Question 1

Which of the following two statements is true of the graph shown above? 
Statement 1:The graph leads to a supply of labor curve that is positively sloped throughout. 
Statement 2:The opportunity cost of leisure is lower at point A than at point D.

Accepted Answer

Statement 1 is not true as the graph shows a change in the slope from positive to negative, indicating a backward-bending labor supply curve. 
Statement 2 is true as the opportunity cost of leisure is the wage rate, and at point A, the wage rate is lower than at point D, making the opportunity cost of leisure lower at point A.

Question 2

If an additional worker costs you $15 per hour and can add 10 units of output to the firm, you should hire that person as long as

Accepted Answer

Hiring an additional worker is profitable only if the value of marginal product (VMP) exceeds the cost of hiring that worker. In this case, the cost is $15 per hour, and the worker can add 10 units of output. Therefore, if the VMP of the worker is above $15, then it is profitable to hire the worker.

Question 3

When an employer's information indicates that two individuals have exactly the same productivity, there will be competitive pressure to

Accepted Answer

The answer of When an employer's information indicates that two...

Question 4

A monopsonist is a firm which

Accepted Answer

A monopsonist is a firm that is the only buyer in a particular market, which means it can exert considerable market power and influence the price of the good or service it is buying. This is different from a monopoly, which is a firm that has complete control over the supply of a particular good or service. A monopsonist may face a downward sloping demand curve for the output it produces, but this is not a defining characteristic of a monopsonist. Similarly, a monopsonist may or may not be a price taker in the labor market and may face a horizontal, upward sloping or downward sloping demand curve for labor, depending on the nature of the labor market.

Question 5

Because the monopsonist takes into account the effect that employment expansion has on wages paid to existing workers, it will

Accepted Answer

A monopsonist is a single buyer in a labor market and has market power to set wages. It will employ fewer workers and pay lower wages compared to a competitive market, where wages are determined by supply and demand.

Question 6

Proponents of the minimum wage implicitly assume that the ____ if they discount the unemployment effects of the policy.

Accepted Answer

Proponents of the minimum wage often assume that the demand curve for unskilled workers is inelastic, meaning that employers will not significantly reduce the number of workers they hire even if wages increase. This assumption minimizes the perceived unemployment effects of raising the minimum wage.

Question 7

Opponents of the minimum wage law implicitly assume that the _____ if they worry about the unemployment effects of the policy.

Accepted Answer

Opponents of the minimum wage law worry about unemployment effects, which suggest that they believe the demand for unskilled workers is highly elastic, i.e. sensitive to changes in wages. A highly elastic demand curve means that a small increase in the wage rate could lead to a significant decrease in the quantity of labor demanded, resulting in unemployment. Thus, the assumption is that if the minimum wage is increased, firms will reduce their demand for low-skill workers, leading to job losses.

Question 8

In general, when a test is less than accurate, our best estimate of a worker's productivity will

Accepted Answer

If the test is less than accurate, it means that it may not entirely capture the worker's productivity level. Therefore, we cannot rely solely on the test score to estimate their productivity. However, we know that the worker belongs to a group with a certain productivity level, and their actual test score provides some information about their productivity. Thus, the best estimate would be somewhere between the worker's actual test score and the average productivity level of the group, which is option D.

Question 9

The optimal level of employment for a monopsonist is set at the point where the

Accepted Answer

A monopsonist sets the optimal level of employment where the marginal factor cost (MFC) equals the marginal revenue product of labor (MRP_L), as this is the point where the additional cost of hiring one more worker equals the additional revenue generated by that worker.

Question 10

Which of the equilibrium points on the leisure-income graph below has a wage rate of $4 per hour?

Accepted Answer

The equilibrium point at C corresponds to a wage rate of $4 per hour. This is where the marginal rate of substitution for leisure and income is equal to the wage rate, which in this case is $4. At point C, the individual is willing to trade off 4 units of income for each unit of leisure forgone, which is exactly equal to the wage rate they can earn by working. Therefore, point C is the best choice for someone who wants to earn a wage rate of $4 per hour.

Question 11

Why is it difficult to get a cab on a rainy day?

Accepted Answer

On rainy days, cab drivers may reach their income target faster due to increased demand, leading them to stop working earlier, which is explained by the backward bending supply curve.

Question 12

Imagine that there is another group of workers, group B, which has an average productivity of $9 per hour.If a worker from group B took the same productivity test that was given to workers in Problem 26, what is the best estimate of the VMP for this worker if his test score is $21 per hour?

Accepted Answer

The answer of Imagine that there is another group of...

Question 13

If 9 units of labor will be supplied if the wage rate is $12 and 10 units of labor will be supplied if the wage rate is $14, then the marginal factor cost for the tenth unit of labor is

Accepted Answer

The marginal factor cost is the additional cost of hiring one more unit of labor. The cost increases from $12 to $14 when one more unit is supplied, indicating the marginal factor cost for the tenth unit is more than $14.

Question 14

Pay rates within a firm seem to show less variation than marginal productivity rate differences.This is because

Accepted Answer

Firms compensate their high producers with non-monetary perks, such as promotions, bonuses, and flexible work arrangements.

Question 15

Suppose workers from group A have an average productivity of $15 per hour and that employers have a productivity test that is 100% accurate 1/3 of the time, but has no value 2/3 of the time.What is the best estimate of the VMP of a worker from group A with a test score of $21 per hour?

Accepted Answer

Since the test has no value 2/3 of the time, we can assume that the VMP of a worker with a score of $21 is likely closer to their true average productivity of $15 per hour. Therefore, we should choose an estimate that is closer to $15 than $21. The best estimate would be somewhere in between, and $17 is the closest option available.

Question 16

Which phrase finishes this statement best? The net effect of a union increasing wages

Accepted Answer

Increasing union wages can lead to a misallocation of labor as workers may move towards non-union jobs unless the unionization process also increases productivity, which can justify the higher wages.

Question 17

The competitive labor market model suggests that the persistence of significant employer discrimination requires the owners of the firm to

Accepted Answer

The competitive labor market model assumes that employers will maximize profits by paying the market-clearing wage rate, which is where the supply of labor equals the demand for labor. Therefore, significant employer discrimination would only persist if the owners of the firm were willing to supply capital at a rate of return below what could be earned elsewhere, as a result of their discriminatory hiring practices. If they were to pay the market-clearing wage rate, they would not discriminate against certain groups and would hire the most qualified candidates, which would maximize their profits.

Question 18

If minimum wages in a monopsony labor market are set above the firm's MFC at its initial hiring level, the effect would be to

Accepted Answer

In a monopsony labor market, there is only one buyer of labor, and as a result, the firm has wage-setting power. If a minimum wage is set above the firm's MFC at its initial hiring level, the firm would face increased labor costs and would reduce employment to maintain profits. Therefore, the effect of such a policy would be to reduce employment rather than increasing it. Options A, B, and C are incorrect because the policy would not increase the hiring of unskilled workers, productivity, or reduce factor costs.

Question 19

(Appendix) If relative income standing and job safety both matter, then

Accepted Answer

When both relative income standing and job safety matter, individuals may face a prisoner's dilemma where pursuing personal gain leads to suboptimal outcomes, necessitating collusion or legal intervention for optimal results.

Question 20

Which of the following would cause the demand for curve for automobile workers to increase?

Accepted Answer

A more efficient assembly line can increase productivity, leading to higher demand for automobile workers to meet increased production needs.

Quiz 14: Labor

Which of the following two statements is true of the graph shown above? Statement 1:The graph leads to a supply of labor curve that is positively sloped throughout. Statement 2:The opportunity cost of leisure is lower at point A than at point D.