Earnings and Discrimination 4823
203. Sometimes wages are set above the equilibrium level when firms pay
a. workers with more seniority higher wages than newly-hired workers.
b. efficiency wages to reduce turnover.
c. compensating differentials to workers who work the night shift.
d. more attractive salespeople higher wages than less attractive salespeople.
204. Effective minimum-wage laws will most likely
a. increase demand for labor.
b. create a surplus of labor.
c. increase incomes for all unskilled workers.
d. decrease incomes for all unskilled workers.
205. Above–equilibrium wages caused by efficiency wages will most likely result in
a. a shortage of labor.
b. increased unemployment.
c. compensating wage differentials.
d. an decrease in the quantity of labor supplied.
4824 Earnings and Discrimination
206. When employers pay an efficiency wage above the market equilibrium wage, this will likely
result in
a. a surplus of labor.
b. no unemployment.
c. an increase in the number of people employed.
d. an decrease in the quantity of labor supplied.
207. If we were to observe above-equilibrium wages in a particular labor market, then a possible
explanation might be that
a. the theory of efficiency wages holds true for that market.
b. there is a powerful labor union representing workers in that market.
c. workers are largely unskilled and/or inexperienced and minimum-wage laws are effectively
holding wages up in that market.
d. All of the above are correct.
Earnings and Discrimination 4825
208. Which of the following statements is not correct?
a. Some firms pay wages that are above the equilibrium wage.
b. Workers sometimes form labor unions to push their wages up.
c. Wages never deviate from the balance of supply and demand in the market for labor.
d. The federal government mandates that employers pay their workers at least as much as the
minimum wage.
209. Which of the following is not a consequence of above-equilibrium wages in a labor market?
a. a surplus of labor
b. unemployment
c. more unionized jobs
d. All of the above are consequences of above-equilibrium wages.
4826 Earnings and Discrimination
210. Which of the following is the most likely outcome of raising the minimum wage?
a. an increase in both the quantity of labor supplied by workers and the quantity of labor
demanded by firms
b. an increase in the quantity of labor supplied by workers and a decrease in the quantity of labor
demanded by firms
c. a decrease in the quantity of labor supplied by workers and an increase in the quantity of labor
demanded by firms
d. a decrease in both the quantity of labor supplied by workers and the quantity of labor
demanded by firms
Earnings and Discrimination 4827
Figure 19-1
211. Refer to Figure 19-1. If the minimum wage in this market is $8, then
a. employment is 10 million
b. employment is 12 million
c. there is a surplus of 1 million workers
d. there is a surplus of 3 million workers
4828 Earnings and Discrimination
212. Refer to Figure 19-1. Suppose the local labor market was in equilibrium to begin with but then
the largest local employer decided to change its compensation scheme to $8 as shown. Which of
the following compensation schemes could the graph be illustrating?
a. An efficiency wage.
b. Discrimination.
c. A compensating differential.
d. The superstar phenomenon.
213. Refer to Figure 19-1. What is the change in employment of having the minimum wage at $8
instead of $7?
a. 2 million jobs are gained
b. no jobs are gained or lost
c. 1 million jobs are lost
d. 3 million jobs are lost
Earnings and Discrimination 4829
214. Which of the following is true of minimum–wage laws?
a. They affect skilled workers’ wages.
b. They create above-equilibrium wages for some unskilled workers.
c. They create a shortage of unskilled labor.
d. They negatively affect the employment of skilled workers.
215. Minimum wage laws
a. creates a surplus of labor in markets where the equilibrium wage is above the minimum wage.
b. cannot be valid unless labor unions are sufficiently powerful to force enactment of those laws
in the first place.
c. are likely to have a greater effect on unskilled-labor markets than on skilled-labor markets.
d. All of the above are correct.
4830 Earnings and Discrimination
Figure 19-2
216. Refer to Figure 19-2. This figure depicts labor demand and supply in a nonunionized labor
market. The original equilibrium wage is $10. If a labor union subsequently establishes a union
shop and negotiates an hourly wage of
$12.50, then there will be an excess
a. demand of 100 workers.
b. demand of 300 workers.
c. supply of 100 workers.
d. supply of 300 workers.
Earnings and Discrimination 4831
217. Refer to Figure 19-2. This figure depicts labor demand and supply in a nonunionized labor
market. The original equilibrium is at $10. If a labor union subsequently establishes a union shop
and negotiates an hourly wage of
$12.50, then employment is a. 500
b. 600
c. 700
d. 800
218. Refer to Figure 19–2. This figure depicts labor demand and supply in a nonunionized labor
market. If the minimum wage were $7.50, employment in this market would be
a. 400
b. 500
c. 600
d. 700
4832 Earnings and Discrimination
Figure 19-3
The manufacturing labor market.
219. Refer to Figure 19-3. Suppose the manufacturing labor market, which is non-unionized, is in
equilibrium at a wage equal to $25. Suppose now that the AFL–CIO (a labor organization)
organizes the workers in the manufacturing market and negotiates a wage of $30 per hour.
Because of the union,
a. 80 people who were once employed are now unemployed.
b. 40 people who were once employed are now unemployed.
c. 80 people who were once unemployed are now employed.
d. 40 people who were once unemployed are now employed.
Earnings and Discrimination 4833
220. Refer to Figure 19-3. Suppose the manufacturing labor market, which is non–unionized, is in
equilibrium at a wage equal to $20. Suppose now that the AFL–CIO (a labor organization)
organizes the workers in the manufacturing market and negotiates a wage of $30 per hour. After
the workers become unionized, how many workers do manufacturing firms collectively hire?
a. 160 workers
b. 200 workers
c. 240 workers
d. There is not enough information to determine the number of workers.
Figure 19-4
4834 Earnings and Discrimination
221. Refer to Figure 19-4. If a union is successful in reducing supply from S1 to S2, the wage will
a. rise from $15 per hour to $18 per hour and 100 fewer people will be employed.
b. rise from $15 per hour to $18 per hour and 200 more people will be employed.
c. fall from $15 per hour to $12 per hour and 100 more people will be employed.
d. fall from $18 per hour to $15 per hour and 200 fewer people will be employed.
Figure 19-5
222. Refer to Figure 19-5. Given demand for labor, D1, and supply of labor, S1, what are the
equilibrium wage and quantity of labor?
a. $5 and 250
b. $6 and 200
c. $8 and 100
d. $8 and 400
Earnings and Discrimination 4835
223. Refer to Figure 19-5. Given demand for labor, D1, and supply of labor, S1, what is the
quantity demanded of labor if a minimum wage of $8 per hour is imposed on this market?
a. 100
b. 200
c. 300
d. 400
224. Refer to Figure 19-5. Given demand for labor, D1, and supply of labor, S1, what is the surplus
of labor if a minimum wage of $8 per hour is imposed on this market?
a. 100
b. 200
c. 300
d. 400
4836 Earnings and Discrimination
225. Refer to Figure 19-5. Given demand for labor, D1, and supply of labor, S2, what is the surplus
of labor if a minimum wage of $8 per hour is imposed on this market?
a. 100
b. 200
c. 300
d. 400
226. Refer to Figure 19-5. Suppose this market begins with demand for labor, D1, and supply of
labor, S1, but the labor supply curve shifts to S2. Which of the following statements best
describes the results?
a. Fewer workers are employed, but those who are employed earn a higher wage.
b. More workers are employed but they earn a lower wage.
c. More workers are employed and they earn a higher wage.
d. The same number of workers are employed and they earn a higher wage.
Earnings and Discrimination 4837
227. Refer to Figure 19-5. Given demand for labor, D1, and supply of labor, S2, which of the
following could be considered an efficiency wage?
a. $4
b. $5
c. $6
d. $7
228. First grade teachers who work in Lynn, Massachusetts’s (a large, low income city north of
Boston) public schools earn more than first grade teachers who work in private schools in more
affluent communities north of Boston. Lynn teachers belong to a teachers’ union. Which
statement best explains the scenario described above?
a. Lynn school teachers receive a compensating differential because they work in a more
difficult environment, and they receive higher than market equilibrium wages because they
are members of a teachers‘ union.
b. Lynn school teachers receive a compensating differential because they work in a more
difficult environment, but they do not receive higher than market equilibrium wages because
they are members of a teachers’ union.
c. Lynn school teachers do not receive a compensating differential because they work in a more
difficult environment, but they do receive higher than market equilibrium wages because they
are members of a teachers‘ union.
d. Lynn school teachers do not receive a compensating differential because they work in a more
difficult environment, and they do not receive higher than market equilibrium wages because
they are members of a teachers‘ union.
4838 Earnings and Discrimination
229. A worker association that bargains with employers over wages and working conditions is called
a. a strike.
b. an oligopoly.
c. a firm.
d. a union.
230. The organized withdrawal of labor from a firm by a union is called
a. a strike.
b. a bargain.
c. a monopoly.
d. a tournament.
231. Studies have shown that union workers earn about
a. 10 to 20 percent more than nonunion workers in similar jobs.
b. 10 to 20 percent less than nonunion workers in similar jobs.
c. 40 to 50 percent more than nonunion workers in similar jobs.
d. 40 to 50 percent less than nonunion workers in similar jobs.
Earnings and Discrimination 4839
232. A union’s major source of power is its
a. high-profile leadership.
b. ability to increase productivity.
c. ability to threaten a strike.
d. ability to deny employers the opportunity to bargain over wages.
233. The market wage could be higher than the equilibrium wage if a worker
a. is a superstar.
b. belongs to a labor union.
c. has more human capital.
d. All of the above are correct.
234. Sometimes wages are set above the equilibrium level when
a. garbage collectors earn higher wages than secretaries due to compensating differentials.
b. accountants earn more than dental technicians due to higher educational requirements.
c. movie superstars earn more than talented plumbers.
d. unions negotiate higher wages by threatening to strike.
4840 Earnings and Discrimination
235. Which of the following is not an example of efficiency wages?
a. More productive workers are paid more to reflect their higher output.
b. Higher wages induce higher output from workers.
c. Better quality applicants apply for jobs that pay above-equilibrium wages.
d. Workers are less likely to leave jobs that pay above-equilibrium wages.
236. Which theory explains the fact that some firms may choose to pay their employees more then
they would earn as determined by equilibrium in the labor market?
a. the theory of efficiency wages
b. the marginal-productivity theory
c. human-capital theory
d. signaling theory
Earnings and Discrimination 4841
237. If an employer’s behavior is supportive of the theory of efficiency wages, the employer would
a. raise wages in an effort to increase worker effort.
b. raise wages in an effort to increase worker turnover.
c. decrease wages in an effort to increase worker effort.
d. decrease wages in an effort to increase worker turnover.
238. The theory of efficiency wages suggests that firms may pay above-equilibrium wages
a. to reduce employee turnover.
b. to prevent unions from recruiting members.
c. to reduce the need for minimum wage laws.
d. to increase the demand for better-skilled workers.
4842 Earnings and Discrimination
239. How does the theory of efficiency wages explain above-equilibrium wages?
a. Employers are forced by competition to pay higher wages in efficient markets.
b. Employers give their workers a higher wage in the hope that it will lead to increased
productivity.
c. Workers get higher wages when they prove they are increasing their productivity.
d. Workers demand higher wages to compensate for poor fringe benefits.
240. The theory of efficiency wages asserts that
a. employers set wages based on each employee’s productivity.
b. employers strive to hold wages below equilibrium levels.
c. employers may find it profitable to pay above-equilibrium wages.
d. efficient workers actually earn lower wages than those earned by inefficient workers.