15. Assume the demand for labor is relatively elastic. If there is an increase i

Question

15. Assume the demand for labor is relatively elastic. If there is an increase in the supply of labor, the wage ratea and total labor income for those workers. rises rises decreases increases a. b. c. falls d falls increases 16. The profit-maximizing and least-cost combination of inputs are a. the result of unrelated decisions. b. such that the maximization of profits always results in the minimization of costs. c such that the minimization of costs always results in profit maximization The marginal productivity theory of income distribution views fairness and economic justice as one of the outcomes of a competitive capitalist 17. Which one of the following statements describes this view? a to each according to his or her needs b. to cach according to what he or she can get through the political process c. to each according to the value of what he or she creates d. take from the productive workers and give to the unproductive workers 18. The price of labor services is referred to as a. wages b. rent c. interest d. profits 19. The basic explanation for rising employment and high real wages in the United States is that the: a. govenment has imposed effective minimum wage laws to improve the conditions of labor b. labor demand has increased less rapidly than labor supply. c. labor demand has increased more rapidly than labor supply d. labor demand has decreased while labor supply has increased. 20. The market supply of labor curve for a specific occupation is upward sloping because a. the firm's production process exhibits diminishing returns b. the marginal revenue product of each worker rises as more labor is employed c. lower wages must be paid to encourage employers to hire more workers. d. higher wages must be paid to bid workers away from other opportunities. A firm opcrating in a purcly competitive labor market faces a labor supply curve that is and a 21. a. perfectly elastic perfectly inelastic b. perfectly elastic upward sloping c. upward slopingdownward sloping d. vertical upward sloping

Explanation / Answer

15) When the demand curve of labour is elastic , a small change in wage can effect the number of workers employed largely and vice versa. So the increased supply will lead to more of the workers who want to be employed. Due to elasticity of demand curve, the increased labour supply will reduce the wages but will increase the total labour income of tjose workers becasue at lower wages more workers will be employed, but the total labour income will increase because the demand is relatively elastic.

So the answer is option d) falls and increases

16) The profit maximising and least cost combination are

Such that the minimisation of costs always result in maximisation of profit ie option C

Reason : Any firm first determines the cost on the basis of which the profits are determined. So the cost combination will lead to the profit one and not the other way round. So once the costs are minimised the profits maximise.

17) The marginbal productivitry of income distribution states that the workers or any factor of production must be paid according the additional value he constributes in the production process. The fairness is based on the principle that the wages should be paid according to the value generated by the individual . ANything other than that will not be a just or fair way to distribute income.

So answer is option C) The value each creates .

18) The price of labour services is called wages ie option a)

Rent is the price of land , interest is of capital and profit is of entrepeneurship . So wages is the answer

19) The reason for high wages is that labour demand has increased more rapidly than labour supply resulting in higher wages . When the supply is less and demand is more then the prices tend to rise . Same is the case in labour market in US .

the answer is option c)

20) Market supply of labour demand curve is upward sloping because as the wages increase in a particular occupation , it affects other industies as well . So if the wages increase in one sector with mobility , the workers can switch to other high paying jobs,. so the firms tned to pay higher wages to workers so that they keep them away from other opportunities by paying higher wages.

So asnwer is option D) pay higher to bid away from other opportunities.

21) A firm operating in perfectly competitive market is always the wage taker ie the industry determines the wage and the firm always takes the wage as given . This is the reason that market supply is perfectly elastic at the amrket wage

The monoponiost wages an upward sloping labour supply curve because it is a wage searcher ie if it increases the number of labourers to be hired, the wages of not just the new ones but all of them needs to be increased.

So answer is option b ) perfectly elastic and upward sloping .

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