Lesson 3.5.1

3.5.1 Demand for labour Quiz: Pearson Edexcel Economics A, Unit 3

20 questions

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Lesson 3.5.1, Demand for labour: 20 multiple choice questions for the Pearson Edexcel Economics A (9EC0), Unit 3: Theme 3: Business behaviour and the labour market, written with Revision Ninja.

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The 20 questions

  1. Demand for labour is described as derived because:

    • It arises from the demand for the goods and services that labour helps to produce
    • Labour demand is set entirely by government in every market
    • Labour is demanded for its own sake, regardless of output
    • Demand for labour is unrelated to the demand for products

  2. Marginal revenue product (MRP) is:

    • The extra revenue earned from employing one more worker
    • The average wage paid to all workers in the firm
    • The total revenue of the firm divided by the number of workers
    • The marginal cost of producing one more unit of output

  3. MRP is calculated as:

    • Total revenue divided by the number of workers employed
    • The wage divided by the marginal physical product of labour
    • Marginal physical product multiplied by marginal revenue
    • Marginal physical product plus marginal revenue

  4. Which is a factor that shifts the demand for labour?

    • Dividend policy of the firm's shareholders
    • Workers' preferences for leisure over paid work
    • The number of workers in the household of each employee
    • A change in the demand for the product the firm sells

  5. A worker adds 5 units of output, and each unit sells for £8 in marginal revenue. What is the MRP?

    • £40
    • £3
    • £13
    • £1.60

  6. A firm's product demand rises. What is the effect on its demand for labour?

    • Marginal physical product falls, so demand for labour decreases
    • Marginal revenue falls, so the demand for labour decreases
    • No effect, because labour demand depends only on the wage
    • Marginal revenue rises, so MRP rises and demand for labour increases

  7. Training raises the productivity of a worker. What is the effect on labour demand?

    • MPP rises, so MRP rises and demand for labour shifts right
    • Wages fall for all workers, so demand for labour rises
    • No change in demand, because productivity does not affect MRP
    • MPP falls, so demand for labour shifts left

  8. Capital becomes cheaper relative to labour. What is the likely effect on demand for labour?

    • Demand for labour rises as firms substitute away from capital
    • Demand for labour may fall as firms substitute capital for labour
    • No effect, because labour and capital are unrelated inputs
    • Demand for labour becomes perfectly elastic at every wage

  9. Labour demand is more elastic when:

    • Labour is highly specialised and hard to replace
    • Labour costs are a small share of total costs with no substitutes
    • The demand for the product is perfectly inelastic
    • Labour costs are a large share of total costs and substitutes for labour are readily available

  10. Which of the following is a determinant of the demand for labour?

    • The number of workers in the household of each employee
    • The dividend policy the firm's shareholders prefer
    • The price of the final product the firm sells
    • Workers' personal preferences for leisure over work

  11. A firm keeps hiring while the MRP of each new worker is above the wage. Why?

    • Each extra worker adds more revenue than they cost, so profit rises
    • Each extra worker costs more than they add to revenue
    • The firm wants to reduce its output over time
    • Wages must exceed MRP before workers will accept jobs

  12. A firm's marginal physical product of labour is 10 units for the first worker, 8 for the second and 6 for the third. Output sells at £5. What is the MRP of the third worker?

    • £10
    • £15
    • £30
    • £40

  13. Why does the demand curve for labour slope downwards?

    • Wages fall as workers are added to the firm's payroll
    • Demand for the product rises as employment increases
    • MRP rises as more workers are hired by the firm
    • Diminishing marginal productivity means each extra worker adds less output, so MRP falls

  14. A monopolist's MR is £4 and a worker's marginal physical product is 7 units. What is the worker's MRP?

    • £11
    • £40
    • £28
    • £70

  15. Why is MRP below the value of marginal product (VMP) for a firm in an imperfectly competitive product market?

    • VMP and MRP are identical for every firm in monopoly
    • MPP is zero for every worker in monopoly markets
    • Its MR is below price, since it must lower price on all units to sell more, so MRP = MPP x MR is below VMP = MPP x P
    • MR is always above price in an imperfectly competitive market

  16. Evaluate: will a rise in the minimum wage always reduce employment?

    • Yes, but only in non-competitive markets and never in competitive ones
    • No, because labour demand is always perfectly inelastic
    • Yes, always, and by the same amount in every market
    • Not necessarily: in a monopsony a minimum wage can raise employment, while in competition it may reduce it depending on elasticity

  17. A firm's fourth worker has MRP £20 and wage £14. The fifth worker has MRP £15 and the same wage £14. What should the firm do?

    • Keep hiring while MRP exceeds the wage, so hire the fifth worker since the surplus is positive
    • Stop hiring at four workers, because the fifth adds less than the fourth
    • Reduce wages until MRP is zero for every worker in the firm
    • Fire the fourth worker to save money on the wage bill

  18. A 10 per cent rise in the wage reduces employment by 15 per cent. What does this imply about labour demand?

    • Unit elastic demand for labour, with an elasticity of 1.0
    • Elastic demand for labour, with an elasticity of about 1.5
    • Inelastic demand for labour, with an elasticity of about 0.67
    • Perfectly elastic demand for labour, with an infinite elasticity

  19. Which change would reduce a firm's demand for labour?

    • A rise in the productivity of the workers the firm already employs
    • A rise in the marginal physical product of its workers
    • A rise in the demand for the firm's product
    • A fall in the price of the product the firm sells

  20. Why does labour demand shift when product demand falls?

    • Wages rise automatically when product demand falls in the market
    • MRP does not depend on the product's price in any market
    • MPP rises when product demand falls for the firm
    • Lower product demand reduces MR or price, so MRP falls at each level of employment

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