1. Which of the following inevitably causes a shift in the market demand for workers with a
certain skill?
A. An increase in the demand for goods produced by these workers
B. A decease in tax rates on the income of these workers
C. An increase in the equilibrium wages received by these workers
D. An increase in the supply of these workers
E. The creation of a federally subsidized program to train new workers
2. If hiring an additional worker would increase a firm’s total cost by less than it would increase
its total revenue, the firm should
A. not hire the worker
B. hire the worker
C. hire the worker only if another worker leaves or is fired
D. hire the worker only if the worker can raise the firm’s productivity
E. reduce the number of workers employed by the firm
3. Suppose that an effective minimum wage is imposed in a certain labor market above the
equilibrium wage. If labor supply in that market subsequently increases, which of the following
will occur?
A. Unemployment in that market will increase.
B. Quantity of labor supplied will decrease.
C. Quantity of labor demanded will increase3.
D. Market demand will increase.
E. The market wage will increase.
4. The graph above shows the marginal revenue product curve and the supply curve of labor for
a firm. The introduction of new management techniques dramatically increases worker
productivity. Which of the following changes is most likely to occur?
A. The supply curve will shift to the left, increasing the wage rate.
B. The supply curve will shift to the right, increasing employment.
C. The marginal revenue product curve will shift to the right, increasing the wage rate.
D. The marginal revenue product curve will shift to the left, reducing employment.
E. Neither the marginal revenue product curve not the supply curve will shift, but the
wage rate will increase and employment will fall.
5. Which of the following is most likely to increase the supply of soldiers for an all-volunteer
army?
A. A decrease in the salaries paid to soldiers
B. A decrease in the average wage rate in civilian employment
C. A reduction in college tuition benefits provided to soldiers
D. The imposition of new restrictions on women in the military
E. An increase in the required length of service
6. If the minimum wage for teen-agers increased to a rate higher tha their market equilibrium
wage, what would be the effect on their wage and employment?
Wage
Employment
A. Increase
No effect
B. Increase
Increase
C. Increase
Decrease
D. Decrease
Increase
E. Decrease
Decrease
7.
Number of Workers
1
2
3
4
5
6
7
Number of Sandwiches
Produced per Day
80
150
200
240
250
230
200
Given the production information in the table above, how many workers would be employed if
the wage rate were $20.00 per day and if sandwiches sold for $0.50?
A. 1
B. 2
C. 4
D. 5
E. 7
8. Which of the following will happen in the labor market if the price of the good produced by
the workers decreases?
A. The marginal product of labor will increase.
B. The marginal product of labor will decrease.
C. The marginal revenue product of labor will increase.
D. The marginal revenue product of labor will decrease.
E. the demand curve for labor will sift to the right.
9. Assume that a firm is hiring labor in a perfectly competitive labor market. If the marginal
revenue product of labor is greater than the wage rate, which of the following will be true?
A. The firm must be losing money.
B. The firm should employ more workers.
C. The firm should replace workers with capital.
D. The firm is maximizing its profits.
E. The firm is experiencing diminishing marginal utility.
10. A profit-maximizing firm will hire
A. labor until its wage rate equals its average revenue product.
B. Labor until its wage rate equals its marginal revenue product.
C. Labor until its wage rate equals the interest rate.
D. Capital until the interest rate equals the wage rate.
E. Capital until the interest rate exceeds the wage rate.
11. If the price for a product produced in a competitive market increases, which of the following
is most likely to occur in the labor market for workers who produce that product?
A. The demand for labor and the number of workers hired both increase.
B. The supply of labor and the number of workers hired both increase.
C. The demand for labor and the number of workers hired both decrease.
D. The supply of labor and the number of workers hired both decrease.
E. There is a movement along the demand for labor curve, and firms hire more workers.
12. In a perfectly competitive labor market for nurses, all of the following statements are true
EXCEPT:
A. The imposition of an effective minimum wage will result in unemployment
B. An increase in the marginal product of nurses will increase the demand for nurses and
increase wages
C. An increase in the supply of nurses will create unemployment and leave wages
unchanged
D. An increase in the demand for health care will increase the demand for nurses and
increase wages
E. Revoking work permits for foreign nurses will increase wages of domestic nurses
13. Assume that total fixed costs are $46, that the average product of labor is 5 units when 10
units of output are produced, and that the wage rate is $12. If labor is the only variable input,
what is the average total cost of producing 10 units of output?
A. $2
B. $5
C. $7
D. $9
E. $12
14. if labor is the only variable input and it costs $15 per hour and if the marginal product of
labor is 3 units per hour, the short-run marginal cost of 1 unit of output is approximately
A. $0.20
B. $3.00
C. $5.00
D. $15.00
E. $45.00
15. ABC Limited, Inc., sells its product in a perfectly competitive market for a price of $15 per
unit and hires workers at a daily wage of $75. Labor is the only factor cost, and the firm is
currently earning profits. If ABC hires one more worker and output increases by 5 units per day,
the firm’s profits will
A. decrease by $5
B. decrease by $75
C. increase by $75
D. increase by $15
E. remain unchanged
16. The concept of derived demand is derived is described by which of the following?
A. A decrease in the demand for theater tickets will decrease the demand for actresses and
actors.
B. If the salaries of basketball players increase, the quantity of basketball players demanded
will decrease.
C. An increase in the income of consumers will increase the demand for opera tickets.
D. An increase in the demand for movie tickets will decrease the demand for video rentals.
E. A decrease in the price of movie tickets will increase the demand for movie tickets.
17. Suppose that a large number of unskilled workers enter a nation’s labor market. If the labor
market is competitive, the number of unskilled workers hired and the wage rate will most likely
change in which of the following way?
Number of
Unskilled Workers Hired
Wage Rate
(A) Increase
Increase
(B) Increase
Decrease
(C) Increase
Not change
(D) Decrease
Increase
(E) Decrease
Decrease
18. Locotek produces toy trains and pays each worker $350 per week. Five workers can produce
40 trains per week and six workers can produce 45 trains per week. The marginal product per
week of the sixth worker is
(A) $70
(B) $350
(C) 5 trains
(D) 7.5 trains
(E) 42.5 trains
19. If a 5 percent wage increase in a particular labor market results in a 10 percent decrease in
employment, the demand for labor is
(A) perfectly elastic
(B) relatively elastic
(C) unit elastic
(D) relatively inelastic
(E) perfectly inelastic
20.
# of
Hourly
Marginal Marginal
Workers Wage
Factor
revenue
Cost
Product
10
$5.00
11
5.10
$6.10
$8.70
12
5.20
6.30
7.60
13
5.30
6.50
6.50
14
5.40
6.70
5.40
15
5.50
6.90
4.30
According to the information in the table above, the twelfth worker would increase the hourly
profit by
(A) $0.20
(B) $1.10
(C) $1.30
(D) $2.40
(E) $5.20
21. Which of the following tends to increase the gap in earnings between skilled and unskilled
workers over time?
(A)
(B)
(C)
(D)
(E)
An increase in the demand for unskilled workers relative to skilled workers
An increase in the supply of skilled workers relative to unskilled workers
A decrease in the demand for the unskilled workers relative to skilled workers
A decrease in both the demand for and the supply of skilled workers
An increase in both the demand for and supply of unskilled workers
22.
Supply
W1
W2
Wage
Rate
Demand
Number of Teenage Workers
The graph above illustrates the labor market for teenage workers. The current minimum wage
for all workers is W1. If Congress introduces a sub-minimum wage W2 that applies only to
teenagers, what is the most likely effect on teenage employment?
(A) Teenage employment will increase because firms will want to hire more teenagers at
W2 than at W1.
(B) Teenage employment will increase because more teenagers will want to work at W2
than at W1.
(C) Teenage employment will decrease because fewer teenagers will want to work at W2
than at W1.
(D) Teenage employment will decrease because firms will want to hire fewer teenagers
at W2 that at W1.
(E) Teenage employment will stay the same because the market-clearing wage is lower
than W1 and W2.
23.
The graph above shows as a monopsony labor market. In the absence of any regulations, which
of the following represents the number of workers the firm will hire and the wage rate it will
offer to those workers?
Number of Workers
Wage Rate
A. 15
$30
B. 20
$20
C. 20
$40
D. 30
$30
E. 40
$40
24. Motivated by lower prices, United States manufacturers increase their imports of steel from
other steel producing countries. Which of the following best describes the impact of the
increased steel imports on the labor market for steel workers in the United States?
A. Jobs in the Unites States steel industry will become less attractive, so wages will have
to increase in this market to attract more workers to the United States steel industry.
B. Domestic steel prices fall, leading to an increase in sales of domestically produced
steel, which increases demand and employment of steelworkers.
C. The supply of steelworkers will increase, lowering the steelworker wage in the Untied
States.
D. The supply of steelworkers will decrease, increasing the steel worker wage in the
United States.
E. the demand for United States steelworkers will decline, putting downward pressure on
steelworker
wages.
25. When labor supply in a competitive labor market increases, the equilibrium wage rate and
employment will change in which of the following ways?
Wage Rate
Employment
A. Increase
Increase
B.
C.
D.
E.
Increase
Decrease
Decrease
Decrease
Decrease
Increase
Decrease
No change
26. An increase in the demand for automobiles will cause the demand for skilled automobile
workers and the wage rate of skilled automobile workers to change in which of the following
ways?
Demand For Workers
Wage Rate
A. Decrease
Increase
B. Decrease
Not change
C. Increase
Decrease
D. Increase
Increase
E. Not change
Increase
27. A perfectly competitive profit-maximizing firm will continue to hire additional units of an
input as long as the
A. marginal product of the input is maximized
B. marginal cost of employing the input is maximized
C. value of the marginal product of the input exceeds the price of the input
D. revenue associated with employment of the last unit of the input is maximized
E. price of the product is greater than the marginal cost of the input
28. Assume that both input and product markets are competitive. If the product price rises, in the
short run firms will increase production by increasing
A. the stock of fixed capital until marginal revenue equals the product price
B. the stock of fixed capital until the average product of capital equals the price of
capital
C. labor input until the marginal; revenue product of labor equals the wage rate
D. labor input until the marginal product of labor equals the wage rate
E. labor input until the ratio of product price to marginal product of labor equals the
wage rate
29. If the supply of production is fixed, which of the following will be true of its price?
A. Supply is irrelevant to the determination of factor price.
B. A positive factor price cannot be justified on economic grounds.
C. Factor price will be determined by the demand for the fixed amount of the factor.
D. Factor price will not be determined by supply and demand analysis.
E. Factor price will be zero, since no payment is necessary to secure the services of the
factor.