Page 1
1.
G. Reecy’s Hamburger Joint is a fast-food restaurant. Which of the following is a factor
of production?
A)
the raw meat used for the hamburgers
B)
the hamburger buns
C)
the cook
D)
the concentrate that is diluted to make the soft drinks
2.
Human capital:
A)
consists of man-made resources such as buildings and machines.
B)
is the improvement in labor produced by education and knowledge that is
embodied in the workforce.
C)
has become less important because of the progress in technology.
D)
is the improvement in labor produced by education, which has become less
important because of the progress in technology.
3.
Which of the following is NOT a factor of production at a college?
A)
the faculty
B)
classroom buildings
C)
electricity
D)
the computer labs
4.
Which of the following is a factor of production at a college?
A)
the faculty
B)
lab concentrations to use in experiments
C)
electricity
D)
Scantron sheets
5.
Which of the following is an input in the production of croissants?
A)
ovens
B)
pastry chefs
C)
flour
D)
dough mixers
Page 2
6.
The key distinction between a factor of production and an input is that:
A)
an input is an enduring source of income, but a factor of production is used up in
production.
B)
a factor of production earns income from selling its services over and over again,
but an input cannot.
C)
an input earns income from selling its services over and over again, but a factor of
production cannot.
D)
a factor of production has limited earning potential.
7.
Human capital is the improvement in _____ produced by _____.
A)
physical capital; technology
B)
labor; education and knowledge
C)
labor; physical capital
D)
labor; management
8.
Manufactured resources such as equipment, buildings, and tools are also known as:
A)
human capital.
B)
labor.
C)
physical capital.
D)
natural resources.
9.
Now that Naila has her bachelor’s degree, she has decided to pursue her master’s degree.
Naila’s choice of additional education is called an investment in:
A)
natural resources.
B)
human capital.
C)
physical capital.
D)
labor.
10.
When the demand for automobiles is high, the demand for workers who build
automobiles is high. This relation between the market for automobiles and the market
for the labor that builds automobiles is why demand in a factor market is called:
A)
the marginal productivity theory of income distribution.
B)
a compensating differential.
C)
the factor distribution of income.
D)
a derived demand.
Page 3
11.
The demand for factors of production is called a derived demand because it is:
A)
derived from the demand for the outputs that are produced by the factors of
production.
B)
derived from the available supply of factors, such as land, that can be
overexploited.
C)
not easy to determine and must be derived by a technical (and often complicated)
process.
D)
derived on the basis of questions posed to residents during the census.
12.
The demand for a factor of production is a(n) _____ demand.
A)
derived
B)
implicit
C)
direct
D)
distributional
13.
Factor demand is called derived demand because it:
A)
requires the use of other factors.
B)
depends on demand for the product that the factor produces.
C)
has a downward-sloping demand curve.
D)
has a constant marginal factor cost.
14.
The category compensation of employees:
A)
includes the earnings of proprietors.
B)
doesn’t include benefits such as health insurance.
C)
can be attributed in a large part to the return on human capital.
D)
includes payments in kind that are common in rural areas.
15.
The category compensation of employees doesn’t capture the full income of labor
because:
A)
it doesn’t include the earnings of proprietors.
B)
it doesn’t include benefits such as health insurance.
C)
a sizable fraction of it can be attributed to the return on human capital.
D)
it excludes payments in kind that are common in rural areas.
16.
In the United States just after the turn of the twenty-first century, approximately _____
of total income in the economy took the form of compensation of employees.
A)
50%
B)
9%
C)
90%
D)
70%
Page 4
17.
The largest component of the factor distribution of income in the United States is:
A)
interest and rents.
B)
taxes.
C)
corporate profits.
D)
compensation of employees.
18.
In terms of contribution to total income in the United States, the single most important
factor of production is:
A)
capital.
B)
labor.
C)
natural resources.
D)
entrepreneurship.
19.
Which of the following is NOT true about the factor distribution of income?
A)
It is the division of total income among labor, land, and capital.
B)
Labor receives the bulk of the income in the modern U.S. economy.
C)
The returns to human capital are easily measured.
D)
A part of the proprietor’s income should be considered wages that the business
owners pay themselves.
20.
In the United States just after the turn of the twenty-first century, 70% of total income,
by far the largest share, took the form of:
A)
compensation of employees.
B)
corporate profits.
C)
interest income.
D)
rental income.
21.
In terms of contribution to total U.S. income, the factor of production that receives the
SMALLEST share is:
A)
capital.
B)
labor.
C)
natural resources.
D)
entrepreneurship.
Page 5
22.
When labor is hired in a competitive market, the value of the marginal product of labor
is computed by:
A)
multiplying the price of the output by the marginal product of labor.
B)
multiplying the price of the output by the wage paid to labor.
C)
multiplying the wage paid to labor by the marginal product of labor.
D)
dividing the marginal product of labor by the price of the output.
23.
Liyun owns a small flower shop, and the industry is perfectly competitive. She is
considering whether to hire an additional worker. The wage rate for the worker is $500
per week; the marginal product of the additional worker would be 100 units per week;
and the price of the units is $10 each. What should Liyun do?
A)
hire the additional worker
B)
not hire the additional worker
C)
raise the price of the flower arrangements that she sells
D)
Not enough information is given to answer the question.
24.
As a rule, a profit-maximizing restaurant owner employs each factor of production up to
the point at which the value of the marginal product of the _____ unit of the factor
employed is _____ that factor’s price.
A)
first; greater than
B)
last; equal to
C)
first; equal to
D)
last; less than
25.
Using standard economic theory, Scientific Superconductors should continue hiring
workers until:
A)
the marginal product of labor times price equals demand.
B)
the quantity of labor supplied equals the quantity of labor demanded.
C)
the marginal product of labor times price equals wage.
D)
the marginal product of labor times wage equals price.
26.
The value of the marginal product is equal to:
A)
marginal product times the wage rate.
B)
average product times the wage rate.
C)
marginal product times the price per unit of output.
D)
average product times the price per unit of output.
Page 6
Use the following to answer question 27:
27.
(Table: Droids and Moisture Output) Look at the table Droids and Moisture Output.
Luke Skywalker uses droids to operate a moisture farm in a perfectly competitive
market on the planet Tatooine. A barrel of moisture sells for 50 republic credits. A droid
costs 675 republic credits per month to rent. How many droids should Luke rent?
A)
one
B)
two
C)
three
D)
four
Use the following to answer question 28:
Page 7
28.
(Table: Workers and Art Output) Look at the table Workers and Art Output. Suppose
you achieve your dream of opening an art studio specializing in selling mud statues.
You pay $10 in fixed costs for equipment and $9 per day to each of your workers who
make the mud statues. The industry is perfectly competitive, with a current market price
of $1. How many statues should you produce?
A)
25
B)
35
C)
43
D)
48
29.
The amount by which the use of an additional unit of a factor of production increases a
firm’s total revenue during a period is called the:
A)
value of the marginal product.
B)
average product.
C)
marginal factor cost.
D)
marginal physical product.
30.
The value of the marginal product is the:
A)
change in total output resulting from a unit change in the quantity of a factor.
B)
change in total revenue resulting from a unit change in the quantity of a factor.
C)
change in total cost resulting from a unit change in the quantity of a factor.
D)
ratio of total revenue to the quantity of a factor employed.
31.
If the extra output that is produced by hiring one more unit of labor adds more to _____
than to _____, the firm will increase its profit by increasing the use of labor.
A)
total cost; total revenue
B)
total revenue; total cost
C)
marginal cost; marginal revenue
D)
marginal product; marginal cost
32.
The Bountiful Bakery is considering hiring another pastry chef. The bakery knows the
average product of its chefs is 15 dozen croissants per day. It also believes that the next
chef hired will produce an extra 12 dozen croissants per day. A dozen croissants sell for
$30. The bakery should hire another worker:
A)
only if the new chef’s marginal product is 12 dozen or more.
B)
only if the new chef’s daily wage is $450 or less.
C)
only if the new chef’s daily wage is $360 or less.
D)
because the marginal product is below the average product.
Page 8
33.
The amount by which an additional unit of a factor increases a firm’s _____ during a
period is the _____.
A)
total revenue; value of the marginal product
B)
total revenue; marginal factor cost
C)
total cost; value of marginal product
D)
total cost; marginal product
34.
Which of the following best describes the value of the marginal product?
A)
the change in total output generated by a unit change in the quantity of a factor
B)
the change in total revenue generated by a unit change in the quantity of a factor
C)
the change in marginal cost generated by a unit change in the quantity of a factor
D)
the ratio of total revenue to the quantity of a factor employed
35.
The value of the marginal product is calculated as:
A)
MP / MR.
B)
MP / P.
C)
MP × P.
D)
MR / MP.
36.
The amount that an additional unit of a factor adds to a firm’s total revenue is called the:
A)
marginal revenue.
B)
marginal cost.
C)
additional revenue product.
D)
value of the marginal product.
37.
The marginal product times product price equals the:
A)
marginal revenue.
B)
value of the marginal product.
C)
additional revenue product.
D)
marginal cost.
38.
Which of the following formulas is CORRECT?
A)
VMPL = MC × P.
B)
VMPL = MPL × P.
C)
MPL = VMPL × P.
D)
VMPL / MC = TR.
Page 9
39.
Which of the following statements is TRUE?
A)
The marginal product is the change in total revenue divided by a one-unit change in
a factor.
B)
The marginal revenue is the change in total output divided by the change in output.
C)
The value of the marginal product is the marginal product times the price.
D)
The marginal cost is equal to the average total cost.
40.
Which of the following statements is TRUE?
A)
The value of the marginal product of labor equals the marginal product of labor
times price.
B)
The value of the marginal product of labor equals a one-unit change in a factor
divided by the change in total revenue.
C)
Marginal cost equals change in total revenue divided by the one-unit change in a
factor.
D)
The value of the marginal product of labor equals the change in the quantity of a
factor times the price of the factor.
41.
A profit-maximizing firm will base its decision to hire workers on the additional costs
and benefits of each worker. If the extra output that is produced by hiring one more unit
of labor adds more to _____ than to _____, the firm will increase its profit by increasing
the use of labor.
A)
total cost; total revenue
B)
total revenue; total cost
C)
marginal cost; marginal revenue
D)
marginal cost; total cost
42.
A firm has hired the profit-maximizing number of workers when the wage is:
A)
less than the price of the product.
B)
greater than the average product of the last worker hired.
C)
equal to the average product of the last worker hired.
D)
equal to the value of the marginal product of labor of the last worker hired.
43.
Suppose Billy Bud’s Bucking Broncos employs 20 workers at a daily wage of $60 each.
The average product of labor is 30 bucking broncos per day; the marginal product of the
last worker is 12 bucking broncos per day; and total fixed cost is $3,600 for equipment.
What is the marginal cost of the last bucking bronco produced?
A)
$0.20
B)
$5.00
C)
$240.00
D)
$720.00
Page 10
44.
To maximize profits, a firm will employ workers until for the last worker employed:
A)
marginal product of labor is equal to the nominal wage rate.
B)
the value of the marginal product of labor is equal to the wage rate.
C)
the value of the marginal product of labor is equal to the price per unit of output.
D)
the value of the marginal product of labor is as high as possible.
45.
Maria operates a persimmon orchard in southeastern Oklahoma. She pays her workers
$248 per week to pick and process persimmons, and she sells her persimmons for $6 per
bushel. If she adds one more worker and that worker can pick and process 44 bushels
per week, what will be the profit for Maria from hiring that worker?
A)
$0
B)
$16
C)
$264
D)
$544
46.
For the Tampa Bay Rays baseball team, the value of the marginal product curve is the
team’s labor _____ curve. This means the marginal product curve has a _____ slope.
A)
demand; positive
B)
supply; positive
C)
demand; negative
D)
supply; negative
47.
José, a corn farmer operating in a perfectly competitive market, pays his workers $8 an
hour. At his current level of labor use, the marginal product of an additional hour of
labor is three bushels of corn. The market price of corn is $2.75. To maximize his
profits, Jose should:
A)
hire more labor.
B)
hire less labor.
C)
not change the amount of labor.
D)
This question cannot be answered without knowing the average product of labor.
48.
Barry’s Brewpub is considering hiring more brewmasters. The market wage for a
brewmaster is $120 per day. The average brewmaster produces 40 pints of beer per day,
but Barry expects the next brewmaster to produce only 20 pints per day. Assuming the
market for beer is perfectly competitive, Barry’s Brewpub will hire another brewmaster
only if:
A)
a pint of brew sells for $3.
B)
the new brewmaster can produce 40 pints.
C)
a pint of brew sells for $2.
D)
a pint of brew sells for $6 or more.
Page 11
49.
Barry’s Brewpub is considering hiring more brewmasters. A pint of brew sells for $3.
The market wage of a brewmaster is $150 per day. Assuming that the market for beer is
perfectly competitive, Barry’s Brewpub will hire another brewmaster only if Barry
believes the new brewmaster will:
A)
produce the same number of pints per day as the last brewmaster hired.
B)
produce 50 or more pints per day.
C)
raise total production to 50 or more pints per day.
D)
increase the marginal product by $150 per day.
50.
Mary is considering hiring another worker in an assembly line for MP3 speakers. Mary
knows the average product of labor is 15 speakers per day. She also believes that the
next worker hired will produce an extra 12 speakers per day. A speaker sells for $10.
Assuming that the market for speakers is perfectly competitive, Mary should hire
another worker:
A)
only if the new worker’s marginal product is 12 or more.
B)
only if the new worker’s daily wage is $150 or less.
C)
only if the new worker’s daily wage is $120 or less.
D)
since the marginal product is below the average product.
51.
The individual producer’s labor demand curve is the:
A)
marginal product of labor curve.
B)
value of the average product of labor curve.
C)
average product curve.
D)
value of the marginal product of labor curve.
52.
All perfectly competitive fast-food firms are hiring the profit-maximizing quantity of
labor and are paying their workers $7 per hour. If the government raises the minimum
wage to $8 per hour:
A)
the value of the marginal product will exceed the wage, and firms will hire more
workers.
B)
the value of the marginal product will be less than the wage, and firms will lay off
some workers.
C)
firms will increase their prices to keep the value of the marginal product equal to
the wage.
D)
firms will have to exit the industry, since the value of the marginal product is
always less than the wage.
Page 12
53.
As the _____ of labor used in production increases, ceteris paribus, eventually the
_____ will _____.
A)
price; supply of labor; increase
B)
quantity; marginal product of labor; fall
C)
quantity; marginal product of labor; rise
D)
quantity; value of the marginal product of labor; rise
54.
When a firm is a perfect competitor in the product market, its demand curve for labor
will _____ because the _____ product declines as additional workers are hired.
A)
slope downward; marginal
B)
be horizontal; average
C)
slope upward; marginal
D)
slope downward; average
55.
A firm’s demand curve for labor is:
A)
the upward-sloping portion of its value of the marginal product curve.
B)
the downward-sloping portion of its marginal product curve.
C)
the downward-sloping portion of its value of the marginal product curve.
D)
horizontal for the firm in perfect competition.
56.
The quantity demanded of labor will decrease if:
A)
the price of the product that the labor produces increases.
B)
the productivity of labor increases.
C)
the price of labor rises.
D)
there is an increase in the supply of a factor labor uses.
57.
A determinant of the demand for a factor of production is the:
A)
price of the factor.
B)
productivity of the factor.
C)
quantity of the factor supplied.
D)
compensating differential.
58.
Suppose there are diminishing returns to labor. If the _____ of labor hired by a firm
increases, holding everything else constant, the _____ labor will _____.
A)
price; demand for; increase
B)
quantity; marginal product of; fall
C)
quantity; marginal product of; rise
D)
quantity; value of the marginal product of; rise
Page 13
59.
If the marginal product is _____, the value of marginal product must be _____.
A)
rising; falling
B)
falling; falling
C)
falling; rising
D)
rising; zero
60.
A firm’s demand curve for labor is:
A)
its marginal cost curve.
B)
its marginal product curve.
C)
its value of the marginal product of labor curve.
D)
horizontal if it is in perfect competition.
61.
A profit-maximizing firm will hire workers up to the quantity of labor where:
A)
VMPL > W.
B)
VMPL = W.
C)
VMPL < W.
D)
MP × MR = VMPL.
62.
If a firm hires labor such that W > VMPL, then profit:
A)
is maximized.
B)
can be increased by hiring less labor.
C)
can be increased by hiring more labor.
D)
can be increased by decreasing the price of the output.
63.
If a firm hires labor such that W < VMPL, then profit:
A)
is maximized.
B)
can be increased by hiring less labor.
C)
can be increased by hiring more labor.
D)
can be increased by increasing the wage.
64.
If a firm hires labor and with its current employees W = VMPL, then profit:
A)
is maximized.
B)
can be increased by hiring less labor.
C)
can be increased by hiring more labor.
D)
can be increased by increasing the wage rate.
Page 14
65.
Which of the following statements is TRUE?
A)
If W < VMPL, the firm should hire more labor.
B)
If W > VMPL, the firm should hire more labor.
C)
If W = VMPL, the firm should hire more labor.
D)
If W > 0, the firm should shut down.
66.
A firm’s demand curve for labor in a perfectly competitive market is the
downward-sloping portion of its _____ curve.
A)
marginal revenue
B)
average total cost
C)
value of the marginal product of labor
D)
total revenue
67.
If the wage rate rises, firms will find that:
A)
their labor demand curve shifts leftward.
B)
their labor demand curve shifts rightward.
C)
they move upward and to the left along the labor demand curve.
D)
they move downward and to the right along the labor demand curve.
68.
Suppose the labor market for plumbers is in equilibrium. Which of the following might
DECREASE the wage for plumbers?
A)
An economic boom increases the demand for new homes.
B)
The plumbers union establishes a rigorous certification test that is difficult for
aspiring plumbers to pass.
C)
Unemployed manufacturing workers attend technical schools to learn the plumbing
trade.
D)
A minimum wage is imposed in the market for plumbers.
69.
An increase in the market demand for electricians might occur if:
A)
the price of electrical repair and installation services rises.
B)
the demand for new houses falls.
C)
the price of copper electrical wiring increases.
D)
the wage for electricians falls.
Page 15
70.
Benny employs people to sell candy bars at intersections. The marginal product of the
last worker Benny hired is 20 candy bars per hour. Benny pays $7 per worker per hour
and sells the candy bars for $1 each. If the price of candy bars rises to $2, then the:
A)
demand for labor increases.
B)
demand for labor decreases.
C)
quantity demanded of labor increases, but the demand for labor curve does not
shift.
D)
quantity demanded of labor decreases, but the demand for labor curve does not
shift.
71.
Phil’s Copy Studio pays its workers $60 per day and sells poster-size copies for $10 per
print. If the market wage rises to $70:
A)
the demand for labor increases.
B)
the demand for labor decreases.
C)
the quantity demanded of labor increases, but the demand for labor curve does not
shift.
D)
the quantity demanded of labor decreases, but the demand for labor curve does not
shift.
72.
Phil’s Copy Studio pays its workers $60 per day and sells poster-size copies for $10 per
print. Now suppose during the holiday season the price of poster-size copies increases to
$12. What happens?
A)
The demand for labor increases.
B)
The demand for labor decreases.
C)
The quantity demanded of labor increases, but the demand for labor curve does not
shift.
D)
The quantity demanded of labor decreases, but the demand for labor curve does not
shift.
73.
The government increases the sales tax on all goods. The government does not change
the tax on income earned from labor. What happens?
A)
The quantity of labor demanded decreases, but the demand for labor does not shift.
B)
The demand for labor decreases.
C)
The supply of labor increases.
D)
There is no change in the labor market.
Page 16
74.
Over the past several years, the demand for phone operators has fallen dramatically.
Which of the following would account for this development?
A)
an increase in the number of automated answering services
B)
a decrease in the technology associated with phone equipment
C)
an increase in the supply of phone operators
D)
higher prices for long-distance service
75.
Labor with a particular skill level and training is used in only two industries: grape
cultivation and cranberry cultivation. Which of the following is likely to cause an
INCREASE in the demand for this type of labor?
A)
improved technology that leads to more efficient machines for grape picking
B)
publication of a report asserting that drinking two glasses of grape or cranberry
juice every day improves digestion and heart health
C)
a report by the USDA that an increasing proportion of grapes are contaminated
with unacceptable pesticides
D)
a decrease in the acreage of cranberry bogs
76.
A factor demand curve will shift because:
A)
of a change in the price of the good the factor produces.
B)
the elasticity of demand for the final product is high.
C)
of a change in the proportion of the factor’s cost relative to total cost.
D)
the slope of the MP curve is negative.
77.
There will be an increase in factor demand because of a(n) _____ in the price of the
_____.
A)
increase; factor
B)
increase; good the factor produces
C)
decrease; factor
D)
decrease; good the factor produces
78.
A factor demand curve will shift to the left because of a(n) _____ in the price of the
_____.
A)
increase; factor
B)
increase; good the factor produces
C)
decrease; factor
D)
decrease; good the factor produces
Page 17
79.
An increase in the demand for autoworkers may come about because of:
A)
a decrease in the price of cars.
B)
a decrease in the productivity of autoworkers.
C)
a decrease in the supply of other factors that autoworkers use in production.
D)
an increase in the price of cars.
80.
An increase in the demand for autoworkers may come about because of all of the
following EXCEPT a(n):
A)
increase in the price of cars.
B)
decrease in the market wage rate.
C)
increase in the productivity of autoworkers.
D)
increase in the supply of other factors that autoworkers use in production.
81.
A decrease in the demand for pastry chefs may come about because of an increase in
the:
A)
concern for healthy living.
B)
market wage rate for pastry chefs.
C)
productivity of pastry chefs.
D)
supply of other factors that pastry chefs use.
82.
An increase in the demand for construction workers may come about because of a(n):
A)
increase in the demand for new housing.
B)
decrease in the market wage rate for construction workers.
C)
decrease in the productivity of construction workers.
D)
decrease in the supply of other factors that construction workers use.
83.
A shift in demand for a given factor of production will NOT occur if:
A)
the price of that factor falls.
B)
the productivity of that factor increases.
C)
the productivity of that factor decreases.
D)
there is a decrease in the price of a substitute factor.
84.
A firm’s demand curve for labor will shift because of:
A)
a decrease in the wage rate.
B)
an increase in the wage rate.
C)
changes in preferences and the cultural norms that define how much we work.
D)
a change in the product’s price.
Page 18
85.
According to the _____, in a perfectly competitive economy each factor of production is
paid its equilibrium value of the marginal product.
A)
theory of labor supply
B)
efficiency-wage model
C)
theory of compensating differentials
D)
marginal productivity theory of income distribution
86.
Oscar’s Flower Shop maximizes profits by hiring four workers in a perfectly
competitive labor market. The workers and their value of the marginal product of labor
are Noe, $40; Barbara, $35; Calvin, $27; and Diana, $15. According to the marginal
productivity theory of income distribution, which of the following statements is TRUE?
A)
In equilibrium, each worker is paid his or her value of the marginal product of
labor.
B)
Each worker is paid a wage equal to the highest value of the marginal product of
labor (i.e., $40).
C)
Each worker is paid $15.
D)
We need to know the product price before we can figure out the wage rate.
87.
An important assumption underlying the marginal productivity theory of income
distribution is that:
A)
product markets are monopolistically competitive.
B)
factor markets are perfectly competitive.
C)
the relevant value of the marginal product is not the equilibrium value.
D)
the firm does not own any land or physical capital.
88.
The marginal productivity theory of income distribution says that:
A)
each factor is paid the equilibrium value of the output generated by the last unit of
that factor employed in the factor market as a whole.
B)
each factor is paid an amount greater than the value of the output generated by the
last unit of that factor employed in the factor market as a whole.
C)
each factor is paid an amount less than the value of the output generated by the last
unit of that factor employed in the factor market as a whole.
D)
the payment to each factor does not correspond to the marginal product of the
factor.
89.
The labor demand curve in a perfectly competitive factor market is the horizontal sum
of all firms’ _____ product of labor curves.
A)
marginal
B)
value of the marginal
C)
marginal physical
D)
average physical
Page 19
Use the following to answer questions 90-92:
Figure: Equilibrium in the Labor Market
90.
(Figure: Equilibrium in the Labor Market) In the figure Equilibrium in the Labor
Market, an increase in the productivity of labor, when everything else stays the same,
will lead to a(n) _____ in the equilibrium quantity of labor and a(n) _____ in the
equilibrium price of labor.
A)
decrease; increase
B)
increase; decrease
C)
decrease; decrease
D)
increase; increase
91.
(Figure: Equilibrium in the Labor Market) In the figure Equilibrium in the Labor
Market, a decrease in the price of the good produced, when everything else stays the
same, will lead to a(n) _____ in the equilibrium quantity of labor and a(n) _____ in the
equilibrium price of labor.
A)
increase; increase
B)
decrease; increase
C)
increase; decrease
D)
decrease; decrease
Page 20
92.
(Figure: Equilibrium in the Labor Market) In the figure Equilibrium in the Labor
Market, a decrease in population that decreases the number of workers, when everything
else stays the same, will lead to a(n) _____ in the equilibrium quantity of labor and a(n)
_____ in the equilibrium price of labor.
A)
increase; increase
B)
decrease; increase
C)
increase; decrease
D)
decrease; decrease
93.
According to the marginal productivity theory of income distribution, every factor of
production is paid _____ the equilibrium value of its _____ product.
A)
just; marginal
B)
more than; marginal
C)
less than; marginal
D)
just; average
94.
The marginal productivity theory of income distribution assumes that factor markets
are:
A)
monopolies.
B)
oligopolies.
C)
perfectly competitive.
D)
allowed to pay only the wages that government approves.
95.
The equilibrium value of the marginal product of a factor is the additional value
produced by the _____ unit of that factor employed in the factor market as a whole.
A)
first
B)
last
C)
most productive
D)
least productive
96.
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 _____ product of labor is _____ product of capital.
A)
marginal; greater than the marginal
B)
marginal; less than the marginal
C)
average; greater than the average
D)
average; less than the average
Page 21
97.
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 is due to the fact that:
A)
the marginal productivity theory of income distribution does not apply in this case.
B)
the value of the marginal product of the last machinist hired is less than the average
of all machinists employed.
C)
the value of the marginal product of the last machinist hired is greater than the
average of all machinists employed.
D)
the value of the marginal product of the last machinist hired is equal to the average
of all machinists employed.
98.
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 is due to the fact that:
A)
the marginal productivity theory of income distribution does not apply in this case.
B)
the equilibrium wage rate includes other costs, such as employee benefits, that have
to be subtracted from the $70,000 salary.
C)
the equilibrium wage rate includes other costs, such as employee benefits, that have
to be added to the $70,000 salary.
D)
the value of the marginal product of the last machinist hired is equal to the average
of all machinists employed.
Use the following to answer questions 99-102:
Page 22
99.
(Table: Total Product of Labor at Debbie’s Bakery) Look at the table Total Product of
Labor at Debbie’s Bakery. Debbie can sell cakes at $10 each. What is the value of the
marginal product for the fourth worker?
A)
five cakes
B)
$50
C)
$210
D)
21 cakes
100.
(Table: Total Product of Labor at Debbie’s Bakery) Look at the table Total Product of
Labor at Debbie’s Bakery. Debbie can sell cakes at $10 each. If Debbie must pay each
worker $40 per day, how many workers will she hire to maximize profit?
A)
three
B)
four
C)
five
D)
six
101.
(Table: Total Product of Labor at Debbie’s Bakery) Look at the table Total Product of
Labor at Debbie’s Bakery. Debbie can sell cakes at $8 each. Debbie must pay each
worker $45 per day. How many workers will she hire to maximize profit?
A)
two
B)
three
C)
four
D)
five
102.
(Table: Total Product of Labor at Debbie’s Bakery) Look at the table Total Product of
Labor at Debbie’s Bakery. Debbie can sell cakes at $10 each. Debbie must pay each
worker $30 per day. Now suppose the government imposes a minimum wage law that
all bakeries must pay no less than $50 per day. Debbie _____ employment from _____
workers to _____ worker(s).
A)
reduces; six; one
B)
reduces; six; five
C)
reduces; six; four
D)
increases; one; four
Page 23
Use the following to answer questions 103-107:
103.
(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is
a price-taking farmer who produces corn. Assume the wage rate for workers is $130 and
the price per bushel of corn is $10. Suppose Laura is employing two workers. If she
adds the third worker, her profits will:
A)
increase by $79.
B)
decrease by $51.
C)
decrease by $109.
D)
increase by $80.
104.
(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is
a price-taking farmer who produces corn. Assume the wage rate for workers is $125 and
the price per bushel of corn is $10. To maximize profits Laura should employ _____
workers.
A)
two
B)
three
C)
four
D)
six
105.
(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is
a price-taking farmer who produces corn. Assume the wage rate for workers is $125 and
the price per bushel of corn is $10. Suppose Laura is employing seven workers. If she
reduces employment to six workers, her profits will:
A)
increase by $20.
B)
decrease by $970.
C)
increase by $105.
D)
increase by $90.
Page 24
106.
(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is
a price-taking farmer who produces corn. Assume the wage rate for workers is $250 and
the price per bushel of corn is $20. Laura should hire _____ workers to maximize
profits.
A)
one
B)
two
C)
four
D)
seven
107.
(Table: Workers and Corn Output) Look at the table Workers and Corn Output. Laura is
a price-taking farmer who produces corn. Assume the wage rate for workers is $130 and
the price per bushel of corn is $10. Suppose Laura acquires more land and as a result the
output that can be produced by any given number of workers doubles. Laura should hire
_____ workers to maximize profits.
A)
four
B)
five
C)
six
D)
seven
Use the following to answer questions 108-111:
Page 25
108.
(Table: Employment and Output) In the table Employment and Output, if the price of a
bushel of wheat is $10, then the value of the marginal product of the third worker is:
A)
$15.
B)
$150.
C)
$170.
D)
$510.
109.
(Table: Employment and Output) In the table Employment and Output, if the price of a
bushel of wheat is $10, then the value of the marginal product of the fifth worker is:
A)
$11.
B)
$110.
C)
$90.
D)
$750.
110.
(Table: Employment and Output) In the table Employment and Output, if the price of a
bushel of wheat is $5 and the price of labor (wage) is $40, then the profit-maximizing
quantity of labor is:
A)
one.
B)
three.
C)
six.
D)
eight.
111.
(Table: Employment and Output) In the table Employment and Output, if the price of a
bushel of wheat is $10 and the price of labor (wage) is $120, then the profit-maximizing
quantity of labor is:
A)
one.
B)
three.
C)
four.
D)
six.
Page 26
Use the following to answer questions 112-115:
Figure: The Value of the Marginal Product Curve
112.
(Figure: The Value of the Marginal Product Curve) In the figure The Value of the
Marginal Product Curve, if the market wage rate increases:
A)
the VMPL curve will shift to the right.
B)
the profit-maximizing quantity of labor will increase.
C)
the VMPL curve will shift to the left.
D)
the profit-maximizing quantity of labor will decrease.
113.
(Figure: The Value of the Marginal Product Curve) In the figure The Value of the
Marginal Product Curve, the VMPL curve will shift to the right if:
A)
the wage rate increases.
B)
a technological advance makes labor more productive.
C)
the price of the good that the labor produces decreases.
D)
the wage rate decreases.
114.
(Figure: The Value of the Marginal Product Curve) In the figure The Value of the
Marginal Product Curve, if a technological advance makes labor more productive and
everything else stays the same, then the profit-maximizing quantity of labor:
A)
will increase.
B)
will decrease.
C)
will stay the same.
D)
cannot be determined.
Page 27
115.
(Figure: The Value of the Marginal Product Curve) In the figure The Value of the
Marginal Product Curve, if the price of the good increases and everything else stays the
same, then the profit-maximizing quantity of labor:
A)
will increase.
B)
will decrease.
C)
will stay the same.
D)
cannot be determined.
Use the following to answer questions 116-127:
116.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $2, the value of the marginal product for the
fifth worker is:
A)
$0.
B)
$20.
C)
$40.
D)
$60.
117.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $2, the value of the marginal product for the
third worker is:
A)
$2.
B)
$10.
C)
$60.
D)
$80.
Page 28
118.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $2 and the market wage rate is $20 per hour,
the profit-maximizing quantity of labor is _____ workers.
A)
two
B)
four
C)
six
D)
eight
119.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $2 and the market wage rate is $60 per hour,
the profit-maximizing quantity of labor is _____ workers.
A)
zero
B)
two
C)
four
D)
six
120.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $2 and the market wage rate is $100 per
hour, the profit-maximizing quantity of labor is _____ workers.
A)
zero
B)
two
C)
four
D)
six
121.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $4 and the market wage rate is $80 per hour,
the profit-maximizing quantity of labor is _____ worker(s).
A)
one
B)
three
C)
five
D)
seven
Page 29
122.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $4 and the market wage rate is $120 per
hour, the profit-maximizing quantity of labor is _____ workers.
A)
zero
B)
two
C)
three
D)
four
123.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. The price of a power cord is $2, the market wage rate is $40 per hour, and
eight workers are hired. Profit can be maximized by hiring _____ worker(s).
A)
one more
B)
two more
C)
one fewer
D)
three fewer
124.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. The price of a power cord is $2, the market wage rate is $40 per hour, and
four workers are hired. Profit can be maximized by hiring _____ worker(s).
A)
one more
B)
two more
C)
one fewer
D)
two fewer
125.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. The price of a power cord is $2, the market wage rate is $20 per hour, and
eight workers are hired. Profit can be maximized by hiring _____ worker(s).
A)
one more
B)
two more
C)
one fewer
D)
two fewer
Page 30
126.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $2 and the wage rate is $90 per hour, the
profit-maximizing quantity of labor is _____ workers.
A)
zero
B)
two
C)
four
D)
six
127.
(Table: Value of the Marginal Product of Labor and Demand) In the figure Value of the
Marginal Product of Labor and Demand, the total product of labor is shown for the
hourly production of power cords. Assume that the market for power cords is perfectly
competitive. If the price of a power cord is $4 and the wage rate is $160 per hour, the
profit-maximizing quantity of labor is _____ worker(s).
A)
zero
B)
one
C)
three
D)
five
Use the following to answer questions 128-140:
Figure: The Demand for Bricklayers
Page 31
128.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
If the equilibrium market wage for bricklayers is $100 per day, _____ bricklayers will
be hired by this masonry firm.
A)
four
B)
five
C)
six
D)
There is insufficient information to make this decision.
129.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
The equilibrium market wage for bricklayers is determined by:
A)
the firm hiring the bricklayers.
B)
demand and supply in the market for bricklayers.
C)
the government.
D)
where VMPLbricklayers = MPbricklayers × P of output.
130.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
The equilibrium market wage for bricklayers is $100. For a profit-maximizing firm at
the equilibrium level of output, the VMPLbricklayers:
A)
is $200.
B)
is equal to the market wage rate.
C)
is irrelevant, since the firm is a price taker.
D)
cannot be determined from the information provided.
131.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
The equilibrium market wage for bricklayers is $100 a day, but a minimum wage of
$130 a day for bricklayers is set by the government. As a result:
A)
six workers will now be hired by the firm.
B)
three workers who otherwise would have been employed are now unemployed.
C)
all bricklayers are better off.
D)
construction firms will shut down.
132.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
Which of the following statements is TRUE?
A)
Bricklayers should be hired whenever the value of the marginal product of
bricklayers is greater than or equal to the market wage rate of bricklayers.
B)
The profit-maximizing condition for firms hiring bricklayers is where
VMPLbricklayers is less than the market wage rate.
C)
The profit-maximizing condition for firms hiring bricklayers is where MPbricklayers
equals the market wage rate.
D)
Bricklayers should be hired whenever the market wage rate of bricklayers is greater
than the value of the marginal product of bricklayers.
Page 32
133.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
If the price for bricks laid in the wall is $0.10 a brick, the marginal product of the
second bricklayer is _____ bricks.
A)
1,500
B)
1,400
C)
1,300
D)
1,200
134.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
If the price for bricks laid in the wall is $0.10 a brick, the total production of bricks by
the first three bricklayers is _____ bricks.
A)
1,500
B)
2,900
C)
4,200
D)
5,400
135.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
If the equilibrium market wage rate for bricklayers rises from $80 to $100, the _____
bricklayers will _____.
A)
demand for; rise
B)
quantity demanded of; rise
C)
demand for; fall
D)
quantity demanded of; fall
136.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
If the equilibrium market wage for bricklayers falls from $110 to $100, the _____
bricklayers will _____.
A)
demand for; rise
B)
quantity demanded of; rise
C)
demand for; fall
D)
quantity demanded of; fall
137.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
If there is an increase in technology that increases the productivity of bricklayers, then
the value of the marginal product of the sixth bricklayer will be _____ than _____.
A)
less; $80
B)
greater; $100
C)
less; $60
D)
greater; $110
Page 33
138.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
If a shortage in the market for mortar lowers bricklayers’ productivity, then the value of
the marginal product of the eighth bricklayer will be:
A)
less than $80.
B)
greater than $100.
C)
equal to $100.
D)
greater than $80.
139.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
If the equilibrium market wage for bricklayers is $80 per day, then this masonry firm
will hire _____ bricklayers.
A)
four
B)
six
C)
five
D)
eight
140.
(Figure: The Demand for Bricklayers) Look at the figure The Demand for Bricklayers.
The equilibrium market wage for bricklayers is $100 a day, but there is a new minimum
wage of $120. Therefore:
A)
three workers who otherwise would have been employed by this firm are now
unemployed.
B)
four workers will now be hired by this firm.
C)
all bricklayers are better off.
D)
this firm will shut down.
141.
Which of the following groups has the HIGHEST median earnings in the U.S. labor
market?
A)
White men
B)
women, regardless of ethnicity
C)
African Americans
D)
Hispanics
142.
Which of the following groups has the LOWEST median earnings in the U.S. labor
market?
A)
White men
B)
women, regardless of ethnicity
C)
African Americans
D)
Hispanics
Page 34
143.
Women, regardless of ethnicity, earn:
A)
the same as White men.
B)
about twice as much as White men.
C)
about 70% of the earnings for White men.
D)
about 25% of the earnings for White men.
144.
Wage differences across jobs that reflect the fact that some jobs are less pleasant than
others are called:
A)
efficiency wages.
B)
market power.
C)
compensating differentials.
D)
discrimination.
145.
Which of the following is an example of wage disparity due to compensating
differentials?
A)
The median earnings of White men are more than the median earnings of African
Americans.
B)
People with graduate degrees usually have higher earnings than people who did not
graduate from high school.
C)
Nick Saban, the football coach at the University of Alabama, earns more than an
economics professor.
D)
Crab fishermen on the Bering Sea earn more than clerks who sell goldfish at a pet
store.
146.
Sam and Bob have the same educational background. Both have been policemen in
Memphis for 10 years. Sam works from 11 P.M. until 7 A.M., and Bob works from 7
A.M. until 3 P.M. Sam’s salary is $800 per month higher than Bob’s salary. This is an
example of a wage disparity due to:
A)
efficiency wages.
B)
market power.
C)
compensating differentials.
D)
discrimination.
Page 35
147.
Which of the following is most likely an example of wage disparity due to differences in
talent and ability?
A)
The median earnings of White men are more than the median earnings of African
Americans.
B)
People with graduate degrees usually have higher earnings than people who did not
graduate from high school.
C)
Nick Saban, the football coach at the University of Alabama, earns more than the
local high school football coach.
D)
Crab fishermen on the Bering Sea earn more than clerks who sell goldfish at a pet
store.
148.
Which of the following is most likely an example of wage disparity due to differences in
human capital?
A)
The median earnings of White men are more than the median earnings of African
Americans.
B)
People with graduate degrees usually have higher earnings than people who did not
graduate from high school.
C)
Nick Saban, the football coach at the University of Alabama, earns more than an
economics professor.
D)
Crab fishermen on the Bering Sea earn more than clerks who sell goldfish at a pet
store.
149.
Actual wage differentials can be partially explained by:
A)
differences in talent.
B)
different amounts of human capital.
C)
compensating differentials.
D)
differences in talent, different amounts of human capital, and compensating
differentials.
150.
Which of the following is a compensating differential?
A)
Tiger Woods gets paid more than a college professor.
B)
A window washer working in a suburban residential subdivision gets paid less than
one who is washing windows on the outside of a skyscraper.
C)
A nuclear scientist gets paid more than a janitor working in the same building.
D)
On average, White men get paid more than women of all ethnicities.
151.
A new teacher often makes less than a teacher with 20 years’ experience because of:
A)
discrimination.
B)
differences in human capital.
C)
efficiency wages.
D)
differences in physical capital.
Page 36
152.
Which of the following does NOT partially explain wage differentials?
A)
different amounts of human capital
B)
compensating differentials
C)
differences in talent
D)
differences in capital
153.
A nurse willing to work the midnight to 8 A.M. shift may make more than one who
works 8 A.M. to 4 P.M. because of:
A)
discrimination.
B)
market power.
C)
compensating differentials.
D)
efficiency wages.
154.
A small college employs two economists. Rob has been employed by the college for 15
years, and Nasrin has been employed for 1 year. Rob’s salary is significantly higher than
Nasrin’s, although both have their doctoral degrees in economics. Each professor
averages one publication per year, and both are excellent teachers. Given this
information, the wage difference is best explained by:
A)
compensating differentials.
B)
differences in human capital.
C)
discrimination.
D)
differences in talent.
155.
Employers can sometimes organize to pay lower wages when:
A)
efficiency wages are used to drive down morale and break up a labor union.
B)
health maintenance organizations (HMOs) organize to get groups of doctors to
work together at lower wages than they would earn on their own.
C)
labor unions are not allowed to engage in collective bargaining.
D)
corporations force the minimum wage down.
156.
Unions represent approximately _____% of employees of private businesses.
A)
less than 1
B)
7
C)
19
D)
29
Page 37
157.
Which of the following statements about unions is TRUE?
A)
Laws allow unions to discriminate on the basis of gender and ethnicity.
B)
Unions bargain for better working conditions at the cost of higher wages.
C)
Unions cause a surplus of labor by bargaining for wages that are higher than the
value of the marginal product of labor.
D)
Unions cause compensating differentials.
158.
In the past 30 years, the ability of unions to increase wages and improve working
conditions for their members has:
A)
increased.
B)
decreased.
C)
remained constant.
D)
proved the marginal productivity theory of income distribution to be false.
159.
Above-equilibrium wages paid by some employers as an incentive for better
performance are called:
A)
efficiency wages.
B)
market power wages.
C)
compensating differentials.
D)
discrimination.
160.
Because the efficiency wage is _____ the equilibrium wage, it may lead to a _____ of
labor.
A)
below; shortage
B)
below; surplus
C)
above; shortage
D)
above; surplus
161.
An efficiency wage is:
A)
above the equilibrium wage and is paid to provide workers with an incentive
increase productivity.
B)
efficient because it is exactly equal to the wage rate implied by the marginal
productivity theory.
C)
determined by collective bargaining between unions and management.
D)
equal to the value of the marginal product of labor adjusted so as to make the
structure of compensation more equitable.
Page 38
162.
According to the efficiency wage model, all of the following are correct EXCEPT that
efficiency wages:
A)
reduce unemployment.
B)
are a type of market failure.
C)
are above the equilibrium wage.
D)
may reduce worker turnover.
163.
Suppose Mike wants to pay efficiency wages to help in the construction of his beach
home. If the prevailing wage rate for electricians is $22 per hour in his area, he will
probably pay:
A)
$22.
B)
$26.
C)
$18.
D)
the minimum wage.
164.
According to the _____, workers may earn a wage rate higher than the value of their
marginal product because it provides an incentive to perform efficiently.
A)
marginal productivity of income distribution theory
B)
efficiency-wage model
C)
diminishing-returns theory
D)
increasing-returns model
165.
One reason that wage discrimination based on gender or ethnicity can continue is:
A)
market interference or market failure associated with above-equilibrium wages.
B)
market competition making it profitable to engage in discrimination.
C)
it is justified by the marginal productivity theory of income distribution.
D)
the South African experience with apartheid showed that discrimination led to
more rapid economic growth.
166.
Scott’s wage is $25 per hour and he works 50 hours a week, which is his optimal labor
supply. His marginal utility of one hour of leisure is equal to:
A)
the marginal utility he gets from $25 worth of goods.
B)
the marginal utility he gets from more than $25 worth of goods.
C)
the marginal utility he gets from less than $25 worth of goods.
D)
the substitution effect.
Page 39
167.
The more work people do, all other things unchanged, the:
A)
more their free time.
B)
greater their nonmarket use of time.
C)
less income they have.
D)
less leisure they have.
168.
The price of an extra hour of leisure is:
A)
$1.
B)
the hourly wage rate.
C)
the same as the price of money.
D)
the total utility of labor.
169.
The opportunity cost of an extra hour of leisure is:
A)
$1.
B)
the hourly wage rate.
C)
the same as the price of money.
D)
always less than the value of the marginal product of labor.
170.
A _____ wage will _____ the _____ leisure.
A)
lower; increase; opportunity cost of
B)
higher; always decrease; amount of time spent on
C)
higher; increase; opportunity cost of
D)
lower; not affect; amount of time spent on
171.
Gabriella often faces a trade-off between time at the beach and time working as a model.
She earns $40 per hour as a model and values going to the beach at the same price.
When explaining this to her parents, she says, “The marginal utility per hour working is
the same as the marginal utility per hour of going to the beach.” This is an illustration
of:
A)
indifference curves.
B)
the substitution effect.
C)
the income effect.
D)
optimal time allocation.
172.
The opportunity cost of an hour of leisure:
A)
is always assumed to be equal to the minimum wage.
B)
is the hourly wage rate.
C)
increases if the hour of leisure time is spent in an unproductive activity.
D)
decreases if the hour of leisure is spent in a productive activity.
Page 40
173.
John is an entrepreneur who owns an auto body repair shop. John’s business is booming,
and his salary is rising. John’s labor supply curve will be _____ if the substitution effect
is _____ the income effect.
A)
upward-sloping; smaller than
B)
downward-sloping; smaller than
C)
horizontal; equal to
D)
vertical; greater than
174.
Suppose Professor Jones receives a promotion and an increase in her annual salary. Her
labor supply curve will be _____ if the substitution effect is _____ than the income
effect.
A)
upward-sloping; greater than
B)
upward-sloping; smaller than
C)
downward-sloping; greater than
D)
vertical; greater than
175.
Suppose the government increases the child tax credit, which increases the after-tax
income of families with children. How will this decision affect the amount of labor
supplied by parents, assuming that leisure is a normal good?
A)
Since the income and substitution effects move in the same direction, the amount
of labor supplied will increase.
B)
Since the income effect will dominate the substitution effect, the amount of labor
supplied will decrease.
C)
We don’t know what will happen to the quantity of labor supplied, since we don’t
know whether the income effect or substitution effect will dominate.
D)
The labor supply curve will shift right, so the quantity of labor will also increase.
176.
André has asked his boss for a pay raise. His boss is concerned that if he increases
André’s salary, André might work less. In other words, André’s boss is concerned that
leisure is a normal good for André and that his:
A)
income and substitution effects might move in the same direction.
B)
income effect might be greater than his substitution effect.
C)
substitution effect might be greater than his income effect.
D)
income and substitution effects might cancel out to zero.
Page 41
177.
Tim works 51 hours per week, and his wage is $35 per hour. If his wage increases to
$70 per hour:
A)
the substitution effect implies that he will work less.
B)
if leisure is a normal good, the income effect implies that he will work more.
C)
if leisure is a normal good, the income effect will reinforce the substitution effect
and he will work more.
D)
the substitution effect implies that he will work more.
178.
Lisa works 46 hours a week at $10 an hour. If her wage increases to $16.50:
A)
the substitution effect implies that she will work less.
B)
if leisure is a normal good, the income effect implies that she will work less.
C)
if leisure is a normal good, the income effect will reinforce the substitution effect
and she will work less.
D)
Lisa’s marginal product of labor has decreased.
179.
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
180.
Which of the following statements is TRUE?
A)
Leisure is a normal good.
B)
Leisure is 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.
181.
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
Page 42
182.
A wage _____ raises the quantity of labor supplied through the _____ effect.
A)
decrease; substitution
B)
increase; substitution
C)
increase; income
D)
decrease; complement
183.
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
184.
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.
185.
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.
186.
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
187.
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
Page 43
188.
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
189.
A lower wage:
A)
has an income effect but not a substitution effect on the quantity of labor supplied.
B)
means a higher income for any given level of labor supplied.
C)
has an income effect that is always negative with respect to the quantity of labor
supplied.
D)
has an income effect that is always positive with respect to the quantity of labor
supplied.
190.
A wage _____ reduces the quantity of labor supplied through the _____ effect.
A)
decrease; income
B)
increase; substitution
C)
increase; income
D)
decrease; complement
191.
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
192.
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
193.
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.
Page 44
194.
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.
195.
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
196.
Consider the labor market for accountants. As more people earn accounting degrees, we
should expect to see:
A)
a shift to the right of the labor supply curve.
B)
a shift to the right of the labor demand curve.
C)
an increase in labor along a stable labor supply curve.
D)
an increase in labor along a stable labor demand curve.
197.
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 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.
198.
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.
199.
Which of the following 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
Page 45
200.
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.
201.
Which of the following 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
202.
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
203.
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
204.
The importance of human capital has been increased by technological progress.
A)
True
B)
False
205.
Approximately 71% of income generated in the United States goes to corporate profit.
A)
True
B)
False
206.
Suppose 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 in India engineers are price takers, but engineers in America are not.
A)
True
B)
False
Page 46
207.
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
208.
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
209.
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
210.
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
211.
If the demand for orange juice increases, the derived demand for orange grove workers
will decrease.
A)
True
B)
False
212.
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
Page 47
213.
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
214.
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
215.
The marginal productivity theory of income distribution is based on the assumption that
factor markets are perfectly competitive.
A)
True
B)
False
216.
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
217.
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
218.
The marginal productivity theory of income distribution assumes that factor markets are
oligopolies.
A)
True
B)
False
219.
The marginal productivity theory of income distribution assumes that factor markets are
perfectly competitive.
A)
True
B)
False
Page 48
220.
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
221.
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
222.
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
223.
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 greater than the value of the
marginal product of capital.
A)
True
B)
False
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 difference means that the marginal productivity theory of
income distribution doesn’t hold.
A)
True
B)
False
225.
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
Page 49
226.
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
227.
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
228.
Over the past 30 years the premium for workers with advanced degrees has decreased.
A)
True
B)
False
229.
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
230.
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
231.
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
232.
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
Page 50
233.
The U.S. labor market shows large differences in the median earnings of workers
according to gender and ethnicity.
A)
True
B)
False
234.
In the U.S. labor market, women of all ethnicities have the highest median earnings.
A)
True
B)
False
235.
In the U.S. labor market, White men have the highest median earnings.
A)
True
B)
False
236.
In the U.S. labor market, African Americans have the lowest median earnings.
A)
True
B)
False
237.
In the U.S. labor market, Hispanics have the lowest median earnings.
A)
True
B)
False
238.
Median earning in the U.S. labor market is highest for White men, followed by African
Americans, followed by women regardless of ethnicity, and then Hispanics.
A)
True
B)
False
239.
The median earnings of Hispanics are greater than the median earnings of African
Americans.
A)
True
B)
False
240.
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
Page 51
241.
Wage differences across jobs reflecting the fact that some jobs are less pleasant than
others are called efficiency wages.
A)
True
B)
False
242.
Wage differences across jobs reflecting the fact that some jobs are less pleasant than
others are called compensating differentials.
A)
True
B)
False
243.
The fact that Tom Brady, the quarterback of the New England Patriots, is paid more
than a high school football coach is an example of a wage disparity caused by
compensating differentials.
A)
True
B)
False
244.
The fact that Tom Brady, the quarterback of the New England Patriots, is paid more
than 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
245.
A lumberjack cutting giant redwoods in California being paid more than a person
cutting and selling small Christmas trees is an example of wage disparity due primarily
to compensating differentials.
A)
True
B)
False
246.
A lumberjack cutting giant redwoods in California being paid more than 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
247.
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 Emily’s
salary. This is an example of an efficiency wage disparity.
A)
True
B)
False
248.
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 Emily’s salary. This is
an example of a wage disparity due to a compensating differential.
A)
True
B)
False
249.
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
250.
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
251.
Workers with more human capital usually generate a higher value of the marginal
product.
A)
True
B)
False
252.
Regardless of gender and ethnicity, more education is associated with higher median
earnings.
A)
True
B)
False
253.
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
Page 53
254.
The fact that members of labor unions often have higher wages than 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
255.
In 2012, the median earnings of union members were 25% to 30% higher than the
wages of workers not represented by unions.
A)
True
B)
False
256.
In 2012, the median earnings of union members were actually lower than the wages of
workers not represented by unions.
A)
True
B)
False
257.
In 2012, fewer than 10% of the employees of private businesses were represented by
unions.
A)
True
B)
False
258.
An efficiency wage is higher than the equilibrium wage to motivate the employee to
work hard.
A)
True
B)
False
259.
Above-equilibrium wages paid by some employers as an incentive for better
performance are called compensating differentials.
A)
True
B)
False
260.
Above-equilibrium wages paid by some employers as an incentive for better
performance are called efficiency wages.
A)
True
B)
False
Page 54
261.
Efficiency wages reduce unemployment.
A)
True
B)
False
262.
Compensating differentials are used to motivate employees and to reduce worker
turnover.
A)
True
B)
False
263.
Unions and efficiency wages usually lead to wages that are below the equilibrium level.
A)
True
B)
False
264.
Market forces tend to work against discrimination.
A)
True
B)
False
265.
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
266.
Firms that engage in discrimination are usually more profitable than firms that don’t
discriminate.
A)
True
B)
False
267.
The opportunity cost of an hour of leisure is always assumed to be equal to the
minimum wage.
A)
True
B)
False
268.
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
269.
The opportunity cost of an hour of leisure is the hourly wage rate.
A)
True
B)
False
270.
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
271.
In the labor market, households demand labor and firms supply goods and services.
A)
True
B)
False
272.
In the labor market, households supply labor and firms demand labor.
A)
True
B)
False
273.
In the markets for goods and services, households demand goods and services and firms
supply goods and services.
A)
True
B)
False
274.
In the markets for goods and services, households demand labor and firms supply labor.
A)
True
B)
False
275.
If John’s wage increases from $10 to $12 per hour, his opportunity cost of leisure has
decreased.
A)
True
B)
False
276.
If John’s wage increases from $10 to $12 per hour, his opportunity cost of leisure has
increased.
A)
True
B)
False
Page 56
277.
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
278.
When wages increase, if the substitution effect dominates, the quantity of labor supplied
will increase.
A)
True
B)
False
279.
When wages increase, if the income effect dominates, the quantity of labor supplied will
increase.
A)
True
B)
False
280.
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
281.
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
282.
Judy’s individual labor supply curve is positively sloped, so for Judy, the income effect
dominates the substitution effect.
A)
True
B)
False
283.
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
284.
If an individual labor supply curve is negatively sloped, the substitution effect
dominates the income effect.
A)
True
B)
False
285.
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
286.
A backward-bending labor supply curve is possible only if leisure is an inferior good.
A)
True
B)
False
287.
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
288.
A change in the wage rate will shift the supply curve in the market for labor.
A)
True
B)
False
289.
Since the 1960s the number of women in the labor force has decreased.
A)
True
B)
False
290.
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
291.
The invention of labor-saving appliances has decreased the supply of labor in the United
States.
A)
True
B)
False
Page 58
292.
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
Use the following to answer question 293:
293.
(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.
A) Calculate the marginal product of labor for each worker in the first empty column.
B) Calculate the value of the marginal product of labor for each worker in the second
empty column.
294.
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
Use the following to answer question 295:
295.
(Table: Framing Shop Production Function) Shaheer runs a custom picture-framing
shop. The table Framing Shop Production Function 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.
A) Complete the table by calculating the value of the marginal product of labor
(VMPL) for each worker.
B) How many workers should Shaheer hire to maximize his profit?
Page 60
Use the following to answer question 296:
296.
(Table: Framing Shop Employment and Production) Shaheer runs a custom
picture-framing shop. The table Framing Shop Production Function 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.
A) How many workers should Shaheer hire to maximize his profit?
B) Suppose Shaheer is able to employ more sophisticated tools, which allow his
workers to be twice as productive. How many workers will he employ?
297.
Suppose that two police officers are identical in every way. One officer is employed in
Chicago, a metropolis of 5 million people, and the other officer is employed in Madison,
Indiana, a town of 25,000 people. Which officer is likely to receive the higher wage?
What is a likely source of this wage difference?
298.
John and Deanna are married, with two children. Both adults have college degrees, but
Deanna has chosen not to enter the labor force, while John has worked continuously for
10 years. Suppose Deanna gets a job with John’s employer. She is offered a salary that is
$15,000 below John’s. Is Deanna being discriminated against because she is a woman?
Support your answer.
299.
You overhear an economist refer to the price of leisure. What does this mean? How can
leisure have a price?
300.
The supply curves for goods and services are almost universally upward-sloping. How
is it that labor supply can be downward-sloping in certain cases?
Page 61
301.
The competitive labor market for economists is in equilibrium. Suppose that more
college students decide to major in economics. How will this affect the labor market?
302.
While reading the local newspaper, you notice an article about a man who won a sizable
prize in the state lottery. This prize amounts to monthly payments for the rest of the
man’s life. The man is quoted as saying, “As soon as I receive that first lottery payment,
I will only work when I want to, rather than because I have to.” How would an
economist explain what has happened to this man’s labor supply curve?
303.
When a person becomes better educated and is able to produce a better product, the
person’s education is an improvement in:
A)
human capital.
B)
physical capital.
C)
land.
D)
labor.
304.
When a person receives more education, his or her _____ has increased. When a firm
buys a new copy machine, it has purchased _____.
A)
human capital; physical capital
B)
labor; capital labor
C)
labor; capital
D)
human capital; land
305.
Alex’s boss notices that with each course Alex takes, he becomes a more knowledgeable
and efficient worker. This is an example of:
A)
human capital development.
B)
derived demand.
C)
value of marginal product.
D)
income effects.
306.
Factors of production are different from inputs in that factors of production:
A)
can be used over and over again, but inputs cannot.
B)
can be used only once, whereas an input can be used over and over again.
C)
refer only to labor, while inputs refer to machinery.
D)
encompass only land and other natural factors, while inputs are ingredients.
Page 62
307.
Derived demand for a factor means that:
A)
people demand factors just as they do goods.
B)
the demand for factors depends on what the factor can produce.
C)
the market derives a demand for factors regardless of what they produce.
D)
suppliers determine what will be produced.
308.
The factor distribution of income reflects that:
A)
land, labor, and capital are equally distributed.
B)
most people receive their income based on their labor contribution.
C)
most people receive their income based on their capital distribution.
D)
land provides most income to the population.
309.
In the United States, payments to labor account for:
A)
70% of total income, a share that has not fluctuated much in the past 30 years.
B)
50% of total income, but the returns to land have been increasing.
C)
only 30% of total income, and this number is falling.
D)
90% of income and can be broken down into human capital and physical capital.
310.
Firms will continue to hire workers as long as:
A)
they make a profit.
B)
the value of the marginal product is greater than the marginal cost of hiring labor.
C)
the wage is below the product price.
D)
there are no diminishing returns.
311.
Suppose a firm sells a good for a perfectly competitive price of $5. The equilibrium
wage rate is $10. The first worker it hires produces five units. Two workers produce a
total of nine units. If it hires two workers, the value of marginal product for the second
worker is:
A)
$5.
B)
$45.
C)
$20.
D)
$10.
312.
Suppose a firm sells a good for a perfectly competitive price of $5. The equilibrium
wage rate is $10. The first worker it hires produces five units. Two workers produce a
total of nine units. Given this information, the firm will:
A)
hire the first worker only.
B)
hire both the first and second workers.
C)
not hire either worker.
D)
hire only the second worker.
Page 63
313.
The firm’s value of the marginal product of labor curve:
A)
is the firm’s demand curve for labor.
B)
is the industry’s demand curve for labor.
C)
is the same as the marginal cost curve for labor.
D)
slopes upward.
314.
The firm’s value of marginal product curve slopes downward:
A)
only if the firm is a perfect competitor in the product market.
B)
because of diminishing returns.
C)
only if the firm is a perfect competitor in the labor market.
D)
only if the firm is a perfect competitor in both the labor and product markets.
315.
Although horses were once a very important factor of production, the development of
automobiles and other machinery reduced the demand for their use. This is an example
of:
A)
technological progress shifting the demand for horses to the left.
B)
higher marginal costs for horses shifting demand for horses to the right.
C)
technological progress shifting the demand for horses to the right.
D)
higher marginal costs for horses having no impact on the demand for horses.
316.
In a perfectly competitive labor market, the equilibrium wage:
A)
is the same for all firms.
B)
is always greater than the value of marginal product.
C)
results in diminishing marginal product.
D)
causes some people to be unemployed.
317.
When each factor is paid an amount equal to the value of the marginal product of the
last unit of that factor employed in the factor market as a whole, this is:
A)
the marginal productivity theory of income distribution.
B)
diminishing marginal product.
C)
the factor distribution of income.
D)
the efficiency wage model.
318.
In the factor market for land, equilibrium rental prices will be _____ the value of
marginal product of land.
A)
less than
B)
equal to
C)
greater than
D)
unrelated to
Page 64
Use the following to answer questions 319-324:
Scenario: The Decision to Hire Labor
Assume that both the product market and the labor market are perfectly competitive. The price of
this firm’s product is $5. The firm’s total product with respect to labor is given in the table that
follows.
319.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire
Labor. What is the value of the marginal product of the third worker to this firm?
A)
$5
B)
$25
C)
$18
D)
$10
320.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire
Labor. The marginal product of the fourth worker is:
A)
7.
B)
21.
C)
3.
D)
15.
321.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire
Labor. If this profit-maximizing firm hires two workers, what is a possible equilibrium
wage rate in the labor market?
A)
$30
B)
$5
C)
$13
D)
$6
Page 65
322.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire
Labor. How many workers will this perfectly competitive, profit-maximizing firm
choose to hire if the equilibrium wage is $30?
A)
one
B)
two
C)
three
D)
four
323.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire
Labor. Holding everything else constant, if the demand for this firm’s product decreases:
A)
its value of marginal product curve shifts to the right, and it will hire more workers.
B)
its value of marginal product curve shifts to the left, and it will hire more workers.
C)
its value of marginal product curve shifts to the left, and it will hire fewer workers.
D)
the firm will not change its hiring, since it is a perfectly competitive firm.
324.
(Scenario: The Decision to Hire Labor) Look at the scenario The Decision to Hire
Labor. This firm experiences diminishing marginal product after it hires the _____
worker.
A)
first
B)
second
C)
third
D)
fourth
325.
Large disparities in wages are often used as:
A)
evidence of the importance of profit maximization.
B)
a means to question the validity of the marginal productivity theory of income
distribution.
C)
evidence of diminishing returns.
D)
evidence to illustrate the absence of market failures in factor markets.
326.
People who have higher levels of human capital will tend to:
A)
work only in nonunion jobs.
B)
receive higher salaries than those who have lower levels of human capital.
C)
earn salaries based on marginal costs of their labor.
D)
earn salaries higher than their value of marginal product.
Page 66
327.
If a union is able to bargain for a wage that is higher than the equilibrium:
A)
all workers will earn a wage equal to their value of marginal product.
B)
some excess supply of labor or unemployment will result.
C)
compensating differentials will be erased.
D)
diminishing returns will not exist.
328.
Time allocation refers to:
A)
how many hours an employer should hire a worker for.
B)
how many hours people choose to spend on different activities.
C)
how many hours unions will choose for their members to work.
D)
how different types of talents determine the wages people will earn.
329.
Leisure is considered a normal good, since people:
A)
consume more of it all the time.
B)
cannot consume more, it being limited.
C)
consume more of it when their income rises.
D)
find it to be a luxury to take time off from their job.
330.
If a person’s marginal utility from an additional hour of leisure is less than the marginal
utility gained from goods bought with the wages earned from an additional hour of
labor, then this person should:
A)
continue to work the hours he or she is working.
B)
work less, since he or she is working more than the optimal number of hours.
C)
work more, since he or she is working less than the optimal number of hours.
D)
quit work, since he or she is not earning enough to satisfy his or her time
allocation.
331.
A person’s optimal labor supply choice:
A)
is similar to a person’s optimal consumption rule.
B)
is not useful in determining how many hours a person should work.
C)
reveals little about a person’s labor–leisure choices.
D)
results in people working too much for too little pay.
332.
Within the labor–leisure framework, when an individual’s income effect is stronger than
the substitution effect from a wage increase, it will result in:
A)
an inverted U-shaped labor supply curve.
B)
a labor supply curve that is upward-sloping but from the origin.
C)
a backward-bending labor supply curve.
D)
an upward-sloping labor supply curve.
Page 67
333.
When a person receives a wage increase, changes in his or her labor supply depend on:
A)
a substitution effect and an income effect.
B)
a substitution effect only.
C)
an income effect only.
D)
diminishing marginal product.
Page 69
Page 70
Page 71
Page 72
Page 73
Page 74
Page 75
Page 76