merged

Multiple Choice: 1. a. 8. c. 15. d.
2. c. 9. a. 16. a.
3. b. 10. c. 17. d.
4. a. 11. a. 18. d.
5. c. 12. d. 19. b.
6. c. 13. b. 20. c.
7. b. 14. d. 21. a.
Problems:
1. The determinants of factor demand are:
(1) Product price. An increase in product price will increase the MRP of the factor, shifting
the factor demand curve to the right.
(2) Factor productivity. An increase in factor productivity (MPP) will increase the MRP of the
factor, shifting the factor demand curve to the right.
(3) Prices of related factors. The demand curve for a factor will shift in the same direction as
the change in price for a substitute factor and in the opposite direction as the change in
price for a complementary factor.
2. The two determinants of labor supply are:
(1) Wage rates in alternative labor markets. An increase in wage rates in alternative labor
markets will cause a decrease in labor supply in the particular labor market being
examined. A decrease in wage rates in alternative labor markets will cause an increase
in labor supply in the particular labor market being examined.
(2) Nonmoney aspects of a job. Workers prefer pleasant working conditions rather than
unpleasant working conditions. If a job becomes more pleasant, the supply of labor in
that labor market will increase. If a job becomes more unpleasant, the supply of labor in
that labor market will decrease.
3. An example of a screening device is education level. Employers seek to hire and promote
employees who will be highly productive. Employers do not have perfect information about
which employees will be the most productive. So employers often rely on some type of
screening device.
4. a.
Workers Widgets MPP Total Revenue MRP
0 0 X $0 X
1 50 50 $300 $300
2 95 45 570 270
3 135 40 810 240
4 170 35 1020 210
5 200 30 1200 180
6 225 25 1350 150
7 245 20 1470 120
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
24 - 15 Factor Markets