Core Economics 3e

Labor Markets

Multiple Choice Questions

After watching the Labor Markets video lecture, consider the question(s) below. Then “submit” your response.

Question

1. In the labor market diagram, firms are represented by the _____ curve, while workers are represented by the _____ curve.

marginal product; marginal cost

labor demand; labor supply

wage; total product

labor supply; labor demand

Question

2. Economists consider any time spent not working for pay to be:

leisure.

uninteresting.

without value.

helpful.

Question

3. Economists consider the lowest wage that one will accept in exchange for work to be the _____ wage.

minimum

entry

living

reservation

Question

4. In labor markets, the substitution effect describes the:

desire to take more leisure time as income rises.

inclination of workers to change jobs.

desire of workers to work more as wages increase.

impact of government regulations on hiring.

Question

5. At high wages, the labor supply curve for an individual worker “bends backwards” due to the:

benefits in the marketplace employers see in hiring additional workers.

importance workers attach to less physically demanding work.

substitution effect when workers value additional work more than leisure time.

income effect that causes workers to want more income and more leisure when wages rise.

Question

6. Economists consider the demand for labor to be a _____ demand.

derived

determined

complementary

marginal

Question

7. The price of labor (the wage) in an unconstrained labor market is determined by the:

imposition of minimum wages by the government.

attempts by employers to pay as low a wage as possible.

desires of employees to maximize income.

intersection of the labor supply and labor demand curves.

Question

8. Marginal revenue product is the:

additional output generated by an additional employee multiplied by the product’s cost.

additional output generated by an additional employee multiplied by the product’s selling price.

additional revenue generated for the product multiplied by the additional number of units sold.

the additional unit cost of a product multiplied by the additional number of units sold.

Question

9. A segmented labor market is one in which:

employees separate employers into different categories based on pay rates.

employers separate groups of workers doing the same work into different locations.

workers doing the same work are paid different wages.

employees doing different jobs are paid the same wages.

Question

10. Firms hire additional workers if the:

marginal revenue product of labor exceeds the wage.

marginal revenue product exceeds average cost.

average total cost exceeds average total revenue.

total revenue exceeds total cost.

True/False Questions

After watching the Labor Markets video lecture, consider the question(s) below. Then “submit” your response.

Question

1. In product markets, firms supply goods and services to the market; in labor markets, firms demand labor from workers.

True

False

Question

2. Although an individual’s labor supply curve bends backwards as income rises, the market labor supply curve is always positively sloped.

True

False

Question

3. If the stock market crashes and some retirees are forced back to work, the market labor supply curve would shift to the left.

True

False

Short Answer/Discussion Questions

After watching the Labor Markets video lecture, consider the question(s) below. Then “submit” your response.

Question

1. How does a firm decide how many workers to hire?

Suggested solution: Given a firm is interested in maximizing its profits, it will hire employees so long as the additional revenue generated by the employee exceeds to cost of the employee to the firm. The cost of an employee is the wage. The additional revenue for the firm is the additional physical output the firm can produce by employing an additional worker (marginal physical product) multiplied by the product’s price; this is known as the marginal revenue product.

Question

2. Explain reasons why different workers might be paid different amounts for the same work.

Suggested solution: This situation would be the result of a segmented labor market. Differences in pay for the same work can be caused by neutral factors such as seniority, education or experience. Pay differences can also be caused by employer economic discrimination based on factors such as race, gender or age. Employers might also pay higher than market wages to avoid employee turnover in employment situations with high training costs.

Question

3. In thinking about labor demand, what are some factors that might increase a firm's demand for labor?

Suggested solution: Since demand for labor is derived from the demand for the products that the labor produces, anything that increases the demand for a firm’s products will, in turn, increase the demand for the labor to produce the product. In addition, a firm may develop new technology or business process that makes labor more productive and that lowers the cost of production. Since this may enable the firm to charge less for its product, increasing the volume sold, the demand for labor may increase.