. As the price of a resource (e.g., labor) decreases, demand for that resource i
ID: 1251772 • Letter: #
Question
. As the price of a resource (e.g., labor) decreases,demand for that resource increases
the quantity demanded of that resource decreases
the supply of that resource increases
producers are more willing and able to hire that resource
2. One determinant of the derived demand for a resource is the
price of the product made using the resource
extra cost of the resource
marginal resource cost of the resource
availability of the resource in the marketplace
3. A temporary price differential in resource markets is
eliminated by resource movements
caused by a failure of firms to maximize profits
eliminated by resources moving from highly-valued uses to lower-valued uses
caused by Congress increasing the federal minimum wage
4. The division of a resource's earnings between economic rent and opportunity cost depends on the resource owner's
elasticity of labor supply
price elasticity of labor demand
income elasticity of labor demand
cross-price elasticity of demand
5. A profit-maximizing firm will employ a resource up to the point where
its marginal resource cost equals its marginal revenue product
its marginal resource cost equals its marginal product
its marginal resource cost equals the marginal revenue of the output
its marginal resource cost equals the price of the resource
6. The quantity of labor an individual supplies to any market
never increases as the market wage rate rises
is contingent upon the wage rates offered in other labor markets
always decreases as the market wage rate rises
could never be zero over the realistic range of wage rates
7. People who can earn higher market wages, other things constant, will
provide more labor to nonmarket work
be more inclined to supply their labor to market work than to nonmarket work
be more inclined to supply their labor to nonmarket work than to market work
provide more labor to nonmarket work even if the market can provide the services more cheaply
8. At a low wage rate,
there is no substitution effect
there is no income effect
the substitution effect usually outweighs the income effect
the income effect usually outweighs the substitution effect
9. Through collective bargaining,
representatives of an employer negotiate with the rank and file of the union membership
union and nonunion members combine forces in negotiation
craft and industrial unions combine forces in negotiation
contracts are worked out between representatives of the union and employer representatives
10. If union demands result in a surplus of labor in some industries, the resulting
increased demand for labor in the nonunion sector drives nonunion wages up
decreased demand for labor in the nonunion sector drives nonunion wages down
increased supply of labor in the nonunion sector drives nonunion wages down
increased supply of labor in the nonunion sector drives nonunion wages up
Explanation / Answer
1. As the price of a resource (e.g., labor) decreases, producers are more willing and able to hire that resource [If an input is cheaper, then you want to buy more of it to make a higher profit.] 2. One determinant of the derived demand for a resource is the price of the product made using the resource [We care about the marginal revenue product, which is the price of the product made using the resource multiplied by the marginal product of the resource.] 3. A temporary price differential in resource markets is eliminated by resource movements [Resources move from low-value allocations to high-value allocations. This makes sense because companies that highly value a resource will be willing to pay more for it.] 4. The division of a resource's earnings between economic rent and opportunity cost depends on the resource owner's cross-price elasticity of demand [High cross-price elasticities imply large opportunity costs because substitutes are closer to each other.] 5. A profit-maximizing firm will employ a resource up to the point where its marginal resource cost equals its marginal revenue product [You never want to purchase a resource if it costs more than the value of the product it produces. And you always want to purchase a resource if it costs less than the value of the product it produces.] 6. The quantity of labor an individual supplies to any market is contingent upon the wage rates offered in other labor markets [Labor supply curves are "backward bending" 7. People who can earn higher market wages, other things constant, will provide more labor to nonmarket work [None of the other answers are correct. This answer is correct assuming we are thinking about the lower portion of the labor supply curve where the derivative is positive.] 8. At a low wage rate, the substitution effect usually outweighs the income effect [This is why the labor supply curve is upward sloping at low wages. At high wages, the income effect dominates, causing labor supply curves to be downward sloping. This is where the "backward bend" part comes in.] 9. Through collective bargaining, contracts are worked out between representatives of the union and employer representatives [This is just what happens. It's hard to explain further. Unions are just labor cartels. Each side sends its lawyers to determine wages and quantities of labor. Typically, a Cournot solution is arrived at and the labor union is able to extract rents from the employer. These costs are passed on to the consumer.] 10. If union demands result in a surplus of labor in some industries, the resulting increased demand for labor in the nonunion sector drives nonunion wages up increased supply of labor in the nonunion sector drives nonunion wages down [This is a bad question. Both of the above answers are correct. And the real effect requires a much more complex model that you will learn about in graduate level Industrial Organization courses. A surplus of labor implies that labor supply is greater than labor demand at a given wage. This will increase the supply of non-union labor because non-union workers will be willing to work more for the higher wage. This will also increase the demand for non-union labor because employers will want to avoid the high cost of union labor. Your professor probably only thinks that the "demand" answer is correct So, go with that one. But this is naive.]
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