King: Economics

Chapter 14: Markets for Labour

Correct answers are marked with an asterisk*

Type: multiple choice question

Title: Chapter 14 - Question 01
01) The change in total revenue that results from employing an additional unit of labour
whilst all other inputs remain constant is:
a. the average product of labour.
Feedback: No this is incorrect since average product of labour is total product divided by
the number of units of labour employed.
Page reference: 296, 297
b. the marginal revenue of inputs.
Feedback: This is not correct since marginal revenue of inputs is hardly sensible.
Page reference: 296, 297
*c. the marginal revenue product of labour.
Feedback: This is the right answer as the extra revenue gained from employing one more
unit of labour is the change in total revenue.
Page reference: 296, 297
d. the marginal revenue product of factors of production.
Feedback: This is not correct since there is no such thing as the marginal revenue
product of factors of production.
Page reference: 296, 297

Type: multiple choice question

Title: Chapter 14 - Question 02
02) Which one of the following will not cause a shift in a firm’s marginal revenue product of
labour curve?
a. Productivity of inputs change.
Feedback: A change in the productivity of other inputs will shift the marginal revenue
product of labour curve so this is not the right answer.
Page reference: 268-270
*b. Productivity of inputs remains unchanged.
Feedback: If the productivity of inputs does not change then there will be no shift in the
marginal revenue product for labour.
Page reference: 268-270
c. A change in the price of other inputs utilized by the firm.
Feedback: A change in the price of other inputs will shift the marginal revenue product of
labour curve so this is not the right answer.
Page reference: 268-270
d. A change in the demand for the firm’s output.
Feedback: A change in the demand for a firm’s output will shift the marginal revenue
product curve so this is not the right answer.
Page reference: 268-270

Type: multiple choice question

Title: Chapter 14 - Question 03
03) A firm that aims to maximize profits will hire labour to the point where:
a. marginal cost of labour equals the marginal revenue product of capital.

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 King: Economics
Chapter 14: Markets for Labour

Feedback: No, this is not correct as this (MC of labour = MRP of labour) is not a condition
of profit maximization.
Page reference: 297, 298
b. average cost of labour equals average revenue product of labour.
Feedback: This is incorrect as this (AC of labour = ARP of labour) is not a condition of
profit maximization.
Page reference: 297, 298
c. marginal revenue product of labour is greater than marginal cost of labour.
Feedback: This is not incorrect because if MRP of labour is greater than MC of labour
then additional workers hired would add more to revenue than to costs.
Page reference: 297, 298
*d. marginal revenue product of labour equals marginal cost of labour.
Feedback: This is correct because profits will be maximized when MRP of labour is equal
to MC of labour; any additional labour beyond this point will add more to cost rather than
to revenue.
Page reference: 297, 298

Type: multiple choice question

Title: Chapter 14 - Question 04
04) Transfer earnings refer to:
a. income earned gained from working overtime.
Feedback: This is not correct because income earned from working overtime is not
transfer earnings.
Page reference: 301
b. the extra income earned from bonus payments.
Feedback: This is incorrect because the income from bonus payments is not transfer
earnings.
Page reference: 301
*c. the income required to keep a worker in a particular occupation.
Feedback: This is correct because the income that a worker needs to keep him/her in a
particular occupation is called transfer earnings.
Page reference: 301
d. the earnings gained by a worker from transferring to another job.
Feedback: This is incorrect because earnings earned from transferring to another job are
not transfer earnings.
Page reference: 301

Type: multiple choice question

Title: Chapter 14 - Question 05
05) Economic rent refers to:
a. income that is used for paying for rented items in a workplace.
Feedback: This is incorrect because the cost of rented items in a workplace is not
economic rent.
Page reference: 301-303
*b. income in excess of the income that is required to keep a worker in a particular job.
Feedback: This is true as economic rent is the income in excess of transfer earnings. It is
the income earned above that which is required to keep a worker in a particular job.
Page reference: 301-303
c. income needed to hire overtime workers.

© Oxford University Press, 2012. All rights reserved.

 King: Economics
Chapter 14: Markets for Labour

Feedback: This is incorrect since economic rent is not the income needed to hire
overtime workers.
Page reference: 301-303
d. income spent on miscellaneous items in a workplace.
Feedback: No, this is not right because economic rent is not income spent on
miscellaneous items.
Page reference: 301-303

Type: multiple choice question

Title: Chapter 14 - Question 06
06) In a monopsonistic labour market:
a. the firm is a price taker in that labour market.
Feedback: No, a monopsonistic labour market would not exist where the firm is a price
taker in the labour market.
Page reference: 306. 307
*b. the firm is the only employer of a specific type of labour.
Feedback: Yes this is correct because a monopsonist firm is the only employer of a
specialized type of labour.
Page reference: 306. 307
c. the firm faces a downward sloping market supply curve.
Feedback: No, in a monopsonistic labour market the firm faces an upward sloping supply
curve.
Page reference: 306. 307
d. the firm does not have to raise wages to gain more workers.
Feedback: No, a monopsonistic labour would not exist if the firm can gain more workers
by not raising wages.
Page reference: 306. 307

Type: multiple choice question

Title: Chapter 14 - Question 07
07) Which one of the following is an explanation of why wages of people with innate ability
would be high?
a. People with innate ability have acquired specific skills.
Feedback: If people with innate ability have acquired specific skills we cannot conclude
that they will be paid high wages.
Page reference: 304, 305
b. The supply of people with innate ability is elastic.
Feedback: No, this is not correct because if the supply of people with innate ability is
elastic then they would not be able to gain high wages.
Page reference: 304, 305
*c. People with innate ability are able to produce a product with high marginal revenue
product.
Feedback: This is correct because if the MRP is high from their employment then they will
be able to gain high wages. MRP will be high when a high price is paid for their product.
Examples are: footballers, tennis players etc.
Page reference: 304, 305
d. People with innate ability have acquired high status.
Feedback: This is incorrect because if people with innate ability have high status this
does not explain why their wages would be high.

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 King: Economics
Chapter 14: Markets for Labour

Page reference: 304, 305

Type: multiple choice question

Title: Chapter 14 - Question 08
08) The imposition of minimum wage legislation in a competitive market can:
a. help workers to get bonus payments.
Feedback: No, this is incorrect. Minimum wage legislation will not help workers to get
bonus payments.
Page reference: 308
b. lead to a fall in unemployment.
Feedback: This is incorrect as firms find that their costs rise and less people are
employed so unemployment does not fall.
Page reference: 308
*c. lead to a rise in unemployment.
Feedback: Yes, this is correct since employers may employ less people if a minimum
wage is imposed as costs have risen for firms.
Page reference: 308
d. cause labour demand by firms to increase.
Feedback: No, this is incorrect because minimum wage legislation will not cause an
increase in labour demand by firms.
Page reference: 308

Type: multiple choice question

Title: Chapter 14 – Question 09
09) Why do firms pay efficiency wages?
a. In order to create full employment.
Feedback: No, this is not correct as efficiency wages are not paid to create full
employment; if anything unemployment may tend to rise.
Page reference: 311, 312
b. So that workers can easily switch jobs.
Feedback: This is not right as efficiency wages are not paid to allow smooth job changes
to take place.
Page reference: 311, 312
*c. As a means of discouraging workers from shirking.
Feedback: This is correct, since employers pay efficiency wages which are higher than
the market wage so that employees can be cautious and value their jobs highly: for fear of
losing their jobs, which are highly paid, workers would avoid shirking.
Page reference: 311, 312
d. Because firms find it easy to fully monitor workers.
Feedback: This is incorrect as if firms can easily fully monitor workers then firms may
have no incentive to pay efficiency wages.
Page reference: 311, 312

Type: multiple choice question

Title: Chapter 14 - Question 10
10) Which one of the following does not explain gender differences in pay?
a. Differences in educational achievements.
Feedback: On average more males than females go into higher education so this is not
the correct answer.

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 King: Economics
Chapter 14: Markets for Labour

Page reference: 315-317

b. Differences in ability to do physically demanding jobs.
Feedback: Males can handle physically demanding jobs better than females and some of
these jobs are highly paid so this is not the right answer.
Page reference: 315-317
c. Occupational differences.
Feedback: More males than females occupy highly paid jobs so this is not the right
answer.
Page reference: 315-317
*d. It is not illegal to have gender wage differences.
Feedback: It is not legal to pay different wages to males and females for the same jobs.
So this is the correct answer.
Page reference: 315-317

© Oxford University Press, 2012. All rights reserved.