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Unformatted text preview: Name Test Form A Economics 1 Quiz 3 February 25, 2011 True-False Questions: Fill in Bubble A for True, Bubble B for False. 1. A profit maximizing firm will hire the number of workers that maximizes profit per worker. 2. If the demand for labor obeys the Law of Demand, the supply of labor obeys the Law of Supply, and the minimum wage exceeds the competitive equilibrium wage, an increase in the minimum wage will increase involuntary unemployment. 3. The free rider problem is more severe for a small group of people than for a large group of people. 4. If the supply curve for a good is perfectly elastic and the demand curve for the good is downward sloping, a sales tax on the good will cause losses to consumers that exceed the revenue raised by the tax. 5. If the supply curve shifts in (less supplied at every price) and the total revenue of suppliers decreases, the demand curve must be elastic. Multiple Choice Questions 6. Barbie-Doll makes womens dresses. It can sell its dresses for $100 a dress. If it hires one worker, it can make five dresses per day. With two workers, it can make nine dresses per day. With three workers, twelve dresses per day; and with four workers, fourteen dresses per day. If it must pay each of its workers $250 per day, how many workers should it hire? (a) zero (b) one (c) two (d) three (e) four Economics 1 2 7. Emma and Ernie have two small children. Emma works 40 hours a week at a downtown accounting firm. Ernie has the credentials to teach high school algebra, but he stays home all week to take care of the couples two children. His reservation wage is greater than the wage he would earn teaching. Which of the following would decrease his reservation wage? (a) an increase in the salary he could earn teaching (b) an increase in Emmas salary (c) a decrease in the cost of day care for their two children (d) a decrease in the tax rate on Ernies income if he teaches (e) an increase in the rent Emma and Ernie pay for their house 8. The vineyards of St. Michele Valley sell their wines in an international market. The wines produced in the Valley are a very small share of that market. Changes in the amount of wine produced in the Valley have no effect on the price of wine. The supply of workers for vineyards in the Valley obeys the Law of Supply, and the marginal product of labor in every vineyard declines as more workers are hired. Under those conditions, how would a tax on the wine produced in the Valley affect the employment and wage rate of vineyard workers? (a) The wage will fall, and employment will rise. (b) The wage will rise, and employment will fall. (c) The wage will fall, and employment will fall. (d) The wage will rise, and employment will rise....
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