Microeconomics Chapter 13—Earnings, Productivity, and the Job Market
MULTIPLE CHOICE
1. If all persons had identical preferences and productivity factors (ability, skill level, education,
experience, etc.), the highest paying jobs would be the most
a.
prestigious.
b.
convenient.
c.
undesirable.
d.
easily learned.
2. Automated production methods are only attractive when they
a.
are undertaken in heavily unionized sectors of the economy.
b.
reduce per-unit costs.
c.
replace workers.
d.
decrease labor productivity.
3. The fact that some people will work hard to earn a lot of money while others will be content with
much less income indicates that
a.
worker preferences are an important source of earning differentials.
b.
economics ranks one set of worker preferences as more desirable than another.
c.
some people can be paid less for doing hard work while others have to be paid a premium
for doing a similar task.
d.
skill levels of laborers are a minor consideration in wage rate determination.
4. Which of the following is most likely to reduce the nominal market wage in a job category?
a.
The job requires employees to work the night shift from 11 p.m. to 7 a.m.
b.
The job is prestigious, and the work is quite interesting.
c.
The job is widely viewed as dangerous.
d.
The job requires employees to move from city to city quite often.
5. Other things constant, which of the following job characteristics would be most likely to result in a
higher pay rate for the job?
a.
The employer provides low cost child-care services on the premises.
b.
The job is widely viewed as prestigious.
c.
The job requires substantial amounts of stressful out–of-town travel.
d.
The job involves working in pleasant surroundings.
6. Wages in the United States are higher than those in India primarily because
a.
the weather is better in the United States.
b.
a larger proportion of the labor force is unionized in the United States.
c.
less capital per employee is required in the United States.
d.
the human and physical capital of American workers exceeds that of their Indian
counterparts.
7. Economic theory suggests that the standard of living of American workers would rise if
a.
the minimum wage were doubled.
b.
automation were outlawed.
c.
workers were forced to retire earlier.
d.
technological improvements increased output per worker-hour.
8. The earnings of all employees in a competitive economy would be equal if
a.
all individuals were homogeneous.
b.
all jobs were equally attractive.
c.
workers were perfectly mobile among jobs.
d.
all of the above are true.
9. When employment discrimination results from the personal prejudices of employers, economic theory
suggests that
a.
it is costless for employers to discriminate against groups they do not like.
b.
the wages of employees who are discriminated against will actually rise.
c.
an employer who discriminates will experience higher costs.
d.
discrimination by an employer will reduce production costs since the employer can pay
lower wages.
10. In a market economy, which of the following is most important if one is going to achieve high
earnings?
a.
hard work
b.
provision of goods and/or services that others value highly
c.
having a graduate degree in a field like history or sociology
d.
membership in a labor union
11. What is the most probable reason why garbage collectors have higher wages than bookkeepers?
a.
Employment discrimination
b.
A high unionization rate for bookkeepers
c.
A higher educational requirement for garbage collectors than bookkeepers
d.
The nonmonetary attractiveness of garbage collection causes fewer people to want to be
garbage collectors.
12. The difference between the earnings of construction workers who work on bridges and skyscrapers
and those who work on highways is most likely due to
a.
differences in education requirements.
b.
differences in unionization rates.
c.
a compensating differential.
d.
apprenticeship requirements.
13. Which of the following would cause the demand for computer programmers to increase?
a.
a decline in the productivity of computer programmers
b.
an increase in the productivity of computer programmers
c.
an increase in the wages of computer programmers due to legislative action (that is, the
establishment of a price floor for computer programmers)
d.
a reduction in the price of a competitive input that can be substituted for computer
programmers
14. Which of the following would cause the demand for plumbers to decrease?
a.
an increase in the productivity of plumbers
b.
a decline in the construction of housing
c.
a law that mandated higher wages for plumbers
d.
an increase in the number of plumbers who belong to a union
15. Low-skill workers earn a lower wage than more experienced, higher skilled workers because the
a.
low-skill workers lack the intelligence necessary to do any other form of work.
b.
low-skill workers were never given the opportunity to invest in human capital.
c.
supply of low-skill workers is large relative to the demand for workers in this skill
category.
d.
low-skill workers are too lazy to search for other employment opportunities.
16. An individual who possesses a specialized skill that is difficult to execute will
a.
necessarily receive wages considerably higher than those who lack this skill.
b.
receive a wage determined by the number of other persons possessing this skill.
c.
receive a high wage only when this skill is in great demand relative to its supply.
d.
receive a wage rate that is lower than similarly productive individuals who lack this skill.
17. Test pilots are paid high wages by airplane makers primarily because
a.
the demand for labor in this area is very high relative to the demand for labor in other
areas of employment.
b.
the demand for labor in this area is very low relative to the demand for labor in other areas
of employment.
c.
the demand for labor in this category is highly elastic.
d.
few people possess the required skills and the occupation is very risky.
18. Economic models suggest that movie stars have salaries that
a.
greatly exceed their marginal contribution to the movie studio’s revenue.
b.
understate their full contribution to the movie studio’s revenue-as the celebrities are the
main reason that people go to see movies.
c.
are about equal to their marginal revenue products.
d.
can only be explained by looking at specific movie stars and their individual salaries.
19. Economic studies have generally found that professional sports players have salaries that
a.
greatly exceed their marginal contribution to a team’s revenue stream.
b.
are approximately equal to their marginal revenue products.
c.
are about one-half of what they contribute to a team’s profitability.
d.
are less than one-tenth of their marginal revenue products.
20. Compensation where the top performer receives much higher rewards than other competitors, even if
the others perform at only slightly lower levels, is called
a.
a compensating differential.
b.
round-robin pay.
c.
tournament pay.
d.
base pay.
21. A compensation structure that generates much higher pay rates for the top performers, while those
whose productivity is only a little lower receive substantially less compensation, is called
a.
tournament pay.
b.
competing differentials.
c.
dueling executives.
d.
winner take all.
22. In an environment of tournament pay, it is quite likely that marginally more productive employees will
receive
a.
less than their marginal revenue product, while less productive employees receive more
than theirs.
b.
more than their marginal revenue product, while less productive employees receive less
than theirs.
c.
more than their marginal revenue product, as do less productive employees.
d.
less than their marginal revenue product, as do less productive employees.
23. The tournament pay explanation is useful in an attempt to explain why
a.
some corporate executives earn amounts higher than their marginal revenue product.
b.
very few people actually earn the minimum wage.
c.
political entrepreneurs can generate campaign contributions from businesses outside of
their districts.
d.
people with only a high school education earn less than those with college degrees.
24. An example of a non-pecuniary job characteristic is
a.
over-time pay.
b.
salary.
c.
an end-of-the-year bonus.
d.
a comfortable work environment.
25. Working conditions, prestige, variety, location, employee freedom, and employee responsibilities are
all examples of
a.
the tools of employment discrimination.
b.
sociological factors affecting employment.
c.
pecuniary job characteristics.
d.
non-pecuniary job characteristics.
26. If Congress suddenly passes legislation that required all U.S. workers to receive the same annual pay,
we would expect
a.
less human capital investment.
b.
a shortage of workers to fill the least desirable jobs.
c.
a surplus of workers to fill the easy, desirable jobs.
d.
all of the above.
27. Other things constant, when the work opportunities in an occupation are unstable (that is, layoffs are
common), the hourly wages of workers in the occupation will tend to be
a.
higher than the wages of workers with otherwise similar jobs.
b.
lower than the wages of workers with otherwise similar jobs.
c.
below market equilibrium.
d.
above market equilibrium.
28. Which of the following is most likely to reduce the market wage rate in a job category?
a.
The job requires substantial out–of-town travel.
b.
Employees have considerable flexibility in choosing their work hours.
c.
The job is widely viewed as dangerous.
d.
The job requires employees to move from city to city quite often.
29. Everything else equal, wages are likely to be higher when
a.
the location of the job is more desirable.
b.
the work environment is more prestigious.
c.
more skill is required to perform well on the job.
d.
the work is safer.
30. Other things the same, the wages in an occupation are likely to be higher the more
a.
dangerous the job.
b.
prestigious the work environment of the occupation.
c.
desirable the location of the job.
d.
pleasant the working conditions.
31. Window cleaners that work the top floors of high-rise office buildings are, on average, paid
approximately 30 percent more an hour than those that clean windows on the bottom floor. This is an
example of
a.
employment discrimination.
b.
non-pecuniary job benefits.
c.
irrational wage compensation.
d.
compensating wage differentials.
32. Which of the following would be most likely to cause an increase in the wage rate for a particular job?
a.
A decrease in the amount of training needed to perform this job.
b.
An increase in the danger of this job.
c.
A decrease in the danger of this job.
d.
An improvement in the working conditions associated with this job.
e.
An increase in the number of workers with the skills for this job.
33. Two workers are employed in the same job by the same firm; however, they are paid different wage
rates. This could be explained by differences in
a.
the income effect
b.
the price of the firm’s output
c.
their marginal products due to differences in ability
d.
working conditions
e.
risk
34. Which of the following is most likely to increase the market wage rate in a job category?
a.
The employer provides a generous pension plan.
b.
The work is widely viewed as safe and not stressful.
c.
The job is widely viewed as interesting and prestigious.
d.
The job requires employees to move from city to city quite often.
35. Occupations X and Y employ persons with the same productivity. Workers in the two occupations
work the same number of hours per day when on the job. Employment is stable throughout the year in
X, while Y is characterized by seasonal layoffs. How will the hourly wage rate and annual earnings
compare in the two occupations?
a.
The hourly wage rate will be higher in X, but the annual earnings will be higher for Y.
b.
Both the hourly wage rate and annual earnings will be higher in X.
c.
Both the hourly wage rate and annual earnings will be higher in Y.
d.
The hourly wage rate will be higher in Y, but the annual earnings will likely be higher for
X.
36. If carpentry positions A and B required identical skill levels, other things constant, which one of the
following would most likely elevate the wage rate of position A relative to position B?
a.
The work place of position A is in the intense heat of the sun, whereas the work place of B
is air-conditioned.
b.
Position A is a safe office job; position B requires the employee to operate a dangerous
saw.
c.
Position A offers steady employment, whereas employees holding position B are often
laid off.
d.
Position A offers more sick leave and more paid holidays.
37. Which one of the following is most likely to reduce the mobility of labor between jobs?
a.
an increase in the minimum wage
b.
legislation relaxing licensing requirements for entry into many occupations
c.
the taxation of unemployment compensation in the same manner as income from other
sources
d.
both b and c above
38. Which of the following could be an institutional barrier to employment?
a.
licensing requirements
b.
labor unions
c.
minimum wages
d.
all of the above
39. Compared to the general population, millionaires are more likely to be
a.
well-educated.
b.
relatively old.
c.
self-employed.
d.
all of the above.
e.
only b and c above.
40. Which of the following is true?
a.
The majority of millionaires received most of their wealth through an inheritance.
b.
The percentage of the population that are millionaires in inflation-adjusted dollars has
been stable since the 1970s.
c.
About one-third of millionaires have college degrees.
d.
More than 75 percent of American millionaires have college degrees.
41. Millionaires tend to be older than the general population because
a.
older workers generally have more education than younger workers.
b.
many achieve millionaire status by saving from a relatively modest income, and this will
take a lengthy period of time.
c.
the earnings of most people peak during the retirement phase of life.
d.
older people have less to do, and therefore, they have more time to come up with
innovative ideas.
42. Which of the following is true of America’s millionaires?
a.
Most millionaires inherited at least half of their wealth.
b.
Millionaires are far more likely than others to be self-employed entrepreneurs.
c.
It is virtually impossible to achieve this status by saving and investing over a lengthy
period of time.
d.
Only about 20 percent of the millionaires in the United States have college degrees.
43. Suppose that an employer hires workers with blue eyes and workers with brown eyes. Each type of
worker has the same productivity. Which of the following is correct if the employer discriminates by
offering blue-eyed workers lower wages than brown-eyed workers?
a.
The employer will be just as cost efficient as a nondiscriminating employer.
b.
The employer will face higher costs than a nondiscriminating employer.
c.
The employer will have lower costs.
d.
The employer will have higher profits.
e.
Both a and c are correct.
44. The fact that wage differentials continue to exist across different groups of workers leads economists
to believe that
a.
discrimination by customers is the most common type of economic discrimination.
b.
differences in human capital and job characteristics must be important in explaining the
differences in wages.
c.
firms apparently are not profit maximizers.
d.
the market has failed to properly allocate wages to different workers.
45. Business owners who care only about maximizing profits are
a.
likely to discriminate against certain groups of workers.
b.
likely to be replaced by discriminating businesses.
c.
more concerned about racial discrimination than gender discrimination.
d.
at an advantage when competing against those who practice employment discrimination.
46. Economic theory suggests that college graduates receive higher wages than those with only a high
school education because
a.
college graduates are more productive.
b.
college graduates must be paid higher wages because their educational costs were higher.
c.
college graduates have formed stronger unions.
d.
the supply of high school graduates is small relative to the demand for their labor.
47. When employment discrimination results from the personal prejudices of employers, economic theory
suggests that
a.
competitive forces will tend to reduce discrimination.
b.
the wages of employees who are discriminated against will rise.
c.
an employer who discriminates will have the same costs as those who do not discriminate.
d.
discrimination by an employer will reduce production costs since the employer can pay
lower wages.
48. Suppose that Japanese and Chinese workers are equally productive, but Japanese workers receive a
higher wage than Chinese workers. Then, refusing to hire Chinese workers would
a.
increase the firm’s costs.
b.
decrease the firm’s costs.
c.
increase the firm’s profits.
d.
decrease the firm’s profits.
e.
do both a and d.
49. If there is employment discrimination against minorities, this will cause the
a.
supply of their services to increase, and their wages to fall.
b.
demand for their services to decline, and their wages to fall.
c.
supply of their services to decline, and their wages to rise.
d.
demand for their services to decline, and their wages to rise.
50. Which of the following is true?
a.
Employers who discriminate against blacks and other minorities will have lower costs than
rival firms that hire employees strictly on the basis of merit (productivity).
b.
After adjusting for factors such as education, experience, and location, the earnings of
black men are almost identical to the earnings of similar white men.
c.
If employers can hire equally productive minority employees at a lower wage than
non-minorities, the profit motive provides a strong incentive to do so.
d.
The empirical evidence indicates that the earnings gap between whites and blacks is
entirely the result of employment discrimination.
51. Which of the following is the clearest evidence of employment discrimination against minority
employees?
a.
The average wages of minority workers are lower than the average wages of whites.
b.
The average wages of minority employees are lower than the average wages of whites
with similar productivity characteristics.
c.
The mean number of years of schooling of minority workers is lower than that of whites.
d.
The average hours worked by minority employees exceeds the hours worked by whites.
52. Assume that empirical evidence shows a difference in mean earnings between two groups, say,
majority and minority workers. What conclusion may be drawn?
a.
The group with the lower earnings is being discriminated against.
b.
The group with the lower earnings is less productive.
c.
The group with the lower earnings has less human capital.
d.
Any of the above statements could, either partially or entirely, explain this difference.
53. When comparisons are made between the earnings of whites and minorities with the same age,
quantity of schooling, marital status, sector of employment, union and industry status, regional
location, and annual hours worked, recent studies indicate that
a.
the corrected earnings of minority men are about two-thirds the earnings of white men.
b.
earnings differentials between whites and minorities are due almost exclusively to
employment discrimination.
c.
the corrected earnings of Mexican-Americans, Asian-Americans, and American Indians
were between 7 and 9 percent less than the earnings of similar white men.
d.
most minority men now have higher earnings than white men.
54. When earnings differentials are adjusted for such factors as age, education, and marital status, the
a.
differential between the earnings of white males and those of minority males increases.
b.
differential between the earnings of white males and those of minority males decreases.
c.
corrected earnings of minority males are equal to those of similar white men.
d.
corrected earnings of minority males are greater than those of similar white men.
55. The major determinant of an individual’s income is
a.
whether or not his family is wealthy.
b.
his personality-if the coworkers and the boss like him.
c.
how productive he is combined with demand for what he produces.
d.
if he earns a salary or if he is paid by the hour.
56. Which of the following is the primary source of rapid growth in the real earnings of workers?
a.
strong unions
b.
government regulation of labor markets
c.
rapid growth in worker productivity
d.
increases in the minimum wage
57. Wages in the United States are higher than wages in China primarily because
a.
worker productivity is higher in the United States.
b.
in the United States, less capital is required per employee.
c.
China has more natural resources that employees can work with.
d.
the United States has more people and, therefore, a larger number of skilled workers.
58. Wages in the United States are higher than those in Mexico primarily because
a.
output per worker is higher in Mexico than in the United States.
b.
output per worker is higher in the United States.
c.
the human and physical capital of American workers is lower than that of their Mexican
counterparts.
d.
all of the above are correct.
59. Which of the following is the primary source of cross-country differences in the real earnings of
workers?
a.
differences in natural resource endowments
b.
differences in output per worker
c.
differences in the average number of hours worked
d.
differences in the share of workers that are members of a labor union
e.
access to modern technology