University Economics Quiz: Labor Supply, Unemployment, and Wages

This document presents the solutions to a quiz on labor economics, covering key concepts from Chapter 14 of a labor economics textbook. The quiz assesses understanding of unemployment, labor force participation, and the impact of various factors on labor supply decisions. Questions address topics such as indifference curves, budget constraints, reservation wages, the effects of childcare costs, and the impact of social security on retirement decisions. The quiz also explores unemployment types, compensating wage differentials, the job search model, and the effects of unemployment benefits. The solutions provide detailed explanations for each question, offering valuable insights into labor market dynamics and individual worker behavior.

Question-2 (3 pts)
A person with ________ indifference curves is most likely to decide not to participate in the labor
force
steep
upward-sloping
straight
flat
Question-3 (3 pts)
A person who receives time-and-a-half overtime for working more than 8 hours per day will have a
________ which is ________ beyond 8 hours of labor
budget constraint; flatter
budget constraint; steeper
indifference curve; flatter
indifference curve; steeper
Question-4 (3 pts)
An individual's reservation wage:
decreases as non-labor income increases
is the amount of money the individual earns by working an additional hour
is the value of the marginal hour of leisure time if the individual does no work
is determined by supply and demand in the labor market

Question-5 (3 pts)
An increase in travel time to work will likely ________ labor force participation and ________ hours
spent working and traveling (of those working and traveling before and after the wage increase)
increase; increase
decrease; decrease
increase; decrease
decrease; increase
Question-6 (3 pts)
A worker is indifferent between job one lasting 4 hours a day, job two lasting 8 hours a day, and job
three lasting 12 hours a day. Job two pays $10 an hour and tangency between the indifference curve
and the budget constraint occurs at 8 hours. One can conclude that:
job one pays less per day but more per hour
neither are true
both are true
job three pays more per day and more per hour
Question-7 (3 pts)
Many working mothers have to pay for childcare costs. If they don't work, they do not have to pay
for these costs. If childcare costs go up dramatically, the effect will be to ________ the labor force
participation of working mothers and to ________ the hours of work for those mothers who
continue to work
decrease, decrease
increase, increase
increase, decrease
decrease, increase

Question-8 (3 pts)
Which of the following events would most likely encourage an older worker to retire at a later age
(for example, at 64 instead of 62)?
a shortening of the worker's life expectancy
adjusting social security payments so that the implicit penalty for delaying retirement is increased
a decrease in social security benefits paid to the worker
an unexpected increase in the wage paid to the worker
Question-9 (3 pts)
If someone enjoys household production (such as raising children) this
would be shown by a shift in his budget constraint
will make his household production isoquant curves flatter than otherwise
will make his household production isoquant curves steeper than otherwise
is the same as being more productive in household production
Question-10 (3 pts)
A child-support assurance program that guarantees support payments to a mother regardless of her
income but which doesn't increase the amount she will receive when not working will tend to
________ labor force participation rates while ________ desired hours of work among those with
jobs
increase; increasing
increase; reducing
reduce; increasing
reduce; reducing

Question-11 (3 pts)
If a family's budget constraint shifts because of an increase in non-labor income, then a member of
the family who works outside of the home will
choose to increase his or her hours of work
not change his or her hours of work
either increase or decrease his or her hours of work, depending on the size of the substitution effect
choose to decrease his or her hours of work
Question-12 (3 pts)
Empirically, the "added-worker" effect is ________ in magnitude than the "discouraged-worker"
effect
roughly double
roughly equal
larger
smaller
Question-13 (3 pts)
The "discouraged worker" effect occurs during recessions because
workers are discouraged by their depleted savings and decide to look for a job
one spouse is discouraged by the job prospects of the other and decides to look for a job
the labor force tends to grow during recessions
the expected payoff from looking for work falls relative to the expected payoff from household
production

Question-14 (3 pts)
If Gene receives a raise in his hourly wage and decides he would like to increase his hours of work,
we know that
his substitution effect is greater than his income effect
his income and substitution effects reinforce each other
his income and substitution effects are equal
his income effect is greater than his substitution effect
Question-15 (3 pts)
Studies of the hours of work of older men have found that the substitution effect dominates the
income effect. This suggests that, other things the same,
tax changes have no effect on their labor supply
an increase in non-work expenses will cause older men to work shorter hours
older men will retire earlier in those careers where wages fall more as they get older
an increase in the tax rate on income will cause older men to work longer hours
Question-16 (3 pts)
An increase in the wage rate when the substitution effect dominates will ________ labor force
participation and ________ hours of work
decrease; decrease
decrease; increase
increase; decrease
increase; increase

Question-17 (3 pts)
Which of these is NOT an implication of the model of job search?
Workers with identical skill levels will generally receive different wages if their reservation wages
differ
Search unemployment is a rational strategy in a world of imperfect information
If the cost of being unemployed falls, a person's reservation wage will fall
Virtually all individuals will be underemployed
Question-18 (3 pts)
The stock of unemployed workers at any given time consists mostly of
people who have long spells of unemployment
people who have short spells of unemployment
people who have been laid off from one employer and become employed by another
people who have searched for jobs, but who have become discouraged
Question-19 (3 pts)
A researcher observes that more generous unemployment benefits result in a greater duration of
unemployment and a great improvement in job matches. This suggests that more generous benefits
both of these
make job searchers increase the intensity of search by searching more openings per period
neither of these
make job searchers more selective in the jobs they accept

Question-20 (3 pts)
An increase in an individual's reservation wage
will increase both the individual's duration of unemployment and expected wage
will not change the individual's duration of unemployment
will increase the individual's expected wage but not affect the duration of unemployment
will increase the duration of the individual's unemployment but not affect the expected wage
Question-21 (3 pts)
A construction worker who is not working due to a snow storm would be counted as ________
unemployed
seasonally
cyclically
structurally
frictionally
Question-22 (3 pts)
A worker who has quit one job to have time to search for a similar position is counted as what type
of unemployment?
occupational
cyclical
frictional
regional

Question-23 (3 pts)
A compensating wage differential is
an extra wage that compensates workers for undesirable working conditions
an extra wage that implies firms are no longer maximizing profits
an extra wage that is above the equilibrium wage
an extra wage that will make all workers willing to accept undesirable working conditions
Question-24 (3 pts)
If comparable workers are paid an extra $1.00 per hour to work outdoors, then
the value of indoor work is worth at least $1.00 per hour to some workers
the value of indoor work is more than $1.00 per hour to all workers
the value of indoor work is $1.00 per hour to all workers
the value of indoor work is at least $1.00 per hour to all workers
Question-25 (3 pts)
If all workers like nice working conditions and labor markets are competitive (such that workers are
mobile and fully informed), then in equilibrium
workers will prefer to work in jobs with nice working conditions
no worker will be in a job that does not have nice working conditions
workers will prefer to work in jobs without nice working conditions
workers will be indifferent between jobs with and without nice working conditions

Question-26 (3 pts)
When talking about compensating wage differentials, we relax our earlier assumption of
utility maximization by workers
identical non-pecuniary benefits
income maximization by workers
profit maximization by firms