Question 1

John has financial assets totaling $1.5 million, and he plans to use these assets to start his own business. Since John owns these funds and will not need to borrow to start his business, these assets are considered human capital.

Accepted Answer

Financial assets are not considered human capital, which refers to the skills, knowledge, and experience possessed by an individual that can contribute to their earning potential or ability to start a business.

Question 2

The statement that "the rich get richer, and the poor get poorer" is supported by evidence of an expanding wage gap between high-skill and low-skill workers.

Accepted Answer

The statement "the rich get richer, and the poor get poorer" is supported by an expanding wage gap between high-skill and low-skill workers, as higher-skilled workers generally earn higher wages while low-skilled workers struggle to make ends meet. This phenomenon has contributed to growing income inequality in many countries.

Question 3

A compensating differential refers to a difference in wages that arises from nonmonetary characteristics.

Accepted Answer

A compensating differential refers to a difference in wages that is offered to offset the negative aspects of a job, such as undesirable working conditions, long hours, or dangerous work. These negative aspects are nonmonetary characteristics that can warrant higher wages to attract workers.

Question 4

Higher levels of human capital are correlated with higher earnings because firms are willing to pay more for better-educated workers who have higher marginal productivities.

Accepted Answer

This statement is true as firms value workers with higher levels of education and skills as they can contribute more to the company's productivity and profits. Thus, they are willing to pay them more in order to attract and retain such workers.

Question 5

The economic theory of labor markets suggests that wages are determined by labor supply and labor demand.

Accepted Answer

The theory states that wages are determined by the interaction of labor supply and labor demand. As labor supply increases, wages tend to decrease, and as labor demand increases, wages tend to increase.

Question 6

One hypothesis to explain the changing gap in wages between unskilled and skilled workers in the United States is that international trade has altered the relative demands for skilled and unskilled workers.

Accepted Answer

This is a widely accepted hypothesis that suggests that international trade has shifted demand towards skilled workers who can use technology and manage complex tasks. Meanwhile, lower-skilled occupations such as manufacturing have been outsourced to other countries, reducing the demand for those workers in the US.

Question 7

A computer is an example of human capital.

Accepted Answer

A computer is not an example of human capital. Human capital refers to the knowledge, skills, and abilities that individuals possess and can use to produce economic value, whereas a computer is a physical tool that can be used to enhance productivity but is not a part of human capital itself.

Question 8

Traci is a nurse, and she gets paid an additional $1.00 per hour for agreeing to work the night shift. Carol is also a nurse, but she works the day shift and does not get paid this extra dollar per hour. This difference in pay is an example of a compensating differential.

Accepted Answer

A compensating differential refers to a difference in pay between two jobs that compensates for differences in working conditions, such as hours worked or job hazards. In this case, Traci receives an extra $1.00 per hour to compensate for the less desirable working hours of the night shift, while Carol does not receive this extra pay because her working conditions are not considered to be as challenging as Traci's.

Question 9

It is increasingly clear that technological change is the only explanation for an expanding wage gap between high-skill and low-skill workers.

Accepted Answer

Other factors, such as globalization, changes in labor market institutions, education policies, and shifts in demand for different skill sets, also contribute to the expanding wage gap between high-skill and low-skill workers, alongside technological change.

Question 10

The changing gap in wages between unskilled and skilled workers is most likely related to a larger increase in demand for unskilled occupations relative to skilled occupations.

Accepted Answer

The changing gap in wages between unskilled and skilled workers is actually related to a larger increase in demand for skilled occupations relative to unskilled occupations. This is because as technology advances and the economy becomes more specialized, there is a greater need for workers with specialized skills and knowledge. As a result, the wages for these skilled workers increase while the wages for unskilled workers may remain stagnant or even decrease.

Question 11

As a result of an increase in the earnings gap between skilled and unskilled jobs, the incentive to get a college education has been declining.

Accepted Answer

The statement is the opposite of reality. The increase in the earnings gap between skilled and unskilled jobs has actually been a major incentive for people to obtain a college education.

Question 12

The fact that doctors are paid more than economics professors is an example of a compensating differential.

Accepted Answer

A compensating differential is the additional pay a worker receives to compensate for undesirable aspects of a job such as risk, discomfort, or inconvenience. In this case, doctors may receive a higher salary due to the perceived risks and stresses associated with their job compared to economics professors.

Question 13

The human-capital theory of education maintains that workers who complete specific levels of education enhance their productivity through education.

Accepted Answer

The human-capital theory of education states that education improves an individual's skills and knowledge, thus increasing productivity and earning potential.

Question 14

Daryn earns a higher salary than his friend Nick because Daryn is willing to work on the loading dock, whereas Nick prefers to work in an air-conditioned office. The difference in salary could illustrate a compensating differential.

Accepted Answer

A compensating differential is the difference in pay that occurs to offset the desirability of a job. In this scenario, Daryn is willing to work in a less desirable job on the loading dock and is therefore compensated with a higher salary compared to Nick, who prefers a more desirable job in an air-conditioned office.

Question 15

Over the past 30 years, the number of jobs in the United States requiring skilled labor has been declining as foreign countries steal these jobs away from the U.S. As a result, the domestic demand for skilled labor has been falling and the wage gap between skilled and unskilled labor has been narrowing.

Accepted Answer

Over the past 30 years, the demand for skilled labor in the United States has actually increased due to technological advancements and a shift towards a knowledge-based economy. This has led to a widening wage gap between skilled and unskilled labor, as jobs requiring higher levels of education and skill often pay more.

Question 16

Compensating differentials are differences in wages related to the characteristics of a job.

Accepted Answer

Compensating differentials refer to the differences in wages offered for jobs that have different characteristics such as physical demands, risk of injury, or working conditions.

Question 17

Some economists suggest that increased international trade with countries that have a greater proportion of unskilled workers has led to an expanding wage gap between high-skill and low-skill workers in the United States.

Accepted Answer

The theory of trade-induced inequality suggests that increased trade with countries that have a comparative advantage in producing goods that use low-skilled labor will lead to a relative decline in the wages of low-skilled workers in the importing country (like the US) and a relative increase in the wages of high-skilled workers. This is because, in the absence of any policy or institutional responses, the increased competition from imports will lower the wages of workers involved in producing similar goods or providing similar services in the domestic market, while expanding the market for higher-skilled workers who are more complementary to the new imports, such as managers, engineers, marketers, etc. Empirical evidence suggests that this phenomenon has been happening in the US over the past few decades, contributing to rising income inequality and wage polarization.

Question 18

Education and on-the-job training are sources of human capital.

Accepted Answer

Education and on-the-job training help individuals acquire knowledge, skills, and abilities that can be used to increase their productivity and contribute to the growth of the economy, making them sources of human capital.

Question 19

Human capital refers to the physical tools and equipment that workers use on their jobs to enhance their productivity.

Accepted Answer

Human capital refers to the knowledge, skills, and abilities that workers possess and use on their jobs to enhance their productivity. It does not refer to physical tools and equipment.

Question 20

A compensating differential is a difference in wages due to higher levels of education or other forms of human capital.

Accepted Answer

A compensating differential refers to the difference in wages that arises to compensate workers for non-monetary aspects of different jobs, such as risk, discomfort, or undesirable location, rather than differences in education or human capital.

Quiz 19: Earnings and Discrimination