135. Studies of wages by labor economists indicate that measurable variables such as age, job characteristics, years of
education, and years of experience account for
a.
virtually none of the variation in wages in our economy.
b.
some, but less than 50 percent of the variation in wages in our economy.
c.
about 75 percent of the variation in wages in our economy.
d.
almost all of the variation in wages in our economy.
136. Tom and Eric went to trade school at the same time. Each graduated with an associate’s degree. They have received
similar performance evaluations. Eric’s employer is not a good business manager, and the sales manager lost a major deal.
Because of the decrease in profits, the employees did not receive raises last year. Tom’s employer is a savvy business
manager and the sales manager is experienced and works hard. If Tom has higher earnings than Eric, the difference is
most likely a function of
a.
chance.
b.
differences in human capital.
c.
differences in signaling.
d.
discrimination.
137. According to the Hamermesh and Biddle study, people deemed more attractive than average earn
a.
b.
c.
d.
138. A study by labor economists Hamermesh and Biddle found that
a.
shorter-than-average men earn more than shorter-than-average women, all else equal.
b.
above-average looking people earn more than average-looking people, all else equal.
c.
shorter women earn more than taller women, all else equal.
d.
All of the above are correct.
139. Christy and Claudia are aspiring models. Talent scouts consider them to be similarly beautiful. Both enter a talent
show. Claudia contracts food poisoning the night before the competition and withdraws. Christy wins the competition and
signs a multi-million dollar contract. The differences in their earnings likely reflect
a.
discrimination.
b.
differences in human capital.
c.
differences in signaling.
d.
chance.
140. Which of the following is not an interpretation of the “beauty premium”?
a.
Beautiful workers are not willing to work for lower wages.
b.
Good looks are a type of innate ability causing the worker to be more valuable to the firm.
c.
The beauty premium is a type of discrimination.
d.
Beauty is an indirect measure of other types of ability.
141. Which of the following is an economic explanation for the “beauty premium”?
a.
Employers pay very attractive women less than average-looking women because they believe them to be less
intelligent.
b.
Employers pay above-average-looking men more than above-average-looking women.
c.
Employers pay above-average-looking women more than average-looking women because customers prefer to
deal with better-looking women.
d.
Employers pay above-average-looking men more because they signal to the market that they are willing to
spend more money on personal grooming, a sign of wealth and stability.
142. The “beauty premium” can be explained by the fact that
a.
marginal productivity in all occupations has a physical dimension.
b.
in some occupations, physical attractiveness of workers may enhance the value of their marginal product.
c.
beauty acts as an implicit signal of innate intelligence.
d.
beautiful people are likely to reflect “good breeding.”
143. Which of the following does not explain the “beauty premium” differences in wages?
a.
Better-looking people are preferred by customers; thus, employers will pay them higher wages than average-
looking people.
b.
Beauty may be an indirect measure of other abilities that employers value.
c.
Average-looking people are preferred by customers; thus, employers will pay them higher wages than better-
looking people.
d.
Employers discriminate in favor of better-looking people.
144. Which of the following explains the “beauty premium” differences in wages?
a.
People who spend time on their personal appearance may send a signal that they are more productive workers.
b.
Personal appearance and intelligence are inversely related.
c.
The “superstar phenomenon” explains the “beauty premium.”
d.
Better-looking people are more efficient; thus, they are paid an efficiency wage.
145. Which of the following might explain the beauty premium found by labor economists Hamermesh and Biddle?
a.
Good looks are an innate ability for some jobs, which results in higher productivity and higher wages.
b.
Good looks may be an indirect measure of other types of ability such as attention to detail.
c.
If better-looking people earn more than average-looking people, employers may be discriminating based on
personal appearance.
d.
All of the above could explain the beauty premium.
146. George and Brad are waiters at a local restaurant. The female customers prefer to be seated at the tables that George
waits on because they think George is better looking than Brad. If George earns more than Brad because of his better
looks, this is an example of
a.
effort playing a key role in wage differences.
b.
differences in human capital.
c.
a beauty premium.
d.
a compensating differential.
147. George and Brad are waiters at a local restaurant. The female customers think that George is better looking than
Brad. If George earns more than Brad, this could be an example of each of the following except
a.
customer preferences.
b.
discrimination.
c.
a beauty premium.
d.
a compensating differential.
148. Dan and Dave are both college graduates. Dan is a patrolman and Dave is a detective in the same police precinct.
While Dan’s job is inherently more dangerous than Dave’s, Dave passed a difficult exam to gain promotion to detective.
Dave earns more than Dan because
a.
Dave’s job is less dangerous.
b.
of efficiency wages.
c.
of education as a signal.
d.
Dave has more human capital.
149. Which theory is supportive of the idea that increasing educational levels for all workers would raise all workers’
productivity and therefore their wages?
a.
the theory of compensating differentials
b.
the efficient-market hypothesis
c.
human-capital theory
d.
signaling theory
150. Which of the following theories explains why increased education translates into higher wages?
a.
human-capital theory
b.
the theory of compensating differentials
c.
the theory of supply and demand
d.
comparative advantage
151. Which of the following is not an explanation for why better educated workers earn more, on average, than less
educated workers?
a.
The higher wages may be a compensating differential for the cost of acquiring the education.
b.
Workers with a college degree signal their higher abilities to potential employers.
c.
Skilled labor is increasingly becoming a substitute for unskilled labor, which raises the earnings of workers
with more education.
d.
Better educated workers are more productive, on average.
152. Suppose that a college student receives an offer for a summer internship with a stock brokerage firm. Unfortunately
for the student, the internship is unpaid. Is it ever economically beneficial to accept an unpaid job?
a.
Yes, because the experience gained during the internship would increase the student’s human capital.
b.
No, because the opportunity cost is too high.
c.
No, because the student is signaling to future employers that he or she is willing to accept low wages.
d.
Yes, because accepting an unpaid job signals to future employers that the student has stable personal finances.
153. Which of the following statements is not correct?
a.
Both the human capital theory and the signaling theory of education could explain why college graduates earn
more than high school graduates.
b.
The signaling theory of education suggests that the ability to complete a college degree is correlated with the
ability to perform well in the labor market.
c.
If the human capital theory of education is correct, a government policy that pays for additional schooling for
all workers would not increase wages.
d.
If the signaling theory of education is correct, a government policy that pays for additional schooling for all
workers would not increase wages.
154. Of the theories listed below, which do the best job of explaining why educated people are paid more than uneducated
people?
a.
human-capital and price-fixing
b.
human-capital and signaling
c.
wage-differential and signaling
d.
wage-differential and compensating-differentials
155. The human-capital theory explanation for why people invest in education has been challenged by a theory that
suggests
a.
schooling acts only as a signal of ability.
b.
humans cannot be considered “capital.”
c.
productivity is not linked to wages.
d.
ability, effort, and chance matter more.
156. When employers sort employment applications into high-ability and low-ability people based on whether or not the
applicant has a college degree (irrespective of major), they are providing evidence in support of the
a.
human-capital theory of education.
b.
signaling theory of education.
c.
principle that education reduces marginal productivity.
d.
principle that most business owners are more interested in discriminating against a particular group than in
maximizing profits.
157. The belief that education makes a person more productive and thereby raises his or her wage is referred to as the
a.
signaling view of education.
b.
natural-ability view of education.
c.
unmeasured-variables view of education.
d.
human-capital view of education.
158. Which of the following examples best describes the signaling theory of education?
a.
The hiring manager offers a job to a recent college graduate because she is more beautiful than the rest of the
applicants.
b.
The hiring manager offers a job to a recent college graduate because she is expected to be more productive
than other applicants due to her educational attainment.
c.
The hiring manager offers a job to a recent college graduate because the hiring manager has a bias toward
people with college degrees.
d.
The hiring manager offers a job to a recent college graduate because education is correlated with natural
ability.
159. A signaling theory of education suggests that educational attainment
a.
is a signal of high marginal productivity.
b.
is correlated with natural ability.
c.
increases the productivity of low-ability workers.
d.
Both a and b are correct.
160. According to the human-capital view, education
a.
has no effect on lifetime earnings.
b.
alters work ethic.
c.
enhances productivity.
d.
is an indicator of natural ability.
161. According to the signaling view, education
a.
has no effect on lifetime earnings.
b.
alters work ethic.
c.
enhances productivity.
d.
is an indicator of natural ability.
162. A college degree makes a person more productive according to
a.
both the human-capital and the signaling theories of education.
b.
the human-capital but not the signaling theory of education.
c.
the signaling but not the human-capital theory of education.
d.
neither the human-capital nor the signaling theory of education.
163. Which of the following statements represents the idea behind signaling in education?
a.
Education can turn an unproductive person into a productive person.
b.
Education increases the marginal productivity of naturally productive workers.
c.
More productive people are more inclined to educate themselves.
d.
All of the above are correct.
164. Which theory would support the idea that education does not enhance productivity and therefore raising all workers’
educational levels would not affect wages?
a.
signaling theory
b.
human-capital theory
c.
physical-capital theory
d.
the efficient-market hypothesis
165. Which of the following theories would suggest that attending school does not improve productivity but that high–
ability people are more likely to stay in school?
a.
physical-capital theory
b.
human-capital theory
c.
signaling theory
d.
neoclassical theory
166. Suppose that the country of Libraria made a concerted effort to increase the educational level of its people. If this
effort had no effect on the wages of its workers, one might consider this as evidence in support of
a.
the human-capital view of education.
b.
the signaling view of education.
c.
both the human-capital and the signaling view of education.
d.
neither the human-capital nor the signaling view of education.
167. According to the signaling theory of education,
a.
schooling sends signals to employers in much the same way that advertising sends signals to consumers.
b.
a person becomes more productive by earning a college degree.
c.
education is less important than natural ability.
d.
All of the above are correct.
168. Which of the following statements is correct?
a.
The human-capital theory of education could be called a productivity-enhancing theory.
b.
The human-capital theory of education could be called a productivity-revealing theory.
c.
The signaling theory of education could be called a productivity-enhancing theory.
d.
The signaling theory of education has been disproven by a number of prominent economists.
169. Which of the following statements can be called a productivity-revealing theory?
a.
human-capital theory and signaling theory
b.
human-capital theory but not signaling theory
c.
signaling theory but not human-capital theory
d.
neither human-capital theory nor signaling theory
170. In the signaling theory of education,
a.
schooling itself does not lead to more productive workers.
b.
chance plays more of a role than in the human-capital theory.
c.
schooling enhances worker productivity.
d.
compensating differentials do not matter.
171. In the signaling theory of education,
a.
discrimination does not affect wage differentials.
b.
schooling makes workers more productive in the long-run.
c.
schooling makes workers more productive in the short-run.
d.
the worker signals to the employer that he is a valuable employee because he was willing to spend time to get
an education.
172. According to the signaling theory of education, better-educated workers
a.
are likely to be high-ability workers.
b.
improve their marginal productivity through education.
c.
are in scarce supply in less developed countries.
d.
can only find low-skilled jobs due to technology.
173. According to proponents of the signaling theory of education, an increase in the education levels of all workers
would
a.
increase workers’ productivity and increase their wages.
b.
increase workers’ productivity but leave their wages unaffected.
c.
leave workers’ productivity unaffected but increase their wages.
d.
leave workers’ productivity and wages unaffected.
174. A signaling theory of education suggests that
a.
people who attend college are more likely to capture a “beauty premium.”
b.
education is a signal of social status.
c.
education does not necessarily increase productivity.
d.
education will sever the link between innate ability and compensation.
175. If the signaling theory of education is correct,
a.
workers with more years of formal schooling will earn less than workers with fewer years of formal schooling.
b.
additional years of formal schooling do not increase a worker’s productivity.
c.
workers with more years of formal schooling are less likely to be affected by ability, effort, and chance.
d.
men are more likely to earn more than women because men are more likely to have graduated from college.
176. If the signaling theory of education is correct,
a.
education increases productivity and educated workers are paid more.
b.
education increases productivity but educated workers are not paid more.
c.
education does not increase productivity but educated workers earn more.
d.
education does not increase productivity and educated workers do not earn more
177. According to proponents of the signaling theory of education,
a.
schooling has no real productivity benefit.
b.
no one person finds it easier to earn a college degree than does any other person.
c.
the human-capital view of education is entirely correct.
d.
employers send signals to young people to persuade them to expend whatever effort is necessary to earn
college degrees.
178. The signaling theory of education is most similar to the
a.
human capital theory of education.
b.
discrimination theory of advertising.
c.
signaling theory of advertising.
d.
efficiency wage theory of labor economics.
179. Jake and Harry each have 130 hours of college credit from Impressive University. Each has 30 hours of economics.
Jake has a bachelor’s degree, while Harry is 3 credits short of required physical education classes and therefore does not
have a degree. Each of them has one year of experience as a market analyst for ABC Company. Assuming that the
physical education class would not enhance Harry’s job performance, if Jake earns a higher salary than Harry, the ABC
Company may subscribe to the
a.
human capital theory.
b.
discrimination theory.
c.
compensating differential theory.
d.
signaling theory.
180. James earns a degree from a top university and is hired by a prominent firm because executives at the firm believe
that graduates of this university must have a high ability level or they would not have graduated. Which of the following
theories of education do the executives believe?
a.
signaling theory
b.
human-capital theory
c.
compensating-differentials theory
d.
All of the above are correct.
181. The Asian Development Bank has been investing in education and training programs in the developing economies of
Asia over the last five years. As a result of this investment, economists who adhere to the human capital view of education
would predict
a.
rising wages as labor productivity is enhanced.
b.
falling wages as the labor market is saturated with too many educated workers.
c.
the marginal productivity of capital would not be affected.
d.
the marginal productivity of labor would not be affected.
182. Maria has just graduated from Princeton University and has applied for a job at a major bank. The bank decides to
offer Maria a job because they perceive her degree from Princeton to be an indication of her high-ability. To which of the
following views of education does the bank subscribe?
a.
signaling
b.
human-capital view
c.
superstar phenomenon
d.
benefits of beauty
183. Tiffany has just graduated from Stanford University and has applied for a job as an engineer at a manufacturing
plant. The manufacturer decides to offer Tiffany a job because it perceives she’s gained valuable skills while at Stanford.
To which of the following views of education does the manufacturer subscribe?
a.
signaling
b.
human-capital view
c.
compensating-differentials
d.
superstar
184. Tom, the manager and owner of a small company, believes in the signaling theory of education, not the human
capital theory. As such, we would expect Tom not to offer which of the following company benefits?
a.
employer-matching 401k retirement plan contributions
b.
tuition reimbursement for workers who take college classes
c.
on-site day care
d.
health insurance
185. Tom, the manager and owner of a small company, believes in the signaling theory of education, not the human
capital theory. As such, Tom would be most likely to agree with which of the following quotes?
a.
“We encourage our employees to enroll in night classes to improve their on-the-job productivity.”
b.
“We encourage our employees to participate in online seminars to learn new skills.”
c.
“We pay higher wages to employees who have MBAs because, on average, their job performance is better
than similar employees who do not have MBAs.”
d.
“When we interview prospective employees at job fairs, we are looking for college graduates because they
have the determination and follow-through to finish what they start.”
186. Which of the following statements accurately explains the superstar phenomenon in wages?
a.
Better carpenters earn more than average carpenters because people are willing to pay higher prices for higher-
quality work.
b.
The more productive an author is, the more books she can write each year, so the more she earns.
c.
Talented movie stars earn more than equally talented mechanics because technology allows the delivery of the
services provided by the movie stars to all interested customers.
d.
Athletes get paid for performing services that everyday people perform as hobbies.
187. Technology is an important factor in explaining the high incomes of some athletes primarily because
a.
technology accounts for differences in incomes within all occupations.
b.
technology makes it possible for very large numbers of people to watch athletes perform.
c.
technology improves the performance of athletes.
d.
technology requires human capital to use it efficiently.
188. Why can superstar athletes and movie stars earn multimillion dollar salaries but superstar electricians and professors
cannot?
a.
Every customer in the market wants to enjoy the good supplied by the best producer.
b.
Technology makes it possible for the best producer to supply every customer at low cost.
c.
Customers are willing to pay more for entertainment than other services.
d.
Both a and b are correct.
189. The most popular movie stars have high incomes for a number of reasons. One such reason is
a.
an ability for almost everyone to enjoy movies at a relatively low cost.
b.
the above-average intellect of the average movie star.
c.
a compensating differential.
d.
a lack of technological advances in the movie industry.
190. Why is a construction worker never likely to earn as much as a famous athlete?
a.
Compensating differentials create a higher wage for professional athletes.
b.
Technological progress has advanced less in the construction industry then in sports training.
c.
Productivity levels are low in the construction industry due to the high number of people willing to be
construction workers.
d.
A construction worker can provide his services to only a limited number of customers.
191. The “superstar” phenomenon can apply to which of these jobs?
a.
high-school teacher
b.
author
c.
heart surgeon
d.
carpenter
192. Which of the following professionals is most likely to generate the income of a superstar?
a.
the best teacher
b.
the best dentist
c.
the best guitar player
d.
the best airplane pilot
193. According to the superstar phenomenon, the most talented person in which of the following occupations is most
likely to earn extremely high wages?
a.
an electrician
b.
a hair stylist
c.
a journalist
d.
an engineer
194. According to the superstar phenomenon, the most talented person in the following occupations is likely to earn
extremely high wages except
a.
an author.
b.
an auto mechanic.
c.
a singer.
d.
an advice columnist.
195. For a “superstar” to emerge, it must be the case that
a.
it is possible to supply the good or service that the superstar produces at low cost to every customer.
b.
some customers are willing and able to pay large sums of money to enjoy the good or service provided by the
superstar.
c.
the superstar has a natural monopoly on his or her good or service.
d.
the superstar can become sufficiently popular to earn income from advertisements.
196. The primary economic explanation as to why a world-renowned architect cannot attain the “superstar” status that an
athlete or actor can attain is that
a.
architects’ services are not as highly valued by society as are the services of athletes and actors.
b.
only physically attractive people can become superstars, and it would be a coincidence if a highly talented
architect were also physically attractive.
c.
government regulations place restrictions on the incomes of architects, but there are no such restrictions on the
incomes of athletes or actors.
d.
it is impossible, currently, for an architect to supply his or her services at low cost to every customer.
197. The fact that movie star Angelina Jolie’s salary is much higher than the salary earned by the world’s best nurse can
best be explained by the
a.
failure of the market to reward talent fairly.
b.
large number of nurses.
c.
willingness of some people to accept a lower wage rate in order to do work they find personally rewarding.
d.
superstar phenomenon.
198. Suppose that Philip is the best contractor in town, and he makes $400,000 a year. Suppose that Julia Roberts is the
best and highest paid actress in Hollywood, and she makes $13 million per movie. Both are the best in their respective
fields of work. One reason for the significant difference in incomes has to do with the nature of the service each offers.
Philip’s contracting services
a.
can be provided to an unlimited number of customers in a year, but Julia’s work is sold to only a few
individuals in a year.
b.
can only be provided to a limited number of customers in a year, but Julia’s work is sold to millions of
individuals in a year — i.e., to anyone who has the willingness and ability to pay for admission to her movies.
c.
can be provided to a unlimited number of customers in a year, and Julia’s work is sold to millions of
individuals in a year — i.e., to anyone who has the willingness and ability to pay for admission to her movies.
d.
can only be provided to a limited number of customers in a year, and Julia’s work is sold to only a few
individuals in a year.
199. The superstar phenomenon applies to
a.
all famous people equally.
b.
any type of worker who has high productivity.
c.
markets where technology allows the best producer to supply every customer at a low cost.
d.
markets where a small group of workers produce a much higher quality product than the average worker.
200. The very high pay earned by the best actors and actresses is partially explained by the fact that
a.
they benefit from a compensating differential.
b.
moviegoers all want to see the very best actors, not second-rate actors.
c.
they have acting degrees from accredited acting schools.
d.
the supply of good actors is very large.
201. Dr. Benson is regarded as, by far, the best dentist in his part of the country, yet his income is not significantly higher
than the average income for a dentist in his area. In contrast, Bo Johnson, the best baseball player in that region, earns five
times the average salary of all baseball players. The most likely explanation is that
a.
the widespread perception that Dr. Benson is a great dentist is, in fact, incorrect.
b.
the baseball players’ union is more powerful than the professional association of dentists.
c.
Bo Johnson, unlike Dr. Benson, can provide his services to millions of people simultaneously.
d.
chance plays a role in determining people’s incomes, resulting in earnings discrepancies that are hard to
explain or justify.
202. When comparing the salaries of a superstar CPA and a superstar golfer,
a.
both can earn tremendously high salaries because both can meet with millions of clients.
b.
the superstar CPA will not earn as much as the superstar golfer because superstar accountants do not have
access to the same sophisticated technologies that superstar golfers do.