In a labor market, a change in the wage causes a movement along the labor demand and labor supply curves rather than a shift of either curve.
Correct Answer
True
True. The wage is the price of labor, and a change in a good's own price moves the market along its curves. Only other factors, such as demand for the output, technology, education requirements or the number of workers, shift the curves.
Category: Labor Market Basics
Question 2
The labor supply curve slopes downward because higher wages discourage people from working.
Correct Answer
False
False. The labor supply curve slopes upward, because a higher wage draws more people into the job or leads them to work more hours. It is the labor demand curve that slopes downward, since employers hire fewer workers at higher wages.
Category: Labor Market Basics
Question 3
Government rules that require a licensed nurse to be present for certain medical procedures increase the demand for nurses.
Correct Answer
True
True. Government regulations are one of the factors that shift labor demand. A rule requiring nurses for certain procedures means employers need more nurses at every salary, so labor demand shifts right.
Category: Labor Demand Shifters
Question 4
A minimum wage is an example of a price ceiling.
Correct Answer
False
False. A minimum wage is a legal minimum on the price of labor, which makes it a price floor. A price ceiling is a legal maximum price, such as a cap on interest rates.
Category: Price Controls
Question 5
In a demand and supply diagram for financial capital, the horizontal axis measures the quantity of money loaned and borrowed.
Correct Answer
True
True. Quantity goes on the horizontal axis, and in this market the quantity is the amount of financial capital loaned and borrowed. The vertical axis shows the interest rate, which acts as the price.
Category: Financial Capital Basics
Question 6
Other things being equal, a higher interest rate leads borrowers to want to borrow more.
Correct Answer
False
False. The interest rate is the price of borrowing, so a higher rate leads borrowers to want to borrow less, giving the demand for financial capital its downward slope. It is savers who want to lend more when the rate rises.
Category: Financial Capital Basics
Question 7
Decisions about saving and borrowing are intertemporal decisions, because they involve trading off the present against the future.
Correct Answer
True
True. Saving means giving up spending now in exchange for more later, and borrowing means getting funds now in exchange for repaying more later. Both choices compare different points in time, which is what intertemporal means.
Category: Financial Capital Basics
Question 8
Because prices carry information, a buyer must know why a price changed in order to respond sensibly to it.
Correct Answer
False
False. A price summarizes the result of all the forces acting on demand and supply, so a buyer can respond to a higher airfare by changing travel dates without knowing whether fuel costs or holiday demand caused it. That is what makes prices such an efficient way to pass along information.
Category: Prices as Information
Question 9
Changes in one market, such as a labor market, can spread to related markets for goods and for financial capital.
Correct Answer
True
True. Markets for goods, labor and financial capital are linked, since firms hire workers and borrow funds in order to produce output. A change in one market can therefore shift demand or supply in others.
Category: Prices as Information
Question 10
A binding price ceiling on interest rates raises the quantity of loans actually made above the equilibrium quantity.
Correct Answer
False
False. A ceiling below the equilibrium rate makes lenders offer less, so the quantity of loans actually made falls to the quantity supplied at the capped rate, below the equilibrium quantity. Borrowers want more at the lower rate, but some of them are turned away.
Category: Price Controls
Question 11
Price ceilings are less common than price floors in labor markets.
Correct Answer
True
True. Governments rarely set a legal maximum wage, while legal minimums such as minimum wage and living wage laws are common. Both kinds of control are analyzed with the same demand and supply model.
Category: Price Controls
Question 12
A rise in the number of firms producing a good decreases the demand for workers who make that good.
Correct Answer
False
False. More firms producing a good means more employers looking to hire the workers who make it, so labor demand increases. The number of companies in an industry is one of the factors that shift labor demand.
Category: Labor Demand Shifters
Question 13
If labor demand and labor supply both increase, equilibrium employment rises.
Correct Answer
True
True. A rightward shift of demand and a rightward shift of supply both push the equilibrium quantity of labor up, so employment definitely rises. The effect on the wage is uncertain, because higher demand raises it and higher supply lowers it.
Category: Labor Market Basics
Question 14
An increase in the supply of financial capital raises the equilibrium interest rate.
Correct Answer
False
False. When savers offer more funds at every interest rate, the supply curve shifts right, which lowers the equilibrium interest rate and raises the quantity of loans. A decrease in supply is what raises the rate.
Category: Financial Market Equilibrium
Question 15
In the demand and supply model of labor, a shortage of workers leads employers to raise wages.
Correct Answer
True
True. When employers want to hire more workers than are available at the current wage, they compete for the scarce workers by offering higher pay. The wage rises until quantity demanded equals quantity supplied.
Category: Labor Market Basics
Question 16
A labor market is in equilibrium at the wage where the number of workers employers want to hire is greatest.
Correct Answer
False
False. Equilibrium is the wage at which the number of workers employers want to hire equals the number of people willing to work. Employers want to hire the most workers at very low wages, where there would be a shortage.
Category: Labor Market Basics
Question 17
When foreign investors decide to lend more to a country, the supply of financial capital in that country increases.
Correct Answer
True
True. Foreign investors are among the savers who supply financial capital. More foreign lending shifts the supply curve right, lowering the equilibrium interest rate and raising the quantity of loans.
Category: Financial Market Equilibrium
Question 18
In the market for financial capital, savers expect to pay a rate of return, while borrowers expect to receive one.
Correct Answer
False
False. The roles are reversed: savers expect to receive a rate of return for supplying their funds, and borrowers expect to pay one for the use of those funds. The interest rate is that rate of return.
Category: Financial Capital Basics
Question 19
The quantity of labor can be measured either as the number of workers or as the number of hours worked.
Correct Answer
True
True. Labor markets can be described in terms of how many people are employed or how many total hours they work. Either measure goes on the horizontal axis of a labor market diagram.
Category: Labor Market Basics
Question 20
A rise in demand for a good shifts the supply of labor in that industry to the right.
Correct Answer
False
False. Higher demand for a good raises the demand for the workers who make it, because labor demand is derived from demand for output. The labor supply curve does not shift; the market moves along it to a higher wage and more employment.
Category: Labor Demand Shifters