Markets for Factors of Production – Chapter 19 Test Bank 9e - Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade by Robin Bade. DOCX document preview.
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Foundations of Microeconomics, 9e (Bade)
Chapter 19 Markets for Factors of Production
19.1 The Demand for a Factor of Production
1) The four factors of production that produce goods and services are
A) labor, money, machinery, and land.
B) labor, capital, money, and entrepreneurship.
C) labor, capital, land, and entrepreneurship.
D) labor, investment capital, machinery, and land.
E) labor, stocks, money, and bonds.
Topic: Factors of production
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
2) Which of the following is NOT a factor of production?
A) labor
B) capital
C) entrepreneurship
D) bonds
E) land
Topic: Factors of production
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
3) Entrepreneurship differs from the other factors of production because it
A) is not real.
B) is the most important.
C) has only existed since the new economy of the 1990s.
D) is not traded in a factor market.
E) is not paid.
Topic: Entrepreneurship
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
4) As a factor of production, any of the gifts of nature are called
A) land.
B) labor.
C) capital.
D) entrepreneurial ability.
E) physical capital.
Topic: Land markets
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
5) In the labor market
A) households demand labor.
B) firms demand labor.
C) firms supply labor.
D) wage are determined only by firms alone.
E) None of the above answers is correct.
Topic: Derived demand
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
6) The demand for a factor of production is called a derived demand because it is derived from
A) the demand for goods and services produced by the factor of production.
B) a table of specific prices and quantities.
C) the ideas of an entrepreneur.
D) a financial market.
E) the supply of the factor of production.
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
7) Derived demand means that the demand for a factor of production is derived from the
A) supply of that factor of production.
B) price of that factor of production.
C) demand for the goods and services the factor of production is used to produce.
D) costs of production.
E) government, which forces large firms to hire at least some minimum number of different resources.
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
8) The demand for a resource is derived from the
A) price of the resource.
B) supply of the resource.
C) supply of substitute resources.
D) demand for the good or service that the resource is used to produce.
E) supply of complement resources.
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
9) What is meant by derived demand?
A) The demand is derived from income, tastes, etc. of sellers.
B) The demand for a resource is derived from the demand for what it can produce.
C) The demand is derived from the price elasticity of demand.
D) The demand exists because the government mandates production of the good.
E) The demand for a good is derived from the supply of the good.
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
10) Which of the following factors have a derived demand?
i. labor
ii. capital
iii. raw materials
A) i and ii
B) ii and iii
C) i and iii
D) i, ii, and iii
E) i only
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
11) Which of the following represents a derived demand? Demand for
A) a taco by Sam when she is hungry.
B) golf balls by Jose, who is planning on going golfing with his boss.
C) a grocery clerk by the local Safeway.
D) an automobile by Jack, who wants a car to get to school.
E) new clothing by Shaniq, who is starting a new job.
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
12) Hot Coffee Inc. hires workers and buys coffee roasting machines so it can serve fresh roasted coffee to its customers. The demand for ________ is a derived demand because ________.
A) both workers and roasting machines; both are used to produce and sell coffee
B) only workers; there is a limited number of people willing to work in coffee shops
C) only roasting machines; capital equipment can be resold in other markets
D) neither workers nor roasting machines; derived demand only applies to actual products produced for customers
E) only workers; workers can actually negotiate their wages
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Application of knowledge
13) Sky High Camping offers overnight camping in tree houses built on its 10-acre property. Workers are hired to build and maintain the tree houses. Which of the following are TRUE statements?
i. The land and the trees grown are considered natural resources.
ii. The demand for trees and land is not a derived demand because supply is limited.
iii. The demand for workers is considered a derived demand because they help produce the service of tree house camping.
A) i and iii
B) i, ii and iii
C) i only
D) iii only
E) ii and iii
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Application of knowledge
14) The demand for carpenters needed to build houses represents a
A) direct demand.
B) derived demand.
C) marginal demand/cost for input.
D) supplied demand.
E) directed supply.
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
15) If the demand for a good increases, the demand for the factors used to produce the good
A) increases.
B) decreases.
C) stays the same.
D) could increase, decrease, or stay the same depending on whether the demand for the good is elastic, inelastic, or unit elastic.
E) None of the above answers is correct.
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
16) The value of marginal product is equal to
A) marginal product × marginal cost.
B) marginal product × product price.
C) marginal revenue × marginal cost.
D) marginal cost × product price.
E) marginal product ÷ product price.
Topic: Value of marginal product
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
17) The value of marginal product of labor is calculated by multiplying the ________ by the ________.
A) quantity of labor; wage rate
B) total product; wage rate
C) marginal product of labor; price of a unit of the output
D) wage rate; price of a unit of the output
E) marginal product of labor; wage rate
Topic: Value of marginal product
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
18) The value of marginal product is equal to the
A) additional revenue from selling one more unit of the product.
B) change in total revenue from selling one more unit of product.
C) additional cost of hiring one more unit of a factor of production.
D) change in revenue from hiring one more unit of a factor of production.
E) change in total cost when one more unit of the product is produced.
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
19) If UPS hires another worker, UPS will be able to deliver an additional 20 packages an hour. The price of each package is $5. The value of this worker's marginal product is equal to
A) $5.
B) $100.
C) $4.
D) 20 packages.
E) $20.
Topic: Value of marginal product
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
20) The total output of candles in Nick's Wicks candle shop increases from 20 per hour to 30 per hour as he hires the second worker. The price of each candle is $2. The
A) marginal product of the second worker is 20 candles.
B) marginal product of the second worker is 30 candles.
C) value of marginal product of the second worker is $20.
D) value of marginal product of the second worker is $30.
E) value of marginal product of the second worker is $60.
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
21) The value of marginal product of labor
A) always increases as more labor is hired.
B) is constant as long as each worker is paid the same wage rate.
C) declines only if each worker is paid more than the previous worker.
D) at some point declines as more workers are hired.
E) at first decreases and then increases as more workers are hired.
Topic: Value of marginal product
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
22) As the quantity of land used increases, its value of marginal product
A) decreases and then eventually increases.
B) increases and then eventually decreases.
C) remains constant.
D) might increase, decrease, or remain constant depending if the rent for the land rises, falls, or does not change.
E) The premise of the question is wrong because land does not have a value of marginal product.
Topic: Value of marginal product
Skill: Level 4: Applying models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
23) Kevin owns a personal training gym in Laredo, Texas. He charges $41 per session. The above table shows the marginal product of trainers in Kevin's gym. If Kevin hires one trainer, the value of marginal product of this trainer equals
A) 4 clients.
B) $164.
C) $410.
D) $41.
E) None of the above answers is correct.
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
24) Kevin owns a personal training gym in Laredo, Texas. He charges $41 per session. The above table shows the marginal product of trainers in Kevin's gym. If Kevin hires three trainers, the value of marginal product of the third trainer equals
A) 2 clients.
B) $82.
C) 9 clients.
D) $369.
E) $123.
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
25) Kevin owns a personal training gym in Laredo, Texas. He charges $41 per session. The above table shows the marginal product of trainers in Kevin's gym. If Kevin hires four trainers, the value of marginal product of the fourth trainer equals
A) 10 clients.
B) $410.
C) $41.
D) 1 client.
E) $10.25.
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
26) The table above shows the total product schedule of Piece a' Pi, a producer of pizza in a nearby college town. Suppose workers are paid $10 per hour and the price per pizza is $10. The marginal product of the third worker is
A) 5 pizzas per hour.
B) 17 pizzas per hour.
C) $220 per hour.
D) 7 1/3 pizzas per hour.
E) None of the above answers is correct.
Topic: Value of marginal product
Skill: Level 4: Applying models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
27) The table above shows a the total product schedule of Piece a' Pi, a producer of pizza in a nearby college town. Suppose workers are paid $12 per hour and the price per pizza is $10. The value of marginal product of the fourth worker is ________ per hour.
A) $240
B) $220
C) $20
D) $12
E) $24
Topic: Value of marginal product
Skill: Level 4: Applying models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
28) The table above shows a the total product schedule of Piece a' Pi, a producer of pizza in a nearby college town. Suppose workers are paid $12 per hour and the price per pizza is $10. The value of marginal product of the fifth worker is ________ per hour.
A) $240
B) $220
C) $24
D) $10
E) $12
Topic: Value of marginal product
Skill: Level 4: Applying models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
Number of workers | Marginal product (bats per hour) |
1 | 8 |
2 | 7 |
3 | 6 |
4 | 5 |
5 | 4 |
The table has the marginal products for workers at Bart's Bats, a baseball bat factory.
29) Using the above table, if the price of a bat is $8, then the value of marginal product of labor of the fourth worker is
A) $40.
B) $0.625.
C) $1.375.
D) 5 bats.
E) None of the above answers is correct.
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
30) Using the above table, if the wage rate for a worker in a baseball bat manufacturing plant is $18 an hour, and the price of a bat is $3, then the firm will hire ________ workers.
A) 1
B) 2
C) 3
D) 4
E) More information is needed to determine how many workers will be hired.
Topic: Profit maximization
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
31) Using the above table, if the wage rate for a worker in a baseball bat manufacturing plant is $12 an hour, and the price of a bat is $3, then the firm will hire ________ workers.
A) 1
B) 2
C) 3
D) 4
E) 5
Topic: Profit maximization
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
32) Using the above table, suppose the price of a bat is $3. If the wage rate for a worker in a baseball bat manufacturing plant is $18 an hour, then the firm will hire ________ workers; if the wage rate falls to $12 an hour, then the firm will hire ________.
A) 1; 2
B) 2; 4
C) 3; 3
D) 5; 4
E) 3; 5
Topic: Profit maximization
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
Quantity of Labor | Total Product (gymnasts trained per hour) | |
A | 0 | |
B | 1 | 7 |
C | 2 | 13 |
D | 3 | 17 |
E | 4 | 19 |
F | 5 | 20 |
33) The table shows information for Jen's Gymnastics. Jen hires coaches and can charge $20 per hour for gymnastics lessons. The value of marginal product for the second coach is ________ because ________.
A) 13; 2 coaches can train 13 gymnasts
B) 6; the second coach can train an extra 6 gymnasts
C) $120; the second coach's marginal product is 6 gymnasts and lessons cost $20
D) $260; the first two coaches can earn $20 for each of the 13 gymnasts
E) $40; each coach can charge $20 per student
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
34) The table above shows information for Jen's Gymnastics. Jen hires coaches and charges $20 per hour for gymnastics lessons. Using the information in the table, which of the following shows the correct demand for labor for Jen's Gymnastics?
A)
Quantity of Labor | Value of Marginal Product |
1 | $140 |
2 | $120 |
3 | $80 |
4 | $40 |
5 | $20 |
B)
Quantity of Labor | Value of Marginal Product |
1 | 7 |
2 | 6 |
3 | 4 |
4 | 2 |
5 | 1 |
C)
Quantity of Labor | Value of Marginal Product |
1 | 7 |
2 | 13 |
3 | 17 |
4 | 19 |
5 | 20 |
D)
Quantity of Labor | Value of Marginal Product |
1 | $140 |
2 | $260 |
3 | $340 |
4 | $380 |
5 | $400 |
E)
Quantity of Labor | Value of Marginal Product |
1 | $0 |
2 | $20 |
3 | $40 |
4 | $60 |
5 | $80 |
Topic: Demand for labor
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
35) The table shows information for Jen's Gymnastics. Jen hires coaches and can charge $20 per hour for gymnastics lessons. Jen's Gym pays coaches $30 per hour. The table shows that Jen's Gym will hire ________ coaches because ________.
A) any number less than 5; the marginal product stops increasing with the fifth coach
B) 4; the gym will earn a profit because the value of marginal profit exceeds the wage rate., but hiring a fifth coach will reduce profit
C) 1; the value of marginal product is the highest
D) 5; the marginal product is at its maximum
E) 5; total product reaches its maximum
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
36) The table shows information for Jen's Gymnastics. Jen's hires coaches and can charge $20 per hour for gymnastics. If the demand for Jen's Gymnastics coaching services increases and the price for coaching increases, Jen
A) will hire more coaches because the value of marginal product has increased.
B) will hire fewer coaches because the higher price will decrease the number of gymnasts trained.
C) will hire fewer coaches in order to make a higher profit.
D) will hire more coaches because there will be movement up along the demand for labor curve.
E) may hire more or fewer coaches depending on how the higher price of lessons affects the business.
Topic: Demand for labor
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
37) When hiring labor, to maximize profit a firm hires labor
A) until the value of marginal product equals the wage rate.
B) if the workers are not unionized.
C) until the value of marginal product is less than the wage rate.
D) until the value of marginal product is greater than the wage rate.
E) until the value of marginal product equals the marginal revenue from hiring the worker.
Topic: Profit maximization
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
38) A profit-maximizing firm hires labor up to the point where
A) price of the product equals the value of marginal product.
B) price of the product equals the wage rate.
C) the wage rate multiplied by the quantity of labor equals the marginal product.
D) the wage rate equals the value of marginal product.
E) marginal revenue equals the wage rate.
Topic: Profit maximization
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
39) The rule for employing a profit-maximizing amount of labor is to continue to hire additional workers until the additional worker's value of marginal product is
A) less than the wage rate.
B) equal to the wage rate.
C) greater than 1.
D) less than the price of the product.
E) equal to the price of the product.
Topic: Profit maximization
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
40) Suppose the Miami Dolphins are considering adding another backup quarterback to their roster. If the salary the Dolphins would have to pay equals $10,000,000 and the value of marginal product of the new quarterback equals $12,000,000, to maximize their profit the Dolphins should
A) add the new quarterback.
B) add two new quarterbacks.
C) not add the new quarterback.
D) not add the new quarterback and, in fact, get rid of at least one other backup quarterback.
E) Not enough information is given to determine if the Dolphins should hire the quarterback.
Topic: Profit maximization
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Revised
AACSB: Reflective thinking
41) Suppose Mongo runs a glue factory in Knuckle, North Dakota. Mongo wants to fire his cousin Beevo for not working very hard at making glue. If firing Beevo would save Mongo $6.11 per hour in wages and the value of Beevo's marginal product equals $7.29 per hour, to maximize his profit, Mongo should
A) fire Beevo.
B) keep Beevo employed.
C) add another worker, Teevo, Beevo's sister, whose value of the marginal product would be $4.83 per hour and whose wage would be $6.11 per hour.
D) increase the wage he pays Beevo to $7.29 per hour.
E) There is not enough information given to determine what Mongo should do.
Topic: Profit maximization
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
42) If the value of marginal product of the 10th worker is $60, then the
A) quantity of labor demanded when the wage rate is $60 will be 10 workers.
B) wage rate of the 10th worker will be $6.
C) firm will not hire the worker if the wage rate is less than $60.
D) marginal cost of the 10th worker will be $6.
E) quantity of labor demanded when the wage rate is $6 will be 10 workers.
Topic: Profit maximization
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
43) If a firm finds itself at the point where the value of marginal product of labor is greater than its wage rate, then the firm
A) stops hiring more workers but does not fire any because the firm is maximizing its profit.
B) decreases the number of workers it has hired in order to increase its profit.
C) increases the number of workers it hires in order to increase its profit.
D) increases sales to keep its employees busy.
E) changes its employment of workers and maximizes its profit by hiring the number of workers that makes the difference between the value of the marginal product and the wage rate as large as possible.
Topic: Profit maximization
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
44) If the wage rate exceeds the value of marginal product, a firm
A) is maximizing its profit.
B) can increase its profit by hiring more workers.
C) can increase its profit by firing some workers.
D) can increase its profit by increasing the wage rate and not changing its employment.
E) can increase its profit by increasing the wage rate and increasing its employment.
Topic: Profit maximization
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
45) A company finds that the value of marginal product for the current level of employment is $53 and the wage rate is $45. Which of the following is correct?
A) The firm is employing the profit-maximizing quantity of labor.
B) Too much labor is currently employed and the firm will lay off some workers.
C) Too few workers are currently employed and the firm will hire more workers.
D) The firm should shut down and produce nothing.
E) More information about the price of the product is needed to determine if the firm is hiring the profit-maximizing amount of labor.
Topic: Profit maximization
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
46) A company finds that the value of marginal product for the current level of employment is $53 and the wage rate is $53. Which of the following is correct?
A) The firm is employing the profit-maximizing quantity of labor.
B) Too much labor is currently employed and the firm will lay off some workers.
C) Too few workers are currently employed and the firm will hire more workers.
D) The firm should shut down and produce nothing.
E) More information about the price of the product is needed to determine if the firm is hiring the profit-maximizing amount of labor.
Topic: Profit maximization
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
47) A company finds that the value of marginal product for the current level of employment is $53 and the wage rate is $75. Which of the following is correct?
A) The firm is employing the profit-maximizing quantity of labor.
B) Too much labor is currently employed and the firm will lay off some workers.
C) Too few workers are currently employed and the firm will hire more workers.
D) The firm should shut down and produce nothing.
E) More information about the price of the product is needed to determine if the firm is hiring the profit-maximizing amount of labor.
Topic: Profit maximization
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
48) The demand curve for labor is the same as the firm's
A) marginal revenue curve.
B) marginal cost curve.
C) value of marginal product of labor curve.
D) wage rate curve.
E) supply of output curve.
Topic: Demand for labor curve
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
49) A firm's demand for labor curve is also
A) its value of marginal product of labor curve.
B) the demand curve for the good it produces.
C) the supply of labor curve.
D) its marginal cost curve.
E) the supply curve for the good it produces.
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
50) The demand curve for a factor of production is
A) the same as the factor's supply curve.
B) upward sloping.
C) the same as the factor's value of marginal product curve.
D) vertical.
E) None of the above answers is correct.
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
51) If we compare the value of marginal product of labor curve and the demand for labor curve we see that
A) they are the same thing.
B) the value of marginal product curve is twice as steep.
C) the demand for labor curve has no relationship to the value of marginal product curve.
D) the demand for labor curve is twice as steep but they share the same axes.
E) the demand for labor curve lies above the value of marginal product curve.
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
52) Which of the following statements about a firm's demand for labor curve and its value of marginal product of labor curve is TRUE?
A) The value of marginal product curve slopes upward and the demand for labor curve slopes downward.
B) The demand for labor curve shows the amount of labor firms will hire based on the wage rate while the value of marginal product curve shows the amount of output supplied based on the wage rate.
C) The value of marginal product curve is steeper than the demand for labor curve.
D) The demand for labor curve is the same as the value of marginal product curve.
E) The value of marginal product curve lies above the demand for labor curve.
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
53) The demand for labor curve slopes downward because
A) it takes more workers to produce more output.
B) the value of marginal product of labor diminishes as the quantity of labor employed increases.
C) at lower wages, people are not willing to work as many hours.
D) wages are fixed.
E) the supply of labor curve is upward sloping.
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
54) For a firm selling its product in a perfectly competitive market, the demand curve for a factor of production is downward sloping because
A) of the diminishing marginal product of the factor.
B) to sell more output, the firm must lower the price of its product.
C) firms must hire more factors of production if they want to increase their output.
D) a factor's marginal product increases when the price of the factor increases.
E) None of the above answers is correct.
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
55) A firm's demand for labor curve shifts when there is a change in
i. the supply of labor.
ii. population.
iii. the equilibrium wage rate.
A) i only
B) ii only
C) i and iii
D) i and ii
E) ii and iii
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
56) If the marginal product of labor increases, the firm's demand for labor curve
A) does not shift, and there is no movement along it.
B) shifts leftward.
C) shifts rightward.
D) does not shift but there is a movement along it.
E) might shift leftward or rightward depending on whether the demand for the firm's product is elastic or inelastic.
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
57) In part, the demand for labor depends on the
A) supply of labor.
B) number of workers available.
C) price of the firm's output.
D) workers' income.
E) wage rate at which the labor supply curve starts to bend backwards.
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
58) If the price of the firm's output increases, the demand for labor curve
A) shifts rightward.
B) shifts leftward.
C) remains constant.
D) could shift rightward, leftward, or remain constant.
E) might shift leftward or rightward depending on whether the demand for the firm's product is elastic or inelastic.
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
59) If the price of a firm's product falls, the firm's demand for labor curve
A) does not shift and there is no movement along it.
B) shifts leftward.
C) shifts rightward.
D) does not shift but there is a movement along it.
E) might shift leftward or rightward depending on whether the demand for the firm's product is elastic or inelastic.
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
60) If a firm uses new technology that increases its demand for labor, the firm's demand for labor curve
A) shifts leftward.
B) shifts rightward only if the demand for labor is elastic.
C) shifts rightward no matter if the demand for labor is elastic or inelastic.
D) does not shift, but there is a movement along it.
E) shifts rightward only if the demand for labor is inelastic.
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
61) If the wage rate increases, a firm's demand for labor curve
A) does not shift, and there is no movement along it.
B) shifts leftward.
C) shifts rightward only if the elasticity of demand for labor is elastic.
D) does not shift, but there is a movement along it.
E) shifts rightward only if the elasticity of demand for labor is inelastic.
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
62) The price of capital falls. Assuming that the firm does not increase the quantity it produces, in the long run the firm's demand for labor curve usually
A) does not shift, and there is no movement along it.
B) shifts leftward.
C) shifts rightward only if the elasticity of demand for labor is elastic.
D) does not shift, but there is a movement along it.
E) shifts rightward only if the elasticity of demand for labor is inelastic.
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Revised
AACSB: Reflective thinking
63) The above figure shows the demand for labor curve for workers at a Pizza Hut in Canada. If the wage rate is $6 per hour, then the
i. quantity of workers Pizza Hut demands is 10 workers.
ii. Pizza Hut would have been willing to hire the 6th worker even if they had to pay $7 per hour rather than $6 per hour.
iii. value of the marginal product of the 10th worker is $6 per hour.
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
64) The above figure shows the initial demand for labor curve at a Pizza Hut in Canada. The wage rate is $6 an hour. If the demand for pizzas increases so that the price of a pizza rises
A) at the wage rate of $6 per hour, Pizza Hut hires fewer than 10 workers.
B) Pizza Hut's demand for labor curve shifts rightward.
C) the supply of labor curve shifts rightward.
D) Pizza Hut's demand for labor curve shifts leftward.
E) the supply of labor curve shifts leftward.
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
65) If the price of movie tickets increases, there is
A) an increase in the demand for actors and actresses.
B) a decrease in the demand for actors and actresses.
C) no change in the demand for actors and actresses.
D) a decrease in the supply of actors and actresses.
E) an increase in the supply of actors and actresses.
Topic: Demand for labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
66) Robotic technology is a substitute for labor in many manufacturing processes. If the price of robotic technology decreases and the scale of the firm's production does not change, there is
A) a decrease in the demand for labor.
B) an increase in the demand for labor.
C) no change in the demand for labor.
D) an increase in the supply of labor.
E) a decrease in the supply of labor.
Topic: Demand for labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
67) If the price of capital falls, in the long run under what circumstance could the demand for labor increase?
A) The demand for labor can never increase when the price of capital falls.
B) The demand for labor will always increase when the price of capital falls.
C) It increases if the scale of production increases enough.
D) It increases if the demand for labor is inelastic.
E) None of the above answers is correct.
Topic: Demand for labor
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
68) Which of the following is a correct statement of the relationship between advances in technology and the demand for labor?
A) The demand decreases for some types of labor and increases for other types of labor.
B) The demand for labor always decreases when technology advances.
C) The demand for labor always increases when technology advances.
D) Technology advances when the demand for labor advances.
E) None of the above answers is correct.
Topic: Demand for labor
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
69) The four factors of production that produce goods and services are
A) labor, capital, profits, and entrepreneurship.
B) money, labor, rent, and profit.
C) labor, capital, land, and entrepreneurship.
D) wages, interest, rent, and profit.
E) wages, prices, quantities, and employment.
Topic: Factors of production
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
70) The wage paid to labor is
A) a factor output.
B) a factor price.
C) a factor input.
D) an input of the workforce.
E) part of the firm's normal profit.
Topic: Labor market
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
71) The demand for labor is derived from the
A) supply of labor.
B) wage rate.
C) supply of the good the labor is used to produce.
D) demand for the goods and services the labor helps produce.
E) supply of all the other factors of production that can be substituted for labor.
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
72) Which of the following is TRUE?
A) The value to a firm of hiring another worker is the worker's value of marginal product.
B) A firm will hire more workers if the wage rate is greater than the value of marginal product.
C) The value of marginal product is the cost of hiring a worker.
D) The value of marginal product increases as more workers are hired.
E) The value of marginal product equals the price of the good produced divided by the marginal product.
Topic: Value of marginal product
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
73) The value of marginal product of labor is equal to the marginal product of labor ________ the price of a unit of output.
A) divided by
B) multiplied by
C) minus
D) plus
E) squared and then multiplied by
Topic: Value of marginal product
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
74) The rule for maximizing profit is to hire labor up to the point at which the value of marginal product
A) equals the wage rate.
B) is greater than the wage rate.
C) is less than the wage rate.
D) is a mirror image of the wage rate.
E) equals the price of the product produced.
Topic: Profit maximization
Skill: Level 1: Definition
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
75) An increase in the price of the firm's output leads to a
A) movement up along the demand for labor curve.
B) movement down along the demand for labor curve.
C) rightward shift of the demand for labor curve.
D) leftward shift of the demand for labor curve.
E) rightward shift of the supply of labor curve.
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
19.2 Labor Markets
1) As the wage rate rises, the quantity of labor an individual supplies
A) decreases at all wage rates.
B) initially decreases at low wage rates and then increases at high wage rates.
C) increases at all wage rates.
D) initially increases at low wage rates and then decreases at high wage rates.
E) does not change.
Topic: Supply of labor, backward bending
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
2) The supply of labor curve for an individual is
A) upward sloping at all wage rates.
B) downward sloping at all wage rates.
C) upward sloping for lower wage rates and begins to slope downward at higher wage rates.
D) downward sloping for lower wage rates and begins to slope upward at higher wage rates.
E) an upside-down U-shape.
Topic: Supply of labor, backward bending
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
3) Because leisure time has value to many workers, as wages increase, the labor supply curve
A) has a positive slope.
B) bends backwards and has a negative slope.
C) becomes a horizontal line.
D) becomes a vertical line.
E) bends forward and has a positive slope.
Topic: Supply of labor, backward bending
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
4) Which of the following statements about the supply of labor is correct?
A) It is perfectly inelastic at whatever quantity individuals are willing to work.
B) An individual's supply of labor curve is always upward sloping, like the supply curves of other items.
C) It is perfectly price elastic at the current wage rate.
D) An individual's supply of labor curve can bend backwards.
E) The supply of labor curve is shaped like an upside-down U.
Topic: Supply of labor, backward bending
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
5) Peyton is a personal trainer and works at several gyms in her neighborhood. Peyton's labor supply curve is shown above. Which of the following statements is TRUE regarding Peyton's labor supply?
i. Peyton is willing to supply more labor and give up leisure at wages between $50 and $75 per hour.
ii. Peyton will not work for less than $30 per hour.
iii. If the wage increases higher than $75 per hour, Peyton will choose to take more leisure.
A) i, ii and iii
B) ii only
C) iii only
D) i and ii
E) ii and iii
Topic: Supply of labor, backward bending
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
6) When more people remain in school for full-time education and training, the supply of low-skilled labor ________ and the supply of high-skilled labor ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Topic: Supply of labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
7) What is the effect on the supply of low-skilled labor of an increase in the number of people pursuing higher education?
A) It becomes more inelastic.
B) The supply of low-skilled labor decreases.
C) The supply of low-skilled labor increases.
D) It becomes more elastic.
E) None of the above answers is correct.
Topic: Supply of labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
8) According to a recent prediction in The Wall Street Journal the adult population of Russia will decline dramatically over the next few decades. If this prediction is correct, the supply of labor in Russia will
A) increase.
B) not change.
C) decrease.
D) become less elastic.
E) become more elastic.
Topic: Supply of labor
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
9) If the wage rate increases, then
A) the quantity of labor supplied definitely decreases.
B) there is a movement upward along the supply of labor curve.
C) the supply of labor curve shifts rightward.
D) the supply of labor curve shifts left ward.
E) the quantity of labor supplied definitely increases.
Topic: Supply of labor curve
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
10) A change in the wage rate
A) shifts the supply of labor curve so that the supply becomes more elastic.
B) shifts the supply of labor curve leftward.
C) shifts the supply of labor curve rightward.
D) does not shift the supply of labor curve but instead leads to a movement along it.
E) either shifts the supply of labor curve leftward or rightward depending whether the demand for labor curve shifts rightward or leftward.
Topic: Supply of labor curve
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
11) Which of the following shift the supply of labor curve leftward?
i. an advancement in technology
ii. a decrease in the price of the product that the labor produces
iii. a decrease in the adult population
A) i and ii
B) ii and iii
C) ii only
D) iii only
E) i, ii, and iii
Topic: Supply of labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
12) The figure above shows the market supply of labor curve. Which of the following might be the reason the labor supply curve shifted from S0 to S1?
A) an increase in technology
B) a decrease in technology
C) an increase in the number of women in the work force
D) a decrease in the adult population
E) an increase in the wage rate
Topic: Supply of labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
13) The figure above shows the market supply of labor curve. Which of the following might be the reason the labor supply curve shifted from S0 to S1?
A) an increase in technology
B) a decrease in technology
C) a decrease in the number of women in the work force
D) an increase in the adult population
E) an increase in the wage rate
Topic: Supply of labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
14) Suppose in Chicago, at the going wage rate of $16.00 an hour, the quantity of lifeguards demanded exceeds the quantity supplied by 13,000 lifeguards. As a result
A) there is a surplus of lifeguards in Chicago.
B) there is a shortage of lifeguards in Chicago.
C) the lifeguard labor market is in equilibrium in Chicago.
D) wage rates will probably fall in this market.
E) the demand for labor of lifeguards in Chicago will decrease.
Topic: Labor market equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
15) A surplus of workers occurs
A) when the wage rate exceeds the equilibrium wage rate.
B) when the wage rate is less than the equilibrium wage rate.
C) at the equilibrium wage rate.
D) whenever there is a shortage of goods.
E) whenever there is a surplus of goods.
Topic: Labor market equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
16) Suppose in Philadelphia the quantity of economists demanded is less than the quantity supplied by 2,000 economists. As a result
A) there is a shortage of economists in Philadelphia.
B) salaries for economists fall.
C) there is equilibrium in this market.
D) the labor supply curve for economists in Philadelphia is vertical.
E) the labor demand curve for economists in Philadelphia shifts rightward.
Topic: Labor market equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
17) If the supply of labor increases, then the equilibrium wage rate ________ and the equilibrium quantity of labor ________.
A) rises; increases
B) might rise, fall, or not change; increases
C) rises; might increase, decrease, or not change
D) falls; increases
E) falls; does not change
Topic: Labor market equilibrium
Skill: Level 4: Applying models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
18) If the demand for labor decreases, then the equilibrium wage rate ________ and the equilibrium quantity of labor ________.
A) falls; increases
B) might rise, fall, or not change; increases
C) rises; might increase, decrease, or not change
D) falls; decreases
E) falls; does not change
Topic: Labor market equilibrium
Skill: Level 4: Applying models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
19) If both the demand for labor and the supply of labor increase, then the equilibrium wage rate ________ and the equilibrium quantity of labor ________.
A) rises; increases
B) might rise, fall, or not change; increases
C) rises; might increase, decrease, or not change
D) falls; increases
E) falls; decreases
Topic: Labor market equilibrium
Skill: Level 4: Applying models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
20) If a union is able to organize workers in a competitive labor market but the union cannot affect the demand for its members' labor, then the wage rate ________ and the quantity of labor hired ________.
A) rises; increases
B) rises; decreases
C) rises; does not change
D) does not change; increases
E) falls; decreases
Topic: The effect of a union in the labor market
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
21) If a union restricts the supply of labor, it ________ the wage rate and ________ the level of employment.
A) raises; decreases
B) raises; increases
C) raises; does not change
D) lowers; decreases
E) lowers; increases
Topic: The effect of a union in the labor market
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
22) Unions ________ import restrictions and ________ a higher minimum wage.
A) favor; favor
B) are neutral toward; oppose
C) favor; oppose
D) oppose; favor
E) oppose; oppose
Topic: How unions try to change the demand for labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Revised
AACSB: Reflective thinking
23) Which of the following is a method used by unions to increase the demand for their members' labor?
A) Support import restrictions.
B) Decrease the marginal product of union members.
C) Increase imported goods and services
D) Oppose immigration restrictions.
E) Oppose minimum wage laws.
Topic: How unions try to change the demand for labor
Skill: Level 1: Definition
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
24) Which of the following methods is used by unions to increase the demand for the labor of its members?
A) Decrease the marginal product of union members
B) Support minimum wage laws
C) Support free trade
D) Support laws that increase immigration into the country
E) Decrease demand for the good produced
Topic: How unions try to change the demand for labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
25) A rise in the minimum wage increases the demand for union labor because this policy change
A) lowers the wage rate paid to union labor.
B) raises the productivity of union labor.
C) lowers the cost of a substitute for union labor.
D) lowers the productivity of union labor.
E) raises the cost of a substitute for union labor.
Topic: How unions try to change the demand for labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
26) The medical field requires doctors to pass exams in order to earn a license to practice medicine. This requirement ________ doctors' salaries because ________.
A) increases; the supply of doctors decreases and fewer doctors are employed
B) increases; the supply of doctors increases and as a result they are better trained
C) increases; the demand for doctors decreases because they charge higher prices
D) decreases; the supply of doctors decreases due to the tougher requirements
E) decreases; fewer people go to doctors because of the high prices
Topic: Supply of labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
27) Unions support immigration restrictions because the restrictions create
A) an increase in the supply of union labor.
B) a decrease in the supply of union labor.
C) unemployment.
D) an increase in the demand for union labor.
E) a decrease in the demand for union labor.
Topic: How unions try to change the demand for labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
28) Which of the following decreases the supply of labor that competes with union labor?
A) an increase in the minimum wage
B) an increase in the demand for imported goods
C) an increase in union members' productivity
D) new laws that restrict immigration
E) All of the above would decrease the supply of labor.
Topic: How unions try to change the demand for labor
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
29) Which of the following is NOT a method used by union to increase their members' wages?
A) Limit the supply of non-union workers.
B) Increase the demand for union workers.
C) Support minimum wage increases.
D) Increase union members' productivity.
E) None of the above because they are all methods unions use to increase their members' wages.
Topic: How unions try to change the demand for labor
Skill: Level 1: Definition
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
30) Which of the following is NOT a method by which unions try to increase the demand for the labor of their members?
A) increasing the marginal product of union members
B) increasing the supply of the goods produced by union labor
C) supporting minimum wage laws
D) supporting import restrictions
E) supporting immigration restrictions
Topic: How unions try to change the demand for labor
Skill: Level 1: Definition
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
31) An individual's labor supply curve eventually bends backward because at a high enough wage rate
A) people are willing to work more hours.
B) employers are willing to hire more workers.
C) people desire more leisure time.
D) very few workers are hired.
E) more people enter the labor market to search for jobs.
Topic: Supply of labor, backward bending
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
32) How does an increase in the adult population affect the labor market?
A) The demand for labor will become more inelastic.
B) The supply of labor will decrease.
C) The supply of labor will increase.
D) The demand for labor will decrease.
E) The demand for labor will increase.
Topic: Supply of labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
33) The supply of labor curve shifts leftward if
A) the population increases.
B) the demand for labor curve shifts leftward.
C) the supply of labor increases.
D) the wage rate falls.
E) the supply of labor decreases.
Topic: Supply of labor curve
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
34) If the wage rate is above the equilibrium wage rate, the quantity of labor demanded is ________ the quantity of labor supplied.
A) greater than
B) less than
C) equal to
D) the negative of
E) not comparable to
Topic: Labor market equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
35) The more people who remain in school for full-time education and training, the ________ is the ________ low-skilled labor.
A) smaller; demand for
B) smaller; supply of
C) larger; supply of
D) larger; demand for
E) less elastic; demand for
Topic: Training
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
36) If the supply of labor decreases, then the equilibrium wage rate ________ and equilibrium employment ________.
A) does not change; decreases
B) rises; increases
C) rises; decreases
D) falls; increases
E) falls; decreases
Topic: Labor market equilibrium
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
37) Of the following, a union is LEAST likely to support
A) an increase in the minimum wage rate.
B) laws that restrict immigration into the country.
C) on-the-job training that makes their members more productive.
D) laws that increase the quantity of the nation's imports.
E) programs that boost the demand for the goods and services their members produce.
Topic: How unions try to change the demand for labor
Skill: Level 1: Definition
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
19.3 Capital and Natural Resource Markets
1) Other things remaining the same, the
A) higher the rental rate of capital, the greater the quantity of capital demanded.
B) lower the rental rate of capital, the smaller the quantity of capital demanded.
C) higher the rental rate of capital, the smaller the quantity of capital demanded.
D) rental rate of capital and the quantity of capital demanded are not related.
E) higher the rental rate of capital, the more the demand for capital decreases.
Topic: Demand for capital
Skill: Level 1: Definition
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
2) When the rental rate for capital falls, the ________ capital ________.
A) demand for; increases
B) demand for; decreases
C) quantity demanded of; increases
D) quantity demanded of; decreases
E) supply of; increases
Topic: Demand for capital
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
3) An increase in the rental rate of capital ________ the quantity of capital demanded and ________ the quantity of capital supplied.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Topic: Demand and supply of capital
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
4) A technological change that raises the value of marginal product of capital ________ the rental rate for capital because the ________.
A) raises; supply curve of capital shifts leftward
B) lowers; supply curve of capital shifts rightward
C) raises; demand curve for capital shifts leftward
D) raises; demand curve for capital shifts rightward
E) lowers; demand curve for capital shifts leftward
Topic: Capital market equilibrium
Skill: Level 4: Applying models
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
5) Which of the following is TRUE about the market for capital?
A) The demand for capital curve is upward sloping and the supply of capital curve is downward sloping.
B) The supply of capital is perfectly elastic.
C) The supply of capital curve is upward sloping and the demand for capital curve is downward sloping.
D) The supply of capital curve is vertical and the demand for capital curve is downward sloping.
E) None of the above answers is correct.
Topic: Loanable funds markets
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
6) Land
A) is a nonrenewable resource.
B) has an elastic supply but not perfectly elastic.
C) is the only factor of production that is not traded in a market.
D) has a perfectly inelastic supply.
E) has a perfectly elastic supply.
Topic: Natural resources
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
7) Which of the following is a renewable resource?
i. a forest of pine trees grown by Georgia-Pacific
ii. oil reserves in Saudi Arabia
iii. salmon farmed in Norway
A) i and ii
B) ii and iii
C) i and iii
D) i, ii, and iii
E) i only
Topic: Natural resources
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Revised
AACSB: Reflective thinking
8) Considered as a factor of production, coal is a
A) form of physical capital.
B) type of embodied labor.
C) nonrenewable natural resource.
D) renewable natural resource.
E) form of financial capital.
Topic: Natural resources
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
9) The rental rate of land is the payment for the resource land. The lower the rental rate, the greater the
A) demand for land.
B) quantity demanded of land.
C) supply of land.
D) elasticity of supply for land.
E) quantity supplied of land.
Topic: Market for land, demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
10) If the supply of a factor is perfectly inelastic, then
A) no more than the existing quantity can be supplied.
B) the supply curve is horizontal.
C) sellers will provide whatever quantity is demanded at the going price.
D) a rise in price results in no quantity being supplied.
E) a fall in price results in no quantity being supplied.
Topic: Market for land, supply
Skill: Level 3: Using models
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
11) The aggregate quantity of land supplied
A) varies depending on its price.
B) depends on the buying and selling decisions of individuals.
C) is constantly increasing.
D) is fixed.
E) is perfectly elastic.
Topic: Market for land, supply
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
12) The market for land
A) has an elastic supply.
B) has a perfectly inelastic supply.
C) determines the equilibrium interest rate.
D) has an upward sloping supply curve.
E) has no equilibrium because both the demand curve and the supply curve are vertical.
Topic: Market for land, supply
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
13) Refer to the figures above to answer this question. Figure ________ represents the market for ________ because its supply is ________.
A) A; land; perfectly inelastic because the quantity of land is fixed
B) A; a nonrenewable resource; inelastic because reserves can always be discovered
C) B; land; inelastic given only a limited amount of land is available
D) B; a nonrenewable resource; demand changes as the economy changes
E) B; land; elastic as predicted by the Hotelling Principle
Topic: Land markets
Skill: Level 4: Applying models
Section: Checkpoint 19.3
Status: Old
AACSB: Analytical thinking
14) Refer to the figures above to answer this question. Figure B represents the market for ________ because ________, all else held the same.
A) land; landowners respond to higher rental rates by making more land available
B) a nonrenewable resource; as the interest rate increases, less of the resource is supplied
C) capital; the Hotelling Principle predicts that prices will vary inversely with the interest rate
D) land; the Hotelling Principle states rental rates will increase predictably over time
E) capital; as the rental rate increases, the quantity of capital supplied increases and the quantity of capital supplied decreases
Topic: Capital market
Skill: Level 4: Applying models
Section: Checkpoint 19.3
Status: Old
AACSB: Analytical thinking
15) The supply of land is perfectly ________ because no matter the amount of rent offered for land, the quantity of land is ________.
A) elastic; fixed
B) inelastic; fixed
C) elastic: renewable
D) inelastic; nonrenewable
E) elastic; nonrenewable
Topic: Market for land, supply
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
16) In the market for land, the supply curve is
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
E) U-shaped.
Topic: Market for land, supply
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
17) As the price of land rises, the quantity supplied
A) increases.
B) decreases.
C) at first increases and then decreases.
D) stays the same.
E) at first decreases and then increases.
Topic: Market for land, supply
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
18) In the market for land, an increase in demand ________ the equilibrium rent of land and ________ the equilibrium quantity.
A) raises; does not change
B) lowers; increases
C) raises; increases
D) does not change; increases
E) does not change; does not change
Topic: Market for land
Skill: Level 3: Using models
Section: Checkpoint 19.3
Status: Old
AACSB: Analytical thinking
19) The supply of nonrenewable natural resources is
A) perfectly inelastic.
B) perfectly elastic.
C) always elastic but not necessarily perfectly elastic.
D) inelastic at high prices and elastic at low prices.
E) elastic at high prices and inelastic at low prices.
Topic: Supply of a nonrenewable natural resource
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
20) The proposition that the price of a resource is expected to rise at a rate equal to the interest rate is called the
A) Discounted Value Proposition.
B) derived demand for productive resources.
C) diminishing marginal revenue product.
D) Interest Rate Theory.
E) Hotelling Principle.
Topic: Hotelling principle
Skill: Level 1: Definition
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
21) According to the Hotelling Principle, the price of an nonrenewable resource is expected to
A) fall slowly over time.
B) fall at a rate equal to the interest rate.
C) fluctuate randomly.
D) rise at a rate equal to the interest rate.
E) remain constant over time.
Topic: Hotelling principle
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
22) The price of an nonrenewable resource is expected to rise at a rate equal to the
A) rate of supply.
B) rate of population growth.
C) rate of technological change.
D) rate of demand.
E) interest rate.
Topic: Hotelling principle
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
23) According to the Hotelling Principle, the price of a nonrenewable resource is expected to
A) rise at a rate higher than the interest rate.
B) fall at a rate greater than the interest rate.
C) rise at a rate less than the interest rate.
D) rise at a rate equal to the interest rate.
E) fall at a rate equal to the interest rate.
Topic: Hotelling principle
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
24) If a nonrenewable natural resource's price is expected to increase at a rate faster than the interest rate, then the
A) owners will sell all that they can today.
B) owners will sell nothing today.
C) consumers will demand nothing today.
D) owners will sell their entire supply.
E) current price will probably fall.
Topic: Price and the hotelling principle
Skill: Level 3: Using models
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
25) If Saudi Arabia expects the price of oil to rise by a larger percentage than the interest rate, Saudi Arabia will ________. If Saudi Arabia expects the price of oil to rise by a smaller percentage than the interest rate, Saudi Arabia will ________.
A) hold oil off the market; want to sell oil today
B) want to sell oil today; hold oil off the market
C) decrease its demand for oil; increase its demand for oil
D) increase its demand for oil; decrease its demand for oil
E) None of the above answers is correct because the interest rate has nothing to do with Saudi Arabia's decisions in the oil market.
Topic: Price and the hotelling principle
Skill: Level 3: Using models
Section: Checkpoint 19.3
Status: Old
AACSB: Analytical thinking
26) The price of coal is currently $80 per ton and the interest rate is 10 percent per year. If next year's expected price is $86 per ton, a firm that owns 1,000 tons of coal
A) will sell all its coal now.
B) will sell none of its coal now but will sell it all next year regardless of the price next year.
C) will sell none of its coal now but might sell it all next year.
D) will sell half of the coal today and half of it next year.
E) might or might not sell the coal today, depending on the price the firm paid for the coal.
Topic: Price and the hotelling principle
Skill: Level 4: Applying models
Section: Checkpoint 19.3
Status: Old
AACSB: Analytical thinking
27) Over time, the actual (not expected) price of a nonrenewable natural resource
A) falls.
B) rises.
C) stays the same.
D) could rise, fall, or stay the same.
E) first rises and then falls.
Topic: Natural resources prices
Skill: Level 3: Using models
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
28) The equilibrium quantity of capital is
A) determined by only the supply of capital because the supply is perfectly inelastic.
B) determined by only the supply of capital because the supply is perfectly elastic.
C) expected to increase at the same rate as the interest rate.
D) determined by the supply of capital and the demand for capital.
E) the only factor of production whose quantity is not determined in a market.
Topic: Capital market
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
29) The supply of each particular block of land is
A) perfectly elastic.
B) unit elastic.
C) elastic but not perfectly elastic.
D) perfectly inelastic.
E) inelastic but not perfectly inelastic.
Topic: Market for land, supply
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
30) Oil is an example of
A) a nonrenewable natural resource.
B) a renewable natural resource.
C) physical capital.
D) a resource for which the true value cannot be measured.
E) a resource with a perfectly inelastic demand.
Topic: Nonrenewable natural resources
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
31) The demand for a nonrenewable resource is
A) determined by the value of its marginal product.
B) fixed and cannot change.
C) perfectly inelastic.
D) perfectly elastic.
E) not defined because the resource can be used only once.
Topic: Nonrenewable natural resources
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
32) A producer's supply of a nonrenewable natural resource is
A) always decreasing because the resource is always being used.
B) perfectly inelastic.
C) perfectly elastic.
D) not relevant because nonrenewable resources are used only once.
E) determined by the value of the resource's marginal product.
Topic: Nonrenewable natural resources
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
19.4 Chapter Figures
The figure above shows a firm's VMP curve.
1) Suppose that a new technology doubles the marginal product of the workers and the price of the product does not change. As a result, the value of marginal product of the second worker
A) remains $12.
B) becomes $6.
C) becomes $24.
D) becomes $30.
E) More information about the supply of labor is needed to answer the question.
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
2) Suppose that the price of the product doubles and the marginal product of the workers does not change. As a result, the value of marginal product of the second worker
A) remains $12.
B) becomes $6.
C) becomes $24.
D) becomes $30.
E) More information about the supply of labor is needed to answer the question.
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
3) Suppose that the price of the product rises. As a result
A) there is a movement upward along the curve, such as a movement from point C to point B.
B) there is a movement downward along the curve, such as a movement from point C to point D.
C) the curve shifts rightward.
D) the curve shifts leftward.
E) More information is needed to answer the question.
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
4) Suppose that new technology raises the workers' marginal product. As a result
A) there is a movement upward along the curve, such as a movement from point C to point B.
B) there is a movement downward along the curve, such as a movement from point C to point D.
C) the curve shifts rightward.
D) the curve shifts leftward.
E) More information is needed to answer the question.
Topic: Value of marginal product
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
The figure above shows a labor market in which a union has formed.
5) Labor unions' support for import restrictions represents an attempt to shift the
A) labor demand curve from LD0 to LD1.
B) labor demand curve from LD1 to LD0.
C) labor supply curve from LS0 to LS1.
D) labor supply curve from LS1 to LS0.
E) None of the above answers is correct.
Topic: Labor unions
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
6) Labor unions' support for increasing the minimum wage represents an attempt to shift the
A) labor demand curve from LD0 to LD1.
B) labor demand curve from LD1 to LD0.
C) labor supply curve from LS0 to LS1.
D) labor supply curve from LS1 to LS0.
E) None of the above answers is correct.
Topic: Labor unions
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
7) Labor unions' support for programs that increase their members' marginal products represents an attempt to shift the
A) labor demand curve from LD0 to LD1.
B) labor demand curve from LD1 to LD0.
C) labor supply curve from LS0 to LS1.
D) labor supply curve from LS1 to LS0.
E) None of the above answers is correct.
Topic: Labor unions
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
19.5 Integrative Questions
1) The value of marginal product of labor curve
A) is upward sloping because firms want to hire more workers to increase production.
B) shows the price of a factor of production multiplied by the amount of the factor employed.
C) is the same as a firm's supply of labor curve.
D) is downward sloping if each additional worker's marginal product is decreasing.
E) is U-shaped.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
2) Which rule does the United Corporation use when maximizing profit?
A) Employ all resources until the value of their marginal products is equal.
B) If the value of the marginal product of labor exceeds the wage rate, hire fewer workers.
C) Hire labor up to point at which the value of marginal product of labor equals the wage rate.
D) Reduce the wage rate until it equals the marginal product of labor.
E) Hire labor up to point at which the value of marginal product of labor equals the price of the good or service the labor produces for United Corporation.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
3) The supply of labor curve for nurses shifts if
A) the wage rate paid nurses increases.
B) there is an increase in the time spent in nursing school.
C) the value of marginal product of nurses increases.
D) the value of marginal product of nurses decreases.
E) the marginal product of nurses decreases.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
4) The demand for labor curve of nurses shifts rightward if the
A) value of marginal product of nurses increases.
B) wage rate paid to nurses rises.
C) supply of labor curve for nurses shifts leftward.
D) wage rate paid to nurses falls.
E) supply of labor curve for nurses shifts rightward.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
5) Which of the following curves is most inelastic?
A) the supply of land
B) the supply of labor for an individual worker
C) the supply of labor for all workers
D) the demand for capital
E) the demand for labor
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
19.6 Essay: The Demand for a Factor of Production
1) Why is the demand for labor a "derived demand"?
Topic: Derived demand
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
2) What is the value of marginal product of labor? What is the formula that can be used to calculate? How does the value of the marginal product affect how much labor a firm hires?
Topic: Value of marginal product
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
3) "As the quantity of labor hired increases, the value of marginal product stays constant as long as the wage rate is constant for all workers." Is the previous statement correct or incorrect? Explain your answer.
Topic: Value of marginal product
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
4) "The decision to employ an additional unit of labor depends on whether the value of marginal product of labor is greater than or less than the wage rate." Is the previous statement correct or incorrect?
Topic: Value of marginal product
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
5) What is the relationship between a firm's value of marginal product curve of labor and its demand for labor curve? Explain why this relationship exists.
Topic: Demand for labor curve
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
6) What factors other than the wage rate influence the demand for labor? How is demand affected by changes in these factors?
The demand for labor is based on the value of marginal product of labor, which is equal to the marginal product times the price. When the price of the firm's output increases, the value of marginal product of labor increases, making hiring more workers profitable. So when the price of the firm's output increases, so does its demand for labor.
The prices of other factors of production also influence the demand for labor. The different factors of production can be substitutes for each other. For instance, if the price of capital falls relative to the wage rate, a firm will substitute capital for labor, which will decrease the demand for labor. However, if the cheaper capital results in a large increase in production, it is possible that the demand for labor will increase.
Technology can either increase or decrease the demand for labor, depending on whether the technology allows firms to replace workers with capital (which decreases the demand for labor) or makes the labor more productive (which increases the demand for labor).
Topic: Demand for labor
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
7) What factors shift the demand for labor curve? Briefly describe the effect of each.
When the prices of other factors of production change, the demand for labor changes. When the price of capital rises, the firm is motivated to use more labor and less capital. The firm's demand for labor increases and the demand for labor curve shifts rightward. When the price of capital falls, more capital is demanded and, unless the fall in the price of capital increases the scale of the firm's operations, less labor is demanded. The demand for labor curve shifts leftward.
Changes in technology affect the demand for labor in a more complex way. Depending on the type of advance in technology, the demand for different types of labor might increase or decrease. If the demand for a type of labor increases, its demand curve shifts rightward; if the demand for another type of labor decreases, its demand curve shifts leftward.
Topic: Demand for labor
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
8) "In order for Charlie Trotter's, an upscale restaurant in Chicago, to maximize profit from the employment of chefs, the restaurant should hire chefs up to the point where the value of marginal product of chefs equals the wage rate for chefs." Is the statement correct or incorrect?
Topic: Profit maximization
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
9) Why does a profit-maximizing firm hire labor up to the point where the value of marginal product equals the wage rate?
Topic: Profit maximization
Skill: Level 3: Using models
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
10) Why do baseball players make so much money, while kindergarten teachers in private schools make so much less? In your answer, discuss the value of marginal product and the actions of profit-maximizing firms.
The value of marginal product of labor is the marginal product of labor multiplied by the price of the output the laborer produces. While it is fairly difficult to measure the marginal product of a kindergarten teacher (the benefits of his or her work take years to appear), it is clear that the price that can be charged is much lower than the price that can be charged for baseball games. Why? Mr. Rodriguez works in front of thousands upon thousands of people each night who have paid, in some cases, large sums of money to watch him play baseball. Businesses are willing to pay millions to advertise their products in the stadium where Mr. Rodriguez works. Even more businesses are willing to pay millions of dollars to advertise their products on television when Mr. Rodriguez appears in a game. This means networks are willing to pay hundreds of millions if not billions of dollars to have the right to show him and other players work.
When is the last time a kindergarten teacher taught in front of 40,000 screaming fans? How often do cookie and milk companies pay huge sums to advertise in his or her classroom? Have you ever seen a corporation pay millions to advertise on a televised presentation of his or her kindergarten lectures? How many networks clamor to show the lessons he or she offers to the kids?
Because Alex Rodriguez generates far more revenue for his employer than any kindergarten teacher, his value of marginal product is far greater. The result? The intense competition from profit-maximizing baseball team owners for "A-Rod's" services mean that in December 2007 Mr. Rodriguez signed a contract that will pay him $275,000,000 over the next 10 years to play baseball. A kindergarten teacher, making an average of $25,000 per year would have to teach for more than 1,000 years to earn that much money.
Topic: Profit maximization
Skill: Level 5: Critical thinking
Section: Checkpoint 19.1
Status: Old
AACSB: Written and oral communication
11) How does a firm's demand for labor change if the price of the firm's product increases? Relate your answer to the value of marginal product.
Topic: Demand for labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Reflective thinking
12) The table below has the marginal product schedule for a firm. If the price of the product is $2 a unit, complete the table. If the wage rate is $8 an hour, how many workers does the firm hire?
If the wage rate is $8 an hour, the firm hires 4 workers because that is the quantity that sets the value of marginal product equal to the wage rate.
Topic: Value of marginal product
Skill: Level 4: Applying models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
13) The table above shows the total product schedule for Shines Car Wash. The market for car washes is perfectly competitive and car washes sell for $5 each. The labor market is competitive and the wage rate is $50 per day. What is the value of marginal product for each worker? How many workers does the firm hire to maximize profit?
The value of marginal product is the marginal product multiplied by the price of a car wash. The value of marginal product schedule is given in the table above. To maximize its profit, when the wage rate is $50 per day, Shines Car Wash hires 2 workers because at this point the value of marginal product equals the wage rate.
Topic: Value of marginal product
Skill: Level 4: Applying models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
14) The table below has the marginal product schedule for Nick's Pizza.
a. If pizza sells for $8 each, complete the last column of the table.
b. If Nick can hire workers at the going wage rate of $16 an hour, how many workers does Nick hire?
a. The completed table is above.
b. Nick hires 4 workers because that is the quantity of workers that sets the value of the marginal product equal to the wage rate.
Topic: Value of marginal product
Skill: Level 4: Applying models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
15) Tom and Mary grow tomatoes. They can hire different numbers of college students to help plant, cultivate, and harvest the tomatoes. The table below gives their marginal product schedule.
a. If the price of a pound of tomatoes is $2 a pound, complete the first value of marginal product column in the table. If Tom and Mary must pay their workers $10 an hour, how many workers do they hire?
b. If the price of a pound of tomatoes falls to $1 a pound, complete the second value of marginal product column in the table. If Tom and Mary still must pay their workers $10 an hour, how many workers do they hire?
c. When the price of a pound of tomatoes falls, what happens to Tom and Mary's demand for labor curve?
a. The completed table is above. Tom and Mary hire 4 workers because that is the number of workers that sets the value of marginal product equal to the wage rate.
b. The completed table is above. Tom and Mary hire 2 workers because that is the number of workers that sets the value of marginal product equal to the wage rate.
c. When the price of a pound of tomatoes falls, Tom and Mary's demand for labor decreases and their demand for labor curve shifts leftward.
Topic: Value of marginal product
Skill: Level 4: Applying models
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
16) A worker has a marginal product of 15 units a day, each of which can be sold for $10. Is it profitable to hire this worker if the wage rate is $100 a day? Briefly explain your answer.
Topic: Profit maximization
Skill: Level 2: Using definitions
Section: Checkpoint 19.1
Status: Old
AACSB: Analytical thinking
19.7 Essay: Labor Markets
1) Why might an individual decrease the quantity of labor he or she supplies when the wage rate increases? Briefly explain your answer.
Topic: Supply of labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
2) In order to spend more time with her children, a young mother decides to work fewer hours as her pay increases. What does her labor supply curve look like?
Topic: Supply of labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
3) Explain why an individual's labor supply curve is backward bending.
Topic: Supply of labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
4) As the population of Las Vegas increased, what happened to the supply of labor and the supply curve of labor in Las Vegas?
Topic: Supply of labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Reflective thinking
5) What happens to the supply of labor when more people pursue education and training? Be sure to discuss what happens to both the supply of low-skilled and high-skilled labor.
Topic: Supply of labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
6) The Small Bookshop hires teenagers who love books. How does each of the following changes affect the supply and demand for workers for the Small Bookshop?
a. The Big Bookshop, a chain bookstore down the street, offers a higher wage rate.
b. More people buy books from Amazon.com.
c. People watch more television and read fewer books.
d. More older people who love to read move into the area where the Small Bookshop is located.
a. The supply of workers for Small Bookshop decreases and the supply curve shifts leftward.
b. The demand for books from Small Bookshop decreases. The price of books at the Small Bookshop falls and so the demand for workers decreases.
c. Similar to part (c), the demand for workers decreases.
d. An increase in the population of readers increases the demand for books and thus increases the demand for workers at the Small Bookstore.
Topic: Demand and supply of labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
7) What tools can unions use to increase the demand for union labor?
Topic: How unions try to change the demand for labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
8) Why does an increase in the minimum wage increase the demand for union labor?
Topic: How unions try to change the demand for labor
Skill: Level 2: Using definitions
Section: Checkpoint 19.2
Status: Old
AACSB: Written and oral communication
9) The above figure represents the market for professional minor-league baseball umpires.
a. If umpires are offered $90 a game, what is the quantity of umpires supplied?
b. If umpires are offered $90 a game, is there a surplus or shortage of games umpired? What does the shortage or surplus equal?
c. What is the equilibrium wage rate and quantity of umpires?
a. The quantity of umpires supplied is 20 umpires.
b. At $90 a game, there is a shortage of umpires. The shortage equals the quantity demanded, 50 umpires, minus the quantity supplied, 20 umpires, for a shortage of 30 umpires.
c. The equilibrium wage rate is $120 a game and the equilibrium quantity is 40 umpires.
Topic: Labor market equilibrium
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
10) The above figure represents the market for teenage workers at fast-food restaurants in Kansas City.
a. What is the equilibrium wage rate and employment?
b. Describe the market at a wage rate of $6 per hour.
c. Describe the market at a wage rate of $12 an hour.
d. How would an increase in the number of young, married college graduates, who tend to eat at fast-food restaurants, affect the figure, the equilibrium wage rate, and employment?
a. The equilibrium wage rate is $8 an hour and the equilibrium quantity of employment is 4,000 workers.
b. If the wage rate is $6 an hour, the quantity of labor supplied is less than the quantity of labor demanded. There is a shortage in the market.
c. If the wage rate is $12 an hour, the quantity of labor supplied is greater than the quantity of labor demanded. There is a surplus in the market.
d. An increase in the number of people who eat in fast-food restaurants will increase the demand for workers at fast-food restaurants. As a result the demand for labor curve will shift rightward and the equilibrium wage rate and equilibrium quantity of employment will both increase.
Topic: Labor market equilibrium
Skill: Level 3: Using models
Section: Checkpoint 19.2
Status: Old
AACSB: Analytical thinking
19.8 Essay: Capital and Natural Resource Markets
1) If the quantity of capital supplied exceeds the quantity of capital demanded, what takes place?
Topic: Loanable funds market equilibrium
Skill: Level 2: Using definitions
Section: Checkpoint 19.3
Status: Old
AACSB: Reflective thinking
2) Why is the supply of an nonrenewable natural resource perfectly elastic?
Topic: Supply of a nonrenewable natural resource
Skill: Level 3: Using models
Section: Checkpoint 19.3
Status: Old
AACSB: Written and oral communication
3) What is the Hotelling Principle? Have resource prices behaved as the principle predicts?
Topic: Hotelling principle
Skill: Level 3: Using models
Section: Checkpoint 19.3
Status: Old
AACSB: Written and oral communication
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Connected Book
Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade
By Robin Bade