Trivia Quiz: The Laws Of Economics
Curious about economics? Take The Laws Of Economics Quiz to test your understanding of fundamental economic principles! From supply and demand to market equilibrium, this quiz covers the basics of how economies work. Challenge yourself and see how much you know about topics like inflation, unemployment, and economic policies.
The Laws of Economics Quiz is an interactive assessment designed to evaluate your knowledge of essential economic principles. In this quiz, you'll encounter questions that delve into the foundational concepts of economics, including supply and demand, market competition, elasticity, and more. By participating in this quiz, you'll have the opportunity to Read moretest your understanding of how economic systems function and the factors that influence them.
The Laws Of Economics Questions and Answers
- 1.
Resource pricing is important because:
- A.
Resource prices are a major determinant of money incomes.
- B.
Resource prices allocate scarce resources among alternative uses.
- C.
Resource prices, along with resource productivity, are important to firms in minimizing their costs.
- D.
All of these reasons.
Correct Answer
D. All of these reasons.Explanation
Resource pricing is important because it plays a crucial role in determining money incomes. The prices of resources directly affect the amount of money individuals or businesses receive for their use or sale. Additionally, resource prices help allocate scarce resources among different uses. By assigning a price to resources, it becomes easier to determine how they should be distributed to meet various needs. Moreover, resource prices, in conjunction with resource productivity, are vital for firms to minimize their costs. By understanding the prices of resources and their productivity, firms can make informed decisions on how to efficiently allocate resources and reduce expenses.Rate this question:
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- 2.
The demand for airline pilots results from the demand for air travel. This fact is an example of:
- A.
Resource substitutability.
- B.
Rising marginal resource cost.
- C.
Elasticity of resource demand.
- D.
The derived demand for labor.
Correct Answer
D. The derived demand for labor.Explanation
The fact that the demand for airline pilots is a result of the demand for air travel indicates that the demand for pilots is derived from the demand for their services. In other words, the need for pilots is not based on their own intrinsic value, but rather on the demand for the service they provide. This concept is known as the derived demand for labor.Rate this question:
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- 3.
Marginal revenue product measures the:
- A.
Amount by which the extra production of one more worker increases a firm's total revenue.
- B.
Decline in product price that a firm must accept to sell the extra output of one more worker.
- C.
Increase in total resource cost resulting from the hire of one extra unit of a resource.
- D.
Increase in total revenue resulting from the production of one more unit of a product.
Correct Answer
A. Amount by which the extra production of one more worker increases a firm's total revenue.Explanation
Marginal revenue product measures the amount by which the extra production of one more worker increases a firm's total revenue. It helps firms determine the value and productivity of each additional worker they hire, by calculating the change in total revenue that results from their contribution. This metric is important for firms to optimize their resource allocation and make informed decisions about hiring and production levels.Rate this question:
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- 4.
The MRP curve for labor:
- A.
Intersects the firm's labor demand curve from above.
- B.
Is the firm's labor demand curve.
- C.
Lies below the firm's labor demand curve.
- D.
Lies above the firm's labor demand curve.
Correct Answer
B. Is the firm's labor demand curve.Explanation
The MRP curve for labor is the firm's labor demand curve because it represents the additional revenue generated from hiring an additional unit of labor. As the firm hires more labor, the MRP curve shows the diminishing marginal returns, indicating that each additional unit of labor contributes less to the firm's revenue. Therefore, the MRP curve lies below the firm's labor demand curve, as the firm is willing to hire more units of labor at lower wages.Rate this question:
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- 5.
A competitive employer should hire additional labor as long as:
- A.
The MRP exceeds the wage rate.
- B.
The wage rate is less than MP.
- C.
Average product exceeds MP.
- D.
MC exceeds MR.
Correct Answer
A. The MRP exceeds the wage rate.Explanation
A competitive employer should hire additional labor as long as the Marginal Revenue Product (MRP) exceeds the wage rate. This means that the additional revenue generated by the additional labor is greater than the cost of hiring that labor. By hiring more labor, the employer can increase their output and revenue, making it profitable to do so as long as the MRP is greater than the wage rate.Rate this question:
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- 6.
Assume the Apex Manufacturing Company is purely competitive in both the hiring of labor and in the sale of its product. Apex's labor demand curve would be:
- A.
Vertical at the current level of employment.
- B.
Horizontal at the "going" wage rate.
- C.
Upward sloping.
- D.
Downward sloping.
Correct Answer
D. Downward sloping.Explanation
In a purely competitive market, such as the one described for Apex Manufacturing Company, the labor demand curve would be downward sloping. This is because as the wage rate increases, the company would demand less labor, as it becomes more expensive for them to hire workers. Conversely, if the wage rate decreases, the company would demand more labor, as it becomes more affordable for them to hire workers. Therefore, the labor demand curve would slope downward, showing the inverse relationship between the wage rate and the quantity of labor demanded.Rate this question:
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- 7.
Answer the next question(s) on the basis of the following information for Manfred's Shoe Shine Parlor. Assume Manfred hires labor, its only variable input, under purely competitive conditions. Shoe shines are also sold competitively.Units Total Product Marginal Product Total Revenue0 0 1 14 14 422 103 30 904 355 39 1176 1267 44 2 132Refer to the above data. What is the marginal product of the sixth worker?
- A.
2 Units
- B.
5 Units
- C.
4 Units
- D.
3 Units
Correct Answer
B. 5 UnitsExplanation
To find the marginal product of the sixth worker, we need to look at the change in total product when the number of workers increases from 5 to 6.From the given table, we can see that the total product when 5 workers are employed is 39 units. When the sixth worker is added, the total product becomes 44 units.To calculate the marginal product, we subtract the total product of 5 workers from the total product of 6 workers:Marginal Product (6th worker) = Total Product (6 workers) - Total Product (5 workers)Marginal Product (6th worker) = 44 units - 39 unitsMarginal Product (6th worker) = 5 unitsSo, the marginal product of the sixth worker is 5 units.Rate this question:
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- 8.
Assuming a firm is selling its output in a purely competitive market, its resource demand curve can be determined by:
- A.
Multiplying total product by product price.
- B.
Multiplying marginal product by product price.
- C.
Dividing total revenue by marginal product.
- D.
Comparing marginal product with various possible input prices.
Correct Answer
B. Multiplying marginal product by product price.Explanation
The resource demand curve represents the relationship between the quantity of resources demanded by a firm and the price of the product it sells. In a purely competitive market, the firm is a price taker, meaning it cannot influence the price of the product. Therefore, the firm's resource demand curve can be determined by multiplying the marginal product of the resource by the price of the product. This is because the marginal product represents the additional output produced by each additional unit of the resource, and multiplying it by the product price gives the firm's willingness to pay for that additional unit of the resource.Rate this question:
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- 9.
Answer the next question(s) on the basis of the data contained in the following table. Assume that the firm is hiring labor in a purely competitive market.Units of Labor Total Product Product Price0 0 2.201 15 2.002 28 1.803 39 1.604 48 1.405 55 1.206 60 1.10
- A.
14
- B.
15
- C.
13
- D.
12
Correct Answer
D. 12Explanation
Refer to the provided data. What is the marginal revenue product of the third unit of labor?To find the marginal revenue product (MRP) of the third unit of labor, we need to calculate the change in total revenue when the number of labor units increases from 2 to 3.First, let's find the total revenue for each level of labor input:Units of Labor | Total Product | Product Price | Total Revenue0 | 0 | 2.20 | 01 | 15 | 2.00 | 302 | 28 | 1.80 | 50.403 | 39 | 1.60 | 62.404 | 48 | 1.40 | 67.205 | 55 | 1.20 | 666 | 60 | 1.10 | 66Now, we can calculate the MRP for the third unit of labor:MRP (3rd unit of labor) = Total Revenue (3 units of labor) - Total Revenue (2 units of labor)MRP (3rd unit of labor) = 62.40 - 50.40MRP (3rd unit of labor) = 12So, the marginal revenue product of the third unit of labor is 12.Rate this question:
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- 10.
Other things equal, the resource demand curve of an imperfectly competitive seller will:
- A.
Lie below its marginal revenue product curve.
- B.
Be subject to increasing marginal productivity.
- C.
Be less elastic than that of a purely competitive seller.
- D.
Be more elastic than that of a purely competitive seller
Correct Answer
C. Be less elastic than that of a purely competitive seller.Explanation
The resource demand curve of an imperfectly competitive seller will be less elastic than that of a purely competitive seller. This is because an imperfectly competitive seller has some degree of market power, allowing them to have control over the price of their product. As a result, they can exert more influence over the quantity of resources they demand, leading to a less elastic demand curve. In contrast, a purely competitive seller has no market power and must accept the prevailing market price, resulting in a more elastic demand curve.Rate this question:
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- 11.
The change in a firm's total revenue that results from hiring an additional worker is measured by:
- A.
Marginal product.
- B.
Marginal revenue.
- C.
Marginal revenue product.
- D.
Average revenue product.
Correct Answer
C. Marginal revenue product.Explanation
The change in a firm's total revenue that results from hiring an additional worker is measured by the marginal revenue product. This refers to the additional revenue generated by the last unit of labor employed. It takes into account both the marginal product of labor (the additional output produced by the last worker) and the marginal revenue (the additional revenue generated by selling that additional output). Therefore, the marginal revenue product provides a comprehensive measure of the impact of hiring an additional worker on total revenue.Rate this question:
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- 12.
A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker.Refer to the above information. The marginal product of the second worker is:
- A.
24
- B.
8
- C.
5
- D.
1
Correct Answer
B. 8Explanation
The marginal product of the second worker can be calculated by finding the difference between the total product when two workers are hired and the total product when only one worker is hired. In this case, the total product when two workers are hired is 32 and the total product when one worker is hired is 24. Therefore, the marginal product of the second worker is 32 - 24 = 8.Rate this question:
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- 13.
A firm is hiring the profit-maximizing amount of an input when:
- A.
AVC = MC.
- B.
MP = MRC.
- C.
MRC = MR.
- D.
MRP = MRC
Correct Answer
D. MRP = MRCExplanation
The correct answer is MRP = MRC. This equation represents the condition for profit-maximization in the hiring of an input. MRP (Marginal Revenue Product) refers to the additional revenue generated by hiring one more unit of the input, while MRC (Marginal Resource Cost) represents the additional cost incurred by hiring one more unit of the input. In order to maximize profits, a firm should hire the input up to the point where the MRP equals MRC. This ensures that the additional revenue generated from hiring one more unit of the input is equal to the additional cost incurred, resulting in maximum profitability.Rate this question:
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- 14.
Which of the following will not cause a shift in the demand for resource X?
- A.
A decline in the price of resource X.
- B.
An increase in the price of the product resource X is producing.
- C.
A decrease in the price of substitute resource Y.
- D.
An increase in the productivity of resource X.
Correct Answer
A. A decline in the price of resource X.Explanation
A decline in the price of resource X will not cause a shift in the demand for resource X because when the price of a resource decreases, it becomes more affordable and attractive to consumers. This will likely lead to an increase in the demand for resource X, rather than a shift in the demand curve.Rate this question:
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- 15.
A change in the price of an input will usually:
- A.
Shift a firm's cost curves.
- B.
Cause the firm to alter the combination of inputs it employs.
- C.
Induce the firm to change its level of output.
- D.
Do all of these.
Correct Answer
D. Do all of these.Explanation
A change in the price of an input will usually do all of these. When the price of an input changes, it affects the firm's cost curves by shifting them. This means that the firm's costs of production will either increase or decrease depending on the change in input price. Additionally, the firm will likely alter the combination of inputs it employs in order to minimize costs or maximize output. This could involve substituting one input for another if the price of one input becomes relatively cheaper or more expensive. Finally, the change in input price may also induce the firm to change its level of output in order to maintain profitability.Rate this question:
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- 16.
If the nominal wages of carpenters rose by 5 percent in 2008 and the price level increased by 3 percent, then the real wages of carpenters:
- A.
Decreased by 2 percent.
- B.
Increased by 2 percent.
- C.
Increased by 3 percent.
- D.
Increased by 8 percent.
Correct Answer
B. Increased by 2 percent.Explanation
The nominal wages of carpenters increased by 5 percent in 2008. However, the price level also increased by 3 percent. To find the real wages, we need to adjust for inflation. By subtracting the inflation rate from the nominal wage increase, we can determine the real wage increase. In this case, 5 percent minus 3 percent equals a 2 percent increase in real wages. Therefore, the correct answer is that the real wages of carpenters increased by 2 percent.Rate this question:
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- 17.
Which of the following is correct?
- A.
The nominal wage may fall, but the real wage can never decline.
- B.
The real wage may fall, but the nominal wage can never decline.
- C.
Both the nominal and the real wage must always rise.
- D.
The nominal and the real wage may both fall.
Correct Answer
D. The nominal and the real wage may both fall.Explanation
This answer states that both the nominal wage and the real wage may fall. This means that in certain situations, the actual amount of money received as wages (nominal wage) as well as the purchasing power of those wages (real wage) can decrease. This is possible during periods of economic recession or when there is high inflation. In such cases, even though the nominal wage may decrease, the decrease in the real wage can be even more significant due to the erosion of purchasing power caused by inflation.Rate this question:
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- 18.
Marginal revenue product (MRP) of labor refers to the:
- A.
Increase in total revenue resulting from the sale of an additional unit of output.
- B.
Amount by which a firm's total resource cost increases when it employs one more unit of labor.
- C.
Increase in total revenue resulting from the hire of one more unit of labor.
- D.
Price at which additional units of labor can be employed in a monopsonized labor market.
Correct Answer
C. Increase in total revenue resulting from the hire of one more unit of labor.Explanation
The correct answer is "increase in total revenue resulting from the hire of one more unit of labor." This is because the marginal revenue product of labor measures the additional revenue generated by hiring one more unit of labor. It takes into account the increase in output and the corresponding increase in total revenue that occurs when an additional unit of labor is employed.Rate this question:
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- 19.
A profit-maximizing firm will:
- A.
Expand employment if marginal revenue product exceeds marginal resource cost.
- B.
Reduce employment if marginal revenue product exceeds marginal resource cost.
- C.
Expand employment if marginal revenue product equals marginal resource cost.
- D.
Reduce employment if marginal revenue product equals marginal resource cost.
Correct Answer
A. Expand employment if marginal revenue product exceeds marginal resource cost.Explanation
A profit-maximizing firm aims to maximize its profits by expanding employment when the marginal revenue product (MRP) exceeds the marginal resource cost (MRC). This means that the additional revenue generated by hiring one more worker (MRP) is greater than the cost of hiring that worker (MRC). By expanding employment in this scenario, the firm can increase its output and revenue while keeping costs in check, ultimately leading to higher profits.Rate this question:
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- 20.
Unit of Labor Wage Rate MRC MRP1 8 8 122 8 8 103 8 8 84 8 8 65 8 8 4
- A.
2 units of labor.
- B.
3 units of labor.
- C.
4 units of labor.
- D.
5 units of labor.
Correct Answer
B. 3 units of labor.Explanation
To determine the profit-maximizing level of employment, we compare the Marginal Revenue Product (MRP) with the Marginal Resource Cost (MRC). The profit-maximizing rule states that a firm will hire additional units of labor as long as the MRP exceeds the MRC.From the provided data:MRP for 1 unit of labor is 12.MRC for all units of labor is 8.For 2 units of labor:MRP for 2 units of labor is 10, which exceeds the MRC of 8.For 3 units of labor:MRP for 3 units of labor is 8, which equals the MRC of 8.For 4 units of labor:MRP for 4 units of labor is 6, which is less than the MRC of 8.For 5 units of labor:MRP for 5 units of labor is 4, which is less than the MRC of 8.Therefore, the profit-maximizing level of employment is 3 units of labor.Rate this question:
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- 21.
The individual firm in a purely competitive labor market faces:
- A.
A perfectly elastic labor supply curve and a downsloping labor demand curve.
- B.
A perfectly elastic labor demand curve and an upsloping labor supply curve.
- C.
Labor demand and labor supply curves both of which are perfectly elastic.
- D.
A downsloping labor demand curve and an upsloping labor supply curve.
Correct Answer
A. A perfectly elastic labor supply curve and a downsloping labor demand curve.Explanation
In a purely competitive labor market, the individual firm faces a perfectly elastic labor supply curve because there are many workers available at the going wage rate. This means that the firm can hire as many workers as it wants without affecting the wage rate. On the other hand, the labor demand curve slopes downwards because as the wage rate increases, firms are willing to hire fewer workers. This is because higher wages increase the cost of labor for firms, leading them to reduce their demand for labor. Therefore, the correct answer is a perfectly elastic labor supply curve and a downsloping labor demand curve.Rate this question:
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- 22.
Qty of Labor Total Product Total Revenue1 4 162 8 323 11 444 13 52 5 14 56
- A.
$2
- B.
$3
- C.
$4
- D.
$16
Correct Answer
C. $4Explanation
To find the marginal revenue product (MRP) of labor, we need to calculate the change in total revenue when one more unit of labor is hired.From the given data:Total revenue with 4 units of labor: $52Total revenue with 3 units of labor: $44Change in total revenue when hiring the fourth unit of labor:= Total revenue with 4 units of labor - Total revenue with 3 units of labor= $52 - $44= $8Therefore, the marginal revenue product (MRP) of the fourth unit of labor is $8.Rate this question:
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- 23.
The economic term for a sole employer in a nonunion community is:
- A.
Monopsonist
- B.
Monopolist
- C.
Bilateral competitor
- D.
Bilateral monopolist
Correct Answer
A. MonopsonistExplanation
A monopsonist is an economic term that refers to a sole employer in a nonunion community. This means that the employer has the power to control the wages and working conditions in the community due to the lack of competition from other employers. A monopolist, on the other hand, refers to a sole seller in a market, while bilateral competitor and bilateral monopolist do not accurately describe the situation of a sole employer in a nonunion community.Rate this question:
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- 24.
A monopsonist's wage cost in hiring an additional worker is the:
- A.
Worker's wage rate.
- B.
Worker's wage rate plus the wage increases paid to all workers already employed.
- C.
Worker's wage rate adjusted for the lower price that must be charged for the extra output.
- D.
Marginal wage cost less the wage rate.
Correct Answer
B. Worker's wage rate plus the wage increases paid to all workers already employed.Explanation
A monopsonist's wage cost in hiring an additional worker is the worker's wage rate plus the wage increases paid to all workers already employed. This means that when a monopsonist hires an additional worker, they not only have to pay the new worker's wage rate but also increase the wages of all the workers already employed. This is because the monopsonist has market power and can influence wages, so they have to increase wages to retain their current workers and prevent them from seeking employment elsewhere.Rate this question:
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- 25.
The United Mine Workers is a good illustration of:
- A.
How unions have increased wages but reduced job opportunities by shifting the supply-of-labor curve to the left.
- B.
How unions have raised wages and increased job opportunities by increasing the demand for labor.
- C.
Inclusive unionism.
- D.
Exclusive unionism.
Correct Answer
C. Inclusive unionism.Explanation
The United Mine Workers is a good illustration of inclusive unionism because it demonstrates how unions can raise wages and increase job opportunities by increasing the demand for labor. Inclusive unionism refers to unions that aim to represent and include all workers in a particular industry, regardless of their skills or qualifications. By organizing and bargaining collectively, unions like the United Mine Workers can negotiate higher wages and better working conditions for their members, leading to increased job opportunities and improved standards for all workers in the industry.Rate this question:
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- 26.
A craft union attempts to increase wage rates by:
- A.
Equating the MRP and the MRC curves.
- B.
Shifting the labor supply curve to the left.
- C.
Shifting the labor supply curve to the right.
- D.
Shifting the MRP curve to the right.
Correct Answer
B. Shifting the labor supply curve to the left.Explanation
A craft union attempts to increase wage rates by shifting the labor supply curve to the left. This means that the union aims to decrease the availability of labor in the market, creating a scarcity of workers. By reducing the supply of labor, the union can negotiate higher wages for its members as employers will be willing to pay more to attract workers. This strategy allows the union to exert its bargaining power and increase the wages of its members.Rate this question:
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- 27.
Occupational licensing can best be understood in terms of:
- A.
The inclusive unionism model
- B.
The exclusive unionism model
- C.
The bilateral monopoly model
- D.
The monopsony model
Correct Answer
B. The exclusive unionism modelExplanation
Occupational licensing can best be understood in terms of the exclusive unionism model. This model refers to a situation where a particular group or organization has exclusive control over access to a certain occupation or profession. In the case of occupational licensing, it means that only individuals who meet certain requirements and obtain a license from the relevant authority are allowed to practice that occupation. This creates a barrier to entry for others and gives the licensed individuals a monopoly over the profession, similar to how exclusive unions control access to certain jobs.Rate this question:
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- 28.
In a labor market characterized by bilateral monopoly the wage rate will:
- A.
Be logically indeterminate.
- B.
Be established at the level desired by the union.
- C.
Be established at the level desired by the employer.
- D.
Always be established at the competitive level.
Correct Answer
A. Be logically indeterminate.Explanation
In a labor market characterized by bilateral monopoly, both the employer and the union have significant bargaining power. The wage rate is determined through negotiations between the two parties, and there is no clear outcome or predetermined level at which it will be established. It can vary depending on the relative bargaining power, strategies, and concessions made by both sides. Therefore, the wage rate in a bilateral monopoly labor market is logically indeterminate.Rate this question:
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- 29.
Critics of minimum-wage legislation argue that it:
- A.
Keeps inefficient producers in business.
- B.
Reduces employment.
- C.
Undermines incentives to work.
- D.
Is deflationary.
Correct Answer
B. Reduces employment.Explanation
Critics of minimum-wage legislation argue that it reduces employment. This is because when the minimum wage is increased, employers may not be able to afford to hire as many workers or may choose to automate certain tasks instead. As a result, job opportunities may decrease, particularly for low-skilled workers who are more likely to be affected by minimum-wage laws. This argument suggests that while minimum-wage legislation aims to protect workers, it can have unintended negative consequences on employment levels.Rate this question:
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- 30.
Wage differentials can arise from:
- A.
Both the demand-side and supply-side of labor markets.
- B.
The demand-side of labor markets only.
- C.
The supply-side of labor markets only.
- D.
Neither the demand-side or supply-side of labor markets.
Correct Answer
A. Both the demand-side and supply-side of labor markets.Explanation
Wage differentials can arise from both the demand-side and supply-side of labor markets. On the demand-side, wage differentials can occur due to differences in the demand for different types of labor. For example, if there is a high demand for skilled workers in a certain industry, their wages may be higher compared to unskilled workers. On the supply-side, wage differentials can occur due to differences in the supply of labor. For example, if there is a shortage of workers in a particular occupation, their wages may be higher compared to occupations with an abundance of workers. Therefore, both demand-side and supply-side factors can contribute to wage differentials in labor markets.Rate this question:
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Feb 27, 2024Quiz Edited by
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Apr 06, 2010Quiz Created by
Lynz143
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