ECON 201 Exam questions and
answers graded A+
Calculation for Marginal Product of Labor (MPL) - ANS✅✅Change in output from one additional
unit of labor
Calculation for marginal revenue product of labor - ANS✅✅(Marginal product of labor) x Price
Demand for Labor shows... - ANS✅✅the relationship between the wage and quantity of labor
demanded
The Demand for Labor is derived from... - ANS✅✅the demand of a business firms goods/services
What is the output effect? - ANS✅✅As wages increase, costs increase
As costs increase, prices increase
And as price increases, demand decreases, then demand for labor decreases
What is the input substitution effect? - ANS✅✅As wages increase --> it becomes easier to
substitute capital or other labor for current labor
(simpler version - as wages increase, it becomes easier for business firms to use machinery or switch
locations than to pay higher wages)
The supply of labor shows the relationship between... - ANS✅✅The wage & quantity of labor
supplied
Supply of labor is a comparison between _________ and _______________. - ANS✅✅Work and
Leisure time
What is the labor substitution effect? - ANS✅✅As wages increase, the cost of leisure increases,
, Therefore we work more
(opportunity cost of working decreases and opportunity cost of leisure increases)*
What is the income effect? - ANS✅✅As wages increase, we want to work less because we are
happy with our level of income.
The _____________ effect outweighs the ______________ effect. - ANS✅✅The labor substitution
effect outweighs the income effect.
For which population does the income effect take place more? - ANS✅✅People close to
retirement, and with college students.
When are where is our final exam? - ANS✅✅Monday, 10:15am, in our normal classroom.
What is the biggest driver of wage differences? - ANS✅✅Supply of labor
(wages are supply driven)*
If supply for labor is low, wages are high.
And if the supply for labor is high, wages are low.
What are reasons for a low supply of labor - ANS✅✅Required skills (sports, the arts)
High training costs
If the job is undesirable
Dangerous job
What is the college premium? - ANS✅✅It is the increase in earnings from a college degree.
(you usually earn double the amount with a college degree than you would if you only had a high
school degree)
answers graded A+
Calculation for Marginal Product of Labor (MPL) - ANS✅✅Change in output from one additional
unit of labor
Calculation for marginal revenue product of labor - ANS✅✅(Marginal product of labor) x Price
Demand for Labor shows... - ANS✅✅the relationship between the wage and quantity of labor
demanded
The Demand for Labor is derived from... - ANS✅✅the demand of a business firms goods/services
What is the output effect? - ANS✅✅As wages increase, costs increase
As costs increase, prices increase
And as price increases, demand decreases, then demand for labor decreases
What is the input substitution effect? - ANS✅✅As wages increase --> it becomes easier to
substitute capital or other labor for current labor
(simpler version - as wages increase, it becomes easier for business firms to use machinery or switch
locations than to pay higher wages)
The supply of labor shows the relationship between... - ANS✅✅The wage & quantity of labor
supplied
Supply of labor is a comparison between _________ and _______________. - ANS✅✅Work and
Leisure time
What is the labor substitution effect? - ANS✅✅As wages increase, the cost of leisure increases,
, Therefore we work more
(opportunity cost of working decreases and opportunity cost of leisure increases)*
What is the income effect? - ANS✅✅As wages increase, we want to work less because we are
happy with our level of income.
The _____________ effect outweighs the ______________ effect. - ANS✅✅The labor substitution
effect outweighs the income effect.
For which population does the income effect take place more? - ANS✅✅People close to
retirement, and with college students.
When are where is our final exam? - ANS✅✅Monday, 10:15am, in our normal classroom.
What is the biggest driver of wage differences? - ANS✅✅Supply of labor
(wages are supply driven)*
If supply for labor is low, wages are high.
And if the supply for labor is high, wages are low.
What are reasons for a low supply of labor - ANS✅✅Required skills (sports, the arts)
High training costs
If the job is undesirable
Dangerous job
What is the college premium? - ANS✅✅It is the increase in earnings from a college degree.
(you usually earn double the amount with a college degree than you would if you only had a high
school degree)
