Test Bank For Contemporary Labor Economics 11th Ed by Campbell McConnell

Chapter 03 Test Bank KEY 1. Most of the variations in U.S. population growth have resulted from changes in A. birthrates and net migration. B. birthrates and death rates. C. net migration and death rates. D. birthrates and technological change. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Describe trends in the population and labor force. Topic: The Population Base 2. Compared to the basic work-leisure choice model, Becker’s model of time allocation A. considers the week rather than the day as the basic unit of time. B. considers the household rather than the individual as the basic decision-making unit. C. assumes that goods and services take no time to consume. D. considers time spent in household work as work time rather than leisure time. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Explain Becker’s model of the allocation of time. Topic: Becker's Model: The Allocation of Time 3. In Becker’s model of time allocation, the difference between "goods" and "commodities" is that commodities are produced A. in markets, whereas goods are produced in households. B. only with housework. C. by combining goods with time. D. in the market, whereas goods are produced in the home. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Explain Becker’s model of the allocation of time. Topic: Becker's Model: The Allocation of Time 4. If a worker’s wage rate rises, A. household production will shift away from goods-intensive commodities toward time-intensive commodities. B. household production will shift away from time-intensive commodities toward goods-intensive commodities. C. more leisure time will be consumed. D. more leisure time will be consumed if the substitution effect outweighs the income effect. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Explain Becker’s model of the allocation of time. Topic: Becker's Model: The Allocation of Time 5. A household will tend to substitute goods for time in the production of commodities if A. a household member’s market wage increases. B. a household member’s market wage decreases. C. the substitution effect of a wage decrease exceeds the income effect. D. the household’s total income decreases. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Explain Becker’s model of the allocation of time. 3-1 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 6. Compared to a high-wage worker, a low-wage worker will tend to A. pursue more goods-intensive activities. B. pursue more time-intensive activities. C. pursue fewer time-intensive activities. D. sacrifice time-intensive activities in favor of goods-intensive activities. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Explain Becker’s model of the allocation of time. Topic: Becker's Model: The Allocation of Time 7. Which of the following best exemplifies the Becker substitution effect? An increase in the market wage leads a household to A. eat more fast-food meals. B. play more golf together. C. have more children. D. take fewer, but longer vacations. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-02 Explain Becker’s model of the allocation of time. Topic: Becker's Model: The Allocation of Time 8. Which of the following best exemplifies the Becker income effect? An increase in the market wage leads a household to A. substitute time for goods in the production of commodities. B. consume fewer time-intensive commodities and more goods-intensive commodities. C. consume more commodities. D. have fewer children. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-02 Explain Becker’s model of the allocation of time. Topic: Becker's Model: The Allocation of Time 9. In a particular family, both spouse A and spouse B could earn $20 per hour in market work. However, spouse A has a comparative advantage in the production of home-produced goods. Becker’s model of time allocation predicts that A. spouse B will be better able to substitute time for goods in the production of commodities. B. spouse A and spouse B will divide market work and home production equally. C. spouse A will tend to specialize in market work, spouse B in home production. D. spouse A will tend to specialize in home production, spouse B in market work. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-02 Explain Becker’s model of the allocation of time. Topic: Becker's Model: The Allocation of Time 10. Which of the following is a member of the potential labor force? A. a 75-year-old retired autoworker living at home B. a 15-year-old student C. a 60-year-old Alzheimer’s patient now living in a nursing home D. a 35-year-old stockbroker convicted of fraud now serving a 10-year sentence AACSB: Reflective Thinking Accessibility: Keyboard Navigation 3-2 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Topic: Becker's Model: The Allocation of Time Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-03 Compute the labor force participation rate. Topic: Population Rates: Defined and Measured 11. The labor force consists of all persons age 16 years and over who are A. employed. B. employed or are actively seeking employment. C. employed, actively seeking employment, or have given up looking for employment. D. not institutionalized. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-03 Compute the labor force participation rate. Topic: Population Rates: Defined and Measured 12. The labor force participation rate A. is the fraction of a given population that is classified as employed. B. has been rising for males and declining for females. C. tends to increase during a recession. D. is the fraction of a given population that is classified either as employed or unemployed. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-03 Compute the labor force participation rate. Topic: Population Rates: Defined and Measured 13. If U represents the number of unemployed persons, E the number of employed persons, and N the number in the potential labor force that are neither unemployed nor employed, the labor force participation rate can be found as A. U + E B. E/(U + E) C. (U + E)/(E + N) D. (U + E)/(U + E + N) AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-03 Compute the labor force participation rate. Topic: Population Rates: Defined and Measured 14. Given the following data, what is the labor force participation rate? Population Non-institutionalized population, age 16 and over Persons employed or seeking employment Unemployed persons A. 10% B. 75% C. 80% D. 84% 300 million 250 million 200 million 10 million AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 03-03 Compute the labor force participation rate. Topic: Population Rates: Defined and Measured 3-3 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 15. Given the following data, what is the labor force participation rate? Population Non-institutionalized population, age 16 and over Persons employed or seeking employment Unemployed persons A. 50% B. 67% C. 75% D. 80% 16. Consider the following data Males in the labor force Unemployed males Non-institutionalized females, age 16 and over Employed or unemployed females 100 million 75 million 50 million 5 million AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 03-03 Compute the labor force participation rate. Topic: Population Rates: Defined and Measured 100 million 5 million 110 million 88 million Given the information in the table above, the male labor force participation rate _____ and the female labor force participation rate _____. A. is 95%; is 80% B. is 95%; is 88% C. cannot be calculated from the data; is 80% D. cannot be calculated from the data; cannot be calculated from the data AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 03-03 Compute the labor force participation rate. Topic: Population Rates: Defined and Measured 17. The aggregate labor force participation rate in the U.S. is currently about A. one-fourth. B. one-half. C. two-thirds. D. three-fourths. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 18. Since the mid-1980s, the labor force participation rate of women has _____ and the participation rate of men has _____. A. risen; been unchanged. 3-4 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. B. risen; fallen. C. fallen; risen. D. risen; risen. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 19. Compared to fifty years ago, the labor force participation rate of 25- to 54-year-old men has _____, the participation rate of 55- to 64-year-old men has _____, and the participation rate of men age 65 and over has _____. A. risen; been fairly steady; risen B. fallen; risen; risen C. risen; fallen; been fairly steady D. been fairly steady; fallen; fallen AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 20. Which one of the following is not a plausible explanation of the observed change in the participation rate of males age 65 and older since World War II? A. growth in the percentage of the labor force covered by private pensions B. cutbacks in Social Security benefits C. the long-term growth of average real incomes and wealth D. the increased generosity of the disability component of Social Security AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 21. Which one of the following gives rise to a retirement-inducing substitution effect? As workers approach retirement age, A. Social Security benefits become available. B. wealth becomes sufficient to make retirement affordable. C. earnings potential decreases so that leisure becomes relatively more costly. D. earnings potential decreases so that leisure becomes relatively less costly. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 22. Which one of the following is not predicted to increase the labor force participation rate of married women? A. rising wage rates for husbands B. rising productivity in the household C. declining birthrates D. attempts to maintain living standards AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy 3-5 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 23. Cross-sectional data suggest that, all else equal, A. the male labor force participation rate varies inversely with education. B. the labor force participation rate of single women varies inversely with the reservation wage. C. the labor force participation rate of married men varies inversely with the number of children in the household. D. the labor force participation rate of married women varies inversely with the husband’s income. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 24. "For married women, the substitution effect of rising wage rates has apparently outweighed the income effect." Empirical evidence suggests this statement is A. true, because the labor force participation rate of women has been increasing. B. true, because married women have had to work to maintain household living standards. C. not true, because the labor force participation rate of women has been increasing. D. not true, because the labor force participation rate of women has been declining. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 25. According to the textbook, each of the following factors may have contributed to increased female labor force participation except A. rising divorce rates. B. expanding job accessibility. C. fewer educational opportunities. D. a desire to maintain household living standards. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 26. The secular decline in the birthrate A. has contributed to the increased labor force participation rate of women. B. may partly be caused by the increasing opportunity cost of children as women’s wages have increased. C. has contributed to the increased labor force participation rate of women and may partly be caused by the increasing opportunity cost of children as women’s wages have increased. D. has not contributed to the increased labor force participation rate of women and is not partly caused by the increasing opportunity cost of children as women’s wages have increased. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 27. Fuchs? research suggests the most important reasons for the increased labor force participation rate of women are 3-6 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. A. rising real wages and expansion of service sector jobs. B. rising real wages and the feminist movement. C. the feminist movement and passage of antidiscrimination legislation. D. passage of antidiscrimination legislation and technological innovations in household production methods. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 28. Compared to white females, the labor force participation rate of African-American females is _____. Compared to white males the labor force participation rate of African-American males is _____. A. nearly identical; nearly identical B. greater; lower C. lower; greater D. nearly identical; lower AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 29. In the mid 1950s, white males A. were more likely to participate in the labor force than were African-American males. B. were less likely to participate in the labor force than were African-American males. C. and African-American males were about equally likely to participate in the labor force and that relationship still holds. D. and African-American males were about equally likely to participate in the labor force but now white men have a higher participation rate. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 30. Since 1950, the labor force participation rate of white women has A. increased until it nearly equals that of African-American women. B. fallen until it nearly equals that of African-American women. C. increased and now significantly exceeds that of African-American women. D. been steady since World War II. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 31. Until recently, the labor force participation rate of African-American women has _____ the rate of white women. In recent years the labor force participation rate of African-American men has _____ the rate of white men. A. been slightly less than; consistently exceeded B. consistently exceeded; been slightly less than C. consistently exceeded; consistently exceeded 3-7 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. D. been slightly less than; been slightly less than AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 32. A "supply side" explanation of the lower participation rate of African-American males compared to white males is that A. African-Americans command lower wage rates and are usually last-hired and first-fired. B. African-American workers are located in the inner city, while jobs are in the suburbs. C. African-American women’s labor force participation rate is lower than that of white women. D. opportunities outside the labor market, such as Social Security and public assistance, afford comparatively more attractive alternatives to African-Americans. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 33. The relatively low labor force participation rate of African-American males may be partly explained by A. the relatively higher participation rate of African-American females. B. the increased availability of public income maintenance programs. C. lower average wages and job prospects available to African-American males. D. All of the other choices are correct. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 34. Which one of the following will tend to increase the likelihood of participation in the labor force for a current nonparticipant? A. a decrease in the spouse’s wage B. an increase in the spouse’s wage C. an increase in family size D. falling productivity in household production of commodities AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 35. Which one of the following statements is correct? A. The added-worker effect and the discouraged-worker effect operate in the same direction. B. The added-worker effect and the discouraged-worker effect operate in different directions. C. The added-worker effect is relatively strong as the economy expands and wages rise. D. The discouraged-worker effect is relatively strong as the economy expands and wages rise. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Describe how the “added-worker effect” and the “discouraged-worker effect” influence labor force participation rates over the business cycle. 3-8 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Topic: Cyclic Changes in Participation Rates 36. The added-worker effect suggests that A. higher wages will attract more persons into the labor market during market expansions. B. when one family member loses a job, other family members may enter the labor force. C. the measured unemployment rate probably understates the true economic hardship associated with unemployment. D. the labor force participation rate will fall as the unemployment rate rises. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Describe how the “added-worker effect” and the “discouraged-worker effect” influence labor force participation rates over the business cycle. Topic: Cyclic Changes in Participation Rates 37. Because of the _____, the unemployment rate as measured by the Bureau of Labor Statistics tends to understate the extent of unemployment during a recession. A. counter-cyclical labor force participation rate B. added-worker effect C. decline in the average workweek D. discouraged-worker effect AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Describe how the “added-worker effect” and the “discouraged-worker effect” influence labor force participation rates over the business cycle. Topic: Cyclic Changes in Participation Rates 38. The discouraged-worker effect indicates that A. married women will enter the labor force to maintain household living standards after their husbands? wages have fallen. B. some unemployed persons in the labor force actively seek employment. C. some unemployed workers will decide to withdraw from the labor force as the unemployment rate increases. D. the labor force participation rate varies directly with the unemployment rate. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Describe how the “added-worker effect” and the “discouraged-worker effect” influence labor force participation rates over the business cycle. Topic: Cyclic Changes in Participation Rates 39. Empirical evidence suggests that the A. added-worker effect dominates the discouraged-worker effect; the participation rate varies inversely with the unemployment rate. B. discouraged-worker effect dominates the added-worker effect; the participation rate varies inversely with the unemployment rate. C. added-worker effect dominates the discouraged-worker effect; the participation rate varies directly with the unemployment rate. D. discouraged-worker effect dominates the added-worker effect; the participation rate varies directly with the unemployment rate. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Describe how the “added-worker effect” and the “discouraged-worker effect” influence labor force participation rates over the business cycle. Topic: Cyclic Changes in Participation Rates 40. Since the end of World War II, the average weekly hours of work in manufacturing has 3-9 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. A. been steady, in part due to increased education. B. been steady, in part due to lower tax rates. C. fallen steadily. D. increased steadily. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-06 Cite the reasons for the workweek decline in the early twentieth century and the relative stability of the workweek since World War II. Topic: Hours of Work: Two Trends 41. All else equal, rising real wages will A. decrease average weekly work hours if the income effect exceeds the substitution effect. B. increase average weekly work hours if the income effect exceeds the substitution effect. C. decrease average weekly work hours if the substitution effect exceeds the income effect. D. have no impact on average weekly work hours. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-06 Cite the reasons for the workweek decline in the early twentieth century and the relative stability of the workweek since World War II. Topic: Hours of Work: Two Trends 42. Research suggests that the widespread use of the birth control pill A. accounts for over half the increase in the labor force participation rate of married women since 1950. B. accounts for about one-third of the increase in the share of women in professional occupations between 1970 and 1990. C. accounts for over two-thirds of the drop in the age of first marriage between 1970 and 1990. D. had no measurable impact on the labor force participation rate of women. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Topic: Secular Trend of Participation Rates 43. Research by Hamermesh and Lee suggests that A. high-income earners would be happier if they earned less. B. less than 10% of U.S. married couples report feeling stressed for time. C. although Germans work fewer hours than the Japanese, they report more time stress. D. all else constant, higher earnings lead to greater time stress. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-06 Cite the reasons for the workweek decline in the early twentieth century and the relative stability of the workweek since World War II. Topic: Hours of Work: Two Trends Chapter 03 Test Bank Summary Category # of Quest ions 3 AACSB: Analytic 3-10 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. AACSB: Reflective Thinking 40 Accessibility: Keyboard Navigation 40 Blooms: Apply 3 Blooms: Remember 35 Blooms: Understand 5 Difficulty: 1 Easy 35 Difficulty: 2 Medium 5 Difficulty: 3 Hard 3 Learning Objective: 03-01 Describe trends in the population and labor force. 1 Learning Objective: 03-02 Explain Becker’s model of the allocation of time. 8 Learning Objective: 03-03 Compute the labor force participation rate. 7 Learning Objective: 03-04 Describe changes in labor force participation rates across demographic groups over the years and explain why these changes have occurred. Learning Objective: 03-05 Describe how the “added-worker effect” and the “discouraged-worker effect” influence labor force participation rates over the business cycle. Learning Objective: 03-06 Cite the reasons for the workweek decline in the early twentieth century and t he relative stability of the workweek since World War II. Topic: Becker's Model: The Allocation of Time Topic: Cyclic Changes in Participation Rates Topic: Hours of Work: Two Trends Topic: Population Rates: Defined and Measured Topic: Secular Trend of Participation Rates Topic: The Population Base Chapter 05 Test Bank KEY 1. The short run is defined as a period in which A. the firm cannot change its output level. B. all inputs are variable but technology is fixed. C. input prices are fixed. D. at least one resource is fixed. Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. 2. Refer to the graph below. The "zone of production" consists of labor inputs over the range of AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Topic: A Firm's Short-Run Production Function A. 0X. B. YZ. C. 0Y. D. XZ. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: A Firm's Short-Run Production Function 3. Refer to the graph below. 5-1 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. The slope of line segment 0D can be interpreted as the A. total product of labor at Y. B. average product of labor at Y. C. value of labor’s marginal product at Y. D. greatest possible marginal product of labor. Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: A Firm's Short-Run Production Function 4. Refer to the graph below. 5-2 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium The slope of line segment 0D can be interpreted as the A. marginal product of labor at Y. B. total product of labor over the range 0Y. C. value of labor’s marginal product at Y. D. the greatest possible total product of labor. Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: A Firm's Short-Run Production Function 5. Refer to the graph below. For labor input levels between X and Y, A. the marginal product of labor is falling, but is greater than the average product of labor. B. both the marginal product and the average product of labor are falling. C. the marginal product of labor is rising and the average product of labor is falling. D. both the marginal product and the average product of labor are rising. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: A Firm's Short-Run Production Function 6. Refer to the graph below. 5-3 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium The "law of diminishing marginal returns" begins to take effect at labor input level A. 0. B. X. C. Y. D. Z. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: A Firm's Short-Run Production Function 7. Refer to the graph below. 5-4 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. At labor input Z, labor’s A. average product is maximized. B. marginal product is maximized. C. marginal product is zero. D. total product is zero. Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: A Firm's Short-Run Production Function 8. In stage I of the production function, increases in the amount of labor will A. increase the average productivity of both capital and labor. B. increase the average productivity of capital but not labor. C. increase the average productivity of labor but not capital. D. decrease the average productivity of both capital and labor. Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: A Firm's Short-Run Production Function 9. A competitive firm will never choose to operate in stage(s) A. I or II. B. I or III. C. II or III. D. III only. Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: A Firm's Short-Run Production Function 10. Which of the following best describes the "law of diminishing marginal returns"? 5-5 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy A. The marginal product of labor is negative. B. Output per worker must eventually fall. C. As more labor is added to a fixed stock of capital, total output must eventually fall. D. As more labor is added to a fixed stock of capital, labor’s marginal product must eventually fall. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: A Firm's Short-Run Production Function 11. Which of the following equalities holds when the profit-maximizing quantity of labor is employed in the short run? A. MRP = MWC B. MP = wage rate C. MRP = AP D. MRP = 0 AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 12. The short-run labor demand curve of a competitive firm is A. its average revenue product curve. B. its marginal revenue product curve, provided marginal product is below average product. C. its marginal product curve. D. stage II of the total product curve. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 13. Value of marginal product (VMP) differs from marginal revenue product (MRP) in that A. MRP measures the value society places on the next worker’s output, while VMP measures the value the firm places on the next worker’s output. B. VMP measures the value society places on the next worker’s output, while MRP measures the value the firm places on the next worker’s output. C. MRP always exceeds VMP. D. VMP always exceeds MRP. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 14. Refer to the following table. 5-6 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Labor Output 0 0 1 16 2 5 69 6 78 Price (D1) $10.00 10.00 10.00 10.00 10.00 10.00 10.00 Price (D2) $10.00 9.50 9.00 8.50 7.50 6.50 5.50 Assume that the labor market is perfectly competitive. Suppose the firm’s product demand is given by the column labeled D1. If the wage rate is $100, the firm will achieve maximum profit by hiring _____ workers. A. 3 B. 4 C. 5 D. 6 AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 15. Refer to the following table. Labor Output Price (D1) $10.00 10.00 10.00 10.00 10.00 10.00 10.00 Price (D2) $10.00 9.50 9.00 8.50 7.50 6.50 5.50 0 0 1 16 2 31 3 45 4 58 5 69 6 78 Assume that the labor market is perfectly competitive. Suppose the firm’s product demand is given by the column labeled D1. If the wage rate rises from $100 to $135, the firm will reduce the quantity of labor employed by _____ unit(s). 5-7 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. A. 0 B. 1 C. 2 D. 3 AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 16. Refer to the following table. Labor Output Price (D1) $10.00 10.00 10.00 10.00 10.00 10.00 10.00 Price (D2) $10.00 9.50 9.00 8.50 7.50 6.50 5.50 0 0 1 16 2 31 3 45 4 58 5 69 6 78 Assume that the labor market is perfectly competitive. Suppose the firm’s product demand is given by the column labeled D1. If the wage rate is $125, the firm will achieve maximum profit by hiring _____ workers. A. 3 B. 4 C. 5 D. 6 AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 17. Refer to the following table. 5-8 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Labor Output 0 0 1 16 2 5 69 6 78 Price (D1) $10.00 10.00 10.00 10.00 10.00 10.00 10.00 Price (D2) $10.00 9.50 9.00 8.50 7.50 6.50 5.50 Assume that the labor market is perfectly competitive. Suppose the firm’s product demand is given by the column labeled D1. The value of the marginal product of the fourth worker is A. $10. B. $58. C. $130. D. $580. AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Explain how a firm’s short-run production function can be used to derive a demand curve for labor. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 18. Refer to the following table. or Output 0 0 1 16 2 31 3 45 4 58 5 69 6 78 Price (D1) $10.00 10.00 10.00 10.00 10.00 10.00 10.00 Price (D2) $10.00 9.50 9.00 8.50 7.50 6.50 5.50 Assume that the labor market is perfectly competitive. Suppose the firm’s product demand is given by the column labeled D2. If the wage rate is $100, the firm will achieve maximum profit by hiring _____ workers. A. 2 B. 3 5-9 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. C. 4 D. 5 AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 19. Refer to the following table. Labor Output Price (D1) $10.00 10.00 10.00 10.00 10.00 10.00 10.00 Price (D2) $10.00 9.50 9.00 8.50 7.50 6.50 5.50 0 0 1 16 2 31 3 45 4 58 5 69 6 78 Assume that the labor market is perfectly competitive. Suppose the firm’s product demand is given by the column labeled D2. The extra revenue generated by the second worker is A. $1. B. $58. C. $127. D. $435. AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 20. Refer to the following table. Labor Output Price (D1) $10.00 10.00 10.00 10.00 10.00 10.00 10.00 Price (D2) $10.00 9.50 9.00 8.50 7.50 6.50 5.50 0 0 1 16 2 31 3 45 4 58 5 69 6 78 5-10 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Assume that the labor market is perfectly competitive. Suppose the firm’s product demand is given by the column labeled D2. If the wage rate rises from $100 to $130, the firm will reduce the quantity of labor employed by _____ unit(s). A. 0 B. 1 C. 2 D. 3 AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 21. Refer to the following table. Labor Output Price (D1) $10.00 10.00 10.00 10.00 10.00 10.00 10.00 Price (D2) $10.00 9.50 9.00 8.50 7.50 6.50 5.50 0 0 1 16 2 31 3 45 4 58 5 69 6 78 Assume that the labor market is perfectly competitive. Compared to a firm facing D1, a firm facing demand schedule D2 but paying the same wage will hire A. the same number of workers, since total product is the same in both instances. B. fewer workers, since product price declines as output increases. C. more workers, since product price declines as output increases. D. More information is required. AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 22. The marginal revenue product schedule A. measures the increase in total revenue that results from the production of one more unit. B. measures the decline in product price that a firm must accept in order to sell the extra output of one more worker. C. is the same whether the firm is selling in a purely competitive or imperfectly competitive market. D. is the firm's labor demand schedule, provided the firm is operating in the zone of production. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy 5-11 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 23. Refer to the following table. Labor Output Price 0 0 $2.20 1 16 2.00 2 31 1.80 3 45 1.60 4 58 1.40 5 69 1.20 6 78 1.00 Assume that the labor market is perfectly competitive. If the wage is $18.00, how many workers will this profit-maximizing firm choose to employ? A. 2 B. 3 C. 4 D. 5 AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 24. Refer to the following table. Labor Output Price 0 0 $2.20 1 16 2.00 2 31 1.80 3 45 1.60 4 58 1.40 5 69 1.20 6 78 1.00 Assume that the labor market is perfectly competitive. What are the values of marginal product and the marginal revenue product, respectively, for the third worker? 5-12 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. A. $81.00; $5.40 B. $19.00; $5.40 C. $25.20; $19.00 D. $81.00; $62.00 AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 25. Refer to the following table. Labor Output Price 0 0 $2.20 1 16 2.00 2 31 1.80 3 45 1.60 4 58 1.40 5 69 1.20 6 78 1.00 Assume that the labor market is perfectly competitive. If the wage is $11.00, how many workers will this profit-maximizing firm choose to employ? A. 2 B. 3 C. 4 D. 5 AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 26. Refer to the following table. Labor Output Price 0 0 $2.20 1 16 2.00 2 31 1.80 3 45 1.60 4 58 1.40 5 69 1.20 6 78 1.00 5-13 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Assume that the labor market is perfectly competitive. Rather than the product demand schedule shown in the table, suppose this firm sold its output competitively for a price of $2.50. In this case, how many workers will this profit-maximizing firm choose to employ at a wage of $25.00? A. 2 B. 3 C. 4 D. 5 AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 27. "The extra output, measured in dollars, that accrues to society when an additional unit of labor is employed" best describes A. marginal product. B. marginal revenue product. C. value of marginal product. D. total revenue product. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Perfectly Competitive Seller 28. For a firm selling output in an imperfectly competitive market, its labor demand curve will A. reflect the value of marginal product schedule, provided the firm is operating in the zone of production. B. decline solely because of diminishing marginal productivity. C. decline because of diminishing marginal productivity and because product price declines as output increases. D. be perfectly elastic if the firm is hiring labor competitively. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Imperfectly Competitive Seller 29. All else equal, the imperfectly competitive seller’s labor demand curve is A. greater than that of a perfectly competitive seller. B. more elastic than that of a perfectly competitive seller. C. less elastic than that of a perfectly competitive seller. D. the same as that of a perfectly competitive seller. Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. 5-14 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Topic: Short-Run Demand for Labor: The Imperfectly Competitive Seller 30. Compared to an otherwise identical competitive firm, a firm with monopoly power will hire A. fewer workers, reflecting its decision to produce less output. B. more workers, because the higher price charged by the monopoly raises its MRP. C. fewer workers, because workers are less productive in a monopoly setting. D. more workers, because monopolies have higher profits and can pay higher wages. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Contrast the labor demand curves of firms that operate in perfectly competitive versus imperfectly competitive output markets. Topic: Short-Run Demand for Labor: The Imperfectly Competitive Seller 31. Which of the following best describes the output effect of a wage increase? A. The firm's marginal cost increases, the firm desires to produce less output, and therefore less labor is required. B. The cost of labor is relatively higher, causing the firm to use relatively less labor. C. The firm’s marginal cost falls, the firm desires to produce more output, and therefore more labor is required. D. The firm’s labor demand curve becomes more inelastic, causing it to employ less labor. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Discusses the differences between short-run and long-run labor demand. Topic: The Long-Run Demand for Labor 32. Which of the following best describes the substitution effect of a wage increase? A. The firm's marginal cost increases, the firm desires to produce less output, and therefore less labor is required. B. The cost of labor is relatively higher, causing the firm to use relatively less labor. C. The firm's labor demand curve becomes less elastic, causing it to employ less labor. D. The firm's labor demand curve becomes more elastic, causing it to employ less labor AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Discusses the differences between short-run and long-run labor demand. Topic: The Long-Run Demand for Labor 33. Which of the following best describes the output effect of a wage decrease? A. The firm's marginal cost increases, the firm desires to produce less output, and therefore less labor is required. B. The cost of labor is relatively higher, causing the firm to use relatively less labor. C. The firm’s marginal cost falls, the firm desires to produce more output, and therefore more labor is required. D. The firm’s labor demand curve becomes more inelastic, causing it to employ less labor. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Discusses the differences between short-run and long-run labor demand. Topic: The Long-Run Demand for Labor 34. Which of the following best describes the substitution effect of a wage decrease? A. The firm's marginal cost decreases, the firm desires to produce less output, and therefore less labor is required. 5-15 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. B. The cost of labor is relatively lower, causing the firm to use relatively more labor. C. The firm's labor demand curve becomes less elastic, causing it to employ less labor. D. The firm's labor demand curve becomes more inelastic, causing it to employ less labor. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Discusses the differences between short-run and long-run labor demand. Topic: The Long-Run Demand for Labor 35. Compared to the long-run labor demand curve, the firm’s short-run curve is typically A. less elastic. B. the same. C. more elastic. D. more elastic only if labor and capital are gross complements. Learning Objective: 05-04 Discusses the differences between short-run and long-run labor demand. Topic: The Long-Run Demand for Labor 36. The long-run labor demand curve incorporates A. the substitution effect only. B. the output effect only. C. neither the substitution effect nor the output effect. D. both the substitution effect and the output effect. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Discusses the differences between short-run and long-run labor demand. Topic: The Long-Run Demand for Labor 37. In the long run, the substitution effect of a lower wage A. increases the quantity of labor demanded, while the output effect reduces it. B. decreases the quantity of labor demanded, while the output effect increases it. C. and the output effect both increase the quantity of labor demanded. D. and the output effect both reduce the quantity of labor demanded. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Discusses the differences between short-run and long-run labor demand. Topic: The Long-Run Demand for Labor 38. The long-run response to a drop in the wage exceeds the short-run response for all of the following reasons except A. it is more difficult to substitute capital for labor in the long run than the short run. B. an increase in labor makes capital more productive, leading to more capital and therefore higher labor productivity. C. the demand for the firm’s output is more elastic in the long run. D. technology may change in the long run. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Discusses the differences between short-run and long-run labor demand. Topic: The Long-Run Demand for Labor 5-16 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy 39. "To find the market demand curve for a particular type of labor, simply sum the labor demand curves of all employers of that type of labor." This statement is A. true. B. false-sum the value of marginal product curves for the firms to account for changes in wage rates as employment increases. C. false-sum the value of marginal product curves for the firms to account for changes in output price as production increases. D. false-although the price of output for any individual firm may be constant, this may not be the case for all firms taken collectively. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Derive the market demand curve for labor from individual firm demands and explain why it is more inelastic than the simple summation of the labor demand curves of all firms in the market. Topic: The Market Demand for Labor 40. When deriving the market demand curve for a particular type of labor, one must A. hold the market price of the output constant. B. simply sum the labor demand curves of all employers of that type of labor. C. account for the variation in market price as industry output expands. D. hold constant the market price in competitive markets but allow the price to vary in monopoly markets. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Derive the market demand curve for labor from individual firm demands and explain why it is more inelastic than the simple summation of the labor demand curves of all firms in the market. Topic: The Market Demand for Labor 41. The market wage increases from $9 to $11 and the firm responds by reducing its labor force by 16%. The wage elasticity coefficient is A. 8, indicating elastic demand. B. 0.8, indicating inelastic demand. C. 1.2, indicating elastic demand. D. 1.6, indicating elastic demand. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-06 Identify and discuss the determinants of the elasticity of labor demand. Topic: Elasticity of Labor Demand 42. Suppose that, as a result of a decrease in the market supply of labor, the wage rate has risen 10%. After adjusting its employment level, a firm finds its total wage bill has decreased. This occurrence indicates that the firm’s labor demand A. is inelastic over this range of wages. B. is elastic over this range of wages. C. is unit elastic over this range of wages. D. was inelastic at the old wage, but is elastic at the new, higher wage. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-06 Identify and discuss the determinants of the elasticity of labor demand. 5-17 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Topic: Elasticity of Labor Demand 43. Suppose that, as a result of an increase in the market supply of labor, the wage rate has fallen 10%. After adjusting its employment levels, a firm finds its total wage bill has decreased. This occurrence indicates that the firm’s labor demand A. is inelastic over this range of wages. B. is elastic over this range of wages. C. is unit elastic over this range of wages. D. was inelastic at the old wage, but is elastic at the new, lower wage. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-06 Identify and discuss the determinants of the elasticity of labor demand. Topic: Elasticity of Labor Demand 44. A union leader told its membership that a wage increase, while resulting in some layoffs, would nonetheless increase the total incomes of its membership. The firm replied that a wage increase would reduce the total incomes of its membership. We can conclude that A. both the firm and the union believe that labor demand is inelastic, but for different reasons. B. both the firm and the union believe that labor demand is elastic, but for different reasons. C. the union believes that labor demand is elastic, while the firm believes it to be inelastic. D. the union believes that labor demand is inelastic, while the firm believes it to be elastic. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-06 Identify and discuss the determinants of the elasticity of labor demand. Topic: Elasticity of Labor Demand 45. In comparing two otherwise identical industries X and Y, an economist finds that labor demand is more elastic in industry X. Which of the following would support this finding? A. Capital and labor are less easily substituted for one another in X than in Y. B. Labor costs as a percentage of total costs are relatively lower in X than in Y. C. Product demand elasticity is higher in X than in Y. D. Substitute resources have a less elastic supply in X than in Y. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-06 Identify and discuss the determinants of the elasticity of labor demand. Topic: Elasticity of Labor Demand 46. In comparing two otherwise identical industries X and Y, an economist finds that labor demand is less elastic in industry X. Which of the following would support this finding? A. Capital and labor are less easily substituted for one another in X than in Y. B. Labor costs as a percentage of total costs are relatively higher in X than in Y. C. Product demand elasticity is higher in X than in Y. D. Substitute resources have a more elastic supply in X than in Y. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-06 Identify and discuss the determinants of the elasticity of labor demand. Topic: Elasticity of Labor Demand 47. In his comparison of over 100 studies of labor demand, Hamermesh concludes the overall long-run elasticity of labor demand in the United States to be 5-18 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. A. .4. B. 1.0. C. ?2.0. D. 1.4. D. an increase in product demand AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-06 Identify and discuss the determinants of the elasticity of labor demand. Topic: Elasticity of Labor Demand 48. Which of the following can be predicted to increase the demand for labor? A. an increase in the price of a gross complement to labor B. a decrease in the price of a gross substitute for labor C. a decrease in the number of firms AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-07 Identify and explain the determinants of the demand for labor. Topic: Determinants of Demand for Labor 49. Which of the following can be predicted to increase the demand for labor? A. an increase in the price of a gross substitute for labor B. an increase in the price of a pure complement to labor C. a decrease in product demand D. an increase in the price of another resource, provided the output effect exceeds the substitution effect AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-07 Identify and explain the determinants of the demand for labor. Topic: Determinants of Demand for Labor 50. Assume that skilled labor and energy are substitutes in production. An increase in energy prices is then predicted to A. unambiguously increase the demand for skilled labor. B. unambiguously decrease the demand for skilled labor. C. increase the demand for skilled labor if the output effect outweighs the substitution effect. D. decrease the demand for skilled labor if the output effect outweighs the substitution effect. AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-07 Identify and explain the de