Page 1
1.
According to the _____, in a perfectly competitive economy each factor of production is
paid its equilibrium value of the marginal product.
A)
theory of labor supply
B)
efficiency-wage model
C)
theory of compensating differentials
D)
marginal productivity theory of income distribution
2.
Oscar’s Flower Shop maximizes profits by hiring four workers in a perfectly
competitive labor market. The workers and their value of the marginal product of labor
are Noe, $40; Barbara, $35; Calvin, $27; and Diana, $15. According to the marginal
productivity theory of income distribution, which statement is true?
A)
In equilibrium, each worker is paid his or her value of the marginal product of
labor.
B)
Each worker is paid a wage equal to the highest value of the marginal product of
labor (i.e., $40).
C)
Each worker is paid $15.
D)
We need to know the product price before we can figure out the wage rate.
3.
An important assumption underlying the marginal productivity theory of income
distribution is that:
A)
product markets are monopolistically competitive.
B)
factor markets are perfectly competitive.
C)
the relevant value of the marginal product is not the equilibrium value.
D)
the firm does not own any land or physical capital.
4.
The marginal productivity theory of income distribution says that:
A)
each factor is paid the equilibrium value of the output generated by the last unit of
that factor employed in the factor market as a whole.
B)
each factor is paid an amount greater than the value of the output generated by the
last unit of that factor employed in the factor market as a whole.
C)
each factor is paid an amount less than the value of the output generated by the last
unit of that factor employed in the factor market as a whole.
D)
the payment to each factor does not correspond to the marginal product of the
factor.
5.
The labor demand curve in a perfectly competitive factor market is the horizontal sum
of all firms’ _____ product of labor curves.
A)
marginal
B)
value of the marginal
C)
marginal physical
D)
average physical
Page 2
Use the following to answer questions 6-8:
Figure: Equilibrium in the Labor Market
6.
(Ref 39-1 Figure: Equilibrium in the Labor Market) Use Figure 39-1: Equilibrium in the
Labor Market. In the figure, an increase in the productivity of labor, when everything
else stays the same, will lead to a(n) _____ in the equilibrium quantity of labor and a(n)
_____ in the equilibrium price of labor.
A)
decrease; increase
B)
increase; decrease
C)
decrease; decrease
D)
increase; increase
7.
(Ref 39-1 Figure: Equilibrium in the Labor Market) Use Figure 39-1: Equilibrium in the
Labor Market. In the figure, a decrease in the price of the good produced, when
everything else stays the same, will lead to a(n) _____ in the equilibrium quantity of
labor and a(n) _____ in the equilibrium price of labor.
A)
increase; increase
B)
decrease; increase
C)
increase; decrease
D)
decrease; decrease
Page 3
8.
(Ref 39-1 Figure: Equilibrium in the Labor Market) Use Figure 39-1: Equilibrium in the
Labor Market. In the figure, a decrease in population that decreases the number of
workers, when everything else stays the same, will lead to a(n) _____ in the equilibrium
quantity of labor and a(n) _____ in the equilibrium price of labor.
A)
increase; increase
B)
decrease; increase
C)
increase; decrease
D)
decrease; decrease
9.
According to the marginal productivity theory of income distribution, every factor of
production is paid _____ the equilibrium value of its _____ product.
A)
exactly; marginal
B)
more than; marginal
C)
less than; marginal
D)
exactly; average
10.
The marginal productivity theory of income distribution assumes that factor markets
are:
A)
monopolies.
B)
oligopolies.
C)
perfectly competitive.
D)
allowed to pay only the wages that government approves.
11.
The equilibrium value of the marginal product of a factor is the additional value
produced by the _____ unit of that factor employed in the factor market as a whole.
A)
first
B)
last
C)
most productive
D)
least productive
12.
According to the marginal productivity theory of income distribution, if a unit of labor
is paid more than a unit of capital, it is because, at the equilibrium quantity of each
factor, the value of the _____ product of labor is _____ product of capital.
A)
marginal; greater than the marginal
B)
marginal; less than the marginal
C)
average; greater than the average
D)
average; less than the average
Page 4
13.
Which group had the highest median earnings in the U.S. labor market in 2016?
A)
White men
B)
women, regardless of ethnicity
C)
African-Americans
D)
Hispanics
14.
Which group had the lowest median earnings in the U.S. labor market in 2016?
A)
White men
B)
women, regardless of ethnicity
C)
African-Americans
D)
Hispanics
15.
In 2016, women, regardless of ethnicity, earned:
A)
the same as White men.
B)
about twice as much as White men.
C)
about 75% of the earnings for White men.
D)
about 25% of the earnings for White men.
16.
Wage differences across jobs that reflect the fact that some jobs are less pleasant than
others are called:
A)
efficiency wages.
B)
market power.
C)
compensating differentials.
D)
discrimination.
17.
Which example illustrates wage disparity due to compensating differentials?
A)
The median earnings of White men are more than are the median earnings of
African-Americans.
B)
People with graduate degrees usually have higher earnings than do people who did
not graduate from high school.
C)
Nick Saban, the football coach at the University of Alabama, earns more than does
an economics professor.
D)
Crab fishermen on the Bering Sea earn more than do clerks who sell goldfish at a
pet store.
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18.
Sam and Bob have the same educational background. Both have been policemen in
Memphis for 10 years. Sam works from 11 P.M. until 7 A.M., and Bob works from 7
A.M. until 3 P.M. Sam’s salary is $800 per month higher than Bob’s salary. This
example illustrates a wage disparity due to:
A)
efficiency wages.
B)
market power.
C)
compensating differentials.
D)
discrimination.
19.
Which statement is most likely an example of wage disparity due to differences in talent
and ability?
A)
The median earnings of White men are more than are the median earnings of
African-Americans.
B)
Clerks at a Gap in New York City earn more than do clerks at a Gap in Topeka,
Kansas.
C)
Nick Saban, the football coach at the University of Alabama, earns more than does
the local high school football coach.
D)
Crab fishermen on the Bering Sea earn more than do clerks who sell goldfish at a
pet store.
20.
Which statement is most likely an example of wage disparity due to differences in
human capital?
A)
The median earnings of White men are more than are the median earnings of
African-Americans.
B)
People with graduate degrees usually have higher earnings than do people who did
not graduate from high school.
C)
Nick Saban, the football coach at the University of Alabama, earns more than does
an economics professor.
D)
Crab fishermen on the Bering Sea earn more than do clerks who sell goldfish at a
pet store.
21.
Actual wage differentials can be partially explained by which factor(s)?
I. differences in talent
II. different amounts of human capital
III. compensating differentials
A)
I only
B)
I and II only
C)
III only
D)
I, II, and III
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22.
Which statement describes a compensating differential?
A)
Tiger Woods gets paid more than does a college professor.
B)
A window washer working in a suburban residential subdivision gets paid less than
does one who is washing windows on the outside of a skyscraper.
C)
A nuclear scientist gets paid more than does a janitor working in the same building.
D)
On average, White men get paid more than do women of all ethnicities.
23.
A new teacher often makes less than a teacher with 20 years’ experience because of:
A)
discrimination.
B)
differences in human capital.
C)
efficiency wages.
D)
differences in physical capital.
24.
Which factor does not partially explain wage differentials?
A)
different amounts of human capital
B)
compensating differentials
C)
differences in talent
D)
differences in capital
25.
A nurse willing to work the midnight to 8 A.M. shift may make more than one who
works 8 A.M. to 4 P.M. because of:
A)
discrimination.
B)
market power.
C)
compensating differentials.
D)
efficiency wages.
26.
A small college employs two economists. Rob has been employed by the college for 15
years, and Nasrin has been employed for 1 year. Rob’s salary is significantly higher than
is Nasrin’s, although both have their doctoral degrees in economics. Each professor
averages one publication per year, and both are excellent teachers. Given this
information, the wage difference is BEST explained by:
A)
compensating differentials.
B)
differences in human capital.
C)
discrimination.
D)
differences in talent.
Page 7
27.
Employers can sometimes organize to pay lower wages when:
A)
efficiency wages are used to drive down morale and break up a labor union.
B)
health maintenance organizations (HMOs) organize to get groups of doctors to
work together at lower wages than they would earn on their own.
C)
labor unions are not allowed to engage in collective bargaining.
D)
corporations force the minimum wage down.
28.
In 2016, unions represent approximately _____% of employees of private businesses.
A)
1
B)
7
C)
19
D)
29
29.
Which statement about unions is true?
A)
Laws allow unions to discriminate on the basis of gender and ethnicity.
B)
Unions bargain for better working conditions at the cost of higher wages.
C)
Unions cause a surplus of labor by bargaining for wages that are higher than the
value of the marginal product of labor.
D)
Unions cause compensating differentials.
30.
In the past 30 years, the ability of unions to increase wages and improve working
conditions for their members has:
A)
increased.
B)
decreased.
C)
remained constant.
D)
proved the marginal productivity theory of income distribution to be false.
31.
Above-equilibrium wages paid by some employers as an incentive for better
performance are called:
A)
efficiency wages.
B)
market power wages.
C)
compensating differentials.
D)
discrimination.
32.
Because the efficiency wage is _____ the equilibrium wage, it may lead to a _____ of
labor.
A)
below; shortage
B)
below; surplus
C)
above; shortage
D)
above; surplus
Page 8
33.
An efficiency wage is:
A)
above the equilibrium wage and is paid to provide workers with an incentive to
increase productivity.
B)
efficient because it is exactly equal to the wage rate implied by the marginal
productivity theory.
C)
determined by collective bargaining between unions and management.
D)
equal to the value of the marginal product of labor adjusted so as to make the
structure of compensation more equitable.
34.
According to the efficiency wage model, efficiency wages do not:
A)
reduce unemployment.
B)
represent a response to a type of market failure.
C)
get set above the equilibrium wage.
D)
reduce worker turnover.
35.
Suppose that Mike wants to pay efficiency wages to help in the construction of his
beach home. If the prevailing wage rate for electricians is $22 per hour in his area, one
possible efficiency wage he could pay would be:
A)
$22.
B)
$26.
C)
$18.
D)
the minimum wage.
36.
According to the _____, workers may earn a wage rate higher than the value of their
marginal product because it provides an incentive to perform efficiently.
A)
marginal productivity of income distribution theory
B)
efficiency-wage model
C)
diminishing-returns theory
D)
increasing-returns model
37.
One reason that wage discrimination based on gender or ethnicity can continue is:
A)
market interference or market failure associated with above-equilibrium wages.
B)
market competition making it profitable to engage in discrimination.
C)
it is justified by the marginal productivity theory of income distribution.
D)
because, as the South African experience with apartheid showed, discrimination
leads to more rapid economic growth.
Page 9
38.
The clearest sign of discrimination against an individual is that that individual is paid
less than the value of his or her marginal productivity.
A)
True
B)
False
39.
According to the marginal productivity theory of income distribution, in a competitive
economy each factor of production is paid its equilibrium value of the marginal product.
A)
True
B)
False
40.
The marginal productivity theory of income distribution is based on the assumption that
factor markets are perfectly competitive.
A)
True
B)
False
41.
According to the marginal productivity theory of income distribution, every factor of
production is paid a wage equal to the equilibrium value of its average product.
A)
True
B)
False
42.
According to the marginal productivity theory of income distribution, every factor of
production is paid a wage equal to the equilibrium value of its marginal product.
A)
True
B)
False
43.
The marginal productivity theory of income distribution assumes that factor markets are
oligopolies.
A)
True
B)
False
44.
The marginal productivity theory of income distribution assumes that factor markets are
perfectly competitive.
A)
True
B)
False
Page 10
45.
The equilibrium value of the marginal product of a factor is the additional value
produced by the most productive unit of that factor employed in the factor market as a
whole.
A)
True
B)
False
46.
The equilibrium value of the marginal product of a factor is the additional value
produced by the last unit of that factor employed in the factor market as a whole.
A)
True
B)
False
47.
According to the marginal productivity theory of income distribution, if a unit of labor
is paid more than a unit of capital, it is because, at the equilibrium quantity of each
factor, the value of the marginal product of labor is equal to the value of the marginal
product of capital.
A)
True
B)
False
48.
According to the marginal productivity theory of income distribution, if a unit of labor
is paid more than a unit of capital, it is because, at the equilibrium quantity of each
factor, the value of the marginal product of labor is proportionately greater than the
value of the marginal product of capital.
A)
True
B)
False
49.
One objection to the marginal productivity theory of income distribution is the existence
of large disparities in income between factors of production that should receive the same
payment.
A)
True
B)
False
50.
One objection to the marginal productivity theory of income distribution is the absence
of large disparities in income between men and women and various ethnic groups.
A)
True
B)
False
Page 11
51.
An objection to the marginal productivity theory of income distribution is that many
people believe it is a moral justification for the unequal distribution of income.
A)
True
B)
False
52.
Wage differences between men and women and among various ethnic groups are proof
that the marginal productivity theory of income distribution is invalid.
A)
True
B)
False
53.
The U.S. labor market shows large differences in the median earnings of workers across
ethnicities and gender.
A)
True
B)
False
54.
In the U.S. labor market, women of all ethnicities have the highest median earnings of
any of the major demographic groups discussed in the chapter.
A)
True
B)
False
55.
In the U.S. labor market, Hispanic men have the highest median earnings of any
demographic group.
A)
True
B)
False
56.
In the U.S. labor market, African-Americans have the lowest median earnings of any of
the major demographic groups discussed in the chapter.
A)
True
B)
False
57.
In the U.S. labor market, Hispanics have the lowest median earnings of any of the major
demographic groups discussed in the chapter.
A)
True
B)
False
Page 12
58.
Median earnings in the U.S. labor market are highest for White men, followed by
African-Americans, followed by women (regardless of ethnicity), and then Hispanics.
A)
True
B)
False
59.
In the United States, the median earnings of Hispanics are greater than the median
earnings of African Americans.
A)
True
B)
False
60.
Wage differentials that arise because of innate differences in ability or talent are
consistent with the marginal productivity theory of income distribution.
A)
True
B)
False
61.
Wage differences across jobs reflecting the fact that some jobs are less pleasant or safe
than others are called efficiency wages.
A)
True
B)
False
62.
Wage differences across jobs reflecting the fact that some jobs are less pleasant or safe
than others are called compensating differentials.
A)
True
B)
False
63.
The fact that Tom Brady, the quarterback of the New England Patriots, is paid more
than is a high school football coach is an example of a wage disparity caused by
compensating differentials.
A)
True
B)
False
64.
The fact that Tom Brady, the quarterback of the New England Patriots, is paid more
than is a high school football coach is an example of a wage disparity most likely caused
by differences in ability and talent.
A)
True
B)
False
Page 13
65.
A lumberjack cutting giant redwoods in California being paid more than is a person
cutting and selling small Christmas trees is an example of wage disparity due primarily
to compensating differentials.
A)
True
B)
False
66.
A lumberjack cutting giant redwoods in California being paid more than is a person
cutting and selling small Christmas trees is an example of wage disparity due primarily
to differences in human capital.
A)
True
B)
False
67.
Holly and Emily both have a bachelor’s degree in nursing from the same college. Both
have been nurses for eight years. Holly works from 11 P.M. until 7 A.M., and Emily
works from 7 A.M. until 3 P.M. Holly’s salary is $1,000 per month higher than is
Emily’s salary. This is an example of an efficiency wage disparity.
A)
True
B)
False
68.
Holly and Emily both have a BS in nursing from the same college. Both have been
nurses for eight years. Holly works from 11 P.M. until 7 A.M., and Emily works from 7
A.M. until 3 P.M. Holly’s salary is $1,000 per month higher than is Emily’s salary. This
is an example of a wage disparity due to a compensating differential.
A)
True
B)
False
69.
Differences in talent and ability of workers resulting in differences in their wages is
consistent with the marginal productivity theory of income distribution.
A)
True
B)
False
70.
Differences in the attractiveness of different types of jobs resulting in differences in
wages is not consistent with the marginal productivity theory of income distribution.
A)
True
B)
False
Page 14
71.
Workers with more human capital usually generate a higher value of the marginal
product.
A)
True
B)
False
72.
Regardless of gender and ethnicity, more education is associated with higher median
earnings.
A)
True
B)
False
73.
Unions are organizations of workers that try to raise wages and improve working
conditions for their members through collective bargaining with employers.
A)
True
B)
False
74.
The fact that members of labor unions often have higher wages than do workers who are
not members of a union is proof that the marginal productivity theory of income
distribution is not valid.
A)
True
B)
False
75.
In 2015, the median weekly earnings of union members was roughly 25% higher than
the median weekly earnings of workers not represented by unions.
A)
True
B)
False
76.
In 2015, the median weekly earnings of union members was actually lower than the
median weekly earnings of workers not represented by unions.
A)
True
B)
False
77.
In 2016, fewer than 10% of the employees of private businesses were represented by
unions.
A)
True
B)
False
Page 15
78.
An efficiency wage is higher than the equilibrium wage to motivate the employee to
work hard.
A)
True
B)
False
79.
Above-equilibrium wages paid by some employers as an incentive for better
performance are called compensating differentials.
A)
True
B)
False
80.
Above-equilibrium wages paid by some employers as an incentive for better
performance are called efficiency wages.
A)
True
B)
False
81.
Efficiency wages reduce unemployment.
A)
True
B)
False
82.
Compensating differentials are used to motivate employees and to reduce worker
turnover.
A)
True
B)
False
83.
Unions and efficiency wages usually lead to wages that are below the equilibrium level.
A)
True
B)
False
84.
Market forces tend to work against discrimination.
A)
True
B)
False
85.
When interferences in the labor market raise the wage above the equilibrium level,
employers may discriminate because there are more job applicants than jobs.
A)
True
B)
False
Page 16
86.
In a given perfectly competitive labor market, the equilibrium wage:
A)
is the same for all workers in that labor market.
B)
is always greater than the value of marginal product.
C)
results in diminishing marginal product.
D)
causes some people to be unemployed.
87.
When each factor is paid an amount equal to the value of the marginal product of the
last unit of that factor employed in the factor market as a whole, this is:
A)
the marginal productivity theory of income distribution.
B)
diminishing marginal product.
C)
the factor distribution of income.
D)
the efficiency wage model.
88.
Large disparities in wages are often used as:
A)
evidence of the importance of profit maximization.
B)
a means to question the validity of the marginal productivity theory of income
distribution.
C)
evidence of diminishing returns.
D)
evidence to illustrate the absence of market failures in factor markets.
89.
People who have higher levels of human capital will tend to:
A)
work only in nonunion jobs.
B)
receive higher salaries than do those who have lower levels of human capital.
C)
earn salaries based on marginal costs of their labor.
D)
earn salaries higher than their value of marginal product.
90.
If a union is able to bargain for a wage that is higher than the equilibrium:
A)
all workers will earn a wage equal to their value of marginal product.
B)
some excess supply of labor or unemployment will generally result.
C)
compensating differentials will be erased.
D)
diminishing returns will not exist.
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