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b.
Labor supply will increase because leisure is an inferior good.
c.
The income effect will reduce labor supply; there is no substitution effect.
d.
Labor supply will be constant since wages are unaffected.
146. To the extent that high incomes can be attributed to very high demand for very scarce abilities, the labor supply
effects of a substantial increase in the tax rate
a.
will be zero as long as the labor supply curve is vertical.
b.
will be significant because the demand curve is fixed.
c.
cannot be predicted because the substitution and income effects offset each other.
d.
will be zero as long as there is no economic rent in the income.
Figure 20-2
147. At existing wage rates, hospitals face a shortage of registered nurses. Some studies have suggested that an increase in
RN wages will actually reduce the hours supplied by existing RNs, making it more difficult for hospitals to find RNs.
Which panel in Figure 20-2, where the broken line indicates the existing wage rate, illustrates this case?
a.
1
b.
2
c.
3
d.
4
148. The price of leisure is the
a.
wage rate.
b.
interest rate.
c.
discount rate.
d.
rate of return on investment.
149. The substitution effect of a decrease in the wage rate would lead most people to
a.
supply less labor and demand less leisure.
b.
supply less labor and demand more leisure.
c.
supply more labor and demand less leisure.
d.
supply more labor and demand more leisure.
150. High-wage workers are
a.
more likely than low-wage workers to supply more labor when the wage rate rises.
b.
about as likely as low-wage workers to supply more labor when the wage rate rises.
c.
less likely than low-wage workers to supply more labor when the wage rate rises.
d.
The available evidence does not indicate how high-wage workers and low-wage workers differ in responding
to changes in the wage rate.
Figure 20-3
151. Figure 20-3 shows a worker's backward-bending supply curve of labor. Which of the following statements is correct?
a.
The substitution effect of a change in the wage dominates the income effect at all points on the curve.
b.
The income effect of a change in the wage dominates the substitution effect at all points on the curve.
c.
Above W*, the substitution effect of a change in the wage dominates the income effect; below W*, the income
effect dominates the substitution effect.
d.
Above W*, the income effect of a change in the wage dominates the substitution effect; below W*, the
substitution effect dominates the income effect.
152. As hourly wages have risen in the United States in the twentieth century, the number of hours of labor supplied by
most wage workers has
a.
fallen.
b.
stayed roughly constant.
c.
risen.
d.
generally risen, but has fallen during periods of recession.
153. It has been shown that when offered higher wages, women will work more hours. This is because
a.
women tend to work more hours than men at any wage rate.
b.
the substitution effect is more dominant for women.
c.
the income effect is more dominant for women.
d.
women are more productive than men at higher wages.
154. When workers purchase more leisure and work less at higher wages, the supply curve
a.
is vertical.
b.
is horizontal.
c.
is positively sloped.
d.
is backward bending.
155. The supply curve is believed to bend backward at high wage rates because
a.
income effects outweigh substitution effects.
b.
substitution effects outweigh income effects.
c.
the income and substitution effects work together to create the backward bend.
d.
leisure time is less attractive.
156. Now, about ____ percent of American married-couple families have two or more wage earners.
a.
35
b.
50
c.
60
d.
90
157. The last two decades in the United States have seen
a.
a fall in real wages.
b.
an increase in labor-force participation.
c.
growth in service sector employment.
d.
All of the above are correct.
158. What is the most probable reason why garbage men have higher wages than nurses?
a.
marketplace discrimination
b.
active unionization in the garbage collection field
c.
higher demand for garbage men than nurses
d.
the nonmonetary attractiveness of garbage collection causing fewer people to want to be garbage men
159. Which of the following affects the marginal physical product of labor?
a.
a worker's abilities and degree of work effort
b.
the amount of capital available per worker
c.
the technical know-how of the management of the firm
d.
all of the above
160. Which of the following is most likely to affect the supply of labor in any particular industry?
a.
the size of the available working population
b.
the nonmonetary attractiveness of the job
c.
the amount of ability and training necessary to enter the job
d.
all of the above
161. Many experts on the nursing shortage insist that, in addition to higher money wages, other ways will have to be
found to make the nursing profession more attractive, including, for example, more respect from physicians and
administrators, more flexible schedules, and more secure parking lots. These facts illustrate the concept of
a.
exploitation.
b.
pecuniary principles.
c.
economic rent.
d.
nonmonetary attractiveness.
162. Workers in American industry are more productive than those in many other countries because of
a.
the large supplies of machinery available.
b.
abundant natural resources.
c.
technical know-how.
d.
All of the above contribute to American worker productivity.
163. In 1972, a very controversial study asserted that income differences among individuals did not depend on genetic
differences in reasoning ability, or differences between schools, or family background. Moreover, the effects of level of
schooling are much less than previously understood. After controlling for all of these background variables, much of the
variation in earnings appeared to be random. From this analysis, one might reach the very controversial conclusion that
earnings depended to a very great extent on
a.
human capital.
b.
ability.
c.
schooling.
d.
luck.
164. A relatively high wage is predicted to be enjoyed by workers where
a.
the population is large relative to industrial activity.
b.
the jobs are disagreeable or dangerous.
c.
the jobs are pleasant and satisfying.
d.
demand is weak and supply is high.
165. The more specialized and highly valued a worker's skills are,
a.
the lower is her stock of human capital.
b.
the more likely she is to earn economic rent.
c.
the less likely she is to sell her skills on the primary labor market.
d.
the more likely she is to be directly affected by minimum wage legislation.
166. It is possible to analyze education decisions in a manner similar to the decision to acquire more
a.
capital.
b.
leisure.
c.
work.
d.
goods and services.
167. The wages of professional athletes
a.
are related to demand for their services.
b.
include substantial economic rents.
c.
are high because of scarcity.
d.
All of the above are true.
168. If an individual possesses an ability that others cannot acquire, payment to that individual is
a.
partly economic rent.
b.
a return called the real wage.
c.
a return from investment in human capital.
d.
comparable to the return to well-trained nurses.
169. The concept of economic rent would be more applicable to the earnings of
a.
a secretary.
b.
Peyton Manning.
c.
a doctor or a lawyer.
d.
only a landowner.
170. Studies have shown that in the 1980s the wage gap between college-educated workers and those with high school
education or less
a.
decreased dramatically.
b.
decreased slightly.
c.
remained unchanged.
d.
widened dramatically.
171. The number of persons who could become lawyers or surgeons is potentially quite large, yet these two groups earn
fairly high incomes. One of the main reasons why they do is the
a.
return on the investment of many years of training.
b.
evening-out of their low income during schooling.
c.
rent on their unique and rare talents.
d.
scarcity value of their abilities.
172. An economist would describe college fees as
a.
an investment in human capital.
b.
a transfer payment.
c.
a waste of parents' money.
d.
an economic loss.
173. The human capital model assumes that
a.
education is a productive investment that raises total output.
b.
education does not change potential productivity, but it does save resources by reducing sorting costs for
employers.
c.
the educational system is a very expensive process to legitimize the intergenerational transmission of
privileged status.
d.
such factors as the love of learning should be included in the analysis.
174. A college education is a(n)
a.
investment in human capital.
b.
form of innovation.
c.
public good.
d.
mediated settlement.
175. Doctors demand large salaries in part because
a.
they are forbidden by U.S. law from receiving economic rent.
b.
most doctors have backward-bending labor supply curves.
c.
they participate in the secondary labor market.
d.
they have made significant investments in human capital.
176. The demand for education is determined by the
a.
demand for human capital.
b.
demand for nonhuman capital.
c.
supply of human capital.
d.
supply of nonhuman capital.
177. The branch of economic theory that analyzes decisions about education and training is
a.
welfare economics.
b.
equilibrium analysis.
c.
human capital theory.
d.
consumption theory.
178. Currently, college graduates are earning about ____ more than high school grads over the course of their careers.
a.
$100,000
b.
$1,000,000
c.
25%
d.
60%
179. According to conventional human capital theory, college graduates earn more than high school graduates because
a.
college graduates insist on a financial return on their human investments.
b.
college graduates are made more productive by their greater training.
c.
jobs that require more education must pay higher wages to attract enough workers.
d.
All of the above are correct.
180. Those who view education as a sorting mechanism emphasize that employers value
a.
the skills that people who attend college have already acquired before they enter college.
b.
the docility and deference to authority learned in the classroom.
c.
the analytic ability of the highly educated worker.
d.
the work habits picked up in the home and school.
181. For which of the following is there no such thing as a "price?"
a.
labor
b.
land
c.
entrepreneurship
d.
none of the above
182. The steam engine was first invented by
a.
Heron of Alexandria
b.
James Wyatt
c.
Robert Fulton
d.
Denis Papin
183. Which of the following were invented centuries ago in China?
a.
gunpowder
b.
the wheelbarrow
c.
printing with movable type
d.
all of the above
184. Inventions like gunpowder and the wheelbarrow were created by the Chinese hundreds of years ago. The fact that
such items were not put to productive use was caused primarily by a lack of ____.
a.
financial capital
b.
entrepreneurship
c.
an adequate price system
d.
marginal analysis
185. What is the term used for the process by which an entrepreneur creates or recognizes a new and better product,
acquires it, and brings it to market, making older substitutes obsolete?
a.
creative destruction
b.
innovation
c.
the substitution effect
d.
backward-bending innovation
186. According to the process of creative destruction, at first the entrepreneur will be able to sell her product for
a.
a low price because it is not well known.
b.
a high price because there is no competition.
c.
a fair price because these are contestable markets.
d.
at a price of zero until the market is created.
187. What are the two characteristics that are essential to economic analysis of invention?
a.
fixed-costs and public goods
b.
fixed-costs and private goods
c.
variable-costs and public goods
d.
variable-costs and private goods
188. The fact that invention is based largely on fixed costs and is a public good means that which of the following is not
relevant to the process?
a.
average total cost
b.
marginal cost
c.
external cost
d.
average variable cost
189. What type of cost is not relevant to the process of research and development or invention in general?
a.
fixed cost
b.
marginal cost
c.
variable cost
d.
social cost
190. Invention cannot be successful financially if price is
a.
greater than marginal cost because invention is based largely on social costs.
b.
greater than marginal cost because invention is based solely on external costs.
c.
equal to marginal cost because invention is based largely on variable costs.
d.
equal to marginal cost because invention is based largely on fixed costs.
191. Which economist created the theory of creative destruction?
a.
William Nordhaus
b.
Joseph Schumpeter
c.
Adam Smith
d.
Milton Friedman
192. Minimum wage laws usually
a.
increase the number of unskilled workers who are employed.
b.
benefit all unskilled workers.
c.
raise the wages paid to unskilled workers who are employed.
d.
All of the above are correct.
193. A minimum wage law is predicted to produce
a.
higher unemployment among young and inexperienced workers.
b.
higher unemployment among all workers.
c.
lower unemployment among young and inexperienced workers.
d.
increased hiring of young and inexperienced workers.
194. Minimum wage legislation
a.
has little effect on university professors.
b.
raises incomes of unskilled laborers who have jobs.
c.
prevents some willing workers from getting jobs.
d.
All of the above are true.
195. The employment effect of a minimum wage increase is greater the
a.
more elastic the demand for labor.
b.
less elastic the demand for labor.
c.
more the wage ceiling shifts the supply curve.
d.
more the wage floor shifts the demand curve.
196. The labor market is composed of
a.
a relatively homogeneous supply of labor and downward-sloping demand curve.
b.
a vertical supply curve for labor and relatively elastic market demand.
c.
many submarkets for labor of different types.
d.
more teenagers than any other age group of labor.
197. An argument that has been advanced to explain high teenage unemployment is
a.
lack of job experience.
b.
limited education.
c.
a minimum-wage requirement higher than their marginal revenue products.
d.
all of the above.
198. What percentage of American workers now belong to labor unions?
a.
less than 20 percent
b.
about 40 percent
c.
about 60 percent
d.
more than 80 percent
199. Labor unions in the United States
a.
tend to be more outspoken politically than those in Europe.
b.
have experienced steady declines in membership since the 1950s.
c.
tend to be more powerful in deregulated industries (for example, airlines) than in regulated industries.
d.
universally support socialist principles.
200. Economists would describe a labor union as a
a.
trade organization.
b.
necessity for competitive labor markets.
c.
labor monopoly.
d.
pure monopsony.
201. Unions became much less effective in the 1990s because of
a.
greater competition in domestic markets.
b.
increased foreign competition.
c.
downsizing by American firms.
d.
All of the above are correct.
202. Evidence indicates that the average economic profits of invention are
a.
well above zero.
b.
slightly above zero.
c.
equal to zero.
d.
less than zero.
203. Entrepreneurial profits are very low because entrepreneurs are generally
a.
overly pessimistic and receive psychological rewards for their work.
b.
overly pessimistic and incur psychological costs from their work.
c.
overly optimistic and receive psychological rewards for their work.
d.
overly optimistic and incur psychological costs from their work.
204. An effective craft union acts as a monopoly
a.
demander of labor.
b.
seller of labor.
c.
demander of capital.
d.
seller of capital.
205. The psychological rewards of inventing a new product generally result in ____ profits for entrepreneurs.
a.
below average
b.
only average
c.
above average
d.
indeterminate
206. Which of the following makes invention and entrepreneurship more likely in today's economy?
a.
increasing morality of inventors
b.
government rules within society
c.
positive marginal costs
d.
positive marginal revenues
207. Governmental rules that significantly promoted entrepreneurship first became prominent during the
a.
Great Recession.
b.
Age of Enlightenment.
c.
Great Depression.
d.
Industrial Revolution.
208. In general, an increase in wages will lead to some reaction in line with
a.
the income effect but not the substitution effect.
b.
the substitution effect but not the income effect.
