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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

Assuming there is a compensating differential for economists employed in the private versus the public sector, a likely reason is that
A)public sector employees tend to have more flexible schedules.
B)private sector firms are generally 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

When will a compensating differential go the "wrong way"?
A)When a few people have the "wrong" preferences.
B)When there are only a few jobs that require the "bad" characteristic.
C)When a few people have the "wrong" preferences but there are even fewer jobs that require the bad characteristic.
D)When people vary in their dislike for the "bad" characteristic.
E)When the "bad" characteristic can be alleviated by the firm by paying a fee (such as to make a factory safer).
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 by which a worker's wage would have to be increased in order for the worker to willingly switch from a safe to a risky job.
B)the amount by which a worker's wage would have to be increased in order for the worker to willingly switch from a risky to a safe job.
C)greater the more risk-averse (i.e., the less the worker likes risk) 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 are never willing to work very risky jobs.
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)workers rarely understand the risks associated with a job.
E)both (A) and (D).
8

If empicical analysis finds that workers in a "clean" factory earn $10,000 less than workers in a "dirty" factory, then
A)someone currently working in the clean factory would be willing to work in the dirty factory if she would be paid $10,000 more.
B)someone currently working in the clean factory would be willing to work in the dirty factory even if she was paid less than $10,000 more.
C)someone currently working in the clean factory would be willing to work in the dirty factory only if she was paid more than $10,000 more.
D)someone currently working in the clean factory would never be willing to work in the dirty factory, regardless of the compensating differential.
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)the supply of workers who disklike risky jobs is large relative to the demand for workers willing to work a risky job.
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 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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