CHAPTER 31
Work and Wages
Neoclassical View of Income Distribution
MULTIPLE CHOICE
323. The traditional theory economists use to explain factor prices and income distribution is
marginal productivity theory. This theory is closely associated with
a. Karl Marx
b. John M. Keynes
c. Adam Smith
d. John Bates blark
Table 31.1a
Labor
(L)
Output
(Q)
Price
(P)
3 150 $3
4
200
5
240
6 270 $3
7
290
8
300
324. In Table 31.1a, what is the marginal physical product (MPP) of the 7th worker added?
a. $3
b. 40
c. 20
d. $60
325. In Table 31.1a, what is the marginal revenue product (MRP) of the 7th worker added?
a. $3
b. 40
c. 20
d. $60
326. In Table 31.1a, what is total revenue when output is 300?
a. $3
b. $300
c. $900
d. 20
327. In Table 31.1a, how does marginal physical product change as additional workers are
added?
a. marginal physical product increases with each additional worker.
b. marginal physical product decreses with each additional worker.
c. marginal physical product first increases then decreases with each additional worker.
d. marginal physical product first decreases then increases with each additional worker.
328. Explain what will happen to the data in Table 31.1a if price increases to $5
a. marginal physical product will increase for each level of output.
b. marginal revenue product will increase for each level of output.
c. marginal physical product will decrease for each level of output.
d. marginal revenue product will decrease for each level of output.
329. The income leisure trade off
a. is the basis of the neoclassical theory of labor supply
b. means that individuals would rather work than enjoy leisure.
c. means that individuals enjoy making trades during their leisure time.
d. means that firms can make money in leisure industry.
330. Sam is currently earning $150,000 per year working an 80 hour week. He has just refused a
job offer that would increase his salary to $175,000 and require him to work 90 hours per
a.
b. Sam does not have a supply curve, because he turned down the job.
c. bor supply curve is backward bending.
d. Sam places a very low value on leisure at his current wage rate.
331. An increase in the wage will produce a substitution effect and an income effect. What is
the substitution effect of a wage change?
a. as the wage increases, the price of leisure becomes more expensive, and workers will
consume less leisure.
b. as the wage increases, the price of working becomes more expensive, and workers will
substitute more leisure for work.
c. as the wage increases, the opportunity cost of not working becomes less expense, and
workers will work less.
d. as the wage increases, price of leisure becomes more expensive, and workers will enjoy
more intensive leisure activities.
332. An increase in the wage will produce a substitution effect and an income effect. What is
the income effect of a wage change?
a. as the wage increases, workers have more income and will want to work more.
b. as the wage increases, workers have more income and will want to consume more leisure.
c. as the wage increases, workers have more income and will go on more vacations.
d. as the wage increases, workers have more income, and will enjoy more intensive leisure
activities.
333. What is human capital?
a. It refers to those who work in financial services.
b. It means that human beings are similar to capital goods.
c. It refers to investments made by workers in education, training and experience.
d. It refers to investments made by employers to substitute new technology and capital for
workers.
APPENDIX 31.1
Profit Maximization and the Input Decision
MULTIPLE CHOICE
334. The goal of the firm is
a. to produce as much as possible.
b. to maximize profits.
c. to charge as high a price as possible.
d. to maximize revenues.
335. The firm will maximize profits if it hires workers until
a. MRPL = MCL
b. MCL = equilibrium wage rate.
c. MRPL = price of output
d. equilibrium wage rate = price of output
336.
a. some consumers prefer to shop in the mornings, some prefer to shop in the afternoons.
b. some consumers prefer to shop online because it saves time.
c. some consumers prefer to consume now rather than wait to consume later.
d.
337. refers to
a. the purchase of stocks and bonds by households.
b. the purchase of plant and equipment done by business firms.
c. plant, equipment and machinery used to produce other goods.
d. the difference between current consumption and current income.
338. The
a. the interest rate.
b. the capital stock.
c. rent
d. profit
339. The analysis of economic rent assumes that
a. the supply of unimproved land is fixed.
b. the supply of unimpoved land varies directly with the rental price.
c. the supply of unimproved land varies inversely with the rental price.
d. the supply of unimproved land is unlimited.
340. The rent on unimproved land is called
a. marginal productivity rent.
b. economic rent
c. marginal rent.
d. factor rent.
341. The rent on improved land is called
a. marginal productivity rent.
b. economic rent
c. marginal rent.
d. factor rent.
342. The fact that more oil exploration and development occurs when the price of oil increased
from $30 per barrel to $130 per barrel suggests that over this price range
a. the supply of oil is fixed.
b. the supply of oil is upward sloping.
c. the supply of oil downward sloping.
d. the supply of oil is perfectly elastic.
APPENDIX 31.2
Labor Theory of Value Versus Neoclassical Marginal Productivity
MULTIPLE CHOICE
343. A key difference between neoclassical theory and the labor theory of value is that
a. neoclassical theory treats production as a process in which three equal inputs land,
labor, and capital are combined by entrepreneurs to produce products.
b. neoclassical theory treats production as a process in which labor combines inputs land
and capital to produce products.
c. neoclassical theory treats production as a process in which four equal intputs land,
natural resources, capital, and entrepreneurship are combined in order to produce
products.
d. neoclassical theory and the labor theory of value have the same view of production.
344.
a. labor
b. capital and raw materials.
c. entrepreneurship
d. the capitalist
345. According to the labor theory of value
a. both labor and capital are productive.
b. labor is productive, but capital is not.
c. capital is productive, but labor is not.
d. neither labor nor capital is productive.