Chapter 19

Chapter 19 Earnings and Discrimination
TRUE/FALSE 1. A compensating differential refers to a difference in wages that arises from nonmonetary characteristics. ANS: T DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: %ompensating differentials )S%: Definitional 2. A compensating differential is a difference in wages d*e to higher le+els of ed*cation or other forms of h*man capital. ANS: F DIF: 1 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: %ompensating differentials )S%: Definitional ,. The fact that doctors are paid more than economics professors is an e-ample of a compensating differential. ANS: T DIF: 1 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: %ompensating differentials )S%: Definitional .. A comp*ter is an e-ample of prod*cti+ity"enhancing h*man capital. ANS: F DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: )S%: Definitional 0.
/*man capital
/igher le+els of h*man capital are correlated with higher earnings &eca*se firms are willing to pay more for &etter"ed*cated wor'ers who ha+e higher marginal prod*cti+ities. ANS: T DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital )S%: Interpreti+e 1. As a res*lt of an increase in the earnings gap &etween s'illed and *ns'illed 2o&s3 the incenti+e to get a college ed*cation has &een declining. ANS: F DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Increasing +al*e of s'ills )S%: Interpreti+e 4. The rising gap in wages &etween *ns'illed and s'illed wor'ers is most li'ely related to a larger increase in demand for *ns'illed occ*pations relati+e to s'illed occ*pations. ANS: F DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Increasing +al*e of s'ills )S%: Interpreti+e 5. $ne hypothesis to e-plain the rising gap in wages &etween *ns'illed and s'illed wor'ers in the 6nited States is that international trade has altered the relati+e demands for s'illed and *ns'illed wor'ers. ANS: T DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Increasing +al*e of s'ills )S%: Interpreti+e !. The statement that 7the rich get richer3 and the poor get poorer7 is s*pported &y e+idence of an e-panding wage gap &etween high"s'ill and low"s'ill wor'ers. ANS: T DIF: 1 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Increasing +al*e of s'ills )S%: Interpreti+e
5
19.
%hapter 1!8 arnings and Discrimination
Some economists s*ggest that international trade has led to an e-panding wage gap &etween high"s'ill and low"s'ill wor'ers in the 6nited States. ANS: T DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Increasing +al*e of s'ills )S%: Interpreti+e 11. It is increasingly clear that technological change3 rather than international trade3 has &een largely responsi&le for an e-panding wage gap &etween high"s'ill and low"s'ill wor'ers. ANS: F DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Increasing +al*e of s'ills )S%: Interpreti+e 12. The 6nited States is losing man*fact*ring 2o&s to co*ntries li'e %hina and India3 where man*fact*ring 2o&s ha+e increased ,9 percent since 1!!0. ANS: F DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Increasing +al*e of s'ills )S%: Applicati+e 1,. Since 1!!03 glo&al man*fact*ring employment has declined3 yet glo&al ind*strial o*tp*t has risen. ANS: T DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Increasing +al*e of s'ills )S%: Applicati+e 1.. $ne e-planation for the loss in man*fact*ring 2o&s is that new technologies ha+e replaced the need for some wor'ers. ANS: T DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Increasing +al*e of s'ills )S%: Applicati+e 10. The demand for wor'ers with e-cellent pro&lem"sol+ing s'ills is increasing3 as are the wages for those wor'ers. ANS: T DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Increasing +al*e of s'ills )S%: Applicati+e 11. $ne reason why &etter"loo'ing wor'ers may ha+e higher earnings is that physical attracti+eness may enhance a wor'er:s prod*cti+ity for certain 2o&s3 especially for those wor'ers who deal with the p*&lic. ANS: T DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: ;ea*ty premi*m )S%: Interpreti+e 14. $ne reason why &etter"loo'ing wor'ers may ha+e higher earnings is that physical attracti+eness is correlated with intelligence. ANS: F DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: ;ea*ty premi*m )S%: Interpreti+e 15. The signaling theory of ed*cation maintains that wor'ers who complete specific le+els of ed*cation signal their high prod*cti+ity to potential to employers. ANS: T DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Signaling )S%: Definitional 1!. The signaling theory of ed*cation maintains that wor'ers who complete specific le+els of ed*cation enhance their prod*cti+ity thro*gh ed*cation. ANS: F DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Signaling )S%: Definitional

29.
If the signaling theory of ed*cation is correct3 then ed*cation is correlated with higher earnings &eca*se people with higher le+els of ed*cation are more prod*cti+e. ANS: F DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Signaling )S%: Interpreti+e 21. The h*man"capital theory of ed*cation maintains that wor'ers who complete specific le+els of ed*cation enhance their prod*cti+ity thro*gh ed*cation. ANS: T DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < Signaling )S%: Definitional 22. ANS: NAT: )S%: d*cation and on"the"2o& training are so*rces of h*man capital. T DIF: 1 R F: 1!"1 Analytic #$%: #a&or mar'ets Applicati+e
T$(:
/*man capital
2,. The s*perstar phenomenon e-plains why professional athletes earn more than amate*r athletes. ANS: F DIF: 1 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: S*perstar phenomenon )S%: Definitional 2.. S*perstars earn high incomes d*e to their a&ility to satisfy the demands of millions of people at once. ANS: T DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: S*perstars )S%: Interpreti+e 20. An effecti+e minim*m wage law will increase the =*antity of la&or demanded. ANS: F DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: A&o+e"e=*ili&ri*m wages )S%: Applicati+e 21. #a&or *nions will raise the =*antity of la&or demanded. ANS: F DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets )S%: Applicati+e 24. ANS: NAT: )S%: 25. ANS: NAT: )S%: 2!. ANS: NAT: )S%: ,9. ANS: NAT: )S%:
T$(:
6nions
fficiency wages will raise the =*antity of la&or s*pplied to the mar'et. T DIF: 2 R F: 1!"1 Analytic #$%: #a&or mar'ets T$(: Applicati+e fficiency wages decrease employee effort. F DIF: 1 R F: Analytic #$%: #a&or mar'ets Interpreti+e fficiency wages decrease employee t*rno+er. T DIF: 1 R F: Analytic #$%: #a&or mar'ets Interpreti+e 1!"2 T$(:
fficiency wages
A&o+e"e=*ili&ri*m wages
1!"2 T$(: A&o+e"e=*ili&ri*m wages
conomic theory of la&or mar'ets s*ggests that wages are go+erned &y la&or s*pply and la&or demand. T DIF: 1 R F: 1!"1 Analytic #$%: #a&or mar'ets T$(: >ages Applicati+e
19
,1.
mpirical e+idence s*ggests that a&ility3 effort3 and chance are not li'ely to &e significant contri&*tors to wage differences. ANS: F DIF: 1 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: >ages )S%: Interpreti+e ,2. Discrimination is a reflection of some people?s pre2*dice against certain gro*ps in society. ANS: T DIF: 1 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: Discrimination )S%: Definitional ,,. Differences in h*man capital among gro*ps of wor'ers is possi&ly a reflection of past discrimination. ANS: T DIF: 1 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: Discrimination )S%: Interpreti+e ,.. Discrimination is an emotionally charged iss*e that is impossi&le to st*dy o&2ecti+ely. ANS: F DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: Discrimination )S%: Interpreti+e ,0. >hen differences in h*man capital among wor'ers lead to discrimination3 the differences are typically a res*lt of social or political processes rather than economic processes. ANS: T DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: Discrimination )S%: Interpreti+e ,1. >hen comparing a+erage wages for &lac' and white wor'ers in the 6nited States3 wages paid to &lac' wor'ers ha+e &een a&o*t 29 percent less than those paid to white wor'ers. ANS: T DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination )S%: Applicati+e ,4. >hen comparing a+erage wages for male and female wor'ers in the 6nited States3 wages paid to females ha+e &een a&o*t .9 percent less than those paid to male wor'ers. ANS: F DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination )S%: Applicati+e ,5. (oliticians often point to a+erage wage differentials as e+idence of la&or"mar'et discrimination against ethnic minorities and women@ howe+er3 economists arg*e against this approach &eca*se they don?t tr*st any of the statistics =*oted &y the politicians. ANS: F DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination )S%: Interpreti+e ,!. (oliticians often point to wage differentials as e+idence of la&or"mar'et discrimination against ethnic minorities and women@ howe+er3 economists arg*e against this approach &eca*se people differ in the 'inds of wor' they are willing and a&le to do. ANS: T DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination )S%: Interpreti+e .9. ANS: NAT: T$(: conomists wo*ld arg*e that the gender wage gap is narrowing &eca*se of efficiency wages. F DIF: 2 R F: 1!"2 < 1!"1 Analytic #$%: #a&or mar'ets #a&or"mar'et discrimination < fficiency wages )S%: Interpreti+e

.1.
11
All differences in wages that are not acco*nted for &y differences in h*man"capital in+estment are li'ely to &e a res*lt of discrimination. ANS: F DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination )S%: Interpreti+e .2. In a la&or mar'et free from discrimination3 wages for wor'ers that are employed &y the same company will still differ. ANS: T DIF: 2 R F: 1!"2 < 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination < /*man capital )S%: Interpreti+e .,. ANS: NAT: )S%: +idence of discrimination is most apparent when one compares wages among &road gro*ps. F DIF: 2 R F: 1!"2 Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination Interpreti+e
... >hen discrimination occ*rs as a res*lt of pre2*dice3 firms do not ma-imiAe profits. ANS: T DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination )S%: Interpreti+e .0. %ons*mers are often a primary so*rce of discrimination in la&or mar'ets. ANS: T DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination )S%: Interpreti+e .1. Discrimination is *s*ally not a profit"ma-imiAing strategy. ANS: T DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets )S%: Interpreti+e .4.
T$(:
Discrimination
$ne e-ample of la&or"mar'et discrimination is that firms may &e less li'ely to inter+iew 2o&"mar'et candidates whose names s*ggest that they are mem&ers of a racial minority. ANS: T DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination )S%: Interpreti+e .5. If people with &l*e eyes earn more than people with &rown eyes3 we ha+e proof of discrimination against people with &rown eyes. ANS: F DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: Discrimination )S%: Interpreti+e .!. (rofit"ma-imiAing3 competiti+e firms will not discriminate in the hiring of wor'ers *nless cons*mers e-ercise a preference for discrimination in prod*ct mar'ets or go+ernments mandate discrimination. ANS: T DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination )S%: Interpreti+e 09. Streetcar owners in the early 29th cent*ry were against segregation for profit ma-imiAing reasons. ANS: T DIF: 2 R F: 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: Discrimination )S%: Interpreti+e 01. ANS: NAT: )S%: -perimental e+idence indicates women choose less competiti+e en+ironments than men. T DIF: 2 R F: 1!"2 Analytic #$%: #a&or mar'ets T$(: Bender differences Interpreti+e
12
1.

ER After grad*ating from college3 yo* recei+e 2o& offers from fi+e different acco*nting firms. All 2o& offers ha+e a different compensation pac'age. Is it irrational for yo* to accept an offer that doesn?t pro+ide the highest le+el of monetary compensationC 6se the concept of compensating differentials to e-plain yo*r answer.
SHORT ANS
ANS: %ompensating differentials refer to differences in 2o& characteristics across different occ*pations. ;*t compensating differentials can also lead to differences in 2o& characteristics within an occ*pation. S*ch considerations may incl*de geographic location and =*ality"of"life iss*es associated with a partic*lar 2o& offer. Th*s3 it is not irrational to consider nonmonetary compensation. DIF: 2 R F: #$%: #a&or mar'ets )S%: Analytical 2. 1!"1 NAT: Reflecti+e T$(: %ompensating differentials
The National %ollegiate Athletic Association DN%AAE has long arg*ed that nationally"prominent college athletes are compensated with an in+estment in h*man capital that far e-ceeds the monetary reward of playing professional sports. -amine this arg*ment in light of yo*r 'nowledge of h*man capital theory and the economic theory of la&or mar'ets.
ANS: )any economists wo*ld arg*e that the N%AA is the most e-ploitati+e organiAation in the 6nited States3 considering the +al*e that star st*dent athletes contri&*te to a *ni+ersity. )ost wo*ld arg*e that the ed*cation that star st*dent athletes recei+e is of less +al*e than what the athletes contri&*te. DIF: 2 R F: #$%: #a&or mar'ets )S%: Analytical ,. 1!"1 NAT: Reflecti+e T$(: /*man capital
A recent st*dy of the determinants of wages for clerical staff at a state *ni+ersity fo*nd that years of schooling3 years of e-perience3 age and 2o& characteristics only e-plained a&o*t one"half of the difference in wages. Descri&e other factors that may &e important in e-plaining wages differences for clerical staff.
ANS: $ther factors may incl*de gender3 2o& ten*re3 and 2o& responsi&ilities3 a&ility and effort. DIF: 2 R F: #$%: #a&or mar'ets .. 1!"1 NAT: Analytic T$(: >ages )S%: Analytical
-plain the theory that ed*cation acts as a signaling de+ice. /ow does this contrast with the theory of ed*cation as an in+estment in h*man capitalC
ANS: The theory of signaling s*ggests that those who ha+e desira&le 7prod*cti+ity7 characteristics are more li'ely to finish ed*cational programs. The h*man capital theory s*ggests that prod*cti+ity characteristics are enhanced &y the learning that ta'es place in formal ed*cational programs. DIF: 2 R F: #$%: #a&or mar'ets )S%: Definitional 0. 1!"1 NAT: Reflecti+e T$(: /*man capital < Signaling
#ist the prod*cti+ity factors that may e-plain the differences in pay &etween men and women in similar occ*pations. Do any of these factors arise as a res*lt of c*lt*ral or social traditionsC If so3 descri&e how changes in social relationships will affect the pay gap o+er time.
ANS: Fo& e-perience3 ed*cation3 lifetime patterns of wor' e-perience3 etc. The gap sho*ld narrow as the c*lt*ral and social &arriers to female access to prod*cti+ity"enhancing e-periences are red*ced. DIF: 2 R F: #$%: #a&or mar'ets )S%: Analytical 1!"2 NAT: Reflecti+e T$(: #a&or"mar'et discrimination

1. -plain the role of 2o& e-perience in e-plaining the differences &etween the a+erage wages of men and women.
1,
ANS: >omen3 who ha+e primary responsi&ility for ho*sewor' and child"rearing d*ties3 typically ha+e less contin*ity in the la&or force. As s*ch3 there is a difference in the a+erage years of 2o& e-perience &etween men and women. DIF: 2 R F: #$%: #a&or mar'ets )S%: Analytical 4. 1!"2 NAT: Analytic T$(: #a&or"mar'et discrimination
-plain how compensating differentials co*ld contri&*te to differences &etween the a+erage wages of men and women.
ANS: )en and women may3 on a+erage3 select different career paths. If men tend to &e more concentrated in 2o&s that ha+e less desira&le wor'ing conditions3 then compensating differentials can e-plain some of the difference in wages &etween men and women. DIF: #$%: T$(: )S%: 5. 2 R F: 1!"2 < 1!"1 NAT: Analytic #a&or mar'ets #a&or"mar'et discrimination < %ompensating differentials Applicati+e
+al*ate the following statement: 7The gender pay gap pro+ides e+idence of widespread3 se+ere3 ongoing discrimination &y employers and fellow wor'ers.7
ANS: There are many e-planations of the gender pay gap. Some are associated with discrimination &oth &y cons*mers and employers. $thers are not associated with discrimination. -amples of factors that wo*ld e-plain why men earn more than women3 on a+erage3 &*t that are not associated with discrimination incl*de years of la&or"mar'et e-perience3 types of 2o&s3 le+els of h*man capital3 and on"the"2o& training. DIF: 2 R F: #$%: #a&or mar'ets )S%: Analytical !. 1!"2 NAT: Reflecti+e T$(: #a&or"mar'et discrimination
In a recent 6.S. presidential campaign3 a lo&&yist for a prominent national women?s organiAation made the claim that women in the 6nited States earn G9.19 for e+ery G1.99 earned &y a man. A reporter3 who was prepared for this statement3 as'ed the lo&&yist why wages paid to the organiAation?s secretarial staff Dall of whom were womenE were significantly &elow the national a+erage if they were tr*ly interested in raising the rates of compensation for women. If yo* were the lo&&yist3 how wo*ld yo* ha+e answered this =*estionC Do yo* thin' yo*r answer is con+incingC -plain.
ANS: The lo&&yist wo*ld li'ely respond &y citing factors that e-plain wage differences on the &asis of compensating differentials3 ed*cation3 and 2o& e-perience. These arg*ments wo*ld &e con+incing to those who s*&scri&e to the marginal prod*cti+ity theory of compensation. DIF: 2 R F: #$%: #a&or mar'ets )S%: Analytical 1!"2 NAT: Reflecti+e T$(: #a&or"mar'et discrimination
19. -plain the role that cons*mers play in perpet*ating discrimination in la&or mar'ets. ANS: %ons*mers are a&le to e-ercise their &iases when they p*rchase goods and ser+ices. For e-ample3 if cons*mers prefer to ha+e female personal trainers than male personal trainers3 then firms may respond to these preferences &y paying a higher wage to attract female personal trainers. The higher wage paid to women &ased solely on their gender Dor the lower wage paid to male trainers &ased solely on their genderE wo*ld &e an e-ample of discrimination dri+en &y cons*mer preferences. DIF: 2 R F: #$%: #a&or mar'ets )S%: Applicati+e 1!"2 NAT: Analytic T$(: #a&or"mar'et discrimination
1.
11.

-plain why the following sit*ation is li'ely to persist: soccer players in *rope are the highest paid athletes and in the 6S they are among the lowest paid athletes.
ANS: %ons*mers *se personal preferences when they ma'e p*rchases. In this case3 6S cons*mers prefer other sports s*ch as &ase&all3 &as'et&all3 or foot&all o+er soccer. Altho*gh o+er time we wo*ld e-pect a mo+ement together in compensations for athletes in different sports3 the discriminatory preferences of cons*mers allow the gap to persist o+er time. DIF: 2 R F: #$%: #a&or mar'ets )S%: Applicati+e 1!"2 NAT: Analytic T$(: #a&or"mar'et discrimination
Sec !1""Some Determinants o# E$%i&i'ri%m

(ULT)*LE CHO)CE 1. ffecti+e minim*m"wage laws will most li'ely a. increase demand for la&or. &. create a s*rpl*s of la&or. c. increase incomes for all *ns'illed wor'ers. d. decrease incomes for all *ns'illed wor'ers. DIF: 2 R F: #$%: #a&or mar'ets
ages
ANS: ; NAT: Analytic )S%: Applicati+e 2.
1!"1 T$(: A&o+e"e=*ili&ri*m wages
A&o+e"e=*ili&ri*m wages ca*sed &y efficiency wages will most li'ely res*lt in a. a shortage of la&or. &. increased *nemployment. c. compensating wage differentials. d. an decrease in the =*antity of la&or s*pplied. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: A&o+e"e=*ili&ri*m wages
ANS: ; NAT: Analytic )S%: Applicati+e ,.
If we were to o&ser+e a&o+e"e=*ili&ri*m wages in a partic*lar la&or mar'et3 then a possi&le e-planation might &e that a. the theory of efficiency wages holds tr*e for that mar'et. &. there is a powerf*l la&or *nion representing wor'ers in that mar'et. c. wor'ers are largely *ns'illed and8or ine-perienced and minim*m"wage laws are effecti+ely holding wages *p in that mar'et. d. All of the a&o+e are correct. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: A&o+e"e=*ili&ri*m wages
ANS: D NAT: Analytic )S%: Applicati+e ..
>hich of the following statements is not correctC a. Some firms pay wages that are a&o+e the e=*ili&ri*m wage. &. >or'ers sometimes form la&or *nions to p*sh their wages *p. c. >ages ne+er de+iate from the &alance of s*pply and demand in the mar'et for la&or. d. The federal go+ernment mandates that employers pay their wor'ers at least as m*ch as the minim*m wage.
ANS: % DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: >ages < A&o+e"e=*ili&ri*m wages )S%: Interpreti+e 0. >hich of the following is not a conse=*ence of a&o+e"e=*ili&ri*m wages in a la&or mar'etC a. a s*rpl*s of la&or &. *nemployment c. more *nioniAed 2o&s d. All of the a&o+e are conse=*ences of a&o+e"e=*ili&ri*m wages.

ANS: % NAT: Analytic )S%: Analytical 1. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: A&o+e"e=*ili&ri*m wages
10
>hich of the following is the most li'ely o*tcome of minim*m wage lawsC a. an increase in &oth the =*antity of la&or s*pplied &y wor'ers and the =*antity of la&or demanded &y firms &. an increase in the =*antity of la&or s*pplied &y wor'ers and a decrease in the =*antity of la&or demanded &y firms c. a decrease in the =*antity of la&or s*pplied &y wor'ers and an increase in the =*antity of la&or demanded &y firms d. a decrease in &oth the =*antity of la&or s*pplied &y wor'ers and the =*antity of la&or demanded &y firms DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: A&o+e"e=*ili&ri*m wages
ANS: ; NAT: Analytic )S%: Applicati+e Figure 19-1
4.
Re#er to Fig%re 19"1. Some policyma'ers ha+e arg*ed that the go+ernment sho*ld esta&lish a 7li+ing wage.7 A li+ing wage wo*ld pro+ide wor'ers a reasona&le standard of li+ing in their city or region. If a li+ing wage of G19 per ho*r is esta&lished in the mar'et pict*red here3 we wo*ld e-pect a. employment will increase to 1. million. &. employment will decrease to 5 million. c. the wage will act*ally rise to G29 per ho*r. d. there will &e a s*rpl*s of 1. million wor'ers. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: A&o+e"e=*ili&ri*m wages
ANS: ; NAT: Analytic )S%: Analytical 5.
Re#er to Fig%re 19"1. S*ppose the local la&or mar'et was in e=*ili&ri*m to &egin with &*t then the largest local employer decided to change its compensation scheme to G19 as shown. >hich of the following compensation schemes co*ld the graph &e ill*stratingC a. An efficiency wage. &. Discrimination. c. A compensating differential. d. The s*perstar phenomenon.
11

DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: A&o+e"e=*ili&ri*m wages
ANS: A NAT: Reflecti+e )S%: Analytical !.
Re#er to Fig%re 19"1. >hat is the loss associated with wages mo+ing from G5 to G19C a. 2 million 2o&s. &. 1 million 2o&s. c. 5 million 2o&s. d. 1. million 2o&s. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: A&o+e"e=*ili&ri*m wages
ANS: A NAT: Analytic )S%: Analytical Figure 19-2
19.
Re#er to Fig%re 19"+. This fig*re depicts la&or demand and s*pply in a non*nioniAed la&or mar'et. The original e=*ili&ri*m is at point A. If a la&or *nion s*&se=*ently esta&lishes a *nion shop and negotiates an ho*rly wage of G293 then there will &e an e-cess a. s*pply of ,3999 wor'ers. &. demand of 43999 wor'ers. c. s*pply of .3999 wor'ers. d. s*pply of 43999 wor'ers.
ANS: D DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: A&o+e"e=*ili&ri*m wages < 6nions )S%: Analytical 11. Re#er to Fig%re 19"+. This fig*re depicts la&or demand and s*pply in a non*nioniAed la&or mar'et. The original e=*ili&ri*m is at point A. If a la&or *nion s*&se=*ently esta&lishes a *nion shop and negotiates an ho*rly wage of G293 then the employment le+el a. increases from 13999 to 193999. &. increases from ,3999 to 193999. c. decreases from 193999 to ,3999. d. decreases from 13999 to ,3999.

ANS: D DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: A&o+e"e=*ili&ri*m wages < 6nions )S%: Analytical Figure 19-3 The man*fact*ring la&or mar'et.
14
12.
Re#er to Fig%re 19",. S*ppose the man*fact*ring la&or mar'et3 which is non"*nioniAed3 is in e=*ili&ri*m at a wage e=*al to G,9. S*ppose now that the AF#"%I$ Da la&or organiAationE organiAes the wor'ers in the man*fact*ring mar'et and negotiates a wage of G,5 per ho*r. ;eca*se of the *nion3 a. 19 people who were once employed are now *nemployed. &. 29 people who were once employed are now *nemployed. c. .9 people who were once employed are now *nemployed. d. 29 people who were once *nemployed are now employed.
ANS: ; DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: A&o+e"e=*ili&ri*m wages < 6nions )S%: Analytical 1,. Re#er to Fig%re 19",. S*ppose the man*fact*ring la&or mar'et3 which is non"*nioniAed3 is in e=*ili&ri*m at a wage e=*al to G,9. S*ppose now that the AF#"%I$ Da la&or organiAationE organiAes the wor'ers in the man*fact*ring mar'et and negotiates a wage of G,5 per ho*r. After the wor'ers &ecome *nioniAed3 how many wor'ers do man*fact*ring firms collecti+ely hireC a. 1,9 wor'ers &. 109 wor'ers c. 149 wor'ers d. There is not eno*gh information to determine the n*m&er of wor'ers.
ANS: A DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: A&o+e"e=*ili&ri*m wages < 6nions )S%: Analytical 1.. >hich of the following is not an e-ample of efficiency wagesC a. )ore prod*cti+e wor'ers are paid more to reflect their higher o*tp*t. &. /igher wages ind*ce higher o*tp*t from wor'ers. c. ;etter =*ality applicants apply for 2o&s that pay a&o+e"e=*ili&ri*m wages. d. >or'ers are less li'ely to lea+e 2o&s that pay a&o+e"e=*ili&ri*m wages. 1!"1 )S%: Analytical
ANS: A DIF: , R F: NAT: Analytic #$%: #a&or mar'ets T$(: fficiency wages < A&o+e"e=*ili&ri*m wages
15
10.

>hich of the following is tr*e of minim*m"wage lawsC a. They affect s'illed wor'ers: wages. &. They create a&o+e"e=*ili&ri*m wages for some *ns'illed wor'ers. c. They create a shortage of *ns'illed la&or. d. They negati+ely affect the employment of s'illed wor'ers. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: A&o+e"e=*ili&ri*m wages
A difference in wages that arises to offset the nonmonetary characteristics of different 2o&s is 'nown as a. a compensating differential. &. an inefficiency wage. c. the e=*ili&ri*m difference. d. a *nion wage. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: A NAT: Analytic )S%: Definitional 14.
>or'ing in a sla*ghterho*se is m*ch ris'ier and more *npleasant than wor'ing in a &oo'store. As a res*lt3 we?d e-pect a difference in wages &etween the two 2o&s. The difference is 'nown as a. an efficiency wage. &. a compensating differential. c. a wage ad2*stment. d. a minim*m wage. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: ; NAT: Analytic )S%: Definitional 15.
The term 7compensating differential7 refers to a. the fact that wor'ers who do similar wor' sho*ld &e paid the same wage. &. the fact that some wor'ers li+e f*rther from their 2o&s than do other wor'ers. c. a wage difference that is disting*isha&le on the &asis of monetary characteristics. d. a wage difference that arises from nonmonetary characteristics of different 2o&s. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: D NAT: Analytic )S%: Definitional 1!.
A difference in wages that reflects differences in the nonpay feat*res of two 2o&s is called a. a compensating differential. &. a wage ad2*stment. c. an efficiency wage. d. a minim*m wage. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
)any 'indergarten teachers ha+e ad+anced ed*cational degrees3 yet they ha+e lower a+erage earnings that other indi+id*als with similar ed*cational le+els. A potential e-planation for the differences in earnings is that 'indergarten teachers a. ha+e more pleasant wor'ing conditions. &. ha+e less pleasant wor'ing conditions. c. wor' longer ho*rs. d. m*st pass certification tests. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: A NAT: Analytic )S%: Applicati+e

21.
1!
S*ppose that a company hires recent college grad*ates for two types of 2o&s3 sales people and credit analysts. The ho*rs wor'ed and s'ill le+els are the same for &oth positions. The sales people get to tra+el to se+eral desira&le locations3 whereas the credit analysts do not lea+e the home office. >hen comparing the salaries of the two positions3 it is li'ely that the company pays the a. sales people less as a compensating differential. &. credit analysts less as a compensating differential. c. same salary for &oth positions &eca*se they re=*ire the same s'ill le+el. d. same salary for &oth positions &eca*se it wo*ld &e illegal to do otherwise. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: A NAT: Analytic )S%: Interpreti+e 22.
S*ppose that a company hires recent college grad*ates for two types of 2o&s3 sales people and credit analysts. The ho*rs wor'ed and s'ill le+els are the same for &oth positions. The sales people m*st Hcold call3I which many people find to &e *npleasant. >hen comparing the salaries of the two positions3 it is li'ely that the company pays the a. credit analysts more as a compensating differential. &. sales people more as a compensating differential. c. same salary for &oth positions &eca*se they re=*ire the same s'ill le+el. d. same salary for &oth positions &eca*se it wo*ld &e illegal to do otherwise. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: ; NAT: Analytic )S%: Interpreti+e 2,.
>or'ers who wor' the night shift are often paid more than those who do identical wor' on the day shift. This is referred to as a a. discriminatory wage practice. &. compensating differential. c. wage ine=*ity. d. a mar'et inefficiency. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: ; NAT: Analytic )S%: Definitional 2..
Factory wor'ers who wor' the day shift earn less per ho*r than similarly"s'illed factory wor'ers who wor' on the night shift. The difference in pay is attri&*ted to a. the marginal prod*ct of la&or. &. the marginal prod*ct of capital. c. diminishing marginal ret*rns. d. a compensating differential. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: D NAT: Analytic )S%: Applicati+e 20.
The statement that 7night shift wor'ers ma'e a higher wage than day shift wor'ers7 is li'ely to reflect the fact that a. most people?s preference is to wor' the day shift. &. some people prefer to wor' a night shift for nonmonetary reasons. c. night shift 2o&s are generally more technically diffic*lt. d. more women than men wor' the night shift. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
>age differences that can?t &e e-plained &y the n*m&er of years of training co*ld res*lt from a. demand &*t not s*pply. &. s*pply &*t not demand. c. compensating differentials. d. the marginal prod*ct of capital.
29

DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: % NAT: Analytic )S%: Definitional 24.
If a wor'er is indifferent &etween a 2o& with a wage of G12 per ho*r and a 2o& with a wage of G10 per ho*r3 then the a. higher"paying 2o& has a compensating wage differential of G, per ho*r. &. higher"paying 2o& has a compensating wage differential of G10 per ho*r. c. higher"paying 2o& is intrinsically more attracti+e than the lower"paying 2o&. d. wor'er?s preferences are not rational. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
$n a+erage3 electricians who wor' on dangero*s high"+oltage power lines earn more per ho*r than similarly s'illed electricians who don?t wor' on dangero*s high"+oltage power lines. The difference in pay is attri&*ted to a. the marginal prod*ct of la&or. &. the marginal prod*ct of capital. c. diminishing marginal ret*rns. d. a compensating differential. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: D NAT: Analytic )S%: Applicati+e 2!.
The statement that 7coal miners are paid more than wor'ers with similar le+els of ed*cation7 is li'ely to reflect the fact that a. coal mining is a declining ind*stry. &. coal mining 2o&s are potentially more dangero*s than 2o&s with compara&le ed*cation re=*irements. c. all coal mines *se *nion la&or. d. coal e-ports are rising. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: ; NAT: Analytic )S%: Interpreti+e ,9.
$ther things e=*al3 a partic*lar 2o& will li'ely pay a higher wage if it in+ol+es a. danger to the wor'er. &. personal en2oyment for the wor'er. c. intellect*al stim*lation for the wor'er. d. All of the a&o+e are correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: A NAT: Analytic )S%: Interpreti+e ,1.
(ar' rangers at Jellowstone National (ar' are 'nown to ha+e low wages. This is pro&a&ly &eca*se a. par' rangers are re=*ired to &e college grad*ates. &. par' rangers don?t need m*ch money to li+e. c. par' ranger 2o&s are percei+ed to &e dangero*s. d. par' ranger 2o&s are percei+ed to &e 7f*n.7 DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: D NAT: Analytic )S%: Interpreti+e ,2.
>hich of the following comparisons &est ill*strates a compensating differentialC a. Fohn?s wage is higher than Fane?s &eca*se the +al*e of Fohn?s marginal prod*ct is higher than Fane?s. &. ;eth?s wage is higher than ;ill?s &eca*se ;eth is +ery persona&le3 and ;ill is +ery gr*ff. c. Karl?s wage is higher than Kay?s &eca*se Karl?s 2o& may ca*se long"term health pro&lems3 and Kay?s 2o& will not impair her health. d. All of the a&o+e are good ill*strations of compensating differentials.

ANS: % NAT: Reflecti+e )S%: Interpreti+e ,,. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
21
(*&lic school teachers are 'nown to ha+e low wages. This is pro&a&ly &eca*se a. p*&lic school teacher 2o&s are easy. &. p*&lic school teachers are re=*ired to &e college grad*ates. c. p*&lic school teachers need +ery little money to li+e. d. many people percei+e the 2o& of p*&lic school teacher to ha+e a high element of personal satisfaction. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: D NAT: Analytic )S%: Interpreti+e ,..
A pl*m&er who specialiAes in cleaning pl*gged sewer lines is typically paid a higher wage than a pl*m&er who wor's on installing water systems in new residential ho*sing. This can &e partially e-plained &y the fact that a. pl*m&ers who wor' with sewer lines re=*ire years of specialiAed training. &. pl*m&ing 2o&s that in+ol+e sewer lines are li'ely to ha+e an element of personal satisfaction. c. pl*m&ers who wor' with sewer lines are more li'ely to wor' a standard shift. d. pl*m&ers who wor' with sewer lines are li'ely to &e percei+ed as ha+ing a 7dirty7 2o&. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
The 2o& of night watchman at the (*n-s*tawny (hil Bro*ndhog m*se*m is 'nown to ha+e a high wage. This can &e partially e-plained &y the fact that the 2o& is li'ely to a. re=*ire specialiAed s'ills. &. &e diffic*lt. c. &e incredi&ly d*ll. d. ha+e minimal ris' of in2*ry. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: % NAT: Analytic )S%: Interpreti+e ,1.
(rofessional *nderwater di+ers are 'nown to ha+e high wages and wor' an a+erage of only 29 ho*rs per wee'. The high wages are partially e-plained &y the fact that the 2o& is li'ely a. to &e +ery d*ll. &. to &e f*n. c. to &e +ery dangero*s. d. to re=*ire a college degree. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
ANS: % NAT: Analytic )S%: Interpreti+e ,4.
Ass*ming that all other things are e=*al3 incl*ding the wage3 which of the following statements is correctC a. The =*antity of la&or s*pplied for easy 2o&s e-ceeds that for diffic*lt 2o&s. &. The =*antity of la&or s*pplied for f*n 2o&s e-ceeds that for d*ll 2o&s. c. The =*antity of la&or s*pplied for safe 2o&s e-ceeds that for dangero*s 2o&s. d. All of the a&o+e are correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: %ompensating differentials
Store cler's are 'nown to ha+e low wages. This is li'ely to &e reflect the fact that a. store cler' 2o&s are percei+ed to &e relati+ely easy3 th*s attracting low"s'ill wor'ers. &. store cler' 2o&s are percei+ed to &e relati+ely diffic*lt3 th*s attracting high"s'ill wor'ers.. c. many people percei+e the 2o& of store cler' as ha+ing significant ris' of death on the 2o&. d. store cler's are re=*ired to ha+e a college degree.
22

1!"1 )S%: Interpreti+e
ANS: A DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < %ompensating differentials
Scenario 19-1 Ferris ;.3 a st*dent at a comm*nity college3 is considering what he sho*ld do for s*mmer employment. Two recr*iters show *p at his school in search of s*mmer wor'ers. Recr*iter A is loo'ing for lifeg*ards to patrol the &each at an e-cl*si+e island resort in the %ari&&ean. Recr*iter ; is loo'ing for wor'ers to staff positions at a s*mmer yo*th camp. ,!. Re#er to Scenario 19"1. Ferris is caref*lly considering the options that each recr*iter presents. $n the &asis of 'nowledge o&tained in his economics class3 Ferris concl*des that a. wages are *nli'ely to &e affected &y 2o& re=*irements. &. since the lifeg*ard 2o& wo*ld e-pose him to a threat of s'in cancer3 the wage will &e low. c. if the lifeg*ard 2o& has a re=*irement for special training or certification3 the wage offer will &e higher than otherwise. d. if the lifeg*ard 2o& also re=*ires a willingness to clean p*&lic restrooms3 the wage offer will &e lower than otherwise. 1!"1 )S%: Interpreti+e
ANS: % DIF: 2 R F: NAT: Reflecti+e #$%: #a&or mar'ets T$(: /*man capital < %ompensating differentials .9.
Re#er to Scenario 19"1. Ferris is caref*lly considering the options that each recr*iter presents. $n the &asis of 'nowledge o&tained in his economics class3 Ferris concl*des that a. the lifeg*ard 2o& will &e more f*n than the s*mmer camp 2o&3 so the wage for that 2o& will &e higher than otherwise. &. if the s*mmer camp 2o& doesn?t re=*ire any special s'ills3 the wage for that 2o& will &e lower than otherwise. c. since the s*mmer camp 2o& re=*ires some night shift wor'3 the wage for that 2o& will &e lower than otherwise. d. All of the a&o+e are correct. 1!"1 )S%: Interpreti+e
ANS: ; DIF: 2 R F: NAT: Reflecti+e #$%: #a&or mar'ets T$(: /*man capital < %ompensating differentials .1.
;ill and (hil are identical twins who attended grammar school thro*gh college together. ;ill too' a 2o& as an engineer who does not ha+e to tra+el o*t of the state. (hil too' a 2o& as an engineer who m*st tra+el o*t of state once a wee'. ;ill earns G1903999 a year3 and (hil earns G1503999 a year. Select the &est e-planation for this wage difference. a. (hil has more h*man capital relati+e to ;ill. &. (hill has less h*man capital relati+e to ;ill. c. (hil recei+es a higher wage to compensate for the disagreea&le nat*re of &*siness tra+el. d. ;ill:s lower salary s*pports the signaling theory of ed*cation.
ANS: % DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: %ompensating differentials < /*man capital < Signaling .2.
)S%: Applicati+e
Fo and Flo are identical twins who attended grammar school thro*gh high school together. Fo got a 2o& after high school3 and Flo got a 2o& after grad*ating from college. Fo earns G,13999 a year3 and Flo earns G1!3999 a year. Select the &est e-planation for this wage difference. a. Fo has less h*man capital than Flo. &. Flo has less h*man capital than Fo. c. Fo has recei+ed a compensating differential d. Flo has recei+ed a compensating differential. 1!"1 )S%: Applicati+e
ANS: A DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < %ompensating differentials
2,
Scenario 19-2 Tra+is3 a st*dent at a comm*nity college3 is considering what he sho*ld do for s*mmer employment. Two recr*iters show *p at his school in search of s*mmer wor'ers. Recr*iter A is loo'ing for wor'ers to help a disaster relief agency distri&*te food aid in Africa. Recr*iter ; is loo'ing for c*stodial help to clean motel rooms in a motel located near the entrance to a famo*s national par'. .,. Re#er to Scenario 19"+. Tra+is is caref*lly considering the options that each recr*iter presents. $n the &asis of 'nowledge o&tained in his economics class3 Tra+is concl*des that a. if the 2o& in Africa has a lot of 2o& satisfaction3 the wage will &e higher. &. if the 2o& in Africa has a lot of 2o& satisfaction3 the wage will &e lower. c. if the 2o& cleaning motel rooms is disagreea&le3 the wage will &e lower. d. if the 2o& cleaning motel rooms is agreea&le3 the wage will &e higher. 1!"1 )S%: Interpreti+e
ANS: ; DIF: 2 R F: NAT: Reflecti+e #$%: #a&or mar'ets T$(: /*man capital < %ompensating differentials ...
Re#er to Scenario 19"+. Tra+is is caref*lly considering the options that each recr*iter presents. $n the &asis of 'nowledge o&tained in his economics class3 Tra+is concl*des that a. if the motel 2o& also re=*ires an a&ility to do general pl*m&ing repairs3 the wage offer will &e higher than otherwise. &. if the food distri&*tion 2o& has a re=*irement for special training or certification3 the wage offer will &e lower than otherwise. c. if the food distri&*tion 2o& e-poses him to the &ola +ir*s3 the wage will &e low. d. if the motel 2o& in+ol+es s*&stantial amo*nts of dri+ing for s*pplies3 the wage offer will &e lower than otherwise. 1!"1 )S%: Interpreti+e
ANS: A DIF: 2 R F: NAT: Reflecti+e #$%: #a&or mar'ets T$(: /*man capital < %ompensating differentials .0.
Re#er to Scenario 19"+. Tra+is is caref*lly considering the options that each recr*iter presents. $n the &asis of 'nowledge o&tained in his economics class3 Tra+is concl*des that a. if the motel 2o& re=*ires some night shift wor'3 wages will &e lower than otherwise. &. the 2o& that is more f*n will ha+e a higher wage. c. if the motel 2o& doesn?t re=*ire any special s'ills3 the wage offer will &e lower than otherwise. d. All of the a&o+e are correct. 1!"1 )S%: Interpreti+e
ANS: % DIF: 2 R F: NAT: Reflecti+e #$%: #a&or mar'ets T$(: /*man capital < %ompensating differentials .1.
A difference in wages &etween a highly"ed*cated wor'er and a less"ed*cated wor'er is a. a compensating differential for the cost of &ecoming ed*cated. &. a signal that the mar'et is indifferent to a wor'er?s le+el of h*man capital. c. considered *nfair &y economists. d. considered *nfair &y e+eryone. 1!"1 )S%: Interpreti+e
ANS: A DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < %ompensating differentials .4.
%oal mining is a dangero*s and dirty 2o&. S*ppose someone de+eloped new machinery that made coal mining safer and cleaner@ at the same time3 it made coal miners more prod*cti+e. >e wo*ld e-pect that the wages of coal miners wo*ld a. rise. &. fall. c. stay e-actly the same. d. rise3 fall3 or stay the same. 1!"1 )S%: Applicati+e
ANS: D DIF: , R F: NAT: Analytic #$%: #a&or mar'ets T$(: %ompensating differentials < /*man capital
2.
.5.

Fa'e and ;ill are &oth college grad*ates. Fa'e is a patrolman and ;ill is a detecti+e in the same police precint. >hile Fa'e:s 2o& is inherently more dangero*s than ;ill:s3 ;ill passed a diffic*lt e-am to gain promotion to detecti+e. ;ill earns more than Fa'e &eca*se a. of a compensating differential. &. of efficiency wages. c. of ed*cation as a signal. d. ;ill has more h*man capital.
ANS: D DIF: , R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < Signaling < %ompensating differentials .!.
)S%: Applicati+e
>hich theory is s*pporti+e of the idea that increasing ed*cational le+els for all wor'ers wo*ld raise all wor'ers? prod*cti+ity and therefore their wagesC a. the theory of compensating differentials &. the efficient"mar'et hypothesis c. h*man"capital theory d. signaling theory
ANS: % DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < Signaling < %ompensating differentials 09.
)S%: Interpreti+e
First grade teachers who wor' in #ynn3 )assach*setts Da large3 low income city north of ;ostonE p*&lic schools earn more than first grade teachers who wor' in pri+ate schools in more affl*ent comm*nities north of ;oston. #ynn teachers &elong to a teachers? *nion. >hich statement &est e-plains the scenario descri&ed a&o+eC a. #ynn school teachers recei+e a compensating differential &eca*se they wor' in a more diffic*lt en+ironment3 and they recei+e higher than mar'et e=*ili&ri*m wages &eca*se they are mem&ers of a teachers? *nion. &. #ynn school teachers recei+e a compensating differential &eca*se they wor' in a more diffic*lt en+ironment3 &*t they do not recei+e higher than mar'et e=*ili&ri*m wages &eca*se they are mem&ers of a teachers? *nion. c. #ynn school teachers do not recei+e a compensating differential &eca*se they wor' in a more diffic*lt en+ironment3 &*t they do recei+e higher than mar'et e=*ili&ri*m wages &eca*se they are mem&ers of a teachers? *nion. d. #ynn school teachers do not recei+e a compensating differential &eca*se they wor' in a more diffic*lt en+ironment3 and they do not recei+e higher than mar'et e=*ili&ri*m wages &eca*se they are mem&ers of a teachers? *nion. 1!"1 )S%: Applicati+e
ANS: A DIF: 2 R F: NAT: Reflecti+e #$%: #a&or mar'ets T$(: %ompensating differentials < 6nions 01.
>hich of the following factors affects the marginal prod*cti+ity of a wor'erC a. /*man capital. &. The wor'er:s disposa&le income. c. %ompensating wage differentials. d. Discrimination &ased on age3 race3 or gender. A DIF: , R F: 1!"1 < 1!"2 Analytic #$%: #a&or mar'ets /*man capital < #a&or"mar'et discrimination < %ompensating differentials Interpreti+e
ANS: NAT: T$(: )S%:

02. >hich of the following statements is not correctC a. If the signaling theory of ed*cation is correct3 additional schooling does not affect wor'er prod*cti+ity &*t rather signals a correlation &etween nat*ral a&ility and ed*cation. &. The theory of efficiency wages s*ggests that firms pay higher wages to wor'ers in order to ind*ce wor'ers to &e more prod*cti+e. c. Discrimination against wor'ers of a certain race or ethnicity is often in conflict with a firm?s desire to ma-imiAe profits. d. The theory of compensating wage differentials reflects the different s'ills3 a&ilities3 and prod*cti+ity of wor'ers. D DIF: , R F: 1!"1 < 1!"2 Reflecti+e #$%: #a&or mar'ets %ompensating differentials < Signaling < fficiency wages < #a&or"mar'et discrimination Analytical
20
ANS: NAT: T$(: )S%: 0,.
>hich of the following statements does not acc*rately descri&e the mar'et for la&orC a. The characteristics of wor'ers3 s*ch as their ed*cation and e-perience3 the characteristics of 2o&s3 s*ch as their pleasantness or *npleasantness3 and the presence or a&sence of discrimination &y employers all determine e=*ili&ri*m wages. &. #a&or *nions3 minim*m wage laws3 and efficiency wages all may increase wages a&o+e their e=*ili&ri*m le+el. c. Firms are willing to pay more for &etter"ed*cated wor'ers as long as there is an e-cess s*pply of this type of wor'er. d. Discrimination &y employers against a gro*p of wor'ers may artificially lower wages for that gro*p. % DIF: 2 R F: 1!"1 < 1!"2 Reflecti+e #$%: #a&or mar'ets >ages < %ompensating differentials < 6nions < #a&or"mar'et discrimination Analytical
ANS: NAT: T$(: )S%: 0..
>hich term do economists *se to refer to a difference in wages that arises from nonmonetary characteristics of different 2o&sC a. non"pec*niary differentials &. compensating differentials c. f*ndamental differences d. idiosyncratic differences
ANS: ; DIF: 1 R F: 1!"1 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: %ompensating differentials )S%: Definitional 00. Fo&s that in+ol+e pleasant wor'3 as opposed to 2o&s that in+ol+e *npleasant wor'3 *s*ally pay a. higher wages3 &eca*se 2o&s that in+ol+e pleasant wor' typically re=*ire more ed*cation than do 2o&s that in+ol+e *npleasant wor'. &. higher wages3 &eca*se 2o&s that in+ol+e pleasant wor' typically re=*ire more well"de+eloped personality s'ills than do 2o&s that in+ol+e *npleasant wor'. c. lower wages3 &eca*se wor'ers typically are not attracted to 2o&s that in+ol+e *npleasant wor' *nless there is a monetary ind*cement. d. lower wages3 &eca*se wor'ers who ta'e 2o&s that in+ol+e *npleasant wor' typically stay in those 2o&s for relati+ely long periods of time and acc*m*late significant e-perience.
ANS: % DIF: 1 R F: 1!"1 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: %ompensating differentials )S%: Interpreti+e 01. >ho among the following indi+id*als most li'ely e-periences the largest nonmonetary reward as a s*pplier of la&orC Ass*me all of the fo*r indi+id*als ha+e the same le+el of ed*cation and wor' the same n*m&er of ho*rs per wee'. a. Al&ert3 who prefers to &e aro*nd other people &*t who wor's at home &y himself &. Amy3 whose 2o& pro+ides little intellect*al and personal satisfaction c. Antoinette3 whose preference is to a+oid dangero*s wor' &*t who wor's as a firefighter d. Arnold3 who wor's the night shift and prefers to wor' at night and sleep d*ring the day
21
ANS: D DIF: , R F: 1!"1 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: %ompensating differentials )S%: Applicati+e 04. >hich of the following theories e-plains why increased ed*cation translates into higher wagesC a. h*man"capital theory &. the theory of compensating differentials c. the theory of s*pply and demand d. comparati+e ad+antage
ANS: A DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: Signaling < /*man capital < %ompensating differentials 05.
)S%: Interpreti+e
>hich of the following is an economic e-planation for the 7&ea*ty premi*m7C a. mployers pay +ery attracti+e women less than a+erage"loo'ing women &eca*se they &elie+e them to &e less intelligent. &. mployers pay a&o+e"a+erage"loo'ing men more than a&o+e"a+erage"loo'ing women. c. mployers pay a&o+e"a+erage"loo'ing women more than a+erage"loo'ing women &eca*se c*stomers prefer to deal with &etter"loo'ing women. d. mployers pay a&o+e"a+erage"loo'ing men more &eca*se they signal to the mar'et that they are willing to spend more money on personal grooming3 a sign of wealth and sta&ility. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: ;ea*ty premi*m
ANS: % NAT: Analytic )S%: Interpreti+e 0!.
The 7&ea*ty premi*m7 can &e e-plained &y the fact that a. marginal prod*cti+ity in all occ*pations has a physical dimension. &. in some occ*pations3 physical attracti+eness of wor'ers may enhance the +al*e of their marginal prod*ct. c. &ea*ty acts as an implicit signal of innate intelligence. d. &ea*tif*l people are li'ely to reflect 7good &reeding.7 DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: ;ea*ty premi*m
ANS: ; NAT: Analytic )S%: Interpreti+e 19.
>hich of the following does not e-plain the 7&ea*ty premi*m7 differences in wagesC a. ;etter"loo'ing people are preferred &y c*stomers@ th*s3 employers will pay them higher wages than a+erage"loo'ing people. &. (eople who pro2ect an attracti+e personal appearance may &e more intelligent than a+erage"loo'ing people@ th*s3 employers will pay them higher wages than a+erage"loo'ing people. c. A+erage"loo'ing people are preferred &y c*stomers@ th*s3 employers will pay them higher wages than &etter"loo'ing people. d. mployers discriminate in fa+or of &etter"loo'ing people. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: ;ea*ty premi*m
ANS: % NAT: Analytic )S%: Interpreti+e 11.
>hich of the following e-plains the 7&ea*ty premi*m7 differences in wagesC a. (eople who spend time on their personal appearance may send a signal that they are more prod*cti+e wor'ers. &. (ersonal appearance and intelligence are in+ersely related. c. The Hs*perstar phenomenonI e-plains the H&ea*ty premi*m.I d. ;etter"loo'ing people are more efficient@ th*s3 they are paid an efficiency wage. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: ;ea*ty premi*m
ANS: A NAT: Analytic )S%: Interpreti+e

12. >hich of the following e-plains the +ast differences in earnings in the 6nited StatesC a. a&ility3 effort3 and chance &. compensating differentials c. physical attracti+eness d. All of the a&o+e are correct. 1!"1 )S%: Interpreti+e
24
ANS: D DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: %ompensating differentials3 ;ea*ty premi*m 1,.
>hich of the following is not an e-planation for why &etter ed*cated wor'ers earn more3 on a+erage3 than less ed*cated wor'ersC a. The higher wages may &e a compensating differential for the cost of ac=*iring the ed*cation. &. >or'ers with a college degree signal their higher a&ilities to potential employers. c. S'illed la&or is increasingly &ecoming a s*&stit*te for *ns'illed la&or3 which raises the earnings of wor'ers with more ed*cation. d. ;etter ed*cated wor'ers are more prod*cti+e3 on a+erage.
ANS: % DIF: 2 R F: 1!"1 NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital3 Signaling3 %ompensating differentials 1..
)S%: Interpreti+e
The acc*m*lation of in+estments in people3 s*ch as ed*cation and on the 2o& training3 is 'nown as a. physical capital. &. h*man capital. c. efficiency wage. d. a *nion. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: ; NAT: Analytic )S%: Definitional 10.
>hich of the following is an e-ample of h*man capitalC a. )achines &*ilt &y people. &. Formal ed*cation ac=*ired in schools. c. $n"the"2o& training. d. ;oth & and c are correct. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: D NAT: Analytic )S%: Definitional 11.
/*man capital is a. an important determinant of wages3 &*t it does not affect the prod*ction of goods and ser+ices. &. an important determinant of wages3 and it affects the prod*ction of goods and ser+ices. c. a specific type of physical capital made &y h*mans rather than machines. d. +ery different from physical capital in that physical capital represents an in+estment3 while h*man capital does not represent an in+estment. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
In recent years3 the ratio of earnings of the typical 6.S. college grad*ate to the earnings of the typical high school grad*ate witho*t additional ed*cation has a. risen as the demand for s'illed la&or has increased relati+e to the demand for *ns'illed la&or. &. risen as the demand for s'illed la&or has decreased relati+e to the demand for *ns'illed la&or. c. fallen as the demand for s'illed la&or has increased relati+e to the demand for *ns'illed la&or. d. fallen as the demand for s'illed la&or has decreased relati+e to the demand for *ns'illed la&or. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: A NAT: Analytic )S%: Interpreti+e
25
15.

The time spent &y st*dents in college a. leads to lower lifetime earnings &eca*se opport*nity costs are high. &. is an in+estment in h*man capital. c. decreases h*man capital &y lowering wor' e-perience. d. increases as the wages paid to low"s'illed wor'ers rise. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: ; NAT: Analytic )S%: Definitional 1!.
Fill is the &est eye s*rgeon in town3 and she earns G,093999 a year. S*san is an a+erage eye s*rgeon in town3 and she earns G1993999 a year. Fill?s s'ills as a s*rgeon a. are +al*ed more &y the mar'et relati+e to S*san?s and that e-plains why her income is higher than S*san?s. &. are +al*ed less &y the mar'et relati+e to S*san?s and that e-plains why her income is higher than S*san?s. c. are +al*ed less &y the mar'et relati+e to S*san?s and that e-plains why her income is lower than S*san?s. d. are more e-pensi+e &eca*se she recei+es a compensating differential. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
(hilip is an a+erage contractor in town3 and he earns G.93999 a year. ;illy is the &est contractor in town3 and he earns G.593999 a year. (hilip?s contracting ser+ices a. are +al*ed more &y the mar'et relati+e to ;illy?s and that e-plains why his income is higher than ;illy?s. &. are +al*ed less &y the mar'et relati+e to ;illy?s and that e-plains why his income is higher than ;illy?s. c. are +al*ed less &y the mar'et relati+e to ;illy?s and that e-plains why his income is lower than ;illy?s. d. are more e-pensi+e &eca*se he recei+es a compensating differential. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
In general3 the higher a person?s ed*cation le+el3 a. the higher the person?s earnings. &. the more physically attracti+e the person is li'ely to &e. c. the more socially o*tgoing the person is li'ely to &e. d. All of the a&o+e are correct. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: A NAT: Analytic )S%: Analytical 42.
The &elief that ed*cation ma'es a person more prod*cti+e and there&y raises his or her wage is referred to as the a. compensating"differential +iew of ed*cation. &. nat*ral"a&ility +iew of ed*cation. c. *nmeas*red"+aria&les +iew of ed*cation. d. h*man"capital +iew of ed*cation. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: D NAT: Analytic )S%: Definitional 4,.
>hich of the following is the most important contri&*tor to h*man capitalC a. ed*cation &. effort c. chance d. physical strength

ANS: A NAT: Analytic )S%: Definitional 4.. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
2!
A recent law school grad*ate is considering two offers to practice law3 one in %alifornia and one in Ala&ama. The %alifornia &ar e-am is +ery diffic*lt to pass3 in part &eca*se %alifornia has a large n*m&er of *naccredited law schools. Ass*ming all other things e=*al3 the attorney wo*ld e-pect a. to &e *na&le to predict the wage difference &etween Ala&ama and %alifornia. &. to ma'e a higher wage in %alifornia. c. to ma'e a higher wage in Ala&ama. d. wages in %alifornia and Ala&ama to &e identical. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
>hich of the following wo*ld &e considered an in+estment in h*man capitalC a. ed*cation &. a teacher?s &lac'&oard c. the p*rchase of a new comp*ter to enhance la&or prod*cti+ity d. All of the a&o+e are correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
-pendit*res on h*man capital a. reflect an e-pectation of some f*t*re ret*rn on the in+estment. &. are generally em&odied in a specific indi+id*al. c. reflect an in+estment of reso*rces today to raise prod*cti+ity in the f*t*re. d. All of the a&o+e are correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: D NAT: Analytic )S%: Analytical 44.
The ownership of h*man capital a. is typically em&odied in related physical capital. &. may &e s*&2ect to go+ernment restrictions on transfera&ility. c. is not easily transfera&le. d. All of the a&o+e are correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
The ret*rn to in+estment in h*man capital is o&ser+ed a. only when wor'ers are assigned identical tas's. &. in the wage differential &etween wor'ers. c. in the high school dropo*t rate in inner"city *r&an school districts. d. in the low wages of ed*cated factory wor'ers. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: ; NAT: Analytic )S%: Applicati+e 4!.
(eople are willing to in+est in h*man capital &eca*se a. the demand for s'illed la&or is higher than for *ns'illed la&or. &. it increases the marginal prod*ct of their la&or. c. firms are willing to pay more for more prod*cti+e wor'ers. d. All of the a&o+e are correct. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: D NAT: Analytic )S%: Interpreti+e
,9
59.

A prestigio*s pri+ate high school re=*ires each of its teachers to ha+e a (h.D. in the s*&2ect they teach. This re=*irement is li'ely to a. increase the s*pply of teachers to this school. &. increase wages for teachers at the pri+ate school relati+e to those at p*&lic schools. c. decrease the marginal prod*ct of teachers at the pri+ate school. d. All of the a&o+e are correct. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
>hen an employer pays the cost of ed*cating a wor'er3 it is li'ely that the employer a. is demonstrating altr*istic moti+es. &. is p*rs*ing some o&2ecti+e other than profit"ma-imiAation. c. hopes to recapt*re its in+estment in the form of increased la&or prod*cti+ity. d. recei+es reim&*rsement from the go+ernment for the cost of the ed*cation. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: % NAT: Analytic )S%: Applicati+e 52.
The wage difference &etween 2o&s that re=*ire ed*cation and those that don?t a. is not li'ely to &e related to prod*cti+ity differences. &. is a &arrier to o&taining an ed*cation. c. does not affect the s*pply of wor'ers in the different la&or mar'ets. d. enco*rages wor'ers to &ear the cost of ac=*iring ed*cation. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: D NAT: Analytic )S%: Applicati+e 5,.
The Asian De+elopment ;an' has &een in+esting in ed*cation and training programs in the de+eloping economies of Asia o+er the last fi+e years. As a res*lt of this in+estment3 economists who adhere to the h*man capital +iew of ed*cation wo*ld predict a. rising wages as la&or prod*cti+ity is enhanced. &. falling wages as the la&or mar'et is sat*rated with too many ed*cated wor'ers. c. the marginal prod*cti+ity of capital wo*ld not &e affected. d. the marginal prod*cti+ity of la&or wo*ld not &e affected. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: A NAT: Analytic )S%: Applicati+e 5..
The difference in wages paid to ma2or"leag*e &ase&all players and minor"leag*e &ase&all players is most li'ely d*e to a. chance. &. nat*ral a&ility. c. the fact that the players? *nion is strong. d. a compensating differential. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
A compensation scheme that pays salespeople a percentage of the sales they ma'e is attempting to reward a. wor' effort. &. loyalty to the firm. c. years of schooling. d. years of e-perience. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: A NAT: Analytic )S%: Analytical

51. >or'ers whose s'ills &ecome o&solete as a res*lt of technological change are often paid a lower wage as a res*lt of a. nat*ral a&ility. &. geographic location of employment. c. chance. d. wor' effort. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
,1
ANS: % NAT: Analytic )S%: Analytical 54.
conomists who st*dy la&or mar'ets ha+e disco+ered that a. only a&o*t 0 percent of wage differences are related to chance. &. a&ility is not diffic*lt to meas*re &*t is largely insignificant in e-plaining wage differences. c. wor' effort is diffic*lt to meas*re &*t is not li'ely to contri&*te m*ch to an e-planation of wage differences. d. a&ility3 effort3 and chance are li'ely to &e significant contri&*tors to wage differences. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: D NAT: Analytic )S%: Interpreti+e 55.
In empirical analyses of factors that help e-plain wages3 a. effort and a&ility are not li'ely to contri&*te to large differences in wages in the 6.S. economy. &. economists typically find that meas*ra&le factors e-plain less than half of the +ariation in wages. c. economists typically find few factors that are not e-plicitly meas*ra&le. d. *nmeas*ra&le infl*ences on wage differences are fo*nd to &e =*ite small. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: ; NAT: Analytic )S%: Interpreti+e 5!.
>hich of the following statements is tr*e of wages3 ed*cational attainment3 and genderC a. )ale wor'ers are compensated for attending college3 while female wor'ers generally are not. &. Female wor'ers are compensated for attending college3 while male wor'ers generally are not. c. ;oth genders recei+e a higher wage for attending college. d. Neither gender recei+es a higher wage for attending college. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: % NAT: Analytic )S%: Applicati+e !9.
>hy do ma2or"leag*e &ase&all players get paid more than minor"leag*e playersC a. )a2or"leag*e players are &etter athletes. &. The higher wage reflects a compensating differential. c. (laying in the ma2or leag*es in more pleasant then playing in the minor leag*es. d. The higher wage is often d*e to ed*cational discrepancies. DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: A NAT: Analytic )S%: Interpreti+e !1.
>hich of the following statements correctly identifies the shift in employment in the man*fact*ring sector in the 6nited StatesC a. In the 1!.9s3 a&o*t 19 percent of American wor'ers were employed in the man*fact*ring sector. &. Today3 a&o*t ,9 percent of American wor'ers are employed in the man*fact*ring sector. c. The decline in 2o&s in the man*fact*ring sector mirrors a pre+io*s decline in employment in the 6.S. agric*lt*ral sector. d. ;oth a and & are correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: % NAT: Analytic )S%: Interpreti+e
,2
!2.

The n*m&er of American wor'ers employed in the man*fact*ring sector has a. declined from ,9 percent in the 1!.9s to 19 percent today. &. increased from 19 percent in the 1!.9s to ,9 percent today. c. declined3 which has contri&*ted to the decline in glo&al ind*strial o*tp*t. d. increased more rapidly than the increase in farming 2o&s. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: A NAT: Analytic )S%: Interpreti+e !,.
>hich of the following statements is not correctC a. The 6.S. is e-periencing an increase in the types of 2o&s where wor'ers identify and sol+e new pro&lems. The wages for these 2o&s are also rising. &. The 6.S. is e-periencing an increase in personal ser+ice 2o&s. The wages for these 2o&s are also rising. c. Technological ad+ancements ha+e replaced many ro*tine 2o&s s*ch as &an' tellers and telephone operators. d. )an*fact*ring employment has decreased world"wide. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: ; NAT: Analytic )S%: Analytical !..
;ased on the widening income gap &etween Hpersonal"ser+iceI wor'ers and Hsym&olic analysts3I a. America is li'ely to lose e+en more man*fact*ring 2o&s to %hina and India. &. la&or prod*cti+ity has fallen3 which has ca*sed employment to fall as well. c. wor'ers who ha+e more ed*cation and &etter pro&lem"sol+ing s'ills are li'ely to wor' in higher" paying 2o&s. d. the pay for personal"ser+ice wor'ers is li'ely to rise. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
ANS: % NAT: Analytic )S%: Analytical !0.
S*ppose that a college st*dent recei+es an offer for a s*mmer internship with a stoc' &ro'erage firm. 6nfort*nately for the st*dent3 the internship is *npaid. Is it e+er economically &eneficial to accept an *npaid 2o&C a. Jes3 &eca*se the e-perience gained d*ring the internship wo*ld increase the st*dent?s h*man capital. &. No3 &eca*se the opport*nity cost is too high. c. No3 &eca*se the st*dent is signaling to f*t*re employers that he or she is willing to accept low wages. d. Jes3 &eca*se accepting an *npaid 2o& signals to f*t*re employers that the st*dent has sta&le personal finances. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital < Signaling
ANS: A NAT: Reflecti+e )S%: Interpreti+e !1.
>hich of the following statements is not correctC a. ;oth the h*man capital theory and the signaling theory of ed*cation co*ld e-plain why college grad*ates earn more than high school grad*ates. &. The signaling theory of ed*cation s*ggests that the a&ility to complete a college degree is correlated with the a&ility to perform well in the la&or mar'et. c. If the h*man capital theory of ed*cation is correct3 a go+ernment policy that pays for additional schooling for all wor'ers wo*ld not increase wages. d. If the signaling theory of ed*cation is correct3 a go+ernment policy that pays for additional schooling for all wor'ers wo*ld not increase wages. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital < Signaling
ANS: % NAT: Analytic )S%: Interpreti+e

!4. $f the theories listed &elow3 which do the &est 2o& of e-plaining why ed*cated people are paid more than *ned*cated peopleC a. h*man"capital and price"fi-ing &. h*man"capital and signaling c. wage"differential and deri+ed"demand d. cost"allocation and compensating differentials DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital < Signaling
,,
ANS: ; NAT: Analytic )S%: Interpreti+e !5.
The h*man capital theory e-planation for why people in+est in ed*cation has &een challenged &y a theory that s*ggests a. schooling acts as a signal of a&ility. &. h*mans cannot &e considered 7capital.7 c. prod*cti+ity is not lin'ed to wages. d. college is largely a social phenomenon. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
ANS: A NAT: Analytic )S%: Interpreti+e !!.
>hen employers sort employment applications into high"a&ility and low"a&ility people &ased on the attainment of a college degree Dirrespecti+e of ma2orE3 they are pro+iding e+idence in s*pport of the a. h*man"capital theory of ed*cation. &. signaling theory of ed*cation. c. principle that ed*cation red*ces marginal prod*cti+ity. d. principle that most &*siness owners are more interested in discriminating against a partic*lar gro*p than in ma-imiAing profits. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
ANS: ; NAT: Analytic )S%: Interpreti+e
199. A signaling theory of ed*cation s*ggests that ed*cational attainment a. is a signal of high marginal prod*cti+ity. &. is correlated with nat*ral a&ility. c. increases the prod*cti+ity of low"a&ility wor'ers. d. ;oth a and & are correct. ANS: D NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
191. According to the h*man"capital +iew3 ed*cation a. has no effect on lifetime earnings. &. alters wor' ethic. c. enhances prod*cti+ity. d. is an indicator of nat*ral a&ility. ANS: % NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital < Signaling
192. A college degree ma'es a person more prod*cti+e according to a. &oth the h*man"capital and the signaling theories of ed*cation. &. the h*man"capital &*t not the signaling theory of ed*cation. c. the signaling &*t not the h*man"capital theory of ed*cation. d. neither the h*man"capital nor the signaling theory of ed*cation. ANS: ; NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital < Signaling
,.
19,. >hich of the following statements represents the idea &ehind signaling in ed*cationC a. d*cation can t*rn an *nprod*cti+e person into a prod*cti+e person. &. d*cation increases the marginal prod*cti+ity of nat*rally prod*cti+e wor'ers. c. The more nat*rally prod*cti+e people are more inclined to ed*cate themsel+es. d. All of the a&o+e are correct. ANS: % NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
19.. >hich theory wo*ld s*pport the idea that ed*cation does not enhance prod*cti+ity and therefore raising all wor'ers? ed*cational le+els wo*ld not affect wagesC a. signaling theory &. h*man"capital theory c. physical"capital theory d. the efficient"mar'et hypothesis ANS: A NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
190. >hich of the following theories wo*ld s*ggest that attending school does not impro+e prod*cti+ity &*t that high"a&ility people are more li'ely to stay in schoolC a. physical"capital theory &. h*man"capital theory c. signaling theory d. neoclassical theory ANS: % NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
191. S*ppose that the co*ntry of #i&raria made a concerted effort to increase the ed*cational le+el of its people. If this effort had no effect on the wages of its wor'ers3 one might consider this as e+idence in s*pport of a. the h*man"capital +iew of ed*cation. &. the signaling +iew of ed*cation. c. &oth the h*man"capital and the signaling +iew of ed*cation. d. neither the h*man"capital nor the signaling +iew of ed*cation. ANS: ; NAT: Analytic )S%: Analytical DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
194. According to the signaling theory of ed*cation3 a. schooling sends signals to employers in m*ch the same way that ad+ertising sends signals to cons*mers. &. a person &ecomes more prod*cti+e &y earning a college degree. c. ed*cation is less important than nat*ral a&ility. d. All of the a&o+e are correct. ANS: A NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
195. >hich theory e-plains the fact that some firms may choose to pay their employees more then they wo*ld earn as determined &y e=*ili&ri*m in the la&or mar'etC a. the theory of efficiency wages &. the marginal"prod*cti+ity theory c. h*man"capital theory d. signaling theory ANS: A DIF: 1 R F: NAT: Analytic #$%: #a&or mar'ets T$(: fficiency wages < /*man capital < Signaling 1!"1 )S%: Interpreti+e

19!. >hich of the following factors does not affect the +al*e of a wor'er?s marginal prod*ctC a. Discrimination against a partic*lar gro*p of wor'ers &y a firm?s c*stomers. &. A wor'er?s le+el of disposa&le income. c. A wor'er?s le+el of h*man capital. d. %ompensating wage differentials. ANS: ; DIF: , R F: NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < #a&or"mar'et discrimination 1!"1 < 1!"2 )S%: Analytical
,0
119. >hich of the following statements is correctC a. %ompensating wage differentials reflect different s'ills of wor'ers. &. Discrimination &y employers affects the marginal prod*cti+ity of wor'ers. c. The signaling theory of ed*cation s*ggests that schooling does not affect wor'er prod*cti+ity. d. The s*perstar phenomenon e-plains why more talented entertainers earn more than less talented entertainers. ANS: % DIF: , R F: 1!"1 < 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: Signaling < #a&or"mar'et discrimination < /*man capital
)S%: Analytical
111. Fane and Fohn are twins who attended grammar school thro*gh college together. Fane and Fohn &oth got 2o&s at a &ro'erage firm after grad*ating from college with the same ma2or. They &oth wor' e=*ally hard. Fane earns G.,3999 a year3 and Fohn earns G1!3999 a year. Select the &est e-planation for this wage difference. a. Fane has less h*man capital than Fohn. &. Fane has more h*man capital than Fohn. c. Fohn has &een discriminated against &eca*se he is male. d. Fane has &een discriminated against &eca*se she is female. ANS: D DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination < /*man capital 1!"1 < 1!"2 )S%: Applicati+e
112. Foan is a white 2,"year"old female3 and )arcia is a &lac' 2,"year"old female. ;oth Foan and )arica are economics ma2ors3 and they grad*ated from the same college in the same year with the same B(A. Foan and )arcia &oth got 2o&s at a &ro'erage firm after grad*ating from college. They &oth wor' e=*ally hard. Foan earns G,53999 a year3 and )arcia earns G,93999 a year. Select the &est e-planation for this wage difference. a. Foan has less h*man capital than )arcia. &. Foan recei+es a compensating wage differential that )arcia does not. c. Foan has &een discriminated against &eca*se she is white. d. )arcia has &een discriminated against &eca*se he is &lac'. ANS: D DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination < /*man capital 1!"1 < 1!"2 )S%: Applicati+e
11,. Fohn is an Asian 2,"year"old male3 and Ken is an Asian .,"year"old male. ;oth Fohn and Ken are economics ma2ors3 and they grad*ated from the same college with the same B(A L Fohn in 2991 and Ken in 1!51. Fohn and Ken &oth are &oth financial ad+isers at the same &ro'erage firm. Fohn earns G023999 a year3 and Ken earns G553999 a year. Select the &est e-planation for this wage difference. a. Fohn has more h*man capital than Ken. &. Fohn has less h*man capital than Ken. c. Fohn has &een discriminated against &eca*se he is yo*ng. d. Ken has &een discriminated against &eca*se he is old. ANS: ; DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < #a&or"mar'et discrimination 1!"1 < 1!"2 )S%: Applicati+e
,1
11.. Karen is a &lac' 21"year"old female3 and Fessica is a &lac' .1"year"old female. ;oth Karen and Fessica are acco*nting ma2ors3 and they grad*ated from the same college with the same B(A L Karen in 2995 and Fessica in 1!55. Karen and Fessica are &oth financial ad+isers at the same m*t*al f*nd firm. Karen earns G.03999 a year3 and Fessica earns G!93999 a year. Select the &est e-planation for this wage difference. a. Karen has more h*man capital than Fessica. &. Karen has less h*man capital than Fessica. c. Karen has &een discriminated against &eca*se she is yo*ng. d. Fessica has &een discriminated against &eca*se she is old. ANS: ; DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < #a&or"mar'et discrimination 1!"1 < 1!"2 )S%: Applicati+e
110. >hich of the following is not an e-planation for why &etter ed*cated wor'ers earn more3 on a+erage3 than less ed*cated wor'ers in the 6nited StatesC a. ;etter ed*cated wor'ers ha+e higher marginal prod*cti+ities3 on a+erage. &. %ompensating differentials lower the wages of s'illed wor'ers relati+e to *ns'illed wor'ers. c. The 6nited States tends to import goods prod*ced with *ns'illed la&or3 which red*ces the 6.S. demand for *ns'illed la&or. d. The demand for s'illed la&or has risen o+er time relati+e to the demand for *ns'illed la&or. ANS: ; NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
111. >hich of the following statements is correctC a. Since the 1!.9s3 the n*m&er of American wor'ers employed in the man*fact*ring sector has declined from ,9 percent to 19 percent. &. Since 1!193 the n*m&er of Americans wor'ing as farmers has increased from , percent to ,, percent. c. Since 1!!03 glo&al ind*strial o*tp*t has fallen &y more than ,9 percent. d. (rod*cti+ity decreases are one reason for the declining n*m&er of man*fact*ring 2o&s. ANS: A NAT: Analytic )S%: Analytical DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
114. >hich of the following descri&es the la&or mar'et for personal"ser+ice wor'ersC a. The pay of these wor'ers is increasing. &. #egal and *ndoc*mented immigrants often wor' in this sector. c. )ost personal"ser+ice 2o&s re=*ire post"high school ed*cation or training. d. The s*pply of wor'ers is decreasing as wor'ers displaced &y technological inno+ations see' 2o&s in sectors other than personal"ser+ices. ANS: ; NAT: Analytic )S%: Analytical DIF: , R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital
115. >hich of the following is not an e-ample of changing employment trendsC a. The n*m&er of people wanting to wor' in the personal ser+ices sector in the 6.S. is increasing. &. mployment in the 6.S. agric*lt*ral sector has declined &y a&o*t ,9 percentage points in the last cent*ry. c. Technological ad+ances ha+e replaced a great many ro*tine 2o&s in the 6.S. s*ch as &an' tellers and telephone operators. d. mployment in the 6.S. man*fact*ring sector has declined3 while employment in man*fact*ring has increased worldwide. ANS: D NAT: Analytic )S%: Analytical DIF: , R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital

11!. >hich of the following statements is correctC a. The h*man"capital theory of ed*cation co*ld &e called a prod*cti+ity"enhancing theory. &. The h*man"capital theory of ed*cation co*ld &e called a prod*cti+ity"re+ealing theory. c. The signaling theory of ed*cation co*ld &e called a prod*cti+ity"enhancing theory. d. The signaling theory of ed*cation has &een dispro+ed &y (rinceton 6ni+ersity economist Alan Kr*eger. ANS: A NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: /*man capital < Signaling
,4
129. In the signaling theory of ed*cation3 a. schooling itself does not lead to more prod*cti+e wor'ers. &. chance plays more of a role than in the h*man"capital theory. c. schooling enhances wor'er prod*cti+ity. d. compensating differentials do not matter. ANS: A NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
121. In the signaling theory of ed*cation3 a. discrimination does not affect wage differentials. &. schooling ma'es wor'ers more prod*cti+e in the long"r*n. c. schooling ma'es wor'ers more prod*cti+e in the short"r*n. d. the wor'er signals to the employer that he is a +al*a&le employee &eca*se he was willing to spend time to get an ed*cation. ANS: D NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
122. According to the signaling theory of ed*cation3 &etter"ed*cated wor'ers a. are li'ely to &e high"a&ility wor'ers. &. impro+e their marginal prod*cti+ity thro*gh ed*cation. c. are in scarce s*pply in less de+eloped co*ntries. d. can only find low"s'illed 2o&s d*e to technology. ANS: A NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling < /*man capital
12,. If an employer?s &eha+ior is s*pporti+e of the theory of efficiency wages3 the employer wo*ld a. raise wages in an effort to increase wor'er effort. &. raise wages in an effort to increase wor'er t*rno+er. c. decrease wages in an effort to increase wor'er effort. d. decrease wages in an effort to increase wor'er t*rno+er. ANS: A NAT: Analytic )S%: Applicati+e DIF: , R F: #$%: #a&or mar'ets 1!"1 T$(: fficiency wages
12.. The theory of efficiency wages s*ggests that firms may pay a&o+e"e=*ili&ri*m wages a. to red*ce employee t*rno+er. &. to pre+ent *nions from recr*iting mem&ers. c. to red*ce the need for minim*m wage laws. d. to increase the demand for &etter"s'illed wor'ers. ANS: A NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: fficiency wages
,5
120. /ow does the theory of efficiency wages e-plain a&o+e"e=*ili&ri*m wagesC a. mployers are forced to pay higher wages in efficient mar'ets. &. mployers gi+e their wor'ers a higher wage in the hope that it will lead to increased prod*cti+ity. c. >or'ers get higher wages when they pro+e they are increasing their prod*cti+ity. d. >or'ers demand higher wages to compensate for poor fringe &enefits. ANS: ; NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: fficiency wages
121. The theory of efficiency wages asserts that a. *nions are often s*ccessf*l in forcing employers to pay higher wages. &. employers stri+e to hold wages &elow e=*ili&ri*m le+els. c. employers may find it profita&le to pay a&o+e"e=*ili&ri*m wages. d. efficient wor'ers act*ally earn lower wages than those earned &y inefficient wor'ers. ANS: % NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: fficiency wages
124. The theory of efficiency wages challenges the ass*mption that a. wor'ers are efficient. &. wor'ers ha+e an incenti+e to shir' their responsi&ilities to their employers. c. wages ad2*st to &alance la&or s*pply and la&or demand. d. firms sometimes choose to pay their wor'ers a&o+e"e=*ili&ri*m wages. ANS: % NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: fficiency wages
125. In 1!1,3 the Ford )otor %ompany decided to pay its employees G0 a day. This wage was significantly higher than what any other organiAation offered. /enry Ford &elie+ed that this wage wo*ld ma'e his employees happier3 increase their prod*cti+ity3 and lower employee t*rno+er. conomists wo*ld say that )r. Ford offered his employees a. a *nion. &. an efficiency wage. c. a diminishing rate of marginal ret*rn. d. a leis*re wage. ANS: ; NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: fficiency wages
12!. The idea of paying wor'ers an efficiency wage is that a. doing so is more efficient than paying them the mar'et wage. &. paying wor'ers less gi+es them the incenti+e to wor' harder. c. wor'ers and management gain at the e-pense of the stoc'holders of the company. d. wor'ers ha+e the incenti+e to wor' harder3 th*s increasing their marginal prod*cti+ity. ANS: D NAT: Analytic )S%: Definitional DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: fficiency wages
1,9. >hich of the following sets of circ*mstances is li'ely to pro+ide the &est e+idence in s*pport of the theory of efficiency wagesC a. >or'ers in the mar'et are *ns'illed and not represented &y a *nion3 and their wage e-ceeds the e=*ili&ri*m wage. &. >or'ers in the mar'et are highly s'illed and not represented &y a *nion3 and their wage e-ceeds the minim*m wage. c. >or'ers in the mar'et are highly s'illed and represented &y a *nion3 and their wage e-ceeds the e=*ili&ri*m wage. d. mployers in the mar'et are 'nown for red*cing the wor'ers? wage whene+er they get an opport*nity to do so.

ANS: A NAT: Reflecti+e )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: fficiency wages
,!
1,1. >hich of the following statements is not correctC a. It is possi&le that additional ed*cation will increase a wor'er?s wage witho*t increasing the wor'er?s prod*cti+ity. &. If discriminating wage differentials persist in competiti+e mar'ets3 it is primarily &eca*se either cons*mers are willing to pay to maintain the discrimination or &eca*se go+ernment mandates it. c. An efficiency wage corresponds to a lower wage that a nondiscriminating employer pays to a wor'er &eca*se a discriminating employer won?t hire her. d. In competiti+e mar'ets3 wor'ers are paid a wage e=*al to the +al*e of their marginal prod*ct. ANS: % DIF: , R F: 1!"1 < 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: fficiency wages < #a&or"mar'et discrimination < Signaling < Mal*e of the marginal prod*ct )S%: Analytical 1,2. The theory of efficiency wages is that a. a&o+e"e=*ili&ri*m wages increase wor'er prod*cti+ity. &. wor'ers with higher le+els of ed*cation earn more than wor'ers with lower le+els of ed*cation. c. wor'ers signal their high a&ility to potential employers &y completing formal years of schooling. d. *nion wor'ers earn more than non*nion wor'ers. ANS: A NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: fficiency wages
1,,. )ost wage differences can &e *nderstood while maintaining the ass*mption of e=*ili&ri*m in the la&or mar'et. >e de+iate from that ass*mption3 howe+er3 when we consider a. the s*perstar phenomenon. &. the theory of efficiency wages. c. compensating differentials. d. differences in ed*cational attainment. ANS: ; DIF: 2 R F: 1!"1 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: fficiency wages )S%: Interpreti+e 1,.. If *ns'illed la&or is relati+ely plentif*l and cheap in many foreign co*ntries3 then as the 6nited States e-pands its trade with these foreign co*ntries3 the domestic demand for a. &oth s'illed and *ns'illed la&or will rise proportionately. &. s'illed la&or will fall and the demand for *ns'illed la&or will rise. c. s'illed la&or will rise and the demand for *ns'illed la&or will fall. d. &oth s'illed and *ns'illed la&or will &e *naffected3 ass*ming no &arriers to free trade. ANS: % NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
1,0. In recent years3 the amo*nt of international trade in which the 6nited States engages has a. increased3 altering the demand for s'illed and *ns'illed la&or. &. decreased a little3 altering the demand for s'illed and *ns'illed la&or. c. decreased s*&stantially3 altering the demand for s'illed and *ns'illed la&or. d. remained fairly constant@ th*s3 the demand for s'illed and *ns'illed la&or is *nchanged. ANS: A NAT: Analytic )S%: Interpreti+e DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
.9
1,1. In recent years3 the amo*nt of international trade in which the 6nited States engages has increased. >hich of the following acc*rately descri&es the effectDsE on la&or demanded &y firms in the 6nited StatesC a. The demand for &oth s'illed and *ns'illed la&or has increased. &. The demand for &oth s'illed and *ns'illed la&or has decreased. c. The demand for s'illed la&or relati+e to *ns'illed la&or has risen. d. The demand for *ns'illed la&or relati+e to s'illed la&or has risen. ANS: % NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
1,4. >or'ers with more h*man capital on a+erage earn s*&stantially higher pay than wor'ers with less h*man capital in a. most co*ntries &*t not in the 6nited States. &. the 6nited States &*t not in most other co*ntries. c. the 6nited States and in most other co*ntries. d. None of the a&o+e is correct@ the e+idence fails to indicate that h*man capital is a significant factor in determining earnings anywhere in the world. ANS: % NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
1,5. In the 6nited States3 the earnings gap &etween wor'ers with college degrees and wor'ers with high school degrees a. has ne+er &een doc*mented &y relia&le e+idence. &. is e+ident3 &*t it has remained ro*ghly constant o+er the past 29 years. c. is e+ident3 &*t it has diminished o+er the last 29 years. d. is e+ident3 and it has widened o+er the last 29 years. ANS: D NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
1,!. $+er the last 29 years or so3 the earnings gap &etween wor'ers with college degrees and wor'ers with high school degrees has a. remained ro*ghly constant for &oth men and women. &. widened for &oth men and women. c. widened for men and narrowed for women. d. narrowed for men and widened for women. ANS: ; NAT: Analytic )S%: Interpreti+e 1.9. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
conomists who attempt to e-plain the increasing earnings gap &etween s'illed and *ns'illed wor'ers offer two main hypotheses: a. $ne hypothesis emphasiAes ed*cation3 and the other emphasiAes random infl*ences. &. $ne hypothesis emphasiAes ed*cation3 and the other emphasiAes s*pply and demand. c. $ne hypothesis emphasiAes international trade3 and the other emphasiAes technology. d. $ne hypothesis emphasiAes signaling3 and the other emphasiAes ed*cation. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
ANS: % NAT: Analytic )S%: Interpreti+e 1.1.
conomists who attempt to e-plain the increasing earnings gap &etween s'illed and *ns'illed wor'ers in the 6nited States offer two main hypotheses. ;oth hypotheses a. s*ggest that demand and s*pply conditions ha+e played a less important role in determining wor'ers? wages in recent years. &. s*ggest that3 o+er time3 the demand for s'illed la&or has risen relati+e to the demand for *ns'illed la&or. c. emphasiAe the shrin'ing importance of international trade in recent years. d. emphasiAe the growing importance of women and teenagers in the wor'force in recent years.

ANS: ; NAT: Reflecti+e )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
.1
1.2. A 7technology7 hypothesis has &een ad+anced as an e-planation for the widening earnings gap &etween s'illed and *ns'illed wor'ers in the 6nited States. This hypothesis emphasiAes the li'elihood that technological ad+ances ha+e a. increased the s*pply of &oth s'illed and *ns'illed wor'ers. &. increased the s*pply of s'illed wor'ers and decreased the s*pply of *ns'illed wor'ers. c. increased the demand for s'illed wor'ers and decreased the demand for *ns'illed wor'ers. d. decreased the demand for &oth s'illed and *ns'illed wor'ers. ANS: % NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
1.,. The statement 7the rich get richer and the poor get poorer7 is e+ident in the fact that a. the earnings gap &etween high"s'ill 2o&s and low"s'ill 2o&s has increased o+er the last se+eral years. &. de+eloping co*ntries do not pay wor'ers the +al*e of their marginal prod*ct. c. de+eloped economies e-port high"s'ill 2o&s to de+eloping co*ntries. d. All of the a&o+e are correct. ANS: A NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
1... >hich of the following scenarios wo*ld ser+e to decrease the demand for *ns'illed la&or in o*r co*ntryC a. increased prod*cti+ity gains among the *ns'illed la&orers &. increased demand for goods prod*ced &y *ns'illed la&or c. increased international trade with co*ntries where *ns'illed la&or is more plentif*l d. increased s*pply of migrant wor'ers ANS: % NAT: Analytic )S%: Interpreti+e 1.0. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
conomists who st*dy la&or mar'ets ha+e doc*mented a. a general decline in the wages of college grad*ates o+er the last decade. &. an increasing trend in 6.S. la&or mar'ets for employers to pay all costs of ed*cation and training. c. a decrease in the earnings gap &etween low"s'ill and high"s'ill wor'ers o+er the past two decades. d. an increase in the earnings gap &etween low"s'ill and high"s'ill wor'ers o+er the past two decades. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
ANS: D NAT: Analytic )S%: Applicati+e
1.1. >hen comp*ters are *sed to replace wor'ers on a factory prod*ction line3 the wage gap &etween s'illed and *ns'illed wor'ers a. will increase only if the company can increase the price of its prod*ct. &. is li'ely to increase. c. is li'ely to decrease. d. will not change. ANS: ; NAT: Analytic )S%: Applicati+e 1.4. DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
conomists ha+e proposed which of the following hypotheses to e-plain the rising wage gap &etween s'illed and *ns'illed wor'ersC a. Increases in the role of *nions in negotiating wages. &. Declines in the amo*nt of international trade. c. There is no rising wage gap. d. Technological change.
.2

DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Increasing +al*e of s'ills
1.5. In order to e-plain the widening gap in earnings &etween s'illed and *ns'illed wor'ers in recent years3 economists ha+e proposed two hypotheses. $ne hypothesis emphasiAes a. compensating differentials. &. the increased recognition that a larger stoc' of h*man capital *s*ally leads to higher earnings. c. the decreasing importance of la&or *nions. d. the increasing importance of international trade. ANS: D DIF: 2 R F: 1!"1 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: >ages < #a&or )S%: Interpreti+e 1.!. Former Secretary of #a&or Ro&ert Reich points to two growing categories of wor' in the 6nited States. Those two categories are a. wor' that in+ol+es man*fact*ring3 and wor' that in+ol+es comp*ters and electronics. &. wor' that in+ol+es man*fact*ring3 and wor' that in+ol+es personal ser+ices. c. wor' that in+ol+es identifying and sol+ing new pro&lems3 and wor' that in+ol+es personal ser+ices. d. wor' that in+ol+es identifying and sol+ing new pro&lems3 and wor' that in+ol+es facilitating international trade. ANS: % NAT: Analytic T$(: #a&or DIF: 2 R F: 1!"1 #$%: The st*dy of economics3 and definitions of economics )S%: Interpreti+e
109. In determining wages3 a&ility3 effort3 and chance a. pro&a&ly play no role whatsoe+er. &. play a role3 &*t their importance is hard to ga*ge since a&ility3 effort3 and chance are hard to meas*re. c. play a role3 and that role is f*lly capt*red in easy"to"meas*re factors s*ch as h*man capital and age. d. play a role3 and it is f*lly e-plained within the conte-t of compensating differentials. ANS: ; DIF: 2 R F: 1!"1 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: #a&or < >ages )S%: Interpreti+e 101. The idea that minim*m"wage laws lead to wages that e-ceed e=*ili&ri*m le+els a. is a component of the theory of efficiency wages. &. cannot &e +alid *nless la&or *nions are s*fficiently powerf*l to force enactment of those laws in the first place. c. is more applica&le to *ns'illed"la&or mar'ets than to s'illed"la&or mar'ets. d. All of the a&o+e are correct. ANS: % DIF: 2 R F: 1!"1 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: )inim*m wage )S%: Interpreti+e 102. According to proponents of the signaling theory of ed*cation3 an increase in the ed*cation le+els of all wor'ers wo*ld a. increase wor'ers: prod*cti+ity and increase their wages. &. increase wor'ers: prod*cti+ity &*t lea+e their wages *naffected. c. lea+e wor'ers: prod*cti+ity *naffected &*t increase their wages. d. lea+e wor'ers: prod*cti+ity and wages *naffected. ANS: D DIF: 2 R F: 1!"1 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: Signaling < (rod*cti+ity < >ages )S%: Interpreti+e

10,. A signaling theory of ed*cation s*ggests that a. people who attend college are more li'ely to capt*re a 7&ea*ty premi*m.7 &. ed*cation is a signal of social stat*s. c. ed*cation does not necessarily increase prod*cti+ity. d. ed*cation will se+er the lin' &etween innate a&ility and compensation. ANS: % NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling
.,
10.. If the signaling theory of ed*cation is correct3 a. wor'ers with more years of formal schooling will earn less than wor'ers with fewer years of formal schooling. &. additional years of formal schooling do not increase a wor'er:s prod*cti+ity. c. wor'ers with more years of formal schooling are less li'ely to &e affected &y a&ility3 effort3 and chance. d. men are more li'ely to earn more than women &eca*se men are more li'ely to ha+e grad*ated from college. ANS: ; NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: Signaling
100. According to proponents of the signaling theory of ed*cation3 a. schooling has no real prod*cti+ity &enefit. &. no one person finds it easier to earn a college degree than does any other person. c. the h*man"capital +iew of ed*cation is entirely correct. d. employers send signals to yo*ng people to pers*ade them to e-pend whate+er effort is necessary to earn college degrees. ANS: A NAT: Analytic T$(: Signaling DIF: 2 R F: 1!"1 #$%: The st*dy of economics3 and definitions of economics )S%: Interpreti+e
101. >hich of the following statements acc*rately e-plains the s*perstar phenomenon in wagesC a. ;etter carpenters earn more than a+erage carpenters &eca*se people are willing to pay higher prices for higher"=*ality wor'. &. F*nnier comedians earn more than less f*nny comedians &eca*se they are more talented. c. Talented athletes earn more than e=*ally talented pl*m&ers &eca*se technology allows the deli+ery of the ser+ices pro+ided &y the athletes to all interested c*stomers. d. Athletes get paid for performing ser+ices that e+eryday people perform as ho&&ies. ANS: % NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: S*perstar phenomenon
104. Technology is an important factor in e-plaining the high incomes of s*perstars &eca*se a. technology acco*nts for differences in incomes within all occ*pations. &. technology ma'es it possi&le for the &est prod*cer to s*pply e+ery c*stomer at low cost. c. technology that can limit access to the s*perstars is a+aila&le. d. only technologically"literate s*perstars can earn s*per incomes. ANS: ; NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: S*perstar phenomenon
105. The most pop*lar mo+ie stars ha+e high incomes for a n*m&er of reasons. $ne s*ch reason is a. an a&ility for almost e+eryone to en2oy mo+ies at a relati+ely low cost. &. the a&o+e"a+erage intellect of the a+erage mo+ie star. c. a compensating differential. d. a lac' of technological ad+ances in the mo+ie ind*stry. ANS: A NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: S*perstar phenomenon
..
10!. >hy is a pl*m&er ne+er li'ely to &e as rich as a mo+ie starC a. %ompensating differential creates a higher wage in the mo+ie &*siness. &. There ha+en?t &een any significant technological ad+ances in the pl*m&ing ind*stry. c. (rod*cti+ity le+els are low in the pl*m&ing ind*stry d*e to low wor'er morale. d. A pl*m&er can pro+ide his ser+ices to only a limited n*m&er of c*stomers. ANS: D NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: S*perstar phenomenon
119. The 7s*perstar7 phenomenon can apply to which of these 2o&sC a. high"school teacher &. anchorperson for a national news program c. heart s*rgeon d. carpenter. ANS: ; NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: S*perstar phenomenon
111. For a 7s*perstar7 to emerge3 it m*st &e the case that a. it is possi&le to s*pply the good or ser+ice that the s*perstar prod*ces at low cost to e+ery c*stomer. &. some c*stomers are willing and a&le to pay large s*ms of money to en2oy the good or ser+ice pro+ided &y the s*perstar. c. the s*perstar has a nat*ral monopoly on his or her good or ser+ice. d. the s*perstar is willing to settle for a le+el of pay that is less than the +al*e of his marginal prod*ct. ANS: A NAT: Analytic )S%: Definitional DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: S*perstar phenomenon
112. The primary economic e-planation as to why a world"renowned architect cannot attain the 7s*perstar7 stat*s that an athlete or actor can attain is that a. architects? ser+ices are not as highly +al*ed &y society as are the ser+ices of athletes and actors. &. only physically attracti+e people can &ecome s*perstars3 and it wo*ld &e a coincidence if a highly talented architect were also physically attracti+e. c. go+ernment reg*lations place restrictions on the incomes of architects3 &*t there are no s*ch restrictions on the incomes of athletes or actors. d. it is impossi&le3 c*rrently3 for an architect to s*pply his or her ser+ices at low cost to e+ery c*stomer. ANS: D NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: S*perstar phenomenon
11,. The fact that mo+ie star F*lia Ro&erts? salary is m*ch higher than the salary earned &y a No&el priAe winning economics professor can &est &e e-plained &y the a. fail*re of the mar'et to reward talent fairly. &. fact that wage rates cannot reflect the infl*ence of ed*cation properly. c. willingness of some people to accept a lower wage rate in order to do what they li'e most to do. d. s*perstar phenomenon. ANS: D NAT: Analytic )S%: Definitional DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: S*perstar phenomenon
.0
11.. S*ppose that (hilip is the &est contractor in town3 and he ma'es G.993999 a year. S*ppose that F*lia Ro&erts is the &est and highest paid actress in /ollywood3 and she ma'es G1, million per mo+ie. ;oth are the &est in their respecti+e fields of wor'. $ne reason for the significant difference in incomes has to do with the nat*re of the ser+ice each offers. (hilip?s contracting ser+ices a. can &e pro+ided to an *nlimited n*m&er of c*stomers in a year3 &*t F*lia?s wor' is sold to only a few indi+id*als in a year. &. can only &e pro+ided to a limited n*m&er of c*stomers in a year3 &*t F*lia?s wor' is sold to millions of indi+id*als in a year L i.e.3 to anyone who has the willingness and a&ility to pay for admission to her mo+ies. c. can &e pro+ided to a *nlimited n*m&er of c*stomers in a year3 and F*lia?s wor' is sold to millions of indi+id*als in a year L i.e.3 to anyone who has the willingness and a&ility to pay for admission to her mo+ies. d. can only &e pro+ided to a limited n*m&er of c*stomers in a year3 and F*lia?s wor' is sold to only a few indi+id*als in a year. ANS: ; NAT: Reflecti+e )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: S*perstar phenomenon
110. The s*perstar phenomenon applies to a. all famo*s people e=*ally. &. wor'ers recei+ing a compensating wage differential. c. mar'ets where technology allows the &est prod*cer to s*pply e+ery c*stomer at a low cost. d. mar'ets where a small gro*p of wor'ers prod*ce a m*ch higher =*ality prod*ct than the a+erage wor'er. ANS: % NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: S*perstar phenomenon
111. If3 as some economists &elie+e3 changes in technology o+er recent decades ha+e &ro*ght a&o*t changes in la&or mar'ets3 then those changes li'ely ha+e res*lted in a. red*ced emphasis on compensating differentials as an e-planation for wage differences. &. a red*ced emphasis on h*man"capital differences among wor'ers as an e-planation for wage differences. c. a narrowing of the earnings gap &etween high"s'illed wor'ers and low"s'illed wor'ers. d. a widening of the earnings gap &etween high"s'illed wor'ers and low"s'illed wor'ers. ANS: D DIF: 2 R F: 1!"1 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: Technology < >ages )S%: Interpreti+e 114. A wor'er association that &argains with employers o+er wages and wor'ing conditions is called a. a stri'e. &. an oligopoly. c. a firm. d. a *nion. ANS: D NAT: Analytic )S%: Definitional DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: 6nions
115. The organiAed withdrawal of la&or from a firm &y a *nion is called a. a stri'e. &. a &argain. c. a monopoly. d. a to*rnament. ANS: A NAT: Analytic )S%: Definitional DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: 6nions
.1
11!. St*dies ha+e shown that non*nion wor'ers earn a&o*t a. 19 to 29 percent more than *nion wor'ers in similar 2o&s. &. 19 to 29 percent less than *nion wor'ers in similar 2o&s. c. .9 to 09 percent more than *nion wor'ers in similar 2o&s. d. .9 to 09 percent less than *nion wor'ers in similar 2o&s. ANS: ; NAT: Analytic )S%: Applicati+e DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: 6nions
149. A *nion?s ma2or so*rce of power is its a. high"profile leadership. &. a&ility to increase prod*cti+ity. c. a&ility to threaten a stri'e. d. a&ility to deny employers the opport*nity to &argain o+er wages. ANS: % NAT: Analytic )S%: Applicati+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: 6nions
141. The mar'et wage co*ld &e higher than the e=*ili&ri*m wage if a wor'er a. is a s*perstar. &. &elongs to a la&or *nion. c. has more h*man capital. d. All of the a&o+e are correct. ANS: ; NAT: Analytic )S%: Applicati+e DIF: , R F: #$%: #a&or mar'ets 1!"1 T$(: 6nions
142. The mar'et wage co*ld &e higher than the e=*ili&ri*m wage if a wor'er a. &elongs to a la&or *nion. &. is co+ered &y a minim*m"wage law. c. is paid an efficiency wage. d. All of the a&o+e are correct. ANS: D DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: 6nions3 )inim*m wage3 fficiency wages 1!"1 )S%: Applicati+e
14,. >hen the s*pply of wor'ers is plentif*l3 one wo*ld predict that mar'et wages wo*ld &e a. determined o*tside the domain of economic theory. &. determined solely &y factors that affect demand. c. low3 other things e=*al. d. high3 other things e=*al. ANS: % NAT: Analytic )S%: Interpreti+e DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: >ages
14.. $ther things e=*al3 when the s*pply of wor'ers is low3 one wo*ld predict that mar'et wages wo*ld &e a. relati+ely high. &. relati+ely low. c. determined solely &y factors that affect demand. d. determined o*tside the domain of economic theory. ANS: A NAT: Analytic )S%: Interpreti+e DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: >ages
.4
140. /apland and Benoshia ha+e 2*st started to trade with each other. /apland e-ports goods prod*ced with s'illed la&or and imports goods made with *ns'illed la&or from Benoshia. $+er time3 we wo*ld e-pect that the wages of s'illed la&or in /apland will a. rise3 and the wages of *ns'illed la&or in /apland will fall. &. fall3 and the wages of *ns'illed la&or in /apland will rise. c. rise3 and the wages of *ns'illed la&or in /apland will rise. d. fall3 and the wages of *ns'illed la&or in /apland will fall. ANS: A NAT: Analytic )S%: Analytical DIF: , R F: #$%: #a&or mar'ets 1!"1 T$(: >ages
141. >hich of the following +aria&les related to a wor'er:s wage are the most diffic*lt to meas*reC a. a&ility3 effort3 and chance &. 2o& characteristics3 gender3 and race c. gender3 race3 and geographic location d. years of schooling3 age3 and years of e-perience ANS: A NAT: Analytic )S%: Interpreti+e DIF: 1 R F: #$%: #a&or mar'ets 1!"1 T$(: >ages
144. St*dies of wages &y la&or economists indicate that meas*ra&le +aria&les s*ch as age3 2o& characteristics3 years of ed*cation3 and years of e-perience acco*nt for a. +irt*ally none of the +ariation in wages in o*r economy. &. some3 &*t less than 09 percent of the +ariation in wages in o*r economy. c. a&o*t 40 percent of the +ariation in wages in o*r economy. d. almost all of the +ariation in wages in o*r economy. ANS: ; NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: >ages
145. %ertain factors that are pro&a&ly important in determining wages are ne+ertheless diffic*lt to meas*re. %onse=*ently3 la&or economists find those factors diffic*lt to incorporate into their st*dies of la&or mar'ets and wages. Those factors incl*de a. effort and nat*ral a&ility. &. nat*ral a&ility and years of e-perience. c. years of e-perience and 2o& characteristics. d. race and 2o& characteristics. ANS: A NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: >ages
14!. The +ery high pay earned &y the &est actors and actresses is partially e-plained &y the fact that a. they &enefit from a compensating differential. &. mo+iegoers all want to see the +ery &est actors3 not second"rate actors. c. they ha+e acting degrees from accredited acting schools. d. the s*pply of good actors is +ery large. ANS: ; NAT: Analytic )S%: Interpreti+e DIF: 2 R F: #$%: #a&or mar'ets 1!"1 T$(: >ages
159. Dr. ;enson is regarded as3 &y far3 the &est dentist in his part of the co*ntry3 yet his income is not significantly higher than the a+erage income for a dentist in his area. In contrast3 ;o Fohnson3 the &est &ase&all player in that region3 earns fi+e times the a+erage salary of all &ase&all players. The most li'ely e-planation is that a. the widespread perception that Dr. ;enson is a great dentist is3 in fact3 incorrect. &. the &ase&all players: *nion is more powerf*l than the professional association of dentists. c. ;o Fohnson3 *nli'e Dr. ;enson3 can pro+ide his ser+ices to millions of people sim*ltaneo*sly. d. chance plays a role in determining people:s incomes3 res*lting in earnings discrepancies that are hard to e-plain or 2*stify.
.5

DIF: 2 R F: 1!"1 #$%: The st*dy of economics3 and definitions of economics )S%: Interpreti+e
ANS: % NAT: Analytic T$(: >ages
Sec!+""The Economics o# Discrimination

(ULT)*LE CHO)CE 1. >hich of the following statements is not correctC a. If the signaling theory of ed*cation is correct3 additional schooling does not affect wor'er prod*cti+ity &*t rather signals a correlation &etween nat*ral a&ility and ed*cation. &. The theory of efficiency wages s*ggests that firms pay higher wages to wor'ers in order to ind*ce wor'ers to &e more prod*cti+e. c. Discrimination against wor'ers of a certain race or ethnicity is often in conflict with a firm?s desire to ma-imiAe profits. d. The theory of compensating wage differentials reflects the different s'ills3 a&ilities3 and prod*cti+ity of wor'ers. D DIF: , R F: 1!"1 < 1!"2 Reflecti+e #$%: #a&or mar'ets %ompensating differentials < Signaling < fficiency wages < #a&or"mar'et discrimination Analytical
ANS: NAT: T$(: )S%: 2.
>hich of the following statements does not acc*rately descri&e the mar'et for la&orC a. The characteristics of wor'ers3 s*ch as their ed*cation and e-perience3 the characteristics of 2o&s3 s*ch as their pleasantness or *npleasantness3 and the presence or a&sence of discrimination &y employers all determine e=*ili&ri*m wages. &. #a&or *nions3 minim*m wage laws3 and efficiency wages all may increase wages a&o+e their e=*ili&ri*m le+el. c. Firms are willing to pay more for &etter"ed*cated wor'ers as long as there is an e-cess s*pply of this type of wor'er. d. Discrimination &y employers against a gro*p of wor'ers may artificially lower wages for that gro*p. % DIF: 2 R F: 1!"1 < 1!"2 Reflecti+e #$%: #a&or mar'ets >ages < %ompensating differentials < 6nions < #a&or"mar'et discrimination Analytical
ANS: NAT: T$(: )S%: ,.
>hich of the following is least li'ely to &e the reason women are *nderrepresented in the economics professionC a. la&or mar'et discrimination. &. self"selection of females into other occ*pations. c. c*lt*ral &ias in primary and secondary ed*cation. d. ina&ility of women to sol+e economics pro&lems. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: Discrimination
ANS: D NAT: Analytic )S%: Interpreti+e ..
conomists fo*nd e+idence of discrimination in each of the following mar'ets except a. 1!19s &ase&all games. &. &ase&all cards. c. li+e &as'et&all games in the 1!59s. d. c*rrent era &ase&all games. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: Discrimination

0. >hich of the following e-plains why soccer players ma'e millions of dollars in *rope &*t do not in the 6nited StatesC a. Discriminatory r*les esta&lished &y the go+ernment. &. %ompensating wage differentials for li+ing in *rope. c. Discriminatory preferences on the part of 6S sports fans for other sports. d. fficiency wages paid to *ropean players to enhance on"field performance. DIF: 1 R F: #$%: #a&or mar'ets 1!"2 T$(: Discrimination
.!
That some schools direct females away from science and math co*rses is e+idence of a. la&or"mar'et discrimination. &. discrimination that occ*rs prior to people entering the la&or mar'et. c. discrimination &y c*stomers. d. discrimination &y employers. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: Discrimination
If an employer pays a man a higher wage than a woman3 the employer a. is discriminating against the woman &*t is still ma-imiAing profit. &. is not discriminating against the woman. c. may or may not &e discriminating against the woman. d. is discriminating against the woman and is not ma-imiAing profit. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: Discrimination
Discrimination &y a manager in the hiring process may &e consistent with the decision to ma-imiAe profits if a. c*stomers are willing to pay higher prices in order to maintain the discrimination. &. the discrimination is &ased on race &*t not gender. c. the discrimination is &ased on gender &*t not race. d. Discrimination is ne+er consistent with profit ma-imiAation. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: Discrimination
ANS: A NAT: Analytic )S%: Applicati+e !.
Discrimination &y a manager in the hiring process a. decreases the firm:s costs. &. increases the firm:s costs. c. is e+ident if a white manager ref*ses to hire a /ispanic wor'er. d. is e+ident if a ,9"year"old manager ref*ses to hire a 09"year"old wor'er. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: Discrimination
Two economists created fa'e res*mes with either common African"American names s*ch as #a'isha and Famal or common white names s*ch as mily and Breg. After sending them to potential employers with H/elp >antedI ads in ;oston and %hicago newspapers3 they fo*nd that a. &lac' employees earned 09 percent less than white employees in %hicago &*t that &lac's and whites had similar wages in ;oston. &. &lac' employees earned 09 percent less than white employees in ;oston &*t that &lac's and whites had similar wages in %hicago. c. 2o& applicants with white names recei+ed 09 percent more phone calls from interested employers. d. 2o& applicants with white names recei+ed 4 percent more phone calls from interested employers. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: Discrimination
ANS: % NAT: Analytic )S%: Applicati+e
09
11.

In the early 29th cent*ry3 streetcars in many so*thern cities re=*ired that white passengers sit in the front of car3 while &lac' passengers sat in the &ac'. The firms that ran the streetcars were a. in fa+or of the segregation laws &eca*se they lowered costs and increased profits. &. against the segregation laws &eca*se they increased costs and lowered profits. c. lo&&ied local go+ernments to enact s*ch laws &eca*se their c*stomers were willing to pay more for ser+ice in order to maintain the segregation. d. concerned a&o*t the effects of smo'ing. Since &lac's smo'ed more than whites3 they were s*pporti+e of the segregation laws. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: Discrimination
A 1!51 st*dy of segregation on early 29th cent*ry 6.S. streetcars fo*nd that the primary so*rce of racial segregation on streetcars was a. a longstanding tradition of racial segregation. &. policies implemented &y the owners of streetcars. c. laws passed &y the go+ernment. d. threats &y white people to &oycott the streetcars if they were forced to sit with &lac' people.
ANS: % DIF: 2 R F: 1!"2 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: Discrimination )S%: Interpreti+e 1,. >hich of the following statements is not correctC a. It is possi&le that additional ed*cation will increase a wor'er?s wage witho*t increasing the wor'er?s prod*cti+ity. &. If discriminating wage differentials persist in competiti+e mar'ets3 it is primarily &eca*se either cons*mers are willing to pay to maintain the discrimination or &eca*se go+ernment mandates it. c. An efficiency wage corresponds to a lower wage that a nondiscriminating employer pays to a wor'er &eca*se a discriminating employer won?t hire her. d. In competiti+e mar'ets3 wor'ers are paid a wage e=*al to the +al*e of their marginal prod*ct.
ANS: % DIF: , R F: 1!"1 < 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: fficiency wages < #a&or"mar'et discrimination < Signaling < Mal*e of the marginal prod*ct )S%: Analytical 1.. As a res*lt of their e-periment economists )*riel Niederle and #ise Mesterl*nd fo*nd that a. women choose competiti+e en+ironments more than men. &. women and men choose competiti+e en+ironments e=*ally. c. women choose competiti+e en+ironments less than men. d. women are 2*st as li'ely as men to ha+e high"paying corporate 2o&s. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: Bender Differences
ANS: % NAT: Reflecti+e )S%: Interpreti+e 10.
In the e-periment cond*cted &y economists )*riel Niederle and #ise Mesterl*nd a. men were &etter at adding than women. &. women chose the to*rnament payoff scheme more than men. c. 40N of men tho*ght they won the fo*r"player to*rnament part of the e-periment. d. demonstrated that women face significant wage discrimination in stoc' &ro'erages.. DIF: , R F: #$%: #a&or mar'ets 1!"2 T$(: Bender Differences
The competition e-periement cond*cted &y economists )*riel Niederle and #ise Mesterl*nd confirmed the res*lts of Terry $dean which were that a. men were &etter at math than women. &. men chose competition more &eca*se they were &etter at sports than women. c. men trade stoc's e-cessi+ely while women adopt a &*y"and"hold strategy. d. streetcar companies were not in fa+or of segregation &eca*se it h*rt their profits.

ANS: % NAT: Reflecti+e )S%: Interpreti+e 14. DIF: , R F: #$%: #a&or mar'ets 1!"2 T$(: Bender Differences
01
>hich of the following factors does not affect the +al*e of a wor'er?s marginal prod*ctC a. Discrimination against a partic*lar gro*p of wor'ers &y a firm?s c*stomers. &. A wor'er?s le+el of disposa&le income. c. A wor'er?s le+el of h*man capital. d. %ompensating wage differentials. 1!"1 < 1!"2 )S%: Analytical
ANS: ; DIF: , R F: NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < #a&or"mar'et discrimination 15.
>hich of the following statements is correctC a. %ompensating wage differentials reflect different s'ills of wor'ers. &. Discrimination &y employers affects the marginal prod*cti+ity of wor'ers. c. The signaling theory of ed*cation s*ggests that schooling does not affect wor'er prod*cti+ity. d. The s*perstar phenomenon e-plains why more talented entertainers earn more than less talented entertainers.
ANS: % DIF: , R F: 1!"1 < 1!"2 NAT: Analytic #$%: #a&or mar'ets T$(: Signaling < #a&or"mar'et discrimination < /*man capital 1!.
)S%: Analytical
Fane and Fohn are twins who attended grammar school thro*gh college together. Fane and Fohn &oth got 2o&s at a &ro'erage firm after grad*ating from college with the same ma2or. They &oth wor' e=*ally hard. Fane earns G.,3999 a year3 and Fohn earns G1!3999 a year. Select the &est e-planation for this wage difference. a. Fane has less h*man capital than Fohn. &. Fane has more h*man capital than Fohn. c. Fohn has &een discriminated against &eca*se he is male. d. Fane has &een discriminated against &eca*se she is female. 1!"1 < 1!"2 )S%: Applicati+e
ANS: D DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination < /*man capital 29.
Foan is a white 2,"year"old female3 and )arcia is a &lac' 2,"year"old female. ;oth Foan and )arica are economics ma2ors3 and they grad*ated from the same college in the same year with the same B(A. Foan and )arcia &oth got 2o&s at a &ro'erage firm after grad*ating from college. They &oth wor' e=*ally hard. Foan earns G,53999 a year3 and )arcia earns G,93999 a year. Select the &est e-planation for this wage difference. a. Foan has less h*man capital than )arcia. &. Foan recei+es a compensating wage differential that )arcia does not. c. Foan has &een discriminated against &eca*se she is white. d. )arcia has &een discriminated against &eca*se he is &lac'. 1!"1 < 1!"2 )S%: Applicati+e
ANS: D DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination < /*man capital 21.
Fohn is an Asian 2,"year"old male3 and Ken is an Asian .,"year"old male. ;oth Fohn and Ken are economics ma2ors3 and they grad*ated from the same college with the same B(A L Fohn in 2991 and Ken in 1!51. Fohn and Ken &oth are &oth financial ad+isers at the same &ro'erage firm. Fohn earns G023999 a year3 and Ken earns G553999 a year. Select the &est e-planation for this wage difference. a. Fohn has more h*man capital than Ken. &. Fohn has less h*man capital than Ken. c. Fohn has &een discriminated against &eca*se he is yo*ng. d. Ken has &een discriminated against &eca*se he is old. 1!"1 < 1!"2 )S%: Applicati+e
ANS: ; DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < #a&or"mar'et discrimination
02
22.

Karen is a &lac' 21"year"old female3 and Fessica is a &lac' .1"year"old female. ;oth Karen and Fessica are acco*nting ma2ors3 and they grad*ated from the same college with the same B(A L Karen in 2995 and Fessica in 1!55. Karen and Fessica are &oth financial ad+isers at the same m*t*al f*nd firm. Karen earns G.03999 a year3 and Fessica earns G!93999 a year. Select the &est e-planation for this wage difference. a. Karen has more h*man capital than Fessica. &. Karen has less h*man capital than Fessica. c. Karen has &een discriminated against &eca*se she is yo*ng. d. Fessica has &een discriminated against &eca*se she is old. 1!"1 < 1!"2 )S%: Applicati+e
ANS: ; DIF: 2 R F: NAT: Analytic #$%: #a&or mar'ets T$(: /*man capital < #a&or"mar'et discrimination 2,.
If men3 on a+erage3 earn 29 percent more than women in a partic*lar occ*pation3 a. this is clear e+idence of discrimination. &. some of this differential co*ld &e d*e to differences in ed*cational le+els. c. some of this differential co*ld &e d*e to differences in h*man capital. d. ;oth & and c are correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: D NAT: Analytic )S%: Interpreti+e 2..
(oliticians often point to wage differentials as e+idence of la&or mar'et discrimination against ethnic minorities and women. conomists3 howe+er3 arg*e against this approach &eca*se a. they don?t &elie+e the wage differential really e-ists. &. they can?t agree on a definition of the term 7discrimination.7 c. they &elie+e compensating differentials acco*nt for all wage differences. d. different people may ha+e different wages for reasons *nrelated to discrimination. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
conomists are s'eptical that discrimination is employer dri+en &eca*se a. discrimination cannot e-ist in mar'ets. &. employers are not really interested in ma-imiAing profit. c. employers typically &ase wages paid on the pre+ailing mar'et wage. d. holding prod*cti+ity constant3 a profit"ma-imiAing employer will hire the cheapest la&or a+aila&le. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
>hy wo*ld a wage differential d*e to discrimination &e *nli'ely to persist in a competiti+e la&or mar'etC a. There is a cost ad+antage for firms that do not discriminate. &. >or'ers who are +ictims of discrimination will e+ent*ally drop o*t of the la&or mar'et. c. %ompeting firms will hire fewer of the wor'ers who are temporarily +ictimiAed &y discrimination. d. Discrimination cannot e-ist in ma'ets. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
>hich of the following represents an e-ample of la&or"mar'et discriminationC a. An employer is more li'ely to grant an inter+iew to a person grad*ating from Jale than from the local comm*nity college. &. An employer is more li'ely to grant an inter+iew to a person grad*ating from the local comm*nity college than from Jale. c. An employer is more li'ely to grant an inter+iew to a woman with a traditionally HwhiteI name s*ch as mily than to a woman with a traditionally H&lac'I name s*ch as #a'isha. d. An employer is as li'ely to grant an inter+iew to person with a traditionally Hmasc*lineI name s*ch as HAle-I as a person with a traditionally HfeminineI name s*ch as H mily.I

ANS: % NAT: Reflecti+e )S%: Analytical 25. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
0,
A st*dy of segregated streetcars in the so*thern 6nited States in the early twentieth cent*ry fo*nd which of the followingC a. Firms that ran the streetcars were more interested in segregating c*stomers &y race than profits. &. The firms that ran the streetcars were *nanimo*s in their s*pport of laws that re=*ired segregation of races. c. ;efore the passage of laws that mandated segregation of races on streetcars3 segregation of smo'ers and nonsmo'ers was more common than segregation of races. d. Segregation &ased on gender was more common than race at first. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Analytic )S%: Interpreti+e 2!.
#a&or"mar'et discrimination is e+ident when a. wages of indi+id*als differ on the &asis of some recogniAa&le attri&*te that is *nrelated to prod*cti+ity. &. wage rates differ for similar 2o&s. c. cons*mers prefer to shop at some stores3 and not at others. d. wages reflect wor'ers: h*man capital. DIF: 1 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: A NAT: Analytic )S%: Definitional ,9.
Discrimination occ*rs when the mar'etplace offers different opport*nities to similar indi+id*als who differ only &y a. race. &. le+el of ed*cation. c. attit*des toward ris'. d. attit*de toward the tradeoff &etween la&or and leis*re. DIF: 1 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
;y definition3 there is discrimination when the mar'etplace offers different opport*nities to similar indi+id*als who differ only &y a. race3 ethnic gro*p3 se-3 age3 or other personal characteristics. &. =*alifications3 e-perience3 or 2o& preferences. c. the le+els of h*man capital. d. All of the a&o+e are correct. DIF: 1 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
$ffering different opport*nities to similar indi+id*als who differ only &y race3 ethnic gro*p3 se-3 age3 or other personal characteristics is called a. a compensating differential. &. an efficiency wage. c. discrimination. d. compensating +ariation. DIF: 1 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Analytic )S%: Definitional
0.
,,.

>hich of the following is an e-ample of discrimination in the la&or mar'etC a. >omen earn less than men &eca*se women are more li'ely to &e employed in occ*pations that pay less3 s*ch as elementary school teachers rather than electrical engineers. &. >omen earn less than men &eca*se women ha+e3 on a+erage3 fewer years of e-perience in the la&or force &eca*se women3 on a+erage3 periodically lea+e the la&or force to raise children. c. A pharmace*tical sales company pays women less than men &eca*se the company?s c*stomers3 physicians and pharmacists3 say that they prefer to deal with men rather than women. d. All of the a&o+e are e-amples of discrimination. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Analytic )S%: Analytical ,..
>hich of the following statements is correctC a. Differences in h*man capital may e-plain differences in wages &etween &lac's and whites. &. Racial discrimination is the strongest e-planation for differences in wages &etween &lac's and whites. c. Bender discrimination is the strongest e-planation for differences in wages &etween &lac's and whites. d. None of the a&o+e statements is correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: A NAT: Analytic )S%: Applicati+e ,0.
S*ppose that an employer hires wor'ers with &rown hair and wor'ers with &lond hair. ach type of wor'er has the same prod*cti+ity. >hich of the following is correct if the employer discriminates &y offering &londe wor'ers lower wages than &r*nette wor'ersC a. The employer will &e 2*st as efficient as a nondiscriminating employer. &. The employer will face higher costs than firms that foc*s only on ma-imiAing profits. c. The employer will immediately go o*t of &*siness &eca*se discrimination is illegal. d. The employer will face *nion stri'es. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: ; NAT: Analytic )S%: Interpreti+e ,1.
+idence of differences in a+erage wages of women compared to men a. clearly ill*strates differences in prod*cti+ity &etween genders. &. pro+ides concl*si+e e+idence of discrimination on the &asis of gender. c. is seldom *sed to pro+ide e+idence of discriminatory &ias. d. does not pro+ide concl*si+e e+idence of discrimination. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: D NAT: Analytic )S%: Applicati+e ,4.
+idence of differences in a+erage wages of &lac' wor'ers compared to white wor'ers a. does not alone pro+ide concl*si+e e+idence of discrimination. &. clearly indicates differences in prod*cti+ity &etween races. c. is seldom *sed to pro+ide e+idence of discriminatory &ias. d. clearly indicates discrimination on the &asis of race. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: A NAT: Analytic )S%: Applicati+e ,5.
+idence of discrimination in la&or mar'ets a. applies only to race and gender. &. is concl*si+ely identified in large differences in a+erage wages rates &etween men and women. c. is diffic*lt to +erify &y reference to differences in a+erage wage rates. d. is more easily identified on the &asis of race than gender.

ANS: % NAT: Analytic )S%: Applicati+e ,!. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
00
Differences in h*man capital are li'ely to a. &e *nrelated to wage rate differences across gender classifications3 since &oth men and women are re=*ired to complete re=*irements for a high school diploma. &. &e most helpf*l in e-plaining age discrimination3 &*t *nhelpf*l in e-plaining race discrimination. c. e-plain some of the differences in a+erage wage rates across age classifications. d. e-plain all of the differences in a+erage wage rates across gender classifications. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Analytic )S%: Applicati+e .9.
conomists generally agree that a. h*man capital theory pro+ides the &est e-planation of discriminatory practices. &. differences in a+erage wages do not &y themsel+es pro+ide concl*si+e e+idence a&o*t the magnit*de of discrimination effects in la&or mar'ets. c. discrimination is e-cl*si+ely an economic3 rather than political3 phenomenon. d. most of the wage differentials o&ser+ed in the 6.S. economy are d*e to discrimination. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: ; NAT: Analytic )S%: Interpreti+e .1.
A nat*ral correction to employer discrimination in mar'et economies is the a. threat of 2*dicial re+iew. &. profit moti+e. c. political process. d. *nion mo+ement. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
Firms that operate in competiti+e prod*ct mar'ets and choose to practice discrimination in hiring wor'ers a. will s*r+i+e if they increase prod*ction and garner a larger mar'et share. &. will e+ent*ally earn Aero economic profits. c. will s*r+i+e as long as they are willing to ha+e a smaller mar'et share. d. are li'ely to e+ent*ally go o*t of &*siness. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: D NAT: Analytic )S%: Applicati+e .,.
+idence s*ggests that &*siness owners are generally a. interested in profits only when discrimination is illegal. &. more interested in discrimination than in ma'ing a profit. c. *na&le to determine the lin' &etween discrimination and profita&ility. d. more interested in ma'ing a profit than in discriminating against a partic*lar gro*p. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
01
Scenario 19-3 In the small town of /amilton3 )ontana3 there is a local hardware store called ddy?s /ardware. There are only two types of wor'ers who apply for 2o&s at ddy?s /ardware: cow&oys and farm &oys. #ocal politicians ha+e recei+ed n*mero*s complaints that ddy?s /ardware is practicing wage discrimination against cow&oys. ddy?s /ardware denies the complaint and says the store is only trying to ma-imiAe profit. ... Re#er to Scenario 19",. >hich of the following statements wo*ld wea'en the discrimination complaint against ddy?s /ardwareC a. %ow&oys are more prod*cti+e than farm &oys. &. %ow&oys wor' longer ho*rs than farm &oys and their effort is greater. c. %ow&oys are generally less ed*cated than farm &oys in the field of hardware. d. All of the a&o+e wo*ld wea'en the discrimination complaint. DIF: , R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Reflecti+e )S%: Analytical .0.
Re#er to Scenario 19",. >hich of the following statements wo*ld strengthen the discrimination complaint against ddy?s /ardwareC a. Farm &oys call in sic' to wor' more often than cow&oys. &. %ow&oys are less ed*cated than farm &oys3 on a+erage. c. Farm &oys? e-perience with hardware generally e-ceeds cow&oys? e-perience with hardware. d. )any cow&oys ta'e si- months per year off from wor' to compete in a rodeo circ*it and therefore ha+e less on"the"2o& e-perience with a hardware store. DIF: , R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: A NAT: Reflecti+e )S%: Analytical .1.
The fact that wage differentials contin*e to e-ist across different gro*ps of wor'ers leads economists to &elie+e that a. discrimination &y c*stomers is the most common type of economic discrimination. &. differences in h*man capital and 2o& characteristics m*st &e important in e-plaining the differences in wages. c. firms apparently are not profit ma-imiAers. d. the mar'et has failed to properly allocate wages to different wor'ers. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
;*siness owners who care only a&o*t ma'ing money are a. li'ely to discriminate against certain gro*ps of wor'ers. &. li'ely to &e replaced &y discriminating &*sinesses. c. more concerned a&o*t racial discrimination than gender discrimination. d. at an ad+antage when competing against those who practice discrimination. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
Scenario 19-4 Ass*me that the la&or mar'et for &ar&ers is competiti+e and that it is differentiated into two gro*ps: &ar&ers who are &ald Dor going &aldE and those who ha+e a f*ll head of hair. Ass*me that the &ar&ers in this mar'et ha+e identical hair"c*tting a&ility3 regardless of whether they are &ald or not. %*rrently the e=*ili&ri*m wage in the &ald &ar&er mar'et is lower than that in the non&ald mar'et. F*rther ass*me that the mar'et for hairc*ts is competiti+e. .5. Re#er to Scenario 19"-. If cons*mers do not discriminate &etween &ald &ar&ers and &ar&ers with hair3 then a. all &ar&ershops now earn a normal economic profit. &. the difference in wages is a&le to &e maintained since a hairc*t is not a homogeneo*s good. c. &ar&ershops that hire &ar&ers with hair will &e more profita&le than those that don?t. d. &ar&ershops that hire &ald &ar&ers will &e more profita&le than those that don?t.

ANS: D NAT: Analytic )S%: Analytical .!. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
04
Re#er to Scenario 19"-. If cons*mers do not discriminate &etween &ald &ar&ers and &ar&ers with hair3 then a. competiti+e press*re in the mar'et for hairc*ts will e+ent*ally ca*se the e=*ili&ri*m wage in &oth mar'ets to &e identical. &. the e=*ili&ri*m wage in the 7&ald7 mar'et will e+ent*ally fall. c. the e=*ili&ri*m wage in the 7hairy7 mar'et will e+ent*ally rise. d. wages in the mar'et for &ar&ers can ne+er &e in e=*ili&ri*m. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
Re#er to Scenario 19"-. %ompetition in the mar'et for hairc*ts is consistent with which of the following statementsC a. Firms hiring non&ald &ar&ers will ha+e a cost ad+antage3 leading to an increase in the demand for non&ald &ar&ers. &. All firms that hire only &ald &ar&ers will go o*t of &*siness. c. Firms hiring &ald &ar&ers will enter the mar'et3 increasing the demand for &ald &ar&ers. d. Firms hiring non&ald &ar&ers will enter the mar'et3 increasing the demand for non&ald &ar&ers. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Reflecti+e )S%: Analytical 01.
Re#er to Scenario 19"-. If some cons*mers in the mar'et for hairc*ts ha+e a strong preference for ha+ing their hair c*t &y a &ar&er who is not going &ald3 then a. the difference in wages will e+ent*ally disappear since a hairc*t is a homogeneo*s good. &. &ar&ershops that hire &ar&ers with hair will &e a&le to charge a higher price for a hairc*t to those cons*mers who ha+e a strong preference for &ar&ers with hair. c. &ar&ershops that hire &ar&ers with hair will always &e m*ch more profita&le. d. &ar&ershops that hire &ald &ar&ers will always &e m*ch more profita&le. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: ; NAT: Reflecti+e )S%: Analytical 02.
mpirical wor' that does not acco*nt for differences in the prod*cti+ities of wor'ers a. is *nli'ely to find e+idence of wage differentials. &. can pro+ide strong e+idence of la&or mar'et discrimination. c. is li'ely to misinterpret apparent e+idence of la&or mar'et discrimination. d. is accepted as s*perior to empirical wor' that does correct for differences in prod*cti+ity of wor'ers. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Analytic )S%: Interpreti+e 0,.
Attri&*ting the gender wage gap to ongoing discrimination &y employers will li'ely &e incorrect &eca*se a. some of the wage gap is e-plained &y efficiency wages. &. differences in years of wor' e-perience li'ely lead to prod*cti+ity differences &etween men and women. c. compensating differentials *s*ally lead to higher wages for women. d. All of the a&o+e are correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: ; NAT: Analytic )S%: Applicati+e
05
0..

$ne of the pro&lems with calc*lating the tr*e amo*nt of discrimination that ta'es place in the mar'et for la&or is a. the ina&ility to calc*late wage differentials. &. the ina&ility to see changes in the wage differentials o+er a period of time. c. the diffic*lty in meas*ring prod*cti+ity differences &etween wor'ers. d. the diffic*lty in meas*ring female la&or"force participation. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
Scenario 19-5 ;illy wor's for the local piano mo+ing company part"time after school. ;illy has wor'ed for the company for two years &*t still hasn?t recei+ed a wage increase3 e+en tho*gh newer employees ha+e recei+ed raises. ;illy has threatened his employer with a laws*it if he doesn?t get a raise in the ne-t few wee's. ;illy &elie+es he is a +ictim of la&or"mar'et discrimination. 00. Re#er to Scenario 19".. >hich of the following statements wo*ld wea'en ;illy?s case against his employerC a. ;illy only wor's part"time@ as a res*lt3 he has fewer ho*rs of e-perience e+en tho*gh he has &een with the company for more years. &. ;illy complains of lower &ac' pro&lems@ as a res*lt3 he fre=*ently gets the easy 2o& of holding the doors open while the mo+ers carry the piano into the c*stomer?s ho*se. c. The other employees ha+e high school diplomas3 &*t ;illy did not grad*ate from high school. d. All of the a&o+e statements wo*ld wea'en ;illy:s case. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: D NAT: Reflecti+e )S%: Analytical 01.
Re#er to Scenario 19".. >hy might an economist &e s'eptical of ;illy?s discrimination complaintC a. Thro*gh antitr*st laws3 discriminating firms can &e penaliAed with large fees. &. In a competiti+e mar'et3 employers pay employees &ased on their +al*e to the firm. c. Discrimination leads to profit ma-imiAation. d. $nly cost minimiAers practice discrimination. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
Re#er to Scenario 19".. In a competiti+e mar'et for piano mo+ers3 why might ;illy?s wage differential persistC a. ;illy wor'ers harder than the other employees. &. ;illy 2oins a la&or *nion. c. ;illy?s amia&le personality allows him to wor' well with his co"wor'ers. d. %*stomers do not li'e ;illy &eca*se he has a &ad attit*de. DIF: 1 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
>hich of these instances wo*ld constit*te la&or"mar'et discriminationC (at recei+es a higher wage than Fames. (at and Fames are identical in all of their la&or"mar'et characteristics e-cept that a. (at is a college grad*ate3 and Fames has only a high school diploma. &. (at is a &lac' 3 and Fames is white. c. (at has 10 years of e-perience at her 2o&3 whereas Fames has only fi+e years of e-perience. d. (at is more willing to accept dangero*s wor'ing conditions than Fames. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: ; NAT: Analytic )S%: Interpreti+e

0!. According to e+idence pro+ided &y the 6.S. go+ernment3 the median &lac' a. woman is paid ro*ghly the same as the median white woman. &. woman is paid ro*ghly the same as the median &lac' man. c. man is paid 22 percent less than the median white man. d. All of the a&o+e are correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
0!
Bi+en that the median male is &etter paid than the median female3 which of the following is a +alid e-planation for wage differencesC a. compensating differentials &. differences in h*man capital c. discrimination d. All of the a&o+e can &e a partial e-planation. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
>hich of the following can &e *sed to help e-plain wage differences among different gro*ps of wor'ersC a. h*man capital ac=*ired thro*gh ed*cation &. h*man capital ac=*ired thro*gh 2o& e-perience c. compensating differentials d. All of the a&o+e can e-plain wage differences. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
A consens*s +iew among economists regarding the possi&ility of la&or"mar'et discrimination is that a. most wage differences among gro*ps are attri&*ta&le to discrimination. &. many employers *se compensating differentials to hide discriminatory practices. c. wage differences among gro*ps are not s*fficient &y themsel+es to determine how m*ch discrimination there is. d. all wage differences among gro*ps are attri&*ta&le to differences in h*man capital and compensating differentials. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Analytic )S%: Analytical 1,.
In what way do competiti+e mar'ets ha+e a 7nat*ral remedy7 for discriminatory hiring practicesC a. Bo+ernments reg*late to resol+e pro&lems of discrimination. &. (rofit"ma-imiAing firms that do not discriminate tend to replace firms that discriminate. c. >ages paid to gro*ps that are +ictimiAed &y discrimination are e+ent*ally &id *p to a&o+e" e=*ili&ri*m le+els. d. Discrimination is *s*ally the o*tcome of rational decision"ma'ing processes3 and competiti+e mar'ets prod*ce rational o*tcomes. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: ; NAT: Analytic )S%: Analytical 1..
If there is systematic discrimination against a gro*p of wor'ers3 then the wage paid to those wor'ers li'ely will &e a. lower d*e to a higher s*pply of wor'ers in that gro*p. &. lower d*e to a lower demand for wor'ers in that gro*p. c. higher d*e to a lower s*pply of wor'ers in that gro*p. d. higher d*e to a higher demand for wor'ers in that gro*p. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: ; NAT: Analytic )S%: Analytical
19
10.

If employers are profit"ma-imiAers3 then a. competition will always e+ent*ally eliminate employment discrimination. &. employment discrimination may persist if cons*mers discriminate. c. employment discrimination will persist &eca*se it is always profita&le. d. compensating differentials cannot e-ist. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
In the co*ntry of Freedonia3 men and women ha+e the same le+el of ed*cation and choose different forms of wor' in the same proportions. The only real difference is that men typically stay home to raise yo*ng children3 ret*rning to the wor' force after their children enter elementary school. If no discrimination e-ists3 then we wo*ld e-pect that3 on a+erage3 a. women wo*ld earn less than men. &. women wo*ld earn more than men. c. men and women wo*ld earn the same wage. d. wage differences &etween men and women wo*ld &e d*e to differences in &ea*ty. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
(eople who grew *p in the western part of A=*ilonia ha+e an accent distinct from people who grew *p in the eastern part of the co*ntry. (eople from the west also recei+e lower wages than people from the east. From this information alone3 we can concl*de that it is possi&le that a. discrimination against people from the west e-ists. &. people from the east recei+e compensating differentials. c. people from the west ha+e lower le+els of h*man capital. d. All of the a&o+e co*ld &e correct. DIF: , R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
In disc*ssing discrimination and the wage differences that e-ist &etween men and women and &etween &lac's and whites3 it has &een said that 7the disease is political e+en if the symptom is economic.7 >hat does this meanC a. >age differences persist &eca*se the political system has failed to enact laws to e=*aliAe wages among all gro*ps. &. >age differences e-ist &eca*se of past discrimination on the part of political &odies s*ch as city co*ncils and school &oards. c. >age differences e-ist &eca*se of the differences in the political +iews of the different gro*ps. d. >age differences e-ist &eca*se the political system is &iased against paying compensating differentials. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: ; NAT: Analytic )S%: Analytical 1!.
A st*dy cond*cted &y economists )arianne ;ertrand and Sendhil )*llainathan fo*nd e+idence of la&or" mar'et discrimination &ased on which of the following findingsC a. Resta*rant c*stomers preferred to &e waited on &y white waitresses than &y &lac' waitresses. &. ;lac' &as'et&all players earned more than white &as'et&all players. c. mployers were more li'ely to re=*est inter+iews with 2o& applicants with HwhiteI names s*ch as Breg than from applicants with H&lac'I names s*ch as Famal. d. mployers were more li'ely to re=*est inter+iews with 2o& applicants with Hmasc*lineI names s*ch as )ar' than from applicants with HfeminineI names s*ch as #isa. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination

49. S*ppose that cons*mers s*ddenly prefer to do &*siness with left"handed wor'ers instead of right"handed wor'ers. >e wo*ld e-pect that the marginal re+en*e prod*ct of a. left"handed wor'ers wo*ld rise3 which wo*ld increase the demand for left"handed wor'ers. This will increase the n*m&er of left"handed wor'ers employed3 which will in t*rn increase the marginal prod*ct of left"handed wor'ers. &. left"handed wor'ers wo*ld rise3 which wo*ld increase the demand for left"handed wor'ers. This will increase the n*m&er of left"handed wor'ers employed3 which will in t*rn red*ce the marginal prod*ct of left"handed wor'ers. c. right"handed wor'ers wo*ld rise3 which wo*ld increase the demand for right"handed wor'ers. This will increase the n*m&er of right"handed wor'ers employed3 which will in t*rn increase the marginal prod*ct of right"handed wor'ers. d. right"handed wor'ers wo*ld fall3 which wo*ld red*ce the demand for right"handed wor'ers. This will red*ce the n*m&er of right"handed wor'ers employed3 which will in t*rn red*ce the marginal prod*ct of right"handed wor'ers.
11
ANS: ; DIF: , R F: 1!"2 NAT: Reflecti+e #$%: #a&or mar'ets T$(: #a&or"mar'et discrimination < )arginal prod*ct of la&or 41.
)S%: Analytical
In the early twentieth cent*ry3 streetcars in many so*thern cities were segregated &y race. This racial segregation was the res*lt of a. laws that re=*ired s*ch segregation. &. long"standing so*thern traditions a&o*t which the law was silent. c. streetcar firms trying to ma-imiAe profits. d. streetcar firms trying to minimiAe costs. DIF: 1 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: A NAT: Analytic )S%: Applicati+e 42.
The case st*dy of segregated street cars in so*thern cities ill*strates which of the followingC a. Racial discrimination in the seating areas was an important catalyst in the %i+il Rights mo+ement. &. Segregation laws were s*pported &y local &*siness owners as well as patrons. c. Firms *s*ally care more a&o*t ma-imiAing profits than discriminating against certain c*stomers. d. Racial discrimination was a prec*rsor to gender discrimination. DIF: 1 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Analytic )S%: Interpreti+e 4,.
In the early 29th cent*ry3 streetcar seating which was segregated &y race a. was a res*lt of economic discrimination &y railroad company managers. &. was less profita&le than streetcar seating that didn?t ha+e restrictions. c. was strongly s*pported &y pri+ate streetcar companies. d. led to higher re+en*e and lower costs for streetcar companies. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: ; NAT: Analytic )S%: Applicati+e 4..
In the early twentieth cent*ry3 racial segregation of streetcars in the so*thern cities was largely opposed &y a. streetcar firms. &. go+ernment officials. c. Sherman antitr*st laws. d. cons*mers. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: A NAT: Analytic )S%: Applicati+e
12
40.

The e-ample of segregated streetcars in the so*thern 6nited States in the early twentieth cent*ry is one e-ample of a. racial discrimination &y firms3 despite go+ernment efforts to halt it. &. racial discrimination &y firms with no go+ernment action either to halt it or to s*pport it. c. go+ernment"mandated racial discrimination. d. a fail*re to find any discrimination where most wo*ld e-pect to find it. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
Some discriminatory hiring practices can &e e-pected3 e+en if mar'ets are competiti+e3 as a res*lt of a. *nrestricted entry and e-it in mar'ets. &. lower costs of hiring. c. a perfectly elastic mar'et demand. d. c*stomer preferences. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
If firms are competiti+e3 then la&or"mar'et discrimination a. cannot e-ist in either the short r*n or the long r*n. &. will &e more of a pro&lem than if the mar'et were monopolistic or imperfectly competiti+e. c. li'ely will not &e a long"r*n pro&lem *nless c*stomers e-hi&it discriminatory preferences or go+ernment maintains discriminatory policies. d. li'ely will &e more of a pro&lem in the long r*n than in the short r*n d*e to the Aero"profit condition that characteriAes long"r*n e=*ili&ri*m for competiti+e firms. DIF: , R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Reflecti+e )S%: Analytical 45.
A competiti+e mar'et may &e consistent with a discriminatory wage differential if a. firms? c*stomers ha+e discriminatory preferences. &. the wage differential is e-plained &y a compensating differential. c. the wage differential is e-plained &y differences in h*man capital. d. All of the a&o+e are correct. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: A NAT: Analytic )S%: Analytical 4!.
Discrimination may persist e+en in competiti+e mar'ets when the so*rce of the discrimination is a. employer pre2*dice. &. c*stomer pre2*dice. c. wage pre2*dice. d. employee pre2*dice. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
>hich of the following statements is not correctC a. If a firm discriminates &y paying short wor'ers less than tall wor'ers3 the firm may &e a&le to compete in the mar'et if the firm?s c*stomers also prefer taller wor'ers to shorter wor'ers. &. If the go+ernment passes reg*lations that pre+ent shorter wor'ers from wor'ing in higher paying 2o&s3 taller wor'ers may contin*e to earn higher wages than shorter wor'ers. c. Bo+ernment reg*lation that prohi&its discrimination is economically necessary &eca*se mar'et forces s*pport discrimination. d. %ompetiti+e mar'ets will eliminate discrimination in wages o+er time *nless c*stomer preferences also reflect discrimination and8or go+ernment inter+ention promotes discrimination.

ANS: % NAT: Reflecti+e )S%: Applicati+e 51. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
1,
+idence from a st*dy of the mar'et for &ase&all players *sing 1!19s data a. indicated that sports with strong player associations are *nli'ely to e-perience wage discrimination. &. s*ggested that go+ernment reg*lation had eliminated most e+idence of wage discrimination. c. fo*nd some e+idence of cons*mer"dri+en wage discrimination. d. fo*nd that meas*rement of marginal prod*cti+ity was +ery diffic*lt for &ase&all players. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
+idence from a 1!55 st*dy of the mar'et for professional &as'et&all players a. fo*nd no e+idence of cons*mer"dri+en wage discrimination. &. fo*nd some e+idence of cons*mer"dri+en wage discrimination. c. fo*nd that meas*rement of marginal prod*cti+ity was +ery diffic*lt for &as'et&all players. d. indicated that sports with strong player associations are *nli'ely to e-perience wage discrimination. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: ; NAT: Analytic )S%: Interpreti+e 5,.
A 1!!9 st*dy of the mar'et for collecta&le &ase&all cards s*ggested a. there was no e+idence of price discrimination on the &asis of player position Dhitter +ers*s pitcherE. &. mar'ets in which the prod*ct price is low are not typically characteriAed &y cons*mer"dri+en race discrimination. c. cards for white players D&oth hitters and pitchersE were 19 to 1, percent higher than those for compara&le &lac' players. d. cards for &lac' players D&oth hitters and pitchersE were 19 to 1, percent higher than those for compara&le white players. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
ANS: % NAT: Analytic )S%: Interpreti+e 5..
St*dies of professional sports teams s*ggest that3 in sports3 racial discrimination is a. rare. &. common and that owners of teams are largely to &lame. c. common and that c*stomers DfansE are largely to &lame. d. None of the a&o+e is correct@ there are no relia&le st*dies of discrimination in sports d*e to the diffic*lties inherent in meas*ring athletes? prod*cti+ity. DIF: 2 R F: #$%: #a&or mar'ets 1!"2 T$(: #a&or"mar'et discrimination
Regarding wage differences among +ario*s gro*ps of wor'ers L &lac's and whites3 men and women3 etc. L most economists &elie+e that a. no s*ch differences are e+ident from the a+aila&le data. &. most of the differences are attri&*ta&le to discrimination. c. some of the wage differences are attri&*ta&le to discrimination3 &*t there is disagreement a&o*t how m*ch. d. none of the differences are attri&*ta&le to discrimination.
ANS: % DIF: 1 R F: 1!"2 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: #a&or"mar'et discrimination < >ages )S%: Interpreti+e
1.
51.

It is li'ely that3 if we co*ld meas*re the =*ality as well as the =*antity of ed*cation3 a. the h*man"capital arg*ment wo*ld &ecome less compelling as a means of e-plaining wage differentials &etween white wor'ers and &lac' wor'ers. &. the h*man"capital arg*ment wo*ld &ecome less compelling as a means of e-plaining wage differentials &etween male wor'ers and female wor'ers. c. wage differentials &etween white wor'ers and &lac' wor'ers wo*ld &e more p*AAling than they are now. d. wage differentials &etween white wor'ers and &lac' wor'ers wo*ld &e more f*lly e-plained.
ANS: D DIF: 2 R F: 1!"2 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: #a&or"mar'et discrimination < >ages )S%: Interpreti+e 54. )en and women tend to choose different types of occ*pations3 and so a. a so*rce of wage differences &etween men and women is differences in h*man capital. &. a so*rce of wage differences &etween men and women is compensating differentials. c. the gap &etween the earnings of men and the earnings of women is li'ely e+en more significant than the data alone indicate. d. we sho*ld e-pect the earnings of women to rise relati+e to the earnings of men3 in order to ind*ce women to accept 2o&s that they ha+e &een rel*ctant to accept in the past.
ANS: ; DIF: 2 R F: 1!"2 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: #a&or"mar'et discrimination < >ages )S%: Interpreti+e 55. Ass*me men3 on &alance3 ha+e lower amo*nts of h*man capital than women ha+e. Then we wo*ld e-pect a. the demand for female la&or to &e lower than the demand for male la&or. &. the demand for female la&or to &e higher than the demand for male la&or. c. the s*pply of female la&or to &e lower than the demand for male la&or. d. the s*pply of female la&or to &e higher than the s*pply of male la&or.
ANS: ; DIF: 1 R F: 1!"2 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: #a&or"mar'et discrimination < >ages )S%: Interpreti+e 5!. Some economists are s'eptical of the arg*ment that employers are responsi&le for discriminatory wage differences. They arg*e that mar'et economies pro+ide a nat*ral remedy to employer discrimination3 and that remedy is a. social responsi&ility. &. the profit moti+e. c. fear of reprisal from gro*ps that s*ffer from those wage differences. d. fear of reprisal from go+ernment in the form of prosec*tion.
ANS: ; DIF: 2 R F: 1!"2 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: #a&or"mar'et discrimination < >ages )S%: Interpreti+e !9. St*dies of discrimination in &ase&all s*ggest that &lac' players a. s*ffered from discriminatory wage differentials se+eral decades ago and those wage differentials persist today. &. s*ffered from discriminatory wage differentials se+eral decades ago &*t those wage differentials ha+e &een eliminated. c. did not s*ffer from discriminatory wage differentials se+eral decades ago &*t in recent years wage differentials ha+e &ecome e+ident. d. did not s*ffer from discriminatory wage differentials in the past and they do not s*ffer from wage differentials today.
ANS: ; DIF: 2 R F: 1!"2 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: #a&or"mar'et discrimination < >ages )S%: Interpreti+e

!1.
10
conomists arg*e competiti+e mar'ets pro+ide a Hnat*ral remedyI to discriminatory wage practices. >hich of the following is widely recogniAed as a potential limit to the effecti+eness of that nat*ral remedyC a. Some wor'ers are mem&ers in *nions. &. Some firms pay efficiency wages@ others do not. c. Some c*stomers are discriminatory in their &*ying ha&its. d. Some employees ha+e acc*m*lated more h*man capital than other employees.
ANS: % DIF: 2 R F: 1!"2 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: #a&or"mar'et discrimination < >ages )S%: Interpreti+e !2. It is arg*ed that competiti+e mar'ets pro+ide a Hnat*ral remedyI to discriminatory wage practices. >hich of the following is widely recogniAed as a potential limit to the potency of that nat*ral remedyC a. Bo+ernments sometimes mandate discriminatory practices. &. Some employees ha+e a lot of 2o& e-perience@ others ha+e little 2o& e-perience. c. In a discriminatory en+ironment3 a competiti+e firm that ta'es prices and wages as gi+en has nothing to gain from any partic*lar choice it ma'es regarding who to hire or which c*stomers to ser+e. d. Not all firms e-hi&it social responsi&ility in s*fficient meas*re to co*nter discriminatory wage practices.
ANS: A DIF: 2 R F: 1!"2 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: #a&or"mar'et discrimination < >ages )S%: Interpreti+e !,. In the presence of discrimination &y c*stomers3 a. mar'et forces ne+ertheless always wor' to pre+ent discriminatory wage differentials. &. discriminatory wage differentials can e-ist3 &*t only if firms refrain from ma-imiAing their profits. c. discriminatory wage differentials can e-ist3 &*t only if go+ernment reinforces c*stomers: practices &y passing laws that mandate discrimination. d. discriminatory wage differentials can e-ist3 e+en in the a&sence of discriminatory practices &y firms or &y go+ernment.
ANS: D DIF: 2 R F: 1!"2 NAT: Analytic #$%: The st*dy of economics3 and definitions of economics T$(: #a&or"mar'et discrimination < >ages )S%: Interpreti+e

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Chapter 19 Earnings and Discrimination

%hapter 1!8 arnings and Discrimination

%hapter 1!8 arnings and Discrimination

1!"2 T$(: A&o+e"e=*ili&ri*m wages

%hapter 1!8 arnings and Discrimination

%hapter 1!8 arnings and Discrimination

%hapter 1!8 arnings and Discrimination

%hapter 1!8 arnings and Discrimination

%hapter 1!8 arnings and Discrimination

Sec !1""Some Determinants o# E$%i&i'ri%m

ANS: ; NAT: Analytic )S%: Applicati+e 2.

1!"1 T$(: A&o+e"e=*ili&ri*m wages

ANS: ; NAT: Analytic )S%: Applicati+e ,.

ANS: D NAT: Analytic )S%: Applicati+e ..

%hapter 1!8 arnings and Discrimination

ANS: ; NAT: Analytic )S%: Applicati+e Figure 19-1

ANS: ; NAT: Analytic )S%: Analytical 5.

%hapter 1!8 arnings and Discrimination

ANS: A NAT: Reflecti+e )S%: Analytical !.

ANS: A NAT: Analytic )S%: Analytical Figure 19-2

%hapter 1!8 arnings and Discrimination

%hapter 1!8 arnings and Discrimination

ANS: ; NAT: Analytic )S%: Applicati+e 11.

ANS: A NAT: Analytic )S%: Definitional 14.

ANS: ; NAT: Analytic )S%: Definitional 15.

ANS: D NAT: Analytic )S%: Definitional 1!.

ANS: A NAT: Analytic )S%: Definitional 29.

ANS: A NAT: Analytic )S%: Applicati+e

%hapter 1!8 arnings and Discrimination

ANS: A NAT: Analytic )S%: Interpreti+e 22.

ANS: ; NAT: Analytic )S%: Interpreti+e 2,.

ANS: ; NAT: Analytic )S%: Definitional 2..

ANS: D NAT: Analytic )S%: Applicati+e 20.

ANS: A NAT: Analytic )S%: Interpreti+e 21.

%hapter 1!8 arnings and Discrimination

ANS: % NAT: Analytic )S%: Definitional 24.

ANS: A NAT: Analytic )S%: Definitional 25.

ANS: D NAT: Analytic )S%: Applicati+e 2!.

ANS: ; NAT: Analytic )S%: Interpreti+e ,9.

ANS: A NAT: Analytic )S%: Interpreti+e ,1.

ANS: D NAT: Analytic )S%: Interpreti+e ,2.

%hapter 1!8 arnings and Discrimination

ANS: D NAT: Analytic )S%: Interpreti+e ,..

ANS: D NAT: Analytic )S%: Interpreti+e ,0.

ANS: % NAT: Analytic )S%: Interpreti+e ,1.

ANS: % NAT: Analytic )S%: Interpreti+e ,4.

ANS: D NAT: Analytic )S%: Interpreti+e ,5.

%hapter 1!8 arnings and Discrimination

%hapter 1!8 arnings and Discrimination

%hapter 1!8 arnings and Discrimination

ANS: NAT: T$(: )S%:

%hapter 1!8 arnings and Discrimination

ANS: NAT: T$(: )S%: 0,.

ANS: NAT: T$(: )S%: 0..

%hapter 1!8 arnings and Discrimination

ANS: % NAT: Analytic )S%: Interpreti+e 0!.

ANS: ; NAT: Analytic )S%: Interpreti+e 19.

ANS: % NAT: Analytic )S%: Interpreti+e 11.

ANS: A NAT: Analytic )S%: Interpreti+e

%hapter 1!8 arnings and Discrimination

ANS: ; NAT: Analytic )S%: Definitional 10.

ANS: D NAT: Analytic )S%: Definitional 11.

ANS: ; NAT: Analytic )S%: Interpreti+e 14.

1!"2 T$(: A&o+e"e=ili&rim wages

1!"1 T$(: A&o+e"e=ili&rim wages