WEEK ONE 21st century LeadersReadings for citinghttpwest.docx

WEEK ONE: 21st century Leaders
Readings for citing
http://westsidetoastmasters.com/article_reference/must_have_le
adership_skills_for_21st_century.html
https://www.entrepreneur.com/article/173522
http://www.theguardian.com/sustainable-business/future-
leaders-sustainability-21st-century
http://www.entrepreneur.com/article/225804
http://classes.engr.oregonstate.edu/eecs/fall2013/ece507-
003/WhatLeadersReallyDo.pdf
Learning Activity #1
Joe Jackson owned a saw mill in Stuttgart, Arkansas. It was a
family concern that had not changed in 50 years. Having grown
up in the business Joe had never really investigated the
strengths and weaknesses of his position as Vice President. His
father was always the President and he and his older brother
Jacob were the heirs. The business was in turmoil because his
father’s health was precarious forcing him to step down. Joe’s
brother was expecting to step up to the role of Vice President
but Joe knew that was a mistake. The business itself was
quickly eroding because of the sustainability issues facing the
world. Joe could see this but not Jacob. Joe needed to have a
long talk with Jacob to make him see his reasoning. Either they
worked together for the future or Joe would have to take the
lead role.
Prepare an outline of points for Joe to make in his discussion
with his brother. Explain the role of the 21st century leader and
why it differs from that of the 20th century leader. Make sure

to use the course reading material, citing and referencing to
validate the points you make.
Click on the link below and fill out the chart to include the
individual characteristics of a leader and manager in the
categories named.
/content/enforced/11362-001034-01-2142-US2-
4550/BMGT365leadvmangchart.doc
In his article, “What Leaders Really Do," Kotter (2001) []stated,
" Managers promote stability while leaders press for change,
and only organizations that embrace both sides of the
contradiction can thrive in turbulent times" (p. 3).
In the fact pattern below Juan Para must make a decision about
hiring June Davies. Keeping Kotter’s ideas in mind complete
the following tasks:
· Define the leader’s and manager’s approach (mindset) to
solving the dilemma.
· Determine Para’s solution if he used the leader’s perspective
and then if he used the manager’s perspective.
· Do you see a difference? If so what differences? If not, why
not? Could the outcome be the same and still benefit the
company?
Protection Insurance Stays Alive
At 7:30 a.m., Juan Para hit the snooze alarm for the third time,
but he knew he could never go back to sleep. Rubbing his eyes
and shaking off a headache, Para first checked his iPhone and
read an urgent message from his boss, explaining that Jack
Nixon, chief security analyst, had resigned last night and
needed to be replaced immediately. Frustrated, Para lumbered
toward the shower, hoping it would energize him to face another
day. After last night’s management meeting, which had ended
after midnight, he was reeling from the news that his employer,

Protection Insurance, was spiraling toward a financial
meltdown.
Para scratched his head and wondered, “How could one of the
world’s largest insurance companies plummet from being the
gold standard in the industry to one struggling for survival?”
At the end of 2007, Protection Insurance had $100 billion in
annual revenues, 65 million customers, and 96,000 employees in
130 countries. One year later and staggered by losses stemming
from the credit crisis, Protection Insurance teetered on the brink
of failure and was in need of emergency government assistance.
Protection Insurance had been a victim of the meltdown in the
credit markets. The collapse of this respected financial
institution sent shock waves throughout the world’s economy.
Within Protection Insurance’s Manhattan office, Para and his
coworkers felt growing pressure to respond to this crisis quickly
and ethically. But morale was sagging and decision making was
stalled. New projects were on hold, revenues weren’t coming in
fast enough, and job cuts were imminent. Finger-pointing and
resignations of key managers had become commonplace. Strong
leadership was needed to guide employees to stay the course.
Para knew his first priority was to replace Jack Nixon. When
leaving the meeting last night, his boss had told him, “It’s
critical that we keep key managers in place as we weather this
storm. If we lose any managers, be sure you replace them with
ones who can handle the stress and can make tough and even
unpopular decisions.”
Working up a sweat as he rushed into his office, Para began
sorting through the day’s priorities. His first task would be to
consider internal candidates to replace Nixon. He pondered the
characteristics required of a chief securities analyst and
scribbled them on a notepad: experienced in security and
regulatory issues; strong decision-making skills; high ethical
standards; able to make job cuts; comfortable with slashing
budgets; and respected for calm leadership. Para immediately
thought of June Davies, a senior analyst who had been vocal
about her desire to move up and had recently shown steady

leadership as the organization started to crumble.
Davies had worked her way up through the organization,
becoming a respected expert in her field. She had developed a
strong team of loyal employees and made training and job
development a priority. She was likable, sensitive to her
employees, and a consensus builder. While many managers
within Protection Insurance had made questionable business
decisions, June had held herself to a high ethical standard and
created a culture of integrity. Davies was focused on the
future—a go-getter who knew how to get results.
With the future of the company at stake; however, Para
wondered if Davies could handle the tough challenges ahead.
Although he valued her team-building skills, she could be soft
when it came to holding employees accountable. A large part of
her motivation was to have people like her. When she reported
a shortfall in earnings in the last company meeting and came
under fire, she became defensive and did not want to point
fingers at employees who were to blame. In fact, Para recalled
another instance when Davies recoiled at the thought of firing
an employee who had developed a pattern of poor attendance
while caring for her sick husband. She confessed a hesitation to
confront poor performers and employees struggling to balance
home and work life.
Para stirred his morning coffee and wondered aloud, “Is June
Davies capable of balancing kindness and toughness during a
crisis? Can I count on her to be decisive and focused on top-
and bottom-line results? Is she too much of a people pleaser?
Will it impact her ability to lead successfully?”
Learning activity #4 reading material
http://www.businessinsider.com/the-7-traits-of-executive-
presence-2013-9
http://chiefexecutive.net/op-10-skills-needed-for-effective-
leadership-bcl14/

http://www.fastcompany.com/3032828/the-one-personality-trait-
to-look-out-for-when-hiring-your-next-executive
http://www.forbes.com/sites/erikaandersen/2012/04/10/manage-
or-lead-do-both/
There are various types of leadership roles in an organization.
They extend from the executive leadership role to the project
leader. Each has different sets of responsibilities to the
organization and each leadership role utilizes skill sets that
require influencing people to move the business towards the
vision. This week’s theme focuses on those levels that are most
visible to the students either because they are seen from afar as
being on the top or because they seek to become involved
personally: executive, managerial, and team leaders.
In completing the following learning activity, students will
examine the role of each leadership type and the skill sets
associated with them.
Executive Leader: Are leader that are often seen from afar.
They are the people at the top. Their role is to design the
vision, mission, structure and culture of the organization. It is
their ideas that provide the framework upon which the manager
builds. The job of the executive leader is to be the social
architect. An executive leader creates the vision, mission,
structure and culture and is change agents.
Managerial Leadership: Leaders create followers through
influence while managers lead people and manage things
(overlap is the skills needed to lead people to do things)
Leading Teams: In this role, guidance, direction, instruction,
motivation and leadership are provided to a group of workers
for the expressed purpose of achieving an outcome.

Read the course material.
Develop and post a list of the characteristics of the executive
leader that distinguish a leader from a manager.
Research and find one leader that you would define as a
successful executive leader as described by the list of
characteristics that you made.
Explain the reasoning for selecting the chosen leader and for the
list criteria used to make the selection.
Qu Chapter 5.doc
Chapter 5
1.
The short run is defined as a period in which:
a.
the firm cannot change its output level
b.
all inputs are variable but technology is fixed
c.
input prices are fixed
d.
at least one resource is fixed
Questions 2 – 7 are based on the short-run production function.

Graph below.
2.
The “zone of production” consists of labor inputs over the range
of:
a.
0X
c.
0Y
b.
YZ
d.
XZ
3.
The slope of line segment OD can be interpreted as the:
a.
total product of labor at Y
b.
average product of labor at Y
c.
value of labor’s marginal product at Y
d.
greatest possible marginal product of labor
4.
The slope of line segment 0D can be interpreted as the:

a.
marginal product of labor at Y
b.
total product of labor over the range 0Y
c.
value of labor’s marginal product at Y
d.
the greatest possible total product of labor
5.
For labor input levels between X and Y:
a.
the marginal product of labor is falling, but is greater than the
average product of labor
b.
both the marginal product and the average product of labor are
falling
c.
the marginal product of labor is rising and the average product
of labor is falling
d.
both the marginal product and the average product of labor are
rising
6.
The “law of diminishing marginal returns” begins to take effect
at labor input level:

a.
0
b.
X
c.
Y
d.
Z
7.
At labor input Z, labor’s:
a.
average product is maximized
c.
marginal product is zero
b.
marginal product is maximized
d.
total product is zero
8.
Which of the following best describes the “law of diminishing
marginal returns”?
a.
the marginal product of labor is negative
b.
output per worker must eventually fall

c.
as more labor is added to a fixed stock of capital, total output
must eventually fall
d.
as more labor is added to a fixed stock of capital, labor’s
marginal product must eventually fall
9.
Which of the following equalities holds when the profit-
maximizing quantity of labor is employed in the short‑run?
a.
MRP = MWC
c.
MRP = AP
b.
MP = wage rate
d.
MRP = 0
10.
The short-run labor demand curve of a competitive firm is:
a.
its average revenue product curve
b.

its marginal revenue product curve, provided marginal product
is below average product
c.
its marginal product curve
d.
stage II of the total product curve
11.
Value of marginal product (VMP) differs from marginal revenue
product (MRP) in that:
a.
MRP measures the value society places on the next worker’s
output while VMP measures the value the firm places on the
next worker’s output
b.
VMP measures the value society places on the next worker’s
output while MRP measures the value the firm places on the
next worker’s output
c.
MRP always exceeds VMP
d.
VMP always exceeds MRP
Questions 12 – 19 are based on the data in the following table.
Assume that the labor market is perfectly competitive.
12.
Suppose the firm’s product demand is given by the column
labeled D1. If the wage rate is $100, the firm will achieve

maximum profit by hiring _____ workers.
a.
3
b.
4
c.
5
d.
6
13.
labeled D1. If the wage rate rises from $100 to $130, the firm
will reduce the quantity of labor employed by _____ unit(s)
a.
0
b.
1
c.
2
d.
3
14.
maximum profit by hiring _____ workers.

a.
3
b.
4
c.
5
d.
6
15.
labeled D1. The value of the marginal product of the fourth
worker is:
a.
$10
b.
$54
c.
$120
d.
$540
16.
maximum profit by hiring _____ workers
a.
2

b.
3
c.
4
d.
5
17.
labeled D2. The extra revenue generated by the fourth worker
is:
a.
$1
b.
$12
c.
$48
d.
$405
18.
labeled D2. If the wage rate rises from $100 to $130, the firm
will reduce the quantity of labor employed by _____ unit(s).
a.
0
b.
1

c.
2
d.
3
19.
Compared to a firm facing D1, a firm facing demand schedule
D2 but paying the same wage will hire:
a.
the same number of workers, since total product is the same in
both instances
b.
fewer workers, since product price declines as output increases
c.
more workers, since product price declines as output increases
d.
more information is required
20.
The marginal revenue product schedule:
a.
measures the increase in total revenue that results from the
production of one more unit
b.
measures the decline in product price that a firm must accept in
order to sell the extra output of one more worker
c.

is the same whether the firm is selling in a purely competitive
or imperfectly competitive market
d.
is the firm's labor demand schedule, provided the firm is
operating in the zone of production
Questions 21 – 24 are based on the data in the following table.
Assume that the labor market is perfectly competitive.
21.
If the wage is $20.00, how many workers will this profit-
maximizing firm choose to employ?
a.
2
b.
3.
c.
4
d.
5
22.
What are the values of marginal product and the marginal
revenue product, respectively, for the fourth worker?
a.
$67.20; $9.60

c.
$16.80; $8.40
b.
$12.60; $9.60
d.
$67.20; $62.40
23.
If the wage is $11.00, how many workers will this profit-
maximizing firm choose to employ?
a.
2
b.
3
c.
4
d.
5
24.
Rather than the product demand schedule shown in the table,
suppose this firm sold its output competitively for a price of
$2.00. In this case, how many workers will this profit-
maximizing firm choose to employ at a wage of $25.00?
a.
2

b.
3.
c.
4
d.
5
25.
“The extra output, measured in dollars, that accrues to society
when an additional unit of labor is employed” best describes:
a.
marginal product
c.
value of marginal product
b.
marginal revenue product
d.
total revenue product
26.
For a firm selling output in an imperfectly competitive market,
its labor demand curve will:
a.
reflect the value of marginal product schedule, provided the
firm is operating in the zone of production
b.
decline solely because of diminishing marginal productivity

c.
decline because of diminishing marginal productivity and
because product price declines as output increases
d.
be perfectly elastic if the firm is hiring labor competitively
27.
All else equal, the imperfectly competitive seller’s labor
demand curve is:
a.
greater than that of a perfectly competitive seller
b.
more elastic than that of a perfectly competitive seller
c.
less elastic than that of a perfectly competitive seller
d.
the same as than that of a perfectly competitive seller
28.
Compared to an otherwise identical competitive firm, a firm
with monopoly power will hire:
a.
fewer workers, reflecting its decision to produce less output
b.
more workers because the higher price charged by the monopoly
raises its MRP
c.

fewer workers because workers are less productive in a
monopoly setting
d.
more workers because monopolies have higher profits and can
pay higher wages
29.
Which of the following best describes the output effect of a
wage increase?
a.
The firm's marginal cost increases, the firm desires to produce
less output, and therefore less labor is required
b.
The cost of labor is relatively higher, causing the firm to use
relatively less labor
c.
The firm’s marginal cost falls, the firm desires to produce more
output, and therefore more labor is required
d.
The firm’s labor demand curve becomes more inelastic, causing
it to employ less labor
30.
Which of the following best describes the substitution effect of
a wage increase?
a.
The firm's marginal cost increases, the firm desires to produce
less output, and therefore less labor is required
b.

The cost of labor is relatively higher, causing the firm to use
relatively less labor
c.
The firm's labor demand curve becomes less elastic, causing it
to employ less labor
d.
The firm's labor demand curve becomes more elastic, causing it
to employ less labor
31.
Compared to the long-run labor demand curve, the firm’s short-
run curve is typically:
a.
less elastic
b.
the same
c.
more elastic
d.
more elastic only if labor and capital are gross complements
32.
The long-run labor demand curve incorporates:
a.
the substitution effect only
b.
the output effect only

c.
neither the substitution effect nor the output effect
d.
both the substitution effect and the output effect
33.
In the long run, the substitution effect of a lower wage:
a.
increases the quantity of labor demanded, while the output
effect reduces it
b.
decreases the quantity of labor demanded, while the output
effect increases it
c.
and the output effect both increase the quantity of labor
demanded
d.
and the output effect both reduce the quantity of labor
demanded
34.
“To find the market demand curve for a particular type of labor,
simply sum the labor demand curves of all employers of that
type of labor.” This statement is:
a.
true
b.
false—sum the value of marginal product curves for the firms to
account for changes in wage rates as employment increases

c.
false—sum the value of marginal product curves for the firms to
account for changes in output price as production increases
d.
false—although the price of output for any individual firm may
be constant, this may not be the case for all firms taken
collectively
35.
When deriving the market demand curve for a particular type of
labor, one must:
a.
hold the market price of the output constant
b.
simply sum the labor demand curves of all employers of that
type of labor
c.
account for the variation in market price as industry output
expands
d.
hold constant the market price in competitive markets but allow
the price to vary in monopoly markets
36.
In comparing two otherwise identical industries X and Y, an
economist finds that labor demand is more elastic in industry X.
Which of the following would support this finding?
a.
Capital and labor are less easily substituted for one another in X

than in Y
b.
Labor costs as a percentage of total costs are relatively lower in
X than in Y
c.
Product demand elasticity is higher in X than in Y
d.
Substitute resources have a less elastic supply in X than in Y
37.
In comparing two otherwise identical industries X and Y, an
economist finds that labor demand is less elastic in industry X.
Which of the following would support this finding?
a.
Capital and labor are less easily substituted for one another in X
than in Y
b.
Labor costs as a percentage of total costs are relatively higher
in X than in Y
c.
Product demand elasticity is higher in X than in Y
d.
Substitute resources have a more elastic supply in X than in Y
38.
Which of the following can be predicted to increase the demand
for labor?
a.

An increase in the price of a gross complement to labor
b.
A decrease in the price of a gross substitute for labor
c.
A decrease in the number of firms
d.
An increase in product demand
39.
Which of the following can be predicted to increase the demand
for labor?
a.
An increase in the price of a gross substitute for labor
b.
An increase in the price of a pure complement to labor
c.
A decrease in product demand
d.
An increase in the price of another resource, provided the
output effect exceeds the substitution effect
40.
In the textile industry, industrial robots and assembly line
workers are gross substitutes. Accordingly, the drop in the price
of robots has:
a.
decreased the demand for robots

b.
increased the demand for assembly line workers
c.
decreased the demand for assembly line workers
d.
increased assembly line workers’ wages
41.
Suppose that the decline in prices of personal computers has
reduced the demand for labor at a particular firm. We may
conclude that at this firm:
a.
computers and labor are pure complements
b.
computers and labor are gross complements but not pure
complements
c.
computers and labor are gross substitutes
d.
computers and labor are perfect substitutes
42.
(World of Work 5-1) Since 1980, the number of jobs in
manufacturing has:
a.
increased, reversing a downward trend that had started in 1950
b.
decreased, reflecting in part the reduced productivity of

manufacturing workers
c.
decreased, reflecting in part the reduction in the labor force
participation rate of older males and the drop in their real wages
d.
decreased, reflecting in part the increased reliance of
manufacturing on workers from temporary help agencies
43.
(World of Work 5‑2) International trade:
a.
increases labor demand in some industries and reduces it in
others
b.
reduces the overall demand for labor
c.
increases the overall demand for labor
d.
has no impact on labor demand at all
44.
(World of Work 5‑4) In which industries does the Bureau of
Labor Statistics project the fastest employment growth over the
next ten years?
a.
Real estate and finance
b.
Fast food preparation and legal services

c.
Maintenance and law enforcement
d.
Health care and computers
Total Product
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TP
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X
Y
Z
A

B
C
0
Labor�
Output�
Price (D1)�
Price (D2)�
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9.50�
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42�
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Answers to Chapter 6.doc
Answers to Chapter 6
1. C
2. B
3. D
4. A
5. C
6. B
7. A

8. B
9. D
10. D
11. C
12. D
13. D
14. C
15. A
16. A
17. A
18. C
19. D
20. B
21. A
22. B
23. A
1. D

2. B
3. B
4. A
5. A
6. B
7. C
8. D
9. A
10. B
11. B
12. D
13. D
14. B
15. C
16. A
17. C
18. B
19. B

20. D
21. A
22. C
23. B
24. B
25. C
26. C
27. C
28. A
29. A
30. B
31. A
32. D
33. C
34. D
35. C
36. C
37. A

38. D
39. A
40. C
41. C
42. D
43. A
44. D
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Qu chapter 2.doc
Chapter 02 - The Theory of Individual Labor Supply
Chapter 2 MULTIPLE-CHOICE QUESTIONS
1.
In the context of the basic work-leisure model, “work” is
defined as:
a.
time devoted to a paying job or household work
b.
time devoted to a paying job

c.
time devoted to any “undesirable” activity
d.
all time not devoted to rest and relaxation
2.
In the context of the basic work-leisure model, “leisure” time
includes:
a.
only time devoted to rest and relaxation
b.
any time not devoted to either a paying job or household work
c.
any time devoted to anything desirable
d.
any time not devoted to a paying job
3.
The slope of an indifference curve at any point reflects the:
a.
rate at which a person is willing to substitute leisure for income
b.
wage rate
c.
income effect
d.
substitution effect

4.
Indifference curves are convex to the origin because:
a.
at a lower income, a person is more willing to sacrifice income
for additional leisure
b.
at a lower income, a person is less willing to sacrifice income
for additional leisure
c.
at any income level, a person is willing to sacrifice the same
amount of income for additional leisure
d.
the marginal rate of substitution of leisure for income is
negative
5.
On an indifference map reflecting the tradeoff between income
and leisure, higher levels of utility are achieved by moving:
a.
from left to right along a given indifference curve
b.
from right to left along a given indifference curve
c.
to an indifference curve further from the origin
d.
to an indifference curve closer to the origin

6.
For income and leisure time, a higher level of utility is achieved
by moving to the _____ on an indifference _____.
a.
northeast; curve
c.
northeast; map
b.
southwest; curve
d.
southwest; map
Question 7 refers to the following diagram representing Larry’s
budget constraint and preferences:
7.
Which of the following is a correct statement?
a.
At A, Larry’s marginal valuation of leisure is higher than the
market wage
b.
At B, Larry’s marginal valuation of leisure is higher than the
market wage
c.
At C, Larry’s marginal valuation of leisure is lower than the

market wage
d.
At B, Larry values leisure the same amount as at A
8.
The higher the individual’s wage rate:
a.
the steeper the budget constraint
b.
the lower the marginal rate of substitution of leisure for income
c.
the greater the desired number of hours of work
d.
the greater the desired number of hours of leisure
9.
In an income-leisure diagram, the wage rate is graphically
represented by the:
a.
slope of the indifference curves
b.
curvature of the indifference curves
c.
slope of the budget line
d.
tangency of the budget line with an indifference curve

10.
The optimal work-leisure position is achieved where:
a.
the MRS L,Y is equal to the wage rate
b.
the difference between the MRS L,Y and the wage is greatest
c.
the wage rate is greatest
d.
the MRS L,Y is greatest
11.
An individual whose MRS L,Y exceeds the wage at her current
combination of leisure and income could increase utility by:
a.
working more hours
c.
increasing her income
b.
working fewer hours
d.
none of the above; her utility is maximized
Questions 12 – 15 refer to the following diagram:
12.
Considering the two budget lines in the diagram, if the person’s

optimal number of hours worked is seven hours, then the wage
rate must be:
a.
$10
c.
$240
b.
$192
d.
cannot be determined
13.
The person has non-wage income of:
a.
$0
c.
$192
b.
$10

d.
$240
14.
If this person’s wage rate falls as illustrated in the diagram,
then:
a.
the substitution effect is stronger than the income effect
b.
the income effect is stronger than the substitution effect
c.
this person’s non-wage income will fall as well
d.
the substitution effect causes desired work hours to increase
15.
The income effect of the illustrated wage decrease causes this
individual to work:
a.
one less hour
c.
two less hours
b.
one more hour

d.
two more hours
16.
The income effect is:
a.
the combination of leisure and wage rate that maximizes one’s
income
b.
the part of the total change in desired work hours that is due to
the change in real income resulting from a change in the wage
rate
c.
the part of the total change in desired work hours that is due to
a change in the wage rate, with real income or utility constant
d.
always dominated by the substitution effect
17.
An increase in the wage rate will increase desired hours of work
if:
a.
the income effect and substitution effect cancel one another
b.
the income effect dominates the substitution effect
c.

the substitution effect dominates the income effect
d.
accompanied by an increase in nonwage income
18.
Which one of the following would be most likely to shift the
labor supply curve to the right?
a.
A decrease in the wage rate
b.
A change in the indifference map following deterioration of
working conditions
c.
A change in the indifference map following an improvement in
working conditions
d.
A significant increase in dividend and interest income
19.
Consider the impact of a general increase in real wages.
Empirical evidence suggests that men will tend to work _____
hours and women will tend to work _____ hours.
a.
more; fewer
c.
fewer; fewer

b.
more; about the same
d.
about the same; more
20.
Which of the following would unambiguously predict a decrease
in desired hours of work?
a.
The substitution effect of a wage decrease
b.
The income effect of a wage decrease
c.
A wage increase
d.
The substitution effect of a decline in income tax rates
Questions 21 – 22 are based on the following diagram, which
shows a labor supply curve for an individual.
21.
If this person were now willing to supply only H1 hours of work
at W3, we could conclude that:
a.
labor supply increased (the curve shifted to the right)
b.
labor supply decreased (the curve shifted to the left)

c.
the person’s preferences must have changed
d.
the substitution and income effects are now equal
22.
Of the following, which one would most likely cause this person
to supply H1 hours of work at W3 rather than the current H3
hours?
a.
This person’s spouse receives a substantial income increase
b.
A decrease in this person’s marginal valuation of leisure time
c.
Congress abolishes an income maintenance program
d.
This person’s spouse suffers a substantial cut in income
Questions 23 – 27 are based on the following diagram:
23.
If the current wage rate results in a budget constraint of AB1,
the individual will choose:
a.
0C hours of work and AC hours of leisure
b.
AD hours of work and 0D hours of leisure

c.
0D hours of work and AD hours of leisure
d.
AC hours of work and 0C hours of leisure
24.
The shift from budget line AB1 to AB2 implies a(n):
a.
decrease in the wage rate
c.
increase in the wage rate
b.
decrease in non-wage income
d.
increase in non-wage income
25.
The equilibrium positions shown imply that in the relevant wage
range, this person is:
a.
on the upward-sloping segment of the individual labor supply
curve
b.
on the backward-bending segment of the individual labor supply
curve
c.
at the point on the individual labor supply curve where the

income and substitution effects are equal
d.
being offered a wage less than the reservation wage
26.
The equilibrium positions shown in the diagram imply that for a
wage increase:
a.
both the income and substitution effects increase desired work
hours
b.
both the income and substitution effects reduce desired work
hours
c.
the income effect increases desired work hours and the
substitution effect reduces desired work hours
d.
the income effect reduces desired work hours and the
substitution effect increases desired work hours
27.
In the diagram, the substitution effect associated with a wage
increase is shown by the distance:
a.
CD
b.
DE
c.

CE
d.
0C
28.
Suppose an individual worker is on the upward sloping portion
of her labor supply curve. Then for a wage increase the:
a.
income and substitution effects both increase desired work
hours
b.
income and substitution effects are equal
c.
income effect dominates the substitution effect
d.
substitution effect dominates the income effect
29.
A 10% increase in the wage induces Margy to increase her
desired work hours by 2%. Over this range of wages, Margy’s
wage elasticity of labor supply is:
a.
elastic
c.
inelastic

b.
unit elastic
d.
negative
30.
For Jenny, the income effect of a wage increase dominates the
substitution effect. Jenny’s wage elasticity of labor supply is:
a.
elastic
c.
inelastic
b.
unit elastic
d.
negative
31.
Sammy is required by her employer to work a standard eight-
hour workday. Suppose her marginal rate of substitution of
leisure for income exceeds the wage rate at this level of work
effort. We can conclude that Sammy will:
a

feel underemployed
b.
desire to find a second job
c.
feel overemployed
d.
desire to work voluntary overtime
32.
Compared to workers with less education, people who have
more education tend to earn higher wages and have higher
pensions upon retirement. Given this observation, which of the
following statements best explains why those persons with more
education also retire at a later age?
a.
If tastes for leisure are the same, the effect of the higher
pension must outweigh the effects of the higher wages
b.
If tastes for leisure are the same, the effects of the higher wages
must outweigh the effects of the higher pensions
c.
Since higher wages and pensions both suggest a lower
retirement age, those with more education must value leisure
less
d.
Regardless of the tastes for leisure, the higher wages and
pensions would both suggest a higher retirement age
Questions 33 and 34 are based on the following diagram. TS

represents the standard 40-hour workweek. Indifference curves
labeled with subscripts “a” and “b” are for individuals A and B,
respectively.
33.
Assuming workers must work TS hours or not work at all,
worker A will:
a.
not participate in the labor force
b.
be at an optimum at TS hours of work
c.
work the standard workweek but will feel overemployed
d.
work the standard workweek but will feel underemployed
34.
Assuming workers must work TS hours or not work at all,
worker B will:
a.
not participate in the labor force
b.
be at an optimum at TS hours of work
c.
work the standard workweek but will feel overemployed
d.
work the standard workweek but will feel underemployed

Question 35 refers to the following diagram:
35.
Suppose this worker’s union negotiates an increase in the
straight-time wage from $8 to $9.33 per hour with no bonus for
overtime. This plan would allow earnings of $560 at 60 hours
per week. Assuming this worker can freely choose the number
of hours worked, he will choose to work:
a.
60 hours per week
b.
fewer than 60 hours per week
c.
more than 60 hours per week
d.
more than 60 hours per week if the income effect dominates;
less otherwise
36.
Suppose a working mother is currently ineligible for any
government assistance. If she were then to become eligible for
an income maintenance program that incorporates both a basic
benefit and a positive benefit-reduction rate:
a.
both the income and substitution effect will cause her to
increase her work effort
b.
both the income and substitution effect will cause her to

decrease her work effort
c.
her work effort will increase if the substitution effect is
stronger than the income effect
d.
her work effort will decrease if the substitution effect is
stronger than the income effect
Questions 37 and 38 are based on the following information:
Assume under an income maintenance program that the basic
benefit (income guarantee) is $9000 and the benefit-reduction
rate is 50%.
37.
If a family has an earned income of $3000 per year, its subsidy
payment will be:
a.
$6000
b.
$7500
c.
$9000
d.
$0
38.
The break-even level of income is:
a.
$4500

b.
$6000
c.
$9000
d.
$18,000
39.
Suppose an income maintenance program offers a basic benefit
of $7500 per year and the benefit-reduction rate is 33 1/3%. The
break-even level of income is then:
a.
$2500
b.
$7500
c.
$15,000
d.
$22,500
40.
In the years following enactment of welfare reform in 1996,
welfare case loads:
a.
dropped slightly

c.
dropped by more than 50%
b.
increased slightly
d.
increased by almost 50%
41.
(World of Work 2-2) Empirical evidence indicates that
inheritances _____ labor force participation; further, persons
receiving inheritances tend to be _____ likely to work in the
years preceding the inheritance.
a.
have no impact on; less
c.
reduce; equally
b.
reduce; more
d.
reduce; less
42.
(World of Work 2-3) One disadvantage of computer-assisted
scheduling of more flexible work schedules for retail workers is
that:

a.
stores are less likely to have enough personnel to meet customer
demand
b.
labor costs will likely rise
c.
manager time devoted to scheduling will rise
d.
unusual work shifts make childcare harder to schedule
43.
(World of Work 2-4) The Earned Income Tax Credit:
a.
reduces desired hours of work for those already in the labor
force
b.
increases the labor force participation rate
c.
always increases with increases in earnings
d.
is phased out as the number of children increases
Leisure
Income

$240
Leisure
Income
Hours of Work
Wage rate
W3
W2
W1
H1

B2
B1
Income
Ia
Ib
T
S
Leisure
Income

0
Work
0
40
60
$320
$560
Income
B

1
1. C
2. B
3. A
4. B
5. A
6. C
7. D
8. B
9. D
10. D
11. C
12. B
13. C
14. C
15. B

16. D
17. B
18. D
19. A
20. D
21. A
22. C
23. C
24. A
25. D
26. D
27. A
28. B
29. D
30. D
31. A
32. B
33. B

34. D
35. C
36. B
37. A
38. A
39. D
40. B
41. B
42. D
Qu Chapter 6.doc
Chapter 6
1.
Which one of the following is generally considered a
characteristic of a perfectly competitive labor market?
a.
A few workers of varying skills and capabilities
b.
Wage-setting behavior by firms
c.
Numerous firms hiring labor from the same pool of qualified

workers
d.
Costly information
2.
A perfectly competitive labor market may be characterized by
all of the following except:
a.
neither firms nor workers have any control over the market
wage
b.
a few firms that dominate hiring in the market
c.
numerous equally qualified workers
d.
perfect information
3.
Which of the following best explains why the market labor
supply curve is upward sloping, even though individual supply
curves are normally backward bending?
a.
The statement is not true: market labor supply curves are also
backward bending
b.
Market labor supply curves are “price-adjusted,” whereas
individual supply curves are not
c.

Lower wages in a given market increase the demand for labor,
so more labor must be supplied to maintain labor market
equilibrium
d.
Higher wages in a given market attract more workers away from
other activities, more than compensating for any reduction in
hours by individuals already in the market
4.
Market labor supply curves are generally:
a.
upward sloping, as higher wages attract workers away from
their next best alternatives
b.
backward-bending, as the substitution effect of higher wages
outweighs the income effect
c.
vertical at any particular point in time
d.
perfectly elastic at the market wage rate
5.
In a perfectly competitive environment, the height of the market
labor supply curve at any given number of labor hours
indicates:
a.
the total cost of employing that number of hours in the given
occupation
b.

the marginal cost of employing the first hour of labor
c.
the value of the alternative activity in which the marginal hour
might otherwise be used
d.
the maximum wage employers would be willing to pay to attract
additional labor
6.
A firm will obtain its profit maximizing level of employment
where:
a.
marginal revenue product equals value of marginal product
b.
marginal revenue product equals marginal wage cost
c.
value of marginal product equals marginal wage cost
d.
marginal product equals marginal revenue product
Questions 7 and 8 refer to the following diagram of a perfectly
competitive labor market:
7.
At wage rate W1 there is an:
a.
excess supply of labor and the wage rate will fall

b.
excess supply of labor and the wage rate will rise
c.
excess demand for labor and the wage rate will fall
d.
excess demand for labor and the wage rate will rise
8.
For the supply and demand curves in the diagram, the level of
employment will be highest at:
a.
wage rate W1
b.
wage rate W2
c.
a wage rate higher than W1
d.
a wage rate lower than W2
9.
Which one of the following conditions is required for allocative
efficiency?
a.

Marginal revenue product exceeds the value of marginal product
by the greatest amount
b.
Marginal revenue product equals the wage rate
c.
Value of marginal product equals the marginal wage cost
d.
Value of marginal product is the same in all alternative
employments of a given type of labor
10.
Allocative efficiency is achieved when:
a.
the marginal product of labor equals its value of marginal
product
b.
all resources are fully employed
c.
the price of each resource equals the value of its marginal
product
d.
the price of each resource equals the value of its marginal
product and its marginal opportunity cost
11.
Allocative inefficiency in a labor market may be caused by:
a.
monopoly power in the product market

b.
monoposony power in the labor market
c.
both a. and b. are correct
d.
neither a. nor b. are correct
12.
A monopsonist’s marginal wage cost curve is positively sloped
because:
a.
it “discriminates” by paying each worker a different wage
according to his or her opportunity cost
b.
it must charge a lower price for each additional unit of output,
and it must charge this lower price for all units sold
c.
it pays its workers lower wages, so that the supply of labor to
the market is restricted
d.
it must pay a higher wage to attract additional workers and it
must pay this higher wage to all workers
13.
A firm can hire 20 workers for $10 per hour, but finds it must
raise the wage to $11 to attract another worker. If it must pay
all its workers the same wage, the marginal wage cost of the
21st worker is:
a.

$10
b.
$11
c.
$21
d.
$31
14.
At the profit maximizing level of employment for a
monopsonist:
a.
the wage exceeds the marginal wage cost
b.
marginal revenue product equals the wage
c.
the wage is less than marginal wage cost
d.
marginal product equals marginal revenue product
15.
Compared to a monopsonist that sells its output in a competitive
product market, an otherwise identical monopsonist with
monopoly power in the product market will pay:
a.
a lower wage

c.
the same wage
b.
a higher wage
d.
more information is needed
Questions 16 – 19 refer to the following diagram of a
monopsonistic labor market.
16.
At the profit maximizing level of employment, the wage rate is
_____ and the level of employment is _____:
a.
W1; Q1
c.
W2; Q2
b.
W3; Q1
d.
W3; Q3
17.
Relative to their monopsony levels, both the wage and the level
of employment would increase in this market if a wage-setting
union negotiates a wage:

a.
anywhere between W1 and W3
b.
c.
d.
equal to W2 only
18.
If legislation set the minimum wage at W2, then employment:
a.
would fall from its original monopsony level
b.
would remain unchanged
c.
would rise from its original monopsony level
d.
may or may not change from its original monopsony level
19.
If this firm sells its output in a competitive market (so that MRP
= VMP), the allocative efficiency loss in the labor market is
given by area:
a.
W3ACW1
c.

CAD
b.
Q1ABQ2
d.
CAB
20.
Compared to the allocatively efficient amount, a monopsonist
tends to hire:
a.
too few workers because the value of marginal product exceeds
marginal revenue product
b.
too few workers because marginal wage cost exceeds the wage
rate
c.
too many workers because the value of marginal product
exceeds marginal revenue product
d.
too many workers because marginal wage cost exceeds the wage
rate
21.
One criticism of the cobweb model is that:
a.
students form rational expectations of the effect of changes in
labor demand and adjust their supply responses accordingly

b.
the prediction of chronic boom-bust cycles is not borne out in
the real world
c.
students adjust career decisions based on starting salaries rather
lifetime earnings
d.
demand is likely to shift as the market approaches equilibrium,
so that equilibrium is never achieved
Question 22 refers to the following diagram:
22.
Suppose the wage is currently W1 and L1 is the level of
employment. If this market is characterized by delayed supply
responses, in the immediate period the wage will:
a.
rise and employment will rise
b.
rise and employment will remain unchanged
c.
remain unchanged and employment will rise
d.
remain unchanged and employment will remain unchanged
23.
Since passage of NAFTA , trade between the U.S., Canada, and
Mexico has:

a.
increased, but the effects on employment have been modest
b.
increased, causing substantial loss of U.S. manufacturing jobs
c.
increased, causing substantial loss of U.S. service-sector jobs
d.
not changed, but there has been a substantial loss in U.S.
manufacturing jobs
Wage
Labor
S
D
W1

W�2
Labor
Wage
MRP
S
MWC
W3
W2

2
1. A
2. A
3. D
4. D
5. D
6. C
7. A
8. B
9. C
10. B
11. D
12. B
13. C
14. D
15. D

16. B
17. D
18. A
19. A
20. C
21. D
22. B
23. A
24. C
25. D
26. B
27. C
28. B
29. D
30. C
31. A
32. C
33. D

34. A
35. D
36. B
37. B
38. A
39. A
40. B
41. B
42. A
43. D
44. A
Qu Chapter 4.doc
Chapter 4
1.
Human capital investment consists of:
a.
any activity that enhances the quality of labor
b.
expenditures for formal schooling only

c.
expenditures for on-the-job training only
d.
any activity that leads to the substitution of physical capital for
labor
2.
“Expenditures on education and training can be treated as
investment in human capital.” This statement is:
a.
true—current expenses are incurred with the expectation they
will be more than compensated for by greater future returns
b.
true—education must be financed by borrowing money
c.
false—the market for college loans is too imperfect to be
consistent with investment models
d.
false—education is purchased for its current (consumption)
value, not its future (investment) value
3.
Approximately what percentage of the U.S. population had
completed four or more years of college by the year 2010?
a.
8%

b.
14%
c.
29%
d.
35%
4.
Age-earnings data show that:
a.
differences in earnings by education level disappear for workers
age 55 and over
b.
men’s earnings increase with educational level but not women’s
earnings
c.
earnings rise with factors such as family background and
personal drive, but not education level
d.
higher educational levels are consistently associated with higher
earnings
5.
Available evidence indicates that:
a.

age-earnings profiles vary with education, but not with age
b.
age-earnings profiles vary with age, but not with education
c.
age-earnings profiles of workers with more education tend to be
flatter, but higher, than those with less education
d.
differences in earnings between workers who have more
education and those who have less education generally widen
with age
6.
The total economic cost of formal education typically does not
include:
a.
expenditures for tuition, books, and fees
b.
earnings foregone by choosing not to enter the labor force
c.
expenditures for room and board
d.
transportation expenses to and from college
7.
The primary indirect cost of going to college is:
a.
earnings given up by not entering the labor market directly after
high school

b.
an enhanced future flow of earnings
c.
the value of room and board that would have been provided at
home
d.
tuition expenses
Questions 8 – 11 are based on the following diagram:
8.
According to human capital theory, areas 1, 2, and 3 represent
respectively:
a.
indirect costs, direct costs, and incremental earnings
b.
direct costs, indirect costs, and incremental earnings
c.
indirect costs, direct costs, and total earnings
d.
direct costs, indirect costs, and total earnings
9.
In deciding whether or not to go to college, one would compare
the discounted value of:
a.
area 3 to the discounted value of area 1

b.
area 3 to the discounted value of area 2
c.
area 3 to the discounted value of areas 1 and 2
d.
areas 2 and 3 to the discounted value of area 1
10.
Which one of the following would increase the likelihood of
investing in a college education?
a.
an increase in area 1
b.
a reduction in area 2
c.
a reduction in the retirement age
d.
a reduction in area 3 and an equal increase in area 2
11.
Suppose there is now a 25% likelihood that a person’s work
career may be interrupted for ten years after schooling has been
completed. In the diagram above, this development would:
a.
have no impact
b.
shrink area 1 and reduce the likelihood of investing in a college

education
c.
shrink area 2 and increase the likelihood of investing in a
college education
d.
shrink area 3 and reduce the likelihood of investing in a college
education
12.
Consider an individual who will invest a total of $10,000 in
direct and indirect costs for training in order to increase
earnings by $12,500 for the next year. Suppose the interest rate
is 8%. If this person plans to retire the following year, the net
present value of this investment is closest to:
a.
zero
c.
$2500
b.
$1600
d.
$11,600
13.
An earnings-maximizing student would attend college if:

a.
the net present value of a college education is zero
b.
the internal rate of return on a college education is positive
c.
the internal rate of return on a college education exceeds the
interest rate on borrowed funds
d.
there is an earnings gain associated with a college education
14.
Which one of the following would indicate a profitable human
capital investment?
a.
The net present value is –$12,000
b.
The interest rate on borrowed funds is 4% and the rate of return
is 3%
c.
The interest rate exceeds the net present value
d.
The rate of return exceeds the interest rate on borrowed funds
15.
At the optimal amount of education, the internal rate of return
on education is:
a.
maximized

b.
higher than the market rate of interest
c.
lower than the market rate of interest
d.
equal to the market rate of interest
16.
Which one of the following circumstances would most likely
lead to increased investment in education by women?
a.
An increase in the likelihood of interrupted labor market careers
b.
Improved employment opportunities for women
c.
Higher discount rates for women than men
d.
Persistent discrimination against women
17.
All else equal, investment in education will be greater, the:
a.
higher the interest rate
b.
greater the direct cost of education
c.

lower the expected retirement age
d.
greater the earnings differential between more and less educated
workers
18.
Other things equal, the lower the cost of a human capital
investment:
a.
the larger the net present value of the investment
b.
the lower the rate of return on the investment
c.
the fewer the number of people who will find the investment
profitable
d.
the lower the interest rate on funds borrowed to finance the
investment
19.
Human capital theory predicts that the proportion of people
attending college will decrease if:
a.
the age at which retirement benefits are received is lowered to
59
b.
the age at which retirement benefits are received is raised to 75
c.

there is a relatively large population of new high school
graduates
d.
there is an increase in the demand for college educated workers
20.
Most rate-of-return studies of education indicate that:
a.
social rates of return generally exceed private rates of return
b.
private rates of return are about 2.5% – 7%
c.
private rates of return are about 10% – 15%
d.
private rates of return have held steady over the 1956 – 2008
period
21.
From 1980 to the present, the college wage premium:
a.
rose for women but fell for men
c.
fell for both women and men
b.
rose for men but fell for women
d.
rose for both women and men

22.
The college wage premium:
a.
rose during the 1980s, but fell in the 1960s and again from 1990
to the present
b.
fell during the 1970s but has risen consistently since then
c.
rose during the 1970s and 1980s, but has fallen consistently
since then
d.
has risen consistently since 1960
23.
The increase in the college wage premium during the 1980s was
most likely caused by:
a.
increased demand for college graduates due to changes in the
structure of the economy
b.
increased supply of college graduates from the large “baby
boom” generation
c.
changes in technology that reduced the relative supply of
college-trained workers
d.
increased demand for high school graduates, particularly males

24.
The declining college wage premium in the 1970s is generally
attributed to the:
a.
growing demand for college graduates in that period
b.
shrinking supply of college graduates in that period
c.
growing supply of college graduates in that period
d.
shift of employment from manufacturing to services
25.
Studies of the rate of return on human capital must be
interpreted with care because:
a.
the social return may not equal the private return
b.
past differences in earnings are no guarantee of future
differences in earnings
c.
a high average rate of return is no guarantee of a high personal
rate of return
d.
all of the above
26.

The private rate of return on human capital may _____ the
social rate because _____.
a.
understate; schooling is subsidized
b.
understate; schooling provides external benefits
c.
overstate; schooling provides external benefits
d.
overstate; schooling and ability are positively correlated
27.
All else equal, the social rate of return to education will be
lower than the private return if:
a.
there are external benefits to education
b.
the social return correctly calculates benefits using after-tax
values
c.
the social return correctly calculates costs by including
education subsidies
d.
more educated workers have lower crime rates and
unemployment rates
28.
In calculating the social rate of return on a human capital
investment one would:

a.
deduct taxes from incremental earnings
b.
treat public subsidies to education as a part of the costs
c.
exclude any external benefits associated with the investment
d.
treat public subsidies to training as part of the benefits
29.
Based on standardized test scores for students in the following
countries, which has the highest measured schooling quality?
a.
France
b.
India
c.
U.S.
d.
Japan
30.
The demand for human capital curves slope downward and to
the right because:

a.
education is a screening device
b.
as the interest rate rises, the net present value of education rises
c.
the benefits of increased education diminish as schooling
continues
d.
investment in education is subject to increasing marginal
returns
31.
Typically, as the level of education increases:
a.
costs rise and benefits fall, reducing the internal rate of return
to education
b.
costs rise and benefits fall, increasing the internal rate of return
c.
costs fall and benefits rise, increasing the internal rate of return
d.
both costs and benefits fall, having an unpredictable effect on
the rate of return
Questions 32 – 35 are based on the following diagram.
32.
Refer to the diagram. If D1 is this individual’s investment

demand curve, then the optimal amount of education:
a.
is E1 from society’s standpoint
b.
is E2 from society’s standpoint
c.
is E1 from this individual’s standpoint
d.
cannot be determined without further information
33.
Refer to the diagram. Which one of the following might cause a
person’s human capital investment demand curve to shift from
D1 to D2?
a.
The person discounts future earnings at a higher rate than
before
b.
The indirect costs of education increase
c.
The college wage premium falls
d.
The college wage premium increases
34.
Refer to the diagram. Compared to D1, a person whose demand
curve is given by D2 will likely obtain:

a.
more education and receive higher earnings
b.
more education and receive lower earnings
c.
less education and receive higher earnings
d.
less education and receive lower earnings
35.
Refer to the diagram. Which one of the following will shift the
supply of investment funds curve downward?
a.
A reduction in the availability of student loans
b.
Greater ability to transform schooling into earnings
c.
An increase in expected work life
d.
An increase in grants and scholarships
36.
Personal differences in demand for human capital curves can be
explained by differences in all of the following, except:
a.
ability

c.
discrimination
b.
access to investment funds
d.
discount rates
37.
Private loans to finance investments in human capital:
a.
are difficult to obtain because the financial return to education
has been decreasing
b.
are difficult to obtain because a person cannot readily pledge
collateral on human capital
c.
are granted by banks just as they are to finance investment in
machinery or houses, without regard to collateral
d.
are rarely subsidized by government because they are granted
readily by private banks
38.
Which one of the following observations would tend to widen
the dispersion of earnings?
a.
Banks charge higher interest rates on educational loans to those

individuals most likely to face discrimination on the job
b.
Those with higher ability face higher costs of investment funds
c.
Human capital investment demand and supply curves are
negatively correlated
d.
Poor families pay a larger proportion of family income on
education than rich families
39.
If education is undertaken as consumption as well as
investment:
a.
researchers will understate the private rate of return on human
capital investment
b.
researchers will overstate the social rate of return on human
capital investment
c.
the investment costs of education will be understated
d.
the benefits of education will be overstated
40.
If part of the typical college graduates additional earnings is
attributable to ability and not to education:
a.

the screening hypothesis must be false
b.
estimated rates of return will overstate the actual rate of return
c.
there will be less dispersion in the distribution of earnings than
otherwise
d.
the social rate of return will understate the private rate
41.
If the screening hypothesis is true:
a.
educational attainment and the level of fringe benefits received
will be inversely related
b.
the private rate of return to education will tend to overstate the
social rate of return
c.
the private rate of return to education will not accurately reflect
the gain to the individual student
d.
the college wage premium is much greater than is hypothesized
by human capital theorists
42.
(World of Work 4-1) Evidence suggests that, during recessions,
the college enrollment rate:
a.

rises, because the benefit of attending college rises
b.
rises, because the effect of reduced ability to pay is swamped by
the effect of lower opportunity costs
c.
rises, because the effect of reduced ability to pay is swamped by
the effect of increased state funding to counter the recession
d.
falls, because the effect of lower opportunity cost is swamped
by the effect of reduced ability to pay
43.
(World of Work 4-3) Research by Dale and Krueger shows that,
all else equal:
a.
starting salaries of college graduates are not generally affected
by choice of major
b.
starting salaries of college graduates are positively related to
the selectivity of the college attended but inversely related to
the selectivity of other schools to which the student applied
c.
it does not generally pay to attend a school with higher tuition
d.
it does not generally pay to attend a more selective college
44.
(World of Work 4-4) Which of the following is a true
statement?

a.
In 2008, 41% more females than males graduated from college
b.
Research by Goldin, Katz, and Kuziemko attribute most of the
increase in female college attendance rates to lower birth rates
among teenagers
c.
Women achieved college attendance parity with males by the
early 1960s
d.
Since 1970, High school girls have reduced the amount of math
and science classes taken to concentrate instead on the
humanities classes they will likely take in college
College
High School
Age
65
22

18
1
2
3
Earnings
Education
r, i %
E1
E2

S
D1
D2
1
4-1
1. B
2. D
3. A
4. B
5. C
6. C
7. A
8. A
9. C

10. A
11. B
12. A
13. A
14. B
15. D
16. B
17. C
18. C
19. D
20. A
21. B
22. A
23. D
24. A
25. A
26. D
27. C
28. D

29. C
30. D
31. C
32. B
33. A
34. D
35. B
36. B
37. B
38. D
39. D
40. C
41. D
42. D
43. B
Qu Chapter 3.doc
Chapter 03 - Population, Participation Rates, and Hours of
Work
Chapter 3 MULTIPLE-CHOICE QUESTIONS

1.
In Becker’s model of time allocation, the difference between
“goods” and “commodities” is that commodities are produced:
a.
in markets whereas goods are produced in households
b.
only with housework
c.
by combining goods with time
d.
in the market, whereas goods are produced in the home
2.
If a worker’s wage rate rises:
a.
household production will shift away from goods-intensive
commodities towards time-intensive commodities
b.
household production will shift away from time-intensive
commodities towards goods-intensive commodities
c.
more leisure time will be consumed
d.
more leisure time will be consumed if the substitution effect
outweighs the income effect
3.
A household will tend to substitute goods for time in the

production of commodities if:
a.
a household member’s market wage increases
b.
a household member’s market wage decreases
c.
the substitution effect of a wage decrease exceeds the income
effect
d.
the household’s total income decreases
4.
Compared to a high-wage worker, a low-wage worker will tend
to:
a.
pursue more goods-intensive activities
b.
pursue more time-intensive activities
c.
pursue fewer time-intensive activities
d.
sacrifice time-intensive activities in favor of goods-intensive
activities
5.
Which of the following best exemplifies the Becker substitution
effect? An increase in the market wage leads a household to:

a.
eat more fast-food meals
c.
have more children
b.
play more golf together
d.
take fewer, but longer vacations
6.
Which of the following best exemplifies the Becker income
effect? An increase in the market wage leads a household to:
a.
substitute time for goods in the production of commodities
b.
consume fewer time-intensive commodities and more goods-
intensive commodities
c.
consume more commodities
d.
have fewer children
7.
In a particular family, both spouse A and spouse B could earn
$20 per hour in market work. However, spouse A has a
comparative advantage in the production of home-produced
goods. Becker’s model of time allocation predicts that:

a.
spouse B will be better able to substitute time for goods in the
production of commodities
b.
spouse A and spouse B will divide market work and home
production equally
c.
spouse A will tend to specialize in market work; spouse B in
home production
d.
spouse A will tend to specialize in home production; spouse B
in market work
8.
The labor force consists of all persons age 16 years and over
who are:
a.
employed
b.
employed or are actively seeking employment
c.
employed, actively seeking employment, or have given up
looking for employment
d.
not institutionalized
9.
The labor force participation rate:

a.
is the fraction of a given population that is classified as
employed
b.
has been rising for males and declining for females
c.
tends to increase during a recession
d.
is the fraction of a given population that is classified either as
employed or unemployed
10.
If U represents the number of unemployed persons, E the
number of unemployed persons, and N the number in the
potential labor force that are neither unemployed nor employed,
the labor force participation rate can be found as:
a.
U + E
c.
(U + E)/(E + N)
b.
E/(U + E)
d.
(U + E)/(U + E + N)

11.
Given the following data, what is the labor force participation
rate?
Population
300 million
Non-institutionalized population, age 16 and over
250 million
Persons employed or seeking employment
200 million
Unemployed persons
10 million
a.
10%
b.
75%
c.
80%
d.
84%
12.
Given the following data, what is the labor force participation
rate?
Population
100 million

Non-institutionalized population, age 16 and over
75 million
Persons employed or seeking employment
50 million
Unemployed persons
5 million
a.
50%
b.
67%
c.
75%
d.
80%
13.
Males in the labor force
100 million
Unemployed males
5 million
Non-institutionalized females, age 16 and over
110 million
Employed or unemployed females
88 million
Given the information in the table above, the male labor force
participation rate _____ and the female labor force participation

rate _____.
a.
is 95%; is 80%
b.
is 95%; is 88%
c.
cannot be calculated from the data; is 80%
d.
cannot be calculated from the data; cannot be calculated from
the data
14.
The aggregate labor force participation rate in the U. S. is
currently about:
a.
one-fourth
c.
two-thirds
b.
one-half
d.
three-fourths
15.

Since the mid 1980s, the labor force participation rate of women
has _____ and the participation rate of men has _____.
a.
risen; been unchanged
c.
fallen; risen
b.
risen; fallen
d.
risen; risen
16.
Compared to fifty years ago, the labor force participation rate of
25 – 54 year-old men has _____, the participation rate of 55 –
64 year-old men has _____, and the participation rate of men
age 65 and over has _____.
a.
risen; been fairly steady; risen
c.
risen; fallen; been fairly steady
b.
fallen; risen; risen
d
been fairly steady; fallen; fallen

17.
Which one of the following is not a plausible explanation of the
observed change in the participation rate of males age 65 and
older since World War II?
a.
Growth in the percentage of the labor force covered by private
pensions
b.
Cutbacks in Social Security benefits
c.
The long-term growth of average real incomes and wealth
d.
The increased generosity of the disability component of Social
Security
18.
Which one of the following gives rise to a retirement-inducing
substitution effect? As workers approach retirement age:
a.
Social Security benefits become available
b.
wealth becomes sufficient to make retirement affordable
c.
earnings potential decreases so that leisure becomes relatively
more costly
d.
earnings potential decreases so that leisure becomes relatively

less costly
19.
Which one of the following is not predicted to increase the
labor force participation rate of married women?
a.
Rising wage rates for husbands
b.
Rising productivity in the household
c.
Declining birthrates
d.
Attempts to maintain living standards
20.
Cross-sectional data suggest that all else equal:
a.
the male labor force participation rate varies inversely with
education
b.
the labor force participation rate of single women varies
inversely with the reservation wage
c.
the labor force participation rate of married men varies
inversely with the number of children in the household
d.
the labor force participation rate of married women varies
inversely with the husband’s income

21.
“For married women, the substitution effect of rising wage rates
has apparently outweighed the income effect.” Empirical
evidence suggests this statement is:
a.
true because the labor force participation rate of women has
been increasing
b.
true because married women have had to work to maintain
household living standards
c.
not true because the labor force participation rate of women has
been increasing
d.
not true because the labor force participation rate of women has
been declining
22.
According to the textbook, each of the following factors may
have contributed to increased female labor force participation
except:
a.
rising divorce rates
b.
expanding job accessibility
c.
fewer educational opportunities

d.
a desire to maintain household living standards
23.
The secular decline in the birth rate:
a.
has contributed to the increased labor force participation rate of
women
b.
may partly be caused by the increasing opportunity cost of
children as women’s wages have increased
c.
both a. and b. are correct
d.
neither a. nor b. are correct
24.
Fuchs’ research suggests the most important reasons for the
increased labor force participation rate of women are:
a.
rising real wages and expansion of service sector jobs
b.
rising real wages and the feminist movement
c.
the feminist movement and passage of antidiscrimination
legislation
d.
passage of antidiscrimination legislation and technological

innovations in household production methods
25.
Compared to white females, the labor force participation rate of
African-American females is _____. Compared to white males
the labor force participation rate of African-American males is
_____.
a.
nearly identical; nearly identical
c.
lower; greater
b.
greater; lower
d.
nearly identical; lower
26.
In the mid-1950s, white males:
a.
were more likely to participate in the labor force than were
African-American males
b.
were less likely to participate in the labor force than were
African-American males
c.
and African-American males were about equally likely to
participate in the labor force and that relationship still holds

d.
and African-American males were about equally likely to
participate in the labor force but now white men have a higher
participation rate
27.
Since 1950, the labor force participation rate of white women
has:
a.
increased until it nearly equals that of African-American women
b.
fallen until it nearly equals that of African-American women
c.
increased and now significantly exceeds that of African-
American women
d.
been steady since World War II
28.
Until recently, the labor force participation rate of African-
American women has _____ the rate of white women. In recent
years the labor force participation rate of African-American
men has _____ the rate of white men.
a.
been slightly less than; consistently exceeded
b.
consistently exceeded; been slightly less than
c.

consistently exceeded; consistently exceeded
d.
been slightly less than; been slightly less than
29.
A “supply side” explanation of the lower participation rate of
African-American males compared to white males is that:
a.
African-Americans command lower wage rates and are usually
last-hired and first-fired
b.
African-American workers are located in the inner city while
jobs are in the suburbs
c.
African-American women’s labor force participation rate is
lower than that of white women
d.
opportunities outside the labor market, such as Social Security
and public assistance, afford comparatively more attractive
alternatives to African-Americans
30.
The relatively low labor force participation rate of African-
American males may be partly explained by:
a.
the relatively higher participation rate of African-American
females
b.
the increased availability of public income maintenance

programs
c.
lower average wages and job prospects available to African-
American males
d.
all of the above
31.
Which one of the following will tend to increase the likelihood
of participation in the labor force for a current non-participant?
a.
A decrease in the spouse’s wage
b.
An increase in the spouse’s wage
c.
An increase in family size
d.
Falling productivity in household production of commodities
32.
Which one of the following statements is correct?
a.
The added-worker effect and the discouraged-worker effect
operate in the same direction
b.
The added-worker effect and the discouraged-worker effect
operate in different directions

c.
The added-worker effect is relatively strong as the economy
expands and wages rise
d.
The discouraged-worker effect is relatively strong as the
economy expands and wages rise
33. The added-worker effect suggests that:
a.
higher wages will attract more persons into the labor market
during market expansions
b.
when one family member loses a job, other family members may
enter the labor force
c.
the measured unemployment rate probably understates the true
economic hardship associated with unemployment
d.
the labor force participation rate will fall as the unemployment
rate rises
34.
Because of the _____, the unemployment rate as measured by
the Bureau of Labor Statistics tends to understate the extent of
unemployment during a recession.
a.
counter-cyclical labor force participation rate
b.
added-worker effect

c.
decline in the average workweek
d.
discouraged-worker effect
35.
The discouraged-worker effect indicates that:
a.
married women will enter the labor force to maintain household
living standards after their husbands’ wages have fallen
b.
some unemployed persons in the labor force actively seek
employment
c.
some unemployed workers will decide to withdraw from the
labor force as the unemployment rate increases
d.
the labor force participation rate varies directly with the
unemployment rate
36.
Empirical evidence suggests that the:
a.
added-worker effect dominates the discouraged-worker effect;
the participation rate varies inversely with the unemployment
rate
b.
discouraged-worker effect dominates the added-worker effect;

the participation rate varies inversely with the unemployment
rate
c.
added-worker effect dominates the discouraged-worker effect;
the participation rate varies directly with the unemployment rate
d.
discouraged-worker effect dominates the added-worker effect;
the participation rate varies directly with the unemployment rate
37.
Since the end of World War II, the average weekly hours of
work in manufacturing has
a.
been steady, in part due to increased education
b.
been steady, in part due to lower tax rates
c.
fallen steadily
d.
increased steadily
38.
All else equal, rising real wages will:
a.
decrease average weekly work hours if the income effect
exceeds the substitution effect
b.
increase average weekly work hours if the income effect

exceeds the substitution effect
c.
decrease average weekly work hours if the substitution effect
exceeds the income effect
d.
have no impact on average weekly work hours
39.
(World of Work 3-1) According to Census Bureau predictions:
a.
immigration will not significantly affect the U. S. population
between 2000 and 2050
b.
the ratio of paid workers to Social Security recipients will fall
more than had been predicted earlier
c.
the racial composition of the labor force will remain essentially
unchanged for the next 50 years
d.
the projected slowdown in labor force growth will be only
temporary
40.
(World of Work 3-2) One of the primary reasons for the decline
in the labor force participation rate of teens in the summer over
the past 15 years is the:
a.
below-average performance of the economy beginning in 1994

b.
increased enrollment of teens in summer school programs
c.
higher real wages available to teens since 1994
d.
the slightly higher rate for whites and males coupled with a
significantly lower rate for African-Americans and females
41.
(World of Work 3-4) Research suggests that the widespread use
of the birth control pill:
a.
accounts for over half the increase in the labor force
participation rate married women since 1950
b.
accounts for about one-third of the increase in the share of
women in professional occupations between 1970 and 1990
c.
accounts for over two-thirds of the drop in the age of first
marriage between 1970 and 1990
d.
had no measurable impact on the labor force participation rate
of women
42.
(World of Work 3-6) Research by Hamermesh and Lee suggests
that:
a.
high income earners would be happier if they earned less

b.
less than 10% of U.S. married couples report feeling stressed
for time
c.
although Germans work fewer hours than the Japanese, they
report more time stress
d.
all else constant, higher earnings lead to greater time stress
PAGE
3-1

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