A2 ECONOMICS

MULTIPLE CHOICE QUESTIONS

PAPER 3
TOPICS: LABOUR MARKET

1 The diagram shows the supply and demand for labour in an industry.

Initially the industrys labour market is in equilibrium.

What effect will the introduction of a minimum wage OW have on the level
of employment in the
industry?
A It will decrease by an amount LM. *
B It will decrease by an amount LN.
C It will increase by an amount LN.
D It will increase by an amount MN.
2 The diagram shows the outcome when a perfectly competitive market is
taken over by a monopoly.

What does area X represent?

A monopoly profit
B the reduction in consumer surplus
C the resulting deadweight loss *
D transfer earnings

3 A firms workers join a trade union which negotiates an increase in the

workers wage rate. The increase in the wage rate results in an increase in
the number employed by the firm.
What could explain this?
A The demand for the firms product is price-elastic.
B The firm is a monopsonist within its local labour market. *
C The firm operates in a perfectly competitive labour market.
D There is a high degree of substitutability between capital and labour.
4 The table shows information about a profit-maximising firm.
output

17 000 units

price per unit

$1.75

fixed costs

$10 000

variable costs per

unit

$1.70

What should the firm do?

A close down immediately because it is not covering its fixed costs
B close down immediately because it is not covering its average costs
C close down immediately because it is not covering its total costs
D continue production in the short run because it is covering its variable
costs
5 A competitive market becomes a monopoly.
What is likely to happen?
A Consumer surplus will be reduced by the amount of the deadweight loss.
B Producer surplus will be reduced by the amount of the deadweight loss.
C The loss in consumer surplus will be balanced by the increase in
producer surplus.
D There will be a transfer of surplus from consumer to producer. *

6 What could cause a perfectly competitive firms marginal revenue

product of labour curve to shift to the right?
A an increase in wages
B a higher rate of sales tax
C an increase in labour supply
D a rise in the price of the final product **
7 The workers in a firm have not previously belonged to a trade union but
now join one.
In which circumstance is this most likely to raise their wages?
A Capital is highly substitutable for labour.
B Labour costs constitute a large fraction of the firms costs.
C The demand for the firms product is price-elastic.
D The firm has enjoyed monopsony power in the market for its labour. **

8 Which of the following will necessarily cause the supply curve of labour
in a particular industry to shift to the right?
A a fall in wages paid in similar occupations **
B a greater use of machinery
C an increase in demand for the product
D a strengthening of trade union influence in the industry
9 The introduction of equal pay legislation in a country increases the
wages of female workers.
What will be the most likely effect of this increase?
A a reduction of the rate of female unemployment
B a reduction in the wages of male workers
C an expansion in the supply of female workers **
D substitution of female workers for male workers

10 To increase its labour force from 50 to 51 workers, a firm has to

increase the daily wage rate from $600 to $610.
What is the marginal cost of labour per day?
A $10
B $510
C $610
D $1110 **
11 There is an increase in the supply of female labour.
What will be the likely effect on male and female wages?

**A

12 In the diagram, MRPL is a firms marginal revenue product of labour

curve, S is its supply of labour curve, and MCL its marginal cost of labour
curve.

Assuming profit maximisation, how many workers will the firm employ and
what wage will it pay?

**B
13 When would a trade union be most likely to secure a wage rise for its
members?
A when labour costs are a small proportion of total costs **
B when the demand for the product is price-elastic
C when there are a large number of small producers
D when the supply of labour is elastic
6 In the diagram S1 is an individual worker's initial supply of labour curve.

What could cause the curve to shift to S2?

A an increase in the hourly wage rate
B an increased preference for leisure **
C an increase in the opportunity cost of leisure
D an increase in work satisfaction

14 Wages in industry X are significantly higher than in industry Y.

What could explain this difference?
A Workers in industry Y are highly mobile.
B Trade union organisation in industry Y is relatively strong.
C Industries X and Y compete with each other for workers.
D There are non-pecuniary advantages to working in industry Y. **
15 The diagram shows the total product curve for a single variable factor,
assuming all other factor inputs are held constant.

In which order do the total product (TP), average product (AP) and
marginal product (MP) begin to decrease as the input of the variable factor
is increased?

**C
16 For a firm in imperfect competition, the marginal revenue product of
labour at any given level of employment is equal to
A marginal revenue divided by the number employed.
B marginal revenue divided by the wage rate
C the marginal physical product of labour multiplied by marginal
revenue.**
D the marginal physical product of labour multiplied by the wage rate.

17 The diagram shows an individuals supply of labour curve.

He is offered a job which would require him to work a standard 40-hour

week.
Which area measures the lowest amount he would have to be paid per
week to get him to accept this job offer?
Aw+z
B x + y **
Cx+y-z Dw+x+z+y
18 In the diagram, S is a monopsonists supply of labour curve, MCL its
marginal cost of labour curve and MRPL its marginal revenue product of
labour curve.

The firm's workers join a trade union which negotiates a wage rate, OW,
with the firm's owners.
What will be the effect on the firm's total wage bill and on the number of
workers employed?

**A