Question

1. What theory would justify a job advertisement that reads: “Help Wanted! Dangerous job but excellent pay and benefits”?

a.	human capital	d.	winner-take-all
b.	life-cycle wage pattern	e.	efficiency wage
c.	compensating differentials

2. Mitchell has a cause: He loves cats. As an economist, he could earn $100,000 as a faculty member, but instead he decides to devote his time to the Humane Society as its chief economist. Knowing nothing else, you would expect that he would receive

a.	higher pay at the Humane Society because of the difference in skill levels.
b.	lower pay at the Humane Society because of signal theory.
c.	lower pay at the Humane Society because of the compensating differential theory.
d.	higher pay at the Humane Society because of signal theory.
e.	the same pay as either a professor or as a chief economist at the Humane Society.

3. What theory would lead someone to be suspicious of a job advertisement that reads: “Help Wanted! Fun and exciting job with excellent pay”?

a.	human capital	d.	compensating differentials
b.	life-cycle wage pattern	e.	efficiency wage theory
c.	winner-take-all

4. When comparing individuals’ wages, differences in their levels of education and training

a.	can completely explain the existence of income inequality.
b.	can completely explain why some individuals are more productive than others.
c.	have no bearing on why some individuals are drawn to certain occupations.
d.	can partially explain why some individuals earn higher wages than others.
e.	have no bearing on income mobility.

Answer 1

1.

C

It is the compensating differential approach that pays higher wages where the jobs are risky, stressful or dangerous. So, the given ad is given as per the theory of compensating differential to attract right people.

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2.

B

Mithell loves cat and she get the opportunity to work for cats and other animals, if she opts for the Humane society job, even if it pays a lower wage. So, it is the signal theory, that gives signal to work with cats and self fulfillment that attract Mitchell.

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3.

D

As per this theory, a job can have excellent wages, but it comes with the risky and dangerous jobs, rather a fun and loving job. Hence, it makes person to be suspicious of the jobs.

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4.

D

Level of education and training, can only partially explain the wage differences. There are other factors, such as riskiness of the job, level of experience and natural abilities that affect the wage differences.