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True / False
1. The economic theory of labor markets suggests that wages are determined by labor supply and labor demand.
a.
True
b.
False
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
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
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
11. The human-capital theory of education maintains that workers who complete specific levels of education enhance their
productivity through education.
a.
True
b.
False
12. Human capital refers to the physical tools and equipment that workers use on their jobs to enhance their productivity.
a.
True
b.
False
13. John has financial assets totaling $1.5 million, and he plans to use these assets to start his own business. Since John
owns these funds and will not need to borrow to start his business, these assets are considered human capital.
a.
True
b.
False
14. As a result of an increase in the earnings gap between skilled and unskilled jobs, the incentive to get a college
education has been declining.
a.
True
b.
False
15. The changing gap in wages between unskilled and skilled workers is most likely related to a larger increase in demand
for unskilled occupations relative to skilled occupations.
a.
True
b.
False
16. One hypothesis to explain the changing gap in wages between unskilled and skilled workers in the United States is
that international trade has altered the relative demands for skilled and unskilled workers.
a.
True
b.
False
17. Over the past 30 years, the number of jobs in the United States requiring skilled labor has been declining as foreign
countries steal these jobs away from the U.S. As a result, the domestic demand for skilled labor has been falling and the
wage gap between skilled and unskilled labor has been narrowing.
a.
True
b.
False
18. The statement that "the rich get richer, and the poor get poorer" is supported by evidence of an expanding wage gap
between high-skill and low-skill workers.
a.
True
b.
False
19. Some economists suggest that increased international trade with countries that have a greater proportion of unskilled
workers has led to an expanding wage gap between high-skill and low-skill workers in the United States.
a.
True
b.
False
20. It is increasingly clear that technological change is the only explanation for an expanding wage gap between high-skill
and low-skill workers.
a.
True
b.
False
21. Empirical evidence suggests that ability, effort, and chance are not likely to be significant contributors to wage
differences.
a.
True
b.
False
22. Since measurable factors such as years of experience and years of education explain less than half of the variation in
wages, ability, effort, and chance must play a significant role in determining wages.
a.
True
b.
False
23. Sometimes workers earn higher wages through chance.
a.
True
b.
False
24. One reason why better-looking workers may have higher earnings is that physical attractiveness may enhance a
worker’s productivity for certain jobs, especially for those workers who deal with the public.
a.
True
b.
False
25. One reason why better-looking workers may have higher earnings is that physical attractiveness is correlated with
intelligence.
a.
True
b.
False
26. The signaling theory of education maintains that workers who complete specific levels of education signal their high
productivity to potential employers.
a.
True
b.
False
27. The signaling theory of education maintains that workers who complete specific levels of education enhance their
productivity through education.
a.
True
b.
False
28. The signaling theory of education suggests that when people earn a college degree they do not become more
productive, but they do signal their high ability to prospective employers.
a.
True
b.
False
29. A manager of a small firm who believes in the signaling theory of education would encourage her employees to obtain
additional education to raise their on-the-job productivity.
a.
True
b.
False
30. The superstar phenomenon explains why professional athletes earn more than amateur athletes.
a.
True
b.
False
31. Superstars earn high incomes due to their ability to satisfy the demands of millions of people at once.
a.
True
b.
False
32. An effective minimum wage law will increase the quantity of labor demanded.
a.
True
b.
False
33. Labor unions will raise the quantity of labor demanded.
a.
True
b.
False
34. Daryn and Nick work for two different companies, but each performs the same job working on a loading dock. Daryn,
however, earns a higher salary than his friend Nick The difference in salary could illustrate union wages if Daryn’s annual
salary is covered by a collective bargaining agreement and Nick’s is not.
a.
True
b.
False
35. Efficiency wages will raise the quantity of labor supplied to the market.
a.
True
b.
False
36. It is likely that efficiency wages will decrease employee effort.
a.
True
b.
False
37. Efficiency wages may decrease employee turnover.
a.
True
b.
False
38. Discrimination is a reflection of some people's prejudice against certain groups in society.
a.
True
b.
False
39. Discrimination is an emotionally charged issue that is impossible to study objectively.
a.
True
b.
False
40. Labor-market discrimination based solely on age is illegal in the United States.
a.
True
b.
False
41. It is illegal in the United States for firms to pay different employees different wages for doing the same job.
a.
True
b.
False
42. Evidence of discrimination is most apparent when one compares wages among broad groups.
a.
True
b.
False
43. When comparing average wages for black and white men in the United States, wages paid to black men have been
about 20 percent less than those paid to white men.
a.
True
b.
False
44. When comparing average wages for male and female workers in the United States, wages paid to females have been
about 40 percent less than those paid to male workers.
a.
True
b.
False
45. Politicians often point to wage differentials as evidence of labor-market discrimination against ethnic minorities and
women; however, economists argue against this approach because people differ in the amount of human capital they have
and the kinds of work they are willing and able to do.
a.
True
b.
False
46. If an older worker earns less than a younger worker for the same job, we have proof of age discrimination.
a.
True
b.
False
47. If people with blue eyes earn more than people with brown eyes, we have proof of discrimination against people with
brown eyes.
a.
True
b.
False
48. Economists would argue that the gender wage gap is narrowing because of efficiency wages.
a.
True
b.
False
49. Differences in human capital among groups of workers is possibly a reflection of past discrimination.
a.
True
b.
False
50. Differences in human capital among workers can often be attributed to social or political processes rather than
economic processes.
a.
True
b.
False
51. All differences in wages that are not accounted for by differences in human-capital investment are likely to be a result
of discrimination.
a.
True
b.
False
52. In a labor market free from discrimination, wages for workers that are employed by the same company will still differ.
a.
True
b.
False
53. One example of labor-market discrimination is that firms may be less likely to interview job-market candidates whose
names suggest that they are members of a racial minority.
a.
True
b.
False
54. Discrimination is usually not a profit-maximizing strategy.
a.
True
b.
False
55. When discrimination occurs as a result of employer prejudice, discriminating firms do not maximize profits.
a.
True
b.
False
56. Profit-maximizing, competitive firms will not discriminate in the hiring of workers unless consumers exercise a
preference for discrimination in product markets or governments mandate discrimination.
a.
True
b.
False
57. A study using data from the late 1960s showed that black baseball players earned less than comparable
white players. Studies of more recent salaries in baseball, however, have found no evidence of discriminatory
wage differentials.
a.
True
b.
False
58. Streetcar owners in the early 20th century were against segregation for profit maximizing reasons.
a.
True
b.
False
59. According to economic historians, streetcars in southern cities in the early 1900s were racially segregated because the
owners of the firms believed that segregation raised the firms’ profits.
a.
True
b.
False
60. Experimental evidence indicates women choose less competitive environments than men.
a.
True
b.
False
61. Customer discrimination is illegal in the United States.
a.
True
b.
False
62. Consumers are often a primary source of discrimination in labor markets.
a.
True
b.
False
63. Workers in a labor union typically are paid less than workers not in a labor union.
a.
True
b.
False
64. The differences in the desirability of different jobs within a company could give rise to a compensating differential
between workers.
a.
True
b.
False
65. Gerald earns a higher salary than his brother Peter because Gerald went to law school and is a lawyer, whereas Peter
dropped out of college to work as a mechanic. The difference in salary illustrates a compensating differential.
a.
True
b.
False
66. Jen is a waitress, and she gets paid an additional $2.00 per hour for agreeing to work on Valentine's Day. Jamie is also
a waitress, but she did not work on Valentine's Day and hence did not get the extra $2.00 per hour. This difference in pay
is an example of differences in human capital.
a.
True
b.
False
67. One example of labor-market discrimination is that a firm may be less likely to interview a job candidate whose
resume clearly indicates he is not a good fit for the job.
a.
True
b.
False
