Labor Economics Study Guide
Questions
Course Introduction
Labor Economics examines the functioning and dynamics of labor markets, focusing on the behavior of employers and employees in wage determination, employment, and income distribution. This course explores key concepts such as labor supply and demand, human capital investment, wage structure, discrimination, unemployment, and the impact of unions and public policy on labor market outcomes. Students will engage with both theoretical frameworks and empirical research, gaining practical insights into labor market trends and issues that shape the modern workforce.
Recommended Textbook
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson
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Chapter 1: Economic Models
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Sample Questions
Q1) The solution to the simultaneous equations \(5 X - Y = 10\) and \(10 x + Y = 35\) is
A) \(X = 15\) , \(Y = 0\) .
B) \(X = 3\) , \(Y = 5\) .
C) \(X = 5\) , \(Y = 3\) .
D)None of the above.
Answer: B
Q2) The slope of a nonlinear function at some particular point
A)is the slope of the straight line that is tangent to the function at that point.
B)is the slope of the straight line connecting the origin and the point.
C)cannot be determined.
D)is constant for the entire function.
Answer: A
Q3) Positive economic analysis
A)involves the study of firms with positive profits.
B)involves how resources are actually used in an economy.
C)involves judgments on how resources should be used in an economy.
D)is usually thought to be a waste of time.
Answer: B
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Chapter 2: Utility and Choice
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Q1) An increase in an individual's income without changing relative prices will
A)rotate the budget constraint about the X-axis.
B)shift the indifference curves outward.
C)shift the budget constraint outward in a parallel way.
D)rotate the budget constraint about the Y axis.
Answer: C
Q2) Indifference curves
A)are nonintersecting.
B)are contour lines of a utility function.
C)are negatively sloped.
D)All of the above.
Answer: D
Q3) If a person's indifference curves can be represented as a straight line,the person views the goods as
A)perfect substitutes
B)perfect complements
C)complements (but not perfect)
D)substitutes (but not perfect)
Answer: A
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Chapter 3: Demand Curves
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Sample Questions
Q1) In Sameslopia (all N people)have a different price at which they will start buying apples,but their reaction to a price change is the same so for each person i,individual demand is \(\mathrm { P } = \mathrm { A } _ { \mathrm { i } } - \mathrm { Bq }\) At a price where they are all buying a positive amount,the slope of the market demand curve (with P as a function of Q)will be
A)-B
B) \(\frac { - B } { N }\)
C)-BN
D)-N
Answer: B
Q2) If a good is inferior and its price decreases,
A)the income effect will be positive and the substitution effect will be positive. B)the income effect will be negative and the substitution effect will be negative. C)the income effect will be positive and the substitution effect will be negative. D)the income effect will be negative and the substitution effect will be positive.
Answer: D
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Chapter 4: Uncertainty
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Sample Questions
Q1) Risk aversion is best explained by A)timidity.
B)increasing marginal utility of income.
C)constant marginal utility of income.
D)decreasing marginal utility of income.
Q2) Continue with the power plant from the previous question,where again coal currently sells for $60 a ton but will sell for either $54 or $66 next month with equal probability. Now suppose coal can be stored for a month at the cost of $2 per ton. How would the new alternative of being able to buy coal at today's prices and store it affect the amount the power plant would be willing to pay for an option to buy coal next month at today's prices?
A)Increase its willingness to pay for the option.
B)Decrease its willingness to pay for the option.
C)Lead it to never pay for the option.
D)No effect. The new alternative of storing would never be chosen since it is worse than simply waiting and buying at next month's uncertain price.
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Chapter 5: Game Theory
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Questions
Q1) When a game has multiple equilibria,a useful method to sort out which one would be the "best" prediction is to
A)find the one (if any) in which both players are better off than in any other equilibrium.
B)find the equilibrium that is symmetric,if any.
C)find the one which seems "focal",if any.
D)all of the above.
Q2) The game of Matching Pennies
A)has no Nash equilibrium.
B)has a pure-strategy Nash equilibrium.
C)has a mixed strategy Nash equilibrium.
D)has multiple Nash equilibria.
Q3) Consider the same game between the fishermen in the previous question. How does the total number of fish caught in the Nash equilibrium compare to the number they would catch if they belonged to same company,so shared revenues and costs equally?
A)No change.
B)They would catch more if they worked in the same company.
C)They would catch less if they worked in the same company.
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Chapter 6: Production
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Q1) In a two-input model you can tell that a non-optimal short-run production decision is being made if
A)all decisions in the short run are nonoptimal
B)the rate of technical substitution is equal to the ratio of the input prices
C)the rate of technical substitution is not equal to the ratio of the input prices
Q2) The average productivity of capital is defined as the ratio of total capital employed to the total output produced.
A)the extra output produced by employing one more unit of capital while holding other inputs constant.
B)the extra output produced by employing one more unit of capital while allowing other inputs to vary.
C)the ratio of total output produced to the quantity of capital employed.
Q3) If,as a result of doubling all its inputs,a firm can more than double its output,the firm's production function exhibits
A)constant returns to scale.
B)increasing returns to scale.
C)decreasing returns to scale.
D)increasing marginal productivity to at least one input.
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Chapter 7: Costs
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Q1) The opportunity cost of producing a bicycle refers to
A)the out-of-pocket payments made to produce the bicycle.
B)the value of the goods that were given up to produce the bicycle.
C)the bicycle's retail price.
D)the marginal cost of the last bicycle produced.
Q2) The shape of a firm's expansion path depends upon
A)the price of the labor input.
B)the price of the capital input.
C)the shape of the firm's production function.
D)all of these factors.
Q3) The expansion path for a constant-returns-to-scale production function
A)is a straight line through the origin with a slope greater than 1 if w > v.
B)is a straight line through the origin with a slope greater than 1 if w < v.
C)is a straight line through the origin,though its slope cannot be determined by w and v alone.
D)has a positive slope but is not necessarily a straight line.
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Chapter 8: Profit Maximization and Supply
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Sample Questions
Q1) If the demand curve a firm faces shifts to the right,usually
A)it would be impossible to tell whether the marginal revenue curve shifts.
B)the marginal revenue curve would shift to the left.
C)the marginal revenue curve would shift to the right.
D)the marginal revenue curve would not shift.
Q2) Suppose a farmer is a price taker for soybean sales with cost functions given by ?
TC = .1q<sup>2</sup> + 2q + 100
MC = .2q + 2
The firm's supply curve is given by
A)q = 5P - 10
B)q = .2P +2
C)q = 10P - 2
D)q = 2P - 5
Q3) A firm that sought to "maximize market share" would choose to produce an output level for which marginal revenue was equal to
A)marginal cost
B)average cost.
C)price.
D)zero.
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Chapter 9: Perfect Competition in a Single Market
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Q1) Suppose a chemical company is in a perfectly competitive industry and has a short run total cost curve of \(\mathrm { TC } = \frac { 1 } { 3 } \mathrm { q } ^ { 3 } + 5 \mathrm { q } ^ { 2 } + 10 q + 10\) and a short run marginal cost of SMC = q<sup>2</sup> + 10q + 10.At the price of 385,how much will be produced?
A)0
B)3
C)5
D)15
Q2) Suppose demand for a good is Q<sub>D</sub>= 100 - P and supply is Q<sub>S</sub> = -20 + P.What is the equilibrium quantity?
A)20
B)40
C)60
D)80
Q3) A demand curve will shift out for any of the following reasons except A)preference for a good increases.
B)price of a substitute falls.
C)income rises.
D)price of a complement falls.
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Chapter 10: General Equilibrium and Welfare
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Sample Questions
Q1) Each of the following factors might interfere with the efficiency of perfect competition except:
A)increasing returns to scale.
B)imperfect price information.
C)externalities.
D)diminishing returns to scale.
Q2) The reason externalities distort the allocation of resources is that A)too few goods are usually produced.
B)firms often go out of business because of the externality.
C)a firm's private costs do not reflect the social cost of production.
D)regulating externalities uses scarce resources.
Q3) Suppose goods X and Y are produced along a production possibilities frontier 4X<sup>2</sup> + Y<sup>2</sup> = 500 and they are perfect substitutes such that U = X + Y.The slope of the production possibilities frontier is \(\frac { - 4 X } { \sqrt { 500 - 4 X ^ { 2 } } }\) .How much Y should be produced?
A)0
B)5
C)10
D)20
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Chapter 11: Monopoly
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Sample Questions
Q1) Consider the same monopoly situation as in the previous question. The deadweight loss (compared to a single firm behaving as if it were perfectly competitive)is about
A)667
B)333
C)1,000
D)1,333
Q2) Which might be a possible reason a cable television operator want to bundle channels together in packages ("tiers")?
A)delivering many channels to the consumer is not much more costly than delivering a few.
B)simplifies the consumer's choice and perhaps lowers administrative costs.
C)allows the firm to extract revenue from a consumer even if it does not know exactly which channels the consumer likes the most..
D)all of the above.
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Chapter 12: Imperfect Competition
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Sample Questions
Q1) Under the cartel model,each firm produces where
A)marginal cost equals marginal revenue.
B)price equals marginal cost.
C)the average cost curve is at a minimum.
D)price exceeds marginal cost by the greatest amount.
Q2) In the cartel model
A)firms believe that price increases result in a very elastic demand,while price decreases result in an inelastic demand for their products.
B)each firm acts as a price taker.
C)one dominant firm takes the reactions of all other firms into account in its output and pricing decisions.
D)firms coordinate their decisions to act as a multiplant monopoly.
Q3) Product differentiation complicates the study of oligopolies because such markets may not
A)be efficient.
B)have prices equal to marginal cost.
C)have free entry and exit.
D)obey the law of one price.
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Chapter 13: Pricing in Input Markets
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Sample Questions
Q1) Suppose the market for labor is perfectly competitive and the demand for labor is \(L = 100 - 10 w\) and market supply is \(L = - 20 + 10 w\) .If a minimum wage is imposed at w = 8,the net gain to all workers,not just those who keep their jobs,(in producer surplus terms)will be
A)10
B)20
C)30
D)40
Q2) If a profit-maximizing firm is a price taker in both the input and output markets,its marginal revenue product of labor is given by
A)the price of its output times labor's marginal physical productivity.
B)the marginal value product of labor.
C)the marginal revenue product of capital times the ratio of the wage rate to the rental rate on capital.
D)all of the above.
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Chapter 14: Capital and Time
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Q1) A monopolist who owned the entire supply of a scarce resource would set a price
A)at about the competitive level.
B)lower than the competitive level.
C)higher than the competitive level but lower than what a monopoly producer of a non-scarce good would.
D)above that which would be chosen by a monopoly producer of a nonscarce good.
Q2) The difference in present value between a perpetuity that promised $1 per year starting today and one that promised $1 per year starting next year is A)0.
B)$1.
C)$1/(1 + r).
D)$r/(1 + r).
Q3) A fall in the real interest rate leads to
A)an increase in the rental rate on a machine.
B)a decrease in the rental rate on a machine.
C)no change in the rental rate on a machine.
D)a fall in the marginal productivity of capital.
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Chapter 15: Asymmetric Information
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Sample Questions
Q1) How do participants in an auction respond to the problem of the "winner's curse"?
A)They bid more aggressively to win the auction and avoid the "curse".
B)They exit the auction because winning can only be a bad sign of the object's worth.
C)All bid less aggressively,so that the winner ends up not regretting having won.
D)The winner regrets having won the auction.
Q2) Which auction format generates the most revenue for the seller?
A)First price.
B)Second price.
C)They generate the same expected revenue.
D)Depends on the environment.
Q3) Which are social costs associated with the inability of shareholders to observe an executive's effort? (You may choose more than one.)
A)Excessive insurance offered.
B)The executive has to be exposed to risk to induce effort,and risk is costly.
C)The executive ends up exerting less than first-best effort.
D)Excessive effort induced.
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Chapter 16: Externalities and Public Goods
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Q1) If bargaining is costless,the assignment of property rights for an externality
A)has no impact on the possibility of an efficient outcome and no distributional impact.
B)has no impact on the possibility of an efficient outcome but does have a distributional impact.
C)does have an impact on the possibility of an efficient outcome but has no distributional impact.
D)does have an impact on the possibility of an efficient outcome and does have a distributional impact.
Q2) To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be
A)the firm's marginal cost.
B)the social marginal cost.
C)the difference between the social marginal cost and the firm's marginal cost.
D)the sum of the social marginal cost and the firm's marginal cost.
Q3) Left to their own,private markets tend to
A)under-allocate resources to public goods.
B)allocate the economically efficient amount of resources to public goods.
C)over-allocate resources to public goods.
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Chapter 17: Behavioral Economics
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Sample Questions
Q1) Limits to self-interested payoff maximization that have been studied by behavioral economists include
A)limited cognitive ability.
B)limited willpower.
C)limits to self interest.
D)all of the above.
Q2) Supply in the market for cigarettes is perfectly competitive,given by the function Q<sub>S</sub> = P. True demand in the market is Q<sub>D</sub> = 100 - P. Due to behavioral biases (of whatever form,whether people have limited willpower or have limited cognitive abilities to process the actual health effects of smoking),people overestimate the value of cigarettes,leading to the perceived demand curve \(Q _ { D } = 200 - P\) .Compute the deadweight loss from the overconsumption generated by this behavioral bias. (Hint: use the perceived demand curve to compute market equilibrium but make your welfare calculations using the true demand curve.)
A)DWL = 0.
B)DWL = 500.
C)DWL = 1,000
D)DWL = 2,500.
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