Question

QUESTION 10

1. If unskilled labor and capital are substitutes,

   		the price of unskilled labor decreases when the price of capital increases.
   		the cross-elasticity between unskilled labor and capital is positive.
   		the price of capital is increasing.
   		demand for unskilled labor increases when the price of capital decreases.

QUESTION 11

1. The imposition of a minimum wage on a competitive labor market will likely

   		create unemployment as some people enter the labor market while some firms reduce the quantity of labor they are willing to employ due to the increased wage.
   		increase unemployment of high-skilled workers as firms substitute high-skilled labor for low-skilled labor.
   		create additional employment opportunities because some low-skilled workers will now see their wage increase.
   		lower the wages of workers earning more than the minimum wage.

QUESTION 12

1. An increase in the unemployment rate may be caused by:

   		an increase in the flow from unemployment to out of the labor force.
   		an increase in the flow from unemployment to employment.
   		an increase in the flow from employment to out of the labor force.
   		an increase in the flow from out of the labor force to employment.

14. Suppose that the federal government imposes a $2 per hour payroll tax on employers. Assuming a competitive labor market, this will cause the hourly wage received by employees to fall by a larger amount if labor demand is more _____ or labor supply is more ____.

		inelastic; inelastic
		inelastic; elastic
		elastic; elastic
		elastic; inelastic

QUESTION 15

1. Labor economists argue that unions will be more successful at organizing workers when labor

   		supply is more elastic since wage increases would lead to smaller employment losses.
   		demand is more elastic since wage increases would lead to smaller employment losses.
   		supply is more inelastic since wage increases would lead to smaller employment losses.
   		demand is more inelastic since wage increases would lead to smaller employment l

16. President Obama used to propose that the federal minimum wage be increased from $7.25 to $9.00 per hour. There were slightly over 12 million workers who would be directly affected by this increase (i.e. paid between $7.25 and $9.00). Two of the largest employers of affected workers are restaurants (2.5 million) and grocery stores (775,000). Many cooks in restaurants currently earn above the minimum wage whereas most dishwashers and servers are paid the minimum. Would the increase in the minimum wage be likely to affect employment of cooks?

		Cooks earn much higher wage than the minimum wage, so their employment will not be affected.
		the demand for cooks may fall because of the scale effect.
		A higher minimum wage will create substitution effect for cooks but not scale effect.
		the demand for cooks may fall because of the substitution effect.

5 points   

QUESTION 17

1. Labor demand is more elastic the greater the elasticity of substitution between labor and capital because

   		a firm's technology is slow to change.
   		the firm's output price falls when the firm produces more output.
   		firms could have the option of substituting capital for labor easily.
   		workers supply more labor when their wage increases.

5 points   

QUESTION 18

1. An effective affirmative action program could

   		lowers the production costs of color-blind firms.
   		makes color-blind firms more inefficient.
   		makes discriminatory firms more inefficient.
   		increases profits of color-blind firms.

Answer 1

10.b) cross-price elasticity of unskilled labor and capital is positive

11.a) create unemployment as some people enter the labor market while some firms reduce the quantity of labor demanded due to the increases wage.

12.c) an increase in the flow from employment to out of labor force

14. d) elastic; inelastic

15.d) demand is more inelastic since wage increases would lead to smaller employment losses.

16. b) demand for cooks may fall because of scale effect

17. c) firms could have the option of substituting capital for labor more easily.