Question

Question 21

1. 21) How would an increase in the demand for labor occur:

   		a. when there is an increase in labor productivity
   		b. when there is an increase in the demand for the product labor produces
   		c. when there is an increase in the supply of labor
   		d. both (a) and (b)

3 points

Question 22

1. 22) What determines the quantity supplied of labor?

   		a, the wage rate
   		b. the demand for labor
   		c. the marginal revenue product of labor
   		d. the marginal revenue product of capital

3 points

Question 23

1. 23) What will lead to an increase in the wage rate?

   		a. a decrease in the demand for labor
   		b. an increase in the demand for labor
   		c. an increase in the supply of labor
   		d. a decrease in demand for the product labor produces

3 points

Question 24

1. 24) What will lead to a decrease in the wage rate?

   		a. an increase in the demand for labor
   		b. an increase in the supply of labor
   		c. a decrease in the supply of labor
   		d. an increase in demand for the product labor produces

3 points

Question 25

1. 25) Efficiency wage theory states:

   		a, it is efficient to pay labor the lowest wage rate possible
   		b. it is efficient to only pay labor the market wage rate
   		c. it is efficient to supply labor with the least amount of fringe benefits as possible
   		d. it is efficient to pay labor a higher than average wage rate (including benefits) as this will elicit a better work effort from labor and increase the firm's profits

Answer 1

21. An increase in demand for labor means that more quantity of labor is demanded at the ongoing wage rate and so the demand curve for labor would shift rightwards - raising wages and equilibrium quantity of labor. Lets understand the options to figure which one would cause a rightward movement of labor demand curve.

a. when there is an increase in labor productivity - Correct - this factor will cause a rise in demand for labor. When labor productivity rises then it means that labor can produce more output then it did before. Recall that production and cost are two sides of the same coin. So a increase in labor productivity means decrease in relative cost of labor (as compared to capital). This increases substitutability between labor and capital and so labor demand increases.

b. when there is an increase in the demand for the product labor produces - Correct - recall that the demand for labor is a type of derived demand means that when demand for the product that labor produces rises then it will encourage the suppliers to increase quantity supplied for that product. To do this the supplier must employ more labor so that more of the product it makes can be produced. Hence labor demand rises. .

c. when there is an increase in the supply of labor - Incorrect. If supply of labor rises then it means that supply curve of labor shifts rightwards (increases) and this would cause a fall in wage rate and rise in quantity of labor. The lower wages will increase quantity demanded of labor along the demand curve. Hence here there is no change in labor demand (shift in demand) rather there is an increase in quantity demanded (movement along the curve).

d. both (a) and (b) - This is the correct option. As we have discussed above we can see that both a and b are correct.

So correct option is d.