Labor Economics
Exam Solutions
Course Introduction
Labor Economics examines the functioning and dynamics of labor markets, focusing on the behavior of employers and employees, wage determination, labor supply and demand, human capital, and the impacts of policies such as minimum wage laws, unionization, and discrimination legislation. The course integrates theoretical models with empirical analysis to explore issues such as unemployment, income inequality, labor mobility, and the effects of globalization and technological change on labor market outcomes. Through real-world case studies and data-driven research, students gain a comprehensive understanding of the economic and social factors shaping contemporary labor markets.
Recommended Textbook
Labor Economics 7th Edition by George J Borjas
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12 Chapters
360 Verified Questions
360 Flashcards
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Page 2
Chapter 1: Introduction to Labor Economics
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30 Verified Questions
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Sample Questions
Q1) An upward-sloping labor supply curve implies that
A)a firm can always hire more workers, even without increasing the wage.
B)more workers are willing to work when wages are low.
C)more workers are willing to work as the market wage increases.
D)labor supplied is fixed.
E)there is a continuously increasing demand for labor.
Answer: C
Q2) An outward shift in the labor demand curve implies that.
A)employers are now looking to hire more workers at any given wage.
B)employers are now looking to hire more workers if the wage increases.
C)employers are now looking to hire fewer workers regardless of the wage.
D)demand for the firm's output likely fell.
E)a greater number of workers are now more willing to work at any given wage.
Answer: A
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3
Chapter 2: Labor Supply
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Sample Questions
Q1) What is the discouraged worker effect?
A)A discouraged worker will accept any job offer regardless of the wage.
B)Because a discouraged worker accepts a part-time job when he wants a full-time job, he is considered to still be unemployed.
C)A discouraged worker accepts a part-time job, and is therefore counted as being employed.
D)A discouraged worker stops looking for a job, but is still counted as being in the labor force.
E)A discouraged worker stops looking for a job, and therefore is no longer counted as being in the labor force.
Answer: E
Q2) When the tax rate on wages falls (so that the take-home wage or effective wage increases), the budget line
A)rotates out along the consumption axis.
B)shifts out, parallel to the old budget line.
C)rotates in along the leisure axis.
D)shifts in, parallel to the old budget line.
E)rotates out along the leisure axis.
Answer: A
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Page 4
Chapter 3: Labor Demand
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Sample Questions
Q1) Labor demand is more elastic the greater the elasticity of demand for the firm's output because
A)the firm would see its quantity demanded fall substantially if the firm tried to pass increased labor costs through to the consumer by increasing the price of the output good.
B)the firm's output price falls when the firm produces less output.
C)a firm that operates in a competitive output market cannot lower its price.
D)capital is usually price elastic.
E)the firm will want to hire fewer workers when the wage rate increases.
Answer: A
Q2) What is an example of the scale effect?
A)Workers choose to provide more hours of labor when the wage rate decreases.
B)Hiring more labor as long as the marginal product of labor is positive.
C)The firm expands output when production costs fall.
D)The firm expands output when production costs increase.
E)The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.
Answer: C
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Chapter 4: Labor Market Equilibrium
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Sample Questions
Q1) Which of the following does not describe a perfectly discriminating monopsonist?
A)The firm hires different workers at different wages.
B)The firm hires workers to the point where the labor supply curve intersects the firm's labor demand curve.
C)The firm's marginal cost of labor equals the labor supply curve faced by the firm.
D)The firm uses fewer hours of labor than it would if it were in a competitive market.
E)The wage-labor outcome is efficient.
Q2) When the government mandates that firms supply a particular benefit, it is usually the case that
A)the cost of providing the benefit is less than the worker's value of the benefit.
B)employment will increase.
C)the wage will increase.
D)the wage will decrease by more than the cost of providing the benefit.
E)the wage will decrease by less than the cost of providing the benefit.
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Chapter 5: Compensating Wage Differentials
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Sample Questions
Q1) A firm has the choice of offering "dirty" jobs that are likely to cause severe health problems for its workers or of offering "clean" jobs by installing safety equipment at a cost of $5 per hour per employee that will substantially reduce the chances of health problems. The firm will
A)install the safety equipment if workers can ascertain whether they are working a dirty or a clean job.
B)never willingly choose to install the costly safety equipment.
C)never install the safety equipment without a government subsidy to do so.
D)install the safety equipment if workers are willing to be paid $3 per hour less in a clean job than in a dirty job.
E)willingly install the safety equipment if workers are willing to be paid $7 per hour less in a clean job than in a dirty job.
Q2) A potential implication of OSHA regulation is that
A)the most risk averse workers begin working the riskiest jobs.
B)the hedonic wage function may no longer exist at the safest levels.
C)the hedonic wage function may no longer exist at the riskiest levels.
D)average wages increase.
E)for the same amount of output produced, total production costs will be less.
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Page 7
Chapter 6: Human Capital
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Sample Questions
Q1) What is the main selection issue researchers must address when trying to estimate the effectiveness of government training programs?
A)The true cost of government training programs is unknown because unemployed workers also receive welfare benefits.
B)The most motivated unemployed workers are the ones who are also most likely to take advantage of government training programs.
C)Government training programs are usually geared toward developing general skills rather than providing specific job training.
D)Most government training programs are only offered to the unemployed and not to workers who would like to switch jobs.
E)Evaluation schemes tend to lose track of participants once they start a new job after the training.
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Chapter 7: The Wage Structure
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Sample Questions
Q1) Which of the following measures would best allow one to compare the relative wealth of poor households to the typical household in an economy?
A)The perfect-equality Lorenz curve.
B)The Gini coefficient.
C)The 90-10 wage gap.
D)The 50-10 wage gap.
E)The 90-50 wage gap.
Q2) In the context of intergenerational inequality, regression toward the mean is captured by which of the following?
A)The tendency for inequality to be wider as a country experiences economic growth.
B)The tendency for countries to diverge in their inequality.
C)The tendency for income differences across families to get smaller over time as the various families move toward the mean income of the population.
D)The tendency for the 90-50 wage gap to approach the 50-10 wage gap as a country experiences economic growth.
E)The tendency for the tax code to erode inequality by targeting the mean tax rate to mean income.
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9
Chapter 8: Labor Mobility
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Sample Questions
Q1) Negative selection in a migration model means that
A)immigrants from the source country are highly skilled relative to labor in the destination country.
B)immigrants from the source country are not highly skilled relative to labor in the destination country.
C)all workers in the source country would earn a higher return on their skills if they would remain in the source country.
D)all workers in the source country would earn a higher return on their skills if they would not immigrate to the destination country.
E)anyone in the source country who can afford the cost of migrating to the destination country will do so.
Q2) Assuming labor demand is downward sloping and that the labor market is competitive, what happens to national income as a result in immigration?
A)National income increases by more than the total earnings of immigrants.
B)National income increases by less than the total earnings of immigrants.
C)National income decreases by more than the total earnings of immigrants.
D)National income decreases by less than the total earnings of immigrants.
E)Immigrants have no effect on national income because they are not citizens.
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Page 10
Chapter 9: Labor Market Discrimination
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Sample Questions
Q1) Which one of the following statements concerning employee discrimination is not true?
A)Employers have no reason to employ a segregated workforce if there is employee discrimination.
B)Employee discrimination does not affect the profitability of firms as long as firms can employ segregated work forces.
C)Discriminating employees act as if their wage is less than it actually is if they are employed by a firm that has an integrated workforce.
D)Workers accept the utility-maximizing job offer even when there is employee discrimination.
E)Employee discrimination will not produce a wage differential between equally skilled black and white workers.
Q2) Discrimination in the workforce
A)leads to inefficiency.
B)never leads to higher utility.
C)empirically does not exist.
D)empirically is due primarily to employees and not employers or consumers.
E)empirically is due primarily to consumers and not employers or employees.
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11
Chapter 10: Labor Unions
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Sample Questions
Q1) Right- to-work laws
A)give workers the right to be represented by a union.
B)give workers the right to not join a union.
C)give a non-union worker the right to enjoy union benefits without paying union dues.
D)give firms the right to hire replacement labor when the union strikes.
E)give the firm the right to permanently fire anyone who strikes.
Q2) The labor demand curve is
A)the same as the marginal cost curve.
B)composed of the peaks of isoprofit curves.
C)upward sloping.
D)derived solely from the price of the firm's good.
E)determined completely by the firm's technology.
Q3) Union organizing drives will be more successful in firms that have relatively ___________ labor demand curves.
A)inelastic
B)elastic
C)flat
D)linear
E)increasing
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Page 12
Chapter 11: Incentive Pay
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Sample Questions
Q1) What happens to the piece rate if there is a ratchet effect?
A)The piece rate decreases over time.
B)The piece rate increases over time.
C)The piece rate is replaced with a time rate.
D)The piece rate is replaced with a salary contract.
E)The piece rate is only paid to the least productive workers.
Q2) A piece rate compensation system
A)underemphasizes the quantity of output produced.
B)attracts and benefits the most able workers.
C)inherently hurts minorities.
D)decreases a firm's productivity.
E)has no disadvantages.
Q3) Which of the following is not true regarding the incentives different pay structures impose on workers?
A)Piece rates are an option when individual output is easily measured by firms.
B)Tournaments can elicit more effort than a time rate.
C)Worker effort can be a function of the pay structure.
D)Worker productivity is unrelated to the pay structure.
E)Profit sharing is a pay structure designed to elicit more effort from workers, but it can suffer from free-riding.
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Chapter 12: Unemployment
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Sample Questions
Q1) If the intertemporal substitution hypothesis is correct, then
A)the unemployment rate is artificially high.
B)the unemployment rate is artificially low.
C)discouraged workers should be included in the unemployed population because they actually want a job at the going wage.
D)discouraged workers should not be included in the unemployed population because they are optimally choosing more leisure during a time of low wages.
E)discouraged workers won't exist.
Q2) According to the neo-classical model, what would not result from the government levying a tax on firms for each worker the firm lays off?
A)Firms would be less likely to lay off workers.
B)Firms would be less likely to hire workers.
C)Moral hazard would encourage workers to not work as hard as before.
D)The long-run employment rate would increase.
E)Unemployed workers would remain unemployed for longer periods of time.
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14