Question 1

Dan owns one of the many bakeries in New York City. Which of the following events will lead to an increase in Dan's demand for the services of bakers?
(i)The price of muffins increases. (Muffins are Dan's specialty.)(ii)Dan adds three new ovens to the kitchen area to help the bakers work faster.
(iii)Local bakers form a union to protect themselves from low wages.
A)(i) and (ii) only
B)(ii) and (iii) only
C)(i) and (iii) only
D)(i), (ii), and (iii)

Accepted Answer

(i) The increase in price of muffins will lead to an increase in revenue for Dan's bakery, which will result in an increase in the demand for the services of bakers to meet the increase in demand for muffins.
(ii) The addition of three new ovens will increase the output capacity of the bakery, which will require additional bakers to operate the ovens and meet the increased demand for baked goods.
(iii) The formation of a union by local bakers will not directly affect Dan's demand for bakers unless it leads to a shortage of bakers in the labor market, which would increase the wages of bakers and increase the cost of hiring them. However, there is no indication that this will happen in the scenario given.

Question 2

What causes the labor demand curve to shift?
(i)changes in productivity
(ii)changes in wages
(iii)changes in output prices
A)(i) and (ii)
B)(ii) and (iii)
C)(i) and (iii)
D)All of the above are correct.

Accepted Answer

Changes in productivity and changes in output prices can shift the labor demand curve. Changes in wages result in movement along the curve, not a shift.

Question 3

Competitive firms decide how much output to sell by producing output until the price of the good equals
A)marginal product.
B)the value of marginal product.
C)marginal cost.
D)marginal profit.

Accepted Answer

Competitive firms operate where marginal cost equals the price of the good in order to maximize profits. Marginal product (A) refers to the additional output produced by using one more unit of input. The value of marginal product (B) is the additional revenue earned from selling one more unit of output. Marginal profit (D) is the change in total profit resulting from producing an additional unit of output. However, in a competitive market, firms are price-takers and cannot control the price of the good, so they must adjust their output in response to market price.

Question 4

When we focus on the firm as a supplier of a good or a service, we assume that the firm is a profit maximizer. When we focus on the firm as a demander of labor, we assume that the firm's objective is to
A)minimize wages.
B)minimize variable costs.
C)maximize the number of workers hired.
D)maximize profit.

Accepted Answer

When a firm is a demander of labor, its objective is to maximize profit, just as it is when the firm is a supplier of a good or service. The firm will hire workers up to the point where the marginal revenue product of labor equals the wage rate, in order to maximize its profits.

Question 5

Which of the following is true at the level of output at which a competitive firm maximizes profit?
A)price = marginal cost
B)price = wage/value of marginal product of labor
C)price = marginal product of labor/wage
D)All of the above are correct.

Accepted Answer

At the profit-maximizing level of output, a competitive firm will produce where marginal cost equals marginal revenue. In a perfectly competitive market, where price is determined by the market, the price will also equal marginal revenue. Therefore, price will equal marginal cost at the profit-maximizing level of output.

Question 6

A pretzel-stand owner in Chicago hires workers to make hot pretzels and sell them to customers. If the firm is competitive in both the market for pretzels and in the market for pretzel-makers, then it has
A)some control over both the price of pretzels and the wage it pays to its workers.
B)no control over the price of pretzels but some control over the wage it pays to its workers.
C)some control over the price of pretzels but no control over the wage it pays to its workers.
D)no control over either the price of pretzels or the wage it pays to its workers.

Accepted Answer

Since the firm is competitive in both the market for pretzels and in the market for pretzel-makers, it has no control over the price of pretzels or the wage it pays to its workers. In a competitive market, the price of the product is determined by the market forces of supply and demand, and the wage rate is determined by the labor market forces of supply and demand. The firm cannot influence either of these markets, and must accept the prevailing market price and wage rate.

Question 7

If the demand curve for economics textbooks shifts to the left, then the value of the marginal product of labor for economics textbook authors will
A)rise.
B)fall.
C)remain unchanged.
D)rise or fall; either is possible.

Accepted Answer

When the demand curve for economics textbooks shifts to the left, it means that the demand for economics textbooks has decreased. As a result, the market for economics textbook authors will also decrease, leading to a fall in their value of the marginal product of labor.

Question 8

Suppose that a new invention increases the marginal productivity of labor, shifting labor demand to the right. Such an invention would be an example of
A)labor-saving technology.
B)labor-augmenting technology.
C)revenue technology.
D)supply-shifting technology.

Accepted Answer

Labor-augmenting technology is a type of technological change that increases the marginal productivity of labor, leading to an increase in labor demand and potentially higher wages. This type of technological change is different from labor-saving technology, which reduces the amount of labor required for a given level of output, leading to a decrease in labor demand and potentially lower wages. Revenue technology and supply-shifting technology are not commonly used terms in economics related to technological change.

Question 9

John owns a number of hot dog stands in New York City. He hires workers to sell hot dogs at his stands. Which of the following events will lead to a decrease in John's demand for hot dog vendors?
A)Hollywood glamorization of a new movie about a hot dog vendor leads hundreds of high-school students in New York City to apply for a job at John's.
B)The price of hot dogs falls.
C)The local hot dog vendors form a union increasing hot dog vendor wages.
D)The demand curve for hot dogs shifts to the right.

Accepted Answer

The answer of John owns a number of hot dog...

Question 10

Suppose that a new invention decreases the marginal productivity of labor, shifting labor demand to the left. Such an invention would be an example of
A)labor-saving technology.
B)labor-augmenting technology.
C)revenue technology.
D)supply-shifting technology.

Accepted Answer

Labor-saving technology reduces the demand for labor by making it possible to produce the same output with fewer workers. This shift in labor demand to the left can be represented by a decrease in the marginal productivity of labor, which means that each additional worker hired produces less output than before. Therefore, labor-saving technology is the best choice for the given scenario.

Question 11

Which of the following events could decrease the demand for labor?
A)An increase in the number of migrant workers
B)An increase in the marginal productivity of workers
C)A decrease in demand for the final product produced by labor
D)A decrease in the supply of labor

Accepted Answer

A decrease in the demand for the final product produced by labor means that fewer goods are being produced, which in turn means that fewer workers are needed to produce those goods. This would result in a decrease in the demand for labor. The other options would either have no effect on the demand for labor (option B) or increase the demand for labor (options A and D).

Question 12

Competitive firms hire workers until the additional benefit they receive from the last worker hired is equal to
(i)the additional cost of that worker.
(ii)the wage paid to that worker.
(iii)the marginal product of that worker.
A)(i) only
B)(iii) only
C)(i) and (ii) only
D)(ii) and (iii) only

Accepted Answer

Competitive firms hire workers until the additional benefit (marginal revenue product) equals the additional cost, which is the wage paid to that worker.

Question 13

If the demand curve for wedding cakes shifts to the right, then the value of the marginal product of labor for bakers will
A)rise.
B)fall.
C)remain unchanged.
D)rise or fall; either is possible.

Accepted Answer

When the demand curve for wedding cakes shifts to the right, the quantity demanded of wedding cakes increases, leading to an increase in the revenue earned by the bakery. To produce more wedding cakes, the bakery will need to hire more bakers. As a result, the value of the marginal product of labor for bakers will rise.

Question 14

If the price of Verizon cell phones falls, what will happen to the demand curve for Verizon sales people?
A)It will shift to the right.
B)It will shift to the left.
C)The direction of the shift is ambiguous.
D)It will remain unchanged.

Accepted Answer

If the price of Verizon cell phones falls, it is likely that the demand for Verizon cell phones will increase, leading to an increase in the demand for Verizon salespeople. Therefore, the demand curve for Verizon salespeople will shift to the left.

Question 15

For a competitive, profit-maximizing firm, the labor demand curve is the same as the
A)marginal cost curve.
B)value of marginal product curve.
C)production function.
D)profit function.

Accepted Answer

The value of marginal product (VMP) is the additional revenue that a firm earns from hiring one additional unit of labor. A competitive, profit-maximizing firm will hire labor up to the point where the VMP equals the wage rate. Hence, the labor demand curve for such a firm is the same as the VMP curve. Option A is incorrect as marginal cost is the additional cost that a firm incurs in producing an additional unit of output, and it is not directly related to the labor demand curve. Option C is incorrect because a production function shows the maximum output that can be produced with a given set of inputs, but it does not directly show the level of labor demand. Option D is incorrect as the profit function is the difference between a firm's revenue and its total cost, and it does not directly relate to the labor demand curve.

Question 16

Which of the following events could increase the demand for labor?
A)A decrease in output price
B)A decrease in the amount of capital available for workers to use
C)An increase in the marginal productivity of workers
D)A decrease in the wage paid to workers

Accepted Answer

An increase in the marginal productivity of workers would increase the demand for labor as firms would want to hire more workers to produce more output. The other choices would decrease the demand for labor by reducing the profitability of firms or reducing the value of labor relative to other inputs.

Question 17

For a competitive, profit-maximizing firm, the demand curve for labor will shift in response to a change in the
A)wage rate.
B)quantity of labor demanded.
C)price of the product that the firm sells.
D)an increase in the supply of labor.

Accepted Answer

The demand for labor is derived from the demand for the firm's product. If the price of the product increases, the demand for labor increases as well since the firm will want to hire more workers to meet the increased demand for its product. Conversely, if the price of the product decreases, the demand for labor decreases as the firm will want to hire fewer workers to produce less of its product. Changes in the wage rate, quantity of labor demanded, or supply of labor would not directly shift the demand curve for labor.

Question 18

Labor-augmenting technology causes which of the following?
(i)The marginal productivity of labor increases.
(ii)The marginal productivity of labor decreases.
(iii)Labor demand shifts to the right.
(iv)Labor demand shifts to the left.
A)(i) only
B)(ii) only
C)(i) and (iii) only
D)(ii) and (iv) only

Accepted Answer

Labor-augmenting technology increases the marginal productivity of labor, which means that each worker can produce more output. This, in turn, increases the demand for labor, which causes a shift in labor demand to the right. Therefore, both (i) and (iii) are correct, and (ii) and (iv) are incorrect.

Question 19

Suppose a labor-augmenting technology were developed for a product that increased the marginal product of labor for all workers. Which of the following would happen in the labor market for this product?
A)Demand would decrease.
B)Demand would increase.
C)Supply would decrease.
D)Supply would increase.

Accepted Answer

Labor-augmenting technology that increases the marginal product of labor for all workers would make workers more productive, resulting in an increase in demand for labor. Therefore, employers would be willing to pay higher wages to attract and retain workers, which would lead to an increase in demand for the product.

Question 20

Labor-saving technology causes which of the following?
(i)The marginal productivity of labor increases.
(ii)The marginal productivity of labor decreases.
(iii)Labor demand shifts to the right.
(iv)Labor demand shifts to the left.
A)(i) only
B)(ii) only
C)(i) and (iii) only
D)(ii) and (iv) only

Accepted Answer

The answer of Labor-saving technology causes which of the following?
(i)The...

Quiz 18: The Markets for the Factors of Production

What causes the labor demand curve to shift? (i) changes in productivity (ii) changes in wages (iii) changes in output prices

Competitive firms decide how much output to sell by producing output until the price of the good equals

When we focus on the firm as a supplier of a good or a service, we assume that the firm is a profit maximizer. When we focus on the firm as a demander of labor, we assume that the firm's objective is to

Which of the following is true at the level of output at which a competitive firm maximizes profit?

A pretzel-stand owner in Chicago hires workers to make hot pretzels and sell them to customers. If the firm is competitive in both the market for pretzels and in the market for pretzel-makers, then it has

If the demand curve for economics textbooks shifts to the left, then the value of the marginal product of labor for economics textbook authors will

Suppose that a new invention increases the marginal productivity of labor, shifting labor demand to the right. Such an invention would be an example of

John owns a number of hot dog stands in New York City. He hires workers to sell hot dogs at his stands. Which of the following events will lead to a decrease in John's demand for hot dog vendors?

Suppose that a new invention decreases the marginal productivity of labor, shifting labor demand to the left. Such an invention would be an example of

Which of the following events could decrease the demand for labor?

Competitive firms hire workers until the additional benefit they receive from the last worker hired is equal to (i) the additional cost of that worker. (ii) the wage paid to that worker. (iii) the marginal product of that worker.

If the demand curve for wedding cakes shifts to the right, then the value of the marginal product of labor for bakers will

If the price of Verizon cell phones falls, what will happen to the demand curve for Verizon sales people?

For a competitive, profit-maximizing firm, the labor demand curve is the same as the

Which of the following events could increase the demand for labor?

For a competitive, profit-maximizing firm, the demand curve for labor will shift in response to a change in the

Labor-augmenting technology causes which of the following? (i) The marginal productivity of labor increases. (ii) The marginal productivity of labor decreases. (iii) Labor demand shifts to the right. (iv) Labor demand shifts to the left.

Suppose a labor-augmenting technology were developed for a product that increased the marginal product of labor for all workers. Which of the following would happen in the labor market for this product?

Labor-saving technology causes which of the following? (i) The marginal productivity of labor increases. (ii) The marginal productivity of labor decreases. (iii) Labor demand shifts to the right. (iv) Labor demand shifts to the left.