ECON 3300 Lecture Notes - Lecture 4: National Health Insurance

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1 Feb 2016

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In a highly competitive labour market, the money paid by employers (including wages and benefits) is determined by market forces. The total wage paid to workers consists of the take home wage and the price of benefits. Any increase in the health insurance premiums will be reflected in lower take- home pay for the workers. Any change in the cost of employer- health insurance can affect the distribution of wages. Full wage = total cost to employer of hiring a worker (i. e. wages, pension, insurance)

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1. âTotal compensationâ includes:

a. Wages and salaries and all fringe benefits

b. Wages and salaries and public (legally mandated) fringe benefits only

c. Wages and salaries and private (nonmandatory) fringe benefits only

d. Wages and salaries and all fringe benefits net of all personal taxes

2. Fringe benefits currently account for approximately what percentage of total compensation?

a. 5% â 10%

c. 25% â 30%

b. 15% â 20%

d. 35% â 40%

3. As a percentage of benefits, the largest share goes to:

a. retirement and savings

c. paid leave

b. insurance

d. legally required benefits

4. The proportion of total compensation paid out as fringe benefits tends to be larger in:

a. high-paid industries compared to low-paid industries

b. service industries compared to manufacturing industries

c. white-collar occupations compared to blue-collar occupations

d. retail trade compared to transportation and public utilities

5. The share of fringe benefits in total employee compensation:

a. grew steadily in the 1960s and 1970s but has fallen since 1980

b. was unchanged in the 1960s and 1970s and has fallen since 1980

c. shrank in the 1960s and 1970s and has remained constant since then

d. grew steadily from 1960 through the mid-1990s

6. Which one of the following is not a valid explanation for why workers may prefer an extra dollarâs worth of fringe benefits to an extra dollarâs worth of cash?

a. workers may prefer to bind themselves against their own tendencies toward immediate gratification

b. certain fringe benefits effectively trade current taxes for future taxes

c. people generally prefer in-kind benefits to cash

d. certain fringe benefits are untaxed

7. Because there is a _______ marginal rate of substitution of fringe benefits for wages, a workerâs wage-fringe indifference curves are typically _______:

a. diminishing; convex to the origin

b. constant; straight lines

c. diminishing; concave to the origin

d. negative; straight lines

8. The slope of a wage-fringe indifference curve reflects:

a. the overall utility level of a person

b. a workerâs willingness to give up an extra dollar of wages in exchange for an extra dollar of fringe benefits

c. the firmâs cost of paying an extra dollar of compensation as wages rather than fringe benefits

d. an increasing marginal rate of substitution of fringe benefits for cash 2

9. An individual wage-fringe isoprofit line shows:

a. combinations of wages and fringe benefits that result in constant dollar values of total compensation

b. combinations of wages and fringe benefits that result in the same profit to the firm

c. the greatest possible profit attainable from a given level of fringe benefits

d. the greatest possible profit attainable from a given level of wages

10. The slope of a wage-fringe isoprofit curve reflects:

a. the overall profitability of the firm

b. a workerâs willingness to give up an extra dollar of wages in exchange for an extra dollar of fringe benefits

c. the relative âpriceâ of fringe benefits compared to wages

d. an increasing marginal rate of substitution of fringe benefits for cash

11. The firmâs wage-fringe isoprofit curve typically has a slope less than 1 (absolute value) because:

a. fringe benefits confer tax advantages on workers

b. on average, it costs firms more to purchase fringe benefits than workers

c. the composition of fringe benefits may increase worker productivity

d. increasing the proportion of compensation received as fringe benefits reduces a firmâs profit level

12. If a firm can offer fringe benefits worth more than one dollar for a one dollar reduction in wages:

a. the wage-fringe isoprofit line will be upward-sloping

b. the wage-fringe isoprofit line will have a slope less than one in absolute value

c. the marginal rate of substitution between wages and fringe benefits will be greater than one at the wage-fringe optimum

d. as a proportion of total compensation, fringe benefits will likely exceed one half

13. The employerâs share of the Social Security and Medicare components of the payroll tax has increased, from 6.13% in 1980 to its current rate of 7.65%. Because employers pay no payroll tax on many fringe benefits, this change in tax rates has effectively:

a. reduced the âpriceâ of fringe benefits, increasing the slope of the wage-fringe isoprofit line

b. increased the âpriceâ of fringe benefits, increasing the slope of the wage-fringe isoprofit line

c. reduced the âpriceâ of fringe benefits, reducing the slope of the wage-fringe isoprofit line

d. increased the âpriceâ of fringe benefits, reducing the slope of the wage-fringe isoprofit line

14. The trend of fringe benefits as a percentage of total compensation can be partially explained by the fact that:

a. tax reform has rendered many types of fringe benefits fully taxable

b. âin-kindâ benefits restrict workersâ consumption choices

c. the firm may be able to purchase fringe benefits more cheaply than workers

d. many types of fringe benefits are income inelastic

15. Fringe benefits will tend to be a greater proportion of total compensation, the:

a. more income elastic are fringe benefits

b. more they increase worker turnover

c. lower the employerâs share of the Social Security tax

d. less there are economies of scale in purchasing fringe benefits 3

16. Which of the following is not a cause of fringe benefit growth?

a. Tax advantages to the employer

b. Efficiency considerations

c. Economies of scale

d. Fringe benefits are income inelastic

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Question 1:

Economic discrimination puts the economy inside its production possibilities curve because discrimination:

promotes present consumption rather than production of capital goods.

often causes inflation, which reduces the nation's real output.

redistributes income from low-paid to high-paid persons.

arbitrarily blocks women and certain minorities from higher-productivity, higher wage jobs and thus keeps the economy from producing its maximum output.

Question 2:

Economic discrimination:

affects the distribution of domestic output and income, but not its total size.

places the economy at some point inside of its production possibilities curve.

affects the total size of domestic output and income, but not its distribution.

is shown as some point outside of an economy's production possibilities curve.

Question 3:

Labor market discrimination creates a:

larger domestic output but no redistribution.

redistribution of a smaller domestic output.

redistribution of a larger domestic output.

smaller domestic output but no redistribution.

Question 4:

An increase in the collective discrimination coefficients of employers will:

reduce the African-American wage rate, increase African-American employment, and lower the actual African-American-white wage ratio.

reduce the African-American wage rate, decrease African-American employment, and lower the actual African-American-white wage ratio.

increase the African-American wage rate, reduce African-American employment, and increase the actual African-American-white wage ratio.

increase the African-American wage rate, increase African-American employment, and increase the actual African-American-white wage ratio.

Question 5:

A reduction in the collective discrimination coefficients of employers will:

reduce the African-American wage rate, increase African-American employment, and lower the actual African-American-white wage ratio.

reduce the African-American wage rate, decrease African-American employment, and lower the actual African-American-white wage ratio.

increase the African-American wage rate, reduce African-American employment, and increase the actual African-American-white wage ratio.

increase the African-American wage rate, increase African-American employment, and increase the actual African-American-white wage ratio.

Question 6:

In the taste-for-discrimination model:

women and minorities are confined to a limited number of occupations.

white employers behave as if employing African-American workers adds to costs.

individual workers are judged by the characteristics of the groups to which they belong.

prejudiced white employers will never hire African-American workers.

Question 7:

Which of the following employers is the most prejudiced? Employer:

Question 8:

An implication of the taste-for-discrimination model is that:

other things equal, nondiscriminating firms will have lower production costs than discriminating firms.

discrimination will move a firm along its declining average total cost curve.

discrimination can lower a firm's production costs.

other things equal, discriminating firms will have lower production costs than nondiscriminating firms.

Question 9:

An employer is prejudiced, prefers to hire white rather than African-American workers, and is willing to pay higher wages to obtain white workers. This illustrates:

the crowding model.

statistical discrimination.

the taste-for-discrimination model.

reverse discrimination.

Question 10:

Empirical studies generally find that the estimated discrimination coefficient is larger in southern versus northern states. True or False: presuming that the wage differential is due to employer discrimination, this necessarily implies that there are more discriminating employers in the South than there are in the North.

1.Assume that there was a 10 per cent increase in the price of all goods in 2010; if the base year is 2009, then the price index in 2010 will be Select one:

a. 1100. b. 200. c. 90. d. 110.

2.The value of your money income, in terms of buying goods and services, is referred to like your money's

a. transaction cost.

b. rigidity factor.

c. staying power.

d. purchasing power.

3. Unemployment that is caused by business recessions is called

a. frictional unemployment.

b. seasonal unemployment.

c. structural unemployment.

d. cyclical unemployment.

4.All of the following are examples of a flow EXCEPT

a. the current unemployment rate.

b. a person who is fired from a job.

c. an individual who voluntarily leaves the labour force.

d. a new entrant into the labour force.

5.Which one of these factors plays a role in determining the extent and duration of frictional unemployment?

a. the ease with which job seekers can obtain information about job openings

b. the degree to which the overall level of business activity fluctuates up and down

c. the extent to which government legislation requires firms to provide health insurance for employees

d. the education and skill levels of labour force participants

6.Since 1950, the labour force participation rate in the United States

a. of men and women both decreased.

b. of men decreased and for women increased.

c. of men increased and women decreased.

d. of men and women both increased.

7.Increases in the duration of unemployment may

a. reflect a general downturn in economic activity that depresses job openings.

b. increase the unemployment rate.

c. All of these.

d. increase the number of discouraged workers.

8. A discouraged worker is someone who

a. is unemployed.

b. has been fired.

c. is not in the labour force.

d. is employed.

9.In the United States, the wage floor legislated by the government below which it is generally illegal to pay workers is known as

a. the going wage.

b. the employment gap.

c. the minimum wage.

d. the wage ceiling.

10. Which of the following is an effect of a minimum wage law that establishes a ceiling wage below the current market-clearing wage?

a. Surplus labour, or unemployment

b. A decrease in the market-clearing wage

c. A decrease in the quantity of labour supplied

d. An increase in the quantity of labour supplied

11. Which group of individuals most likely benefits from rent controls?

a. low-income wage earners who fail to obtain rental housing

b. the unemployed who fail to obtain rental housing

c. single-parent families without savings or other financial assets who fail to obtain rental housing

d. upper-income professionals who rent apartments at the price ceiling rate

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ECON 3300 Lecture Notes - Lecture 4: National Health Insurance

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