Labor Economics George Borjas 8th Edition- Test Bank

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Description Labor Economics George Borjas 8th Edition- Test Bank Sample Questions Instant Download With Answers Chapter 3 Labor Demand 1) The production function relates 1.

2.

3.

4.

5.

A) factor prices to output prices.

B) wages to labor employed.

C) factors of production to total output.

D) factors of production to profit.

E) the output price to factors of production.

Answer: C Difficulty: 1 Easy Topic: The Production Function Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

2) The slope of the production function while holding capital fixed is 1.

2.

3.

4.

5.

A) the marginal product of labor.

B) the marginal product of capital.

C) the average product of labor.

D) the labor–capital ratio.

E) the capital–labor ratio.

Answer: A

Difficulty: 1 Easy Topic: The Production Function Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

3) The law of diminishing returns, as it applies to labor, means that 1.

2.

3.

4.

A) the marginal product of labor eventually declines.

B) the marginal product of labor will eventually be a horizontal line at zero.

C) the average product of labor increases at a decreasing rate.

D) the average product of labor starts to decline before the marginal product of labor.

5.

E) the total output eventually decreases.

Answer: A Difficulty: 1 Easy Topic: The Production Function Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

4) At what point should a firm stop hiring workers?

1.

2.

3.

A) when the wage per worker starts to increase B) when the price of capital starts to decrease C) when the firm’s marginal gain in output from hiring an additional worker is zero 4.

D) when the firm’s marginal profit from hiring an additional worker equals the cost of hiring that worker

5.

E) when the firm’s value of marginal product equals zero

Answer: D Difficulty: 1 Easy Topic: The Short Run Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

5) What is the most accurate description of the value of a worker to the firm?

1.

2.

3.

4.

5.

A) the wage B) the firm’s total output when holding capital fixed C) the firm’s average product when holding capital fixed D) the dollar value of the worker’s output E) the dollar value of the average worker’s output

Answer: D Difficulty: 2 Medium Topic: The Short Run Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

6) The marginal rate of technical substitution at any particular labor–capital bundle is 1.

2.

3.

4.

5.

A) the slope of the isoquant.

B) the average product of labor relative to the average product of capital.

C) the wage relative to the cost of capital.

D) the slope of the indifference curve.

E) the ratio of labor to capital.

Answer: A Difficulty: 1 Easy Topic: The Long Run Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

7) What is not true when thinking of the firm’s objective as a cost-minimization problem rather than as a profit-maximization problem?

1.

2.

3.

4.

5.

A) The slope at any point on any isoquant reveals the marginal rate of technical substitution.

B) The firm chooses to employ either labor or capital, depending on which factor is cheaper.

C) The firm chooses a particular level of output to produce.

D) The price of the output good does not enter the decision of how much labor or capital to employ once the total amount of output to produce has been determined.

E) The firm will choose labor and capital inputs so that the marginal productivity of labor relative to the marginal productivity of capital equals the price of labor relative to the price of capital.

Answer: B Difficulty: 2 Medium Topic: The Long Run Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

8) Ally owns a shoe store. The market wage is $10 per hour, and the cost of capital is $2 per week for every $1000, of capital borrowed. Consider the isocost line associated with spending $8000, per week, and let the y-axis be the amount of capital borrowed in increments of $1000. Which of the following is not true?

1.

2.

3.

4.

5.

A) If Ally borrows no capital, she can employ 800 hours of work.

B) If Ally employs no workers, she can borrow $4 million of capital.

C) If Ally employs 600 hours of work, she can borrow $1 million of capital.

D) If Ally employs 400 hours of work, she can borrow $3 million of capital.

E) The slope of the isocost line is −5.

Answer:D Difficulty: 3 Hard Topic: The Long Run Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

9) What is an example of the scale effect?

1.

2.

3.

4.

5.

A) Workers choose to provide more hours of labor when the wage rate decreases.

B) The firm hires 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 Difficulty: 1 Easy Topic: The Long-Run Demand Curve for Labor Bloom’s: Remember AACSB: Reflective Thinking

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10) What is an example of the substitution effect?

1.

2.

3.

4.

5.

A) Workers choose to provide more hours of labor when the wage rate decreases.

B) More labor is hired 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: E Difficulty: 1 Easy Topic: The Long-Run Demand Curve for Labor Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

11) How does a profit-maximizing firm that is operating in a competitive labor market respond to an increase in the wage rate?

1.

2.

3.

4.

5.

A) The firm will demand less capital due to the substitution effect.

B) The firm will demand more labor due to the substitution effect.

C) The firm will produce less output due to the scale effect.

D) The firm will demand more capital due to the scale effect.

E) The firm will demand more labor due to the scale effect.

Answer: C Difficulty: 2 Medium Topic: The Long-Run Demand Curve for Labor Bloom’s: Understand AACSB: Reflective Thinking

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12) Why is the short run labor demand curve less elastic relative to the long run labor demand curve?

1.

2.

A) Firms care about changes in wages in the short run but not in the long-run.

B) Firms are better able to substitute capital for labor in the long run compared to the short run.

3.

C) Labor is a normal good.

4.

D) A perfectly competitive firm can always pay lower wages in the long run.

5.

E) Isoquant lines get shallower when the wage increases.

Answer: B Difficulty: 2 Medium Topic: The Long-Run Demand Curve for Labor Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

13) At a wage of $25 per hour, the firm employs 50,000 of hours of labor per week. If the wage would increase to $27 per hour, the firm would employ 45,000 hours of labor per week. What is the elasticity of labor demand?

2.

3.

4.

5.

6.

A) −2.50 B) −1.50 C) −1.25 D) −0.50 E) −0.25

Answer: C Difficulty: 3 Hard Topic: The Long-Run Demand Curve for Labor

Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

14) The elasticity of substitution is the 1.

2.

3.

4.

A) change in capital over the change in the price of labor.

B) percentage change in capital over the percentage change in labor.

C) change in the price of capital over the change in the price of labor.

D) percentage change in the price of capital over the percentage change in the price of labor.

5.

E) percentage change in the capital/labor ratio resulting from a 1-percent change in the relative price of labor to capital.

Answer: E Difficulty: 1 Easy Topic: The Elasticity of Substitution Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

15) Which of the following statements is false?

1.

2.

3.

4.

A) Perfect substitutes are associated with linear isoquants.

B) Perfect complements are associated with right-angled isoquants.

C) The elasticity of substitution can be positive or negative.

D) The more two factors are substitutes in the firm’s production function, the greater is the elasticity of substitution.

5.

E) Perfect substitutes do not need to be employed in a one-to-one ratio by the firm.

Answer: C Difficulty: 2 Medium Topic: The Elasticity of Substitution

Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

16) When estimating a labor demand function, one needs to 1.

2.

3.

4.

5.

A) assume labor demand is equal across states.

B) assume labor demand is equal across industries.

C) labor supply is perfectly elastic.

D) find an instrument (e.g., policy) that shifts labor demand over time or location.

E) find an instrument (e.g., policy) that shifts labor supply over time or location.

Answer: E Difficulty: 2 Medium Topic: Rosie the Riveter as an Instrumental Variable Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

17) Labor demand is more elastic 1.

2.

3.

4.

5.

A) the greater is the supply elasticity of capital.

B) the greater is the elasticity of substitution between labor and capital.

C) the greater is the elasticity of demand for the firm’s output.

D) the greater is labor’s share in total costs.

E) All of the statements are correct.

Answer: E Difficulty: 2 Medium Topic: What Makes Labor Demand Elastic Bloom’s: Understand

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18) Labor demand is more elastic the greater the elasticity of substitution between labor and capital because 1.

2.

3.

A) workers supply more labor when their wage increases.

B) the firm’s output price falls when the firm produces more output.

C) a firm is less willing to pay higher labor costs if it is easy for the firm to substitute capital for labor.

4.

D) firms always have the option of substituting capital for labor.

5.

E) a firm’s technology is slow to change.

Answer: C Difficulty: 2 Medium Topic: What Makes Labor Demand Elastic Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

19) Labor demand is more elastic the greater the elasticity of demand for the firm’s output because 1.

2.

3.

4.

5.

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

Difficulty: 2 Medium Topic: What Makes Labor Demand Elastic Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

20) The cross-elasticity of labor with respect to capital is the 1.

2.

3.

4.

5.

A) change in labor relative to a change in capital.

B) change in wages relative to a change in the price of capital.

C) percent change in labor relative to a percent change in capital.

D) percent change in wages relative to a percent change in the price of capital.

E) percent change in labor relative to a percent change in the price of capital.

Answer: E Difficulty: 1 Easy Topic: Factor Demand with Many Inputs Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

21) If unskilled labor and capital are substitutes, 1.

2.

3.

4.

5.

A) the demand for unskilled labor increases when the price of capital decreases.

B) the cross-elasticity between unskilled labor and capital is positive.

C) the price of unskilled labor decreases when the price of capital increases.

D) the price of capital is increasing.

E) the demand curve for capital is upward sloping.

Answer: B Difficulty: 2 Medium

Topic: Factor Demand with Many Inputs Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

22) The imposition of a minimum wage on a competitive labor market will likely 1.

2.

3.

4.

5.

A) create additional employment opportunities because some low-skilled workers will now see their wage increase.

B) lower the wages of workers earning more than the minimum wage.

C) create unemployment as some people enter the labor market while some firms reduce the quantity of labor they are willing to employ due to the increased wage.

D) increase unemployment of high-skilled workers as firms substitute for highskilled labor with low-skilled labor.

E) lower the unemployment rate of low-income families.

Answer: C Difficulty: 1 Easy Topic: The Minimum Wage Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

23) In the United States, the federal minimum wage is legislated in nominal terms. This means that 1.

2.

A) the federal minimum wage is indexed for inflation.

B) the federal minimum wage historically decreases in value during stretches when the minimum wage is not increased.

3.

C) employers do not have to pay payroll taxes on wages paid to minimum wage workers.

4.

D) unemployed workers collect government assistance equal to the minimum wage.

5.

E) the government pays the minimum wage to all local, state, and federal workers.

Answer: B Difficulty: 1 Easy Topic: The Minimum Wage Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 24) How would imposing a minimum wage above the market-clearing wage affect employment in a competitive labor market?

1.

2.

3.

4.

5.

A) Employment would increase as previously unemployed workers would be more encouraged to find a job.

B) Employment would increase because a higher minimum wage would create more jobs for low-skilled workers.

C) Employment would increase as firms would illegally hire workers below the original competitive wage.

D) Employment would be unchanged as workers are nonresponsive to low wages.

E) Employment would decrease as some workers who are willing to work at the lower competitive wage would no longer be able to find work.

Answer: E Difficulty: 2 Medium Topic: The Minimum Wage Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

25) For which reason is increasing the federal minimum wage not a good antipoverty program?

1.

2.

A) It is very costly for the government.

B) Roughly two-thirds of minimum wage earners are not the primary worker in their household.

3.

C) Increasing the federal minimum wage will likely increase employment opportunities.

4.

D) The minimum wage discriminates against minorities.

5.

E) The minimum wage discriminates against the young.

Answer: B Difficulty: 2 Medium Topic: The Minimum Wage Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

26) If the minimum wage applies to one sector (the covered sector) but not another sector (the uncovered sector), an increase in the minimum wage in the covered sector is likely to result in which of the following?

1.

2.

3.

4.

5.

A) greater employment in the covered sector B) less employment in the uncovered sector C) a lower wage in the covered sector D) a lower wage in the uncovered sector E) workers willingly leaving the covered sector for the uncovered sector in search of higher wages

Answer: D Difficulty: 2 Medium Topic: The Minimum Wage Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

27) Consider the following hypothetical difference-in-differences results concerning the average of hours worked in “big-box stores” between North and South Dakota before and after North Dakota increased its minimum wage.

Average W

per Big-Bo

North Dako Before ND minimum wage increase:

1

After ND minimum wage increase:

1

The minimum wage increase is associated with average hours of work decreasing by how much per week in North Dakota relative to South Dakota?

2.

3.

4.

5.

6.

A) 2.1 hours B) 11.7 hours C) 13.8 hours D) 15.9 hours E) 20.2 hours

Answer: B Difficulty: 3 Hard Topic: The Minimum Wage Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

28) The imposition of an effective minimum wage in a non-competitive industry might result in 1.

2.

3.

4.

5.

A) workers earning a lower wage.

B) more workers being hired.

C) higher firm profits.

D) a decrease in labor supply.

E) an increase in labor demand.

Answer: B Difficulty: 3 Hard Topic: The Minimum Wage Bloom’s: Apply AACSB: Analytical Thinking Accessibility: Keyboard Navigation

29) When using synthetic cohort analysis, the recent substantial increases in the minimum wage in Seattle led to 1.

2.

3.

4.

5.

A) hours of work falling by about 10% and the number of low-wage jobs falling by about 5%.

B) no identifiable changes in the labor market for low-wage workers.

C) hours of working falling by about 10% for the average worker but no change in the number of low-wage jobs.

D) an increase in both hours of work and the number of low-wage jobs.

E) hours of work not changing and a very slight decrease in the number of lowwage jobs.

Answer: A Difficulty: 1 Easy Topic: The Minimum Wage Bloom’s: Remember

AACSB: Reflective Thinking Accessibility: Keyboard Navigation

30) Compared to a more standard experimental design which would assign observations to a control group or to a treatment group, a synthetic cohort analysis 1.

2.

3.

A) only has a treatment group.

B) only has a control group.

C) assigns observations to the control or treatment group based on certain demographics such as location or race.

4.

D) finds other populations that “mirror” the treatment group in many ways in order to argue that these other populations can serve as a valid control group.

5.

E) uses a sophisticated algorithm to estimate data for observations in the control group.

Answer: C Difficulty: 2 Medium Topic: Adjustment Costs and Labor Demand Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

Labor Economics, 8e (Borjas) Chapter 5 Compensating Wage Differentials 1) In the standard theory of compensating differentials, a worker’s reservation price is the 1.

2.

3.

4.

5.

A) amount of money it takes to entice the worker into accepting a risky job.

B) amount of money it costs a worker to take a risky job.

C) amount of money a worker loses for not taking any job.

D) amount of money it costs a worker to take a safe job.

E) difference between the wage paid in firms offering risky jobs and the wage paid by firms offering safe jobs.

Answer: A

Difficulty: 1 Easy Topic: The Market for Risky Jobs Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

2) The market-clearing wage differential between a safe and risky job is $5000. Which of the following is not true?

1.

2.

A) The marginal worker is indifferent between working the safe or risky job.

B) All but the marginal worker in safe jobs require a wage differential above $5000 to accept a risky job.

3.

C) All but the marginal worker in the risky job require a wage differential below $5000 to be indifferent between safe and risky jobs.

4.

D) The per-worker cost for any firm to change technologies to offer safe jobs in place of risky jobs is $5000.

5.

E) The average per worker cost of offering safe jobs exceeds $5000 at the risky firms.

Answer: D Difficulty: 1 Easy Topic: The Market for Risky Jobs Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

3) The supply curve of labor to risky jobs reveals.

1.

A) how many workers are willing to offer their labor to the risky job as a function of the wage differential between the risky job and the safe job.

2.

B) how many workers are willing to offer their labor to the risky job as a function of the wage paid to workers of the safe job.

3.

C) how many workers are willing to offer their labor to the safe job as a function of the wage paid to workers of the risky job.

4.

D) the number of workers who dislike risky jobs.

5.

E) the fraction of workers who dislike risky jobs.

Answer: A Difficulty: 2 Medium Topic: The Market for Risky Jobs Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

4) Estimates of the compensating wage differentials associated with particular job characteristics are valid only if 1.

2.

3.

4.

5.

A) all other factors that influence worker’s wages are held constant.

B) nonwage characteristics of the job are allowed to vary by sector.

C) firms are willing to pay higher wages to more skilled workers.

D) the compensating wage differential is positive.

E) the firm provides nonpecuniary compensation for risks that workers encounter on the job.

Answer: A Difficulty: 2 Medium Topic: The Market for Risky Jobs Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

5) Under normal circumstances, the equilibrium compensation wage differential is the wage differential that exactly attracts the

1.

2.

3.

4.

5.

A) average worker into a regular job.

B) marginal worker into a risky job.

C) average worker into a less risky job.

D) marginal worker into the labor market.

E) average high-skilled worker into a low-skill job.

Answer: B Difficulty: 2 Medium Topic: The Market for Risky Jobs Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 6) In order for the compensating differential associated with a risky job to be negative (so that a risky job pays less than a nonrisky job), it must be that 1.

2.

3.

A) many workers are willing to work the risky job for free.

B) most workers prefer the risky job to the safe job when both wages are equal.

C) the number of risky jobs is less than the number of workers who prefer the risky job.

4.

D) there is great demand for labor in both sectors.

5.

E) the government mandates that the wages in the two sectors be equal.

Answer: C Difficulty: 2 Medium Topic: The Market for Risky Jobs Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

7) Assume that the market-clearing wages are $10 per hour in a safe job and $18 per hour in a risky job. Then, at the completion of a war, many ex-soldiers who enjoy risky ventures enter the labor market. Which of the following is not a likely outcome of this change?

1.

2.

3.

4.

5.

A) Many firms that currently offer risky jobs will begin offering safe jobs.

B) The fraction of people working safe jobs will decrease.

C) The wage associated with risky jobs will decrease.

D) The number of people working risky jobs will increase.

E) The wage differential will decrease.

Answer: A Difficulty: 2 Medium Topic: The Market for Risky Jobs Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

8) When graphing a worker’s indifference curves in Probability of Injury (x-axis) versus Wage (y-axis) space, Al’s indifference curves are steeper than Pete’s indifference curve.

In this case, 1.

2.

A) Al is more risk loving than Pete.

B) Al requires a greater wage increase than Pete in order to willingly take on more risk.

3.

C) Al will end up receiving a higher wage than Pete.

4.

D) both are risk neutral.

5.

E) Al will only accept a job if it offers no risk of injury.

Answer: B Difficulty: 2 Medium Topic: The Market for Risky Jobs Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

9) Risk-averse workers

1.

2.

A) have shallow wage-risk indifference curves when risk is graphed on the x-axis.

B) are willing to work in riskier environments for a relatively low increase in the wage.

3.

C) are willing to accept large wage decreases in exchange for a safer work environment.

4.

D) never work in risky environments.

5.

E) are more productive than risk-loving workers.

Answer: C Difficulty: 2 Medium Topic: The Market for Risky Jobs Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

10) Suppose there are two types of jobs–safe and risky. Safe jobs currently pay $10 per hour. Risky jobs currently pay $20 per hour. The government intervenes in the market, mandating that all firms offer safe jobs and pay a wage of $10 per hour. Which of the following is true?

1.

2.

3.

4.

5.

A) Workers who originally worked safe jobs are helped by the policy.

B) Firms that originally offered safe jobs are hurt by the policy.

C) Workers who originally worked risky jobs are helped by the policy.

D) Firms that originally offered risky jobs are hurt by the policy.

E) No one is hurt by the new policy.

Answer: D Difficulty: 2 Medium Topic: The Market for Risky Jobs Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

11) Abby’s reservation price for working in a risky job is $5 per hour while Rudy’s reservation price for working in a risky job is $8 per hour. Characterize Abby and Rudy’s job selections if safe jobs pay $12 per hour and risky jobs pay $18 per hour.

1.

2.

3.

4.

5.

A) Abby and Rudy both work a safe job.

B) Abby works a safe job while Rudy works a risky job.

C) Abby works a risky job while Rudy works a safe job.

D) Abby and Rudy both work risky jobs.

E) Rudy works a risky job while Abby does not care which type of job she works.

Answer: C Difficulty: 3 Hard Topic: The Market for Risky Jobs Bloom’s: Apply AACSB: Knowledge Application Accessibility: Keyboard Navigation

12) Which of the following is not a property of isoprofit curves graphed in Probability of Injury (x-axis) versus Wage (y-axis) space?

1.

2.

A) All points on each isoprofit curve yield the same level of profit.

B) Profit-maximizing firms are indifferent as to where they operate on any given curve.

3.

C) Isoprofit curves going out along the x-axis yield higher profits.

4.

D) Isoprofit curves going up along the y-axis yield higher profits.

5.

E) Isoprofit lines are upward sloping.

Answer: D Difficulty: 1 Easy Topic: The Hedonic Wage Function Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

13) A hedonic wage function could be applied to which of the following job characteristics?

1.

2.

3.

4.

5.

A) the probability of being injured on the job B) the degree to which a job involves monotonous work C) the degree to which the area surrounding the job location is safe D) the degree to which a job involves strenuous work E) All of the above can be represented with a hedonic wage function.

Answer: E Difficulty: 1 Easy Topic: The Hedonic Wage Function Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

14) A standard hedonic wage function might show what relationship?

1.

2.

3.

4.

A) the relationship between the wage and a worker’s age B) the relationship between the wage and a worker’s race C) the relationship between the wage and a worker’s gender D) the relationship between the wage and the probability of injury faced by the worker 5.

E) the relationship between the wage and a worker’s skill level

Answer: D Difficulty: 1 Easy Topic: The Hedonic Wage Function Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

15) The equilibrium hedonic wage function is most likely 1.

2.

3.

A) horizontal as no firm will overpay for workers.

B) horizontal as firms will choose their optimal level of safety.

C) a single point, as all firms will choose the same level of risk, and consequently all workers will be paid the same wage.

4.

D) upward sloping as firms that offer riskier jobs usually pay higher wages.

5.

E) downward sloping as firms that offer riskier jobs are usually able to pay lower wages.

Answer: D Difficulty: 1 Easy Topic: The Hedonic Wage Function Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

16) The cost of offering safe versus risky jobs in the highway construction industry vary across firms. In the end, we would expect the market equilibrium to 1.

2.

3.

4.

5.

A) randomly match workers to jobs.

B) match workers who dislike risk to the highest paying jobs.

C) match workers who dislike risk to firms that find it cheapest to offer safe jobs.

D) have firms that face a high cost of offering safe jobs to pay the lowest wages.

E) have firms randomly choose their level of safety.

Answer: C Difficulty: 2 Medium Topic: The Hedonic Wage Function Bloom’s: Understand AACSB: Reflective Thinking

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17) When a worker and firm are matched on the hedonic wage function, it is implied that 1.

2.

A) the worker cannot receive a higher wage at any other firm.

B) the worker-firm match is efficient in the sense that neither the worker nor the firm could become better off with a different match.

3.

C) the firm could increase its profits by offering a safer job as doing so would allow the firm to lower the wage it pays.

4.

D) the hedonic wage function must be very steeply sloped to ensure that the worker does not accept a better paying job.

5.

E) the worker receives no surplus from the match.

Answer: B Difficulty: 2 Medium Topic: The Hedonic Wage Function Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 18) In Probability of Injury (x-axis) versus Wage (y-axis) space, isoprofit curves slope upward because 1.

2.

A) profits increase with the number of workers the firm employs.

B) workers are willing to accept a lower wage in exchange for a riskier work environment.

3.

C) the firm does not like to pay higher wages.

4.

D) profits are constant with respect to risk.

5.

E) in order to keep profits constant, a higher wage must be offset by the firm saving money by not investing as much in preventing on-the-job injuries.

Answer: E Difficulty: 2 Medium Topic: The Hedonic Wage Function Bloom’s: Understand

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19) The correlation between wages and the probability of encountering a fatal injury while on the jobs can be used to calculate the value of 1.

2.

3.

4.

5.

A) risk.

B) safety.

C) life.

D) injury.

E) work.

Answer: C Difficulty: 1 Easy Topic: How Much Is a Life Worth?

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20) The value of life is calculated by comparing 1.

2.

3.

4.

5.

A) wages to risk levels.

B) risk levels to the number of children in a worker’s household.

C) wages to the number of children in a worker’s household.

D) average life expectancy by occupation to average risk levels by industry.

E) average wages to the average retirement age.

Answer: A Difficulty: 1 Easy Topic: How Much Is a Life Worth?

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21) Suppose 1 in 200 pilots flying Space-Race aircraft die each year while only 1 in 500 pilots flying Subspace Gliders die each year. Moreover, the average salary of SpaceRace pilots is $115,000 while the average salary of Subspace Glider pilots is $109,000.

Given this information, what is the implied statistical value of a life of a pilot?

1.

2.

3.

4.

5.

A) $6,000 B) $120,000 C) $480,000 D) $1,200,000 E) $2,000,000

Answer: E Difficulty: 3 Hard Topic: How Much Is a Life Worth?

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22) 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 1.

2.

3.

4.

5.

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.

Answer: E Difficulty: 2 Medium Topic: Safety and Health Regulations Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

23) A potential implication of OSHA regulation is that 1.

2.

3.

4.

5.

A) the most risk-averse workers begin working the riskiest jobs.

B) the hedonic wage function may no longer exists at the safest levels.

C) the hedonic wage function may no longer exists at the riskiest levels.

D) average wages increase.

E) for the same amount of output produced, total production costs will be less.

Answer: C Difficulty: 2 Medium Topic: Safety and Health Regulations Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

24) Having the government regulate workplace safety would most likely improve economic efficiency if 1.

2.

3.

4.

A) the cost of introducing safety equipment is high.

B) workers value safe work environments.

C) workers are unable to correctly judge the risk associated with a particular job.

D) firms are unable to attract workers to safe jobs.

5.

E) firms and workers differ on the value they place on safe versus risky jobs.

Answer: C Difficulty: 2 Medium Topic: Safety and Health Regulations Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

25) Assuming that workers are fully aware of their working conditions, which of the following will not happen when the government mandates pollution control to protect workers’ health?

1.

2.

3.

4.

5.

A) Worker utility will increase.

B) Employment will likely decrease.

C) The air in workplaces will become cleaner.

D) Firms with low profits before the mandate may shut down or exit the industry.

E) Wages will fall at all but the cleanest firms.

Answer: A Difficulty: 2 Medium Topic: Safety and Health Regulations Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

26) When the government imposes safety regulations on a particular job or labor market, what is most likely to happen?

1.

2.

A) Wages will increase.

B) Utility will increase if workers are able to correctly evaluate working conditions.

3.

C) Wages will fall but utility will increase if workers misperceive on-the-job risk.

4.

D) Employment will increase.

5.

E) Firms that used to offer bad working conditions will be required to shut down.

Answer: C Difficulty: 2 Medium Topic: Safety and Health Regulations Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

27) One implication of the theory of compensating differentials is that jobs in states with high income tax rates are likely to 1.

2.

3.

A) be associated with more fringe benefits.

B) be associated with fewer fringe benefits.

C) pay the same wage and offer the same fringe benefits package as the same jobs in lower-tax states.

4.

D) have worse working conditions.

5.

E) be seasonal in nature.

Answer: A Difficulty: 1 Easy Topic: Compensating Differentials and Job Amenities Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation

28) Ability bias can arise when estimating compensating wage differentials associated with various job characteristics. What is ability bias in this context?

1.

2.

3.

A) Low-skilled workers are likely to have low wages but good job amenities.

B) High-skilled workers are likely to have high wages but poor job amenities.

C) High-skilled workers are likely to have lower wages than unskilled workers but to have better job amenities.

4.

D) High-skilled workers are likely to have higher wages than unskilled workers but to have worse job amenities.

5.

E) High-skilled workers are likely to have higher wages than unskilled workers, but they are also likely to trade some of their higher wages for better job amenities.

Answer: E Difficulty: 2 Medium Topic: Compensating Differentials and Job Amenities Bloom’s: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation

29) If the U.S. system of unemployment insurance did not exist, one would predict that 1.

2.

A) workers would never become unemployed.

B) workers who became unemployed would remain unemployed for longer durations.

3.

C) no worker would accept a job that is associated with seasonal unemployment.

4.

D) seasonal unemployment would cease to exist.

5.

E) workers in jobs that face seasonal cycles of unemployment would be paid higher wages.

Answer: E Difficulty: 2 Medium Topic: Compensating Differentials and Job Amenities Bloom’s: Understand AACSB: Reflective Thinking

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30) Empirically, women who are married to a spouse who has access to health insurance earn higher wages and are less likely to be offered employer-sponsored health insurance than are married women whose spouse does not have access to health insurance. This pattern 1.

2.

A) is unexpected as wages should be unrelated to fringe benefits.

B) supports the theory of compensating differentials as it indicates there is a trade-off between wages and benefits.

3.

C) supports the theory of compensating differentials as it indicates there is no trade-off between wages and benefits.

4.

D) fails to provide support for the theory of compensating differentials.

5.

E) contradicts the result that the hedonic wage function is upward sloping.

Answer: B Difficulty: 1 Easy Topic: Health Insurance and Labor Markets Bloom’s: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation