Chapter 19/Earnings and Discrimination ❖ 21
96. Workers with more human capital on average earn substantially higher pay than workers with less
human capital in
a.
most countries but not in the United States.
b.
the United States but not in most other countries.
c.
the United States and in most other countries.
d.
None of the above is correct; the evidence fails to indicate that human capital is a
significant factor in determining earnings anywhere in the world.
97. In the United States, the earnings gap between workers with college degrees and workers with high
school degrees
a.
has never been documented by reliable evidence.
b.
is evident, but it has remained roughly constant over the past several years.
c.
is evident, but it has diminished over the last several years.
d.
is evident, and it has widened over the last several years.
98. Over the last several years, the earnings gap between workers with college degrees and workers with
high school degrees has
a.
remained roughly constant for both men and women.
b.
widened for both men and women.
c.
widened for men and narrowed for women.
d.
narrowed for men and widened for women.
99. Economists who attempt to explain the increasing earnings gap between skilled and unskilled work-
ers offer two main hypotheses:
a.
One hypothesis emphasizes education, and the other emphasizes random influences.
b.
One hypothesis emphasizes education, and the other emphasizes supply and demand.
c.
One hypothesis emphasizes international trade, and the other emphasizes technology.
d.
One hypothesis emphasizes signaling, and the other emphasizes education.
22 ❖ Chapter 19/Earnings and Discrimination
100. Economists who attempt to explain the increasing earnings gap between skilled and unskilled work-
ers in the United States offer two main hypotheses. Both hypotheses
a.
suggest that demand and supply conditions have played a less important role in
determining workers’ wages in recent years.
b.
suggest that, over time, the demand for skilled labor has risen relative to the demand for
unskilled labor.
c.
emphasize the shrinking importance of international trade in recent years.
d.
emphasize the growing importance of women and teenagers in the workforce in recent
years.
101. A “technology” hypothesis has been advanced as an explanation for the widening earnings gap be-
tween skilled and unskilled workers in the United States. This hypothesis emphasizes the likelihood
that technological advances have
a.
increased the supply of both skilled and unskilled workers.
b.
increased the supply of skilled workers and decreased the supply of unskilled workers.
c.
increased the demand for skilled workers and decreased the demand for unskilled workers.
d.
decreased the demand for both skilled and unskilled workers.
102. The statement “the rich get richer and the poor get poorer” is evident in the fact that
a.
the earnings gap between high-skill jobs and low-skill jobs has increased over the last
several years.
b.
developing countries do not pay workers the value of their marginal product.
c.
developed economies export high-skill jobs to developing countries.
d.
All of the above are correct.
103. Which of the following scenarios would serve to decrease the demand for unskilled labor in our
country?
a.
increased productivity gains among the unskilled laborers
b.
increased demand for goods produced by unskilled labor
c.
increased international trade with countries where unskilled labor is more plentiful
d.
increased supply of migrant workers
Chapter 19/Earnings and Discrimination ❖ 23
104. Increases in international trade and technological change have been offered as explanations for the
a.
increase in demand for both skilled and unskilled workers in the United States.
b.
increase in demand for skilled workers and decrease in demand for unskilled workers in
the United States.
c.
decrease in demand for skilled workers an increase in demand for skilled workers in the
United States.
d.
decrease in demand for both skilled and unskilled workers.
105. Economists who study labor markets have documented
a.
a general decline in the wages of college graduates over the last decade.
b.
an increasing trend in U.S. labor markets for employers to pay all costs of education and
training.
c.
a decrease in the earnings gap between low-skill and high-skill workers over the past two
decades.
d.
an increase in the earnings gap between low-skill and high-skill workers over the past two
decades.
106. When robots are used to replace workers on a factory production line, the wage gap between skilled
and unskilled workers
a.
will increase only if the company can increase the price of its product.
b.
is likely to increase.
c.
is likely to decrease.
d.
will not change.
107. Economists have proposed which of the following hypotheses to explain the rising wage gap be-
tween skilled and unskilled workers?
a.
Increases in the role of unions in negotiating wages.
b.
Declines in the amount of international trade.
c.
There is no rising wage gap.
d.
Technological change.
24 ❖ Chapter 19/Earnings and Discrimination
108. In order to explain the widening gap in earnings between skilled and unskilled workers in recent
years, economists have proposed two hypotheses. One hypothesis emphasizes
a.
compensating differentials.
b.
the increased recognition that a larger stock of human capital usually leads to higher
earnings.
c.
the decreasing importance of labor unions.
d.
the increasing importance of international trade.
109. If, as some economists believe, changes in technology over recent decades have brought about
changes in labor markets, then those changes likely have resulted in
a.
reduced emphasis on compensating differentials as an explanation for wage differences.
b.
a reduced emphasis on human-capital differences among workers as an explanation for
wage differences.
c.
a narrowing of the earnings gap between high-skilled workers and low-skilled workers.
d.
a widening of the earnings gap between high-skilled workers and low-skilled workers.
110. Which of the following could explain the growing gap in income between unskilled and skilled
workers in the United States?
a.
International trade has increased the domestic demand for skilled labor and decreased the
domestic demand for unskilled labor.
b.
Certain technological changes such as the introduction of computers have increased the
domestic demand for skilled labor and decreased the domestic demand for unskilled labor.
c.
Both a and b are correct.
d.
Neither a nor b is correct.
111. Over the past several years, the earnings gap between high-skilled and low-skilled workers has
a.
increased.
b.
decreased.
c.
remained constant.
d.
first increased by a small percent, then decreased by a large percent.
Chapter 19/Earnings and Discrimination ❖ 25
112. Over the past several years, the earnings gap between high-skilled and low-skilled workers has
(i)
narrowed because the demand for unskilled labor has risen over time relative to the
demand for skilled labor.
(ii)
widened because the demand for skilled labor has risen over time relative to the
demand for unskilled labor.
(iii)
narrowed because the supply of unskilled labor has risen over time relative to the
supply of skilled labor.
(iv)
widened because the supply of skilled labor has risen over time relative to the supply
of unskilled labor.
a.
(i) only
b.
(ii) only
c.
(i) and (iii) only
d.
(ii) and (iv) only
113. Over the past several years, the earnings gap between high-skilled and low-skilled workers has wid-
ened because
(i)
international trade has altered the relative demand for skilled and unskilled labor.
(ii)
changes in technology have altered the relative demand for skilled and unskilled labor.
(iii)
the return to education for men has decreased, whereas the return to education for
women has increased.
a.
(i) only
b.
(iii) only
c.
(i) and (ii) only
d.
(i), (ii), and (iii)
114. Certain factors that are probably important in determining wages are nevertheless difficult to meas-
ure. Consequently, labor economists find those factors difficult to incorporate into their studies of
labor markets and wages. Those factors include
a.
effort and natural ability.
b.
natural ability and years of experience.
c.
years of experience and job characteristics.
d.
race and job characteristics.
26 ❖ Chapter 19/Earnings and Discrimination
115. In determining wages, ability, effort, and chance
a.
probably play no role whatsoever.
b.
play a role, but their importance is hard to gauge since ability, effort, and chance are hard
to measure.
c.
play a role, and that role is fully captured in easy-to–measure factors such as human capital
and age.
d.
play a role, and it is fully explained within the context of compensating differentials.
116. Which of the following variables related to a worker’s wage are the most difficult to measure?
a.
ability, effort, and chance
b.
job characteristics, gender, and race
c.
gender, race, and geographic location
d.
years of schooling, age, and years of experience
117. Studies of wages by labor economists indicate that measurable variables such as age, job character-
istics, 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.
118. Bill and Ted went to trade school at the same time. Each graduated with an associate’s degree.
They have received similar performance evaluations. Bill’s employer is not a good business man-
ager, and the bookkeeper embezzled money from the company. Because of the loss of funds, the
employees did not receive raises last year. Ted’s employer is a savvy business manager. If Ted has
higher earnings than Bill, the difference is most likely a function of
a.
chance.
b.
differences in human capital.
c.
differences in signaling.
d.
discrimination.
119. 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
Chapter 19/Earnings and Discrimination ❖ 27
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.
120. 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.
121. 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.”
122. 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.
28 ❖ Chapter 19/Earnings and Discrimination
123. 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.
124. Which of the following helps to explain the differences in earnings in the United States?
a.
ability, effort, and chance
b.
compensating differentials
c.
physical attractiveness
d.
All of the above are correct.
125. 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.
126. 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 follow-
ing except
a.
customer preferences.
b.
discrimination.
c.
a beauty premium.
d.
a compensating differential.
127. According to the Hamermesh and Biddle study, people deemed more attractive than average earn
a.
30-40 percent more than unattractive people.
b.
about 5 percent more than average looking people.
c.
the same as average looking people and 15-20 percent more than unattractive people.
d.
25 percent more than average looking people and 50 percent more than unattractive
people.
Chapter 19/Earnings and Discrimination ❖ 29
128. 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.
129. 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.
130. Bill and Phil are identical twins who attended grammar school through college together. Bill took a
job as an engineer who does not have to travel out of the state. Phil took a job as an engineer who
must travel out of state once a week. Bill earns $105,000 a year, and Phil earns $185,000 a year. Se-
lect the best explanation for this wage difference.
a.
Phil has more human capital relative to Bill.
b.
Phil has less human capital relative to Bill.
c.
Phil receives a higher wage to compensate for the disagreeable nature of business travel.
d.
Bill’s lower salary supports the signaling theory of education.
131. Jake and Bill are both college graduates. Jake is a patrolman and Bill is a detective in the same po-
lice precinct. While Jake’s job is inherently more dangerous than Bill’s, Bill passed a difficult exam
to gain promotion to detective. Bill earns more than Jake because
a.
of a compensating differential.
b.
of efficiency wages.
c.
of education as a signal.
d.
Bill has more human capital.
30 ❖ Chapter 19/Earnings and Discrimination
132. 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
133. 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
134. Which of the following is not an explanation for why better educated workers earn more, on aver-
age, 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.
135. 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 ac-
cept 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.
Chapter 19/Earnings and Discrimination ❖ 31
136. 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.
137. 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 derived-demand
d.
cost-allocation and compensating differentials
138. 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.
college is largely a social phenomenon.
139. 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 evi-
dence 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.
32 ❖ Chapter 19/Earnings and Discrimination
140. 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.
141. 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.
142. 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.
143. 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.
The more naturally productive people are more inclined to educate themselves.
d.
All of the above are correct.
144. 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
Chapter 19/Earnings and Discrimination ❖ 33
145. 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
146. 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.
147. 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.
148. 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.
149. 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.
34 ❖ Chapter 19/Earnings and Discrimination
150. 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.
151. 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.
152. 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.
153. 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.
154. 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.
Chapter 19/Earnings and Discrimination ❖ 35
155. 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.
156. 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.
157. 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.
158. 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 com-
pany 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
36 ❖ Chapter 19/Earnings and Discrimination
159. 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.”
160. 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.
Funnier comedians earn more than less funny comedians because they are more talented.
c.
Talented athletes earn more than equally talented plumbers because technology allows the
delivery of the services provided by the athletes to all interested customers.
d.
Athletes get paid for performing services that everyday people perform as hobbies.
161. Technology is an important factor in explaining the high incomes of superstars because
a.
technology accounts for differences in incomes within all occupations.
b.
technology makes it possible for the best producer to supply every customer at low cost.
c.
technology that can limit access to the superstars is available.
d.
only technologically-literate superstars can earn super incomes.
162. 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.
163. Why is a plumber never likely to be as rich as a movie star?
a.
Compensating differentials create a higher wage in the movie business.
b.
There haven’t been any significant technological advances in the plumbing industry.
c.
Productivity levels are low in the plumbing industry due to low worker morale.
d.
A plumber can provide his services to only a limited number of customers.
Chapter 19/Earnings and Discrimination ❖ 37
164. The “superstar” phenomenon can apply to which of these jobs?
a.
high-school teacher
b.
anchorperson for a national news program
c.
heart surgeon
d.
carpenter.
165. 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 author
d.
the best airplane pilot
166. 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 is willing to settle for a level of pay that is less than the value of his marginal
product.
167. The primary economic explanation as to why a world-renowned architect cannot attain the “super-
star” 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.
38 ❖ Chapter 19/Earnings and Discrimination
168. The fact that movie star Julia Roberts’s salary is much higher than the salary earned by the world’s
best plumber can best be explained by the
a.
failure of the market to reward talent fairly.
b.
fact that wage rates cannot reflect the influence of education properly.
c.
willingness of some people to accept a lower wage rate in order to do what they like most
to do.
d.
superstar phenomenon.
169. 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 in-
comes 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.
170. The superstar phenomenon applies to
a.
all famous people equally.
b.
workers receiving a compensating wage differential.
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.
171. 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.
172. Dr. Benson is regarded as, by far, the best dentist in his part of the country, yet his income is not sig-
nificantly higher than the average income for a dentist in his area. In contrast, Bo Johnson, the best
Chapter 19/Earnings and Discrimination ❖ 39
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.
173. 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.
c.
the superstar CPA will not earn as much as the superstar golfer because a superstar
accountant can only work with a limited number of clients per day, whereas millions of
fans can enjoy the services provided by a superstar golfer on a given day by watching a
televised tournament.
d.
the superstar CPA will not earn as much as the superstar golfer because customers are
unable to distinguish superstar accountant from a mediocre accountant.
174. Sometimes wages are set above the equilibrium level when firms pay
a.
workers with more seniority higher wages than newly-hired workers.
b.
efficiency wages to reduce turnover.
c.
compensating differentials to workers who work the night shift.
d.
more attractive salespeople higher wages than less attractive salespeople.
175. According to the superstar phenomenon, the most talented person in which of the following occupa-
tions is most likely to earn extremely high wages?
a.
an electrician
b.
a hair stylist
c.
a journalist
d.
a roofer
40 ❖ Chapter 19/Earnings and Discrimination
176. 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.
177. Effective minimum-wage laws will most likely
a.
increase demand for labor.
b.
create a surplus of labor.
c.
increase incomes for all unskilled workers.
d.
decrease incomes for all unskilled workers.
178. Above-equilibrium wages caused by efficiency wages will most likely result in
a.
a shortage of labor.
b.
increased unemployment.
c.
compensating wage differentials.
d.
an decrease in the quantity of labor supplied.
179. When employers pay an efficiency wage above the market equilibrium wage, this will likely result
in
a.
a surplus of labor.
b.
no unemployment.
c.
an increase in the number of people employed.
d.
an decrease in the quantity of labor supplied.
180. If we were to observe above-equilibrium wages in a particular labor market, then a possible explana-
tion might be that
a.
the theory of efficiency wages holds true for that market.
b.
there is a powerful labor union representing workers in that market.
c.
workers are largely unskilled and/or inexperienced and minimum-wage laws are
effectively holding wages up in that market.
d.
All of the above are correct.