Question

1. Which of the following would cause an increase in the market supply of accountants (increase labor supply curve)

Select one:

a. an increase in wages offered to tax attorneys (an occupation alternative to accounting)

b. an increase the in value of the marginal product of accountants.

c. a decrease in wages offered to tax attorneys (an occupation alternative to accounting)

d. stricter qualifications needed to be a certified public accountant (CPA)

2. Value of the marginal product of labor is the:

Select one:

a. the additional revenue a firm generates when it adds one more unit of labor.

b. Average number of units of output a worker can produce.

c. total revenue received when a given number of workers are employed

d. additional number of jobs created when one more firm enters the market

3. In regards to dealing with negative externalities, which of the following is a possible solution that can make the outcome more efficient?

Select one:

a. Property rights

b. Pigouvian tax

c. Tradable allowance

d. All of the above

Answer 1

Ans) 1) Labour supply will decrease if wages in substitute occupation increases and vice versa.

Increase in marginal product of labour increases the demand for labour. This is the reason why technology and increase in human capital increases the demand for labour.

Increase in barrier, for eg- increase in qualifications, will decrease the labour supply.

Option c (decrease in wages offered to tax attorneys)

2) Marginal product of labour (MPL) is the additional output gained from employing one additional unit of labour.

VMPL = MPL × P

So, value of marginal product of labour (VMPL) is the additional revenue gained by the firm.

Option a.

3) Externality is when the bystander bears the cost or benefit of any activity. All of the given options are ways to internalise the externality.

Property rights can help to eliminate externality caused by tragedy of commons, pigouvian tax i.e pollution tax is used to reduce pollution (a negative externality).

Option d.