1. Which of the following best explains the shape of the individual labor-supply curve? a. The individual labor-supply curve is exactly like any supply curve, it always has a positive slope. b. The individual labor-supply curve slopes downward at all wage rates because, as wages increase, people are able to buy more leisure. c. The individual labor-supply curve slopes upward at lower wage rates and then bends back at higher wage rates. d. The individual labor-supply curve must be vertical because each person can work only eight hours per day. e. The individual labor-supply curve must be horizontal because labor markets are assumed to be perfectly competitive.

2. The labor demand curve is based on the firm’s: a. average revenue curve. b. marginal product curve. c. marginal cost curve. d. average cost curve. e. marginal revenue product curve

3. The term compensating wage differential refers to: a. the bargaining capacity of a monoposonist in the labor market. b. the wage differences that arise from differences in the risk involved in different jobs. c. the criteria on which a firm offers a 401K plan to all its employees or just some employees. d. the wage differences that arise from difference in productivity of the workers in a firm. e. the negotiating power of the trade union.

4. Which of the following is not a reason for compensating wage differentials? a. The risk involved in certain jobs b. An excess supply of workers in some industries c. A high probability of staying away from home d. To attract more laborers in risky professions e. Unpleasant working consditions

5. Why do skilled workers earn relatively higher wages than unskilled workers? a. The marginal productivity of skilled workers is low. b. The marginal cost of hiring skilled workers is low. c. The supply of skilled workers is relatively less. d. There is an abundant supply of skilled workers. e. The marginal cost of hiring unskilled workers is high.

6. Investment in human capital implies: a. investment on machines, technological development, and equipments. b. expenses on education. c. expenses on paying interest for hiring real capital. d. expenses on the purchase of land. e. profit of the entrepreneurs.

7. Outsourcing refers to the process in which: a. a firm purchases service from another firm in another country. b. a firm hires laborers from a foreign market. c. the government of a country works toward providing social security and other rights to migrant workers. d. a firm purchases service from another firm. e. workers of a particular country seek employment in a firm of a foreign country.

8. Offshoring refers to the the process in which: a. a firm hires laborers from a foreign market. b. a firm purchases service from another firm. c. a firm purchases service from another firm in another country. d. workers of a particular country seek employment in a firm of a foreign country. e. the government of a country works toward providing social security and other rights to migrant workers.

9. Suppose a tax rate of 10 percent applies to all income up to $20,000 a year, income above $20,000 up to $50,000 a year is taxed at a rate of 15%, and income above $50,000 a year is taxed at 20%. Calculate the absolute amount of tax paid by a person whose annual income is $30,000. a. $2,000 b. $2,500 c. $4,500 d. $4,000 e. $3,500 12. An increase in the income tax rates: a. makes the labor supply curve more inelastic. b. increases the opportunity cost of leisure. c. lowers the opportunity cost of leisure. d. shifts the labor supply curve to the right. e. shifts the labor demand curve to the right. 13. If the tax rate remains the same as the base increases, the income tax structure is said to be: a. proportional. b. lump-sum. c. negatively skewed. d. progressive. e. regressive.

10. Why has there been an increase in the inequality of income? a. The demand for skilled workers has declined. b. The demand for skilled workers has remained constant and the demand for unskilled workers has declined. c. The government policies went against the unskilled workers. d. The demand for skilled workers has increased and the demand for unskilled workers has not kept pace. e. The demand for unskilled workers has increased as they could be hired for lower wages.

11. Whether exchange is between individuals, firms, or countries, voluntary trade occurs because: a. only one party is made better off. b. both parties of the trade are made better off. c. financial agents devote resources to arrange such trades. d. these trades create employment opportunity for the economy. e. of mandates from governments.

12. Countries tend to export different goods and services because of: a. differences in their comparative advantage. b. differences in their tastes and technological needs. c. differences in income. d. similarities in resource endowment. e. differences in the exchange rates.

13. A country can benefit by indulging in international trade when: a. it produces a good in which it has an absolute disadvantage. b. it produces a good in which its trading partner has an absolute advantage. c. it produces a good in which it has a comparative advantage. d. it produces all the goods which are supported by its resources. e. it produces nothing and merely depends on foreign imports.

14. Between two countries, comparative advantage is found by comparing the: a. relative costs of production in each country. b. absolute costs of production in each country after accounting for inflation. c. labor hours required to produce a bundle of products in each country. d. level of interest rates in each country. e. shipping and transportation costs of each country.