Ch19 Complete Test Bank Labor And Entrepreneurship The Human

Indicate whether the statement is true or false.

1. A labor union can increase wages by exercising market power on behalf of workers.

2. In comparison to the United States, Germany has a relatively low percentage of union membership.

3. The Industrial Revolution refers to the period 1950–1970, which was characterized by rapid manufacturing-sector growth in the United States.

4. Firms use collective bargaining to set higher market prices for their products.

5. Recent data and analysis confirms that minimum wage laws have significantly increased teenage unemployment.

6. In the United States, because men on average earn more than women, the substitution effect tends to outweigh the income affect when wages increase.

7. There is only a small difference in wages between college graduates and workers who did not attend college.

8. Innovative firms face competition much more quickly than they did 100 years ago.

9. The quantity of labor supplied is dependent on the size of the working population and the wage rate.

10. A change in wages creates a substitution and income effect on the quantity of labor supplied.

11. All other things being equal, an increase in the supply of labor will lead to a fall in the wage.

12. Union leaders who focus on increasing the size of their union will be aggressive in demanding higher wages.

13. The United Automobile Workers union can select the most favorable point on the demand curve for labor and the auto manufacturing companies can do nothing in response.

14. The substitution effect is thought to dominate the behavior of low-wage workers.

15. One implication of human capital theory is that college graduates should earn substantially less than high school graduates.

16. The substitution effect makes workers want to work less when the wage increases.

17. Collective bargaining is a process used by unions and management to settle upon the terms of a labor contract.

18. More goods are available to the average American today than 200 years ago, but today an American has to work more hours to earn the money to purchase most items.

19. It required less labor time to buy a college education in 1995 than it did in 1965.

20. Money spent on college tuition is considered human capital by economists.

21. The argument that the minimum wage law has significantly increased teenage unemployment is not supported by recent statistical analysis.

22. A labor union is an organization representing workers in negotiations with employers over wages, benefits, and working conditions.

23. The supply of workers in an industry is influenced by the available working population and the nonmonetary attractiveness of the job.

24. Less than 13 percent of U.S. workers belong to unions.

25. Average growth rates of per capita income were close to zero, on average, prior to the Industrial Revolution.

26. One effect of having access to cheap foreign goods can be to raise workers’ real wages.

27. Most innovations and inventions have come from the R&D departments of large firms.

28. The income effect is thought to offset the substitution effect among very high wage earners.

29. Agriculture is a sector of the economy where increased productivity has been accompanied by a significant decrease in employment.

30. The primary reason unionization in the United States has been declining is the shift of the U.S. labor force into service industries and out of manufacturing.

31. In reality, there is not one labor market, but many.

32. A firm will tend to follow competitors when they increase spending on R&D but will not follow them when they decrease such spending.

33. If the income effect of a change in the wage dominates the substitution effect, then workers will want to work more when the wage increases.

34. The relationship between professional basketball players and the owners’ association is an example of a bilateral monopoly.

35. Unions often have the power to push wages above competitive levels.

36. The salary of an athlete like Peyton Manning is in part a reward for his unique ability—something economists call a compensating differential.

37. History has shown that over the long run, labor-saving technology has actually not reduced employment.

38. An investment in yourself is an investment in what economists call human capital.

39. The demand for labor is a derived demand.

40. Jenny should work until her MRP equals her wage.

41. Small firms and entrepreneurs tend to focus on smaller, incremental improvements rather than revolutionary advances.

42. Innovation tends to be an extremely competitive activity that allows few opportunities for firms to share information with one another.

43. Innovation that increases the productivity of capital equipment will increase the demand for labor in the short run but decrease wages in the long run.

44. Recent studies have shown increases in the minimum wage have significantly reduced employment of teenagers.

45. Labor union membership, as a percent of workers, has steadily declined over the last several decades.

46. Wages are comparatively low in markets where demand for labor is high and supply is low.

47. Teenage unemployment rates tend to be a little lower than the overall unemployment rate.

48. The income effect of higher wages leads workers to want to work more.

49. Wages will tend to be high in labor markets where supply is relatively high and demand is relatively weak.

50. Over the last 30 years, the income gap between the rich and the poor has declined.

51. Unionism is much more prevalent in the United States than in other industrialized countries.

52. One of the reasons for the growth performance of free-market economies is firms’ use of innovation to compete with one another.

53. Innovation refers to the introduction of new products and processes into the market.

54. Under the U.S. patent system, a patent application must provide evidence that the invention works and that is based on another invention.

55. Most collective bargaining situations lead to strikes.

56. A person’s decision to supply a certain amount of labor in a week is simultaneously a decision to consume a certain amount of leisure per week.

57. Union members earn about the same wage level as nonunion members in the same industry.

58. The more money firms spend on R&D the faster the economy is expected to grow.

59. The U.S. government enacted minimum wage legislation to protect skilled workers.

60. Expenditures for attending college can be viewed as an investment in human capital.

61. The percentage of work time lost due to strikes in the United States has been increasing over time.

62. Capitalism is an economic system in which the production process is controlled primarily by private firms operating in markets.

63. Wages in American industry are very high because of wage laws.

64. Increases in education are analogous to investments in capital.

65. Average real wages have not risen significantly since approximately 1973.

66. College graduates now earn nearly twice as much as their high school-educated peers and that gap is increasing.

67. Labor strikes are a significant cause of lost production.

68. Most innovations come from just a few large industries.

69. A monopsony is a market situation in which there is only one buyer.

70. The majority of new jobs created in the service sector of the U.S. economy have been in the information sector.

71. When a patent is awarded, no one but the patent owner may produce the invention without the owner’s permission.

72. One of the most significant developments in labor supply in recent times is the increase in the labor force participation of married women.

73. A firm that reduces its research and development spending will expect competitor firms to reduce research and development spending as competition is reduced.

74. The process by which new product or production methods are introduced is called the Industrial Revolution.

75. Rising productivity usually reduces workers’ standards of living.

76. In the United States, the total amount of work time lost to strikes is less than the amount of work time lost for coffee breaks.

77. Labor union membership, as a percent of workers, has steadily declined since the 1930s.

78. The proliferation of new products that we are used to today has been occurring since the advent of the Industrial Revolution.

79. Teenage unemployment rates have consistently been much higher than the overall unemployment rate and black teenagers have fared worse than white teenagers.

80. Most innovation comes from universities and governments, which are inherently market driven.

81. Firms operating in competitive markets have little incentive to innovate.

82. Teenagers generally have high marginal revenue products because they have not completed their educations and have little job experience.

83. Research and development refers to the activity of firms, universities, and government agencies that seek to invent new products and processes.

84. An individual’s supply curve is backward bending when wages rise above a certain point.

85. Invention alone does not explain why free-market societies have experienced such rapid rates of economic growth.

86. College graduates now earn nearly five times as much as their high school-educated peers, but the gap is falling.

87. Globalization was much more pervasive in the 1800s than it is today.

88. A bilateral monopoly is a market situation in which there is only one buyer and only one seller.

89. Union leaders who focus on increasing the size of their union will generally accept a wage just above the competitive level.

90. Landlords receive their wages in the form of rents.

91. The marginal revenue product is the extra revenue the firm receives by selling one additional unit of output.

92. Spending on an education is considered an investment because it involves a sacrifice of current income for higher expected future income.

93. Collaborative research is especially important in high-technology sectors because a single firm might not have the resources to develop a significant innovation.

94. Labor productivity refers to the total amount of output a worker produces in some period of time (an hour, a week, a month, a year).

95. Union membership was relatively low during the Great Depression.

96. Over 50 percent of all U.S. workers now belong to unions.

97. Most entrepreneurs are self-employed.

98. Labor markets are generally perfectly competitive markets.

99. The marginal revenue product is the extra revenue the firm receives by hiring one additional unit of input.

100. When unions and management fail to reach agreement and the public interest is compromised, the government may require the union and management to undertake mediation.

101. Firms that set prices equal to marginal costs will usually recover all of their R&D costs.

102. The market system has provided great advances in invention, innovation, and economic growth.

103. Capitalism is an economic system in which there is public ownership of the means of production and resource allocation is determined through markets.

104. The wage increase from investments in human capital is called economic rents.

105. The United States suffers more from strikes than Japan but fewer strikes than Canada.

106. A monopsony is a market situation in which there is only one seller.

107. If wages are above the MRP, a firm should employ more labor.

108. Unions can only achieve wage gains by sacrificing employment.

109. Union membership in the United States has fallen compared to what it was in the 1950s.

110. A labor union acts as a monopsony seller of labor.

111. Rising labor productivity means that less labor is needed to produce the same level of output.

112. The Industrial Revolution refers to the stream of new technology and the resulting growth of output that began in England toward the end of the eighteenth century.

113. Economic rents can lead to large wage differentials.

114. After Hurricane Katrina, construction wages in New Orleans rose partly because of the loss of a working population.

115. Anything that influences a good’s price or the marginal physical product of labor will influence wages.

116. During the twentieth century, the real income of the average American grew by a factor of more than seven.

117. Since a union represents individuals rather than firms, it cannot be considered a monopoly.

118. The real minimum wage has increased significantly over the last 40 years.

119. Price competition among firms has proved to be more important than the introduction of new products.

Indicate the answer choice that best completes the statement or answers the question.

120. Which of the following was not invented centuries ago in China?

121. Evidence indicates that the average economic profits of invention are

122. The employment effect of a minimum wage increase is greater the

Figure 20-4

123. In Figure 20-4, which panel depicts a union suffering unemployment during a recession rather than allowing the wage to fall?

124. Labor unions in the United States

125. Given a fixed amount of time, a decision to supply labor or not is simultaneously a decision to

126. The number of persons who could become lawyers or surgeons is potentially quite large, yet these two groups earn fairly high incomes. One of the main reasons why they do is the

127. In many high-tech industries in the economy, such as computers, medical equipment, and automobiles,

128. Which of the following is least likely to affect the supply of labor in any particular industry?

129. What is the most probable reason why garbage men have higher wages than waiters?

130. Statistical studies in the United States have reached the conclusion that for low-income workers

131. A union wants to increase its members’ wages without reducing employment. Which of the following strategies might achieve that goal?

132. The labor supply curve bends backward because

133. The substitution effect of a decrease in the wage rate would lead most people to supply

134. The income effect of a wage increase is expected to increase

135. The demand for labor is a derived demand. Employers hire workers until the

136. Most innovations in the economy come from

Figure 20-3

137. Figure 20-3 shows a worker’s backward-bending supply curve of labor. Which of the following statements is correct?

138. Doctors demand large salaries in part because

139. Which of the following is not a reason unions became much less effective in the 1990s?

140. What type of cost is not relevant to the process of research and development or invention in general?

141. The initial stage of the procedure in which a union and an employer negotiate over a contract is known as

142. The United States has had a long history of work time lost due to worker strikes. This trend has

143. Regarding new inventions, which of the following statements is not true?

144. Firms share technology with rivals,

145. Which of the following would likely not be a goal of a union?

146. When large oligopolistic firms negotiate with the unions of their employees, the resulting bargaining process closely resembles

147. What percentage of American workers now belong to labor unions?

148. Those who view education as a sorting mechanism emphasize that employers value the

149. Which of the following has not occurred in the United States over the last two decades?

150. The fact that invention is based largely on fixed costs and is a public good means that which of the following is not relevant to the process?

151. Why do firms spend money on costly innovation?

152. Which of the following is not true of minimum wages?

153. The demand for labor is derived from the

154. In which of the following scenarios would a tax be least likely to affect the amount of labor supplied?

155. Economists would describe a labor union as a

156. Which of the following would not be true of a competitive labor market?

157. Studies have shown that in the 1980s the wage gap between college-educated workers and those with high school education or less

158. For which of the following workers would the substitution effect be more likely to outweigh the income effect of an increase in wage?

159. A decision to supply labor or not to supply it is also a decision to

160. Among possible union strategies, the one that can both raise wages and add to employment is

161. Which of the following does not affect the marginal physical product of labor?

162. Given a tax on wages, the economic theory of labor markets would

163. According to the process of creative destruction, at first the entrepreneur will be able to sell the product for

Figure 20-4

164. In Figure 20-4, which panel shows the impact of union efforts to have goods produced in Asia excluded from the U.S. market?

165. The labor supply curve starts to bend backward at the point where

166. The labor demand curve slopes down because

167. The substitution effect from a change in wages is

168. The impact of an increase in oil prices stemming from the growth of demand is probably going to ____ the wages of petroleum engineers.

169. Creative destruction by innovation means

170. Currently, college graduates are earning about ____ more than high school grads over the course of their careers.

171. The demand for education is determined by the

172. Inventions like gunpowder and the wheelbarrow were created by the Chinese hundreds of years ago. The fact that such items were not put to productive use was caused primarily by a lack of ____.

173. A trade union would likely not try to maximize

174. If an individual possesses an ability that others cannot acquire, payment to that individual is

175. Which of the following would cause a firm’s demand curve for labor to shift?

176. In general, an increase in wages will lead to some reaction in line with

177. The human capital model assumes that

178. A college education is a(n)

179. All of the following are examples of fringe benefits except

180. In the collective bargaining process,

181. High-wage workers are

182. Increased productivity of workers in manufacturing has

183. Historically, revolutionary inventions and innovations have come from

184. Which of the following is not an argument that has been made to explain high unemployment among teenagers?

185. The supply curve of truck drivers is upward sloping and demand curve is downward sloping. A reduction in the price of hauling freight by truck relative to the price of hauling freight by rail will ____ the equilibrium wage of truck drivers and ____ the number of drivers employed.

186. The shortened work week coupled with rising hourly wages in the U.S. economy shows that

187. Statistical studies in the United States have reached the conclusion that for most workers the response of labor supply to wage changes is

188. At existing wage rates, hospitals face a shortage of registered nurses (RNs). Some studies have suggested that an increase in RN wages will actually reduce the hours supplied by existing RNs, making it more difficult for hospitals to find RNs. Which of the following is likely the cause of these findings?

189. As hourly wages have risen in the United States in the twentieth century, the number of hours of labor supplied by most wage workers has

190. Unions can be thought of as constituting

191. The more specialized and highly valued a worker’s skills are,

192. A relatively high wage is predicted to be enjoyed by workers where the

193. A minimum wage law is predicted to produce

194. Which of the following workers would be most likely to work fewer hours as a result of a wage increase?

195. Income effect of lowering wages implies

196. Governmental rules that significantly promoted entrepreneurship first became prominent during the

197. Average hours worked per week have ____ since the early 1900s.

198. The labor market is composed of

199. When workers purchase more leisure and work less at higher wages, the supply curve is

200. Entrepreneurial profits are very low because entrepreneurs are generally overly

201. An economist would describe college fees as

202. A minimum wage law might increase wages without reducing employment if the hiring firm is

203. Unions have the power to

204. The consensus among researchers is that union workers earn 15 percent more than otherwise identical nonunion workers. This means unions have probably raised wages

205. Invention cannot be successful financially if price is

206. Which of the following would not be a prediction from economic labor theory regarding the wage of a field hand?

207. Which of the following observations concerning labor cost patterns over the last century is true?

208. In which of the following scenarios would the income effect be most likely to be greater than the substitution effect?

209. A minimum wage

210. There is strong evidence that entrepreneurs are characteristically

211. What are the two characteristics that are essential to economic analysis of invention?

212. Which of the following has no market “price”?

213. A monopsonist hires labor in a market with perfectly competitive supply. Whenever she hires an additional worker,

214. Which of the following makes invention and entrepreneurship more likely in today’s economy?

215. Now, about ____ percent of American married-couple families have two or more wage earners.

216. Which economist created the theory of creative destruction?

217. What is the term used for the process by which an entrepreneur creates or recognizes a new and better product, acquires it, and brings it to market, making older substitutes obsolete?

218. Which of the following is not a reason workers in American industry are more productive than those in many other countries? because of

Figure 20-1

219. Which of the diagrams in Figure 20-1 shows the situation of an individual firm that hires labor in a perfectly competitive market?

220. For which of the following workers would the income effect be more likely to outweigh the substitution effect of an increase in wage?

221. In a famous series of commercials, the International Ladies’ Garment Workers Union (ILGWU) urged buyers to “look for the union label” and to avoid buying clothes not made by ILGWU members. Through the commercials, the ILGWU tried to attain its goals by

222. Over the last century,

223. The price of leisure is the

224. The term “bilateral monopoly” refers to market situations in which

225. The branch of economic theory that analyzes decisions about education and training is

226. The concept of economic rent applies to

227. If wages decrease and workers choose to work more hours or more shifts, their behavior is evidence of

228. The American Bar Association administers the bar examinations that prospective lawyers must pass before being allowed to practice law. The legal requirement to pass this test before practicing law allows the Bar Association to act as a

229. In 1972, a very controversial study asserted that income differences among individuals did not depend on genetic differences in reasoning ability, or differences between schools, or family background. Moreover, the effects of level of schooling are much less than previously understood. After controlling for all of these background variables, much of the variation in earnings appeared to be random. From this analysis, one might reach the very controversial conclusion that earnings depended to a very great extent on

230. It has been shown that when offered higher wages, women will work more hours. This is likely because

231. Suppose the goal of a union is to maximize the total income of all workers it represents. In this case, it will probably aim for a wage at which the elasticity of demand for workers is

232. The derived demand for labor is determined by

233. The psychological rewards of inventing a new product generally result in ____ profits for entrepreneurs.

234. Which of the following is not true for the wages of professional athletes?

235. Many experts on the nursing shortage insist that, in addition to higher money wages, other ways will have to be found to make the nursing profession more attractive, including, for example, more respect from physicians and administrators, more flexible schedules, and more secure parking lots. These facts illustrate the concept of

236. It is possible to analyze education decisions in a manner similar to the decision to acquire more

237. An effective craft union acts as a monopoly

238. According to human capital theory, which of the following is not a reason college graduates earn more than those with only a high school degree?

239. Describe the profit-maximizing firm’s decision about how much to spend on innovation.

240. Briefly explain Schumpeter’s model of innovation. Why does an innovator’s economic profit eventually reduce to zero?

241. What are the alternative views to the human capital theory with respect to the role of education?

242. From the Industrial Revolution to the present, innovation has played a major role in the growth of output. What do the leading analysts of economic growth argue were some of the most significant innovations of this period?

243. The following table shows the total physical product of labor. Compute the marginal physical product (MPP) of labor and the marginal revenue product (MRP) of labor at output prices of $10 per unit and $12 per unit. If labor costs $105 per unit, how much should the firm hire at each price of output?

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244. Explain the relationship between the minimum wage and the unemployment rate for teenagers.

245. What are the factors that contribute to productivity growth in the market economy and which of them is considered most important?

246. P = MC is a recipe for financial loss in an innovative firm established by an innovative entrepreneur. Explain.

247. Explain why on average the profit levels for invention and entrepreneurship are generally so low.

248. Cannon Mills used to be virtually the only employer in Kannapolis, North Carolina. What is the name for a single hirer of labor, and how do wages and the number of jobs available compare to a competitive labor market?

249. Explain the expression “time is more valuable than money.” Explain in words and use a diagram to illustrate the implications of this for a person’s labor supply curve.

250. Briefly and concisely define the following terms and explain their relevance to the study of economics.

a. industrial and craft unions

b. closed shop

c. union shop

d. bilateral monopoly

e. collective-bargaining agreement

251. Distinguish between invention and innovation.

252. What are the three noteworthy labor market trends that Americans have experienced for about two decades?

253. Explain the circumstances under which some component of labor income is economic rent.

254. The job market for which group always seems to have higher unemployment than the labor force as a whole? Why?

255. Explain how a bilateral monopoly equilibrium outcome differs from a purely competitive outcome.

256. Why has the free-market system produced the most rapid rates of growth of any economic system?

257. Give some explanations for the decline in union membership in the United States.

258. Discuss the historic increases and decreases in unionism in the United States and how it affects current labor relations today.

259. What are the major goals that unions may pursue in labor negotiations? Are these ever in conflict with one another?

260. Explain what is meant when it is said that the demand for labor is a derived demand.

261. Define the following terms and explain their importance to the study of economics.

a. minimum wage law

b. income and substitution effects

c. backward-bending labor supply curve

d. human capital theory

e. dual labor markets

262. Explain the concept of “creative destruction” by innovation. Does it ensure positive economic profits in the long run?

263. Some take issue with the human capital argument that employers pay more for college graduates because firms recognize the value of human capital. What are two alternative explanations for why college grads receive higher pay?

264. How do modern markets differ from other economic systems in their capacity to produce “growth miracles”?

265. Explain how the demand for labor is determined.

266. Wage negotiations in baseball can fit the bilateral monopoly situation when a star player negotiates with an owner. Explain how collective bargaining would be used in wage negotiations and the role of player strikes.

267. Explain how productivity growth has led to labor market realignment in the United States.

268. Explain the three growth-creating properties of innovation.

269. Explain the theory of investment in human capital and the specific role that education plays in the theory.

270. Under what conditions is it likely that the labor supply curve may become backward bending? What roles do the income and substitution effects play?

271. Suppose a study showed that as the income of doctors increased, doctors spent more time on the golf course and less in the office. What would such a conclusion say about the relative sizes of substitution and income effects?