Practice Question Set Chapter 8 Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A compensating wage differential is A) an extra wage that will make all workers willing to accept undesirable working conditions. B) an extra wage that implies firms are no longer maximizing profits. C) an extra wage that compensates workers for undesirable working conditions. D) an extra wage that is above the equilibrium wage. 1) 2) Lawyers work in pleasant surroundings at low risk of injury, but they generally receive higher pay than construction workers. This is because A) lawyers' work must be considered unpleasant by many workers. B) lawyers and construction workers are not comparable due to different preferences. C) construction workers don't receive a compensating wage differential for their risk of injury and less pleasant surroundings. D) lawyers and construction workers are not comparable due to different education levels. 2) 3) On a graph of wage rates versus risk of injury, indifference curves are convex because A) at low levels of risk, a worker is less willing to give up wages for increased safety. B) utility is constant on indifference curves. C) each additional dollar of pay increases utility more than the previous dollar. D) risk of injury decreases workers' utility. 3) 4) The offer curve describes A) different wage-and-risk levels available to one firm. B) different wage-and-risk level offers made by different firms. C) different risk levels associated with the same wage level. D) different wage offers a firm will make to workers of different education levels. 4) 5) If a worker does not have good information and thinks that risks are lower than they actually are, then OSHA regulations which increase safety standards in the workplace A) could increase or decrease utility for the worker. B) decrease utility for the worker. C) increase utility for the worker. D) move the worker to his highest possible utility level. 5) 6) Introduction of a benefit that turns out to decrease productivity would cause a firm's isoprofit curve to A) remain unchanged. B) flatten. C) become steeper. D) become convex. 6) 7) If workers on the third shift make $1 per hour more than workers on the first shift, then A) working during the day is worth less than $1 per hour to all workers. B) working during the day is worth exactly $1 per hour to all first shift workers. C) working during the day is worth at least $1 per hour to all first shift workers. D) working during the day is worth more than $1 per hour to all third shift workers. 7) 1 8) Holding all other factors constant, workers who are strongly averse to risk will tend to have jobs paying A) below average wages. B) average wages. C) above average wages. D) at least average wages. SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 9) Graph an indifference curve for an individual that depends on the wage rate (on the vertical axis) and on the risk of injury on the job (on the horizontal axis). Explain why the indifference curve looks as you have drawn it. 9) 10) Assume that safety in the workplace is costly to provide for a manufacturing firm. Draw an isoprofit curve map for the firm with the wage rate on the vertical axis and risk of injury on the horizontal axis. Explain why the graph looks as you have drawn it. 10) 2 8) Answer Key Testname: UNTITLED1 1) C 2) D 3) A 4) B 5) A 6) C 7) C 8) A 9) The student should draw a graph with an indifference curve such as in Figure 8.1. The curve is positively sloped because an individual, in order to maintain a given level of utility, requires a greater rate of pay to compensate for assuming a higher level of risk to safety on the job. The indifference curve is convex from below because the individual requires progressively larger increments to the rate of pay for assuming a given increase in risk to safety as the risk to safety gets progressively greater. 10) The graph should look like Figure 8.3. Profit increases as you move to the southeast in the graph, i.e., the firm is more profitable at lower wages and higher risk of injury. The isoprofit curves are positively sloped because, in order to maintain a given level of profit, the firm must reduce the wage to offset the cost increase from providing more safety/reducing risk. The isoprofit curves are concave because it becomes progressively more expensive to reduce risk at lower risk levels and, therefore, larger wage reductions are necessary to offset the progressively larger expense of providing more safety. 3