AP Microeconomics Quiz: Introduction To Factor Markets
20 questions · exam conditions
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Introduction To Factor MarketsQuestion 1 of 20

To maximize profit, a firm should continue to hire units of a factor of production as long as the factor's

marginal product is greater than its average product.
marginal revenue product is greater than or equal to its marginal resource cost.
average product is greater than its marginal product.
price of the final good is greater than the factor's marginal resource cost.
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AP Microeconomics Quiz

AP Microeconomics Quiz: Introduction To Factor Markets

Practice Introduction To Factor Markets in AP Microeconomics with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Introduction To Factor Markets, giving you a quick way to practice the rules, question types, and explanations that matter most for AP Microeconomics.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

To maximize profit, a firm should continue to hire units of a factor of production as long as the factor's

  1. marginal product is greater than its average product.
  2. marginal revenue product is greater than or equal to its marginal resource cost. (correct answer)
  3. average product is greater than its marginal product.
  4. price of the final good is greater than the factor's marginal resource cost.

Explanation: B is correct. This is the optimal hiring rule. A firm will continue to add an input if the additional revenue it generates (MRP) is at least as large as the additional cost it incurs (MRC). Profit is maximized at the quantity where MRP = MRC. A is related to production efficiency but not profit maximization. C is incorrect. D compares two unrelated metrics (price of output vs. cost of input) without considering the input's productivity.

Question 2

A competitive labor market exists for landscapers. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor employed?

(Quantity of labor is measured in number of workers.)

  1. w=$14/hour and L=180 workersw=\$14\text{/hour and }L=180\text{ workers}
  2. w=$12/hour and L=220 workersw=\$12\text{/hour and }L=220\text{ workers}
  3. w=$16/hour and L=140 workersw=\$16\text{/hour and }L=140\text{ workers}
  4. w=$14/hour and L=200 workersw=\$14\text{/hour and }L=200\text{ workers} (correct answer)
  5. w=$12/hour and L=180 workersw=\$12\text{/hour and }L=180\text{ workers}

Explanation: This question tests your ability to identify equilibrium in factor markets, specifically in a competitive labor market for landscapers. Labor demand represents firms' willingness to hire based on derived demand—the demand for landscaping services creates demand for landscapers. The table displays wage rates with corresponding quantities of labor supplied and demanded. Equilibrium occurs where these quantities are equal: at w = \14/\text{hour}$, both supply and demand equal 200 workers. A common error is selecting a point where supply or demand alone equals a nice round number, rather than where they intersect. To find labor market equilibrium, systematically compare the supply and demand columns row by row. The equilibrium wage and employment level appear where these values match exactly.

Question 3

A labor market for substitute teachers is shown in the table below. Labor demand is derived from the marginal revenue product (MRP) of substitute teachers. Based on the labor market shown, what is the equilibrium wage and employment?

Table: Substitute Teacher Labor Market (per day)

  • Wage ($/day): 80, 90, 100, 110, 120
  • Quantity of labor demanded (subs): 500, 450, 400, 350, 300
  • Quantity of labor supplied (subs): 200, 300, 400, 500, 600
  1. $90 per day and 450 subs
  2. $100 per day and 400 subs (correct answer)
  3. $110 per day and 500 subs
  4. $120 per day and 300 subs
  5. $80 per day and 200 subs

Explanation: The skill here is the introduction to factor markets. Derived demand is the demand for a resource that depends on the demand for the product it helps create, and labor demand is determined by the marginal revenue product (MRP), which measures the additional revenue from hiring one more worker. The table presents the quantities of substitute teachers demanded and supplied at various wage rates. The equilibrium is at $100 per day and 400 subs because this is the point where quantity demanded equals quantity supplied. A common misconception is that labor demand is direct like consumer goods, but it is derived from the product's demand unlike direct demand for the good itself. A transferable strategy is to trace the MRP to understand the downward-sloping labor demand curve. Finally, read the equilibrium wage and employment from the intersection of the labor demand and supply curves.

Question 4

A labor market for pharmacy technicians is shown in the table below. Labor demand is derived from the marginal revenue product (MRP) of technicians. Based on the labor market shown, what is the equilibrium wage and employment?

Table: Pharmacy Technician Labor Market (per hour)

  • Wage ($/hour): 16, 18, 20, 22, 24
  • Quantity of labor demanded (techs): 500, 450, 400, 350, 300
  • Quantity of labor supplied (techs): 200, 300, 400, 500, 600
  1. $18 per hour and 300 techs
  2. $20 per hour and 400 techs (correct answer)
  3. $22 per hour and 350 techs
  4. $24 per hour and 600 techs
  5. $16 per hour and 200 techs

Explanation: The skill here is the introduction to factor markets. Derived demand is the demand for a resource that depends on the demand for the product it helps create, and labor demand is determined by the marginal revenue product (MRP), which measures the additional revenue from hiring one more worker. The table presents the quantities of pharmacy technicians demanded and supplied at various wage rates. The equilibrium is at $20 per hour and 400 techs because this is the point where quantity demanded equals quantity supplied. A common misconception is that labor demand is direct like consumer goods, but it is derived from the product's demand unlike direct demand for the good itself. A transferable strategy is to trace the MRP to understand the downward-sloping labor demand curve. Finally, read the equilibrium wage and employment from the intersection of the labor demand and supply curves.

Question 5

A landscaping company hires gardeners in a competitive labor market. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor (gardeners) employed?

Labor market table (wage per hour, WW):

  • At W=$10:$QD=40W = $10: $Q_D = 40 gardeners, QS=20Q_S = 20 gardeners
  • At W=$12:$QD=35W = $12: $Q_D = 35 gardeners, QS=25Q_S = 25 gardeners
  • At W=$14:$QD=30W = $14: $Q_D = 30 gardeners, QS=30Q_S = 30 gardeners
  • At W=$16:$QD=25W = $16: $Q_D = 25 gardeners, QS=35Q_S = 35 gardeners
  • At W=$18:$QD=20W = $18: $Q_D = 20 gardeners, QS=40Q_S = 40 gardeners
  1. $W = $12 per hour and 25 gardeners
  2. $W = $14 per hour and 30 gardeners (correct answer)
  3. $W = $16 per hour and 35 gardeners
  4. $W = $10 per hour and 40 gardeners
  5. $W = $18 per hour and 20 gardeners

Explanation: This question tests your understanding of factor markets, where firms demand labor and workers supply it. In factor markets, the demand for labor is a derived demand—firms hire workers based on how much revenue those workers can generate from producing goods or services. The table shows the labor market for gardeners, with quantity demanded (QD) and quantity supplied (QS) at different wage rates. To find equilibrium, look for where QD equals QS: at W = $14, both QD and QS equal 30 gardeners. A common misconception is confusing factor markets with product markets—remember that in factor markets, firms are the demanders and workers are the suppliers. The key strategy is to scan the table systematically, comparing QD and QS at each wage level. When they match, you've found the equilibrium wage and employment level.

Question 6

A construction firm hires electricians in a competitive labor market. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor (electricians) employed?

Labor market table (wage per hour, WW):

  • At W=$28:$QD=55W = $28: $Q_D = 55 electricians, QS=35Q_S = 35 electricians
  • At W=$30:$QD=50W = $30: $Q_D = 50 electricians, QS=40Q_S = 40 electricians
  • At W=$32:$QD=45W = $32: $Q_D = 45 electricians, QS=45Q_S = 45 electricians
  • At W=$34:$QD=40W = $34: $Q_D = 40 electricians, QS=50Q_S = 50 electricians
  • At W=$36:$QD=35W = $36: $Q_D = 35 electricians, QS=55Q_S = 55 electricians
  1. $W = $30 per hour and 40 electricians
  2. $W = $34 per hour and 50 electricians
  3. $W = $32 per hour and 45 electricians (correct answer)
  4. $W = $28 per hour and 55 electricians
  5. $W = $36 per hour and 35 electricians

Explanation: This question tests understanding of factor markets in the construction industry for electricians. In factor markets, construction firms demand electricians based on derived demand—they hire electricians because clients demand electrical work in buildings, not because firms want electricians directly. The table shows different wage rates with corresponding quantities demanded and supplied. To find equilibrium, locate where QD equals QS: at W = $32 per hour, both quantity demanded and quantity supplied equal 45 electricians. A common error is assuming the highest wage means the best outcome—equilibrium occurs where supply and demand balance, regardless of wage level. The transferable strategy involves systematically checking each row in the table, comparing demand and supply quantities. When these match, you've identified both the equilibrium wage rate and the equilibrium quantity of labor employed.

Question 7

A local pizza parlor is a 'wage taker' in the market for its employees. This indicates that the pizza parlor

  1. must negotiate wages with a powerful labor union.
  2. hires labor in a monopsonistic market environment.
  3. can hire any number of workers at the going market wage. (correct answer)
  4. can set the wage for its workers to minimize its costs.

Explanation: C is correct. A 'wage taker' operates in a perfectly competitive labor market. This means the firm is a small part of the total labor market and its hiring decisions do not affect the market wage. Therefore, it faces a perfectly elastic (horizontal) supply of labor and can hire as many workers as it needs at that wage. A describes a bilateral monopoly situation. B is the opposite of a competitive market. D describes a firm with monopsony power, not a wage taker.

Question 8

A labor market for delivery drivers is shown in the table below. Labor demand is derived from the marginal revenue product (MRP) of drivers. Based on the labor market shown, what is the equilibrium wage and employment?

Table: Delivery Driver Labor Market (per hour)

  • Wage ($/hour): 14, 15, 16, 17, 18
  • Quantity of labor demanded (drivers): 600, 550, 500, 450, 400
  • Quantity of labor supplied (drivers): 300, 350, 400, 450, 500
  1. $16 per hour and 500 drivers
  2. $15 per hour and 350 drivers
  3. $17 per hour and 450 drivers (correct answer)
  4. $18 per hour and 500 drivers
  5. $14 per hour and 600 drivers

Explanation: The skill here is the introduction to factor markets. Derived demand is the demand for a resource that depends on the demand for the product it helps create, and labor demand is determined by the marginal revenue product (MRP), which measures the additional revenue from hiring one more worker. The table presents the quantities of delivery drivers demanded and supplied at various wage rates. The equilibrium is at $17 per hour and 450 drivers because this is the point where quantity demanded equals quantity supplied. A common misconception is that labor demand is direct like consumer goods, but it is derived from the product's demand unlike direct demand for the good itself. A transferable strategy is to trace the MRP to understand the downward-sloping labor demand curve. Finally, read the equilibrium wage and employment from the intersection of the labor demand and supply curves.

Question 9

A competitive labor market exists for hotel housekeepers. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor employed?

(Quantity of labor is measured in number of workers.)

  1. w=$13/hour and L=260 workersw=\$13\text{/hour and }L=260\text{ workers}
  2. w=$11/hour and L=220 workersw=\$11\text{/hour and }L=220\text{ workers}
  3. w=$12/hour and L=240 workersw=\$12\text{/hour and }L=240\text{ workers} (correct answer)
  4. w=$13/hour and L=240 workersw=\$13\text{/hour and }L=240\text{ workers}
  5. w=$12/hour and L=260 workersw=\$12\text{/hour and }L=260\text{ workers}

Explanation: This question tests your understanding of equilibrium in factor markets, specifically for hotel housekeepers. In factor markets, labor demand is derived demand—hotels hire housekeepers because guests demand clean rooms, not because of direct demand for housekeeping labor. The table shows various wage rates with corresponding quantities of labor supplied and demanded. Market equilibrium occurs where quantity supplied equals quantity demanded: at w=$12/hour, both equal 240 workers. A common mistake is looking for the highest or lowest wage rather than the intersection point of supply and demand. To solve these problems efficiently, scan down the table comparing the supply and demand columns. Stop when you find matching values—this row gives you both the equilibrium wage and employment level.

Question 10

A labor market for construction laborers is shown in the table below. Labor demand is derived from the marginal revenue product (MRP) of laborers. Based on the labor market shown, what is the equilibrium wage and employment?

Table: Construction Labor Market (per hour)

  • Wage ($/hour): 15, 16, 17, 18, 19
  • Quantity of labor demanded (laborers): 700, 650, 600, 550, 500
  • Quantity of labor supplied (laborers): 400, 450, 500, 550, 600
  1. $17 per hour and 600 laborers
  2. $16 per hour and 450 laborers
  3. $18 per hour and 550 laborers (correct answer)
  4. $19 per hour and 600 laborers
  5. $15 per hour and 700 laborers

Explanation: The skill here is the introduction to factor markets. Derived demand is the demand for a resource that depends on the demand for the product it helps create, and labor demand is determined by the marginal revenue product (MRP), which measures the additional revenue from hiring one more worker. The table presents the quantities of construction laborers demanded and supplied at various wage rates. The equilibrium is at $18 per hour and 550 laborers because this is the point where quantity demanded equals quantity supplied. A common misconception is that labor demand is direct like consumer goods, but it is derived from the product's demand unlike direct demand for the good itself. A transferable strategy is to trace the MRP to understand the downward-sloping labor demand curve. Finally, read the equilibrium wage and employment from the intersection of the labor demand and supply curves.

Question 11

A retail store hires cashiers in a competitive labor market. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor (cashiers) employed?

Labor market table (wage per hour, WW):

  • At W=$11:$QD=52W = $11: $Q_D = 52 cashiers, QS=28Q_S = 28 cashiers
  • At W=$12:$QD=48W = $12: $Q_D = 48 cashiers, QS=32Q_S = 32 cashiers
  • At W=$13:$QD=44W = $13: $Q_D = 44 cashiers, QS=36Q_S = 36 cashiers
  • At W=$14:$QD=40W = $14: $Q_D = 40 cashiers, QS=40Q_S = 40 cashiers
  • At W=$15:$QD=36W = $15: $Q_D = 36 cashiers, QS=44Q_S = 44 cashiers
  1. $W = $12 per hour and 32 cashiers
  2. $W = $14 per hour and 40 cashiers (correct answer)
  3. $W = $11 per hour and 52 cashiers
  4. $W = $15 per hour and 44 cashiers
  5. $W = $13 per hour and 44 cashiers

Explanation: This question focuses on factor markets in retail, specifically for cashiers. In factor markets, retail stores demand cashiers based on derived demand—they hire cashiers because customers need checkout services, making labor demand dependent on store traffic and sales. Examining the table systematically, we look for equilibrium where quantity demanded equals quantity supplied. At W = $14 per hour, both QD and QS equal 40 cashiers, establishing perfect market equilibrium. Students often mistakenly view labor demand as direct rather than derived—remember that firms hire workers only because those workers help produce goods or services that customers want. The key strategy for finding equilibrium is to compare QD and QS at each wage level in the table. When these quantities match exactly, you've identified the market-clearing wage and employment level.

Question 12

A bakery hires pastry chefs in a competitive labor market. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor (chefs) employed?

Labor market table (wage per hour, WW):

  • At W=$15:$QD=30W = $15: $Q_D = 30 chefs, QS=10Q_S = 10 chefs
  • At W=$18:$QD=25W = $18: $Q_D = 25 chefs, QS=15Q_S = 15 chefs
  • At W=$21:$QD=20W = $21: $Q_D = 20 chefs, QS=20Q_S = 20 chefs
  • At W=$24:$QD=15W = $24: $Q_D = 15 chefs, QS=25Q_S = 25 chefs
  • At W=$27:$QD=10W = $27: $Q_D = 10 chefs, QS=30Q_S = 30 chefs
  1. $W = $18 per hour and 25 chefs
  2. $W = $21 per hour and 20 chefs (correct answer)
  3. $W = $24 per hour and 25 chefs
  4. $W = $15 per hour and 10 chefs
  5. $W = $27 per hour and 30 chefs

Explanation: This question tests factor market analysis for pastry chefs in a bakery setting. In factor markets, bakeries demand chefs based on derived demand—they hire chefs because customers demand baked goods, making labor demand dependent on product demand. The table shows various wage rates with corresponding quantities demanded and supplied. To find equilibrium, locate where QD equals QS: at W = $21 per hour, both quantity demanded and quantity supplied equal 20 chefs. A common mistake is focusing only on the wage without checking that quantities match—both conditions must be satisfied for true equilibrium. The key strategy is to read across each row systematically, comparing the QD and QS values. When you find matching quantities, that wage represents the market-clearing price where neither shortage nor surplus exists.

Question 13

A delivery company hires truck drivers in a competitive labor market. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor (drivers) employed?

Labor market table (wage per hour, WW):

  • At W=$22:$QD=80W = $22: $Q_D = 80 drivers, QS=40Q_S = 40 drivers
  • At W=$24:$QD=70W = $24: $Q_D = 70 drivers, QS=50Q_S = 50 drivers
  • At W=$26:$QD=60W = $26: $Q_D = 60 drivers, QS=60Q_S = 60 drivers
  • At W=$28:$QD=50W = $28: $Q_D = 50 drivers, QS=70Q_S = 70 drivers
  • At W=$30:$QD=40W = $30: $Q_D = 40 drivers, QS=80Q_S = 80 drivers
  1. $W = $24 per hour and 50 drivers
  2. $W = $26 per hour and 60 drivers (correct answer)
  3. $W = $28 per hour and 50 drivers
  4. $W = $22 per hour and 80 drivers
  5. $W = $30 per hour and 40 drivers

Explanation: This question examines factor markets in the transportation industry, specifically for truck drivers. In factor markets, delivery companies demand drivers based on derived demand—they hire drivers because customers demand package delivery services, not because they want drivers per se. Analyzing the table, we search for equilibrium where quantity demanded equals quantity supplied. At W = $26 per hour, both QD and QS equal 60 drivers, establishing market equilibrium. Students often mistakenly think of labor demand as direct demand, but remember it's derived from the demand for the final service. The transferable approach is to methodically check each wage level in the table, comparing demand and supply quantities. The equilibrium point shows both the market wage and the number of workers employed when the market clears perfectly.

Question 14

A movie theater hires ticket clerks in a competitive labor market. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor (clerks) employed?

Labor market table (wage per hour, WW):

  • At W=$9:$QD=45W = $9: $Q_D = 45 clerks, QS=15Q_S = 15 clerks
  • At W=$10:$QD=40W = $10: $Q_D = 40 clerks, QS=20Q_S = 20 clerks
  • At W=$11:$QD=35W = $11: $Q_D = 35 clerks, QS=25Q_S = 25 clerks
  • At W=$12:$QD=30W = $12: $Q_D = 30 clerks, QS=30Q_S = 30 clerks
  • At W=$13:$QD=25W = $13: $Q_D = 25 clerks, QS=35Q_S = 35 clerks
  1. $W = $11 per hour and 35 clerks
  2. $W = $12 per hour and 30 clerks (correct answer)
  3. $W = $10 per hour and 40 clerks
  4. $W = $13 per hour and 35 clerks
  5. $W = $9 per hour and 15 clerks

Explanation: This question addresses factor markets where movie theaters hire ticket clerks. In factor markets, theaters demand clerks based on derived demand—they need clerks because moviegoers demand ticket services, making labor demand dependent on customer traffic. The table presents wage rates with corresponding quantities demanded and supplied. To find equilibrium, identify where QD equals QS: at W = $12 per hour, both quantity demanded and quantity supplied equal 30 clerks. A frequent misconception is confusing the direction of demand—in factor markets, firms (theaters) are demanders while workers (clerks) are suppliers, opposite to product markets. The systematic strategy involves scanning each wage level and comparing QD to QS values. When these quantities match exactly, you've found the equilibrium wage and employment level where the market clears.

Question 15

A firm hires construction workers in a competitive factor market to build houses, which it sells in a competitive product market. If the market price of houses decreases, what will be the effect on the firm's demand for construction workers?

  1. It will increase because the marginal revenue product of labor has increased.
  2. It will decrease because the marginal revenue product of labor has decreased. (correct answer)
  3. It will not change, but the quantity of labor supplied will decrease.
  4. It will become less elastic because the firm has less revenue to pay its workers.

Explanation: B is correct. A firm's demand for labor is its marginal revenue product (MRP) curve. In a competitive product market, MRP = Marginal Product (MP) × Price (P). If the price of the output (houses) decreases, the MRP for each worker decreases. This causes the labor demand curve to shift to the left, which is a decrease in demand. A is incorrect. C incorrectly describes a supply-side effect. D is not the direct and primary consequence.

Question 16

A software company hires app developers in a competitive labor market. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor (developers) employed?

Labor market table (wage per hour, WW):

  • At W=$30:$QD=60W = $30: $Q_D = 60 developers, QS=20Q_S = 20 developers
  • At W=$40:$QD=50W = $40: $Q_D = 50 developers, QS=30Q_S = 30 developers
  • At W=$50:$QD=40W = $50: $Q_D = 40 developers, QS=40Q_S = 40 developers
  • At W=$60:$QD=30W = $60: $Q_D = 30 developers, QS=50Q_S = 50 developers
  • At W=$70:$QD=20W = $70: $Q_D = 20 developers, QS=60Q_S = 60 developers
  1. $W = $60 per hour and 30 developers
  2. $W = $40 per hour and 30 developers
  3. $W = $50 per hour and 40 developers (correct answer)
  4. $W = $70 per hour and 60 developers
  5. $W = $30 per hour and 20 developers

Explanation: This question focuses on factor markets where software companies hire app developers. In factor markets, the demand for developers is derived demand—companies hire them based on the revenue generated from the apps they create, not because they want developers directly. Examining the labor market table, we need to find where quantity demanded equals quantity supplied. At W = $50 per hour, both QD and QS equal 40 developers, indicating market equilibrium. A key misconception is thinking higher wages always mean fewer workers hired—while demand does decrease with wages, supply increases, and equilibrium occurs where these forces balance. The strategy for solving factor market problems is straightforward: systematically compare QD and QS at each wage level. When these quantities match, you've identified both the equilibrium wage and the equilibrium quantity of labor employed.

Question 17

A bicycle company sells its products in a perfectly competitive market for 150150 per bicycle. The marginal product of the last worker hired is 2 bicycles per week. What is the marginal revenue product (MRP) of that worker?

  1. $75
  2. $150
  3. $300 (correct answer)
  4. $450

Explanation: C is correct. Marginal Revenue Product (MRP) is calculated as the Marginal Product (MP) of the factor multiplied by the Marginal Revenue (MR) of the product. In a perfectly competitive product market, Price (P) equals Marginal Revenue (MR). Therefore, MRP = MP × P. In this case, MRP = 2 bicycles × 150150/bicycle = $300.

Question 18

A dental office hires dental assistants in a competitive labor market. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor (assistants) employed?

Labor market table (wage per hour, WW):

  • At W=$16:$QD=36W = $16: $Q_D = 36 assistants, QS=20Q_S = 20 assistants
  • At W=$18:$QD=32W = $18: $Q_D = 32 assistants, QS=24Q_S = 24 assistants
  • At W=$20:$QD=28W = $20: $Q_D = 28 assistants, QS=28Q_S = 28 assistants
  • At W=$22:$QD=24W = $22: $Q_D = 24 assistants, QS=32Q_S = 32 assistants
  • At W=$24:$QD=20W = $24: $Q_D = 20 assistants, QS=36Q_S = 36 assistants
  1. $W = $18 per hour and 24 assistants
  2. $W = $22 per hour and 24 assistants
  3. $W = $20 per hour and 28 assistants (correct answer)
  4. $W = $16 per hour and 36 assistants
  5. $W = $24 per hour and 36 assistants

Explanation: This question explores factor markets in healthcare, specifically for dental assistants. In factor markets, dental offices demand assistants based on derived demand—they hire assistants because patients demand dental services, making labor demand dependent on the final service demand. Examining the table systematically, we look for where quantity demanded equals quantity supplied. At W = $20 per hour, both QD and QS equal 28 assistants, indicating market equilibrium. Students often confuse factor markets with product markets—remember that in labor markets, the roles reverse with firms as buyers and workers as sellers. The key strategy is to compare QD and QS at each wage level methodically. When you find matching quantities, that wage represents the equilibrium where the market clears with no shortage or surplus of workers.

Question 19

A competitive labor market exists for medical assistants in a city. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor employed?

(Quantity of labor is measured in number of workers.)

  1. w=$18/hour and L=300 workersw=\$18\text{/hour and }L=300\text{ workers}
  2. w=$20/hour and L=200 workersw=\$20\text{/hour and }L=200\text{ workers}
  3. w=$16/hour and L=200 workersw=\$16\text{/hour and }L=200\text{ workers}
  4. w=$18/hour and L=250 workersw=\$18\text{/hour and }L=250\text{ workers} (correct answer)
  5. w=$20/hour and L=250 workersw=\$20\text{/hour and }L=250\text{ workers}

Explanation: This question tests your understanding of factor markets, specifically how to find equilibrium in a competitive labor market. In factor markets, firms demand labor based on derived demand—the demand for workers comes from the demand for the goods or services those workers produce. The table shows the supply and demand schedules for medical assistants, with wage rates and corresponding quantities of labor supplied and demanded. At equilibrium, the quantity of labor supplied equals the quantity demanded, which occurs at w = \18/\text{hour}andandL = 250$ workers. A common misconception is confusing labor markets with product markets—remember that in labor markets, firms are the demanders and workers are the suppliers. To solve these problems, scan the table to find where quantity supplied equals quantity demanded. Then read the corresponding wage and employment level directly from that row.

Question 20

A competitive labor market exists for childcare workers. Based on the labor market shown in the table, what is the equilibrium wage and quantity of labor employed?

(Quantity of labor is measured in number of workers.)

  1. w=$10/hour and L=300 workersw=\$10\text{/hour and }L=300\text{ workers}
  2. w=$12/hour and L=240 workersw=\$12\text{/hour and }L=240\text{ workers} (correct answer)
  3. w=$11/hour and L=260 workersw=\$11\text{/hour and }L=260\text{ workers}
  4. w=$12/hour and L=260 workersw=\$12\text{/hour and }L=260\text{ workers}
  5. w=$11/hour and L=240 workersw=\$11\text{/hour and }L=240\text{ workers}

Explanation: This question assesses your ability to find equilibrium in factor markets, specifically for childcare workers. Labor demand in this market is derived demand—parents' demand for childcare services creates firms' demand for childcare workers. The table presents wage rates alongside quantities of labor supplied and demanded. Equilibrium is established where these quantities match: at w = \12/\text{hour}$, supply and demand both equal 240 workers. A common error is misreading the table or selecting a wage where only supply or demand reaches a particular value. To find equilibrium systematically, compare the supply and demand columns row by row. The equilibrium point shows both the market-clearing wage and the number of workers employed at that wage.