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ECN 101 Lecture Notes - Lecture 17: Real Wages, Perfect Competition, Marginal Revenue

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orangeminnow841
21 Dec 2020
School
ACC
Department
Economics
Course
ECN 101
Professor
Towler

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Document Summary

Any factor that changes the quantity of labour supplied at any real wage. An increase in working age population eg: rate of natural increase and immigration. An increase in the labour force participation rate eg: social factors such as attitudes to women or older workers in work force. Determined by marginal physical product (mppl) x marginal revenue (mr: the revenue each additional unit provides for) Note that in a perfectly competitive market, mr = p. Mrp = mppl x p = value of marginal product of labour (vmpl) Note that vmpl / mrp would be decreasing as l increases, due to diminishing marginal product of labour. The reason for diminishing marginal product is the low-hanging fruit principle . The cost of hiring an additional worker is just the wage. We assume that the marginal cost of hiring labour is constant, at the wage rate (w).

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Related Questions

In the Keynesian model

aggregate demand determines real GDP per year.

the short-run aggregate supply curve determines real GDP.

unemployment cannot persist for long periods of time.

the aggregate demand curve determines the price level.

A terrible winter storm causes enormous problems in the

northeastern

part of the United States. This would cause

the short-run aggregate supply curve to shift to the left, but would have no effect on the long-run aggregate supply curve.

both the short-run and the long-run aggregate supply curves to shift to the left, but the long-run aggregate supply curve would shift more than the short-run curve.

the short-run aggregate supply curve to shift to the left, and the long-run aggregate supply curve would shift to the right.

both the short-run and the long-run aggregate supply curves to shift to the right in equal amounts.

Equilibrium real GDP rises after the dollar strengthened. From this we can conclude that

the increase in aggregate demand was greater than the decrease in aggregate supply.

the decrease in aggregate demand was more than the increase in aggregate supply.

the decrease in aggregate demand was less than the increase in aggregate supply.

the increase in aggregate demand was less than the decrease in aggregate supply.

Saving is

the difference between real GDP and disposable income while savings is the difference between disposable income and consumption spending.

the amount one does not consume in a given period of time while savings is the accumulation of past periods of saving.

the difference between disposable income and spending on goods and serviceswhile savings is the difference between real GDP and disposable income.

the accumulation of past periods of savings while savings is the amount of disposable income that is not consumed in a given period of time.

A permanent reduction in investment spending leads to

a proportional decrease in real GDP.

a more than proportional decrease in real GDP.

a more than proportional increase in real GDP.

a less than proportional decrease in real GDP.

An increase in net exports leads to an increase in real GDP. Further,

consumption spending increases while investment spending decreases.

consumption spending increases but saving does not change.

consumption spending and saving increase.

government spending decreases to offset the increase in net exports.

An increase in aggregate spending that is caused by a factor other than the price level will lead to the

aggregate demand curve shifting to the right.

aggregate supply curve shifting to the right.

aggregate supply curve shifting to the left.

aggregate demand curve shifting to the left.

The marginal propensity to consume is 0.9. The multiplier is

0.9.

1.11.

0.1.

10.

When the SRAS curve slopes upward, the actual affect of an increase in real autonomous spending on equilibrium real GDP is smaller than predicted by the multiplier because

real GDP increases.

the price level rises

the price level falls.

real GDP decreases.

Other things equal, the lower the total real value of final goods and services demanded in the economy the

more the production possibilities cure shifts to the left.

lower the price level.

higher the price level.

lower the level of endowments.

The long-run aggregate supply curve can be thought of as the

level of output for which real GDP equals nominal GDP.

level of output that the nation is currently producing.

level of real GDP associated with a constant price level.

full-employment level of real GDP.

In the Keynesian model

aggregate demand determines real GDP per year.

the short-run aggregate supply curve determines real GDP.

unemployment cannot persist for long periods of time.

the aggregate demand curve determines the price level.

A terrible winter storm causes enormous problems in the

northeastern

part of the United States. This would cause

the short-run aggregate supply curve to shift to the left, but would have no effect on the long-run aggregate supply curve.

both the short-run and the long-run aggregate supply curves to shift to the left, but the long-run aggregate supply curve would shift more than the short-run curve.

the short-run aggregate supply curve to shift to the left, and the long-run aggregate supply curve would shift to the right.

both the short-run and the long-run aggregate supply curves to shift to the right in equal amounts.

Equilibrium real GDP rises after the dollar strengthened. From this we can conclude that

the increase in aggregate demand was greater than the decrease in aggregate supply.

the decrease in aggregate demand was more than the increase in aggregate supply.

the decrease in aggregate demand was less than the increase in aggregate supply.

the increase in aggregate demand was less than the decrease in aggregate supply.

Saving is

the difference between real GDP and disposable income while savings is the difference between disposable income and consumption spending.

the amount one does not consume in a given period of time while savings is the accumulation of past periods of saving.

the difference between disposable income and spending on goods and serviceswhile savings is the difference between real GDP and disposable income.

the accumulation of past periods of savings while savings is the amount of disposable income that is not consumed in a given period of time.

A permanent reduction in investment spending leads to

a proportional decrease in real GDP.

a more than proportional decrease in real GDP.

a more than proportional increase in real GDP.

a less than proportional decrease in real GDP.

An increase in net exports leads to an increase in real GDP. Further,

consumption spending increases while investment spending decreases.

consumption spending increases but saving does not change.

consumption spending and saving increase.

government spending decreases to offset the increase in net exports.

An increase in aggregate spending that is caused by a factor other than the price level will lead to the

aggregate demand curve shifting to the right.

aggregate supply curve shifting to the right.

aggregate supply curve shifting to the left.

aggregate demand curve shifting to the left.

The marginal propensity to consume is 0.9. The multiplier is

0.9.

1.11.

0.1.

10.

When the SRAS curve slopes upward, the actual affect of an increase in real autonomous spending on equilibrium real GDP is smaller than predicted by the multiplier because

real GDP increases.

the price level rises

the price level falls.

real GDP decreases.

Other things equal, the lower the total real value of final goods and services demanded in the economy the

more the production possibilities cure shifts to the left.

lower the price level.

higher the price level.

lower the level of endowments.

The long-run aggregate supply curve can be thought of as the

level of output for which real GDP equals nominal GDP.

level of output that the nation is currently producing.

level of real GDP associated with a constant price level.

full-employment level of real GDP.

A competitive firm’s short-run demand for labor will rise when the price of its product rises.

True

False

As the wage rate rises, the marginal revenue product of labor increases.

True

False

A competitive firm’s demand for labor always slopes down in the short-run, but may slope upwards or downwards in the long run.

True

False

When labor an capital are complements in production, a higher wage will cause a firm to use more capital in the long run.

True

False

If labor is a regressive factor, then a firm’s long-run demand for labor may or may not be downward sloping.

True

False

The short-run demand curve for labor for a firm in any type of market for its output coincides with

the upward-sloping portion of the marginal revenue product curve.

the downward-sloping portion of the marginal revenue product curve.

the downward-sloping portion of the marginal product curve.

the marginal labor cost curve.

An increase in the price of labor will, in the short run, cause a competitive firm’s

marginal cost to increase, the quantity it sells to decrease, and therefore reduce the quantity of labor demanded.

price of its output to increase, leaving the quantity of labor demanded unchanged.

marginal revenue product of labor to decrease, and therefore reduce demand for labor.

marginal revenue product of labor to increase, and therefore increase demand for labor.

Which of the following would cause the firm’s short-run demand curve for labor to shift to the right?

A decrease in the wage rate.

An increase in the price of the firm’s product.

An increase in the rental rate paid to capital.

A decrease in the amount of complementary capital available.

If increased capital usage reduces the firm’s short-run demand for labor, then

labor is a regressive factor.

labor and capital are complements in production.

labor and capital are substitutes in production.

labor is a Giffen factor.

When is the law of demand violated for labor? That is, with regards to the law of labor demand, when does an increase in the wage not lead to a reduction in the quantity of labor demanded?

Never.

When the substitution and scale effects are in opposition, with the scale effect being the larger.

When labor is a regressive factor.

When labor earns zero economic rent.

If the wage rate rises, then the firm’s long-run marginal costs change, which in turn affects the firm’s output level and its employment of labor. This phenomenon is known as

the substitution effect.

the scale effect.

the regressive-factor effect.

the factor-price effect.

When will the scale effect of a wage increase cause a reduction in the quantity of labor demanded?

Always.

When labor is not a regressive factor.

When labor and capital are substitutes in production.

When labor and capital are complements in production.

Consider the usual case where a higher wage rate increases a firms’ marginal costs. In this case, the industry’s demand curve for labor

is more wage inelastic than the individual firms’ demand curves would indicate.

coincides with the horizontal sum of individual firms’ demand curves.

contains only substitution effects but no scale effects.

is horizontal at the going wage rate.

To maximize profits, a monopolist will hire the quantity of labor at which marginal revenue product of labor

is downward sloping and equal to the market wage rate.

is downward sloping and equal to marginal labor cost.

minus marginal labor cost is maximized.

is maximized.

A firm’s revenue minus its factor payments equals

zero.

the profits or losses earned by the firm.

the quasi-rents earned by the factors of production.

the firm’s total revenue.

As the amount of labor used in production increases, total product

increases at low levels of labor and decreases at higher levels of labor.

increases at high levels of labor and decreases at low levels of labor.

always increases.

always decreases.

A profit-maximizing price taker will produce at a level where

the wage equals the marginal product of labor.

the marginal revenue product of labor equals the price of their output.

the wage rate equals the price of their output.

the marginal revenue product of labor equals the wage rate.

If the wage rate is $10 per hour and one worker can produce 2 units of output per hour, then the marginal cost of production is

$5.

$10.

$20.

The answer cannot be determined from the information given.

A firm’s long-run demand for labor is more wage-elastic than its short-run demand for labor.

True

False

A monopsonist’s short-run demand curve for labor coincides with its marginal revenue product of labor curve.

True

False

Workers will receive higher wages when an employer faces an upward-sloping supply curve for labor.

True

False

The profit an owner receives is equivalent to the rent received for her entrepreneurial services.

True

False

When high levels of labor are employed, total production tends to increase at a decreasing rate.

True

False

The substitution effect on labor always decreases the quantity of labor demanded when the wage rate increases.

True

False

A firm’s marginal revenue product of labor equals the marginal product of labor multiplied by the per-unit cost of labor.

True

False

Tastes and preferences are relevant to individual choices for consumption but not relevant to choices for supplying labor.

True

False

A higher wage will always cause a worker to increase the quantity of labor supplied.

True

False

The substitution and income effects of a wage increase both cause consumption to rise.

True

False

A worker’s labor supply may either rise or fall when nonlabor income increases, depending on whether the substitution effect or the income effect dominates.

True

False

When an increase in marginal productivity increases workers’ nonlabor income, the effect on the quantity of labor supplied is ambiguous/uncertain.

True

False

A technological improvement that is permanent is more likely to raise employment than one that is temporary.

True

False

Other factors being constant, firms that provide on-the-job training to workers will tend to pay higher wages.

True

False

If there is discrimination, employers engage in it a cost.

True

False

Human capital tends to increase over the course of a person’s life.

True

False

In the indifference curve budget line model of labor supply,

labor is measured along the horizontal axis and leisure is measured along the vertical axis.

labor is measured along the horizontal axis and consumption is measured along the vertical axis.

consumption is measured along the horizontal axis and labor is measured along the vertical axis.

consumption is measured along the horizontal axis and leisure is measured along the vertical axis.

In the indifference curve budget line model of labor supply, the slope of the indifference curve is used to measure

the wage rate.

labor’s marginal product.

the worker’s nonlabor income.

the marginal value of leisure.

If a worker has chosen a quantity of labor where the marginal value of leisure exceeds the wage rate, she would be better off by

choosing less leisure.

providing fewer hours of labor.

providing more hours of labor.

staying at this combination of labor and consumption.

When there is an increase in the wage rate there will be

both a substitution effect and an income effect.

only a substitution effect.

only a substitution effect.

either a substitution effect or an income effect.

When the wage rate rises, the substitution effect leads a worker to

increase consumption while the income effect leads to a decrease in consumption.

decrease consumption while the income effect leads to an increase in consumption.

increase consumption, as does the income effect.

substitution sleep for other leisure.

Consider the indifference curve budget line model of labor supply, and assume consumption and leisure are both normal goods. A higher wage rate would result in

more consumption and less leisure.

a reduction in the worker’s marginal value of leisure.

reduced consumption if the income effect is larger than the substitution effect.

increased labor only if the substitution effect outweighs the income effect.

When the wage rate rises, a worker chooses to replace some leisure hours with work hours, even if he would remain equally well off. This phenomenon is known as

compensating differential.

the income effect.

the substitution effect.

intertemporal substitution.

Which of the following will shift a worker’s labor supply curve to the left?

Higher nonlabor income.

A lower wage rate, assuming the substitution effect dominates the income effect.

New machinery that substitutes for labor and lowers its marginal product.

A decrease in the marginal value of leisure.

Which of the following would cause a rightward shift in the labor demand curve?

Manna from heaven.

A rise in the wage rate.

A rise in workers’ marginal productivity.

A decline in workers’ nonlabor incomes.

When some jobs are inherently more risky or unpleasant than other jobs, different workers will be paid different wages because of

differences in human capital.

differing access to capital.

compensating differentials

discrimination.

Discrimination is difficult to measure empirically because

it is hard to measure and control for differences in marginal productivity.

data on racial and gender differences is rarely available.

discrimination is practiced by very few employers.

economists find no significant wage differentials due to gender or race.

Intertemporal substitution dictates that

people will work less in periods of high productivity.

people will spend more in periods of high productivity.

people will work more in periods of high productivity.

people will spend less in periods of high productivity.

A decrease in the wage rate causes the budget line to

become flatter.

become steeper.

shift upward.

shift downward.

An increase in the marginal productivity of labor will tend to

shift the labor supply curve rightward if the change is temporary.

result in an increase in employment if the change is temporary.

result in an increase in employment if the change is permanent.

all of the above.

A downward shift in a worker’s budget line is a result of

an increase in the wage rate.

a decrease in the wage rate.

an increase in nonlabor income.

a decrease in nonlabor income

One deficiency of the labor-leisure indifference curve analysis is that because indifference curves are always tangent to the worker’s budget line, the model cannot explain why some people choose not to work.

True

False