SAMPLE PAPER - MULTIPLE CHOICE EXAM

ECON1009: INTRODUCTION TO ECONOMIC THINKING

TIME ALLOWANCE: 1 hour
Answer ALL questions below on the Multiple Choice Question sheet. For each question there
are four possible answers labelled (a), (b), (c) and (d). Indicate which you think is correct by
placing a horizontal mark in the corresponding box on the answer sheet. To get full marks for
each of these questions, it is not necessary to provide any explanation for your answers.
1. Income-leisure indifference curves are convex to the origin because:
a) at a lower income, a person is more willing to sacrifice income for additional leisure
b) at a lower income, a person is less willing to sacrifice income for additional leisure
c) at any income level, a person is willing to sacrifice the same amount of income for
additional leisure
d) the marginal rate of substitution of leisure for income is negative

2. In an income-leisure diagram, the wage rate is graphically represented by the:

a)
b)
c)
d)

slope of the indifference curves

curvature of the indifference curves
slope of the budget line
tangency of the budget line with an indifference curve

3. An individual whose MRSL,Y exceeds the wage at her current combination of leisure and
income could increase utility by:
a)
b)
c)
d)

working more hours

working fewer hours
increasing her income
none of the above; her utility is maximized

4. Which of the following would unambiguously predict a decrease in desired hours of work?
a)
b)
c)
d)

The substitution effect of a wage decrease

The income effect of a wage decrease
A wage increase
The substitution effect of a decline in income tax rates

5. Empirically, what effect does immigration appear to have on the market for native labour
in the long run?
a) Immigrants do not seem to have much of an impact on the labour market
opportunities of native workers.
b) Native earnings increase in areas of substantial immigrant labour.
c) The unemployment rate of native workers is much higher in areas of substantial
immigrant labour.
d) Native workers earn a lower wage than immigrant workers.

6. Which of the following would prevent a single equilibrium wage existing across all labour
markets?
a)
b)
c)
d)

A payroll tax paid equally by workers and firms.

Workers having various skills and preferences.
Firms being free to enter any of the labour markets.
Potential workers being able to freely enter any of the labour markets.

7. Supposing that immigrant labour is complementary to native labour in the production

process, a more open immigration policy will likely result in all but which of the following?
a) Overall native employment increases.
b) The labour demand curve for native workers shifts out.
c) Stiff competition between natives and immigrants workers will result in
lower wages being paid to native workers.
d) Overall economic efficiency increases.

8. For a monopsonist, the marginal cost of labour curve:

a)
b)
c)
d)

is upward-sloping
is horizontal
shows the increase in revenue received by the firm if it hires one more worker
simultaneously equals the wage and the value of marginal product of labour

9. A negative compensating differential for a risky job can result if

a) firms have market power and exploit workers
b) some workers like risk and the demand for labour in risky jobs is relatively
small
c) the supply of workers who dislike risky jobs is large relative to the demand for
workers willing to work a risky job
d) workers are fully informed about the risks on the job
10. The marginal product of labour
a)
b)
c)
d)

initially increases with the quantity of labour because of specialization

diminishes after the inflection point on the total product curve
eventually diminishes as the capital stock is fixed
all of the above

11. The cost of producing a given level of output is minimized

a) on the inelastic portion of the long-run product demand curve
b) where the ratio of input prices equals the marginal rate of technical
substitution.
c) where the wage rate equals the slope of the isoquant
d) where the ratio of input prices equals the slope of the isocost
12. The scale effect refers to

a) firms substituting towards the factor input that has become relative cheaper
b) firms wanting to produce more output when a factor price falls
c) the demand for labour being upward-sloping when the labour market is
competitive
d) the firm equating its elasticity of demand for labour to its elasticity of demand
for capital
13. Suppose there are clever and not-so-clever people in the world. Clever people have a
marginal product of 3 and not-so-clever people a marginal product of 1. Years of schooling
(y) provides a signal of intelligence that costs clever people y/3 dollars and not-so-clever
people y. What values of y allow for education to serve as a signal of productivity?
a)
b)
c)
d)

2y6
2y4
6 y 12
4y

14. Obtaining a Ph.D. is a more attractive investment

a)
b)
c)
d)

the higher the market rate of interest.

the larger the earnings of persons with just a college degree
the older the person
the longer the persons expects to work

15. According to the schooling model, one should invest in a college education if
a) the average earnings of college graduates is greater than the average earnings
of high school graduates
b) the stream of earnings to college graduates is greater than the stream of
earnings to high school graduates
c) the net present value of the stream of earnings (all benefits minus all costs)
associated with college is greater than the net present value of the stream of
earnings associated with a high school education
d) if she faces a higher interest rate than those individuals who typically go to
college
16. Ability bias in the estimation of the return to schooling occurs if
a)
b)
c)
d)

people face unobserved differences in the discount rate

people have unobserved differences in ability
preferences are uncorrelated with ability
all of the above

17. Economic models predict a positively-skewed income distribution in part because

a) poor people are not eligible for scholarships

b) the rate at which students can borrow for university is lower for the rich versus
the poor
c) the children of rich parents are smarter than the children of poor parents
d) most people retire before the age of 65
18. Technological advancements would likely shift out the demand for skilled labour relative
to unskilled labour if the technological advancements
a) allow firms to substitute for unskilled workers with the implementation of new
technology
b) complement the skills of highly educated workers
c) increase the productivity of skilled workers relative to unskilled workers
d) all of the above
19. The demand curve for labour will shift out if
a)
b)
c)
d)

labour productivity falls

consumer demand increases
workplace regulations are imposed on the firm by the government
the wage increases

20. There has been a large increase in demand for child care services over the last 40 years.
Over the same time period, the real wage paid to child care workers has increased only
marginally. What most likely accounts for this?
a) The supply of child care workers has decreased in response to an increase in
demand for child care workers
b) The supply of child care workers has increased in response to an increase in
demand for child care workers
c) The government has drastically reduced child care subsidies
d) Regulations limit how many children a single child care worker can care for at
one time
21. Cohort effects could have occurred with regard to U.S. immigration if
a) immigration policies changed from emphasizing skill requirements to
emphasizing family reunification
b) newer waves of immigrants are less-skilled compared to older waves
c) newer waves of immigrants are less inclined to assimilate compared to older
waves
d) all of the above
22. As wives wages rise relative to husbands, what would we expect to happen to labour
supply choices within the household?
a) Women would take on more relatively more household and market work

b) Husbands would take on relatively more market work and retain the same
relative amount of household work
c) Women would take on relatively more market work and husbands would take
on relatively more household work
d) Both husbands and wives would take a greater number of leisure hours each
week
23. Which of the following will decrease a person's preferred age of retirement?
a) an unexpected increase in wealth (for example, due to a higher stock market
returns on investment)
b) an equal reduction of social security benefits at each retirement age
c) an unexpected increase in lifespan (for example, due to new medical
discoveries)
d) all of the above
24. Single parents who are offered child support assurance programs when none existed for
them before can be expected to
a)
b)
c)
d)

increase the number of hours they work

decrease their labour force participation rate
increase their labour force participation rate
none of the above

25. France limited the work week to 35 hours for all workers, including managers and CEOs
(who were mostly college educated and were working longer hours than most workers). The
effect of this would likely:
a) decrease the hourly wages of those with a college education and decrease the
fraction of those going to college
b) decrease the hourly wages of those with a college education, but have no effect on
the fraction of those going to college
c) reduce the fraction of the population getting a college education
d) increase the fraction of the population getting a college education

END OF EXAM