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Earnings and Discrimination 4803
163. Which of the following statements represents the idea behind signaling in education?
a. Education can turn an unproductive person into a productive person.
b. Education increases the marginal productivity of naturally productive workers.
c. More productive people are more inclined to educate themselves.
d. All of the above are correct.
164. Which theory would support the idea that education does not enhance productivity and therefore
raising all workers' educational levels would not affect wages?
a. signaling theory
b. human-capital theory
c. physical-capital theory
d. the efficient-market hypothesis
4804 Earnings and Discrimination
165. Which of the following theories would suggest that attending school does not improve
productivity but that high- ability people are more likely to stay in school?
a. physical-capital theory
b. human-capital theory
c. signaling theory
d. neoclassical theory
166. Suppose that the country of Libraria made a concerted effort to increase the educational level of
its people. If this effort had no effect on the wages of its workers, one might consider this as
evidence in support of
a. the human-capital view of education.
b. the signaling view of education.
c. both the human-capital and the signaling view of education.
d. neither the human-capital nor the signaling view of education.
Earnings and Discrimination 4805
167. According to the signaling theory of education,
a. schooling sends signals to employers in much the same way that advertising sends signals to
consumers.
b. a person becomes more productive by earning a college degree.
c. education is less important than natural ability.
d. All of the above are correct.
168. Which of the following statements is correct?
a. The human-capital theory of education could be called a productivity-enhancing theory.
b. The human-capital theory of education could be called a productivity-revealing theory.
c. The signaling theory of education could be called a productivity-enhancing theory.
d. The signaling theory of education has been disproven by a number of prominent economists.
4806 Earnings and Discrimination
169. Which of the following statements can be called a productivity-revealing theory?
a. human-capital theory and signaling theory
b. human-capital theory but not signaling theory
c. signaling theory but not human-capital theory
d. neither human-capital theory nor signaling theory
170. In the signaling theory of education,
a. schooling itself does not lead to more productive workers.
b. chance plays more of a role than in the human-capital theory.
c. schooling enhances worker productivity.
d. compensating differentials do not matter.
Earnings and Discrimination 4807
171. In the signaling theory of education,
a. discrimination does not affect wage differentials.
b. schooling makes workers more productive in the long-run.
c. schooling makes workers more productive in the short-run.
d. the worker signals to the employer that he is a valuable employee because he was willing to
spend time to get an education.
172. According to the signaling theory of education, better-educated workers
a. are likely to be high-ability workers.
b. improve their marginal productivity through education.
c. are in scarce supply in less developed countries.
d. can only find low-skilled jobs due to technology.
4808 Earnings and Discrimination
173. According to proponents of the signaling theory of education, an increase in the education levels
of all workers would
a. increase workers’ productivity and increase their wages.
b. increase workers’ productivity but leave their wages unaffected.
c. leave workers’ productivity unaffected but increase their wages.
d. leave workers’ productivity and wages unaffected.
174. A signaling theory of education suggests that
a. people who attend college are more likely to capture a "beauty premium."
b. education is a signal of social status.
c. education does not necessarily increase productivity.
d. education will sever the link between innate ability and compensation.
Earnings and Discrimination 4809
175. If the signaling theory of education is correct,
a. workers with more years of formal schooling will earn less than workers with fewer years of
formal schooling.
b. additional years of formal schooling do not increase a worker’s productivity.
c. workers with more years of formal schooling are less likely to be affected by ability, effort,
and chance.
d. men are more likely to earn more than women because men are more likely to have graduated
from college.
176. If the signaling theory of education is correct,
a. education increases productivity and educated workers are paid more.
b. education increases productivity but educated workers are not paid more.
c. education does not increase productivity but educated workers earn more.
d. education does not increase productivity and educated workers do not earn more
4810 Earnings and Discrimination
177. According to proponents of the signaling theory of education,
a. schooling has no real productivity benefit.
b. no one person finds it easier to earn a college degree than does any other person.
c. the human-capital view of education is entirely correct.
d. employers send signals to young people to persuade them to expend whatever effort is
necessary to earn college degrees.
178. The signaling theory of education is most similar to the
a. human capital theory of education.
b. discrimination theory of advertising.
c. signaling theory of advertising.
d. efficiency wage theory of labor economics.
Earnings and Discrimination 4811
179. Jake and Harry each have 130 hours of college credit from Impressive University. Each has 30
hours of economics. Jake has a bachelor’s degree, while Harry is 3 credits short of required
physical education classes and therefore does not have a degree. Each of them has one year of
experience as a market analyst for ABC Company. Assuming that the physical education class
would not enhance Harry’s job performance, if Jake earns a higher salary than Harry, the ABC
Company may subscribe to the
a. human capital theory.
b. discrimination theory.
c. compensating differential theory.
d. signaling theory.
180. James earns a degree from a top university and is hired by a prominent firm because executives
at the firm believe that graduates of this university must have a high ability level or they would
not have graduated. Which of the following theories of education do the executives believe?
a. signaling theory
b. human-capital theory
c. compensating-differentials theory
d. All of the above are correct.
4812 Earnings and Discrimination
181. The Asian Development Bank has been investing in education and training programs in the
developing economies of Asia over the last five years. As a result of this investment, economists
who adhere to the human capital view of education would predict
a. rising wages as labor productivity is enhanced.
b. falling wages as the labor market is saturated with too many educated workers.
c. the marginal productivity of capital would not be affected.
d. the marginal productivity of labor would not be affected.
182. Maria has just graduated from Princeton University and has applied for a job at a major bank.
The bank decides to offer Maria a job because they perceive her degree from Princeton to be an
indication of her high-ability. To which of the following views of education does the bank
subscribe?
a. signaling
b. human-capital view
c. superstar phenomenon
d. benefits of beauty
Earnings and Discrimination 4813
183. Tiffany has just graduated from Stanford University and has applied for a job as an engineer at a
manufacturing plant. The manufacturer decides to offer Tiffany a job because it perceives she’s
gained valuable skills while at Stanford. To which of the following views of education does the
manufacturer subscribe?
a. signaling
b. human-capital view
c. compensating-differentials
d. superstar
184. Tom, the manager and owner of a small company, believes in the signaling theory of education,
not the human capital theory. As such, we would expect Tom not to offer which of the
following company benefits?
a. employer-matching 401k retirement plan contributions
b. tuition reimbursement for workers who take college classes
c. on-site day care
d. health insurance
4814 Earnings and Discrimination
185. Tom, the manager and owner of a small company, believes in the signaling theory of education,
not the human capital theory. As such, Tom would be most likely to agree with which of the
following quotes?
a. “We encourage our employees to enroll in night classes to improve their on-the-job
productivity.”
b. “We encourage our employees to participate in online seminars to learn new skills.”
c. “We pay higher wages to employees who have MBAs because, on average, their job
performance is better than similar employees who do not have MBAs.”
d. “When we interview prospective employees at job fairs, we are looking for college graduates
because they have the determination and follow-through to finish what they start.”
186. Which of the following statements accurately explains the superstar phenomenon in wages?
a. Better carpenters earn more than average carpenters because people are willing to pay higher
prices for higher-quality work.
b. The more productive an author is, the more books she can write each year, so the more she
earns.
c. Talented movie stars earn more than equally talented mechanics because technology allows
the delivery of the services provided by the movie stars to all interested customers.
d. Athletes get paid for performing services that everyday people perform as hobbies.
Earnings and Discrimination 4815
187. Technology is an important factor in explaining the high incomes of some athletes primarily
because
a. technology accounts for differences in incomes within all occupations.
b. technology makes it possible for very large numbers of people to watch athletes perform.
c. technology improves the performance of athletes.
d. technology requires human capital to use it efficiently.
188. Why can superstar athletes and movie stars earn multimillion dollar salaries but superstar
electricians and professors cannot?
a. Every customer in the market wants to enjoy the good supplied by the best producer.
b. Technology makes it possible for the best producer to supply every customer at low cost.
c. Customers are willing to pay more for entertainment than other services.
d. Both a and b are correct.
4816 Earnings and Discrimination
189. The most popular movie stars have high incomes for a number of reasons. One such reason is
a. an ability for almost everyone to enjoy movies at a relatively low cost.
b. the above-average intellect of the average movie star.
c. a compensating differential.
d. a lack of technological advances in the movie industry.
190. Why is a construction worker never likely to earn as much as a famous athlete?
a. Compensating differentials create a higher wage for professional athletes.
b. Technological progress has advanced less in the construction industry then in sports training.
c. Productivity levels are low in the construction industry due to the high number of people
willing to be construction workers.
d. A construction worker can provide his services to only a limited number of customers.
Earnings and Discrimination 4817
191. The "superstar" phenomenon can apply to which of these jobs?
a. high-school teacher
b. author
c. heart surgeon
d. carpenter
192. Which of the following professionals is most likely to generate the income of a superstar?
a. the best teacher
b. the best dentist
c. the best guitar player
d. the best airplane pilot
4818 Earnings and Discrimination
193. According to the superstar phenomenon, the most talented person in which of the following
occupations is most likely to earn extremely high wages?
a. an electrician
b. a hair stylist
c. a journalist
d. an engineer
194. According to the superstar phenomenon, the most talented person in the following occupations is
likely to earn extremely high wages except
a. an author.
b. an auto mechanic.
c. a singer.
d. an advice columnist.
Earnings and Discrimination 4819
195. For a "superstar" to emerge, it must be the case that
a. it is possible to supply the good or service that the superstar produces at low cost to every
customer.
b. some customers are willing and able to pay large sums of money to enjoy the good or service
provided by the superstar.
c. the superstar has a natural monopoly on his or her good or service.
d. the superstar can become sufficiently popular to earn income from advertisements.
196. The primary economic explanation as to why a world-renowned architect cannot attain the
"superstar" status that an athlete or actor can attain is that
a. architects' services are not as highly valued by society as are the services of athletes and
actors.
b. only physically attractive people can become superstars, and it would be a coincidence if a
highly talented architect were also physically attractive.
c. government regulations place restrictions on the incomes of architects, but there are no such
restrictions on the incomes of athletes or actors.
d. it is impossible, currently, for an architect to supply his or her services at low cost to every
customer.
4820 Earnings and Discrimination
197. The fact that movie star Angelina Jolie’s salary is much higher than the salary earned by the
world’s best nurse can
best be explained by the
a. failure of the market to reward talent fairly.
b. large number of nurses.
c. willingness of some people to accept a lower wage rate in order to do work they find
personally rewarding.
d. superstar phenomenon.
198. Suppose that Philip is the best contractor in town, and he makes $400,000 a year. Suppose that
Julia Roberts is the best and highest paid actress in Hollywood, and she makes $13 million per
movie. Both are the best in their respective fields of work. One reason for the significant
difference in incomes has to do with the nature of the service each offers. Philip's contracting
services
a. can be provided to an unlimited number of customers in a year, but Julia's work is sold to only
a few individuals in a year.
b. can only be provided to a limited number of customers in a year, but Julia's work is sold to
millions of
individuals in a year — i.e., to anyone who has the willingness and ability to pay for admission
to her movies.
c. can be provided to a unlimited number of customers in a year, and Julia's work is sold to
millions of
individuals in a year — i.e., to anyone who has the willingness and ability to pay for admission
to her movies.
d. can only be provided to a limited number of customers in a year, and Julia's work is sold to
only a few individuals in a year.
Earnings and Discrimination 4821
199. The superstar phenomenon applies to
a. all famous people equally.
b. any type of worker who has high productivity.
c. markets where technology allows the best producer to supply every customer at a low cost.
d. markets where a small group of workers produce a much higher quality product than the
average worker.
200. The very high pay earned by the best actors and actresses is partially explained by the fact that
a. they benefit from a compensating differential.
b. moviegoers all want to see the very best actors, not second-rate actors.
c. they have acting degrees from accredited acting schools.
d. the supply of good actors is very large.
4822 Earnings and Discrimination
201. Dr. Benson is regarded as, by far, the best dentist in his part of the country, yet his income is not
significantly higher than the average income for a dentist in his area. In contrast, Bo Johnson,
the best baseball player in that region, earns five times the average salary of all baseball players.
The most likely explanation is that
a. the widespread perception that Dr. Benson is a great dentist is, in fact, incorrect.
b. the baseball players’ union is more powerful than the professional association of dentists.
c. Bo Johnson, unlike Dr. Benson, can provide his services to millions of people simultaneously.
d. chance plays a role in determining people’s incomes, resulting in earnings discrepancies that
are hard to
explain or justify.
202. When comparing the salaries of a superstar CPA and a superstar golfer,
a. both can earn tremendously high salaries because both can meet with millions of clients.
b. the superstar CPA will not earn as much as the superstar golfer because superstar
accountants do not have access to the same sophisticated technologies that superstar golfers
do.
c. the superstar CPA will not earn as much as the superstar golfer because a superstar
accountant can only work with a limited number of clients per day, whereas millions of fans
can enjoy the services provided by a superstar golfer on a given day by watching a televised
tournament.
d. the superstar CPA will not earn as much as the superstar golfer because customers are unable
to distinguish superstar accountant from a mediocre accountant.
