1. The opportunity cost of leisure is approximated by:
a.
the price of leisure activities (such as theater tickets).
b.
an individual’s hourly real wage rate.
c.
commuting expense.
d.
an individual’s total income.
b
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2. The slope of an individual’s “consumption-leisure” budget constraint is:
a.
b.
c.
d.
d
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3. If an individual is maximizing his or her utility, his or her marginal rate of substitution of leisure hours for
consumption will be:
a.
equal to one divided by his or her wage rate.
b.
greater than one divided by his or her wage rate.
c.
equal to his or her wage rate.
d.
less than his or her wage rate.
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4. When an individual’s wage rises, the substitution effect tends to:
a.
increase hours worked.
b.
decrease hours worked.
c.
leave hours worked unchanged.
d.
an impossible prediction about what will happen to hours worked.
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5. When an individual’s wage rises, the income effect tends to:
a.
increase hours worked.
b.
decrease hours worked.
c.
leave hours worked unchanged.
d.
an impossible prediction about what will happen to hours worked.
b
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6. If an individual’s supply of labor curve is positively sloped throughout, then:
a.
the substitution effect always dominates the income effect.
b.
the income effect always dominates the substitution effect.
c.
the substitution effect dominates at low real wage levels and the income effect dominates at high real
wage levels.
d.
the income effect dominates at low real wage levels and the substitution effect dominates at high real
wage levels.
7. If an individual’s supply of labor curve is “backward bending,” (that is, labor supply falls at high wage rates)
then:
a.
the substitution effect always dominates the income effect.
b.
the income effect always dominates the substitution effect.
c.
the substitution effect dominates at low real wage levels and the income effect dominates at high real
wage levels.
d.
the income effect dominates at low real wage levels and the substitution effect dominates at high real
wage levels.
8. The fact that more women have chosen to work as real wages rise is evidence that, for them:
a.
leisure is an inferior good.
b.
income and substitution effects of higher real wages work in the same direction.
c.
income and substitution effects of higher real wages may work in opposite directions.
d.
income and substitution effects may work in opposite directions but that the substitution effect is
stronger.
9. If on-the-job training provides general job skills:
a.
the employer will never provide such training.
b.
the employer will always provide such training.
c.
the employer may provide such training if it increases workers’ wages.
d.
the employer may provide such training if workers accept a lower wage.
10. “Compensating wage differentials” arise because:
a.
workers possess different skills.
b.
workers prefer the characteristics of some to those of others.
c.
firms pay higher wages for workers with higher marginal productivities.
d.
firms discriminate in hiring.
11. Which of the following strategies that a union might pursue would result in the lowest wage rate for its
members?
a.
Maximizing the total wage bill
b.
Maximizing employment of its members
c.
Restricting union membership severely
d.
Maximizing the total economic rent obtained by its members
12. Which of the following best explains why the elasticity of supply of labor for an individual with a Cobb-
Douglas utility function (for consumption and leisure) is zero?
a.
Income and substitution effects are precisely offsetting.
b.
The elasticity of substitution of leisure for consumption is zero.
c.
Leisure is an inferior good.
d.
Consumption is subject to diminishing marginal utility.
13. The Slutsky decomposition of the effect of the real wage on a person’s labor supply decision suggests that
the negative income effect of such a wage change will be larger:
a.
the smaller is the quantity of labor supplied and the smaller is the effect of non-labor income.
b.
the smaller is the quantity of labor supplied and the larger is the effect of non-labor income.
c.
the larger is the quantity of labor supplied and the smaller is the effect of non-labor income.
d.
the larger is the quantity of labor supplied and the larger is the effect of non-labor income.
14. Adoption of a guaranteed annual income with benefits (B) given by
B = 20,000 -.5 (earnings)
would be expected to reduce work effort by low wage workers because:
a.
the income effect would outweigh the substitution effect of the plan.
b.
the substitution effect would outweigh the income effect of the plan.
c.
both substitution and income effects would operate to reduce work effort.
d.
the plan would make working financially unattractive.
15. If a firm is a monopsonistic hirer of labor:
a.
its marginal expense for labor is greater than the market wage.
b.
its marginal expense for labor is equal to the market wage.
c.
its marginal expense for labor is less than the market wage.
d.
it is a price taker in the labor market.
16. For a monopsonistic hirer of labor, the gap between labor’s marginal revenue product and its wage rate will
be greater:
a.
the more elastic the supply curve for labor.
b.
the more inelastic the supply curve for labor.
c.
the more elastic the firm’s demand for labor.
d.
the more inelastic the firm’s demand for labor.
17. A price discriminating monopsonist could increase its profits by:
a.
paying the minimum wages possible.
b.
hiring as little capital as possible.
c.
paying lower wages to workers with inelastic supply of labor curves than to workers with elastic
curves.
d.
paying lower wages to workers with elastic supply of labor curves than to workers with inelastic
curves.
18. Consider two situations: In situation A, the production of widgets is monopolized by a single firm. In
situation B, the production of widgets is perfectly competitive. In both situations, the supply of labor to widget
makers is infinitely elastic at a wage of w. In this case, the product :
a.
will be the same in the two cases.
b.
will be higher in case B than in case A.
c.
will be higher in case A than in case B.
d.
From the information given, it is not possible to make a definite statement about the marginal value
product of labor.
19. A monopolist union that desired to maximize its total wage bill (w
⋅
l) would offer that quantity of labor for
which:
a.
labor’s marginal productivity is zero.
b.
labor’s wage falls to zero.
c.
the quantity of labor hired is as great as possible given the firm’s demand curve.
d.
the marginal revenue from providing one more worker to the market is zero.
20. A monopsonist that faces a labor supply curve of the form l = 4w and has a constant marginal revenue
product of 50 per unit of l, will opt for the following, w, l combination:
a.
w = 10 l = 40.
b.
w = 25 l = 100.
c.
w = 50 l = 200.
d.
w = 100 l = 400.