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Multiple Choice Quiz
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1

Hedonic Wage Theory indicates that:
A)indifference curves are positively sloped because people are not willing to trade-off risk for higher wages.
B)people who are relatively risk averse (i.e., do not like risk) have indifference curves that are relatively steep when the wage is graphed on the vertical axis.
C)regulation of risk on the job by OSHA might increase welfare if workers are unaware of the risks on the job.
D)both (A) and (B).
E)both (B) and (C).
2

There exists a compensating differential for economists employed in the private versus the public sector because (note: assume that information provided below is true):
A)public sector employees tend to have more flexible schedules.
B)generally private sector firms are located in larger cities where the cost of living is higher.
C)public sector jobs tend to offer relatively more job security.
D)private sector jobs tend to have more day to day stressful tasks.
E)all of the above.
3

Empirical studies of compensating differentials provide:
A)inconclusive evidence that dis-amenities of a job yield a wage differential.
B)suggest that jobs that demand physical strength are relatively unpleasant.
C)suggest that jobs that are associated with more risk of death on the job pay a higher wage.
D)both (A) and (C).
E)all of the above.
4

The Hedonic Wage Function is the:
A)collection of wage and job characteristics that make an individual indifferent across various jobs.
B)collection of wage and job characteristics that yield the same level of profit for a firm.
C)equilibrium relationship between wages and job characteristics arising from the interaction of workers and firms.
D)none of the above.
5

A prediction of the Hedonic Theory of Wages is that:
A)workers and firms are married and "like-types" attract.
B)workers and firms are married and "opposites" attract.
C)workers are randomly matched with firms.
D)a divorce between workers and firms occurs only rarely.
6

The worker’s reservation price is:
A)the amount a worker's income would have to be increased to switch from a safe to a risky job.
B)the amount a worker's income would have to be increased to switch from a risky to a safe job.
C)greater the more risk-averse is the worker.
D)both (A) and (C).
E)both (B) and (C).
7

Economic analysis of the value of a life suggests that:
A)life is priceless.
B)workers would willingly accept almost $7 million (in 1998 dollars) for their life.
C)the tradeoff between wages and the number of fatal accidents in the workplace implies an implicit value workers would pay to save a life.
D)both (B) and (C).
8

A worker’s reservation price with regard to risk is:
A)the difference between the equilibrium wages in the risky and safe jobs.
B)the additional amount necessary to bribe a worker to accept a risky job.
C)both (A) and (B).
D)neither (A) nor (B).
9

A negative compensating differential for a risky job can result if:
A)firms have market power and exploit workers.
B)some workers like risk and the demand for labor in risky jobs is relatively small.
C)supply of workers who disklike risky jobs is relatively large relative to the demand.
D)workers are fully informed about the risks on the job.
10

In the hedonic wage model of risky jobs:
A)indifference curves slope upward because workers require greater compensation to accept a higher level of risk.
B)isoprofit lines slope up because firms are willing to tradeoff wage payments for foregone expenditures on risk prevention.
C)wage-risk combinations that lie on a higher isoprofit curve yield lower profits when the wage is graphed on the vertical axis.
D)both (A) and (B).
E)all of the above.





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