Earnings and Discrimination 4883
81. If firms are competitive, then labor-market discrimination
a. cannot exist in either the short run or the long run.
b. will be more of a problem than if the market were monopolistic or imperfectly competitive.
c. likely will not be a long–run problem unless customers exhibit discriminatory preferences or
government maintains discriminatory policies.
d. likely will be more of a problem in the long run than in the short run due to the zero-profit
condition that characterizes long-run equilibrium for competitive firms.
82. “The customer is always right” explains
a. the higher wages paid to members of a union.
b. compensating differentials.
c. persistent wage discrimination based on consumer preferences.
d. All of the above are correct.
83. Discrimination may persist even in competitive markets when the source of the discrimination is
a. employer prejudice.
b. customer prejudice.
c. wage prejudice.
d. employee prejudice.
4884 Earnings and Discrimination
84. Which of the following explains why soccer players make millions of dollars in Europe but do not
in the United States?
a. discriminatory rules established by the government
b. compensating wage differentials for living in Europe
c. discriminatory preferences on the part of US sports fans for other sports
d. efficiency wages paid to European players to enhance on-field performance
85. Which of the following statements is not correct?
a. If a firm discriminates by paying short workers less than tall workers, the firm may be able to
compete in the market if the firm’s customers also prefer taller workers to shorter workers.
b. If the government passes regulations that prevent shorter workers from working in higher
paying jobs, taller workers may continue to earn higher wages than shorter workers.
c. Government regulation that prohibits discrimination is economically necessary because market
forces support discrimination.
d. Competitive markets will eliminate discrimination in wages over time unless customer
preferences also reflect discrimination and/or government intervention promotes discrimination.
Earnings and Discrimination 4885
Scenario 19-4
Assume that the labor market for barbers is competitive and that it is differentiated into two
groups: barbers who are bald (or going bald) and those who have a full head of hair. Assume that
the barbers in this market have identical hair-cutting ability, regardless of whether they are bald or
not. Currently the equilibrium wage in the bald barber market is lower than that in the nonbald
market. Further assume that the market for haircuts is competitive.
86. Refer to Scenario 19-4. If consumers do not discriminate between bald barbers and barbers
with hair, then
a. all barbershops now earn a normal economic profit.
b. competition will ensure the difference in wages will persist.
c. barbershops that hire barbers with hair will be more profitable than those that don‘t.
d. barbershops that hire bald barbers will be more profitable than those that don‘t.
87. Refer to Scenario 19-4. If consumers do not discriminate between bald barbers and barbers
with hair, then
a. competitive pressure in the market for haircuts will eventually cause the equilibrium wage in
both markets to be identical.
b. the equilibrium wage in the “bald” market will eventually fall.
c. the equilibrium wage in the “hairy” market will eventually rise.
d. wages in the market for barbers can never be in equilibrium.
4886 Earnings and Discrimination
88. Refer to Scenario 19-4. Competition in the market for haircuts is consistent with which of the
following statements?
a. Firms hiring nonbald barbers will have a cost advantage, leading to an increase in the demand
for nonbald barbers.
b. All firms that hire only bald barbers will go out of business.
c. Firms hiring bald barbers will enter the market, increasing the demand for bald barbers.
d. Firms hiring nonbald barbers will enter the market, increasing the demand for nonbald barbers.
89. Refer to Scenario 19-4. If some consumers in the market for haircuts have a strong preference
for having their hair cut by a barber who is not going bald, then
a. the difference in wages will eventually disappear since a haircut is a homogeneous good.
b. barbershops that hire barbers with hair will be able to charge a higher price for a haircut to
those consumers who have a strong preference for barbers with hair.
c. barbershops that hire barbers with hair will always be much more profitable.
d. barbershops that hire bald barbers will always be much more profitable.
Earnings and Discrimination 4887
Scenario 19-5
Jason works part-time at a grocery store after school. Jason has worked at the store for two
years but still hasn’t received a wage increase, even though newer employees have received
raises. Jason has threatened his employer with a lawsuit if he doesn’t get a raise in the next few
weeks. Jason believes he is a victim of labor-market discrimination.
90. Refer to Scenario 19-5. Which of the following statements would weaken Jason’s case against
his employer?
a. Jason only works part-time; as a result, he has fewer hours of experience even though he has
been with the company longer.
b. Jason doesn’t accomplish as much in an hour as other workers doing the same job.
c. Other workers that got raises moved to the night shift or agreed to work weekends.
d. All of the above statements would weaken Jason’s case.
91. Refer to Scenario 19-5. Why might an economist be skeptical of Jason‘s discrimination
complaint?
a. Through antitrust laws, discriminating firms can be penalized with large fees.
b. Differences in wages alone do not by themself prove discrimination.
c. Discrimination leads to profit maximization.
d. Even if customers dislike Jason because he’s not helpful, if the store operates in a competitive
market the
store will pay Jason the same as other workers.
4888 Earnings and Discrimination
92. Refer to Scenario 19-5. In a competitive market for grocery store employees, why might
Jason’s wage differential persist?
a. Jason works harder than the other employees.
b. Jason may choose to do tasks other workers find undesirable.
c. Jason’s amiable personality allows him to work well with his co–workers.
d. None of the above is correct.
93. In the early 20th century, streetcars in many southern cities required that white passengers sit in
the front of the car while black passengers sat in the back. The firms that ran the streetcars were
a. in favor of the segregation laws because they lowered costs and increased profits.
b. against the segregation laws because they increased costs and lowered profits.
c. lobbied local governments to enact such laws because their customers were willing to pay more
for service in order to maintain the segregation.
d. concerned about the effects of smoking. Since blacks smoked more than whites, they were
supportive of the segregation laws.
Earnings and Discrimination 4889
94. A 1986 study of segregation on early 20th century U.S. streetcars found that the primary source
of racial segregation on streetcars was
a. a longstanding tradition of racial segregation.
b. policies implemented by the owners of streetcars.
c. laws passed by the government.
d. threats by white people to boycott the streetcars if they were forced to sit with black people.
95. In the early twentieth century, streetcars in many southern cities were segregated by race. This
racial segregation was the result of
a. laws that required such segregation.
b. long–standing southern traditions about which the law was silent.
c. streetcar firms trying to maximize profits.
d. streetcar firms trying to minimize costs.
96. In the early 20th century, segregation of street cars made streetcar companies
a. more profitable and was supported by private streetcar companies.
b. more profitable but was opposed by private streetcar companies.
c. less profitable but was supported by private streetcar companies.
d. less profitable and was opposed by private streetcar companies.
4890 Earnings and Discrimination
97. In the early twentieth century, racial segregation of streetcars in the southern cities was largely
opposed by
a. streetcar firms.
b. government officials.
c. Federal lawyers applying the Sherman antitrust laws.
d. consumers.
98. The example of segregated streetcars in the southern United States in the early twentieth
century is one example of
a. racial discrimination by firms, despite government efforts to halt it.
b. racial discrimination by firms with no government action either to halt it or to support it.
c. government-mandated racial discrimination.
d. a failure to find any discrimination where most would expect to find it.
Earnings and Discrimination 4891
99. The case study of segregated street cars in southern cities illustrates which of the following?
a. Streetcar owners opposed segregation laws primarily because they were concerned with civil
rights.
b. Segregation laws were supported by both local business owners and patrons.
c. Firms usually care more about maximizing profits than discriminating against certain
customers.
d. Laws passed by the government cannot reduce discrimination.
100. In discussing discrimination and the wage differences that exist between men and women and
between blacks and whites, it has been said that “the disease is political even if the symptom is
economic.” What does this mean?
a. Wage differences persist because the political system has failed to enact laws to equalize
wages among all groups.
b. Wage differences exist because of past discrimination on the part of political bodies such as
city councils and school boards.
c. Wage differences exist because of the differences in the political views of the different
groups.
d. Wage differences exist because the political system is biased against paying compensating
differentials.
4892 Earnings and Discrimination
101. Evidence from a study of the market for baseball players using 1960s data
a. indicated that sports with strong player associations are unlikely to experience wage
discrimination.
b. suggested that government regulation had eliminated most evidence of wage discrimination.
c. found some evidence of consumer–driven wage discrimination.
d. found that measurement of marginal productivity was very difficult for baseball players.
102. Evidence from a 1988 study of the market for professional basketball players
a. found no evidence of consumer-driven wage discrimination.
b. found some evidence of consumer-driven wage discrimination.
c. found that measurement of marginal productivity was very difficult for basketball players.
d. indicated that sports with strong player associations are unlikely to experience wage
discrimination.
Earnings and Discrimination 4893
103. A 1990 study of the market for collectable baseball cards suggested
a. there was no evidence of price discrimination on the basis of player position (hitter versus
pitcher).
b. markets in which the product price is low are not typically characterized by consumer-driven
race discrimination.
c. cards for white players (both hitters and pitchers) were 10 to 13 percent higher than those for
comparable black players.
d. cards for black players (both hitters and pitchers) were 10 to 13 percent higher than those for
comparable white players.
104. Economists found evidence of discrimination in each of the following markets except
a. 1960s baseball games
b. baseball cards
c. live basketball games in the 1980s
d. current era baseball games
4894 Earnings and Discrimination
105. Studies of professional sports teams suggest that, in sports, racial discrimination in previous
decades was
a. rare.
b. common and that owners of teams are largely to blame.
c. common and that customers (fans) are largely to blame.
d. None of the above is correct; there are no reliable studies of discrimination in sports due to the
difficulties inherent in measuring athletes‘ productivity.
106. Studies of discrimination in baseball suggest that black players
a. suffered from discriminatory wage differentials several decades ago and those wage
differentials persist today.
b. suffered from discriminatory wage differentials several decades ago but those wage
differentials have been eliminated.
c. did not suffer from discriminatory wage differentials several decades ago but in recent years
wage differentials have become evident.
d. did not suffer from discriminatory wage differentials in the past and they do not suffer from
wage differentials today.
Earnings and Discrimination 4895
107. Why do economists study sports teams when looking for evidence of labor-market
discrimination?
a. because the salaries paid to professional athletes exhibit the superstar phenomenon, which is
highly correlated with discrimination
b. because all four United States professional sports leagues (football, basketball, hockey, and
baseball) require discrimination studies every five years
c. because nonwhites comprise a majority of starters for many professional sports teams
d. because the wide availability of performance statistics allows economists to control for
individual player productivity in ways that are difficult to do for other types of firms
108. Which of the following statements is not correct?
a. Competitive markets tend to limit the impact of discrimination on wages.
b. Differences in earnings of whites and blacks or men and women provide clear evidence of
discrimination.
c. Some differences in earnings are attributable to discrimination based on race, sex, or other
factors.
d. Profit–maximizing behavior can reduce discriminatory wage differentials.
4896 Earnings and Discrimination
109. Which of the following factors affects the marginal productivity of a worker?
a. human capital
b. the worker’s disposable income
c. compensating wage differentials
d. discrimination based on age, race, or gender
110. As a result of their experiment economists Muriel Niederle and Lise Vesterlund found that
a. women choose competitive environments more than men.
b. women and men choose competitive environments equally.
c. women choose competitive environments less than men.
d. women are just as likely as men to have high-paying corporate jobs.
111. In the experiment conducted by economists Muriel Niederle and Lise Vesterlund
a. men were better at adding than women.
b. women chose the tournament payoff scheme more than men.
c. men thought they won the four-player tournament part of the experiment more often than
women thought they won the four-player tournament.
d. the researchers demonstrated that women face significant wage discrimination in stock
brokerages.
Earnings and Discrimination 4897
112. The competition experiment conducted by economists Muriel Niederle and Lise Vesterlund was
consistent with the results of Terry Odean which were that
a. men were better at math than women.
b. men chose competition more because they were better at sports than women.
c. men trade stocks excessively while women adopt a buy-and-hold strategy.
d. streetcar companies were not in favor of segregation because it hurt their profits.
113. Which of the following statements is not correct?
a. If the signaling theory of education is correct, additional schooling does not affect worker
productivity but rather signals a correlation between natural ability and education.
b. The theory of efficiency wages suggests that firms pay higher wages to workers in order to
induce workers to be more productive.
c. Discrimination against workers of a certain race or ethnicity is often in conflict with a firm’s
desire to maximize profits.
d. The theory of compensating wage differentials reflects the different skills, abilities, and
productivity of workers.
4898 Earnings and Discrimination
114. Which of the following statements is not correct?
a. Male workers with good looks tend to earn more than male workers with average looks
b. If discriminating wage differentials persist in competitive markets, it is primarily because
employers chose to discriminate even in spite of customer preferences.
c. A higher level of human capital raises a worker’s wages.
d. In competitive markets, workers are paid a wage equal to the value of their marginal product.
115. Which of the following statements is correct?
a. Compensating wage differentials reflect different skills of workers.
b. Discrimination by employers affects the marginal productivity of workers.
c. The signaling theory of education suggests that schooling does not affect worker productivity.
d. The superstar phenomenon explains why more talented entertainers earn more than less
talented entertainers.
Earnings and Discrimination 4899
116. Which of the following is not correct?
a. Some economists believe that business owners who emphasize profit maximization will hire
the most productive workers regardless of the personal characteristics of the worker; hence,
these firms will drive discriminating firms out of business.
b. Two economists found that employers in Boston and Chicago were about 50 percent more
likely to interview job applicants named Emily and Greg than those named Lakisha and Jamal.
c. Two economists found that women were less likely to participate in an experiment where they
were paid based on math skills but more likely to participate when they were paid based on
reading skills; men were more likely to participate when they were paid based on math skills
and less likely to participate when they were paid based on reading skills.
d. Economists found that the prices of older baseball cards were about 10 percent lower when
the player was black rather than white.
True/False and Short Answer
1. The economic theory of labor markets suggests that wages are determined by labor supply and
labor demand.
a. True
b. False
4900 Earnings and Discrimination
2. A compensating differential refers to a difference in wages that arises from nonmonetary
characteristics.
a. True
b. False
3. A compensating differential is a difference in wages due to higher levels of education or other
forms of human capital.
a. True
b. False
4. The fact that doctors are paid more than economics professors is an example of a compensating
differential.
a. True
b. False
Earnings and Discrimination 4901
5. Traci is a nurse, and she gets paid an additional $1.00 per hour for agreeing to work the night shift.
Carol is also a nurse, but she works the day shift and does not get paid this extra dollar per hour.
This difference in pay is an example of a compensating differential.
a. True
b. False
6. Daryn earns a higher salary than his friend Nick because Daryn is willing to work on the loading
dock, whereas Nick prefers to work in an air-conditioned office. The difference in salary could
illustrate a compensating differential.
a. True
b. False
7. Compensating differentials are differences in wages related to the characteristics of a job.
a. True
b. False
4902 Earnings and Discrimination
8. A computer is an example of human capital.
a. True
b. False
9. Higher levels of human capital are correlated with higher earnings because firms are willing to pay
more for better- educated workers who have higher marginal productivities.
a. True
b. False
10. Education and on–the–job training are sources of human capital.
a. True
b. False