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Labor Econ

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Test 2 Review
Joshua Warner
Quiz by Joshua Warner, updated more than 1 year ago
Joshua Warner
Created by Joshua Warner over 5 years ago
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Question 1

Question
The cost of producing a given level of output is minimized:
Answer
  • Where the ratio of input prices equals the marginal rate of technical substitution.
  • Where the ratio of input prices equals the slope of the isocost.

Question 2

Question
The marginal rate of technical substitution at any particular labor-capital bundle is
Answer
  • The slope of the indifference curve.
  • The slope of the isoquant.

Question 3

Question
What is an example of the substitution effect?
Answer
  • The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.
  • The firm expands output when production costs increase.

Question 4

Question
The short-run production function typically:
Answer
  • Shows the relationship between the level of output produced and the amount of capital employed, all else equal.
  • Shows the relationship between the level of output produced and the number of employee-hours hired, all else equal.

Question 5

Question
The scale effect refers to:
Answer
  • Firms wanting to produce more output when a factor price falls.
  • Firms substituting towards the factor input that has become relatively cheaper.

Question 6

Question
Assume that for the last worker hired, MPE = 6, p = $2, and w = $10. If one more worker is hired, then MPE = 4, p = $2, and w = $10. The implication is what?
Answer
  • A competitive firm should increase employment.
  • A competitive firm should decrease employment.
  • A competitive firm should leave employment unchanged.

Question 7

Question
The slope of the production function while holding capital fixed is
Answer
  • The marginal product of labor.
  • The marginal product of capital.

Question 8

Question
What is the marginal productivity condition of a profit-maximizing firm?
Answer
  • The firm should produce up to the point where the marginal cost of hiring an additional unit of labor equals the cost of selling one more unit of output.
  • The firm should produce up to the point where the cost of producing an additional unit of output is equal to the revenue from selling an additional unit of output.

Question 9

Question
The marginal product of labor:
Answer
  • Eventually diminishes as the capital stock is fixed.
  • Initially increases with the quantity of labor because of specialization.
  • Is the slope of the short-run production function.
  • Diminishes after the inflection point on the total product curve.
  • All of these are correct.

Question 10

Question
Ally owns a shoe store. The market wage is $10 per hour, and the cost of capital is $2 per week for every $1,000 of capital borrowed. Consider the isocost line associated with spending $8,000 per week, and let the y-axis be the amount of capital borrowed in $1,000s. Which of the following is not true?
Answer
  • If Ally employs 600 hours of work, she can borrow $1 million of capital.
  • If Ally employs 400 hours of work, she can borrow $3 million of capital.
  • If Ally employs no workers, she can borrow $4 million of capital.

Question 11

Question
At a wage of $25 per hour, the firm employs 50,000 hours of labor per week. If the wage would increase to $27 per hour, the firm would employ 45,000 hours of labor per week. What is the elasticity of labor demand?
Answer
  • -1.25.
  • -1.50.

Question 12

Question
In the long run, a firm hires labor and capital such that all of the following hold except:
Answer
  • The firm minimizes its factor payments.
  • Firm profits are maximized.
  • The value of the marginal product of labor divided by the wage equals the value of the marginal product of capital divided by the price of capital.

Question 13

Question
In the short run, the demand for labor for a competitive firm is:
Answer
  • The value of the marginal product of labor curve.
  • The downward-sloping portion of the marginal product curve.

Question 14

Question
How does a profit-maximizing firm that is operating in a competitive labor market respond to an increase in the wage rate?
Answer
  • The firm will demand more capital due to the scale effect.
  • The firm will produce less output due to the scale effect.

Question 15

Question
What is an example of the scale effect?
Answer
  • The firm expands output when production costs fall.
  • The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.

Question 16

Question
What is an example of the substitution effect?
Answer
  • The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.
  • The firm expands output when production costs fall.

Question 17

Question
Labor demand is more elastic
Answer
  • The greater is labor's share in total costs.
  • The greater is the elasticity of demand for the firm's output.
  • The greater is the elasticity of substitution between labor and capital.
  • The greater is the supply elasticity of capital.
  • All of the above

Question 18

Question
In a competitive industry, the profit-maximizing amount of labor occurs where:
Answer
  • The value of the marginal product of labor intersects the labor supply curve and the value of the total product of labor equals total revenue.
  • Marginal cost equals marginal revenue and the value of the marginal product of labor intersects the labor supply curve.

Question 19

Question
Why is the short-run labor demand curve less elastic relative to the long-run labor demand curve?
Answer
  • Because firms are better able to substitute capital for labor in the long run compared to the short run.
  • Because firms care about changes in wages in the short-run but not in the long-run.

Question 20

Question
The cost of offering safe versus risky jobs in the highway construction industry vary across firms. In the end, we would expect the market equilibrium to
Answer
  • Have firms that face a high cost of offering safe jobs to pay the lowest wages.
  • Match workers who dislike risk to firms that find it cheapest to offer safe jobs.

Question 21

Question
Which of the following is NOT an accurate summary of the equilibrium associated with a single competitive labor market?
Answer
  • Total economic surplus is maximized.
  • Total firm surplus equals total worker surplus.

Question 22

Question
If the minimum wage applies to one sector (the covered sector) but not another sector (the uncovered sector), an increase in the minimum wage in the covered sector is likely to result in which of the following?
Answer
  • A lower wage in the uncovered sector.
  • A lower wage in the covered sector.

Question 23

Question
Having the government regulate work-place safety would most likely improve economic efficiency if:
Answer
  • Workers are unable to correctly judge the risk associated with a particular job.
  • Firms and workers differ on the value they place on safe versus risky jobs.

Question 24

Question
If 1 in 20,000 miners is killed on the job each year while 1 in 30,000 truck drivers is killed on the job each year, what is the statistical value of a life if the average miner salary is $54,000 while the average truck driver salary is $52,000?
Answer
  • $100 million
  • $120 million

Question 25

Question
The Hedonic Wage Function is the:
Answer
  • Collection of wage and job characteristics that make an individual indifferent across various jobs.
  • Equilibrium relationship between wages and job characteristics arising from the interaction of workers and firms.

Question 26

Question
The market-clearing wage differential between a safe and a risky job is $5,000. Which of the following is NOT true?
Answer
  • The marginal worker is indifferent between working the safe or the risky job.
  • All but the marginal worker in safe jobs require a wage differential above $5,000 to accept a risky job.
  • All but the marginal worker in the risky job require a wage differential below $5,000 to be indifferent between safe and risky jobs.
  • The per-worker cost for any firm to change technologies to offer safe jobs in place of risky jobs is $5,000.

Question 27

Question
Economic analysis of the value of a life suggests that:
Answer
  • The trade-off between wages and the number of fatal accidents in the workplace implies an implicit value workers would pay to save a life.
  • Workplace safety does not affect wages.

Question 28

Question
Which of the following is NOT a property of isoprofit curves graphed in Probability of Injury (x-axis) versus Wage (y-axis) space?
Answer
  • Isoprofit curves going out along the x-axis yield higher profits.
  • Isoprofit curves going up along the y-axis yield higher profits.
  • Isoprofit lines are upward sloping.

Question 29

Question
Suppose there are two types of jobs-safe and risky. Safe jobs currently pay $10 per hour. Risky jobs currently pay $20 per hour. The government intervenes in the market, mandating that all firms offer safe jobs and pay a wage of $10 per hour. Which of the following is true?
Answer
  • Firms that originally offered safe jobs are hurt by the policy.
  • Firms that originally offered risky jobs are hurt by the policy.

Question 30

Question
A potential implication of OSHA regulation is that
Answer
  • The hedonic wage function may no longer exist at the riskiest levels.
  • The hedonic wage function may no longer exist at the safest levels.

Question 31

Question
Suppose 1 in 200 pilots flying Space-X aircraft dies each year while only 1 in 500 pilots flying Subspace Gliders dies each year. Moreover, the average salary of Space-X pilots is $115,000, while the average salary of Subspace Glider pilots is $109,000. Given this information, what is the implied statistical value of a life of a pilot?
Answer
  • $1,200,000
  • $2,000,000

Question 32

Question
In the context of risky jobs, the worker’s reservation price is:
Answer
  • The amount by which a worker's wage would have to be increased in order for the worker to willingly switch from a safe to a risky job.
  • The amount by which a worker's wage would have to be increased in order for the worker to willingly switch from a risky to a safe job.

Question 33

Question
Competitive factor and product markets lead to:
Answer
  • Maximum producer surplus.
  • Maximum total surplus.

Question 34

Question
The equilibrium of a competitive labor market is associated with
Answer
  • No unemployment as everyone who wants a job at the equilibrium wage has one.
  • Some unemployment as some people do not have a job at the equilibrium wage.

Question 35

Question
A negative compensating differential for a risky job can result if:
Answer
  • Some workers like risk and the demand for labor in risky jobs is relatively small.
  • The supply of workers who dislike risky jobs is large relative to the demand for workers willing to work a risky job.

Question 36

Question
A hedonic wage function could be applied to which of the following job characteristics?
Answer
  • The probability of being injured on the job.
  • The degree to which a job involves strenuous work.
  • The degree to which the area surrounding the job location is safe.
  • The degree to which a job involves monotonous work.
  • All of the above can be represented with a hedonic wage function.

Question 37

Question
Under normal circumstances, the equilibrium compensation wage differential is the wage differential that exactly attracts
Answer
  • The marginal worker into a risky job.
  • The marginal worker into the labor market.

Question 38

Question
The supply curve of labor to risky jobs reveals:
Answer
  • How many workers are willing to offer their labor to the risky job as a function of the wage paid to workers of the safe job.
  • How many workers are willing to offer their labor to the risky job as a function of the wage differential between the risky job and the safe job.

Question 39

Question
In order for the compensating differential associated with a risky job to be negative (so that a risky job pays less than a non-risky job), it must be that:
Answer
  • Most workers prefer the risky job to the safe job when both wages are equal.
  • The number of risky jobs is less than the number of workers who prefer the risky job.

Question 40

Question
How would imposing a minimum wage above the market clearing wage affect employment in a competitive labor market?
Answer
  • Employment would increase because a higher minimum wage would create more jobs for low-skilled workers.
  • Employment would decrease as some workers who are willing to work at the lower competitive wage would no longer be able to find work.

Question 41

Question
Which of the following would prevent a single equilibrium wage existing across all labor markets?
Answer
  • Workers having various skills and preferences.
  • A payroll tax paid equally by workers and firms.

Question 42

Question
When graphing a worker's indifference curves in Probability of Injury (x-axis) versus Wage (y-axis) space, Al's indifference curves are steeper than Pete's indifference curve. In this case:
Answer
  • Al requires a greater wage increase than Pete in order to willingly take on more risk.
  • Al is more risk-loving than Pete.

Question 43

Question
Assume that the market clearing wages are $10 per hour in a safe job and $18 per hour in a risky job. Then, at the completion of a war, many ex-soldiers who enjoy risky ventures enter the labor market. Which of the following is NOT a likely outcome of this change?
Answer
  • Many firms that currently offer risky jobs will begin offering safe jobs.
  • The wage associated with risky jobs will decrease.
  • The fraction of people working safe jobs will decrease.
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