Government policies in factor markets

1. In a perfectly competitive free market economy, a wage gap between two workers can be explained by differences in all of the following EXCEPT their

• (A) years of schooling

• (B) occupations

• (C) marginal products

• (D) marginal revenue products

• (E) tastes for luxury goods

2. In a perfectly competitive labor market, an increase in an effective minimum wage will result in

• (A) an increase in the supply of workers

• (B) a decrease in the supply of workers

• (C) a decrease in the demand for workers

• (D) more workers being hired

• (E) fewer workers being hired

3. If the government eliminates an effective minimum wage in a competitive labor market, which of the following is true?

• (A) Minimum wage workers will experience no change in hourly pay.

• (B) Minimum wage workers will experience a decrease in hourly pay.

• (C) The number of people employed will decrease because people do not want to work for low wages.

• (D) There will be an excess demand for workers.

4. An increase in the effective minimum wage will have less of an impact on employment if the demand for labor is

• (A) a derived demand

• (B) decreasing

• (C) relatively elastic

• (D) relatively inelastic

5. Assume that the government imposes an effective minimum wage in a perfectly competitive labor market. What will happen to employment and total wage payments?

• (A) Employment = Decrease ; Total Wage Payments = Increase

• (B) Employment = Decrease ; Total Wage Payments = Decrease

• (C) Employment = Decrease ; Total Wage Payments = Indeterminate

• (D) Employment = Increase ; Total Wage Payments = Increase

6. The graph above illustrates the labor market for teenage workers. The current minimum wage for all workers is W1. If Congress introduces a sub-minimum wage, W2that applies only to teenagers, what is the most likely effect on teenage employment?

• (A) Teenage employment will increase because firms will want to hire more teenagers at W2than at W1.

• (B) Teenage employment will increase because more teenagers will want to work at W2than at W1.

• (C) Teenage employment will decrease because fewer teenagers will want to work at W2than at W1.

• (D) Teenage employment will decrease because firms will want to hire fewer teenagers at W2than at W1.

7. Businesses employ workers from city neighborhoods and rural areas. These workers are perfect substitutes and cannot relocate in the short run. The government offers businesses a wage subsidy if they hire workers from city neighborhoods. What is the effect of the subsidy on the wage rate of rural workers and on the total hours they work?

• (A) Wage Rate of Rural Workers = Increase ; Total Hours Worked by Rural Workers = Decrease

• (B) Wage Rate of Rural Workers = No Change ; Total Hours Worked by Rural Workers = Increase

• (C) Wage Rate of Rural Workers = No Change ; Total Hours Worked by Rural Workers = Decrease

• (D) Wage Rate of Rural Workers = Decrease ; Total Hours Worked by Rural Workers = Decrease