Test Bank Answers Chapter 10 The Minimum Wage

c10; Chapter 10: The Minimum Wage

Learning Objectives:

LO-1: Define the minimum wage

LO-2: Describe the history of the minimum wage

LO-3: Describe the difference between the real and nominal values of the labor market

LO-4: Explain why minimum wage laws are controversial

LO-5: Describe research finding regarding impacts of the minimum wage

Multiple Choice

1. Which of the following best defines the minimum wage?
   1. The minimum annual salary a worker can make
   2. The minimum wage a worker can make
   3. The minimum annual salary an employer can provide a worker
   4. The minimum wage an employer can legally pay a worker

LO-1

Level: Easy

1. The minimum wage is
   1. A Price ceiling
   2. A Price floor
   3. A Price maximum
   4. Both A and C

LO-1

Level: Easy

1. The lowest wage that employers can legally pay workers is
   1. The price ceiling for salaries
   2. The minimum wage
   3. The historical trend for wages
   4. Dependent upon state labor law

LO-1

Level: Easy

1. Which of the following is true about the federal minimum wage law?
   1. Only the federal government can issue a federal minimum wage requirement.
   2. The minimum wage requirement allows for more flexibility in hiring decisions.
   3. Some states also have minimum wage laws.
   4. Middle income workers are most impacted by minimum wage laws.

LO-1

Level: Easy

1. The ___________________ established minimum wages in the United States.
   1. Federal Reserve Act
   2. Federal Employees’ Compensation Act
   3. Occupational Safety and Health Act
   4. Fair Labor Standards Act

LO-2

Level: Easy

1. The real value of the minimum wage reached its peak in
   1. 1968
   2. 1978
   3. 1988
   4. 2008

LO-2

Level: Moderate

1. The current federal minimum wage is
   1. $4.75 per hour
   2. $5.15 per hour
   3. $6.55 per hour
   4. $7.25 per hour

LO-2

Level: Easy

1. Which of the following is a true statement?
   1. The federal minimum wage has been increased every five years since it was introduced in 1938.
   2. The nominal value of the minimum wage was consistently matched purchasing power.
   3. Because rising prices has eroded purchasing power of the minimum wage, the real value of the minimum wage has fallen since its peak in 1968.
   4. The real value of the minimum wage has increased steadily over the past few decades due to inflation.

LO-2

Level: Moderate

1. For the minimum wage to be applicable to its purpose it must be
   1. Set above equilibrium wage
   2. Set below equilibrium wage
   3. Equal to equilibrium wage
   4. Equal to marginal product of labor

LO-4

Level: Moderate

1. Expressed in current dollar values this is not adjusted for inflation.
   1. Nominal value of the minimum wage
   2. Real value of the minimum wage
   3. Absolute value of the minimum wage
   4. Comparative value of the minimum wage

LO-3

Level: Easy

1. This is expressed in constant dollar.
   1. Nominal value of the minimum wage
   2. Real value of the minimum wage
   3. Absolute value of the minimum wage
   4. Comparative value of the minimum wage

LO-3

Level: Easy

1. Refer to Figure 1. This would explain the difference between the nominal minimum wage and the real minimum wage.
2. Unemployment
3. Changes in the labor law
4. Inflation
5. The Fair Labor Standards Act

LO-3

Level: Difficulty

1. Because the minimum wage is a ___________________ a surplus of workers exists and _________________ is created.
   1. price ceiling; inflation
   2. price ceiling; unemployment
   3. price floor; inflation
   4. price floor; unemployment

LO-1

Level of Difficulty

1. A ___________________ is created when the minimum wage is _______________ market equilibrium.
   1. shortage; above
   2. surplus; above
   3. shortage; equal
   4. surplus; equal

LO-4

Level: Moderate

1. The minimum wage would have no impact if it is set _____________ market equilibrium.
   1. above
   2. below
   3. equal to
   4. inversely to

LO-4

Level: Moderate

1. You own Collegiate Chow, a local burger joint that is one of many such eateries in your town. You pay an average of $8 per hour to your workers. The minimum wage is $7.25 per hour. The Congress votes in a cut in the minimum wage to $6.50 per hour. Because of this legislation what of the following would be an appropriate action?
   1. Lower wages to $6.50 per hour
   2. Increase wages to $8.50 per hour
   3. Pay $7.25
   4. Do nothing

LO-4

Level: Difficult

1. The primary reason in support of minimum wage laws is
   1. They provide a means to reduce poverty
   2. They provide a means of establishing a legal working age
   3. They provided a way of controlling unreported income
   4. They provide a means of increasing union wages

LO-4

Level: Easy

Reference: Use the graph to answer questions 18-24.

1. If the market wage is set at W₁ consumer surplus is
   1. W₁AF.
   2. W₁AB.
   3. W₁AH.
   4. W₁DH.

LO-5

Level: Difficult

1. If the market wage is set at W₁ producer surplus is
   1. W₁AF.
   2. W₁AB.
   3. W₁AH.
   4. W₁DH.

LO-5

Level: Difficult

1. If a minimum wage is set at W₂ consumer surplus is
   1. W₁AF.
   2. W₁AB.
   3. W₂BF.
   4. W₂HAB.

LO-5

Level: Difficult

1. If a minimum wage is set at W₂ producer surplus is
   1. W₁AF.
   2. W₁AB.
   3. W₂BF.
   4. HW₂BE.

LO-5

Level: Difficult

1. The number of people unemployed because of the minimum wage is
   1. the value of B – E.
   2. the value of B – A.
   3. the value of C – B.
   4. the value of E – A.

LO-5

Level: Difficult

1. The deadweight loss from the minimum wage is represented by the area of
   1. BCA.
   2. EBA.
   3. GBA.
   4. EGA.

LO-5

Level: Difficult

1. How many people would lose their job as a result of this minimum wage?
   1. Q₀
   2. Q₁ – Q₂
   3. Q₀ – Q₁
   4. Q₂ – Q₁

LO-5

Level: Difficult

1. A common criticism of the minimum wage is because
   1. they conflict with labor union laws.
   2. they can cause shortages in certain labor markets.
   3. they reduce the number of job openings.
   4. they reduce efforts for more equitable income distribution.

LO-5

Level: Easy

1. Losers from the minimum wage laws include all of the following except
   1. businesses.
   2. consumers.
   3. workers.
   4. all of these may lose from minimum wage laws.

LO-5

Level: Moderate

1. All of the following are arguments for minimum wage laws except
   1. they help the poor by increasing their incomes.
   2. the increase in income does not come at the expense of taxpayers.
   3. they provide better work incentives.
   4. they create a surplus in the labor market.

LO-4

Level: Easy

1. All of the following are arguments against minimum wage laws except
   1. minimum wage laws do not reduce poverty but reduces social welfare instead.
   2. minimum wage laws contributes to contributes to federal costs of transfer programs.
   3. minimum wage laws tend to discourage firms from investing in training.
   4. minimum wages tend to provide incentives to businesses to invest in capital substitutes.

LO-4

Level: Moderate

1. According to research the demographic group most affected by minimum wage changes is
   1. the elderly.
   2. females entering the workforce.
   3. teenagers.
   4. adult males ages 20 – 24.

LO-5

Level: Easy

1. Research on the impacts of the minimum wage has focused on all of the following except
   1. immigration.
   2. poverty.
   3. employment.
   4. school enrollment.

LO-5

Level: Easy

1. According to research the relatively small impacts of the minimum wage on employment results from the relatively ______________ demand and supply of labor in minimum wage labor markets.
   1. elastic
   2. inelastic
   3. unit elastic
   4. comparatively elastic

LO-5

Level: Moderate

Essay

1. Proponents of the minimum wage law claim that the minimum wage is no longer able to support working families and should be returned to the 1968 value. Provide an explanation for this claim.

LO-1

Level: Moderate