Chapter 9

Question 1

Law of Diminishing Returns

Answer 1

for any particular plant size, as more labor is used, the extra output that an employee can produce declines at some point

Question 2

what is Value Marginal Product

Answer 2

marginal product of a worker multiplied by the price of the output

Question 3

where does labor supply come from?

Answer 3

employees’ willingness to work for various rewards. The shape of this curve depends on the alternative uses of the employee’s time and the principle of optimal arrangement

Question 4

where does the labor demand curve come from?

Answer 4

employee productivity and the product price

Question 5

where does the labor supply curve come from?

Answer 5

from the employee’s willingness to work at various wages and benefits

Question 6

human capital/ human capital theory

Answer 6

Education and training may improve productivity

Question 7

education and training may be valuable to the individual, not because it makes them more productive, but because it signals to employers that the worker is good

Answer 7

screening theory

Question 8

make work fallacy

Answer 8

the idea that jobs have value, regardless of whether the labor actually creates value

Question 9

establishment survey

Answer 9

they ask large businesses about how many employees are on their payroll, to measure the number of jobs the economy is creating

Question 10

household survey

Answer 10

asks individuals about their employment status by telephone

Question 11

Civilian Non-Institutional Population (CNIP)

Answer 11

Members of the population 16 years or older, not in the military, and not institutionalized. About 245 million

Question 12

Employed (E)

Answer 12

Everyone who worked at least 1 hour for pay or profit in the previous week. Everyone who was not paid for working in a family business, but worked at least 15 hours at that business in the previous week. About 143 million

Question 13

Unemployed (U)

Answer 13

Everyone who was not employed, but made specific, active efforts to find a job in the previous four weeks. Everyone who was waiting to be called back from a layoff. About 12 million

Question 14

Civilian Labor Force (LF)

Answer 14

Employed + Unemployed. About 155 million.

Question 15

the unemployment rate is (found how?)

Answer 15

employed, divided by the civilian labor force.

Question 16

The Labor Force Participation Rate (LFPR)

Answer 16

the LF divided by the CNIP. It measures how many people are interested in holding a job.

Question 17

what is a discouraged worker?

Answer 17

those who have looked for a job at some time during the previous 12 months, but are no longer looking because they think no jobs are available.

Question 18

Frictional unemployment

Answer 18

occurs because of the normal workings of the labor force with people changing jobs and entering the labor force with the skills that will likely soon yield a job

Question 19

structural unemployment

Answer 19

a longer term problem which occurs due to changes in the labor force that render some skills obsolete
It may be due to changes in technology, to trade, or to changes in consumer tastes

Question 20

cyclical unemployment

Answer 20

what we usually think of as unemployment–it arises due to contractions that occur during the business cycle.

Question 21

full employment

Answer 21

said to exist when there is no cyclical unemployment. This means that a fully employed economy has some frictional and structural unemployment.

Question 22

Keynes said labor markets get stuck because:

Answer 22

• Demand for labor initially fell because of deflation. Workers might mistake nominal wage cuts for real wage cuts and quit their job, looking for new jobs at the old, higher, nominal wages. Since all businesses face the same deflation, no business is hiring at the old, higher nominal wage, so the workers continue to be unemployed.
• Workers might have labor contracts which prevent firms from cutting wages to allow for the inflation.