Question 1

What is the income effect and the substitution effect in the context of the supply of labor?

Accepted Answer

The substitution and income effects tell...

Question 2

The price of apples is currently $1 per pound. If apples are sold in a competitive market and the price of apples increases to $2 per pound, the marginal revenue product (MRP) of labor used to produce apples would:

Accepted Answer

A)  not change.
B)  change in a manner that cannot be determined without additional information.
C)  be cut in half.
D)  double.E) A) and B)
F) A) and C)

Question 3

Suppose that you are unemployed and collecting unemployment insurance benefits of $200 per week,and suppose that your income is tax-free.Your employment counselor calls you and reports that she has found you a job that offers 40 hours of work per week at $12.50 per hour.You do some quick calculations and discover that your after-tax earnings from this job would be $360 per week.If unemployment benefits are cut off as soon as you regain employment,what is the real take-home wage rate from your new job offer? What does that make the tax rate on your earnings? (Hint: the loss of benefits is an implicit tax. )

Accepted Answer

The effective wage rate is the amount by which your income will rise divided by the number of hours worked.Before,you worked zero hours and made $200 per week.Now,you will clear $160 more after working 40 hours,for a net-of-tax wage of $4.00 per hour.The combination of explicit taxes that reduce your take-home from $500 to $360,and the implicit tax through the loss of benefits,essentially means you are facing a tax rate on earnings of 68 percent ($8.50/$12.50).
Problems and Applications

Question 4

Explain how each of the following events affects the equilibrium wage and the equilibrium quantity of labor (assume all else is constant with each event).Be sure to explain whether demand for or supply of labor has changed.
(1)The price of output a firm produces rises.
(2)A leisure-hour provides greater marginal benefit.
(3)The marginal income tax rate rises.
(4)New immigration laws restrict the hiring of illegal workers.
(5)A reduction in welfare benefits.
(6)The cost of machines falls (labor and machines are substitutes).
(7)Technology makes labor more productive.
(8)The industry becomes more monopolistic.
(9)The price of the product a firm produced falls.

Accepted Answer

(1)The demand for labor rises.Both equil...

Question 5

Refer to the graph shown.  Which curve represents the firm's derived demand for labor curve?

Accepted Answer

A)  D
B)  S1
C)  S2
D)  MRPE) A) and D)
F) B) and C)

Question 6

Efficiency wages tend to:

Accepted Answer

A)  increase costs in the short run but reduce them in the long run.
B)  raise costs in both the long run and the short run.
C)  reduce costs in both the long run and the short run.
D)  reduce costs in the short run but increase them in the long run.E) B) and D)
F) C) and D)

Question 7

How wages are determined is best described by:

Accepted Answer

A)  economic factors only.
B)  political and social forces only.
C)  economic factors, with strong influences by political and social forces.
D)  government regulation only.E) B) and D)
F) All of the above

Question 8

The incentive effect refers to how much a person will change his or her:

Accepted Answer

A)  hours worked in response to a change in the wage rate.
B)  wage rate in response to a change in productivity.
C)  quantity demanded of a taxed good in response to a change in the tax rate.
D)  wage rate in response to a change in the tax rate on earnings.E) A) and B)
F) None of the above

Question 9

Suppose that the marginal revenue product of labor is currently 40 and the marginal revenue product of capital is 30. If both inputs have the same cost, the firm should:

Accepted Answer

A)  increase both labor and capital proportionally to meet the cost minimization condition.
B)  decrease both labor and capital proportionally to meet the cost minimization condition.
C)  increase labor and reduce capital to meet the cost minimization condition.
D)  increase capital and reduce labor to meet the cost minimization condition.E) All of the above
F) A) and B)

Question 10

Why would an increase in the marginal income tax rate likely to lead to a reduction in the number of hours worked (all other things held constant)? Why would an increase in the marginal income tax rate might actually lead to an increase in the number of hours worked?

Accepted Answer

An increase in the marginal income tax r...

Question 11

The higher the after-tax wage, the greater the quantity of labor supplied.

Accepted Answer

A) True 
 B)False

Question 12

An increase in the marginal income tax rate is likely to:

Accepted Answer

A)  increase the quantity of labor supplied.
B)  decrease the quantity of labor supplied.
C)  decrease the quantity of labor demanded.
D)  increase the quantity of labor demanded.E) All of the above
F) A) and B)

Question 13

Refer to the graph shown. 1 to S2, the firm will: A) reduce employment from q0 to q1 to maximize profit where MRP = W. B) reduce employment from q1 to q2 to maximize profit where MRP = W. C) raise employment from q1 to q0 to maximize profit where MRP = W. D) raise employment from q2 to q1 to maximize profit where MRP = W." class="answers-bank-image d-inline" rel="preload" > If labor supply shifts from S1 to S2, the firm will:

Accepted Answer

A)  reduce employment from q0 to q1 to maximize profit where MRP = W.
B)  reduce employment from q1 to q2 to maximize profit where MRP = W.
C)  raise employment from q1 to q0 to maximize profit where MRP = W.
D)  raise employment from q2 to q1 to maximize profit where MRP = W.E) A) and D)
F) A) and C)

Question 14

An increase in the wages of truck drivers might be explained by which of the following factors?

Accepted Answer

A)  A reduction in the price of rail transportation
B)  An increase in competition within the trucking industry
C)  A reduction in the demand for transportation
D)  An increase in the price of gasolineE) A) and B)
F) B) and D)

Question 15

Demand-side discrimination occurs when:

Accepted Answer

A)  employers pay women less than men for doing the same job.
B)  women remain in low-paying jobs because of family responsibilities.
C)  employers hire a man who is more qualified than a woman.
D)  women postpone having children in order to succeed professionally.E) None of the above
F) B) and C)

Question 16

Wages under a bilateral monopoly are generally:

Accepted Answer

A)  equal to those under monopsony.
B)  equal to those under a union monopoly.
C)  greater than those under monopsony but less than those under a union monopoly.
D)  greater than those under a union monopoly but less than those under monopsony.E) B) and C)
F) None of the above

Question 17

The labor market is a market in which:

Accepted Answer

A)  labor supply and labor demand alone determine wages and employment.
B)  social and political pressures are particularly strong.
C)  the invisible hand operates unimpeded by other forces.
D)  firms determine the supply of labor.E) C) and D)
F) None of the above

Question 18

You are the owner of an auto body shop.Due to a recent hailstorm you have a twofold increase in the number of cars to repair.What is the short-term impact that this hailstorm will have on your demand for auto body technicians? What will be the results in the market for these technicians with respect to wages and the number employed? What will be the long-term results in the market for these technicians with respect to wages and the number employed? (NOTE: Your answer should include two diagrams. )

Accepted Answer

You will need to hire more auto body tec...

Question 19

Labor demand is less elastic when:

Accepted Answer

A)  there are many substitutes for labor in the production process.
B)  the inputs that could be substituted for labor are relatively inexpensive.
C)  a large amount of labor is essential to the production process.
D)  the demand for output is more elastic.E) B) and D)
F) C) and D) C

Question 20

Comparable worth laws can be justified by the fact that wages are determined exclusively by market forces.

Accepted Answer

A) True 
 B)False  False

Exam 17: Work and the Labor Market

What is the income effect and the substitution effect in the context of the supply of labor?

Correct Answer
verified
The substitution and income effects tell...
View Answer

The price of apples is currently $1 per pound. If apples are sold in a competitive market and the price of apples increases to $2 per pound, the marginal revenue product (MRP) of labor used to produce apples would:

Correct Answer
verified

Correct Answer
verified
(1)The demand for labor rises.Both equil...
View Answer

Refer to the graph shown. Which curve represents the firm's derived demand for labor curve?

Correct Answer
verified

Efficiency wages tend to:

Correct Answer
verified

How wages are determined is best described by:

Correct Answer
verified

The incentive effect refers to how much a person will change his or her:

Correct Answer
verified

Suppose that the marginal revenue product of labor is currently 40 and the marginal revenue product of capital is 30. If both inputs have the same cost, the firm should:

Correct Answer
verified

Why would an increase in the marginal income tax rate likely to lead to a reduction in the number of hours worked (all other things held constant)? Why would an increase in the marginal income tax rate might actually lead to an increase in the number of hours worked?

Correct Answer
verified
An increase in the marginal income tax r...
View Answer

The higher the after-tax wage, the greater the quantity of labor supplied.

Correct Answer
verified

An increase in the marginal income tax rate is likely to:

Correct Answer
verified

Refer to the graph shown. If labor supply shifts from S₁ to S₂, the firm will:

Correct Answer
verified

An increase in the wages of truck drivers might be explained by which of the following factors?

Correct Answer
verified

Demand-side discrimination occurs when:

Correct Answer
verified

Wages under a bilateral monopoly are generally:

Correct Answer
verified

The labor market is a market in which:

Correct Answer
verified

Correct Answer
verified
You will need to hire more auto body tec...
View Answer

Labor demand is less elastic when:

Correct Answer
verified
C

Comparable worth laws can be justified by the fact that wages are determined exclusively by market forces.

Correct Answer
verified
False

Exam 17: Work and the Labor Market

What is the income effect and the substitution effect in the context of the supply of labor?

Correct AnswerverifiedThe substitution and income effects tell...View AnswerShow Answer

The price of apples is currently $1 per pound. If apples are sold in a competitive market and the price of apples increases to $2 per pound, the marginal revenue product (MRP) of labor used to produce apples would:

Correct AnswerverifiedShow Answer

Correct Answerverified(1)The demand for labor rises.Both equil...View AnswerShow Answer

Refer to the graph shown. Which curve represents the firm's derived demand for labor curve?

Correct AnswerverifiedShow Answer

Efficiency wages tend to:

Correct AnswerverifiedShow Answer

How wages are determined is best described by:

Correct AnswerverifiedShow Answer

The incentive effect refers to how much a person will change his or her:

Correct AnswerverifiedShow Answer

Suppose that the marginal revenue product of labor is currently 40 and the marginal revenue product of capital is 30. If both inputs have the same cost, the firm should:

Correct AnswerverifiedShow Answer

Why would an increase in the marginal income tax rate likely to lead to a reduction in the number of hours worked (all other things held constant)? Why would an increase in the marginal income tax rate might actually lead to an increase in the number of hours worked?

Correct AnswerverifiedAn increase in the marginal income tax r...View AnswerShow Answer

The higher the after-tax wage, the greater the quantity of labor supplied.

Correct AnswerverifiedShow Answer

An increase in the marginal income tax rate is likely to:

Correct AnswerverifiedShow Answer

Refer to the graph shown. If labor supply shifts from S1 to S2, the firm will:

Correct AnswerverifiedShow Answer

An increase in the wages of truck drivers might be explained by which of the following factors?

Correct AnswerverifiedShow Answer

Demand-side discrimination occurs when:

Correct AnswerverifiedShow Answer

Wages under a bilateral monopoly are generally:

Correct AnswerverifiedShow Answer

The labor market is a market in which:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedYou will need to hire more auto body tec...View AnswerShow Answer

Labor demand is less elastic when:

Correct AnswerverifiedC

Comparable worth laws can be justified by the fact that wages are determined exclusively by market forces.

Correct AnswerverifiedFalse

Correct Answer
verified
The substitution and income effects tell...
View Answer

Correct Answer
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Correct Answer
verified
(1)The demand for labor rises.Both equil...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An increase in the marginal income tax r...
View Answer

Correct Answer
verified

Correct Answer
verified

Refer to the graph shown. If labor supply shifts from S₁ to S₂, the firm will:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
You will need to hire more auto body tec...
View Answer

Correct Answer
verified
C

Correct Answer
verified
False