Chapter 18 - Summative Quiz - 1. Since the demand for labor...

1. Since the demand for labor is like the demand for any other good, how might the following factors shift the
demand for janitors at McDonald's?
I. A new junior high school opens up across the street from McDonald's.
II. Customers suddenly become much more concerned about clean restaurants and they'll walk out if there's
dirt on the floor.
III. As robots like the Roomba vacuum cleaner become cheaper, McDonald's buys some robots to do half the
janitors' work.
a. I and III would increase demand and II would decrease demand.
b. I and II would increase demand, and III would decrease demand.
c. III would increase demand and I and II would decrease demand.
d. II would increase demand, and I and III would decrease demand.

2. Joe's labor supply is given in the following figure.
How might the following factors affect Joe's labor supply?
I. The government raises Joe's income tax rate, so now he pays 20% of his wages to the government instead
of 10%.
II. The price of comfortable work shoes falls dramatically. Now, his feet won't ache nearly as much after a
full day of work.
III. While in Las Vegas for the weekend, Joe wins a $1 million jackpot.
3. Let's apply the idea of compensating differentials to janitorial jobs. Suppose there are two quite similar
restaurants in the same town, OrangeBee's and the City Inn. Both have the same demand for janitorial labor.
But all the janitors in town know that it's much more fun to work at City Inn. Which restaurant will pay a
higher wage for janitors? Which restaurant will hire more janitors?

4. Using your knowledge of the theory of compensating differentials, assess the validity of the following
statements about low-skilled jobs in the United States.
I. Safe jobs will tend to pay more than dangerous jobs.
II. Fun jobs will tend to pay less than boring jobs.
III. Dead-end jobs will tend to pay more than jobs with the potential for advancement.