1 Chapter 10 Practice Quiz Tutorial Labor Markets and Income Distribution ©2004 South-Western

2 1. Marginal revenue product measures the increase in a. output resulting from one more unit of labor. b. TR resulting from one more unit of output. c. revenue per unit from one more unit of output. d. total revenue resulting from one more unit of labor. D. MRP is the increase in total revenue to a firm resulting from hiring an additional unit of labor or other variable resource.

3 2. Troll Corporation sells dolls for $10.00 each in a market that is perfectly competitive. Increasing the number of workers from 100 to 101 would cause output to rise from 500 to 510 dolls per day. Troll should hire the 101st worker only when the wage is a. $100 or less per day. b. more than $100 per day. c. $5.10 or less per day. d. none of the above. A. Under perfect competition, the firm hires workers until the MRP equals the wage rate. MRP equals $10 x MP ( ) = $100.

4 3. Derived demand for labor depends on the a. cost of factors of production used in the product. b. market supply curve of labor. c. consumer demand for the final goods produced by labor. d. firm’s total revenue less economic profit. C. If consumers do not purchase goods, there is no MRP and no workers are hired.

5 4. If demand for a product falls, the demand curve for labor used to produce the product will shift a. leftward. b. rightward. c. upward. d. downward. A.If consumers demand for a product decreases and supply remains constant, the price of the product falls and MRP (P x MP) decreases.

6 5. The owner of a restaurant will hire waiters if the a. additional labor’s pay is close to the minimum wage. b. marginal product is at the maximum. c. additional work of the employees adds more to total revenue than to costs. d. waiters do not belong to a union. C. If MRP exceeds the wage rate paid waiters, it is profitable for the restaurant to hire more waiters.

7 6. In a perfectly competitive market, the demand curve for labor a. slopes upward. b. slopes downward because of diminishing marginal productivity. c. is perfectly elastic at the equilibrium wage rate. d. is described by all of the above. B. As output expands in the short run, a fixed factor results in diminishing returns causing MP to decrease. Correspondingly, MRP decreases.

8 7. A union can influence the equilibrium wage rate by a. featherbedding. b. requiring longer apprenticeships. c. favoring trade restrictions on foreign products. d. all of the above. D. Featherbedding and trade protectionism increase the demand for labor. Requiring longer apprenticeship decreases the demand for labor.

9 8. Currently, the wealthiest 5 percent of all U.S. families earned what percentage of total annual money income among families? a. More than 20 percent. b. Less than 10 percent. c. More than 25 percent. d. More than 50 percent. A.

10 Division of the Total Annual Money Income Among Families % of Families1929 Lowest 5th Second-lowest 5th 4% % % Middle 5th Second-highest 5th Highest 5th Highest 5%

11 9. Since 1929, the overall family income distribution in the United States has become a. Much more unequal. b. Much less unequal. c. Slightly more unequal. d. Slightly more equal. D. Slightly more equal. See previous slide.

In order to establish the poverty line that divides poor and nonpoor families, the government a. Multiplies the cost of a minimal diet by three b. Multiplies the cost of a minimal diet by five. c. Adds 50 percent to the cost of a minimal diet. d. Adds 100 percent to the cost of a minimal diet. A. Absolute poverty can be defined in dollars to purchase some minimum amount of goods and services essential to meeting a person or family’s basic needs.

The poverty line a. is defined as one-half average family income. b. includes in kind transfers. c. includes Medicaid benefits. d. has been attacked for overstating poverty. D. The poverty line does not include noncash transfers, such as food stamps and Medicaid.

Which of the following is an in-kind transfer? a. Social Security payments. b. Unemployment compensation. c. Food stamps. d. Welfare payments. C. Social security payments, unemployment compensation and welfare payments are cash transfer payments included in the poverty line.

Which of the following program is a cash assistance (not an in-kind transfer program? a. Aid to families with dependent children. b. Medicare. c. Medicaid. d. Food stamps. A. Medicare and Medicaid provide medical care services and food stamps are used for food. AFDC provides cash that can be used to purchase goods and services chosen by recipient.

Which of the following might decrease the supply curve of labor? a. Discrimination against blacks. b. Discrimination against women. c. Difficult licensing requirements. d. All of the above. D. Discrimination against blacks and women and different licensing requirements reduce the number of workers who are willing to work at various possible wage rates.

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