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6) Which of the following is true? At a given quantity of employment, if the
i. value of the marginal product of a high-skill worker is $35 and the value of the marginal
product of a low-skill worker is $10, the value of the marginal product of the skill is $25.
ii. value of the marginal product of a high-skill worker is $35 and the value of the marginal
product of a low-skill worker is $10, the cost of acquiring the skill is $25.
iii. value of the marginal product of a skill is $25, then the wage rate must be $25.
A) i only
B) ii only
C) iii only
D) i and iii
E) ii and iii
7) Which of the following is (are) a difference between high-skilled workers and low-skilled
workers?
i. High-skilled workers have a higher value of marginal product.
ii. High-skilled workers have incurred lower opportunity costs to acquire their skills.
iii. The demand for high-skilled workers exceeds that for low-skilled workers.
A) i only
B) ii and iii
C) i and ii
D) i and iii
E) i, ii, and iii
8) The demand curve for high-skilled workers
A) lies to the right of the demand curve for low-skilled workers.
B) lies to the left of the demand curve for low-skilled workers.
C) is vertical.
D) is horizontal.
E) lies to the right of the demand curve for low-skilled workers at high wages and to the left of
the demand curve for low-skilled workers at low wages.
9) Suppose a supply curve for high-skilled labor is drawn in the same graph as a supply curve for
low-skilled labor. The vertical distance between these two curves represents the
A) wage rate paid to a high-skilled worker.
B) wage rate paid to a low-skilled worker.
C) compensation the high-skilled worker requires for the cost of acquiring the skill.
D) number of high-skill workers that will be hired.
E) difference in the value of the marginal product between the high-skilled workers and the low-
skilled workers.
10) Skills are costly to acquire. What forms do these costs take?
i. out-of-pocket expenditures to pay for more education
ii. a higher value of marginal product
iii. forgone earnings while attending higher education
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
11) How does the supply curve of high-skilled workers compare to the supply curve of low-
skilled workers?
A) Because skills are costly to acquire, at a given wage rate the quantity supplied of high-skilled
workers is greater than that of low-skilled workers.
B) Because skills are costly to acquire, at any given wage rate the quantity supplied of high-
skilled workers is less than that of low-skilled workers.
C) Because skills are inexpensive to acquire, at any given wage rate the quantity supplied of
high-skilled workers is less than that of low-skilled workers.
D) Because skills are inexpensive to acquire, at any given wage rate the quantity supplied of
high-skilled workers is greater than that of low-skilled workers.
E) None of the above answers is correct.
12) What determines the position of the supply curve of high-skilled workers relative to that of
low-skilled workers?
A) the cost of acquiring the skill
B) the difference in the demand curves for the two groups
C) Bureau of Labor Standard guidelines
D) the difference in the value of the marginal products
E) None of the above answers is correct.
13) The ________ distance between the supply curve of low-skilled labor and the supply curve
of high-skilled labor is the ________.
A) horizontal; value of marginal product of skill
B) horizontal; compensation for cost of acquiring skill
C) vertical; value of marginal product of skill
D) vertical; compensation for cost of acquiring skill
E) vertical; difference in the price of the product produced b y high-skilled labor minus the price
of the product produced by low-skilled labor
14) The higher the cost of acquiring skills, the ________ are the high-skilled and low-skilled
labor ________ curves.
A) closer together; demand
B) farther apart; demand
C) closer together; supply
D) farther apart; supply
15) Pete just started a new job as an assembler and is earning a wage of $10 per hour. Sam, who
is an experienced assembler assigned to train Pete, earns $15 per hour. The opportunity cost to
Pete of acquiring this skill is
A) $25 per hour.
B) $15 per hour.
C) $10 per hour.
D) $5 per hour.
E) $0 per hour because Pete is being paid a wage.
16) High-skilled workers earn more relative to low-skilled workers because the demand for high-
skilled workers is ________ that for low-skilled workers and the supply is ________ that for
low-skilled workers.
A) greater than; greater than
B) greater than; lower than
C) lower than; greater than
D) lower than; lower than
E) greater than; the same as
17) The demand curve for high-skilled workers lies ________ the demand curve for low-skilled
workers and the supply curve of high-skilled workers lies ________ the supply curve of low-
skilled workers.
A) above; above
B) above; below
C) below; above
D) below; below
E) above; on
18) High-skilled workers earn more than low-skilled workers in part because the high-skilled
workers have
A) a higher value of marginal product.
B) a lower value of marginal product.
C) better health.
D) fewer deductions.
E) a greater supply than do low-skilled workers.
19) Compared to low-skilled workers, high-skilled workers have a ________ value of marginal
product and ________ opportunity cost of obtaining their skills.
A) higher; a higher
B) higher; a lower
C) lower; a higher
D) lower; a lower
E) higher; the same
20) The ________ the value of marginal product of skill, the ________.
A) smaller; larger is the wage differential between low-skilled workers and high-skilled workers
B) larger; more elastic the supply curve of labor
C) larger; larger is the wage differential between low-skilled workers and high-skilled workers
D) smaller; less elastic the supply curve of labor
E) smaller; larger is the cost of acquiring the skill
21) The larger the value of the marginal product of a skill, the
A) larger the vertical difference between the demand curves for high- and low-skilled labor.
B) smaller the vertical difference between the demand curves for high- and low-skilled labor.
C) larger the vertical distance between the supply curves for high- and low-skilled labor.
D) smaller the vertical distance between the supply curves for high- and low-skilled labor.
E) higher is the wage rate at which the demand curve for high-skilled workers crosses the
demand curve for low-skilled workers.
22) The more costly it is to acquire a skill, the
A) more people will go to school to learn the skill.
B) less employers are willing to pay for the skill.
C) greater the wage differential between high-skilled and low-skilled workers.
D) smaller the wage differential between high-skilled and low-skilled workers.
E) the demand for workers with that skill exceeds the demand for workers without that skill.
23) The rates of return on high school and college educations have
A) not been estimated, but are assumed to be high.
B) been estimated as negative, but these are still good options for most.
C) been estimated at 50 percent per year.
D) been estimated at between 5 to 10 percent per year.
E) been estimated to be essentially zero.
24) Discrimination by customers creates a wage differential between two groups by creating a
difference in the two groups'
A) supply of labor.
B) value of marginal product.
C) marginal cost of labor.
D) minimum wage.
E) opportunity cost of acquiring skills.
25) Increased discrimination results in ________ of the workers discriminated against being
hired and being paid ________ wage rates.
A) more; higher
B) more; lower
C) fewer; higher
D) fewer; lower
E) the same number; lower
26) If buyers discriminate against women and minorities,
i. the value of the marginal product of women and minorities is less than otherwise.
ii. the wage rate paid to women and minorities is less than otherwise.
iii. more women and minorities are hired than otherwise.
A) i only
B) ii only
C) ii and iii
D) i and ii
E) i, ii, and iii
27) What economic effect works to eliminate sex and race discrimination?
A) Firms hire only the preferred races and sex.
B) Lower paid races and sexes give up working and drop out of the labor supply.
C) Customers who discriminate pay higher prices to buy from preferred races and sex.
D) The value of the marginal product of the less preferred races and sexes eventually increases.
E) Lower paid races and sexes decrease their demand for goods and services.
28) Looking at wage differentials between white men and other groups in the United States, we
see that
A) white men and black men earn about the same but women of all races earn less.
B) white men earn more than black men but white women earn less than black men.
C) black men earn less than white men and less than white women.
D) white men and white women earn about the same but minorities earn less.
E) black men and men of Hispanic origin earn about the same amount and both groups of men
are paid more than black women and women of Hispanic origin.
29) Looking at wage differentials between white women and white men in the United States
since 1988, we see that the amount of the difference
A) has not changed.
B) has increased.
C) has decreased.
D) at first increased but in the last decade it decreased.
E) at first decreased but in the last decade it increased.
30) Which of the following is correct? On the average,
i. the wage differential between white males and white females has narrowed since 1988.
ii. black females are paid more than black males.
iii. the pay of black males and Hispanic males are essentially equal.
A) i only
B) ii only
C) ii and iii
D) i and iii
E) i, ii, and iii
31) Differences in skills
i. can arise partly from differences in education and/or partly from differences in on-the-job
training.
ii. can lead to large differences in earnings.
iii. result in different demand curves for high-skilled and low-skilled labor.
A) i only
B) ii only
C) ii and iii
D) i and iii
E) i, ii, and iii
32) Other things being equal, the demand curve for low-skilled workers ________ the demand
curve for high-skilled workers.
A) lies below
B) lies above
C) is the same as
D) is not comparable to
E) at high wages lies below and at low wages lies above
33) The cost of acquiring a skill accounts for why the
A) demand for high-skilled workers is different from the demand for low-skilled workers.
B) supply of high-skilled workers is different from the supply of low-skilled workers.
C) demand for high-skilled workers is different from the supply of high-skilled workers.
D) demand for high-skilled workers is different from the supply of low-skilled workers.
E) supply curves of high-skilled and low-skilled workers cross.
34) The vertical distance between the supply curves for neurosurgeons and the supply curve for
fast-food servers
A) represents the difference in the demand for these two occupations.
B) is the compensation that neurosurgeons require for the cost of acquiring this skill.
C) is the difference in the value of the marginal product of the two professions.
D) is the difference in on-the-job training.
E) equals the difference in the equilibrium wages paid these two professions.
35) The wage rate that high-skilled workers receive is ________ the wage rate that low-skill
workers receive.
A) greater than or equal to
B) equal to
C) less than or equal to
D) greater than
E) less than
36) If discrimination against women decreases their value of marginal product, then women will
have ________ wage rate than men and there will be ________ high-paying jobs for women.
A) a lower; more
B) a higher; fewer
C) a lower; fewer
D) a higher; more
E) the same; fewer
37) Inequality in the distribution of income and wealth is increased by
A) the point that the children of the poorest find it difficult to get into college.
B) saving to redistribute an uneven income over the life cycle.
C) marrying outside one's own socioeconomic class.
D) donating money to charities.
E) the U.S. income tax.
19.3 Income Redistribution
1) The three main ways that governments in the United States redistribute income are
A) using the rule of law, subsidized services, and income taxes.
B) private property rights, income taxes and the minimum wage.
C) income taxes, income maintenance programs, and subsidized services.
D) income taxes, rent control, and food stamps.
E) sales taxes, food stamps, and subsidized services.
2) Which of the following currently helps redistribute income in the United States?
i. negative income tax
ii. progressive income taxes
iii. Social Security
A) ii and iii
B) i and ii
C) i and iii
D) i, ii, and iii
E) iii only
3) A progressive income tax is a tax for which the average tax rate
A) increases as income increases.
B) becomes negative as income decreases.
C) decreases as income increases.
D) stays the same regardless of the income level.
E) first slowly decreases and then rapidly increases as income increases.
4) A tax is progressive if the average tax rate
A) increases as income increases.
B) increases as income decreases.
C) is negative.
D) is positive.
5) A ________ tax is one that taxes income at an average rate that decreases with the level of
income.
A) regressive
B) progressive
C) flat
D) social security
E) proportional
6) A regressive income tax is a tax for which the average tax rate
A) increases as income increases.
B) becomes negative as income decreases.
C) decreases as income increases.
D) stays the same regardless of the income level.
E) first increases and then decreases as income increases.
7) A ________ has a constant tax rate regardless of the level of income.
A) regressive tax
B) progressive tax
C) state tax
D) proportional tax
E) subsidy tax
8) In the United States, the federal and state income tax system is
A) progressive.
B) proportional.
C) regressive.
D) a flat-rate tax.
E) None of the above answers is correct.
9) Which of the following is(are) an example of an income maintenance program?
i. unemployment compensation
ii. welfare programs
iii. social security programs
A) i and iii
B) ii and iii
C) iii only
D) i and ii
E) i, ii, and iii
10) Three types of income maintenance programs used by the United States are
A) income taxes, Social Security, and the earned income tax credit.
B) Social Security programs, OASDHI, and income taxes.
C) Social Security programs, unemployment compensation, and welfare programs.
D) welfare programs, income taxes, and the earned income tax credit.
E) income taxes, Social Security, and subsidized services.
11) Social Security is a ________ program paid for by ________.
A) compulsory; payroll taxes
B) compulsory; government money
C) voluntary; payroll taxes
D) voluntary; income taxes
E) compulsory; voluntary taxes on income
12) Social Security and unemployment compensation
A) are paid only to the poorest households.
B) are both funded by income taxes.
C) are distributed by individual states.
D) both redistribute income.
E) make the distribution of income less equal.
13) ________ is a component of welfare programs.
A) A progressive income tax
B) Unemployment compensation
C) Medicaid
D) Social Security payroll taxes
E) The negative income tax
14) Looking at the results of government income redistribution programs, we find that the
income received by the
A) lowest 20 percent of households is almost unchanged because most don't work.
B) highest 20 percent is left unaffected because they are able to shelter income from taxes.
C) lowest 20 percent increases and the income received by the highest 20 percent decreases.
D) lowest 20 percent increases somewhat but the income received by the next 20 percent
increases the most.
E) lowest 20 percent decreases because of government taxes and the income received by the
highest 20 percent increases because of government subsidies.
15) Passing the TANF welfare program has
A) has made welfare programs more open-ended entitlement programs.
B) limited assistance to five years.
C) eliminated work and public service requirements.
D) hurt economic incentives to work.
E) made it into a negative income tax program.
16) A negative income tax is a system that, in part,
A) taxes lower-income households at a higher rate.
B) taxes higher-income households at a higher rate.
C) guarantees a minimum level of income for all households.
D) gives money from taxes paid by the poor to wealthy investors.
E) guarantees a minimum level of taxation for all households.
17) Which of the following characterizes the negative income tax concept?
A) It is a flat tax that lower-income households do not pay.
B) It is a progressive tax structure with enough deductions to provide refunds to some.
C) It is a regressive tax with low-income earners getting a refund back when taxes are filed.
D) It is a guaranteed annual income with earned incomes taxed at a flat rate.
E) It is an income tax that eliminates all the inefficiency that occurs with the current tax system.
18) A negative income tax
A) is a regressive income tax.
B) is currently in use in the United States.
C) makes the redistribution of income efficient.
D) provides every household with a guaranteed minimum annual income.
E) cannot be enacted in the United States because it is unconstitutional.
19) With a negative income tax that has a $10,000 guaranteed income and a 25 percent tax rate, a
household that has a market income of $4,000 has a total income of
A) $15,000.
B) $14,000.
C) $13,000.
D) $10,000.
E) $7,000.
20) Which of the following is a way income is redistributed in the United States?
i. subsidizing services
ii. income taxes
iii. income maintenance programs
A) i only
B) ii only
C) ii and iii
D) i and iii
E) i, ii, and iii
21) A ________ tax is one that taxes income at an average rate that increases with the level of
income.
A) regressive
B) progressive
C) flat
D) consumption
E) proportional
22) Of the following types of income tax systems, the one that provides the greatest amount of
redistribution from the rich to the poor is a
A) progressive income tax.
B) proportional income tax.
C) regressive income tax.
D) flat-rate income tax.
E) money-income tax.
23) The three major types of income maintenance programs are
A) Social Security programs, unemployment compensation, and welfare programs.
B) food stamps, unemployment compensation, and agricultural price supports.
C) student loans, rent control, and welfare programs.
D) corporate welfare, minimum wages, and affirmative action laws.
E) minimum wages, food stamps, and student loans.
24) A household's income earned from the markets for factors of production and with no
government redistribution is
A) money income.
B) welfare.
C) market income.
D) exploitative income.
E) factored income.
25) When government redistributes income, one dollar collected from a rich person translates
into ________ received by a poor person.
A) exactly one dollar
B) less than one dollar
C) more than one dollar
D) zero dollars
E) either exactly one dollar or, with some programs, more than one dollar
26) With a negative income tax that has a $10,000 guaranteed minimum income and a 25 percent
tax rate, a household that has earned income of $16,000 has a total income of
A) $16,000.
B) $22,000.
C) $26,000.
D) $24,000.
E) $10,000.
