Labor Economics
1.
2.
b.
a science of choice
c. d.
the the scie scienc ncee of allo alloca cati ting ng good goodss and and serv servic ices es fair fairly ly the the set set of nat natur ural al law lawss that that gov gover ern n huma human n beha behavi vior or in in the the face face of of adve advers rsee cond condit itio ions ns
Labo Laborr econ econom omic icss is stud studie ied d as as a dis disti tinc nctt sub subfi fiel eld d of of econ econom omic icss beca becaus use: e: a. the the bul bulk k of of nat natiional onal inco incom me is is rec recei eive ved d by by lab labor b. the concepts of supply supply and demand must be revised revised somewhat when applied applied to labor markets c. labo laborr econ econom omic icss can can be use used d to ana analy lyze ze mao maorr soci socioe oeco cono nomi micc tren trends ds suc such h as the the sur surge ge in in the number of women workers
'.
).
*.
all of the above
"he bu bulk of national income fl flows to: a. land owners in the form of rent b. capital owners in the form form of interest c. capital ow owners in in th the fo form of of pr profit
d. #.
for Quiz 1
Becaus Becausee reso resourc urces es are scarce scarce relati relative ve to hum human an wants wants,, econ economi omics cs is best best descri described bed as: as: a. the the sci scien ence ce of allo alloca cati ting ng prod produc ucti tive ve reso resour urce cess fai fairl rly y
d. !.
45 Review Questions WithOutAnswers
wor worer erss in in tth he ffor orm m of of wa! wa!es es and and sal salar ariies
$s dist distin inct ct from from produ product ct mark market et tran transac sactio tions, ns, labor labor mark market et tran transac sactio tions ns are are uni% uni%ue ue in that: that:
a.
to th thee sel selle lerr" th thee n non onmon monet etar ar# # cha chara ract cteri erist stic icss of of the the sale sale can be as im$ortant as the $rice
b. c. d.
labor demand curves slope slope upward the the pri price ce of of labo laborr is is not not det deter ermi mine ned d by supp supply ly and and dem demand and fact factor orss they are less comple&
"he concep conceptt of demand demand mus mustt be mod modifi ified ed when when appli applied ed to to labo laborr marke markets ts to reflec reflectt the the fact fact that that:: a. non( non(mo mone neta tary ry cha chara ract cteri erist stic icss of ob obss may may be be as imp impor orta tant nt to to work worker erss as thei theirr pay pay b. labor demand curves slope slope upward from left to right
c.
the dema the demand nd for for lab labor or is de deri rive ved d fr fro om the the d dem eman and d ffor or th thee various $roducts that labor $roduces
d.
the the dema demand nd for for out outpu putt is der deriv ived ed from from the the deman demand d for for labo laborr used used to to prod produc ucee that that out outpu putt
Becaus Becausee scar scarcit city y forces forces people people to make make purp purpos osefu efull choi choices ces,, labo laborr mark market et parti particip cipant ants: s: a. work as many hours as possible
b.
res$ re s$on ond d to ch chan an!e !ess in in $er $erce ceiv ived ed cos costs ts and and be bene nefi fits ts
c. d.
make ake choices that ca cannot be predicted must have perfect information
"he "he thr three ee basi basicc cha chara ract cter eris isti tics cs of the the eco econo nomi micc per persp spec ecti tive ve are: are:
.
a.
Relative scarcit#" $ur$oseful behavior" and ada$tabilit#
b. c. d.
+upply, demand, and e%uilibrium escription, institutions, and facts -rices, %uantities, and incomes
/hich one of the following topics is most suited to macroeconomic analysis0 a. Labor supply decisions of married women b. +hort(run labor demand in a particular industry c. "he individual decision on how much education to obtain
d. .
/hich one of the following topics is most suited to microeconomic analysis0 a. "he average level of real wages b. "he unemployment rate c. "he average level of labor productivity
d.
1.
11.
1!.
'obilit# and mi!ration decisions
3n the conte&t of the basic work(leisure model, 4work5 is defined as: a. time devoted to a paying ob or household work
b.
time devoted to a $a#in! (ob
c. d.
time devoted to any 4undesirable5 activity all time not devoted to rest and rela&ation
3n the conte&t of the basic work(leisure model, 4leisure5 time includes: a. only time devoted to rest and rela&ation b. any time not devoted to either a paying ob or household work c. any time devoted to anything desirable
d. 12.
%he im$act of a recession on the countr#&s unem$lo#ment rate
an# time not devoted to a $a#in! (ob
"he slope of an indifference curve at any point reflects the:
a.
rate at which a $erson is willin! to substitute leisure for income
b. c. d.
wage rate income effect substitution effect
3ndifference curves are conve& to the origin because: a. at a lower income, a person is more willing to sacrifice income for additional leisure
b.
at a lower income" a $erson is less willin! to sacrifice income for additional leisure
c.
at any income level, a person is willing to sacrifice the same amount of income for additional leisure
d. 1#.
1'.
the marginal rate of substitution of leisure for income is negative
"he conve& shape of a standard indifference curve reflects:
a.
a diminishin! mar!inal rate of substitution of leisure for income
b. c. d.
an increasing marginal rate of substitution of leisure for income a constant marginal rate of substitution of leisure for income the wage rate
6n an indifference map reflecting the tradeoff between income and leisure, higher levels of utility are achieved by moving: a. from left to right along a given indifference curve b. from right to left along a given indifference curve
c.
to an indifference curve further from the ori!in
d.
to an indifference curve closer to the origin
7uestions 8 1 refer to the following diagram representing Larry9s budget constraint and preferences: I n c o m e
A C
B Leisure
1).
onsider the three combinations of leisure and income represented by points $, B, and . /hich of the following is a correct statement0 a. Larry prefers $ to B c. Larry prefers B to b.
1*.
Larry prefers $ to
d.
Larr# $refers ) to A
/hich of the following is a correct statement0
a. At A" Larr#&s mar!inal valuation of leisure is hi!her than the maret wa!e b. c. d. 1.
$t B, Larry9s marginal valuation of leisure is higher than the market wage $t , Larry9s marginal valuation of leisure is lower than the market wage $t B, Larry values leisure the same amount as at $
$t point $, Larry9s marginal rate of substitution of leisure for income:
a. b. c. d.
e&ceeds the wage and Larry would like to work more hours e&ceeds the wage and Larry would like to work fewer hours is less than the wage and Larry would like to work more hours is less than the wage and Larry would like to work fewer hours
1.
6n a standard income(leisure diagram, +ara has steeper indifference curves than ;ohn. "his likely reflects the fact that: a. +ara likes leisure but dislikes income while ;ohn likes both b. +ara likes income but dislikes leisure while ;ohn likes both c. +ara values leisure more highly compared to income than ;ohn does d. ;ohn values leisure more highly compared to income than +ara does
2.
"he higher the individual9s wage rate:
a.
21.
b. the lower the marginal rate of substitution of leisure for income c. the greater the desired number of hours of work d. the greater the desired number of hours of leisure "he slope of a standard budget constraint reflects: a. a diminishing marginal rate of substitution of leisure for income b. an increasing marginal rate of substitution of leisure for income c. a constant marginal rate of substitution of leisure for income
d. 22.
2!.
2#.
the stee$er the bud!et constraint
the wa!e rate
3n an income(leisure diagram, the wage rate is graphically represented by the: a. slope of the indifference curves b. curvature of the indifference curves
c.
slo$e of the bud!et line
d.
tangency of the budget line with an indifference curve
"he optimal work(leisure position is achieved where:
a.
the 'R* L,Y is e+ual to the wa!e rate
b. c. d.
the difference between the <=+ L,Y and the wage is greatest the wage rate is greatest the <=+ L,Y is greatest
$n individual whose <=+ L,Y e&ceeds the wage at her current combination of leisure and income could increase utility by: a. working more hours c. increasing her income
b.
worin! fewer hours ma&imized
d.
none of the above> her utility is
7uestions 1* 8 2 refer to the following diagram:
I $240 n c o m e
$192
2'.
2).
onsidering the two budget lines in the diagram, if the person9s optimal number of hours worked is seven hours, then the wage rate must be:
a.
,1-
b.
?12
0
15 c. 16 17?2#
24
d.
cannot be determined
c. d.
?12 ?2#
Leisure
"he person has non(wage income of:
a.
,-
b.
?1
2*.
3f this a. b. c. d.
2.
"he income effect of the illustrated wage decrease causes this individual to work: a. one less hour c. two less hours b.
2.
one more hour
d.
two more hours
"he income effect is: a. the combination of leisure and wage rate that ma&imizes one9s income
b.
the $art of the total chan!e in desired wor hours that is due to the chan!e in real income resultin! from a chan!e in the wa!e rate
c.
the part of the total change in desired work hours that is due to a change in the wage rate, with real income or utility constant always dominated by the substitution effect
d. !.
person9s wage rate falls as illustrated in the diagram, then: the substitution effect is stronger than the income effect the income effect is stronger than the substitution effect this person9s non(wage income will fall as well the substitution effect causes desired work hours to increase
"he substitution effect is: a. the combination of leisure and wage rate that ma&imizes one9s income
!1.
b.
the part of the total change in desired work hours that is due to the change in real income resulting from a change in the wage rate
c.
the $art of the total chan!e in desired wor hours that is due to a chan!e in the wa!e rate" with real income or utilit# constant
d.
always dominated by the income effect
$n increase in the wage rate will increase desired hours of work if: a. the income effect and substitution effect cancel one another
b.
the income effect dominates the substitution effect
c. d.
the substitution effect dominates the income effect accompanied by an increase in nonwage income
!2.
/hich one of the following would be most likely to shift the labor supply curve to the right0 a. $ decrease in the wage rate b. $ change in the indifference map following deterioration of working conditions c. $ change in the indifference map following an improvement in working conditions d. $ significant increase in dividend and interest income
!!.
onsider the impact of a general increase in real wages. @mpirical evidence suggests that men will tend to work AAAAA hours and women will tend to work AAAAA hours. a. more> fewer c. fewer> fewer b. more> about the same d. about the same> more
!#.
/hich of the following would unambiguously predict a decrease in desired hours of work0 a. "he substitution effect of a wage decrease
b.
%he income effect of a wa!e increase
c. d.
$ wage increase "he substitution effect of a decline in income ta& rates
7uestions 2* 8 2 are based on the following diagram, which shows a labor supply curve for an individual. W a g e W r a t e
!L
W2
W1
H1
H H2
Hours of Work
!'.
3f the wage rises from /1 to /2 we may conclude that: a. the income effect is stronger than the substitution effect b. the income effect and substitution effects are e%ual c. the substitution effect is stronger than the income effect d. labor supply is perfectly inelastic
!).
3f this person were now willing to supply only 1 hours of work at /!, we could conclude that: a. labor supply increased Cthe curve shifted to the rightD b. labor supply decreased Cthe curve shifted to the leftD c. the person9s preferences must have changed d. the substitution and income effects are now e%ual
!*.
6f the following, which one would most likely cause this person to supply 1 hours of work at /! rather than the current ! hours0 a. "his person9s spouse receives a substantial income increase b. $ decrease in this person9s marginal valuation of leisure time c. ongress abolishes an income maintenance program d. "his person9s spouse suffers a substantial cut in income
!.
+uppose an individual worker is on the upsloping portion of her labor supply curve. "hen for a wage increase the: a. income and substitution effects both increase desired work hours b. income and substitution effects are e%ual c. income effect dominates the substitution effect d. substitution effect dominates the income effect
!.
$ 1E increase in the wage induces
#.
For ;enny, the income effect of a wage increase dominates the substitution effect. ;enny9s wage elasticity of labor supply is: a. elastic c. inelastic b. unit elastic d. negative
#1.
ompared to workers with less education, people who have more education tend to earn higher wages and have higher pensions upon retirement. Given this observation, which of the following statements best e&plains why those persons with more education also retire at a later age0 a. 3f tastes for leisure are the same, the effect of the higher pension must outweigh the effects of the higher wages b. 3f tastes for leisure are the same, the effects of the higher wages must outweigh the effects of the higher pensions c. +ince higher wages and pensions both suggest a lower retirement age, those with more education must value leisure less d.
=egardless of the tastes for leisure, the higher wages and pensions would both suggest a higher retirement age
7uestions # and ' are based on the following information: $ssume under an income maintenance program that the basic benefit Cincome guaranteeD is ? and the benefit(reduction rate is 'E. #2.
3f a family has an earned income of ?! per year, its subsidy payment will be: a. ?) b. ?*' c. ? d. ?
#!.
"he break(even level of income is: a. ?#' b. ?)
c.
?
d.
?1,
##.
+uppose an income maintenance program offers a basic benefit of ?*' per year and the benefit( reduction rate is !! 1H!E. "he break(even level of income is then: a. ?2' b. ?*' c. ?1', d. ?22,'
#'.
"he -ersonal =esponsibility and /ork 6pportunity $ct of 1): a. moved control over welfare spending from states to the federal government b. removed lifetime limits on welfare eligibility c. with few e&ceptions, re%uires welfare recipients to work after two years of receiving assistance d. provided immediate welfare benefits to %ualified immigrants