Tackle the Test: Free-Response Questions

1. Question

   For each of the following situations in which similar workers are paid different wages, provide the most likely reason for the differences and explain why that reason applies.

   
   

   
   

   1. Test pilots for new jet aircraft earn higher wages than airline pilots.

      
      
   
   

   2. College graduates usually have higher earnings in their first year on the job than workers without college degrees have in their first year on the job.

      
      
   
   

   3. Experienced AP teachers command higher salaries than new AP teachers for teaching the same class.

      
      
   
   

   Rubric for FRQ 1 (6 points)

   1 point: Compensating differentials

   1 point: Being a test pilot is more dangerous.

   1 point: Differences in human capital

   1 point: Education leads to higher productivity.

   1 point: Differences in human capital

   1 point: On-the-job experience increases the marginal product of experienced teachers.

2. Question

   List three different economic concepts that explain wage differences when the marginal productivity theory of income distribution does not. Explain each. (6 points)

   Rubric for FRQ 2 (6 points)

   1 point: Market power

   1 point: Firms with market power can organize to pay lower wages than would result in a perfectly competitive labor market. Monopsonies pay less than the value of the marginal product of labor. And unions can organize to demand higher wages than would result in a perfectly competitive labor market.

   1 point: Efficiency wages

   1 point: Some firms pay high wages to boost worker performance and encourage loyalty.

   1 point: Discrimination

   1 point: Some firms pay workers differently solely on the basis of worker characteristics that do not affect marginal productivity.