Chapter 8
The Labor Market: Employment,
Unemployment, and Wages
T Multiple Choice Questions
Choose the one alternative that best completes the statement or answers the question.
1.
If the price of a factor increases
(a) the quantity demanded decreases and the quantity supplied increases.
(b) the quantity demanded increases and the quantity supplied increases.
(c) the quantity demanded increases and the quantity supplied decreases.
(d) the quantity demanded decreases and the quantity supplied decreases.
(e) Neither the quantity demanded nor the quantity supplied change.
Answer: A
2.
An old, rare and painstakingly created, unique product such as a handwritten bible,
(a) would easily receive a price of several million dollars.
(b) will receive the rave reviews of experts and be highly demanded.
(c) would easily be replicated today.
(d) has no market demand.
(e) None of the above.
Answer: D
3.
The marginal revenue product for a perfectly competitive firm is equal to the
(a) price of the product times the marginal product.
(b) price of the product times the marginal revenue.
(c) marginal revenue of the product times the marginal factor cost.
(d) is derived from the laborer’s desire to work.
(e) None of the above.
Answer: A
4.
The firm’s demand curve for factors of production is negatively sloped because of
(a) economies of scale.
(b) diseconomies of scale.
(c) constant returns to scale.
(d) the law of increasing returns.
(e) the law of diminishing returns.
Answer: E
Chapter 8
The Labor Market: Employment, Unemployment, and Wages
5.
A decrease in the product’s price will cause
(a) a shift in the labor supply curve to the left, increasing the equilibrium wage.
(b) a shift in the labor supply curve to the right, decreasing the equilibrium wage.
(c) a shift in the labor demand curve to the left, decreasing the equilibrium wage.
(d) a shift in the labor demand curve to the right, increasing the equilibrium wage.
(e) None of the above.
Answer: C
6.
A technologically enhancing innovation boosting productivity will cause
(a) a shift in the labor supply curve to the left, increasing the equilibrium wage.
(b) a shift in the labor supply curve to the right, decreasing the equilibrium wage.
(c) a shift in the labor demand curve to the left, decreasing the equilibrium wage.
(d) a shift in the labor demand curve to the right, increasing the equilibrium wage.
(e) None of the above.
Answer: D
7.
As the process of globalizing the world labor market continues,
(a) high wage countries will gain jobs, and the equilibrium wage will increase in these countries.
(b) high wage countries will lose jobs, and the equilibrium wage will increase in these countries.
(c) low wage countries will gain jobs, and the equilibrium wage will increase in these countries.
(d) low wage countries will lose jobs, and the equilibrium wage will increase in these countries.
(e) None of the above.
Answer: C
8.
As the process of globalizing the world labor market continues,
(a) the demand for labor in high wage countries shifts left, decreasing the equilibrium wage.
(b) the demand for labor in high wage countries shifts right, increasing the equilibrium wage.
(c) the demand for labor in low wage countries shifts left, decreasing the equilibrium wage.
(d) the demand for labor in low wage countries shifts right, decreasing the equilibrium wage.
(e) None of the above.
Answer: A
9.
If wage increases match the inflation rate,
(a) businesses will hire more workers.
(b) businesses will hire less workers.
(c) real wages will fall.
(d) real wages will rise.
(e) None of the above.
Answer: E
10.
Which of the following is correct? Firms usually
(a) face more competition in the hiring of inputs than in the selling of outputs.
(b) are price takers in the product market more often than in the factor market.
(c) use factors that can be employed only in their industry.
(d) purchase sufficiently large quantities of a factor that they can determine its price.
(e) have equal amounts of competition in the product and factor markets.
Answer: A
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Gregory • Essentials of Economics, Sixth Edition
11.
Which of the following is the best example of derived demand?
(a) An increase in demand for pizza increases the demand for beer.
(b) An increase in the price of capital increases the demand for labor.
(c) An increase in the price of orange juice increases demand for apple juice.
(d) An increase in income will increase the demand for housing.
(e) An increase in demand for air travel increases the demand for aircraft.
Answer: E
12.
Profit-maximizing firms will optimize the amount of a given factor of production when
(a) marginal revenue equals marginal product.
(b) marginal cost equals variable cost.
(c) market price of the factor equals marginal revenue product.
(d) marginal product is positive.
(e) marginal revenue product is positive.
Answer: C
13.
The marginal revenue product of a productive factor equals
(a) marginal revenue times the marginal physical product.
(b) the decrease in revenue generated by one more unit of the factor.
(c) its marginal physical product.
(d) the marginal revenue from the last unit of output produced by a factor.
(e) marginal revenue times the price of the product.
Answer: A
14.
Which of the following correctly completes this statement? Derived demand is
(a) the demand for a product that is derived from the factors that produce it.
(b) the demand for the factors of production that is derived from the demand for the products the
factors produce.
(c) demand that results because people derive utility from the products they buy.
(d) one factor’s income that is derived from the income of other factors.
(e) None of the above.
Answer: B
15.
Empirical evidence on the change in productivity and the change in relative prices in different
sectors of the economy show that
(a) the profit-maximizing rule for hiring factors accounts for most of the productivity growth.
(b) in the sectors where productivity has risen the fastest, relative prices have fallen.
(c) in those sectors where use of all factors increased, the change in relative prices was significantly
above average.
(d) the marginal productivity theory of factor prices appears implausible.
(e) in some sectors of the economy, the theory explains the data, but in others it does not.
Answer: B
Chapter 8
16.
The Labor Market: Employment, Unemployment, and Wages
95
Suppose the marginal productivity of capital is 50 units of output and the marginal productivity of
labor is 75 units of output. Capital costs $25 per hour and wages are $15 per hour. The firm is a
price taker in both factor markets. This firm
(a) is minimizing its costs of production.
(b) has just the right amount of both inputs.
(c) should hire more labor and use less capital.
(d) should hire less labor and use more capital.
(e) is maximizing its profit.
Answer: C
Table 8.1
Price/Unit
$3
3
3
3
Output
Labor
20
35
45
50
1
2
3
4
17.
Table 8.1 shows the production function for a firm. Assume that this firm can sell all the products it
wants for $3 per unit. The marginal physical product of the fourth worker is
(a) 50 units.
(b) 15 units.
(c) 5 units.
(d) 0 units.
(e) 4 units.
Answer: C
18.
Table 8.1 shows the production function for a firm. Assume that this firm can sell all the products it
wants for $3 per unit. The marginal revenue product of the fourth worker is
(a) $20.
(b) $10.
(c) $5.
(d) $15.
(e) $3.
Answer: D
19.
Table 8.1 shows the production function for a firm. Assume that this firm can sell all the products it
wants for $3 per unit. When labor costs $25.00 per worker, the firm will hire
(a) 4 workers.
(b) 3 workers.
(c) 2 workers.
(d) 1 worker.
(e) 0 workers.
Answer: B
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Gregory • Essentials of Economics, Sixth Edition
20.
Table 8.1 shows the production function for a firm. Assume that this firm can sell all the products it
wants for $3 per unit. When the firm is maximizing its profit, its marginal cost of production is
(a) $3.
(b) $10.
(c) $15.
(d) $25.
(e) $50.
Answer: A
21.
The marginal physical product of the 5th unit of labor is 100 units of output. At this level of output,
the marginal revenue of another unit is $10, while price is $25 and the wage rate is $1500. This firm
(a) is maximizing profits.
(b) should hire more labor.
(c) is minimizing labor costs.
(d) should hire less labor.
(e) the amount of labor is exactly right.
Answer: D
22.
The marginal physical product of the 5th unit of labor is 100 units. At this level of output, the
marginal revenue of another unit is $10, while price is $25. If 5 units of labor maximizes profits, the
wage rate must be
(a) $500.
(b) $1,000.
(c) $125.
(d) $2,500.
(e) $10.
Answer: B
23.
If the firm is a price taker in the factor market,
(a) the additional cost of the factor exceeds the factor price.
(b) the firm does not experience diminishing returns in production.
(c) the additional cost of the factor equals the factor price.
(d) marginal revenue product is less than the price of output.
(e) the additional cost of the factor is less than the factor price.
Answer: C
24.
The demand curve for a factor of production is
(a) dependent on the price of the factor.
(b) the marginal cost curve.
(c) the marginal revenue product curve.
(d) equal to the additional factor cost.
(e) marginal revenue curve.
Answer: C
Chapter 8
The Labor Market: Employment, Unemployment, and Wages
97
25.
Suppose the marginal productivity of capital is 100 units of output and the marginal productivity of
labor is 75 units of output. Capital costs $10 per hour and wages are $15 per hour, and the firm is a
price taker in both factor markets. This firm
(a) should hire more capital and less labor.
(b) is minimizing its cost of production.
(c) should hire less capital and more labor.
(d) has just the right amount of both outputs.
(e) is maximizing its profit.
Answer: A
26.
If capital’s marginal physical product is 5 units, and labor’s MPP is 10 units, a given output level is
produced at minimum cost if
(a) labor and capital cost the same per unit.
(b) the per unit price of labor is twice that of capital.
(c) both capital and labor have the same MPP.
(d) the per unit price of capital is twice that of labor.
(e) the firm purchases more labor and less capital.
Answer: B
27.
When a firm is a monopoly in the product market and a price taker in the factor market,
(a) it cannot maximize profits.
(b) the product price does not exceed marginal revenue.
(c) the factor is paid equal to its marginal revenue product.
(d) the factor is paid more than it is worth to society because P < MR.
(e) it cannot minimize costs.
Answer: C
28.
According to the marginal-productivity theory of wages,
(a) people will be paid, in wages, what they deserve.
(b) factor prices will tend to be equated to the factor’s marginal revenue product.
(c) wages and rental payments will be the same.
(d) people will be paid 75 percent of all income.
(e) factor prices will equal the average revenue products of the factors.
Answer: B
29.
If the price of the product that a factor produces is $1 (and the firm is a price taker in the product
market), at the profit-maximizing amount of the factor
(a) the price of the factor will also be $1 because P = MC.
(b) marginal revenue product will be twice marginal revenue.
(c) marginal revenue product will equal marginal physical product.
(d) marginal revenue product will not be related to marginal physical product.
(e) marginal revenue product will be half of marginal revenue.
Answer: C
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Gregory • Essentials of Economics, Sixth Edition
Table 8.2
Labor
Output
1
2
3
4
5
10
19
27
33
38
Price/Unit
$2
2
2
2
2
30.
Table 8.2 shows the production function for The Hypothetical Firm, Inc. The marginal product of
the third worker is
(a) 27 units.
(b) 9 units.
(c) 8 units.
(d) 6 units.
(e) 3 units.
Answer: C
31.
Table 8.2 shows the production function for The Hypothetical Firm, Inc. If the price of 1 unit of
output is $2, regardless of how much output the firm wishes to sell, the marginal revenue product of
the second worker is
(a) $2.
(b) $9.
(c) $18.
(d) $38.
(e) $58.
Answer: C
32.
Table 8.2 shows the production function for The Hypothetical Firm, Inc. If the price of 1 unit of
output is $2, regardless of how much output the firm wishes to sell, the firm will hire _____ if the
wage rate is $11.
(a) 1 worker
(b) 2 workers
(c) 3 workers
(d) 4 workers
(e) 5 workers
Answer: D
33.
Table 8.2 shows the production function for The Hypothetical Firm, Inc. If the price of 1 unit of
output is $2, regardless of how much output the firm wishes to sell, when the firm is in equilibrium
its marginal cost will be approximately
(a) $2.
(b) $6.
(c) $11.
(d) $12.
(e) $22.
Answer: A
Chapter 8
The Labor Market: Employment, Unemployment, and Wages
99
34.
According to the marginal-productivity theory of income distribution, if firms are price takers in the
factor markets, factor prices are
(a) equal to marginal revenue.
(b) equal to MPPs.
(c) less than factor MRPs.
(d) more than factor MRPs since factors cooperate.
(e) equal to the factor’s marginal revenue product.
Answer: E
35.
The marginal-productivity theory of income distribution helps explain
(a) why people are paid fair wages.
(b) the difference between profit maximization and the hiring of labor inputs.
(c) the division of national income between land, labor, and capital.
(d) the exploitation of labor by business enterprise.
(e) None of the above.
Answer: C
36.
Monopolists hire too few inputs from society’s viewpoint because
(a) they don’t have to worry about demand.
(b) they follow the P = MPP rule.
(c) they follow the P = MR rule.
(d) the marginal revenue product is less than P × MPP.
(e) of the existence of numerous close substitutes for their products.
Answer: D
37.
The how problem in economics is best solved when
(a) P = MC.
(b) average revenue equals average cost.
(c) minimum average cost is the firm’s goal.
(d) P = MR.
(e) the additional factor cost equals marginal revenue product.
Answer: E
38.
A factory worker in the United States earns more than a factory worker of equal ability in Pakistan
because
(a) the American worker works harder.
(b) the American worker works more hours per week.
(c) the American worker has more cooperating factors.
(d) the American worker has more land but less capital.
(e) standards of living in the United States are much higher.
Answer: C
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Gregory • Essentials of Economics, Sixth Edition
39.
A factor market is a market in which firms purchase
(a) labor.
(b) land.
(c) capital.
(d) management staff.
(e) All of the above.
Answer: E
40.
The marginal physical product of a 10th unit of labor is 25 units of output; at this level of output, the
marginal revenue of another unit is $5 while price is $10 and the wage rate is $50. This firm
(a) is maximizing profits.
(b) should hire more labor.
(c) is minimizing labor costs.
(d) should hire less labor.
(e) should leave labor at the same level.
Answer: B
41.
The marginal physical product of a 10th unit of labor is 25 units of output; at this level of output, the
marginal revenue of another unit is $5 while price is $10. If 10 units of labor maximizes profits, the
wage rate must be
(a) $25.
(b) $50.
(c) $125.
(d) $250.
(e) $500.
Answer: C
42.
Which of the following is the best example of derived demand?
(a) Advertising creates a demand for a new product.
(b) Increased oil prices reduce the demand for large automobiles.
(c) A decrease in the demand for grapes reduces the demand for grape pickers.
(d) An increase in wages causes firms to substitute capital for labor.
(e) The market demand schedule is derived by summing all individual demand curves.
Answer: C
43.
Which of the following statements best describes the concept of derived demand?
(a) A decrease in demand for wheat will cause a decrease in demand for farm machinery.
(b) If the price of gasoline rises, the quantity demanded of gasoline falls.
(c) A rise in the price of apples will cause an increase in the demand for oranges.
(d) An increase in the demand for Coca-Cola will cause a decrease in the demand for Pepsi-Cola.
(e) An increase in income will cause in increase in demand for stereos.
Answer: A
Chapter 8
The Labor Market: Employment, Unemployment, and Wages
Figure 8.1
44.
Which of the diagrams above best represents the firm’s demand curve for a factor?
(a) Figure A
(b) Figure B
(c) Figure C
(d) Figure D
Answer: D
45.
Which of the following is an incorrect statement about the American labor market?
(a) Average hours worked per week have increased since 1914.
(b) Real wages have risen since 1914.
(c) The labor force has expanded substantially.
(d) Fringe benefits have become an important component of compensation.
(e) The labor-force participation rate of women has increased since 1900.
Answer: A
46.
All of the following characteristics distinguish labor from other productive factors except
(a) that people cannot be bought and sold.
(b) that owners of labor have useful alternatives to work.
(c) that laborers care about their uses.
(d) that labor is fixed in supply.
(e) the existence of labor unions.
Answer: D
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Gregory • Essentials of Economics, Sixth Edition
47.
A firm’s marginal revenue is $10 per unit of its output, its marginal physical product of labor is 3
units, and the price of its output is $15 per unit. If the wage is _____, profits are being maximized.
(a) $10
(b) $45
(c) $40
(d) $30
(e) $15
Answer: D
48.
Factors that cause the labor supply of a particular occupation to shift include
(a) wages in that occupation.
(b) wages in competing occupations and changes in the desirability of the occupation.
(c) the price of the product that the occupation produces.
(d) the marginal physical product of that occupation.
(e) the additional cost of labor in that occupation.
Answer: B
49.
The theory of compensating wage differentials indicates that if workers are aware of health risks on
the job,
(a) they will still be exploited by the firms.
(b) their wages will be higher to reflect the higher risks of the job.
(c) they will not be paid their marginal revenue product.
(d) their wages will be lower than elsewhere.
(e) higher wages cannot compensate them for the greater risk.
Answer: B
50.
The labor-supply curve can be backward-bending because as wages rise beyond a certain point,
(a) the substitution effect dominates the income effect.
(b) the income effect dominates the substitution effect.
(c) the income effect disappears as people work less.
(d) people desire less leisure.
(e) the income and substitution effects are of equal but opposite magnitude.
Answer: B
51.
The hypothesis that explains why the length of the average work week has declined in the United
States is the theory of
(a) compensating wage differentials.
(b) marginal productivity.
(c) the backward-bending labor-supply curve.
(d) the internal labor market.
(e) the compensating labor demand curve.
Answer: C
Chapter 8
The Labor Market: Employment, Unemployment, and Wages
52.
The wage/employment trade-off occurs when
(a) higher wages result in more jobs for union workers.
(b) higher wages can be combined with more jobs under yellow-dog contracts.
(c) craft unions obtain higher wages by increasing the supply of labor.
(d) employers are willing to trade off fringe benefits for lower wages.
(e) union bargaining for higher wages results in less employment for union members.
Answer: E
53.
A fundamental difference between labor and other productive factors is that
(a) laborers care about the different uses to which they are put.
(b) supply-and-demand analysis does not apply to human beings.
(c) the demand for labor is not based on profit maximization.
(d) labor sometimes stands idle.
(e) laborers cannot be utilized 24 hours per day whereas capital can.
Answer: A
54.
A profit-maximizing producer (who must accept the market wage as given) will hire labor to the
point where
(a) its marginal product equals marginal revenue.
(b) its marginal revenue product equals the marginal product.
(c) marginal revenue product equals the wage rate.
(d) labor and capital costs are equalized.
(e) marginal revenue equals zero.
Answer: C
55.
A consumer boycott of California lettuce will
(a) increase the wages of California lettuce workers (everything else equal).
(b) increase the demand for California lettuce workers.
(c) decrease the demand for California lettuce workers as the price of California lettuce falls.
(d) have no conceivable effect on the demand for California lettuce workers.
(e) decrease the supply of California lettuce workers.
Answer: C
56.
If workers in the chemical industry faced a greater risk of cancer, a medical discovery that
eliminated cancer would most likely
(a) have no effect on the supply curve of workers in the chemical industry.
(b) raise the wages of workers in the chemical industry.
(c) shift the supply of workers in the chemical industry to the left.
(d) increase the demand for workers in the chemical industry.
(e) lower the wage of workers in the chemical industry.
Answer: E
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Gregory • Essentials of Economics, Sixth Edition
57.
Which of the following correctly completes this statement? Economists agree that unions
(a) raise wages in both unionized and nonunionized sectors.
(b) lower wages in unionized industries.
(c) can lower wages in nonunionized sectors.
(d) have no effect on wages.
(e) can raise wages in nonunionized sectors.
Answer: C
58.
Currently, the approximate percentage of American workers that belong to unions is _____ percent.
(a) 5
(b) 15
(c) 40
(d) 50
(e) 75
Answer: B
59.
The decline in the share of union members in total employment can be attributed to
(a) the decline in the automobile industry.
(b) the decline in the mining industry.
(c) the shift to white-collar employment.
(d) the decline in the steel industry.
(e) the shift to blue-collar employment.
Answer: C
60.
Because an increase in income increases the demand for leisure, the labor-supply curve will tend to
(a) be upward-sloping throughout.
(b) be downward-sloping throughout.
(c) be upward-sloping at first and then bend backwards as wages rise further.
(d) be independent of the wage rate.
(e) depend upon the laborer’s productivity.
Answer: C
61.
The main economic reason why the female labor-force participation rate has risen is
(a) the larger number of one-parent families.
(b) the rise in market wages relative to the value of household production.
(c) the women’s liberation movement.
(d) changing social roles of men and women.
(e) due to more college-educated women.
Answer: B
62.
In 1995, the labor-force participation rate of American women was about
(a) 60 percent.
(b) 80 percent.
(c) 40 percent.
(d) 25 percent.
(e) 90 percent.
Answer: A
Chapter 8
63.
The Labor Market: Employment, Unemployment, and Wages
105
Representation of workers by a union with the threat to strike typically results in
(a) higher wages and lower union employment.
(b) lower wages in unionized industries.
(c) higher wages and higher union employment.
(d) lower wages but more union employment.
(e) higher wages with uncertain effects on employment.
Answer: A
Table 8.3
Labor
Output
0
1
2
3
4
5
6
7
0
10
19
27
32
35
36
36
Price/Unit
$5
5
5
5
5
5
5
5
64.
Table 8.3 shows the production function of the Widget Factory. The marginal product of the second
worker is
(a) 8 units.
(b) 4 units.
(c) the same as that of the third worker.
(d) 10 units.
(e) 9 units.
Answer: E
65.
Table 8.3 shows the production function of the Widget Factory. If labor is the only cost of
production and the price of the firm’s product is $5 per unit and the wage is $25 per worker, a profitmaximizing firm would hire
(a) 2 workers.
(b) 3 workers.
(c) 4 workers.
(d) 5 workers.
(e) all the workers it can get because marginal revenue exceeds marginal cost.
Answer: C
66.
One key feature of the labor-supply curve is that
(a) the marginal product of labor is constant.
(b) workers must be paid their marginal revenue product.
(c) workers must be paid their opportunity cost.
(d) the wage rate is less than worker opportunity cost.
(e) most workers are union members, thus their labor supply curve is horizontal.
Answer: C
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Gregory • Essentials of Economics, Sixth Edition
67.
Which of the following is correct? An industrial union represents
(a) workers in a single occupation.
(b) workers in a specific industry regardless of occupation.
(c) professional workers in a particular profession.
(d) public employees.
(e) unskilled laborers in industries such as car manufacturing.
Answer: B
68.
Household production refers to
(a) manufactured goods produced in the home.
(b) produced goods sold to households.
(c) leisure time in the home.
(d) services such as cooking, cleaning, and child care performed in the home.
(e) All of the above.
Answer: D
69.
The reason that average hours per work week have declined during the last century is
(a) maximum working hours have been set by the law.
(b) Social Security taxes have increased the cost of labor to the employers.
(c) the increase in real wages over time has shown that the income effect has been stronger than the
substitution effect.
(d) workers are better educated today.
(e) women and teenagers have crowded into the labor market, thereby forcing a reduction in the
number of hours.
Answer: C
70.
The reason that real wages have risen over the long run is that
(a) minimum-wage levels have been increasing over time.
(b) the population has grown.
(c) the average number of hours worked per week has increased.
(d) nonpecuniary aspects of occupations have fallen in significance.
(e) labor productivity has been increasing, thereby increasing the demand for labor.
Answer: E
71.
The founder of the American Federation of Labor was
(a) Lewis.
(b) Ruether.
(c) Gompers.
(d) Holmes.
(e) Hoffa.
Answer: C
Chapter 8
The Labor Market: Employment, Unemployment, and Wages
107
72.
The reason that internal labor markets can often be found within the firm itself is that
(a) firms are hierarchically organized.
(b) unionization of many industries has been declining.
(c) observation of a worker on the job is often a cheap way of determining potential productivity.
(d) compensating wage differentials are paid to workers with undesirable jobs.
(e) None of the above.
Answer: C
73.
The choice among household production, leisure, and market work depends upon
(a) the value of home production.
(b) the market wage.
(c) the cost of leisure.
(d) All of the above.
Answer: D
74.
Which of the following is correct? A labor shortage occurs when
(a) wages are too high.
(b) firms wish to hire more workers than are willing to work at prevailing wages.
(c) people wish to have more jobs than firms are willing to supply at prevailing wages.
(d) the labor market is in equilibrium.
(e) minimum wage laws apply to a small number of occupations.
Answer: B
75.
A skilled mechanic would probably not accept employment at $5 per hour because
(a) such employment would be beneath the dignity of a skilled worker.
(b) the mechanic’s opportunity cost is higher than $5.
(c) the $5 wage would not be an equilibrium wage.
(d) the $5 wage would create an excess supply for mechanics.
(e) the $5 wage would create an excess demand for mechanics.
Answer: B
76.
Working in a meat packing plant is a very hazardous occupation in the United States. Wage rates for
workers in meat packing plants should be _____ jobs with similar skills, experience, etc.
(a) lower than for
(b) about equal to
(c) higher than for
(d) unrelated to
(e) None of the above; risk has nothing to do with wage rates.
Answer: C
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Gregory • Essentials of Economics, Sixth Edition
Figure 8.2
77.
Economists believe that the backward-bending supply of labor is due to income and substitution
effects with respect to work and leisure. With respect to the diagram above, which of the following
statements is correct?
(a) When the wage rate is above $15, the income effect is smaller than the substitution effect.
(b) When the wage rate is above $15, the income effect is larger than the substitution effect.
(c) When the wage rate is below $15, the income effect is larger than the substitution effect.
(d) When the wage rate is below $15, the income effect is equal to the substitution effect.
(e) None of the above.
Answer: B
78.
The backward-bending supply curve of labor is derived from the concept that
(a) workers’ backs get tired as the number of hours worked increases, so they reduce their supply of
labor.
(b) workers will initially increase the number of hours worked as the wage rate rises but would
reduce the number of hours worked at very high wage rates.
(c) workers will always substitute leisure for additional time on the job no matter what the wage
rate is.
(d) workers are lazy and will only increase the number of hours worked if the wage rate increases.
(e) None of the above.
Answer: B
Chapter 8
The Labor Market: Employment, Unemployment, and Wages
109
Figure 8.3
79.
Figure 8.3 shows the equilibrium wage rate and number of truck drivers employed. A decrease in
trucking freight rates relative to rail freight rates will _____ the equilibrium wage rate and will
_____ the number of truck drivers employed.
(a) increase; decrease
(b) increase; increase
(c) decrease; increase
(d) decrease; decrease
Answer: B
Figure 8.4
80.
Figure A and Figure B show the demand for labor in two different industries. In each industry the
current wage rate is W*. Suppose that both industries are unionized and the two unions collectively
bargain for higher wages. In which industry is the wage/employment trade-off likely to be most
important?
(a) Figure B.
(b) Both figures since the demand for labor is downward sloping.
(c) Figure A.
(d) Neither figure since the current wage rate is identical.
Answer: C