Purdue University North Central

Economics 210

Review Questions - Chapter 8 - The Labor Market

(1) A higher wage rate implies:

(a) a shift in an individual’s labor supply curve.

(b) a shift in the derived demand for labor.

(c) a movement down the Marginal Revenue Product for Labor curve.

(d) an increase in the opportunity cost of leisure.

(2) Suppose McDonald’s finds that it will receive only 10 applicants for a new restaurant location at a wage of $8.00 per hour. However, if it doubles the wage to $16.00 per hour, the number of applicants rises to 200. In this case, the labor supply curve is:

(a) upward sloping.

(b) downward sloping.

(c) upward sloping and vertical, indicating a limited response of labor supply to increased wages.

(d) None of the above are true.

(3) Which of the following would not change the demand for labor, other things being equal?

(a) An increase in the price of output produced by labor.

(b) An increase in the productivity of labor at all rates of labor input.

(c) An increase in the wage paid to labor.

(d) None of the above.

(4) The marginal physical product of labor decreases as more labor is hired because of:

(a) the law of diminishing returns.

(b) a decrease in total output.

(c) a decrease in the skills of the additional workers hired.

(d) the law of diminishing marginal utility.

(5) The marginal revenue product of labor curve is the firm’s:

(a) marginal physical product of labor curve divided by the wage rate.

(b) labor demand curve.

(c) total revenue curve.

(d) labor supply curve.

(6) If the marginal physical product of an additional unit of labor is 3 units per hour, product price is constant at $6 per unit, and the wage rate is $15 hour, then:

(a) the additional unit of labor should be employed.

(b) the additional unit of labor should not be employed because it costs more than it brings in, in terms of extra revenue.

(c) the employer should maintain existing workers on staff and not increase or decrease workforce as profits are at a maximum.

(d) None of the above.

(7) A rightward shift in the marginal revenue product of labor curve could be caused by:

(a) a decrease in the product price.

(b) a decrease in the availability of factors other than labor in the production process.

(c) an increase in the productivity of labor.

(d) an increase in the willingness of labor to work more hours at the existing wage rates.

(8) What will happen to wages and the level of employment in a market when the government eliminates a minimum wage, ceteris paribus?

(a) Wages will rise but employment will fall.

(b) Wages will fall but employment will rise.

(c) Both wages and employment will fall.

(d) Both wages and employment will rise.

Consider Figure 1 in answering Questions (9) and (10).

Figure 1

90 100 108 114 Quantity of Labor

(workers)

(9) In Figure 1, the equilibrium wage is:

(a) $8.00 per hour.

(b) $10 per hour.

(c) $12 per hour.

(d) $14 per hour.

(10) In Figure 1, a minimum wage of $12 will result in:

(a) a shortage of 10 workers.

(b) a surplus of 18 workers.

(c) a shortage of 8 workers.

(d) a surplus of 8 workers.