Econ Quiz 2
1. Question 1 is based on the short-run production function below:
For labor input levels between X and Y:
Select one:
a. the marginal product of labor is falling, but is greater than average product
b. both the marginal product and the average product of labor are falling
c. marginal product is rising and average product is falling
d. both the marginal product and the average product of labor are rising
2. Question 2 is based on the following short-run production function:
The "law of diminishing marginal returns" begins to take effect at labor input level:
Select one:
a. 0
b. X
c. Y
d. Z
3. In stage I of the production function, increases in the amount of labor will:
Select one:
a. increase the average productivity of both capital and labor
b. increase the average productivity of capital but not labor
c. increase the average productivity of labor but not capital
d. decrease the average productivity of both capital and labor
4. Value of marginal product (VMP) differs from marginal revenue product (MRP) in that:
Select one:
a. MRP measures the value society places on the next worker’s output while VMP measures the value the firm places on the next worker’s output
b. VMP measures the value society places on the next worker’s output while MRP measures the value the firm places on the next worker’s output
c. MRP always exceeds VMP
d. VMP always exceeds MRP
Questions 5 – 8 are based on the data in the following table.
Assume that the labor market is perfectly competitive.
5. Suppose product demand is given by the column labeled D1. If the wage rate is $100, the firm will achieve maximum profit by hiring _____ workers.
Select one:
a. 3
b. 4
c. 5
d. 6
6. Suppose product demand is given by the column labeled D1. If the wage rate rises from $100 to $130, the firm will reduce the quantity of labor employed by _____ unit(s)
Select one:
a. 0
b. 1
c. 2
d. 3
7. Suppose product demand is given by the column labeled D2. If the wage rate is $100, the firm will achieve maximum profit by hiring _____ workers
Select one:
a. 2
b. 3
c. 4
d. 5
8. Compared to a firm facing D1, a firm facing demand schedule D2 but paying the same wage will hire:
Select one:
a. the same number of workers, since total product is the same in both instances
b. fewer workers, since product price declines as output increases
c. more workers, since product price declines as output increases
d. more information is required
9. Compared to an otherwise identical competitive firm, a firm with monopoly power will hire:
Select one:
a. fewer workers, reflecting its decision to produce less output
b. more workers because the higher price charged by the monopoly raises its MRP
c. fewer workers because workers are less productive in a monopoly setting
d. more workers because monopolies have higher profits and can pay higher wages
10. Which of the following best describes the substitution effect of a wage decrease?
Select one:
a. The firm's marginal cost decreases, the firm desires to produce less output, and therefore less labor is required
b. The cost of labor is relatively lower causing the firm to use relatively more labor
c. The firm's labor demand curve is less elastic, causing it to employ less labor
d. The firm's labor demand curve becomes more inelastic, causing it to employ less labor
11. "To find the market demand curve for a particular type of labor, simply sum the labor demand curves of all employers of that type of labor." This statement is:
Select one:
a. True
b. false - sum the value of marginal product curves for the firms to account for changes in wage rates as employment increases
c. false - sum the value of marginal product curves for the firms to account for changes in output price as production increases
d. false - although the price of output for any individual firm may be constant, this may not be the case for all firms taken collectively
12. Suppose that, as a result of an increase in the market supply of labor, the wage rate has fallen 10%. After adjusting its employment levels, a firm finds its total wage bill has decreased. This occurrence indicates that the firm’s labor demand:
Select one:
a. is inelastic over this range of wages
b. is elastic over this range of wages
c. is unit elastic over this range of wages
d. was inelastic at the old wage, but is elastic at the new, lower wage
13. A perfectly competitive labor market may be characterized by all of the following except:
Select one:
a. neither firms nor workers have any control over the market wage
b. a few firms that dominate hiring in the market
c. numerous equally qualified workers
d. perfect information
14. Which of the following best explains why the market labor supply curve is upward sloping, even though individual supply curves are normally backward bending?
Select one:
a. The statement is not true: market labor supply curves are also backward bending
b. Market labor supply curves are “price-adjusted,” whereas individual supply curves are not
c. Lower wages in a given market increase the demand for labor, so more labor must be supplied to maintain labor market equilibrium
d. Higher wages in a given market attract more workers away from other activities, more than compensating for any reduction in hours by individuals already in the market
Questions 15 and 16 refer to the following diagram of a perfectly competitive labor market:
15. At wage rate W1there is an:
Select one:
a. excess supply of labor and the wage rate will fall
b. excess supply of labor and the wage rate will rise
c. excess demand for labor and the wage rate will fall
d. excess demand for labor and the wage rate will rise
16. For the supply and demand curves in the diagram, the level of employment will be highest at:
Select one:
a. wage rate W1
b. wage rate W2
c. a wage rate higher than W1
d. a wage rate lower than W2
17. There will be a shortage of labor in a particular market if:
Select one:
a. labor supply increases and demand decreases
b. the current wage is above the wage that would clear the market
c. there is a decrease in the price of a substitute resource
d. the current wage is below the wage that would clear the market
18. If capital and labor are gross complements, an increase in the cost of capital will:
Select one:
a. increase the supply of labor and drive the wage down
b. decrease the demand for labor and drive the wage down
c. increase the demand for labor and drive the wage up
d. either increase or decrease the demand for labor depending on whether the substitution effect or the output effect is stronger
19. All else equal, which of the following will increase the demand for labor in a particular market?
Select one:
a. A decrease in the wage paid to another occupation for which these workers are qualified
b. A decrease in worker productivity
c. An improvement in the nonwage aspects of the job
d. An increase in the number of employers
20. Question 20 refers to the following diagram of a competitive labor market.
Suppose the wage is currently W3 and L1 is the level of employment. Then we should expect the wage to:
Select one:
a. rise and employment to rise
b. rise and employment to fall
c. fall and employment to rise
d. fall and employment to fall
21. Allocative inefficiency in a labor market may be caused by:
Select one:
a. monopoly power in the product market
b. monoposony power in the labor market
c. both A) and B) are correct
d. neither A) nor B) are correct
22. Questions 22 – 25 refer to the following table that shows the short-run production relationship and the product demand schedule for a firm.
The table indicates that:
Select one:
a. the firm sells output in a perfectly competitive market
b. the firm is a monopolist
c. the firm hires labor in a perfectly competitive market
d. the firm is a monopsonist
23. What is the marginal revenue product of the third worker?
Select one:
a. $18
b. $57
c. $72
d. $342
24. What is the value of the third worker’s marginal product?
Select one:
a. $18
b. $57
c. $72
d. $342
25. How many workers will this firm hire if the wage is $10?
Select one:
a. 3
b. 4
c. 5
d. 6
26. Questions 26 – 28 refer to the following diagram that shows the labor demand for a monopolistic firm hiring labor from a competitive labor market.
At the profit maximizing level of employment, the wage rate is _____ and the level of employment is _____:
Select one:
a. W1; Q1
b. W1; Q2
c. W2; Q1
d. W2; Q2
27. The efficiency loss associated with the profit maximizing wage and employment level is given by area:
Select one:
a. Q1ACQ2
b. BAC
c. 0W2AQ1
d. W1W2AC
28. The allocatively efficient level of employment for this firm is given by:
Select one:
a. Q1
b. Q2
c. some amount between Q1 and Q2
d. some amount greater than Q2
29. Questions 29 – 31 refer to the following diagram of a monopsonistic labor market.
At the profit maximizing level of employment, the wage rate is _____ and the level of employment is _____:
Select one:
a. W1; Q1
b. W3; Q1
c. W2; Q2
d. W3; Q3
30. If legislation set the minimum wage at W2, then employment:
Select one:
a. would fall from its original monopsony level
b. would remain unchanged
c. would rise from its original monopsony level
d. may or may not change from its original monopsony level
31. If this firm sells its output in a competitive market (so that MRP = VMP), the allocative efficiency in the labor market is given by area:
Select one:
a. W3ACW1
b. Q1ABQ2
c. CAD
d. CAB
32. Compared to a monopsonist that sells its output in a competitive product market, an otherwise identical monopsonist with monopoly power in the product market will pay:
Select one:
a. a lower wage
b. a higher wage
c. the same wage
d. more information is needed
33. Question 33 refers to the following diagram:
Suppose the wage is currently W1 and L1 is the level of employment. If this market is characterized by delayed supply responses, in the immediate period the wage will:
Select one:
a. rise and employment will rise
b. rise and employment will remain unchanged
c. remain unchanged and employment will rise
d. remain unchanged and employment will remain unchanged
Questions 34 – 36 refer to the table information below.
34. There are initially 28 workers in market A and 63 workers in market B. All markets are assumed competitive and there is perfect information and costless migration; jobs in markets A and B are identical in all nonwage aspects.
Given the initial situation, which one of the following may be expected to occur?
Select one:
a. Workers will migrate from A to B
b. Workers will migrate from B to A
c. There will be no migration of workers
d. A migration pattern cannot be determined from the information
35. After all adjustments to equilibrium take place in this market, we expect to find that:
Select one:
a. the total value of output is increased, but economic efficiency is reduced
b. both the total value of output and economic efficiency are increased
c. both the total value of output and economic efficiency are reduced
d. changes in the total value of output and economic efficiency cannot be determined
36. After all adjustments to equilibrium take place in this market, the equilibrium wage rate in markets A and B, respectively, are:
Select one:
a. $8.50; $10.50
b. $9.50; $9.50
c. $10.00; $10.00
d. $$9.50; $11.50
37. Questions 37 – 41 refer to the following diagram.
Initially, wage rates are WM in Country M and WU in Country U. Subsequent migration results in an equalization of wage rates.
38. Migration causes the value of output in Country M to:
Select one:
a. fall by area bgc
b. fall by area ebcf
c. fall by area WMbcWe
d. rise by WM – We
39. Migration causes the value of output in Country U to:
Select one:
a. rise by area imj
b. rise by area kijl
c. rise by area WUijWe
d. fall by WU – We
40. For native Country U workers, migration causes a collective loss equal to area:
Select one:
a. imj
b. kijl
c. WUimWe
d. WUijWe
41. The combined gain in efficiency of the two countries is equal to:
Select one:
a. area kijl - area ebcf
b. kl - ef
c. area WUijWe – area WMbcWe
d. WU + WM
42. Which of the following would be considered a real (as opposed to pecuniary) externality associated with migration?
Select one:
a. Capital owners in the origin will lose income as wages rise in response to reduced labor supply
b. More public services will be required in the destination and there will be excess capacity of public goods in the origin
c. Profits of capital owners at the origin will rise as migrants leave
d. Wages of destination workers will fall as migrants enter and add to labor supply
43. Questions 43 – 44 refer to the following graph.
The following probability distribution of wage offers is for Sally, who is currently unemployed and searching for a job:
If $8.50 is the acceptance wage, what is the probability of Sally finding her next wage offer acceptable?
Select one:
a. 0.25
b. 0.30
c. 0.50
d. 0.70
44. If $9.50 is the acceptance wage, what is the probability of Sally finding her next wage offer unacceptable?
Select one:
a. 0.25
b. 0.30
c. 0.50
d. 0.75
45. The probability of accepting the next wage offer is:
Select one:
a. higher, the higher is the acceptance wage
b. lower, the lower is the acceptance wage
c. lower, the higher is the acceptance wage
d. higher, the higher is unemployment compensation
46. The longer the expected length of tenure on the job:
Select one:
a. the higher the acceptance wage and the longer the expected job search duration
b. the higher the acceptance wage and the shorter the expected job search duration
c. the lower the acceptance wage and the longer the expected job search duration
d. the lower the acceptance wage and the shorter the expected job search duration
47. Internal labor markets are most likely to exist if:
Select one:
a. workers do not require extensive amounts of firm-specific training
b. there are substantial costs to the employer associated with worker turnover
c. costs of screening and recruiting job applicants are relatively low
d. workersâ?? productivity does not increase with experience
48. Which of the following is not a benefit to employers of an internal labor market?
Select one:
a. A greater return from investments in specific training
b. A greater return from investment in general training
c. A solution to a principal-agent problem
d. Greater employee identification with the firm's objectives
49. Which of the following is a true statement?
Select one:
a. Unions accelerate the evolution of internal labor markets
b. Internal labor markets invite unionization
c. Both A. and B. are correct
d. Neither A. nor B. is correct
50. Because workers in internal labor markets are promoted on the basis of seniority:
Select one:
a. such markets are allocatively inefficient because seniority takes precedence over ability
b. dynamic efficiency is enhanced by removing a disincentive for older workers to pass along skills to younger workers
c. static efficiency is enhanced by allocating the most able workers to each job
d. some other scheme must be introduced, such as tournament pay, to improve efficiency in such markets