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Economics multiple choice questions

A level

Labour Market Forces and Government Intervention:

Multiple Choice Questions and Answers

What is meant by ‘real wages’?

A the marginal physical product of labour
B the opportunity cost of labour
C the purchasing power of money wages
D wages net of tax [NI0/P3/Q15]

➡Answer C

Real wages are wages adjusted for inflation, or, equivalently, wages in terms of the amount of goods and services that can be bought. This term is used in contrast to nominal wages or unadjusted wages.

A firm's 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 firm’s 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.

➡Answer B

Bargaining power of trade union is weaker when demand for labour is elastic, hence A and C are incorrect. In a perfectly competitive labour market a trade union negotiates wage increase at the expense of number employed hence C is incorrect. Only in an imperfectly competitive labour market increase in the wage rate results in an increase in number employed

In 2004 union officials and businessmen in Argentina agreed to increase the minimum wage from 350 to 450 pesos. In which circumstances would such a rise increase employment?

A Investment increases at a more rapid rate than consumption.
B Labour and product markets are competitive.
C The higher wage rate produces a proportionately greater rise in labour productivity.
D The minimum wage is set above the equilibrium level. [J14/P3/Q6]

➡Answer C

It will increase demand for labour and hence result in an increase in employment.

The government introduces a minimum wage above the equilibrium market wage rate. How will this affect low-paid workers?

A All those initially in employment will receive the new guaranteed minimum wage.
B Fewer of those not already in employment will enter the labour force.
C There will be an increase in the number of low-paid workers in employment.
D Some low-paid workers will lose their job. [J15/P3/Q15]

➡Answer D

A minimum wage rate fixed above the market equilibrium wage rate causes demand for labour to contract, therefore. results in less employment.

A firm currently pays its employees on an hourly basis. Even though the management acknowledges that its employees work to the best of their ability and could not work any harder, the firm decides to switch to a piece-rate system of remuneration whereby the wage paid to each employee depends on their level of output. Why might this new system of remuneration result in a significant improvement in labour productivity?

A It will dispense with the need for management to monitor the actions of its employees.
B It will increase the losses that workers will incur if they are dismissed for not working hard enough.
C It will lead to the recruitment and retention of more highly talented workers.
D It will strengthen the incentives for workers to increase their earnings. [N15/P3/Q6]

➡Answer C

Because it will help to identify who produces how much in a given time.

‘The addition to revenue which results from employing one additional unit of a factor of production, the quantities of all other factors of production remaining constant’. What does this define?

A marginal factor cost
B marginal revenue
C marginal revenue product
D the law of diminishing returns [N16/P3/Q17]

➡Answer C

Marginal revenue product (MRP), also known as the marginal value product, is the marginal revenue created due to an addition of one unit of resource.

Over a given period the amount of overtime worked in manufacturing industry increases. What is likely to be a consequence of this?

A a decrease in employment
B a decrease in the rate of inflation
C a more rapid growth in average earnings than in hourly wage rates
D a more rapid growth in manufacturing output than in productivity [N16/P3/Q20]

➡Answer C

Overtime wage rate is usually higher than the normal time wage rate.

What would cause a rise in the productivity of labour?

A an increase in indirect taxes
B an increase in the quality of capital
C a rise in consumer surplus
D a rise in the elasticity of supply of labour

➡Answer B

Improved tools would help workers to improve their efficiency.

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