MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Considerfigure2.98inthetextbook.GivenawageincreasefromW0toW1,thedistancebetweenI' andI1represents:
A) Theequilibriumchoiceforleisure
B) Theincomeeffect
C) Theequilibriumchoiceforhoursworked
D) Thesubstitutioneffect
E) Theneteffectofboththesubstitutioneffectandtheincomeeffect
Answer: B
2) Empiricalliteratureonlaboursupplypatternsformarriedwomentendstofindallofthefollowing, except:
A) Thehigherthehusband'sincome,thehigherthelabourforceparticipationrate.
B) Womenwithchildrenhavelowerratesoflabourforceparticipation.
C) Thehighertheeducationlevel,thehigherthelabourforceparticipationrate.
D) Labourmarketparticipationrateformarriedwomenwashighestinthe35-44agegroup.
E) Participationrateforallwomenisaround76percent.
Answer: A
3) Whichofthefollowingstatementsconcerningtheelasticityoflaboursupplyisfalse?
A) Theoveralllaboursupplyforbothsexesislikelytobedownwardsloping.
B) Theoveralllaboursupplyforbothsexesislikelytobeupwardsloping
C) Itisgenerallyhigherforwomenthanformen.
D) Theelasticityoflaboursupplywithrespecttoincomeisnegative.
E) Thecompensatedelasticity(reflectingthesubstitutioneffect)tendstobehigherinmagnitude thantheuncompensated,grosselasticity.
Answer: A
4) Whichofthefollowingstatementsisfalse?
A) Inperiodsoflowunemployment,discouragedworkerstendtore-enterthelabourforce.
B) Discouragedworkerscontributetothephenomenonofhiddenunemployment.
C) Inperiodsofhighunemployment,discouragedworkerstendtowithdrawfromthelabourforce.
D) Inperiodsofhighunemployment,addedworkersmayincreaselabourmarketparticipation rate.
E) Inperiodsofhighunemployment,addedworkers(particularlymarriedwomen)tendtoenter thelabourforce.
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Answer: D
LabourMarketEconomicsCanadian8thEditionBenjaminTestBank
5) Supposeaworkerisobservedtobeworkingbutisforcedtoworkfewerhoursthanshereallywants towork.Whichofthefollowingstatementsistrue?
A) Sheisonanindifferencecurvewhichishigherthantheonewhichistangenttothebudgetline.
B) Sheisonanindifferencecurvewhichislowerthantheonewhichistangenttothebudgetline.
C) Theindifferencecurvethatsheisonistangenttothebudgetline.
D) Sheisonanindifferencecurvewhichislowerthantheonewhichpassesthroughthepointon thebudgetlinecorrespondingtozerohoursofwork.
E) Sheisnotonanindifferencecurve.
Answer: B
6) Theslopeoftheindifferencecurveatthelowerleft-handcorneroftheincome/leisurediagram, wherezerohoursaresuppliedtothelabourmarket,isequalto:
A) theslopeofthebudgetconstraint.
B) thereservationwage.
C) thedifferencebetweenthemarketwageandthereservationwage
D) theprevailingmarketwage.
E) thelevelofnon-marketincome.
Answer: B
7) Thereservationwageisdefinedas:
A) thewagerateatwhichzerohoursoflabourissuppliedbytheworkers.
B) theequilibriumwage.
C) thewageofthereservationclerkinthetourismindustry.
D) theminimumwagethatanemployeeiswillingtoacceptforagivenjob.
E) themaximumwagethatanemployeriswillingtopayaworkerforagivenjob.
Answer: D
8) Allofthefollowingpatternsoflabourmarketbehaviourcanbeanalyzedwiththeincome-leisure framework,except:
A) worksharing
B) underemployment
C) moonlighting
D) overtimework
E) labourforceparticipation
Answer: A
9) Considerthesituationofaworkerwhois'atthecornerequilibrium'i.e.,heorsheissupplyingzero hoursofworkandconsuming16hoursofleisure.Incontextoftheincome-leisureframework, whichofthefollowingstatementsisfalse?
A) Themarginalrateofsubstitutionisgreaterthanthewagerateinabsolutevalueterms.
B) Therateatwhichtheworkeriswillingtoexchangeincomeforleisureisnotequaltothe marketratefortheexchangeofincomeforleisure.
C) Marginally,theworkervaluesanhourofleisuremorethanshevaluesanhour'sworthof income.
D) Theindifferencecurveisflatterthanthebudgetline.
E) Theindifferencecurveissteeperthanthebudgetline.
Answer: D
10) Whichoneofthefollowingregardingtoanindividual'sbudgetconstraintiscorrect?
A) Thelevelofnon-labourincomeishigherforapart-timeworkerthanforafull-timeworker
B) Theslopeofthebudgetconstraintisdeterminedbythemarketwagerate.
C) Theslopeofthebudgetconstraintishigherforafull-timeworkerthanforapart-timeworker.
D) Theslopeofthebudgetconstraintisdeterminedbythereservationwagerate
E) Thelevelofnon-labourincomedeterminestheinterceptofthebudgetconstraint.
Answer: B
11) Intheneo-classicalmodeloflaboursupply,whichofthefollowingisalwaystrue?
A) Thesubstitutioneffectcausestheworkertoworkmorehoursifwagesincrease.
B) Theincomeeffectandthesubstitutioneffectworkinthesamedirection.
C) Ifleisureisanormalgood,awageincreasecausesadecreaseinhoursworked.
D) Theincomeeffectcausestheworkertoworkmorehoursifwageincrease.
E) Ifleisureisanormalgood,awageincreasecausesanincreaseinhoursworked.
Answer: A
12) Overthebackwardbendingportionofthelaboursupplycurve,
A) Thereisnolongeratrade-offbetweenincomeandleisure.
B) Leisurebecomesaninferiorgood.
C) Thewageelasticityoflaboursupplyisnegative.
D) Thesubstitutioneffectofawagechangedominatestheincomeeffect.
E) Thewageelasticityoflabourdemandisinelastic.
Answer: C
13) Foraworkerwhoisdecidinghowmanyhoursoflabourtosupply,allofthefollowingaretrue exceptthat:
A) Theincomeeffectofawagechangeequalsthesubstitutioneffect.
B) Therateatwhichsheiswillingtoexchangeleisureforincomeequalstherateatwhichthe marketallowshertodoit.
C) Themarginalrateofsubstitutionbetweenincomeandleisureisequaltothewagerate.
D) Theworkercannotincreasetotalutilitybyworkingmoreorfewerhours.
E) Theslopeofthebudgetlineequalstheslopeoftheindifferencecurve.
Answer: A
14) Whichofthefollowingstatementsmostcloselyappliestothelabourforceparticipationdecision?
A) Itdoesn'tincludeunemployedworkers.
B) Itoccurswhenoneisactivelyseekingwork.
C) Itincludespaidandunpaidwork.
D) Itconsistsofthechoicetoallocateaportionofone'stimetolabourmarketactivitiesas opposedtonon-marketactivities.
E) Itoccurswhenoneacceptsanemploymentpositionandisworking.
Answer: D
15) Theportionofthepopulationthatissurveyedaspotentiallabourforceparticipantsconsistsof:
A) theentirepopulationofCanada.
B) theentirecivilianpopulationthatis15yearsofageorolder.
C) theentirepopulationexcludingtheNorthernterritoriesandthoselivingonnativereserves.
D) theciviliannon-institutionalpopulation.
E) theunemployedplustheemployedpopulation.
Answer: B
16) Whichofthefollowingstatementsappliestotheunemployedpopulation?
A) Theyarejobless.
B) Theyareworkingfewerhoursthantheywouldliketo.
C) Theyareworkingbutareunderpaid.
D) Theyarejoblessbutareactivelyseekingwork.
E) Theyareeitherunabletowork,orareonstrike.
Answer: D
17) Whichofthefollowinggroupsofworkersareconsideredtobepartofthelabourforce?
A) Full-timestudents
B) MembersoftheCanadianmilitary
C) Discouragedworkers
D) Homemakers
E) Thehard-coreunemployed
Answer: E
18) HowoftenistheCanadiancensusconductedbyStatisticsCanada?
A) Everytwoyears
B) Everyfiveyears
C) Everyyear
D) Thereisnoregularcyclefortakingthecensus.
E) ThecensushasbeendiscontinuedinfavouroftheLabourForceSurvey.
Answer: B
19) Whichamongthefollowingcountriestendstohavethelowestlabourforceparticipationrates?
A) UnitedStates
B) France
C) Canada
D) UnitedKingdom
E) Thereisnoenduringranking,asinsomeyearsonecountrywillhavehigherrates,butinother yearsanothercountry'srateswillsurpassthem.
Answer: B
20) Theequationfortheunemploymentrate(UR)is:
A) UR=(unemployed)/labourforce
B) UR=(unemployed/population)
C) UR=(unemployed/employed)
D) UR=(employed−unemployed)/labourforce
E) UR=(employed−unemployed)/unemployed
Answer: A
21) Thewagerateatwhichtheindividualworkerisindifferentbetweenparticipatingandnot participatinginthelabourforceiscalledthe:
A) participatingwage.
B) utilitywage.
C) reservationwage.
D) indifferencewage.
E) minimumwage.
Answer: C
22) Anincreaseinnon-marketincomewillhavewhichofthefollowingeffects?
A) Acounter-clockwiserotationintheincomeconstraint,makingitflatter
B) Adownwardshiftintheincomeconstraint
C) Anupwardshiftintheincomeconstraint
D) Aclockwiserotationintheincomeconstraint,makingitsteeper
E) Thereisnochangetotheincomeconstraint.
Answer: C
23) Whichofthefollowingdiagramscorrespondstoabudgetlinethatinvolvesovertimehourswithawage premium?
24) Whichofthediagramsgivenbelowcorrespondstoabudgetlinewithsomenonlabourincome?
25) Whichofthediagramsgivenbelowcorrespondstoabudgetlinethatinvolvesawageincrease?
26) Whichofthediagramsgivenbelowcorrespondstoabudgetlinethatinvolvesanincreaseinnonlabour income?
Answer: D
27) Whatisindicatedbyaparallelshiftofthebudgetline?
A) Achangeinthepreferences
B) Thesubstitutioneffect
C) Thetotaleffectofapricechange
D) Theincomeeffectofeitherapricechangeoranincomechange
Answer: D
28) Ourincome-leisuremodelsuggeststhatmoonlightingmaybecausedby:
A) overemployment.
C) unemployment.
Answer: D
B) overtimepremium.
D) underemployment.
A) (a) B) (b) C) (c) D) (d)29) Ourincome-leisuremodelsuggeststhataworkerworksovertimebecause:
A) Heearnsover-timepremium,whichleadstoagreaterincomeeffectthansubstitutioneffect.
B) Ifheispaidthestraight-timeequivalent,hewillworkmorehoursthanover-timehours.
C) Heisunderemployed.
D) Heisoveremployed.
Answer: D
30) Figure2.5(b)inthetextexplainsthat:
A) Ifanindividualhasalowervaluationofleisure,thentheslopeofhisindifferencecurveis steeper.
B) Ifanindividualhasahighervaluationofconsumption,thenthemarginalrateofsubstitutionof consumptionoverleisureishigher.
C) Ifanindividualhasahighervaluationofconsumption,thentheslopeofhisindifferencecurve isflatter.
D) Ifanindividualhasalowervaluationofleisure,thenthemarginalrateofsubstitutionof consumptionoverleisureishigher.
Answer: C
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
31) Amajorandrecurringthemeofthistextbookistheroleofempiricalresearchinlaboureconomics. Conceptualmodelsexisttoanalyzemanylabourmarketphenomena,butoftenthepredictionsthat emergeareambiguous.Itistheobjectiveofempiricalresearchtotestthevalidityofthese predictions,andtotrytosortoutthemultipleeffects,whichmayworksimultaneously.Suchisthe caseforthetheoryofindividuallaboursupply.Discussthemajorconceptualimplicationsofthis modelaswellastheresultsfromtheempiricalliteraturewithcorrespondtothem.Thekeyistolink thepredictions,whichflowfromthemodel,tothehypothesesthathavebeenexaminedinthe literature.Inparticular,yourresponsecanfollowthefollowingoutline:
• Withoutgettingboggeddownintechnicaldetails(i.e.,don'tgiveagraph),explainintuitivelytheroleof preferencesandconstraintsindeterminingtheoptimalchoiceofhoursworked.
• Whatistheimpactonthechoiceofhoursworkedbyanindividualifthelevelofnon-marketincome changes?
• Brieflydescribetheincomeeffectandthesubstitutioneffectofawagechange,andrelatethistothe backwardbendingsupplycurve.
• Alargenumberofeconometricstudieshaveestimatedtheshapeofthelaboursupplycurve,thesignofthe wageelasticityoflaboursupply,andtheincomeelasticityoflaboursupply.Whathavetheyfound,generally speaking,regardingtheslopeofthesupplycurve? Doestheslopedifferbetweenmenandwomen?
• Figure2.3inthetextbookshowswhatappearstobeaslightnegativeempiricalrelationshipacross countriesbetweenpercapitanationalincomeandmalelabourforceparticipationrates,coupledwithaslight positiveempiricalrelationshipacrosscountriesbetweenpercapitanationalincomeandfemale labourforceparticipationrates.Itmightbepossibletointerprettheseobservedempiricalpatternsin termsofsubstitutioneffectsandincomeeffects.
Answer: SuggestedAnswer:
Theconsumerchoicemodelisusedtoanalyzeanindividual'slaboursupplydecision.Consumers' preferencesarerepresentedbytheindifferencecurveofconsumptionandleisure.Consumers' constraintsaregivenbytheirwageincomefromworkinghoursaswellasatimeconstraintwhichisa combinationofworkinghoursandleisurehours.Consumers'objectiveistomaximizetheirtotal utilityfromconsumptionbychoosetheirpreferredcombinationofincome/consumptionand leisure,asrepresentedbytheiropportunitysetorbudgetconstraint.Ifthisoptimumoccursat zerohoursofwork,theindividualdoesnotparticipate.Ifoptimalhoursarepositive,the individualparticipates,andthemarginalrateofsubstitutionbetweenleisureandconsumptionequals tothewagerate.
Thereservationwageisgivenbythemarginalrateofsubstitutionbetweenleisureandconsumption,at zerohoursofwork,whichisacriticalwageindeterminingtheparticipationdecision.Forwageabove thereservationwage,theconsumerwillchoosetowork.Otherwise,theconsumerwillnotparticipate.
Thebudgetconstraintofaconsumeriscomposedoftwoparts:non-labourincomeandwageincome fromtotalworkinghours.Thereforethechangeofnon-labourincomeandwageratewillaffecta consumer'slaboursupplydecision.Ifnon-labourincomeincreases,therewillbeapureincome effect,anindividualwhochoosenottoparticipatebeforewillremainoutofparticipationand anindividualwhohaspositiveworkinghourswillreducehis/herworkinghoursandenjoy moreleisuretime.Thechangeofthewagerate,however,willhaveamorecomplexeffecton one'slaboursupplydecision.Forthosewhodonotparticipatebefore,iftheincreaseofthe wagerateexceedsthereservationwage,theywillchoosetoparticipateandtheworkinghours isdeterminedbythemarginalrateofsubstitutionofconsumptionandleisureandthewage rate.Forthoseindividualswhoalreadyworkpositivehours,awageincreasewillhaveboth incomeandsubstitutioneffect.Anincomeeffectfromwageincreasewillinducemoreleisure andlessworkinghoursandasubstitutioneffect(fromtheincreaseoftheopportunitycostof leisure)willinducemoreworkinghoursandlessleisure.Theoveralleffectoflaboursupply dependsontherelativemagnitudesofthetwo.Thisresultisimportanttoexplainwhylabour supplycurvecanbebackwardbinding.Foranindividual,theinitialsmallincreaseofthe wageratemayhaveadominatedsubstitutioneffect,whichleadshim/hertoworkmorehours, however,aswagegrowshigherandhigher,incomeeffectgrowslargerandmaybecome greaterinmagnitudesthanthesubstitutioneffect,therefore,theindividualwilleventually reducehis/herworkinghours.
Theempiricalevidencesontheestimateofelasticityoflaboursupplyhavefurtherprovedtheresults fromincome-leisuremodel.Theshapeofthelaboursupplycurvereallydependsontherelative magnitudesoftheincomeelasticityandcompensated(substitutioneffect)elasticity.Forexample, HanssonandStuart(1985)havesummarizedthat,theoverallelasticityoflaboursupplyfrom awagechangeis0.10,uncompensatedelasticityisabout0.25andincomeelasticityisabout -0.15.However,maleandfemalemayhaveadifferentlaboursupplyschedule.Generally,for males,thelaboursupplyscheduleislikelytobeslightlybackwardbending.Forfemales,the laboursupplyscheduleismorestronglyforwardsloping,shownastrongpositivesubstitution elasticityoutweighingtheweaknegativeincomeelasticity.Thisempiricalevidencecanalso beusedinexplainingthefactthatthemaleparticipationrateisgenerallydecliningwith
nationalincomeandwomen'sparticipationriseswithnationincome(Figure2.3).For countriesthataverageincomeishigher,higherwagerateinducedstrongincomeelasticityfor malesandstrongsubstitutionelasticityforfemales,whichleadstolowerparticipationratefor malesandhigherparticipationrateforfemales.