Examination 4
Microeconomics

These multiple choice questions are from the exam bank. If you believe one or more answers are not correct, then speak with the instructor. He is human and makes mistakes.

Lesson 12 - The Resource Market

1. The demand for airline pilots results from the demand for air travel. This fact is an example of:

A. resource substitutability.
B. rising marginal resource cost.
C. elasticity of resource demand.
D. the derived demand for labor.

2. The demand for a resource depends primarily on:

A. the supply of that resource.
B. the demand for the product or service that it helps produce.
C. the price of that input.
D. the elasticity of supply of substitute inputs.

3. The MRP curve for labor:

A. intersects the firm's labor demand curve from above.
B. is the firm's labor demand curve.
C. lies below the firm's labor demand curve.
D. lies above the firm's labor demand curve.

4. Marginal product is:

A. the output of the least skilled worker.
B. a worker's output multiplied by the price at which each unit can be sold.
C. the amount an additional worker adds to the firm's total output.
D. the amount any given worker contributes to the firm's total revenue.

5. Assume that a restaurant is hiring labor in an amount such that the MRC of the last worker is $16 and her MRP is $12. On the basis of this information we can say that:

A. profits will be increased by hiring additional workers.
B. profits will be increased by hiring fewer workers.
C. marginal revenue product must exceed average revenue product.
D. the restaurant is maximizing profits.

6. The MRP curve is the resource demand curve for:

A. neither the purely competitive nor the imperfectly competitive seller.
B. the imperfectly competitive seller, but not the purely competitive seller.
C. the purely competitive seller, but not the imperfectly competitive seller.
D. both the purely competitive and imperfectly competitive seller.

7. If two resources are highly substitutable for one another:

A. a decrease in the price of one will increase unit costs of production.
B. an increase in the price of one will increase the demand for the other.
C. an increase in the price of one will reduce the demand for the other.
D. a decline in the price of one will increase the demand for the other.

8. Elasticity of resource demand is measured by the:

A. absolute change in resource quantity demanded divided by the absolute change in resource price.
B. percentage change in resource quantity demanded divided by the percentage change in resource price.
C. absolute change in resource price divided by the absolute change in resource quantity demanded.
D. percentage change in resource price divided by the percentage change in resource quantity demanded.

9. The labor demand curve of a purely competitive seller:

A. slopes downward because the elasticity of demand is always less than unity.
B. slopes downward because of diminishing marginal productivity.
C. is perfectly elastic at the going wage rate.
D. slopes downward because of diminishing marginal utility.

10. Marginal resource cost is:

A. the increase in total resource cost associated with the production of one more unit of output.
B. the increase in total resource cost associated with the hire of one more unit of the resource.
C. total resource cost divided by the number of inputs employed.
D. the change in total revenue associated with the employment of one more unit of the resource.

11. Economists refer to expenditures on training, education, and skill development designed to increase the productivity of an individual as:

A. Overhead expenditures.
B. Investments in human capital.
C. Non-exhaustive expenditures.
D. Social capital.

12. An unexpected decrease in the demand for accountants will lead to a(n):

A. Increase in the earnings of accountants.
B. Increase in the incentive of students to prepare for a career in accounting.
C. Reduction in the future supply of accountants.
D. Increase in the employment opportunities of accountants.

13. If businesses found that changing economic conditions made it attractive for them to hire a larger number of economics majors, we would expect:

A. Economics majors to receive a greater return on their human capital investment.
B. An increase in the employment opportunities for economics majors.
C. Higher wages for economics majors.
D. All of the above.

14. If a construction boom leads to an increase in the price of lumber, how will the higher prices influence the wood furniture market?

A. The demand for wood furniture will decline and furniture prices will fall.
B. There will be a shortage of wood furniture.
C. There will be a surplus of wood furniture.
D. The supply of wood furniture will decline and furniture prices will increase.

15. If the firm has a MP = 5 and a MR = $5, how much revenue will one more unit of labor contribute if this firm hires another employee?

A. The MRP = $1.
B. The MRP = $5.
C. The MRP = $25.
D. Not enough information is given.

Answers:

Lesson 13 - The Labor Market

1. Increases in the productivity of labor result partly from:

A. the law of diminishing returns.
B. improvements in technology.
C. reductions in wage rates.
D. increases in the quantity of labor.

2. The real wage will rise if the nominal wage:

A. falls more rapidly than the general price level.
B. increases at the same rate as labor productivity.
C. increases more rapidly than the general price level.
D. falls more rapidly than the general price level.

3. The economic term for a sole employer in a nonunion community is:

A. monopsonist.
B. monopolist.
C. bilateral competitor.
D. bilateral monopolist.

4. Which of the following is most likely to be an example of monopsony?

A. the market for fast-food workers in a large summer resort town.
B. the market for card dealers in Las Vegas.
C. the market for major league baseball umpires.
D. the market for retail sales clerks in a major city.

5. Other things equal, the monopsonistic employer will pay a:

A. lower wage rate and hire fewer workers than will a purely competitive employer.
B. higher wage rate but hire fewer workers than will a purely competitive employer.
C. lower wage rate but hire a larger number of workers than will a purely competitive employer.
D. higher wage rate and hire a larger number of workers than will a purely competitive employer.

6. A monopsonist pays a wage rate that is:

A. less than the MRP of labor.
B. equal to the firm's marginal resource (labor) cost.
C. equal to the MRP of labor.
D. greater than the MRP of labor.

7. In a labor market characterized by bilateral monopoly the wage rate will:

A. be logically indeterminate.
B. be established at the level desired by the union.
C. be established at the level desired by the employer.
D. always be established at the competitive level.

8. Wage differentials can arise from:

A. both the demand-side and supply-side of labor markets.
B. the demand-side of labor markets only.
C. the supply-side of labor markets only.
D. neither the demand-side or supply-side of labor markets.

9. Compensating differences in wages:

A. compensate workers for differences in their human capital.
B. are wage differences that compensate for differences in the desirability of jobs.
C. describe the tendency for the wages of all occupations to adjust to the median level.
D. do not exist if jobs have different nonmonetary characteristics.

10. Data on education and earnings reveal:

A. negative age-earnings profiles for male workers.
B. no relationship between the two.
C. a positive relationship between the two.
D. a negative relationship between the two.

11. The principal-agent problem arises in labor markets because:

A. a firm may realize excessively large profits.
B. workers may provide less-than-expected work effort.
C. compensating wage differences do not pay for differences in the nonmonetary aspects of jobs.
D. human capital investments vary among workers.

12. Which one of the following best exemplifies the principal-agent problem in the employer-employee relationship?

A. A worker takes 20 minute coffee-breaks although the employer allots only 15 minutes for this purpose.
B. A worker is on the job 50 hours per week although only 40 hours are required for promotion.
C. A worker opts for early retirement in response to the firm's incentive plan.
D. A worker's productivity is independent of the wage paid.

13. Author Joe Writer receives $2 per book sold. This payment is a(n):

A. piece rate.
B. royalty.
C. bonus.
D. example of profit-sharing.

14. A firm might choose to pay its employees a wage higher than that which would clear the market because:

A. the higher wage raises the opportunity cost of shirking.
B. the higher wage may shift the labor demand curve to the left.
C. the firm will have higher turnover, allowing "new blood" to invigorate older workers who have a greater tendency to shirk.
D. this policy reduces the proportion of experienced to inexperienced workers, resulting in a lower overall wage bill.

15. Benefits mandated by the government are most likely paid for by:

A. The government through direct subsidies.
B. The employer in the form of lower profits.
C. The worker through reductions in other components of the wage package.
D. Material suppliers in the forms of lower resource prices.

Answers:

Lesson 14 - Market Failure and Government Intervention

1. Unlike a private good, a public good:

A. has no opportunity costs.
B. has benefits available to all, including nonpayers.
C. produces no positive or negative externalities.
D. is characterized by rivalry and excludability.

2. Which of the following is an example of a public good?

A. a weather warning system
B. a television set
C. a sofa
D. a bottle of soda

3. The market system does not produce public goods because:

A. there is no need or demand for such goods.
B. private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.
C. public enterprises can produce such goods at lower cost than can private enterprises.
D. their production seriously distorts the distribution of income.

4. Because of the free-rider problem:

A. the market demand for a public good is overstated.
B. the market demand for a public good is nonexistent or understated.
C. government has increasingly yielded to the private sector in producing public goods.
D. public goods often create moral hazard and adverse selection problems.

5. A demand curve for a public good is determined by:

A. summing vertically the individual demand curves for the public good.
B. summing horizontally the individual demand curves for the public good.
C. combining the amounts of the public good that the individual members of society demand at each price.
D. multiplying the per-unit cost of the public good by the quantity made available.

6. A positive externality or spillover benefit occurs when:

A. product differentiation increases the variety of products available to consumers.
B. the benefits associated with a product exceed those accruing to people who consume it.
C. a firm produces at the P = MC output.
D. economic profits are zero in the long run.

7. The Coase theorem:

A. applies only to circumstances in which externalities are extensive and bargaining costs are high.
B. holds that the median voter will decide the outcome of elections.
C. states that in some circumstances majority voting can yield inconsistent results.
D. suggests that in some circumstances government intervention is not needed to resolve externality problems.

8. The tendency for society to overuse and therefore abuse common resources is called the:

A. law of conservation of matter and energy.
B. law of diminishing returns.
C. tragedy of the commons.
D. the Coase theorem.

9. The Clean Air Act of 1990:

A. places taxes on utilities emitting sulfur dioxide, the major cause of acid rain.
B. sets aside billions of dollars to promote recycling.
C. allows utilities to buy and sell sulfur dioxide emission credits provided by government.
D. places taxes on producers who emit toxic chemicals.

10. As it applies to insurance, the adverse selection problem is the tendency for:

A. those most likely to collect on insurance to buy it.
B. those who buy insurance to take less precaution in avoiding the insured risk.
C. sellers to price discriminate.
D. sellers to restrict output and charge high prices.

11. As it applies to insurance, the moral hazard problem is the tendency for:

A. those most likely to collect on insurance to buy it.
B. those who buy insurance to take less precaution in avoiding the insured risk.
C. sellers to price discriminate.
D. sellers to restrict output and charge high prices.

12. Professional buyers of antiques often have more information about the value of antique objects than do the sellers. This illustrates:

A. the Coase theorem.
B. the moral hazard problem.
C. the free-rider problem.
D. asymmetric information.

13. Alex, Kara, and Lucian are the only three people in a community and Alex is willing to pay $20 for the 5th unit of a public good; Kara, $15, and Lucian, $25. Government should produce the 5th unit of the public good if the marginal cost is less than:

A. $25.
B. $15.
C. $60.
D. $300.

14. If the marginal benefit for government to build a new highway is $5 million, but the new highway would cost $10 million, what should government do?

A. government should build the highway.
B. government should not build the new highway.
C. government should build the highway and raise taxes on people who will use the highway.
D. not enough information is given.

15. What is global warming?

A. The earth is becoming warmer, because of the buildup of greenhouse gases in the atmosphere.
B. The earth is becoming cooler, because greenhouse gases are accumulating in the atmosphere.
C. The earth is becoming warmer, because the amount of greenhouse gases in the atmosphere is decreasing.
D. The belief that the earth will enter another ice age.

Answers: