Economics 251

Revised Review Questions Chapter 28 Wage Determination

 

(1)                 If the nominal wages of carpenters rose by 5 percent in 2000 and the price level increased by 3 percent, then the real wages of carpenters:

 

(a)                 decreased by 2 percent.

(b)                 increased by 2 percent.

(c)                 increased by 3 percent.

(d)                 increased by 8 percent.

 

(2) Over the long run, real earnings per worker can increase only at about the same rate as the economy's rate of growth of:

 

(a)                 total output.

(b)                 stock of capital.

(c)                 real output per worker.

(d)                 international trade.

 

Consider Table 1 in answering Questions (3) and (4).

Table 1

Marginal Product Marginal Wage

Employment Product Price Revenue Product Employment Rate

0 0 $3 0 $11

1 14 $3 1 $11

2 12 $3 2 $11

3 9 $3 3 $11

4 7 $3 4 $11

5 4 $3 5 $11

6 2 $3 6 $11

 

(3) On the basis Table 1, we can say that:

(a)                 the firm's labor supply curve is upward sloping.

(b)                 the firm has market power in the labor market.

(c)                 the firm is selling its product in a purely competitive market.

(d)                 the firm is selling its product in an imperfectly competitive market.

 

(4) In Table 1, the firm will maximize profits by employing:

(a)                 5 workers

(b)                 4 workers

(c)                 3 workers

(d)                 2 workers.

 

(5) A firm can hire 6 workers at a wage rate of $8 per hour but must pay $9 per hour to all of its employees to attract a seventh worker. The marginal wage cost of the seventh worker is:

 

(a)                 $9

(b)                 $10

(c)                 $15

(d)                 $21

 

(6) Compensating differences in wages pay workers for:

(a)                 differences in worker training and skills.

(b)                 differences in nonmonetary characteristics of jobs.

(c)                 geographic immobilities.

(d)                 All of the above.

Consider Table 2 in answering Questions (7) and (8).

Table 2

Total Product Total Marginal Rev. Wage Wage Marg.

Employment Product Price Revenue Product Empl. Rate Bill Res.Cost

0 0 $2.20 0 --- ____ ____

1 15 $2.00 1 $1.00 ____ ____

2 28 $1.80 2 $2.00 ____ ____

3 39 $1.60 3 $3.00 ____ ____

4 48 $1.40 4 $4.00 _____ ____

5 55 $1.20 5 $5.00 _____ _____

6 60 $1.20 6 $6.00 _____ _____

 

(7) In Table 2, how many workers will this firm choose to employ?

 

(a)                 6

(b)                 5

(c)                 4

(d)                 3

 

(8) In Table 2, how many units of output will the firm produce?

 

(a)                 60

(b)                 55

(c)                 48

(d)                 22

 

 

(9) Human capital is best defined as:

 

(a)                 the productive skills and knowledge that workers acquire from education and training.

(b)                 the substitution of labor for machinery in the productive process.

(c)                 any piece of machinery that must be combined with labor to be productive.

(d)                 the exchange of money for real assets.

 

(10) For the firm, the major goal of profit sharing plans is to:

 

(a)                 force workers to incur some of the business risk.

(b)                 overcome the problem of having to pay higher wages to attract additional workers.

(c)                 overcome the principal-agent problem by better aligning the workers' interests with those of the firm.

(d)                 reduce total compensation payments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consider Figure 1 in answering Questions (11), (12), (13) and (14). Figure 1

 

 

$s/Hour

 

20

 

 

15

 

 

10

 

Quantity of Labor

(Hours)

 

3,000 5,000 6,000

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(11) If this were a perfectly competitive labor market in Figure 1, the equilibrium wage rate and level of employment would be:

(a)                 $15 and 3,000 respectively.

(b)                 $15 and 5,000 respectively.

(c)                 $20 and 6,000 respectively.

(d)                 $10 and 3,000 respectively.

 

(12) If this were a monopsonistic labor market in Figure 1, the equilibrium wage and level of employment would be:

(a)                 $10 and 3,000 respectively.

(b)                 $20 and 6,000 respectively.

(c)                 $15 and 5,000 respectively.

(d)                 $15 and 3,000 respectively.

 

(13) If there were a perfectly competitive labor market, and an inclusive union was formed in Figure 1, and monoposony did not exist, and the monopolist union was able to secure a $20 wage rate with all employers, then

(a)                 employment would be reduced from 5,000 hours to 3,000 hours.

(b)                 employment would be increased from 5,000 hours to 6,000 hours.

(c)                 employment would be unchanged

(d)                 the wage rate would be increased to $20 for all employees currently employed.

 

(14) If there was a bilateral monopoly in this labor market, with monopsonistic power on the employer's side, and monopoly power in terms of an inclusive union, what are the consequences in Figure 1?

(a) Employment would be reduced from the monoposonistic power case.(number 12 above)

(b) Wages would be reduced from the monoposonistic power case.(number 12 above).

(c) There would be an increase in wages and employment, but this would depend on the outcome of negotiations between union labor and the monoposonistic employer

(d) Wages would increase up to the union's demand of $20 per hour.