Economics Chapter 39 Module 39 – The Market For Labor Scotts Wage 25 Per Hour And Works

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subject Authors Paul Krugman, Robin Wells

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Page 1
1.
Scott's wage is $25 per hour and he works 50 hours a week, which is his optimal labor
supply at that wage. His marginal utility of one hour of leisure is equal to the:
A)
marginal utility he gets from $25 worth of goods.
B)
marginal utility he gets from more than $25 worth of goods.
C)
marginal utility he gets from less than $25 worth of goods.
D)
substitution effect.
2.
The more work people do, all other things unchanged, the:
A)
more their free time.
B)
greater their nonmarket use of time.
C)
less income they have.
D)
less leisure they have.
3.
The price of an extra hour of leisure is:
A)
$1.
B)
the hourly wage rate.
C)
the same as the price of money.
D)
the total utility of labor.
4.
The opportunity cost of an extra hour of leisure is:
A)
$1.
B)
the hourly wage rate.
C)
the same as the price of money.
D)
always less than the value of the marginal product of labor.
5.
A _____ wage will _____ the _____ leisure.
A)
lower; increase; opportunity cost of
B)
higher; always decrease; amount of time spent on
C)
higher; increase; opportunity cost of
D)
lower; not affect; amount of time spent on
6.
Gabriella often faces a trade-off between time at the beach and time working as a model.
She earns $40 per hour as a model and values going to the beach at the same price.
When explaining this to her parents, she says, “The marginal utility per hour working is
the same as the marginal utility per hour of going to the beach.” This example
illustrates:
A)
indifference curves.
B)
the substitution effect.
C)
the income effect.
D)
optimal time allocation.
Page 2
7.
The opportunity cost of an hour of leisure:
A)
is always assumed to be equal to the minimum wage.
B)
is the hourly wage rate.
C)
increases if the hour of leisure time is spent in an unproductive activity.
D)
decreases if the hour of leisure is spent in a productive activity.
8.
John is an entrepreneur who owns an auto body repair shop. John's business is booming,
and his salary is rising. John's labor supply curve will be _____ if the substitution effect
is _____ the income effect.
A)
upward sloping; smaller than
B)
downward sloping; smaller than
C)
horizontal; equal to
D)
vertical; greater than
9.
Suppose that Professor Jones receives a promotion and an increase in her annual salary.
Her labor supply curve will be _____ if the substitution effect is _____ than the income
effect.
A)
upward sloping; greater
B)
upward sloping; smaller
C)
downward sloping; greater
D)
vertical; greater
10.
Suppose that the government increases the child tax credit, which increases the after-tax
income of families with children. How will this decision affect the amount of labor
supplied by parents, assuming that leisure is a normal good?
A)
Since the income and substitution effects move in the same direction, the amount
of labor supplied will increase.
B)
Since the income effect will dominate the substitution effect, the amount of labor
supplied will decrease.
C)
We don't know what will happen to the quantity of labor supplied, since we don't
know whether the income effect or substitution effect will dominate.
D)
The labor supply curve will shift right, so the quantity of labor will also increase.
11.
AndrÈ has asked his boss for a pay raise. His boss is concerned that, if he increases
AndrÈ's wage, AndrÈ might work less. In other words, AndrÈ's boss is concerned that
leisure is a normal good for AndrÈ and that his:
A)
income and substitution effects might move in the same direction.
B)
income effect might be greater than his substitution effect.
C)
substitution effect might be greater than his income effect.
D)
income and substitution effects might cancel out to zero.
Page 3
12.
Tim works 51 hours per week, and his wage is $35 per hour. If his wage increases to
$70 per hour:
A)
the substitution effect implies that he will work less.
B)
if leisure is a normal good, the income effect implies that he will work more.
C)
if leisure is a normal good, the income effect will reinforce the substitution effect
and he will work more.
D)
the substitution effect implies that he will work more.
13.
Lisa works 46 hours a week at $10 an hour. If her wage increases to $16.50:
A)
the substitution effect implies that she will work less.
B)
if leisure is a normal good, the income effect implies that she will work less.
C)
if leisure is a normal good, the income effect will reinforce the substitution effect
and she will work less.
D)
Lisa's marginal product of labor has decreased.
14.
Lakisha's labor supply curve is downward sloping for wage rates greater than $40 per
hour and upward sloping for wage rates less than $40 per hour. If leisure is a normal
good for Lakisha and if the wage is _____, the substitution effect of a wage increase is
_____ than the income effect.
A)
greater than $40; greater
B)
equal to $18; less
C)
greater than $40; less
D)
greater than $20; less
15.
Which statement is true?
A)
Leisure is usually a normal good.
B)
Leisure is usually an inferior good.
C)
All other things unchanged, an increase in income will decrease the demand for
leisure.
D)
The demand for leisure is perfectly inelastic.
16.
The _____ effect of a _____ wage causes individuals to substitute _____.
A)
substitution; higher; labor for leisure
B)
income; higher; labor for leisure
C)
substitution; lower; labor for leisure
D)
complementary; constant; leisure for labor
Page 4
17.
A wage _____ raises the quantity of labor supplied through a strong _____ effect.
A)
decrease; substitution
B)
increase; substitution
C)
increase; income
D)
decrease; complement
18.
A higher wage _____ the price of _____ and _____ workers' incomes. The result pulls
the quantity of labor supplied in _____ direction(s).
A)
increases; leisure; increases; opposite
B)
increases; leisure; increases; the same
C)
reduces; work effort; reduces; opposite
D)
reduces; labor; increases; the same
19.
Assume that Stan just received a promotion and raise. In terms of labor supply, the
substitution effect of a higher wage will lead him to:
A)
supply fewer hours of labor.
B)
supply more hours of labor.
C)
substitute leisure for work.
D)
reduce work time to zero.
20.
In terms of labor supply, the income effect of a higher wage causes a(n):
A)
decrease in leisure time.
B)
increase in the quantity of labor supplied.
C)
decrease in the quantity of labor supplied.
D)
reduction of leisure time to zero.
21.
A backward-bending supply curve of labor shows that at relatively low wages the _____
effect dominates the _____ effect, and the supply curve has a _____ slope.
A)
income; substitution; positive
B)
income; substitution; negative
C)
substitution; income; positive
D)
substitution; income; negative
22.
A backward-bending supply curve of labor shows that at relatively high wages the
_____ effect dominates the _____ effect, and the supply curve has a _____ slope.
A)
income; substitution; positive
B)
income; substitution; negative
C)
substitution; income; positive
D)
substitution; income; negative
Page 5
23.
The _____ effect of a _____ wage causes individuals to substitute _____.
A)
substitution, higher; labor for leisure
B)
income; lower; leisure for labor
C)
substitution; lower; labor for leisure
D)
complementary; constant; leisure for labor
24.
A wage _____ reduces the quantity of labor supplied through the _____ effect.
A)
decrease; income
B)
increase; substitution
C)
increase; income
D)
decrease; complement
25.
The trade-off between work and leisure underlying the supply of labor involves the
substitution effect and the _____ effect.
A)
production
B)
elasticity
C)
income
D)
complementary
26.
The trade-off between work and leisure underlying the supply of labor involves the
income effect and the _____ effect.
A)
substitution
B)
elasticity
C)
production
D)
wage
27.
In terms of labor supply, the substitution effect of a higher wage causes a(n):
A)
increase in leisure time.
B)
increase in the quantity of labor supplied.
C)
substitution of leisure for work.
D)
reduction of work time to zero.
28.
In terms of labor supply, the substitution effect of a higher wage causes a(n):
A)
increase in leisure time.
B)
decrease in the quantity of labor supplied.
C)
substitution of work for leisure.
D)
reduction of work time to zero.
Page 6
29.
Beyond some point, a higher wage may induce an individual to work _____, and the
labor supply curve may then _____.
A)
more; bend backward
B)
less; bend backward
C)
more; slope downward
D)
harder; become vertical
30.
Consider the labor market for accountants. As more people earn accounting degrees, we
should expect to see a(n):
A)
shift to the right of the labor supply curve.
B)
shift to the right of the labor demand curve.
C)
increase in labor along a stable labor supply curve.
D)
increase in labor along a stable labor demand curve.
31.
An increase in wealth will cause the labor supply curve to:
A)
shift leftward if leisure is a normal good.
B)
slope downward if the substitution effect dominates the income effect.
C)
slope upward only if leisure is an inferior good.
D)
bend backward if the income effect outweighs the substitution effect of a change in
wealth and if leisure is a normal good.
32.
A leftward shift in the labor supply curve will result if:
A)
people begin to value leisure more highly.
B)
people have less nonlabor income.
C)
transit costs to and from work decline.
D)
the population increases.
33.
Which factor will not shift the labor supply curve?
A)
a change in attitude toward work
B)
changes in a spouse's income
C)
changes in expectations about future wealth
D)
a change in the wage rate
34.
A leftward shift in the labor supply curve might result from:
A)
people valuing leisure more highly.
B)
people having less wealth.
C)
increasing work opportunities for women and minorities.
D)
an increase in the population.
Page 7
35.
Which factor will not shift the labor supply curve?
A)
a change in preferences and social norms
B)
changes in wealth
C)
changes in opportunities
D)
a change in the wage rate
36.
The opportunity cost of an hour of leisure is always assumed to be equal to the
minimum wage.
A)
True
B)
False
37.
The opportunity cost of an hour of leisure increases if the hour of leisure time is spent in
an unproductive activity and decreases if the hour of leisure time is spent in a productive
activity.
A)
True
B)
False
38.
The opportunity cost of an hour of leisure is the hourly wage rate.
A)
True
B)
False
39.
Decisions about labor supply result from decisions about time allocation, which deals
with determining how many hours to spend on different activities.
A)
True
B)
False
40.
In the labor market, households demand labor and firms supply goods and services.
A)
True
B)
False
41.
In the labor market, households supply labor and firms demand labor.
A)
True
B)
False
42.
In markets for goods and services, households demand goods and services and firms
supply goods and services.
A)
True
B)
False
Page 8
43.
In the markets for goods and services, households demand labor and firms supply labor.
A)
True
B)
False
44.
If John's wage increases from $10 to $12 per hour, his opportunity cost of leisure has
decreased.
A)
True
B)
False
45.
If John's wage increases from $10 to $12 per hour, his opportunity cost of leisure has
increased.
A)
True
B)
False
46.
If John's wage increases from $10 to $12 per hour, his opportunity cost of leisure has
decreased or increased, depending on what he does with an hour of leisure.
A)
True
B)
False
47.
When wages increase, if the substitution effect dominates, the quantity of labor supplied
will increase.
A)
True
B)
False
48.
When wages increase, if the income effect dominates, the quantity of labor supplied will
increase.
A)
True
B)
False
49.
If the hourly wage increases from $8 to $10 an hour and in response Jim increases the
number of hours that he works from 44 to 46, the substitution effect is dominant.
A)
True
B)
False
Page 9
50.
If the hourly wage increases from $8 to $10 an hour and in response Jim increases the
number of hours that he works from 44 to 46, the income effect is dominant.
A)
True
B)
False
51.
Judy's individual labor supply curve is positively sloped, so for Judy, the income effect
dominates the substitution effect.
A)
True
B)
False
52.
Andy's individual labor supply curve is positively sloped, so for Andy, the substitution
effect dominates the income effect.
A)
True
B)
False
53.
If an individual labor supply curve is negatively sloped, the substitution effect
dominates the income effect.
A)
True
B)
False
54.
An example of the substitution effect dominating the income effect occurs when people
take summer vacations rather than winter vacations, even though their pay is the same
year-round.
A)
True
B)
False
55.
A backward-bending labor supply curve is possible only if leisure is an inferior good.
A)
True
B)
False
56.
As stock prices rise and workers' wealth increases, workers will increase the quantity
supplied of labor because they will want to buy more stock.
A)
True
B)
False
57.
A change in the wage rate will shift the supply curve in the market for labor.
A)
True
B)
False
Page 10
58.
Since the 1960s, the number of women in the labor force has decreased.
A)
True
B)
False
59.
Since the Great Recession, which began in 2008, the U.S. labor supply curve has shifted
to the left because many workers were disillusioned by bad job prospects and left the
labor force.
A)
True
B)
False
60.
The invention of labor-saving appliances has decreased the supply of labor in the United
States.
A)
True
B)
False
61.
If the age at which a person can receive Social Security benefits increases from 67 to 70,
the supply of labor will increase.
A)
True
B)
False
62.
You overhear an economist refer to the price of leisure. What does this mean? How can
leisure have a price?
63.
The supply curves for goods and services are almost universally upward sloping. How is
it that labor supply can be downward sloping in certain cases?
64.
The competitive labor market for economists is in equilibrium. Suppose that more
college students decide to major in economics. How will this affect the labor market?
65.
While reading the local newspaper, you notice an article about a man who won a sizable
prize in the state lottery. This prize amounts to monthly payments for the rest of the
man's life. The man is quoted as saying, “As soon as I receive that first lottery payment,
I will only work when I want to, rather than because I have to.” How would an
economist explain what has happened to this man's labor supply curve?
Page 11
66.
Time allocation refers to:
A)
how many hours an employer should hire a worker for.
B)
how many hours people choose to spend on different activities.
C)
how many hours unions will choose for their members to work.
D)
how different types of talents determine the wages people will earn.
67.
Leisure is considered a normal good since people:
A)
consume more of it all the time.
B)
cannot consume more, it being limited.
C)
consume more of it when their income rises.
D)
find it to be a luxury to take time off from their job.
68.
If a person's marginal utility from an additional hour of leisure is less than the marginal
utility gained from goods bought with the wages earned from an additional hour of
labor, then this person should:
A)
continue to work the hours he or she is working.
B)
work less since he or she is working more than the optimal number of hours.
C)
work more since he or she is working less than the optimal number of hours.
D)
quit work since he or she is not earning enough to satisfy his or her time allocation.
69.
A person's optimal labor supply choice:
A)
is similar to a person's optimal consumption rule, but with consumption and leisure
as the 'goods' in question.
B)
is not useful in determining how many hours a person should work.
C)
reveals little about a person's labor-leisure choices.
D)
results in people working too much for too little pay.
70.
Within the labor-leisure framework, when an individual's income effect is stronger than
the substitution effect from a wage increase, it means they have a(n):
A)
inverted U-shaped labor supply curve.
B)
labor supply curve that is upward sloping but from the origin.
C)
downward-sloping labor supply curve in the wage range in question.
D)
upward-sloping labor supply curve in the wage range in question.
71.
When a person receives a wage increase, changes in his or her labor supply depend on:
A)
a substitution effect and an income effect.
B)
a substitution effect only.
C)
an income effect only.
D)
diminishing marginal product.
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