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Bonita has hired Janet to clean houses for her housekeeping service business. Janet is paid $11 per hour,
and she cleans 8 houses per week. Bonita receives a fee of $60 for every house cleaned.
The value of Janet's marginal product equals:
A. $660 per week.
B. $600 per week.
C. $480 per week.
D. $440 per week.
 
Peter Piper's Personal Pan Pizza sells pizza at a price of $5 per pizza. Its marginal product of labor
curve is given by the equation MPL= 10 - 2L, where L is the number of hours of labor.
The market determined wage rate is $20 per hour.
How many units of labor should the firm hire in order to maximize its profits?
A. one hour of labor
B. 3 hours of labor
C. 5 hours of labor
D. 7 hours of labor
 
What is true for those for whom leisure is a normal good?
A. The labor supply curve always slopes up.
B. The labor supply curve always slopes down.
C. The income effect of a wage change always moves in the same direction as the substitution effect.
D. The income effect of a wage change always moves in the opposite direction from the substitution effect.
 
When wage levels are not consistent with marginal productivity theory, it is often because:
A. fact that the model of profit-maximization does not apply to a firm's hiring decisions.
B. fact that firms do not know what the marginal product of labor is.
C. there is discrimination in labor markets and some firms choose to pay efficiency wages.
D. some workers to seek the highest paying jobs available, regardless of their own abilities.
 
How is the market for labor affected when the selling price of the product decreases?
A. The demand for labor decreases, and the number of workers hired decreases.
B. The demand for labor decreases, and the number of workers hired increases.
C. The demand for labor increases, and the number of workers hired decreases.
D. The demand for labor increases, and the number of workers hired increases.
 
Which of the following statements is not correct?
A. Economic growth is best measured by the annual percentage change in nominal GDP per capita.
B. An economy producing along the production possibilities curve is operating at its potential output.
C. Economic growth is a crucial determinant of people's well-being.
D. If the quality of labor improves, an economy's production possibilities curve will shift outward.
 
Which of the following would be evidence of an efficiency wage?
A. a surplus of labor in that market
B. a shortage of labor in that market
C. a high turnover of labor in that market
D. an outcome in which workers earn the value of their marginal product
 
A New York Times article observed that the wage of farmworkers in Mexico is $11 an hour,
but the wage of immigrant Mexican farmworkers in California is $9 an hour.
Assume that the output sells for the same price in the two countries. Does this imply that
the marginal product of labor of farmworkers is higher in Mexico or in California?
A. We cannot tell where the marginal product of labor is higher.
B. The marginal product of labor in Mexico is the same as it is in California.
C. The marginal product of labor in Mexico is higher than in California.
D. The marginal product of labor in Mexico is lower than in California.
 
A New York Times article observed that the wage of farmworkers in Mexico is $11 an hour,
but the wage of immigrant Mexican farmworkers in California is $9 an hour.
Assume that the output sells for the same price in the two countries.
Now suppose that farm work in Mexico is more arduous and more dangerous than farm work in California.
As a result, the quantity supplied of labor for any given wage rate is not the same for Mexican farmworkers
as it is for immigrant Mexican farmworkers in California. Does this imply that the marginal product of labor
of farmworkers is higher in Mexico or in California?
Think about this, then determine which of the following responses is INCORRECT:
A. We can infer that the higher wages paid to Mexican farmworkers is evidence that they have higher marginal product than their peers in California.
B. The difference in wages is a compensating differential that compensates Mexican farmworkers for the greater difficulty and danger they face.
C. We cannot infer that the higher wages paid to Mexican farmworkers is evidence that they have higher marginal product than their peers in California.


Assume that the output sells for the same price in the two countries.
Now suppose that farm work in Mexico is more arduous and more dangerous than farm work in California.
As a result, the quantity supplied of labor for any given wage rate is not the same for Mexican farmworkers
as it is for immigrant Mexican farmworkers in California.
Illustrate this situation with a diagram. In this diagram, assume that the quantity of labor demanded for any given
wage rate is the same for Mexican employers as it is for Californian employers.
Based on your diagram, choose the correct statement.
A. The supply curve of labor for Mexican farmworkers is the same as the supply curve of their California peers.
B. The supply curve of labor for Mexican farmworkers lies below and to the left of the supply curve of their California peers.
C. The supply curve of labor for Mexican farmworkers lies above and to the right of the supply curve of their California peers.
 
Suppose that a huge wave of corporate downsizing leads many terminated employees to open
their own businesses. What is the effect on the factor distribution of income?
A. The share of income going to compensate employees will diminish and the share going to
proprietors' income will increase.
B. The share of income going to compensate employees will increase and the share going to
proprietors' income will diminish.
C. There will be no effect on the factor distribution of income.
D. The share of income going to compensate employees and the share going to proprietors' income will both diminish.


Suppose the supply of labor rises due to an increase in the retirement age. What happens to the
percentage of national income received in the form of compensation of employees?
A. It is not clear whether more or less national income is paid to workers in terms of compensation.
B. The same percentage of national income is paid to workers in terms of compensation.
C. Less national income is paid to workers in terms of compensation.
D. More national income is paid to workers in terms of compensation.
 
When observing economic growth and literacy rates, it is clear that:
A. economic growth causes higher literacy rates.
B. economic growth may be a consequence of improved education.
C. improved levels of education may be the result of increasing economic growth.
D. all of the above are likely to be true.
 
Dale and Dana work at a self-service gas station and convenience store.
Dale opens up every day, and Dana arrives later to help stock the store.
They are both paid the current market wage of $9.50 per hour.
But Dale feels he should be paid much more because the revenue generated from the gas pumps
he turns on every morning is much higher than the revenue generated by the items that Dana stocks.
Assess this argument by choosing the correct response.
A. Dale's argument is correct
B. Dale's argument is incorrect
C. Dale's argument is incorrect
D. Dale is correct because his product (gas pumps) bring in more revenue than Dana's products.
 
Which of the following is correct?
A. An increase in the quantity of labor always leads to economic growth.
B. Increased education adds to the stock of human capital, not unlike building factories adds to the stock of physical capital.
C. A decrease in the productivity of labor leads to economic growth.
D. Japan and Hong Kong are rich in natural resources.
 
Which of the following is not considered a factor contributing to economic growth?
A. Growth in the quantity and quality of labor resources used
B. Growth in physical capital inputs (machines, tools, buildings, and inventories)
C. Growth in the money supply relative to the growth of final goods and services
D. Government protection of property rights
 
Which of the following is not considered a factor that contributes to economic growth?
A. increased labor productivity
B. increased infant mortality rates
C. technological advances
D. the migration of resources from areas of low productivity to areas of high productivity
 
Which of the following is not considered a significant factor contributing to economic growth by economists today?
A. work effort is less intense in the heat of the tropics
B. an increase in the quantity of physical capital C. increased use of land inputs
D. greater division of labor and specialization
 
Which of the following factors contribute to economic growth?
A. growth in physical capital
B. technological advances
C. an increase in the productivity of labor
D. all of the above
 
The value of the marginal product of labor curve:
A. slopes downward because of diminishing marginal returns.
B. slopes downward because of the substitution effect.
C. gives the supply of labor.
D. gives the opportunity cost of acquiring human capital.
 
Which of the following factors contribute to economic growth?
A. the construction of new factories
B. an increase in the proportion of the population that is college-educated
C. a decrease in the productivity of labor
D. only (a) and (b).
 
The labor supply curve can have a positive slope because:
A. workers become more productive over time.
B. the quantity of labor supplied in a market rises along with an increase in the wage.
C. firms generate more revenue when they hire more workers.
D. unionized workers are more productive than those who are not union members.
 
In a labor market in equilibrium, the wage earned by a bicycle mechanic is equal to the:
A. value of the marginal product of the last bicycle mechanic hired in an equilibrium market outcome.
B. average marginal product of all employees in the bicycle industry times the average price of a bicycle.
C. value of the marginal product of the average bicycle mechanic.
D. opportunity cost of any human capital the bicycle mechanic has acquired.
 
The improvement in labor created by education and knowledge is referred to as:
A. the factor distribution of income.
B. human capital.
C. the value of the marginal product.
D. productivity investment.
 
A firm decides how many workers to hire based on the:
A. idea of profit maximization.
B. idea of cost minimization.
C. goal of maximizing the marginal product of labor.
D. goal of maximizing the value of the marginal product of labor.
 
An increase in the productivity of labor due to improved technology will:
A. result in a lower wage.
B. decrease the quantity of labor hired.
C. decrease the demand for labor.
D. increase the demand for labor.
 
Efficiency wages are observed when the goal of the employer is to:
A. motivate workers.
B. end discrimination.
C. create an outcome beneficial to society.
D. avoid paying workers for the human capital the employer has acquired.
 
In the United States, the share of factor income going to the compensation of employees was approximately _____ percent in 2010.
A. 31
B. 49
C. 66
D. 17
 
Many scholars believe that the importance of research and development is understated. Efforts in research and development can include:
A. the introduction of new products.
B. management improvements.
C. production innovations.
D. any of the above.
 
Technology can enable producers to economize on:
A. labor.
B. capital.
C. land.
D. any of the above.
 
The Malthusian prospect of starvation of the population could be prevented by:
A. increasing the amount of land available for agriculture.
B. investing in research and development of new technologies.
C. expanding food production on available land.
D. all of the above
 
In factor markets:
A. firms supply and demand labor.
B. households demand labor and firms supply labor.
C. firms demand labor and households supply labor.
D. households supply and demand labor.
 
Which of the following is not considered a factor contributing to economic growth?
A. Growth in the quantity and quality of labor resources used
B. Growth in physical capital inputs (machines, tools, buildings, and inventories)
C. Growth in the money supply relative to the growth of final goods and services
D. Government protection of property rights
 
A profit-maximizing price-taking firm will hire workers up to the point where:
A. MC = W.
B. MR = W.
C. VMPL = W.
D. VMPL = P.
 
Which of the following statements is true?
A. Labor supply is determined solely by economic factors, not by social norms.
B. Increased urbanization has decreased the number of women in the work force.
C. Over the past century, Americans have increased the amount of leisure time consumed.
D. When wages are higher, leisure time is less costly in terms of opportunity cost.
 
The quantity of labor supplied by ski instructors will increase when wages increase if the:
A. substitution effect dominates.
B. income effect dominates.
C. substitution effect exactly offsets the income effect.
labor supply curve for ski instructors is negatively sloped.
D. substitution effect dominates.
 
Josh and Chris both have law degrees from the same university and have similar class rankings.
Chris has been working as a lawyer for 10 years and Josh just started his law career.
The fact that Chris earns more than Josh is due to:
A. age discrimination.
B. compensating differentials.
C. differences in abilities.
D. differences in human capital.
 
The quantity of labor supplied by carpenters will decrease when wages increase if:
A. the substitution effect dominates.
B. the income effect dominates.
C. the substitution effect exactly offsets the income effect.
D. leisure is an inferior good for carpenters.
 
Which one of the following will cause the production possibilities curve to shift outward?
A. improved public education
B. improved health care systems
C. larger budgets for research, development, and exploration
D. all of the above
 
In a competitive labor market, the marginal cost of employing another worker is the:
A. worker's marginal product.
B. average variable cost plus the average fixed cost of the output the worker produces.
C. worker's average product.
D. worker's wage.
 
A firm's demand for labor curve has a negative slope because of increasing returns to labor. This is _____.
A. True
B. False
 
If a lawyer's wage decreases, the opportunity cost of her leisure time increases. This is _____.
A. True
B. False
 
Suppose the wage paid to delivery couriers increases from $13.50 to $15.00 per hour. In response,
A. Ahmed asks for a reduction in his weekly hours and Zelda asks for an increase in her weekly hours.
Based on this information, one can conclude that:
A. Ahmed is a more productive worker than Zelda.
B. for Zelda, the income effect dominates.
C. for Ahmed, the income effect dominates.
D. Zelda is a more productive worker than Ahmed.
 
Which one of the following will determine the size of the production possibilities curve?
A. amount of labor
B. amount of capital
C. entrepreneurship
D. all of the above
 
The labor supply curve of hair stylists shifts to the right when:
A. there is an increase in the quantity of their labor supplied at any given wage rate.
B. there is a decrease in the quantity of their labor supplied at any given wage rate.
C. the wage rate for hair stylists decreases.
D. the wage rate for hair stylists increases.
 
Efficiency wages are a type of:
A. discrimination.
B. market failure.
C. factor of production.
D. compensating differential.
 
Compensating differentials partly explain:
A. how unions derive their bargaining leverage.
B. why some people are willing to work in dangerous jobs.
C. how income and substitution effects interact.
D. why there is income inequality.
 
A major league baseball team pays its first baseman $8 million per year.
The team owner knows that the team sells an additional 200,000 seats per year due to this
player's presence on the team, (and this is the only additional revenue generated by this player).
The team's profit increases by retaining this player with his $8 million contract as long as the average seat price is at least:
A. $25.
B. $32.
C. $35.
D. $40.
 
Which of the following did not result in economic growth?
A. Installing a network of irrigation ditches and pumping stations in order to grow fruits and vegetables in parts of southern California
B. Cyrus McCormack inventing a threshing machine for harvesting grains
C. After World War II, the U.S. instituting the GI bill, which provided education subsidies to soldiers being released from service duty
D. Many citizens emigrating from a nation when a politically repressive regime takes office
 
Werner wants to pay efficiency wages to ensure a high quality of construction for his new
beach home. If the prevailing wage rate for electricians is $22 per hour in his area, he would
have to pay which of the following amounts to satisfy an efficiency wage concept?
A. $25
B. $20
C. $11
D. the minimum wage
 
In countries with low levels of income:
A. the opportunity cost of an education is higher than in high-income countries.
B. illiteracy rates are higher than in high-income countries.
C. economies are primarily agricultural-based.
D. all of the above tend to be true.
 
Improvements in literacy stimulate economic growth by:
A. reducing the barriers to the flow of information.
B. improving the flow of resources to more productive uses.
C. imparting skills, which raises labor productivity.
D. doing all of the above.
 
Higher levels of savings will result in all of following except:
A. greater economic growth.
B. higher capital formation.
C. more consumption in the future.
D. lower rates of investment.
 
Sonia works 30 hours per week at a gift shop. Her hourly wage is rises from $10 to $12, and she is
offered the option of increasing her total work hours. Given that leisure is a normal good for Sonia,
she will choose to increase the number of hours she works only if:
A. the income effect of the wage change outweighs the substitution effect of the wage change.
B. the substitution effect of the wage change outweighs the income effect of the wage change.
C. her labor supply curve is downward sloping.
D. she views $12 an hour as an efficiency wage.
 
Suppose the government lowers the income tax rate. If leisure is a normal good, this decision will
increase the quantity of labor supplied only if the:
A. income effect and substitution effects both move in the same direction.
B. income effect is greater than the substitution effect.
C. substitution effect is greater than the income effect.
D. income and substitution effect are both zero.
C (substitution effect is greater than the income effect.)
 
Which one of the following will not cause the production possibilities curve to shift outward?
A. improvements in the stock of land
B. increased educational opportunities
C. a very low birth rate
D. increased entrepreneurial activity
 
Which of the following is not a factor of production?
A. land
B. labor
C. steel
D. human capital
 
When a person becomes more educated and is able to produce a better
product, the person's education is referred to as:
a)            land.
b)            physical capital.
c)            labor.
d)            human capital. <<<
 
Which of the following is an input in the production of croissants?
a)            dough mixers
b)            pastry chefs
c)            Flour <<<
d)            ovens
 
Human capital is the improvement in ________ created by ________.
a)            labor; education and knowledge <<<
b)            labor; physical capital
c)            physical capital; technology
d)            labor; management
 
To maximize profits a firm will employ workers up to the point at
which for the last worker employed:
a)            the value of the marginal product is as high as possible.
b)            the value of the marginal product is equal to the price per unit of output.
c)            marginal product is equal to the nominal wage rate.
d)            the value of the marginal product is equal to the wage rate. <<<
 
The amount that an additional unit of a factor adds to a firm's total revenue is called:
a)            marginal cost.
b)            additional revenue product.
c)            marginal revenue
d)            value of the marginal product <<<<
 
The amount by which an additional unit of a factor increases the firm's
total revenue during a period is the:
a)            marginal physical product.
b)            value of the marginal product. <<<
c)            marginal factor cost.
d)            average product.
 
If a firm is hiring labor such that W > VMPL, then profit:
a)            is maximized.
b)            can be increased by decreasing the price of the output.
c)            can be increased by hiring less labor. <<<
d)            can be increased by hiring more labor.
 
Actual wage differentials can be partially explained by which of the following?
a)            compensating differentials
b)            different amounts of human capital
c)            differences in talent, different amounts of human capital, and by compensating differentials <<<
d)            differences in talent
 
A nurse willing to work the midnight to 8 A.M. shift may make more than one who
works 8 A.M. to 4 P.M. because of:
a)            market power.
b)            efficiency wages.
c)            compensating differentials. <<<
d)            discrimination.
 
Factor markets do all of the following EXCEPT:
determine the factor distribution of income.
direct factors to the uses where they are most highly valued.
set prices for factors.
eliminate the opportunity cost of using inputs.
eliminate the opportunity cost of using inputs.
 
The quantity of labor supplied by carpenters will decrease when wages increase if:
the substitution effect dominates.
the substitution effect exactly offsets the income effect.
the income effect dominates.
leisure is an inferior good for carpenters.
the income effect dominates.
 
If the productivity of farm workers increases because they have more machinery to use and larger farms
to cultivate, the wage of farm workers will:
be indeterminate.
increase.
decrease.
remain the same.
increase.
 
Amy and Rachel are both nurses with the same education and years of experience. Amy works an 8 hour  shift
4 days a week and Rachel works 16 hours shifts on the weekend. The fact that Rachel earns a higher hourly wage
than Amy is MOST likely due to:
compensating differentials.
 
The production function shows that:
total product decreases as more workers are hired.
marginal product decreases as more workers are hired.
each worker adds to output by as much as did the previous worker.
marginal product increases as more workers are hired.
 
Suppose the wage paid to delivery couriers increases from $13.50 to $15.00 per hour. In response, Ahmed
asks for a reduction in his weekly hours and Zelda asks for an increase in her weekly hours.
Based on this information, one can conclude that:
for Ahmed, the income effect dominates.
Ahmed is a more productive worker than Zelda.
Zelda is a more productive worker than Ahmed.
for Zelda, the income effect dominates.
 
Which wage disparity is BEST explained as a compensating differential?
Professional athletes earn more than office workers.
Night-shift workers at a factory earn more than day-shift workers.
Workers with more seniority earn more than newly hired employees.
College graduates earn more than workers with no education beyond a high school diploma.
 
Given the production function for harvesting bushels of corn, the marginal product of the third worker is _____ bushels.
7
 
Which wage disparity is BEST explained as a compensating differential?
Professional athletes earn more than office workers.
Night-shift workers at a factory earn more than day-shift workers.
Workers with more seniority earn more than newly hired employees.
College graduates earn more than workers with no education beyond a high school diploma.
 
The annual median earnings for African American workers in the U.S. in 2012 were closest to:
$49,000.
$43,000.
$32,000.
$37,000.
 
The improvement in labor created by education and knowledge is called:
physical capital
labor.
land.
human capital.
 
The annual median earnings for females of all ethnicities in the U.S. in 2012 were closest to:
$54,000.
$40,000.
$46,000.
$51,000.
 
The labor supply of teenagers is affected by the wealth of their families. This is _____.
True
 
Which factor of production receives the bulk of income in the modern U.S. economy?
land
labor
physical capital
owners of small businesses
labor
 
The improvement in labor created by education and knowledge is called:
physical capital
labor.
land.
human capital.
human capital.
 
The individual labor supply curve shows how the quantity of labor supplied by an individual depends
on that individual's wage rate. This is _____.
True
 
Efficiency wages are used to motivate employees and reduce worker turnover. This is _____.
True
 
Increases in the quality and quantity of an economy's resources have little effect on its potential output in the long run.
False
 
Ultimately, productivity growth is the major determinant of a country's standard of living
True
 
Thomas Malthus believed that in the long run, the growth rates of real GDP would not exceed population growth
True
 
An increase in the quantity of labor inputs always leads to economic growth.
False
 
Brazil has a relatively low income per capita because it has relatively few natural resources.
False
 
Hong Kong and Japan have achieved relatively high incomes per capita despite lacking an abundance of natural resources.
True
 
As economic growth rises, literacy rates tend to fall.
False
 
As savings grow in an economy, economic growth rises
True
 
Economists generally define economic growth as an increase in the nominal income of the population.
False
 
Economists generally define economic growth as an increase in real income per capita.
True
 
Higher rates of real economic growth can allow a less-developed, low per capita income country to attain the same standard of living as a more developed, high per capita income country in a few years.
False
 
It is impossible to have economic growth unless a country or a region has abundant natural resources to sustain the growth
False
 
Generally there is an inverse relationship between the level of savings and the level of long-term economic growth
False
 
Thomas Malthus's predictions did not come to pass because he implicitly assumed that there would be no technological advances and did not foresee that agricultural land was not completely fixed in quantity or quality.
True
 
Economies of large-scale production may exist in some forms of production, so larger markets associated with greater populations can lead to more efficiently sized production units.
True
 
The higher opportunity cost of obtaining an education in developing countries is one of the reasons that school enrollments are lower
True
 
In developing countries, the opportunity cost of an education is relatively low compared to the cost in a highly developed country
False
 
Free trade can promote greater output because of the principle of comparative advantage
True
 
Foreign direct investment-capital injections from abroad-can promote economic growth
True
 
A technological advance may come in either the form of a product or a process innovation.
True
 
Capital formation is a key component of economic growth.
True
 
If the educational attainment of a nation's population increases, the economy's production possibilities curve shifts inward
False
 
Which of the following statements is true?
Increased urbanization has decreased the number of women in the work force.
When wages are higher, leisure time is less costly in terms of opportunity cost.
Labor supply is determined solely by economic factors, not by social norms.
Over the past century, Americans have increased the amount of leisure time consumed.
Over the past century, Americans have increased the amount of leisure time consumed.
 
The market demand curve for labor is the horizontal sum of the individual firms' value of the
marginal product of labor curves. This is _____.
True
 
Which of these U.S. groups has higher median earnings than the others?
African-American males with a college degree
White males with a high school degree
White females with a college degree
Hispanic females with a high school degree
African American males with a college degree
 
In any labor market, the market supply curve is the:
horizontal sum of the individual labor supply curves.
 
The economic model of the supply of labor rests on the idea that:
workers will allocate their time so as to maximize their overall well-being.
 
Sweetwater farms currently farms 200 acres of land. If the 201st acre generates 30 bushels of hazelnuts, the
market price of hazelnuts is $20 per bushel, and the rental rate of farmland is $500 per acre, Sweetwater Farms should:
increase the acreage devoted to farming hazelnuts.
 
Josh and Chris both have law degrees from the same university and have similar class rankings. Chris has been
working as a lawyer for 10 years and Josh just started his law career. The fact that Chris earns more than Josh is due to:
differences in human capital.
 
In deciding how to allocate time between work and leisure, an individual will supply labor until the marginal
utility of an hour of leisure is:
equal to the marginal utility he or she gets from the goods that the hourly wage can purchase.
 
The value of the marginal product of labor curve is also the firm's demand curve for labor. This is _____.
True
 
Josh and Chris both have law degrees from the same university and have similar class rankings. Chris has been working
as a lawyer for 10 years and Josh just started his law career. The fact that Chris earns more than Josh is due to:
differences in human capital.
 
An increase in the wage rate for musicians will shift the supply of musicians to the right. This is _____.
False
 
Which of the following will shift the labor demand curve to the left?
a decrease in the price of the good being produced
 
The value of the marginal product of labor curve has a _____ slope because of _____ returns to labor in production.
negative; increasing
 
Which wage disparity is BEST explained as a compensating differential?
Night-shift workers at a factory earn more than day-shift workers.
 
Which of the following will shift the labor demand curve to the left?
a decrease in the price of the good being produced
 
If the wage increases from $10 to $15 an hour, and in response, Tom increases the number of hours he
works from 40 to 45, the income effect is dominant. This is _____.
False
 
In a competitive labor market, the marginal cost of employing another worker is the:
worker's average product.
average variable cost plus the average fixed cost of the output the worker produces.
worker's wage.
worker's marginal product.
 
Amy and Rachel are both nurses with the same education and years of experience. Amy works an 8 hour shift
4 days a week and Rachel works 16 hours shifts on the weekend. The fact that Rachel earns a higher hourly wage
than Amy is MOST likely due to:
differences in human capital.
compensating differentials.
age discrimination.
differences in abilities.
 
Mary is considering hiring another worker in an assembly line for MP3 speakers. Mary knows the average
product of labor is 15 speakers per day. She also believes that the next worker hired will produce an extra
12 speakers per day. A speaker sells for $10. Assuming that the market for speakers is perfectly competitive,
Mary should hire another worker:
only if the new worker's daily wage is $120 or less.
 
Median earnings for African-Americans are greater than median earnings of Hispanics. This is _____.
True
 
If the wage increases from $10 to $15 an hour, and in response, Tom increases the number of hours he works from
40 to 45, the income effect is dominant. This is _____.
False
 
A profit-maximizing price-taking firm will hire workers up to the point where:
MR = W.
VMPL = P.
MC = W.
VMPL = W.
VMPL = W.
 
Free markets tend to be associated with an increase in discrimination in the labor market. This is _____.
False
 
Which scenario is consistent with the idea that Maurice is earning an efficiency wage?
Maurice works as a retail clerk, and the store where he works pays more than the equilibrium wage in
order to motivate employees to work harder.
 
The market equilibrium wage rate is the equilibrium value of the marginal product of labor. This is _____.
True
 
If a lawyer's wage decreases, the opportunity cost of her leisure time increases. This is _____.
False
 
A firm will employ land up to the point where the value of the marginal product of an acre of land
is less than the rental rate per acre of land. This is _____.
False
 
If Imelda is receiving an efficiency wage in her job as a quality control supervisor, then she is earning
more than what she would likely earn in a similar job with another employer. This is _____.
True
 
The labor supply curve of hair stylists shifts to the right when:
there is a decrease in the quantity of their labor supplied at any given wage rate.


The equilibrium value of the marginal product of labor for web database programmers is $160 per hour.
Zack is the second worker hired at Lunar Logic, and his value of marginal product is $400 per hour.
If the market for web services is perfectly competitive and the labor market for web programmers
is perfectly competitive, then the marginal productivity theory of income distribution tells us Zack should be paid:
$160 per hour.
 
Which of the following countries shows the highest average (per worker) of annual hours worked?
Japan
France
United States
United Kingdom
United States
 
 
What is included when calculating GDP?
Final goods are included, while intermediate goods are not.
 
The overall price level in the economy is a topic of macroeconomics.
True
 
Is the market price of a gallon of gasoline a macroeconomic or microeconomic topic? Why?
Macroeconomics because it is the combined prices of all goods in the economy.
 
Why do economists measure the total output of an economy?
Economists measure the total output of an economy as a gauge of its overall health.
 
What is a sign of an economy in poor health?
If the output falls for a certain period, there is something wrong in the economy.
 
Does a country with a small per capita gross domestic product (GDP) have low living standards?
Yes
 
Suppose a new car contains $17,500 worth of raw materials and requires $15,000 worth of labor to produce.
This car sells for $35,000. Which dollar amount would be used to calculate this transaction's contribution to
gross domestic product (GDP)?
35,000
 
Gross domestic product (GDP) is defined as the ________ of all final goods and services produced within a country during a specific period of time.
total
 
In macroeconomics, for the nation as a whole: Are output and income identical or different?
They are different. The ratio between them is what forms a deficit or a surplus.
 
What is Gross domestic product (GDP)?
The market value of all final goods and services produced within a nation during a specific period of time.
 
When gross domestic product (GDP) increases, national income ________ (increases / decreases / unaffected)
and national output ________ (increases / decreases / unaffected).
increase; increase
 
A small country has an economy that is based entirely on diamonds. When it produces and sells ________ (more/ less)
diamonds in a given day, overall income earned will ________ (increase/ decrease/ stay the same).
more; increase
 
Per capita gross domestic product (GDP) is a good, but imperfect, measure of________
living standards
 
To determine living standards for the average person, we calculate _________
Per capita GDP = GDP / population
 
The business cycle measures _________
Short-run fluctuations around the long-run trend.
 
Goods and services received directly, without payment in a market transaction are called:
in-kind
 
The stock reflecting at a particular moment the financial and real assets a person has collected over time is called _______.
wealth
 
True or false: The "size distribution of income" tells us how large a share of total personal income is received
by various households, grouped by income class.
True
 
If Frank and Hank both "knock down" $120K per year, yet Hank pays quite a bit more in taxes because he's got
fewer deductions, the principle of _____ equity appears to be violated.
horizontal
 
Progressive taxation is achieved by applying higher ______ tax rates.
marginal
 
Dividing taxes paid by taxable income gives the _____ rate; dividing taxes paid by total (gross) income
gives the _____ rate.
nominal, effective
 
Suppose Henry paid total taxes of $120 on the $600 he earned last week on his job at the dining hall.
Henry's average tax rate is _____________%. (/Insert a number/.)
20
 
The amount of income or property directly subject to nominal tax rates is the tax _____________
base
 
The phase of the business cycle where economic activity is increasing is called an economic ________
Expansion, the period from the bottom of a trough to the next peal, economic activity is increasing.
 
Where does the expansion phase of a business cycle occur?
From the bottom of a trough to the next peak
 
The percentage change in the overall level of prices in an economy is called ________
Price level growth rate
 
A bakery produces a cake. It pays $6 for the flour and outer case, $10 for the eggs, and $8 for the sugar.
It sells the cake to a consumer for $50. These transactions contribute ________ to gross domestic product (GDP).
$50
 
A graph that depicts the income distribution in a nation is the ______.
Lorenz curve
 
Sales taxes are the primary source of revenue for ______.
state governments
 
The major component of the Obama tax hike was an increase in _____________ tax rates.
marginal
 
Which of the following are /not /characteristic of a regressive tax?
The average rate increases as income increases.
Such a tax claims not only a larger absolute amount but also a larger percentage of income as income increases.
 
Critics of the Trump tax cut proposals expressed concerns primarily about the _____ implications of the cuts.
Equity
 
Government regulation intended to limit the impacts of negative externalities will make
products cheaper for end consumers.
False
 
What is an example of government policies intended to increase the impacts of positive externalities?
Tax incentives (rebates) for education
 
Enforcing property rights will have a side effect of _______ ___ _______.
increased use of banks
 
A toll road is an example of something that is nonexcludable.
 False
 
Which of the following is a public good rather than a private good?
Public schools
 
Property taxes are regressive because the average tax rate
falls as taxable income rises.
 
The diagonal line in a Lorenz curve indicates that the top 20% of households earn 80 percent of the nation's income.
False
 
In-kind income (or benefits) in the United States are ______.
received by individuals and households from across the income spectrum
 
The government has been called upon to address an implicit _____, as evidenced by the increase in income inequality.
market failure
 
Wealth refers to the _____ value of assets (such as houses, cars, and bank accounts) that people own.
market
 
A tax is (one word) if its average rate increases as income increases.
progressive
 
When John buys new tires for his car, it ________(does or does not) count towards GDP because the tires are final goods.
does count
 
When Ford Motor Co. buys tires to put on new cars, it ________(does or does not) count towards GDP
because the tires are intermediate goods.
Does not
 
Farmer Ashley produces oranges. She sells half of her inventory to people at her roadside stand for $5,000
and sells the other half to Tropical Juice Co. for $10,000. Tropical Juice Co. uses the oranges to make orange
juice, which it sells to consumers for $15,000.
The total impact of these transactions on gross domestic product (GDP) is ________
$15,000 + $5,000 = $20,000
 
The marginal productivity theory of income distribution provides a moral justification for the prevailing
income distribution. true or false
False
 
When an individual's labor supply curve is backward-bending (that is, downward-sloping), this implies
 that the individual's income effect is
stronger than the individual's substitution effect.
 
The government completes the redistribution process by transferring income to (consumers/businesses).
consumers
 
The market system permits a high degree of income inequality because
it rewards people based on their contributions to society's output.
 
Part of the employer portion of payroll taxes gets shifted to workers in the form of ______.
lower before-tax wages
 
The essence of the income equality versus inequality debate is the belief that there is a fundamental
trade-off between equality and ______.
efficiency
 
After accounting for Social Security taxes, state and local taxes, and the federal income tax, the U.S.
tax system as a whole is nearly _____.
proportional
 
Although the potential benefits of inequality are impressive, there is always a trade-off between _______ and equality.
efficiency
 
Luigi's pizzeria is considering hiring two more workers, Jessie and Kathy. Suppose that the market wage
for another worker is $80 per day. Jessie would generate a marginal product of 10 pizzas, while Kathy
would generate a marginal product of 9 pizzas. If pizzas sell for $9 each, what should Luigi do?
Luigi's should hire both workers as long as their marginal product does not change.
 
Katherine works as a software marketer, earning $40 per hour. She currently works 45 hours per week.
When her wage increases to $50 per hour, Katherine increases her work hours to 60 hours per week.
Based on this information, we know that Katherine:
has a stronger substitution effect than an income effect.
 
At what point does an individual labor supply curve begin to bend backwards?
When the income effect begins to outweigh the substitution effect
 
 
The equilibrium wage rate is $18. A perfectly competitive firm sells widgets for $8. Suppose the marginal
product of the sixth unit of labor is three widgets and the marginal product of the ninth unit of labor is two widgets.
This firm should hire:
more than six but fewer than nine units of labor.
 
The __________ curve shows the percent of a nation's income that is earned by a given percent of
the nation's households.
Lorenz
 
_______ marginal tax rates tend to reduce incentives.
Higher
 
The diagonal line in a Lorenz curve indicates a distribution of income where ______.
every household has the same income
 
The principle that people with higher incomes should pay more tax is called ______.
vertical equity
 
Redistributive tax goals refers to ______. the redistribution of income in society so that the disparity between
the rich and the poor is reduced
 
Farmer Antonio grows wheat and sells it to the miller for $25,000. The miller turns it into flour and sells
it to Amy's Bakery for $35,000. The Amy's Bakery uses the flour to make bread that it sells to customers
for $50,000. The total contribution of these transactions to gross domestic product (GDP) is ________
$50,000
 
Suppose the marginal cost of hiring an additional unit of labor is $10 and the value of the marginal
product from hiring this additional unit of labor is $12. To maximize profit, this firm should hire:
more labor
 
Suppose that the Gini coefficient in Costa Rica is 0.35 and is 0.47 in the United States.
Based on this information, which of the following is true?
The income distribution is more equal in CR than in the US
 
Which of the following government policies would not be effective in reducing the poverty rate?
Raising the poverty threshold
 
Ariel wants to borrow some funds to purchase a new printing machine for her t-shirt printing business.
Other things being equal, Ariel would be able to borrow more money when the prevailing interest rate is
Lower
 
The proliferation of exemptions and exemptions has _____ the principle of vertical equity.
weakened
 
Reductions in marginal tax rates and the creation of new loopholes were part of the _____ tax policy.
Bush
 
Horizontal equity states that people with equal incomes should pay ______.
equal taxes
 
The nominal tax rate is taxes paid divided by _____ income; the effective tax rate is taxes paid divided by _____ income.
taxable; total
 
President Obama intended to reverse the Bush tax cuts by raising the _______ tax rates.
marginal
 
The combination of declining tax revenues and a constant average tax rate implies a(n) _____ tax base.
shrinking
 
President Trump's motive for reducing business taxes was an increase in _______.
efficiency
 
Which of the following were part of the Bush Tax Cuts?
Reductions in marginal tax rates
New loopholes
 
Most cities in the United States rely on _____ taxes as their primary revenue source.
property
 
The degree to which a tax falls on a particular person or group is called the tax (rate/incidence).
incidence
 
The idea that people with equal incomes should pay equal taxes is called (horizontal/vertical) equity.
horizontal
 
Imagine that your parents will give you a gift of $5,000 when you finish college next year.
If the prevailing interest rate is 3%, then the value of their gift today would be
$4,854
 
If companies are required to offer more fringe benefits to workers, what would happen in the labor market?
Labor supply would increase
 
The payroll tax makes it costly to hire workers, thus reducing the quantity demanded for labor.
The market wage that employers pay their workers is reduced by all or some of the payroll tax.
 
A tax is ______________ if its average rate declines as income increases.
Regressive
 
One way to analyze income distribution in a nation is to look at the percentage of households in various income brackets.
True
 
The (marginal/average) tax rate is the total tax paid divided by total taxable income.
average
 
Under President Trump, the top marginal tax rate _______.
Decreased
 
Government completes the redistribution process by transferring income to consumers through
which of the following? Select all that apply. unemployment insurance Social Security payments
welfare benefits
 
Tax incidence refers to ______.
the actual burden of a tax—that is, who really ends up paying it
 
Factor and product markets tend to be permissive of income inequality.
True
 
Suppose Andy and Sandy are residents of a state with a proportional income tax. If Andy paid $2,250
in taxes on his $45,000 income, Sandy must be paying taxes of $____________ on her $80,000 income.
4,000
 
Which one of the following helps explain why property taxes are regressive?
The poor spend a larger percentage of their incomes for housing than do
high-income families.
 
If job applicants who are short are discriminated against in the workforce, how would this affect the
demand and wages for short job applicants in the labor market?
Demand for short workers would decrease, and wages of short workers would fall.
 
Which of the following policies is most likely to reduce income inequality?
Strengthening laws to prevent wage discrimination.
 
If the city of Equityville decides to raise the minimum wage to $20 per hour, while raising the property
tax rate on homes worth more than $500,000. What is likely to happen to Equityville's Lorenz Curve?
It will become less bowed
 
 
The value of workers' output can change because of
changes in prices of goods
changes in supply of other factors
changes in technology
 
Suppose that an increase in health consciousness increases the demand for fitness centers across
the country. Other things being equal, we can expect the wages of fitness instructors to
increase
 
You bought shares of stock in 2016 for $500, and you sold them in 2018 for $750.
You used a stockbroker to sell the shares of stock for you, and she charged you $100.
These transactions contributed ________ to
gross domestic product (GDP).
 
The United States has a Gini Coefficient of 0.39 while Italy has a Gini Coefficient of 0.33.
Which country has greater income inequality and poverty?
The United States has higher income inequality, but the poverty rate is unknown.
 
What could be a possible reason why a person earning $20,000 a year in the United States could
be considered living in poverty while in China it might not?
The cost of living in the United States might be much higher than in China.
 
Suppose that the Gini coefficient is calculated for three countries as follows:
Alphaland = 0.65
Betaland = 0.57
Gammaland = 0.36.
Which country has the most unequal distribution of income? Which country has the least amount of income inequality?
Alphaland; Gammaland
 
Suppose that you are given a choice of receiving your scholarship in the amounts of $5,000
today and $5,000 next year, or receiving $9,000 all at once today. If the interest rate is 10%,
which choice would maximize the present value of your scholarship?
The installment option of $5,000 today and $5,000 next year.
 
If interest rates continue to rise, what is likely to happen in the market for capital?
Demand for capital will fall, causing a decrease in capital.
 
Employers have the ability to cover their portion of the Social Security payroll tax by paying
lower before-tax wages to their employees.
 
As a teacher, Jonathan earns an annual income of $30,000, while Jose earns an annual income
of $400,000 as an investment banker. On the one hand, low-income Jonathan spends all of his
income on pure necessities of life and is unable to save. On the other hand, Jose spends $200,000
of his income and saves the balance. Suppose a 10 percent general sales tax applies to all the
expenditures of Jonathan and Jose. We find that Jonathan pays $3,000 in sales taxes and Jose pays
$20,000 in sales taxes. Which of the following are true of this scenario? Select all that apply.
Jose pays less in sales tax as a percentage of his income than does Jonathan.
This sales tax is a regressive tax.
 
One main argument for income inequality is that ______.
there is a trade-off between equality and efficiency
 
When all things are considered, the U.S. tax system as a whole is nearly _____________.
proportional
 
Thomas is given a choice of either receiving an $800 scholarship right now, or wait until next year and
receive a $1,000 scholarship. What discount rate would make Thomas indifferent between the two choices?
25%
 
Solina wins a research grant that pays $10,000 a year from now. At what discount rate would the present
value of this future payment be greatest?
10%
 
Kate is considering whether to purchase a new printer that uses less toner for $500. This printer would
save her from buying 8 toner cartridges that cost $75 each. What is the marginal revenue product of this new printer?
$600
 
When Ellen buys a new computer for her accounting business, it is included in gross domestic product
(GDP) as ________ (investment/ consumption/ government purchases), and when she buys a new
computer for personal use at home, it counts as ________ (investment/ consumption).
consumption; investment