of leisure time for a successful lawyer is ________ the price of an hour
of leisure for an unemployed high school drop-out.
A) greater than
B) the same as
C) less than
D) impossible to compare to
4) According to the income effect of labor supply, if leisure is a normal good, then an increase in
the wage rate will ________ the quantity of labor ________.
A) increase; supplied
B) decrease; supplied
C) increase; demanded
D) decrease; demanded
5) When wages increase the income effect of labor supply ________ the quantity of labor
supplied because ________.
A) reduces; the price of leisure has increased
B) reduces; workers acquire more of all normal goods when income increases
C) increases; the value of working has increased
D) increases; the price of leisure has increased
6) According to the substitution effect of labor supply, when the wage rate goes up
A) it becomes more costly to consume leisure, so people will work more.
B) it becomes less costly to consume leisure, so people will work more.
C) the opportunity cost of enjoying leisure goes down.
D) firms will hire more workers since people are more willing to work.
7) When wages increase, the income effect ________ the supply of labor and the substitution
effect ________ the supply of labor.
A) decreases; increases
B) increases; decreases
C) increases; increases
D) decreases; decreases
8) If Jerry’s demand for leisure increases as the wage increases,
A) the income effect dominates the substitution effect.
B) the substitution effect dominates the income effect.
C) the income effect is completely offset by the substitution effect.
D) There is insufficient information.
9) If Tom’s demand for leisure decreases as the wage increases,
A) the income effect outweighs the substitution effect.
B) the substitution effect outweighs the income effect.
C) the income effect is completely offset by the substitution effect.
D) There is insufficient information.
10) If leisure is a normal good, as the price of leisure increases the quantity of leisure demanded
________ and the demand for leisure ________.
A) falls; increases
B) falls; is not affected
C) remains the same; decreases
D) increases; is not affected
11) The relationship between the wage and the quantity of labor that a given worker is willing to
provide is called
A) individual labor demand.
B) market labor demand.
C) individual labor supply.
D) market labor supply.
12) The individual supply curve for labor is the relationship between the wage and the quantity
of labor that
A) all workers are willing to provide.
B) any given worker is willing to provide.
C) all firms are willing to employ.
D) any given firm is willing to employ.
13) When the wage increases
A) all workers will work more hours.
B) all workers will work fewer hours.
C) some workers will work more hours and some workers will work fewer hours, but on average,
hours worked will increase.
D) some workers will work more hours and some workers will work fewer hours, but we don’t
know whether average hours will increase or decrease.
14) When the wage falls
A) all workers will work more hours.
B) all workers will work fewer hours.
C) some workers will work more hours and some workers will work fewer hours, but on average,
hours worked will fall.
D) some workers will work more hours and some workers will work fewer hours, but we don’t
know whether average hours will increase or decrease.
15) The relationship between the wage and the quantity of labor that ALL workers are willing to
provide is called
A) individual labor demand.
B) market labor demand.
C) individual labor supply.
D) market labor supply.
16) The market supply curve for labor is the relationship between the wage and the quantity of
labor that
A) all workers are willing to provide.
B) any given worker is willing to provide.
C) all firms are willing to employ.
D) any given firm is willing to employ.
17) Suppose that the wage for musicians increases relative to other occupations. We know that
________ people will work in music, and the total number of hours worked will ________.
A) more; increase
B) more; decrease
C) fewer; increase
D) fewer; decrease
18) Suppose that the wage for musicians decreases relative to other occupations. We know that
________ people will work in music, and the total number of hours worked will ________.
A) more; increase
B) more; decrease
C) fewer; increase
D) fewer; decrease
19) Suppose that the wage for teachers increases relative to other occupations. We know that
________ people will work as teachers, and the total number of hours worked will ________.
A) more; increase
B) more; decrease
C) fewer; increase
D) fewer; decrease
20) Suppose that the wage for teachers decreases relative to other occupations. We know that
________ people will work as teachers, and the total number of hours worked will ________.
A) more; increase
B) more; decrease
C) fewer; increase
D) fewer; decrease
21) The market supply of labor curve is
A) upward sloping.
B) upward sloping if the income effect dominates and downward sloping if the substitution effect
dominates.
C) downward sloping if the income effect dominates and upward sloping if the substitution effect
dominates.
D) perfectly inelastic.
22) The effect of higher wages on the individual supply of labor is ________ and the effect of
higher wages on the market supply of labor is ________.
A) ambiguous; to increase the quantity supplied
B) to increase the quantity supplied; ambiguous
C) ambiguous; to decrease the quantity supplied
D) to decrease the quantity supplied; ambiguous
Recall the Application about the response of New York City cab drivers to an increase in
cab fares to answer the following question(s).
23) Recall the Application. A study of the taxi market in New York City showed that an increase
in cab fares, and therefore the wages of cab drivers,
A) increased the quantity of labor supplied by the cab drivers.
B) increased the number of hours worked by cab drivers.
C) decreased the quantity of labor supplied by the cab drivers.
D) increased the demand for cab rides.
24) Recall the Application. A study of the taxi market in New York City showed that when cab
fares increase, thereby increasing the wages of cab drivers,
A) the income effect for leisure demand outweighs the substitution effect for leisure demand.
B) the substitution effect for leisure demand outweighs the income effect for leisure demand.
C) the income effect for leisure demand and the substitution effect for leisure demand work in
the same direction, causing the labor supply to increase.
D) the income effect for leisure demand and the substitution effect for leisure demand work in
the same direction, causing the labor supply to decrease.
25) The individual labor supply curve is positively sloped in the short-run.
26) If the substitution effect of wage increases is greater than the income effect, then the
individual labor supply curve is positively sloped in the short-run.
27) When the wage rate rises, the demand for leisure falls.
28) The substitution effect of an increase in the wage rate influences a worker to consuming
more leisure.
29) The income effect and the substitution effect associated with a wage increase influence
workers in the same direction.
30) The market supply curve of labor for an occupation is positively sloped in part because an
increase in the wage rate will encourage more people to work in that occupation.
31) Explain why people might work less if the wage increases.
32) What is the substitution effect for leisure demand?
33) What is the income effect for leisure demand?
34) Why might the market supply of workers increase when wages increase in a particular
occupation or location?
10.3 Labor Market Equilibrium
1) If the equilibrium wage is below the actual wage
A) the demand for labor will increase.
B) the demand for labor will decrease.
C) the wage rate will fall.
D) the wage rate will rise.
2) An equilibrium in the labor market is a situation in which
A) there is no pressure for wages to change.
B) there is no unemployment.
C) wages exceed minimum wage.
D) marginal revenue product equals the wage.
3) If the equilibrium wage is above the actual wage
A) the demand for labor will increase.
B) the demand for labor will decrease.
C) the wage rate will fall.
D) the wage rate will rise.
4) An increase in the demand for musicians ________ the number of musicians employed, and
________ the wages paid to musicians.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
5) A decrease in the demand for musicians ________ the number of musicians employed, and
________ the wages paid to musicians.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
6) An increase in the supply of musicians ________ the number of musicians employed, and
________ the wages paid to musicians.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
7) A decrease in the supply of musicians ________ the number of musicians employed, and
________ the wages paid to musicians.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
8) If the price of output increases the labor ________ curve shifts to the ________.
A) demand; left
B) demand; right
C) supply; left
D) supply; right
9) If the price of output increases, the equilibrium wage of workers who produce that output will
________ and ________ workers will be hired.
A) increase; more
B) increase; fewer
C) decrease; more
D) decrease; fewer
10) If the price of output decreases the labor ________ curve shifts to the ________.
A) demand; left
B) demand; right
C) supply; left
D) supply; right
11) If the price of output decreases, the equilibrium wage of workers who produce that output
will ________ and ________ workers will be hired.
A) increase; more
B) increase; fewer
C) decrease; more
D) decrease; fewer
12) If the wage paid to workers increases, the labor demand curve
A) will not shift.
B) shifts to the left and fewer workers are hired.
C) shifts to the right and more workers are hired.
D) shifts to the right and fewer workers are hired.
13) A government report that makes working in a particular industry more attractive to workers
will most likely ________ the number of workers hired in that industry, and ________ the wage
paid to those workers.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
14) A government report that makes working in a particular industry less attractive to workers
will most likely ________ the number of workers hired in that industry, and ________ the wage
paid to those workers.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
15) Suppose the wage rate in a certain industry rises, yet firms hire more workers. The best
explanation of this is that labor
A) demand fell.
B) demand increased.
C) supply fell.
D) supply increased.
16) Suppose the wage rate in a certain industry rises, and firms hire fewer workers. The best
explanation of this is that labor
A) demand fell.
B) demand increased.
C) supply fell.
D) supply increased.
17) Suppose the wage rate in a certain industry falls, yet firms hire fewer workers. The best
explanation of this is that labor
A) demand fell.
B) demand increased.
C) supply fell.
D) supply increased.