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AP Microeconomics Unit 5: Factor Markets

12 questions

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Unit 5: Factor Markets

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Question 1

When a firm has market power in both its output market (monopoly) and input market (monopsony), how does this affect labor hired compared to the competitive benchmark?

A.The firm hires more workers than the competitive benchmark because it can price its output higher.B.The firm hires fewer workers than the competitive benchmark due to market power on both sides.C.Employment is unchanged because the monopoly output effect and monopsony input effect cancel each other.D.The firm pays a wage above the competitive rate to attract workers away from other industries.

Question 2

Which of the following would shift the labor supply curve for nurses to the right?

A.An increase in nurses' wages due to rising hospital revenues.B.A government subsidy for nursing education that lowers training costs.C.An increase in the wages paid to physical therapists, an occupation with similar training requirements.D.A decrease in the overall population of working-age adults.

Question 3

Compared to a competitive labor market, a monopsonist will:

A.Hire more workers at a higher wage.B.Hire fewer workers at a lower wage.C.Hire the same number of workers but at a lower wage.D.Hire fewer workers at the same wage as the competitive outcome.

Question 4

The labor supply curve for an individual worker is often described as backward-bending because:

A.At all wages, higher pay causes workers to prefer leisure over work.B.At sufficiently high wages, the income effect outweighs the substitution effect, causing workers to work fewer hours.C.Workers always prefer the minimum socially acceptable wage to maximize leisure time.D.Higher wages reduce worker productivity, causing firms to demand less labor over time.

Question 5

A monopsony in the labor market is characterized by:

A.A single seller of labor who can set the wage above the competitive level.B.A single buyer of labor who pays a wage below the competitive level.C.A market with many employers competing to hire the same workers at a single wage.D.A labor market with a government-imposed wage ceiling below the competitive rate.

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Question 6

Which of the following would increase the demand for labor in the market for construction workers?

A.An increase in the wage rate paid to construction workers.B.A decrease in the price of new homes in the housing market.C.An increase in demand for new housing construction.D.An increase in the productivity of new construction machinery, substituting for workers.

Question 7

A minimum wage set above a monopsony's profit-maximizing wage can potentially:

A.Decrease employment because higher wages always reduce the quantity of labor demanded.B.Increase both employment and wages simultaneously.C.Have no effect because the monopsonist sets wages independently of government policy.D.Cause the monopsonist to exit the market due to unsustainable labor costs.

Question 8

In a competitive factor market, the equilibrium wage is determined by:

A.The minimum wage legislation set by the government.B.The intersection of labor supply and labor demand curves.C.The wage at which firms maximize their total wage bill.D.The average productivity of all workers in the economy.

Question 9

A firm sells output in a competitive market at a price of $\$ 5$ per unit. The marginal product of the 4th worker is 20 units. What is the marginal revenue product (MRP) of the 4th worker?

A.$4B.$20C.$100D.$25

Question 10

A profit-maximizing firm in a competitive labor market will hire workers up to the point where:

A.The marginal product of labor equals zero.B.The wage equals the marginal revenue product of labor.C.Total labor cost is minimized.D.Average revenue product equals the wage.

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Question 11

When a new technology significantly raises the marginal product of all workers in an industry, the most likely effect on that labor market is:

A.The labor supply curve shifts right, increasing employment and reducing wages.B.The labor demand curve shifts right, increasing both wages and employment.C.The labor demand curve shifts left as firms need fewer workers to produce the same output.D.The equilibrium wage falls because each worker is now producing the same output more cheaply.

Question 12

In a perfectly competitive factor market, a firm can hire as many workers as it wants at the market wage. This means the firm's labor supply curve is:

A.Upward sloping because the firm must pay more to attract additional workers.B.Perfectly elastic (horizontal) at the market wage.C.Perfectly inelastic (vertical) because the firm requires a fixed number of workers.D.Downward sloping because higher wages discourage workers from seeking employment.

AP Microeconomics Unit 5: Factor Markets — Free with Answer Explanations | Test Practice Hub