C. Workers form a strong trade union in order to raise their wages

D. The government reduces unemployment benefits

E. The government increases personal income taxes

25. If a firm possesses market power in both output and labor markets, the equilibrium amount of labor employed is determined by _______ and equilibrium wage is ________.

A. L^D = L^S; equal to P*MP_L;

B. MRP_L = w; equal to MRP_L;

C. MVP_L=MC_L; equal to MC_L;

D. P/w = MP_L; determined by labor demand;

E. MRP_L = MC_L; determined by labor supply;

26. Consider two theories explaining wage differentials: human capital and signaling. Identify the statement about which those two theories would disagree:

A. In the short run, the economy-wide supply of educated workers is almost perfectly inelastic.
B. If every worker increases his educational attainment, the overall wage level must rise.

C. More able workers tend to be relatively more educated.

D. An increase in demand for qualified workers will rise their wages in the short run, but in the long run the wage level will decline somewhat.

E. All statements are consistent with both theories.

Answer: B. According to human capital theories, that would raise productivity and hence, wages. According to signalling theories, that would just raise the average level of education, but not affect differences in education – which are the only thing that matters.

27. Suppose a firm’s MVPL curve is horizontal, whereas its MRPL curve is downward-sloping. Which of the following would be a complete explanation for that:

A. This firm is a monopoly that acts as a price-taker on its labor market.

B. This firm is a monopsony that acts as a price-taker on its output market.

C. This firm is perfectly competitive on both output and input markets, but its product is a Giffen good.

D. This firm is a monopoly that faces an effective minimum wage law on its labor market.

E. This firm is a monopoly with no market power in the labor market, whose technology violates the law of diminishing marginal returns.

28. Which of the following events would MOST LIKELY increase the market demand for construction workers?

A. Immigration from third-world countries increases.

B. Government starts to subsidize long-term bank loans for young families.

C. Construction machinery producers offer substantial discounts on their new equipment.

D. Construction workers organize themselves into a powerful union

E. A minimum wage law is enacted.

Answer: B, since that would lead to increased demand for housing. Note that (E) could be true under a monopsony, and (C) could work if those factors were complementary.

29. To produce its output, a competitive firm employs labor and capital, that it hires on competitive markets. If it acquires a new technology, which makes labor 20% more productive for any level of output, in the short run...

A. It will employ more labor.

B. It will employ less labor.

C. It will employ less of both factors.

D. It will increase its output.

E. (A) and (D) are correct.

30. Consider an industry that is perfectly competitive in its output market and in all input markets. Then the industry demand curve for labour is:

Date: 2015-12-17; view: 710