SparkNotes: Review of Labor Markets: Review Test

1. Which group makes up labor supply?

(A) Workers

(B) Firms

(C) Unions

(D) Sellers

2. Which of the following do firms set equal to the wage level in order to maximize their revenue?

(A) Total Cost

(B) Average Variable Cost

(C) Marginal Revenue of Labor

(D) Marginal Revenue Product of Labor

3. If the MRP of labor at a firm is $5 an hour, and the wage is $4 an hour, what should the firm do?

(A) Hire more workers

(B) Fire more workers

(C) Stay at the current level of employment

(D) Cut back on hours of work

4. If the MRP of labor at a certain firm is $10 and the wage is $10 an hour, what should the firm do?

(A) Hire more workers

(B) Ask for more hours of work

(C) Cut back on hours of work

(D) Stay at the current level of employment

5. If the MRP of labor at a particular firm is $7 an hour, and the wage is $8 an hour, what should the firm do?

(A) Hire more workers

(B) Fire more workers

(C) Ask for more hours of work

(D) Stay at the current rate of employment

6. What does the law of diminishing returns mean, when applied to the MRP of labor?

(A) Workers enjoy work less as they work longer hours

(B) Firms make less profit as they sell more product

(C) Firms get less revenue per worker when they hire more workers

(D) Firms pay workers less as they hire more workers

7. A firm's labor demand curve will be the same as which of the following?

(A) The aggregate labor demand curve

(B) The MRP of labor curve

(C) The AVC curve

(D) The MP of labor curve

8. When the wage drops, what will firms most likely do?

(A) Nothing

(B) Fire more workers

(C) Hire more workers

(D) Diversify into new markets

9. Goods X and Y are complementary goods. The price of Good X decreases. What probably happens to the wages of workers in the Y industry?

(A) Wage increases

(B) Wage decreases

(C) Wage stays the same

(D) Wage decreases, then increases

10. Goods X and Y are substitute goods. What probably happens to the wages of workers in the Y industry when the price of X increases?

(A) Nothing

(B) Wage decreases, then increases

(C) Wage decreases

(D) Wage increases

11. Which of the following will NOT cause an increase in wages for workers in the automobile industry?

(A) A decrease in gasoline prices

(B) A drop in motorcycle prices

(C) An increase in bus fares

(D) An increase in automobile demand

12. Why is it unlikely that a drop in the price of jet fuel would drastically affect the wages of workers in the airplane industry?

(A) Because jet fuel and airplanes are complementary goods

(B) Because workers would enter the airplane industry, offsetting the drop in wages

(C) Because workers would leave the airplane industry, offsetting the drop in wages

(D) Because airplane manufacturers would hire more workers

13. Which of the following most resembles a minimum wage?

(A) Tax

(B) Tariff

(C) Price ceiling

(D) Price floor

14. Which will most likely be caused by a minimum wage?

(A) Labor surplus

(B) Labor shortage

(C) New labor market equilibrium

(D) Goods and services shortage

15. Which group is a minimum wage most likely to hurt?

(A) CEO's

(B) Office managers

(C) Electrical Technicians

(D) Assembly line workers

16. Which of the following can act as a deterrent to work long hours?

(A) Minimum wage

(B) Progressive income tax

(C) Sales tax

(D) Increase in price of goods

17. Which of the following may cause a drop in the unemployment rate?

(A) A drop in income taxes

(B) An increase in labor supply

(C) A drop in the minimum wage

(D) An increase in the minimum wage

18. Why does a minimum wage raise the unemployment rate?

(A) Not everyone wants to work for minimum wage

(B) Not everyone is productive enough to earn the minimum wage

(C) No firm wants to pay any of its workers such a high wage

(D) The market wage is well above the minimum wage

19. When deciding how much to work, workers must choose between:

(A) Consumption and leisure

(B) Labor and leisure

(C) Consumption and labor

(D) Labor and all other goods

20. Leisure is

(A) An inferior good

(B) A Giffen good

(C) A complementary good

(D) A normal good

21. Some economists believe that the labor supply curve can be

(A) Backward-bending

(B) U-shaped

(C) Downward-sloping

(D) Forward-bending

22. If the substitution effect is stronger than the income effect, the labor supply curve will be

(A) Backward-bending

(B) Downward-sloping

(C) Horizontal

(D) Upward-sloping

23. If the substitution effect is initially stronger than the income effect, and then the income effect is stronger than the substitution effect at high wage levels, then the labor supply curve will be:

(A) Parabolic

(B) Backward-bending

(C) Upward-sloping

(D) Downward-sloping

24. Which of the following will NOT influence a worker's choice between consumption and leisure?

(A) MRP of labor

(B) Individual preferences

(C) Wage level

(D) Income effect

25. Which curves help determine a worker's leisure/consumption decisions?

(A) MRP of labor curve and labor demand curve

(B) Labor supply curve and MRP of labor

(C) Budget constraint and labor demand curve

(D) Indifference curves and budget constraint

26. A consumption/leisure decision is most like:

(A) A purchasing decision

(B) A hiring decision

(C) A production decision

(D) A firing decision

27. What is labor, from a worker's point of view?

(A) A normal good

(B) A substitute good

(C) Complement to leisure

(D) A means to an end

28. Workers use their indifference curves and budget constraints to:

(A) Decide what goods to buy

(B) Optimize their consumption/leisure decisions

(C) Optimize their job selection decisions

(D) Choose their investment plans

29. An increase in wages will cause a worker's budget constraint to:

(A) Shift out

(B) Shift in

(C) Pivot out

(D) Pivot in

30. Labor is inversely related to:

(A) Consumption

(B) Leisure

(C) All other goods

(D) Savings

31. When wages increase, the substitution effect will:

(A) Decrease consumption

(B) Decrease all other goods

(C) Increase labor

(D) Increase leisure

32. When wages drop, the income effect will:

(A) Decrease leisure

(B) Decrease labor

(C) Increase leisure

(D) Increase consumption

33. When wages rise, the income effect will:

(A) Increase labor

(B) Decrease leisure

(C) Decrease consumption

(D) Increase consumption

34. When wages drop, the substitution effect will:

(A) Increase labor

(B) Increase leisure

(C) Increase consumption

(D) Increase all other goods

35. Wages are the price of:

(A) Consumption

(B) Savings

(C) Leisure

(D) Labor

36. Which is usually stronger at low wage levels, the substitution effect or the income effect?

(A) They are the same

(B) It is uncertain

(C) Income effect

(D) Substitution effect

37. Horizontal addition can be used to find:

(A) The aggregate labor demand curve

(B) A firm's labor demand curve

(C) A worker's labor supply curve

(D) A worker's optimal consumption/leisure decision

38. Cameras and film are complementary goods. What happens to labor demand in the camera industry when the price of film increases?

(A) Increases

(B) Holds steady

(C) Decreases

39. Jackets and ties are complementary goods. What happens to the MRP of labor in the tie industry when the price of jackets goes down?

(A) Increases

(B) Decreases

(C) Holds steady

40. Vitamins and sweatshirts are normal goods. What happens to the wages of workers in the vitamins industry when the price of sweatshirts goes up?

(A) Increase

(B) Decrease

(C) Unaffected

41. If the MRP of labor is greater than the wage, that means that:

(A) The firm is making a net profit

(B) The labor being used is profitable

(C) The firm is making a net loss

(D) The labor being used is not profitable

42. If there is no minimum wage, who sets the market wage?

(A) Workers

(B) Firms

(C) No one specifically

(D) Labor supply

43. To which of the following does the law of diminishing returns apply?

(A) MRP of labor

(B) Wage level

(C) Aggregate labor demand

(D) Budget constraint

44. Which of the following workers generates the most MRP of labor?

(A) Tenth worker

(B) Fourth worker

(C) Sixth worker

(D) Third worker

45. If a firm is hiring workers correctly, then the last worker will have an MRP of labor of:

(A) 0

(B) 1

(C) -1

(D) It is uncertain

46. Firms use what intersection to determine their labor demand?

(A) Wage and Average Cost

(B) Average Cost and Average Revenue

(C) MRP of labor and Labor Supply

(D) Wage and MRP of labor

47. If the market wage is above the minimum wage, which of the following will NOT be true?

(A) There will be a surplus of labor

(B) Labor supply will equal labor demand

(C) Unskilled workers will not be affected by the minimum wage

(D) Skilled workers will not be affected by the minimum wage

48. A drop in the price of paper causes the MRP of labor of paper workers to:

(A) Increase

(B) Stay the same

(C) Decrease

49. Which of the following combinations would most likely lead to a drop in hiring at a bookstore?

(A) Increased wage and decreased book prices

(B) Decreased wage and decreased book prices

(C) Increased wage and increased book prices

(D) Decreased wage and increased book prices

50. Why can't a worker's budget constraint shift in or out?

(A) Maximum consumption is fixed

(B) Wages are fixed

(C) Labor is fixed

(D) Maximum leisure is fixed

Review of Supply and Demand

Review Test