Problem Set 14
Econ 202 (03, 04, and 05) Fall 2002
(Dr. Tin-Chun Lin)
1.
The demand for labor curve is identical to its:
(A) Total wage cost curve.
(B) Marginal resource curve.
(C) Total revenue curve.
(D) Marginal revenue product curve.
(E) Marginal revenue curve.
(Answer: (D))
2.
A union may attempt to obtain stricter certification requirements or longer apprenticeships. Theses
changes would raise workers’ wages because they:
(A) Create unnecessary unemployment.
(B) Shift the labor supply curve leftward.
(C) Decrease the marginal product of labor.
(D) Reduce management’s use of featherbedding.
(Answer: (B))
3.
An individual firm in a competitive labor market faces a(n):
(A) Horizontal labor supply curve.
(B) Backward-bending labor supply curve.
(C) Downward-sloping labor supply curve.
(D) Upward-sloping labor supply curve.
(E) Vertical labor supply curve.
(Answer: (A))
4.
The optimal number of workers to be hired by a firm operating in a competitive labor market is where:
(A) Price equals marginal revenue product.
(B) Marginal product of labor equals marginal revenue product.
(C) Marginal revenue product equals wage.
(D) Price equals wage.
(E) Average total cost equals wage.
(Answer: (C))
5.
Which of the following can shift the labor demand curve to the right?
(A) Decrease in product price
(B) Increase in wages.
(C) Decrease in wages.
(D) Decrease in the marginal product of labor.
(E) Increase in productivity.
6.
a.
b.
c.
d.
(Answer: (E))
Suppose that labor is supplied by individual workers acting competitively. In some markets, however,
the supply of labor is determined by a union of workers.
Explain why the situation faced by a labor union may resemble the situation faced by a monopoly
firm. (Answer: A union is like a monopoly firm in that it is the only supplier of labor, just as a
monopoly is the only supplier of the good.)
The goal of a monopoly firm is to maximize profits. Is there an analogous goal for labor unions?
(Answer: Just as a monopoly firm wants to maximize profits, a labor union may wish to maximize the
labor income of its members.)
Now extend the analogy between monopoly firms and unions. How do you suppose that the wage set
by a union compares to the wage in a comparative market? How do you suppose employment differs
in the two cases? (Answer: Just as the monopoly price exceeds the competitive price in the market for
a good, the union wage exceeds the free-market wage in the market for labor. And just as the quantity
of output of a monopoly is less than the quantity produced by a competitive industry, employment by
a unionized firm is less than employment by a non-unionized firm, since the union wage is higher.)
What other goals might unions have that make unions different from monopoly firms? (Answer:
Unions might wish to maximize total labor income of their members, or they might want the highest
wage possible, or they might wish to have the greatest employment possible. In addition, they may
wish to have improved working conditions, increased fringe benefits, or input into a firm’s decision.)
The following table is for answering questions 7-15
Labor hours needed to make one unit of:
Wine (bottle)
Cloth (yards)
7.
8.
9.
10.
11.
12.
13.
14.
15.
Jane
12
4
Heber
10
5
The opportunity cost of 1 bottle of wine for Jane is:
(A) 1∕3 cloth.
(B) 3 cloth.
(C) 2 cloth.
(D) 1∕2 cloth.
(Answer: (B))
The opportunity cost of 1 bottle of wine for Heber is:
(A) 1∕3 cloth.
(B) 3 cloth.
(C) 2 cloth.
(D) 1∕2 cloth.
(Answer: (C))
For Jane the opportunity cost of 1 yard of cloth is:
(A) 12 labor hours.
(B) 4 labor hours.
(C) 3 wine.
(D) 1∕3 wine.
(Answer: (D))
For Heber the opportunity cost of 1 yard of cloth is:
(A) 5 bottles of wine.
(B) 10 bottles of wine.
(C) 1∕2 bottle of wine.
(D) 2 bottles of wine.
(Answer: (C))
Jane has a comparative advantage in ___ and Heber has an absolute advantage in ___
(A) Wine, cloth.
(B) Wine, both goods.
(C) Cloth, both goods.
(D) Cloth, wine.
(Answer: (D))
Jane has an absolute advantage in ___ and Heber has a comparative advantage in ___.
(A) Cloth, wine.
(B) Wine, cloth.
(C) Wine, neither good
(D) Cloth, cloth.
(Answer: (A))
Jane has an absolute advantage in ___ and Heber has an absolute advantage in ___.
(A) Wine, wine.
(B) Cloth, wine.
(C) Neither good, both goods.
(D) Both goods, neither good.
(Answer: (B))
Jane and Heber both could benefit by Jane specializing in __ and Heber specializing in ___.
(A) Wine, cloth.
(B) Cloth, wine.
(C) Wine, wine.
(D) Cloth, cloth.
(Answer: (B))
Jane has a comparative advantage in ___ and Heber has a comparative advantage in ____.
(A) Cloth, wine.
(B) Cloth, both goods.
(C) Cloth, neither good.
(D) Wine, cloth.
(Answer: (A))