1. When the supply of workers is plentiful, one would predict that market wages would be
a.
determined outside the domain of economic theory.
b.
determined solely by factors that affect demand.
c.
low, other things equal.
d.
high, other things equal.
2. Other things equal, when the supply of workers is low, one would predict that market wages would be
a.
relatively high.
b.
relatively low.
c.
determined solely by factors that affect demand.
d.
determined outside the domain of economic theory.
3. Other things equal, one would predict that market wages would be relatively high when
a.
the supply of labor is high.
b.
the demand for labor is low.
c.
the supply of labor is low.
d.
Both (a.) and (b.) are correct
4. Westland and Oceania have just started to trade with each other. Westland exports goods produced with skilled labor
and imports goods made with unskilled labor from Oceania. Over time, we would expect that in Oceania the wages of
unskilled workers will
a.
b.
c.
d.
5. The characteristics of jobs and workers affect
a.
labor supply.
b.
labor demand.
c.
equilibrium wages.
d.
All of the above are correct.
6. Difference in wages can be explained by differences in
a.
job characteristics and worker characteristics.
b.
job characteristics but not worker characteristics.
c.
worker characteristics but not job characteristics.
d.
neither worker characteristics or job characteristics.
7. A difference in wages that arises to offset the nonmonetary characteristics of different jobs is known as
a.
a compensating differential.
b.
an inefficiency wage.
c.
the equilibrium difference.
d.
a union wage.
8. Other things the same, we’d expect that a job with less pleasant working conditions pays
a.
more; this is known as an efficiency wage.
b.
more; this is known as a compensating differential.
c.
less; this is known as an efficiency wage.
d.
less; this is known as a compensating differential.
9. A compensating differential is
a.
a difference in pay due to nonmonetary characteristics of different jobs.
b.
a high wage paid by employers to entice workers to be more productive.
c.
the difference between the quantity of labor supplied and the quantity of labor demanded at the minimum
wage.
d.
due only to difference in the productivity of workers with different skills.
10. The term “compensating differential” refers to
a.
the fact that workers who do similar work should be paid the same wage.
b.
the fact that some workers live further from their jobs than do other workers.
c.
a wage difference that is due to unionization of some firms but not others.
d.
a wage difference that arises from nonmonetary characteristics of different jobs.
11. A difference in wages that reflects differences in the nonpay features of two jobs is called
a.
a compensating differential.
b.
a wage adjustment.
c.
an efficiency wage.
d.
a minimum wage.
12. Which term do economists use to refer to a difference in wages that arises from nonmonetary characteristics of
different jobs?
a.
non-pecuniary differentials
b.
compensating differentials
c.
fundamental differences
d.
idiosyncratic differences
13. Wages of doctors tend to be higher than wages of bankers. Which of the following is a compensating differential
explaining the difference in wages?
a.
Doctors have the stress of being responsible for other peoples’ lives while bankers do not.
b.
Doctors are on call to work nights and weekends, while bankers work traditional business hours.
c.
Doctors must pay for malpractice insurance in case they are sued for a mistake on the job.
d.
All of the above are compensating differentials.
14. Which of the following is not an example of a compensating differential?
a.
Chris is a consultant who is paid more than other workers with similar skills because he is required to travel
80% of the time.
b.
Abby is a teacher who is paid less than other workers with similar skills because she does not have to work
during the summer months.
c.
Ben is a businessman who is paid more than other workers with similar skills because he graduated from a
prestigious university with honors.
d.
Daphne is a skyscraper window-washer who is paid more than other workers with similar skills because of the
risk she faces in her daily job.
15. Construction work is much riskier than working as a server at a restaurant. As a result, we’d expect a difference in
wages between the two jobs. The difference is known as
a.
an efficiency wage.
b.
a compensating differential.
c.
a wage adjustment.
d.
a minimum wage.
16. As a summer job, some teenagers choose to detassle corn, a job requiring long hours walking corn fields in the
summer heat. Other teens take jobs working as lifeguards. Given that detassling corn is a more difficult job than working
as a lifeguard, we would expect a difference in wages between the two jobs. This difference is known as
a.
an efficiency wage.
b.
a compensating differential.
c.
a wage adjustment.
d.
a minimum wage.
17. Many kindergarten teachers have advanced education degrees, yet they have lower average earnings than other
individuals with similar education levels. A potential explanation for the differences in earnings is that kindergarten
teachers
a.
have more pleasant working conditions.
b.
have less pleasant working conditions.
c.
work longer hours.
d.
must pass certification tests.
18. Suppose that a company hires recent college graduates for two types of jobs, sales people and credit analysts. The
hours worked and skill levels are the same for both positions. The sales people get to travel to several desirable locations,
whereas the credit analysts do not leave the home office. When comparing the salaries of the two positions, it is likely that
the company pays the
a.
sales people less as a compensating differential.
b.
credit analysts less as a compensating differential.
c.
same salary for both positions because they require the same skill level.
d.
same salary for both positions because it would be illegal to do otherwise.
19. Suppose that a company hires recent college graduates for two types of jobs, sales people and credit analysts. The
hours worked and skill levels are the same for both positions. The sales people must “cold call,” which many people find
to be unpleasant. When comparing the salaries of the two positions, it is likely that the company pays the
a.
credit analysts more as a compensating differential.
b.
sales people more as a compensating differential.
c.
same salary for both positions because they require the same skill level.
d.
same salary for both positions because it would be illegal to do otherwise.
20. A company has two locations where it employs workers doing the same job and working the same hours. Other things
the same most workers would prefer to live in location A, but location A has a higher cost of living than location B.
a.
The company likely needs to pay workers in location A more.
b.
The company likely needs to pay workers in location B more.
c.
It’s not clear if the company would need to pay more to workers in location A or location B.
d.
The company must pay workers the same amount.
21. Workers who work the night shift are often paid more than those who do identical work on the day shift. This is
referred to as a
a.
discriminatory wage practice.
b.
compensating differential.
c.
wage inequity.
d.
a market inefficiency.
22. Factory workers who work the day shift earn less per hour than similarly-skilled factory workers who work the night
shift. The difference in pay is attributed to
a.
the marginal product of labor.
b.
the marginal product of capital.
c.
diminishing marginal returns.
d.
a compensating differential.
23. The statement that “night shift workers make a higher wage than day shift workers” is likely to reflect the fact that
a.
most people’s preference is to work the day shift.
b.
some people prefer to work a night shift for nonmonetary reasons.
c.
night shift jobs are generally more technically difficult.
d.
more women than men work the night shift.
24. Since people get sick at all hours of the day, some nurses who work in hospitals are required to work the night shift. In
most cases, the nurses who work the night shift earn a higher hourly wage for the same work as the nurses who work the
day shift. This difference in pay is referred to as a
a.
discriminatory wage practice.
b.
compensating differential.
c.
wage inequity.
d.
a market inefficiency.
25. Nurses who work in hospitals often are required to work on weekends, whereas nurses who work in doctors’ offices
generally only work Monday through Friday. Hospital nurses who must work on weekends are usually paid more than
nurses working in doctors’ offices for the same work even if they have the same skills and education. This difference in
pay is attributed to
a.
an efficiency wage.
b.
compensating differential.
c.
differences in the marginal product of labor.
d.
differences in human capital.
26. If a worker is indifferent between a job with a wage of $10 per hour and a job with a wage of $12 per hour, then the
a.
higher-paying job has a compensating wage differential of $2 per hour.
b.
higher-paying job has a compensating wage differential of $12 per hour.
c.
higher-paying job is intrinsically more attractive than the lower-paying job.
d.
wage in the higher-paying job must eventually fall due to competition.
27. Sally and Harry both work at the local factory producing cars. Sally earns $22 per hour working the day shift, and
Harry earns $25 per hour working the night shift. Sally and Harry do the same job, have the same experience, and have
the same level of education. This means that the
a.
higher-paying job has a compensating wage differential of $3 per hour.
b.
higher-paying job has a compensating wage differential of $25 per hour.
c.
higher-paying job is intrinsically more attractive than the lower-paying job.
d.
factory is discriminating against Sally because she is a woman.
28. On average, electricians who work on dangerous high-voltage power lines earn more per hour than similarly skilled
electricians who don’t work on dangerous high-voltage power lines. The difference in pay is attributed to
a.
the marginal product of labor.
b.
the marginal product of capital.
c.
diminishing marginal returns.
d.
a compensating differential.
29. On average, truck drivers who drive on dangerous ice-covered roads earn more per mile driven than similarly skilled
truck drivers who drive on normal roads. The difference in pay can be attributed to
a.
the marginal product of labor.
b.
the marginal product of capital.
c.
diminishing marginal returns.
d.
a compensating differential.
30. The statement that “coal miners are paid more than workers with similar levels of education” is likely to reflect the
fact that
a.
coal mining is a declining industry.
b.
coal mining jobs are potentially more dangerous than jobs with comparable education requirements.
c.
all coal mines use nonunion labor.
d.
coal imports are rising.
31. Other things equal, a particular job will likely pay a higher wage if it involves
a.
danger to the worker.
b.
personal enjoyment for the worker.
c.
intellectual stimulation for the worker.
d.
All of the above are correct.
32. Park rangers at Yellowstone National Park are known to have low wages. This is probably because
a.
park rangers are required to be college graduates.
b.
park rangers don’t need much money to live.
c.
park ranger jobs are perceived to be dangerous.
d.
park ranger jobs are perceived to be “fun.”
33. Which of the following comparisons best illustrates a compensating differential?
a.
John’s wage is higher than Jane’s because the value of John’s marginal product is higher than Jane’s.
b.
Karl’s wage is higher than Kay’s because Karl is very personable, and Kay is very gruff.
c.
Beth’s wage is higher than Bill’s because Beth’s job may cause long-term health problems, and Bill’s job will
not impair his health.
d.
All of the above are good illustrations of compensating differentials.
34. Public school teachers are known to have low wages. Which of the following would push the teachers’ wages lower?
a.
Public school teacher jobs are difficult.
b.
Public school teachers are required to be college graduates.
c.
Public school teachers belong to a union.
d.
Teaching in a public school has a high element of personal satisfaction.
35. A plumber who specializes in cleaning plugged sewer lines is typically paid a higher wage than a plumber who works
on installing water systems in new residential housing. Which of the following would push the wages of plumbers who
work on sewer lines higher?
a.
Plumbers who work on new residential housing require more training than plumbers working on sewer lines.
b.
Plumbing jobs that involve sewer lines are likely to have a high element of personal satisfaction.
c.
Plumbers who work with sewer lines are more likely to work the day shift.
d.
plumbers who work with sewer lines are likely to be perceived as having a “dirty” job.
36. The job of night watchman at the Punxsutawny Phil Groundhog museum is known to have a high wage. Which of the
following would push the night watchman’s wage higher?
a.
The job does not require specialized skills.
b.
The job is easy.
c.
The job is incredibly dull.
d.
The job has minimal risk of injury.
37. Professional underwater divers are known to have high wages and work an average of only 20 hours per week. Which
of the following would push the divers’ wages higher?
a.
The job is simple.
b.
The job is fun.
c.
The job is very dangerous.
d.
The job does not require specialized training.
38. Air-traffic controllers get paid high wages given their level of education. They also get frequent breaks and may only
work a few days a week. Which of the following could explain their high wage?
a.
the long breaks and limited work days
b.
the stress they face
c.
the comparatively low level of education required
d.
All of the above are correct.
39. Assuming that all other things are equal, including the wage, which of the following statements is correct?
a.
The quantity of labor supplied for difficult jobs exceeds that for easy jobs.
b.
The quantity of labor supplied for fun jobs exceeds that for dull jobs.
c.
The quantity of labor supplied for dangerous jobs exceeds that for safe jobs.
d.
All of the above are correct.
40. If government regulations make a certain job less dangerous, then we’d expect that the supply of labor for that job
would
a.
increase, which by itself would raise the wage for that job.
b.
increase, which by itself would reduce the wage for that job.
c.
decrease, which by itself would raise the wage for that job.
d.
decrease, which by itself would reduce the wage for that job.
41. Jobs that involve pleasant work, as opposed to jobs that involve unpleasant work, usually pay
a.
higher wages, because jobs that involve pleasant work typically require more education than do jobs that
involve unpleasant work.
b.
higher wages, because jobs that involve pleasant work typically require more well-developed personality skills
than do jobs that involve unpleasant work.
c.
lower wages, because workers typically are not attracted to jobs that involve unpleasant work unless there is a
monetary inducement.
d.
lower wages, because workers who take jobs that involve unpleasant work typically stay in those jobs for
relatively long periods of time and accumulate significant experience.
42. Who among the following individuals most likely experiences the largest nonmonetary reward as a supplier of labor?
Assume all of the four individuals have the same level of education and work the same number of hours per week.
a.
Albert, who prefers not to socialize and works at home by himself
b.
Amy, whose job provides little intellectual and personal satisfaction
c.
Antoinette, whose preference is to avoid dangerous work but works as a firefighter
d.
Arnold, who works the night shift but would prefer to work during the day and sleep at night
43. Callie has just graduated from Hairs-R-Us Beauty School with a license to cut hair. She can earn $15 an hour styling
hair at the local hair salon or $20 an hour styling hair at the local funeral home. The higher wage offered by the funeral
home is an example of
a.
a human capital differential.
b.
a compensating differential.
c.
signaling theory.
d.
the superstar phenomenon.
44. Cory has just graduated from veterinary school. He can earn $40,000 working at a small animal clinic or $50,000
working with farm animals and horses where the risks of getting injured by an animal are higher. The higher salary to
work with larger animals is an example of
a.
a compensating differential.
b.
signaling theory.
c.
an efficiency wage.
d.
efficient union bargaining.
45. Which of the following is an example of a compensating differential?
a.
Two workers with different undergraduate majors earn different salaries.
b.
Two workers with different years of experience earn different salaries.
c.
Two workers whose jobs entail different risks earn different salaries.
d.
Two workers with different levels of personal attractiveness earn different salaries.
46. Which of the following is an example of a compensating differential?
a.
Two workers with different levels of on-the-job training earn different salaries.
b.
Two workers whose jobs entail different working conditions earn different salaries.
c.
Two workers whose jobs require different levels of technical expertise earn different salaries.
d.
Two workers with different levels of natural ability earn different salaries.
47. Which of the following is not an example of a compensating differential? Job A pays more than Job B because Job A
requires
a.
more international travel to dangerous locations.
b.
two night shifts per month.
c.
careful handling of toxic chemicals.
d.
an advanced degree.
48. Job A is hard, dull, and dangerous. Job B is easy, fun, and safe. All else equal, we would expect Job A to pay
a.
higher wages than Job B because the labor supplied for Job B will be greater.
b.
lower wages than Job B because the labor supplied for Job B will be greater.
c.
higher wages than Job B because the labor supplied for Job A will be greater.
d.
lower wages than Job B because the labor supplied for Job A will be greater.
49. A compensating differential refers to differences in pay due to
a.
productivity levels of workers.
b.
signaling differences of workers.
c.
nonmonetary characteristics of jobs.
d.
All of the above are correct.
50. Which of the following is an example of a compensating differential?
a.
paying workers with more years of experience higher wages than workers with fewer years of experience, all
else equal
b.
paying workers who work on the day shift lower wages than workers who work the night shift, all else equal
c.
paying accountants who have passed the Certified Public Accountant exam higher wages than accountants
who have not passed it, all else equal
d.
All of the above are examples of compensating differentials.
51. Which of the following is not an example of a compensating differential?
a.
paying workers who do dull, boring work higher wages than workers who do fun, interesting work, all else
equal
b.
paying workers who work on the night shift higher wages than workers who work the day shift, all else equal
c.
paying workers who do more dangerous work higher wages than workers who do less dangerous work, all else
equal
d.
paying workers with PhDs higher wages than workers with BAs, all else equal
52. Coal mining is a dangerous and dirty job. Suppose someone developed new machinery that made coal mining safer
and cleaner; at the same time, suppose it made coal miners more productive. We would expect that the wages of coal
miners would
a.
rise.
b.
fall.
c.
stay exactly the same.
d.
rise, fall, or stay the same.
53. Adam and Bob are identical twins who attended grammar school through high school together. Adam got a job after
high school, and Bob got a job after graduating from college. Adam earns $36,000 a year, and Bob earns $69,000 a year.
Select the best explanation for this wage difference.
a.
Adam has less human capital than Bob.
b.
Bob has less human capital than Adam.
c.
Adam has received a compensating differential
d.
Adam is a member of a union.
54. Jake and Zach are identical twins who attended grammar school through college together. Jake took a job as an
engineer who does not have to travel out of the state. Zach took a job as an engineer who must travel out of state once a
week. Jake earns $125,000 a year, and Zach earns $155,000 a year. Select the best explanation for this wage difference.
a.
Zach puts in less effort than Jake.
b.
Zach has less human capital than Jake.
c.
Zach receives a higher wage to compensate for the disagreeable nature of business travel.
d.
Jake’s lower salary supports the signaling theory of education.
55. The accumulation of investments in people, such as education and on-the-job training, is known as
a.
physical capital.
b.
human capital.
c.
efficiency wage.
d.
compensating differentials.
56. Which of the following is not an example of capital used in production?
a.
a teacher’s chalkboard
b.
a manufacturer’s factory
c.
a landscaper’s time
d.
an accountant’s education
57. Which of the following is considered human capital?
a.
the ingredients a chef uses to prepare meals
b.
the pots and pans and other tools a chef uses to prepare meals
c.
the financial capital a chef uses to start his own restaurant
d.
the skills a chef learns when attending a class about cake decorating
58. Which of the following is not considered human capital?
a.
the golf clubs a professional golfer uses to play golf
b.
the skills a professional golfer has gained by practicing on the driving range
c.
the professional golfer’s knowledge of how to play a better game learned from talking with other players
d.
none of the above would be considered human capital
59. Which of the following would be considered human capital?
a.
the financial capital a person earns over a lifetime of investing
b.
the machinery a worker uses to produce a product
c.
the training a worker receives when starting a new job
d.
the break room in a factory where employees go to have coffee
60. Which of the following is an example of human capital?
a.
Machines built by people.
b.
Formal education acquired in schools.
c.
On-the-job training.
d.
Both b and c are correct.
61. Human capital is
a.
an important determinant of wages, but it does not affect the production of goods and services.
b.
an important determinant of wages, and it affects the production of goods and services.
c.
a specific type of physical capital made by humans rather than machines.
d.
very different from physical capital in that physical capital represents an investment, while human capital does
not represent an investment.
62. Human capital is
a.
a stock of equipment and structures.
b.
the result of investments workers make in themselves such as on-the-job training.
c.
a difference in wages that arises to offset the nonmonetary characteristics of different jobs.
d.
inversely related to the supply of workers.
63. Human capital is
a.
a stock of equipment and structures.
b.
the result of investments workers make in themselves such as education.
c.
a difference in wages that arises to offset the nonmonetary characteristics of different jobs.
d.
a characteristic that affects a worker’s self-esteem but not her wages.
64. Which of the following would be considered an investment in human capital?
a.
education
b.
a teacher’s blackboard
c.
the purchase of a new computer to enhance labor productivity
d.
All of the above are correct.
65. Which of the following is an example of human capital for a college economics professor?
a.
years of experience
b.
“clickers” which interface with an in-class computer system and display the results of student “votes”
c.
chalk
d.
internet access in the classroom
66. Which of the following is not an example of human capital for a college economics professor?
a.
years of experience
b.
a doctorate in economics
c.
chalk
d.
what the professor has learned from seminar courses on effective teaching methods
67. Education raises wages because the demanders of labor
a.
are willing to pay more for highly educated workers who have higher marginal products and the suppliers of
labor are willing to pay the cost of becoming educated only if they are rewarded.
b.
are willing to pay the cost of becoming educated only if they are rewarded and the suppliers of labor are
willing to pay more for highly educated workers who have higher marginal products.
c.
require fewer workers if they are highly educated.
d.
None of the above is correct.
68. In general, the higher a person’s education level,
a.
the higher the person’s earnings.
b.
the more physically attractive the person is likely to be.
c.
the more socially outgoing the person is likely to be.
d.
All of the above are correct.