Practice Exam 8
VCE Economics | Labour Markets, Wages, Inequality and Distribution
✎ Complete ALL questions on paper before opening the Model Answers lesson. No notes. Aim for 1 minute per mark.
SECTION A — MULTIPLE CHOICE (20 marks)
Question 1
The marginal revenue product of labour (MRPL) is:
A) The wage paid to the last worker hired
B) The additional revenue generated by employing one more unit of labour, equal to marginal physical product multiplied by marginal revenue
C) The total wage bill of a firm
D) The average productivity of all workers
Question 2
A profit-maximising firm operating in a competitive labour market will hire workers up to the point where:
A) Total revenue is maximised
B) The marginal revenue product of labour equals the wage rate
C) Average cost equals average revenue
D) The firm employs its entire potential workforce
Question 3
An increase in the demand for a firm’s output is most likely to:
A) Decrease the derived demand for the labour that produces it
B) Increase the derived demand for the labour that produces it
C) Have no effect on labour demand
D) Only affect capital, not labour
Question 4
Occupational immobility of labour refers to:
A) Workers being unwilling to relocate geographically
B) Barriers preventing workers from moving between different types of jobs, such as a lack of the specific skills or qualifications required
C) Workers changing jobs frequently
D) Employers refusing to hire part-time staff
Question 5
Frictional unemployment arises because:
A) There is a mismatch between workers’ skills and available jobs
B) It takes time for workers between jobs to search for and find new suitable employment, even when jobs are available
C) Aggregate demand is insufficient
D) Wages are set below equilibrium
Question 6
A monopsony employer, facing an upward-sloping labour supply curve, will employ fewer workers at a lower wage than a competitive labour market because:
A) It must raise the wage paid to all workers to attract additional labour, so its marginal cost of labour exceeds the wage rate
B) It has no market power
C) Workers have complete bargaining power
D) Labour supply is perfectly elastic
Question 7
In a monopsony labour market, a minimum wage set appropriately above the monopsony wage but below the competitive wage can:
A) Always reduce employment
B) Potentially increase both the wage and the level of employment compared with the unregulated monopsony outcome
C) Have no effect on employment
D) Eliminate the firm’s ability to hire any workers
Question 8
Migration is likely to affect the domestic labour market by:
A) Only ever reducing wages for all workers
B) Increasing labour supply, which may place downward pressure on wages in directly competing occupations, while also raising demand for goods and services and filling skill shortages
C) Having no effect on either supply or demand
D) Automatically eliminating unemployment
Question 9
Underemployment describes a situation where:
A) A worker is completely without a job and actively seeking work
B) A worker is employed but wants and is available to work more hours than they currently do
C) A worker has left the labour force entirely
D) A worker earns above the median wage
Question 10
Hysteresis in the labour market refers to:
A) Wages rising continuously
B) The tendency for a spell of unemployment, particularly long-term, to reduce a worker’s future employability, raising the natural rate of unemployment
C) Seasonal changes in employment
D) Perfectly flexible wages
Question 11
Enterprise bargaining agreements in Australia are negotiated:
A) By the Reserve Bank
B) Between an employer, or group of employers, and employees, often through a union, typically setting wages and conditions above the relevant award minimum
C) By individual employees with no collective involvement
D) Only for the public sector
Question 12
Wage stickiness, the tendency for wages to adjust slowly, especially downward, can result in:
A) Immediate labour market clearing during a downturn
B) Persistent unemployment during an economic downturn, since wages do not fall quickly enough to restore equilibrium
C) Wages always rising faster than inflation
D) The elimination of frictional unemployment
Question 13
Compensating wage differentials help explain why:
A) All jobs pay the same wage regardless of conditions
B) Jobs with unpleasant, risky or otherwise undesirable characteristics often pay higher wages than equally skilled but more pleasant jobs, to attract workers
C) The minimum wage is set nationally
D) Wages fall as skill requirements rise
Question 14
The ‘scarring effect’ of youth unemployment refers to:
A) Physical workplace injuries
B) The long-term negative impact of early unemployment on a young person’s future earnings, employment prospects and skill development
C) A rise in youth wages
D) Youth workers earning above minimum wage
Question 15
Part-time and casual employment has grown as a share of the Australian labour market partly because:
A) Firms have no need for a flexible workforce
B) Firms seek greater flexibility in staffing to match fluctuating demand, and some workers prefer non-standard hours
C) The minimum wage was abolished
D) All jobs are now full-time
Question 16
If consumer demand for new housing construction falls sharply, we would expect derived demand for construction labour to:
A) Rise
B) Fall, since labour demand depends on the demand for the final output it helps produce
C) Be unaffected
D) Automatically raise construction wages
Question 17
A wage subsidy scheme targeted at employers who hire mature-age jobseekers is designed to:
A) Increase the minimum wage
B) Lower the effective cost of employing this group to employers, encouraging firms to hire workers who might otherwise face labour market disadvantage
C) Reduce labour force participation
D) Increase the retirement age
Question 18
Which of the following would most likely increase the market wage for registered nurses, ceteris paribus?
A) A fall in demand for healthcare services
B) A shortage of qualified nurses relative to the number of nursing positions employers wish to fill
C) An increase in the supply of qualified nurses with no change in demand
D) A fall in hospital funding with no change in supply
Question 19
The concept of occupational segregation in labour economics refers to:
A) Physical separation of workplaces
B) The tendency for men and women, or other groups, to be concentrated in different occupations or industries, contributing to aggregate pay gaps
C) Workers being segregated by age only
D) Firms only hiring locally
Question 20
A rise in the retirement age, or increased incentives for older workers to remain employed, would most directly affect the labour market by:
A) Reducing the size of the labour force
B) Increasing labour force participation and the supply of experienced labour
C) Reducing labour demand
D) Eliminating frictional unemployment
SECTION B — SHORT ANSWER
Question 1 (4 marks)
Explain the concept of monopsony power in a labour market and describe one real-world example where it might arise.
✎ Write your answer on paper
Question 2 (4 marks)
Explain how migration can affect both the demand and supply sides of the domestic labour market.
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Question 3 (4 marks)
Explain the concept of hysteresis and why long-term unemployment can be particularly damaging to an economy’s productive capacity.
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Question 4 (4 marks)
Explain the role of compensating wage differentials in explaining wage differences between occupations, using two contrasting examples.
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Question 5 (4 marks)
Explain how enterprise bargaining differs from reliance on award minimum wages, and discuss one advantage and one disadvantage of enterprise bargaining for workers.
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Question 6 (4 marks)
Explain why wage stickiness can contribute to cyclical unemployment during an economic downturn.
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Question 7 (4 marks)
Discuss the impact of the growth of casual and part-time employment on income security for Australian workers.
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Question 8 (4 marks)
Explain occupational segregation and describe how it contributes to aggregate pay differences between groups of workers.
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SECTION C — EXTENDED RESPONSE
Extended Response 1: Labour Market Power and Policy
Extended Response 1(a) (6 marks)
Explain, using labour market analysis, the likely effect of the following on wages and employment: (i) a monopsony employer facing an appropriately set minimum wage; (ii) a large increase in skilled migration into an occupation with strong labour demand; (iii) automation that substitutes capital for routine manual labour in a manufacturing plant.
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Extended Response 1(b) (3 marks)
Evaluate the effectiveness of wage subsidies as a policy to reduce long-term unemployment among mature-age jobseekers.
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Extended Response 2: Inequality and the Labour Market
Extended Response 2(a) (5 marks)
Explain how occupational segregation and career interruptions for caring responsibilities contribute to the gender pay gap, and evaluate one policy that could reduce it.
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Extended Response 2(b) (3 marks)
Discuss whether growth in casual and gig work has increased income insecurity for Australian workers, and evaluate one policy response.
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