Deck 18: Pricing the Factors of Production

Question 1

Capital refers to an inventory or a stock of productive equipment and machines.

Answer 1

True

Question 2

Capital is a flow of resources into the production of investment goods.

Answer 2

False

Question 3

An inward shift of the demand curve for a product causes outward shifts in the demand curves for all the factors used to produce the product.

Answer 3

False

Question 4

If the supply curve remains constant, an outward shift in the demand curve for a commodity causes the price of factors used in its production to decline.

Question 5

MPP is the additional output that results from a one-unit increase in use of the input.

Question 6

The demand curve for any input is the downward-sloping portion of its marginal revenue product curve.

Question 7

The distribution of income in a market economy is determined by the minimum wage laws.

Question 8

A profit-maximizing firm will hire inputs until MRP = P of the input.

Question 9

The demand curve for any input is the MP curve.

Question 10

The demand for borrowed funds is a derived demand.

Question 11

Interest is the payment for the use of funds used to produce capital.

Question 12

MRP represents what the marginal physical product is worth.

Question 13

The rate of interest is the price at which money is borrowed and loaned.

Question 14

Demand for an input is derived from the demand for the final product.

Question 15

The marginal revenue product of an input is the marginal physical product times the price per unit of output under perfect competition.

Question 16

Investment is a flow of resources into the production of new capital.

Question 17

The quantity demanded of an input normally rises as its price rises.

Question 18

Interest is the payment for the use of funds.

Question 19

The nation's stock of capital can increase only when net new investment takes place.

Question 20

If marginal revenue product is less than price of the input, the firm should use more of the input.

Question 21

The supply curve for land is perfectly elastic.

Question 22

Usury laws interfere with the automatic workings of the market mechanism.

Question 23

Economic rent is a payment for a factor of production that elicits an increase in the quantity supplied.

Question 24

The derived demand for borrowed funds has the characteristic negative slope of any demand curve.

Question 25

A usury rate is like a price ceiling.

Question 26

If the credit market is close to being a competitive market, an interest rate ceiling imposed by usury laws will bring misallocations of resources.

Question 27

As interest rates rise, more and more investments become profitable for a firm.

Question 28

A sum of money to be received in the future is worth more than a sum of money today.

Question 29

Economic rent refers to profit derived from owning an apartment complex.

Question 30

Marginal land can be defined as land that earns neither profits nor losses.

Question 31

An increase in the interest rate causes the MRP of a resource to fall.

Question 32

Usury laws are designed to ensure that interest rates in the market do not exceed acceptable norms.

Question 33

Economic rent is the minimum payment necessary to induce any of the factor to be supplied.

Question 34

The difference in values between money today and money in the future is lower when the rate of interest is higher.

Question 35

At higher interest rates, fewer people or firms will want to borrow.At lower interest rates, fewer people or firms will want to save.

Question 36

As the rate of interest on borrowed funds increases, the quantity of investment funds demanded diminishes.

Question 37

Marginal land is land that is not worth anything under any circumstances.

Question 38

Marginal land is on the borderline of being used in production.

Question 39

On the surface, usury laws are designed to protect consumers from exorbitant interest rates.

Question 40

In general, the quantity of savings supplied to be used for lending increases with the rate of interest.

Question 41

When the interest rate is higher, the difference between the value of money today and tomorrow is smaller.

Question 42

Almost all of the rent that tenants pay to landlords of apartments buildings is economic rent.

Question 43

The marginal productivity principle has relevance only in a capitalist economy, and not in a socialist system.

Question 44

"Rent seeking" describes the search and battle for opportunities to collect economic rents.

Question 45

Profit is the return to entrepreneurship.

Question 46

Economic rent is the amount of money above and beyond that necessary to keep the factor of production employed where it is.

Question 47

The marginal productivity principle has some relevance to organizing production in a socialist society.

Question 48

Although it is possible to determine the present value of a payment to be received in one year, it is not possible to determine the present value of a stream of payments over several years.

Question 49

Innovation is the act of putting an invention to practical use.

Question 50

Economic rent is paid only to land, and not to other resources.

Question 51

Innovation is the act of generating an idea for a new product.

Question 52

Invention is the act of generating a new idea.

Question 53

Economic rent is the payment made to a factor of production above the amount necessary to induce any of that factor to be supplied at its present employment.

Question 54

Discounting or computing present value is a way of comparing dollar values that will appear at different points in time.

Question 55

Economists consider rent seeking activity to be highly productive.

Question 56

The marginal productivity principle demonstrates that distribution under a capitalist system is ethically valid.

Question 57

High profits in some risky industries attract additional entrepreneurs to those industries.

Question 58

In 2013, corporate profits in the U.S.economy were about 14 percent of national income.

Question 59

Entrepreneurship is the act of starting new firms and taking the risks that are necessary in business opportunities.

Question 60

The theory of economic rent can be used to explain high incomes received by movie stars and athletes.

Question 61

A worker can always build a chair in four hours.If a chair sells for $40 in a perfectly competitive market, then the equilibrium wage per hour in a perfectly competitive labor market is

A)$4.
B)$10.
C)$40.
D)$160.

Question 62

Which factor of production receives the greatest share of the U.S.national income?

A)land
B)labor
C)capital
D)entrepreneurship

Question 63

According to the principle of marginal productivity, if

A)the product price is less than MRP, the firm is using too little of the input.
B)the price of an input rises, the quantity demanded of the input will increase.
C)MRP is greater than product price, the firm should reduce the use of the input.
D)price of the input equals MRP, the firm is maximizing profit.

Question 64

The theory of factor pricing uses supply-demand analysis.

Question 65

The marginal productivity principle says that a profit-maximizing firm should

A)hire capital until its marginal product is zero.
B)hire labor until another worker costs more to hire than she can earn for the firm.
C)hire the quantities of capital and of labor at which their marginal products are equal.
D)hire capital until its marginal product is negative.

Question 66

In 2013, interest payments were about ____ percent of national income.

A)0.51/2
B)1.29
C)3.2
D)4.0

Question 67

The basic principle that explains the demand for a factor of production is the

A)principle of marginal productivity.
B)Hotelling principle.
C)principle of opportunity cost.
D)Ramsey pricing principle.

Question 68

If a ton of steel sells for $15,000 and a car made from a ton of steel sells for $30,000, then if all markets are perfectly competitive, how many cars can be made from the last ton of steel used by a profit-maximizing firm?

A)1/3 car
B)1/2 car
C)1 car
D)1.5 cars

Question 69

What involves taking the risks that are necessary to seek out business opportunities?

A)Invention
B)Benchmarking
C)Averaging
D)Entrepreneurship

Question 70

The demand curve for capital is

A)its entire marginal physical product curve.
B)the downward-sloping portion of its marginal physical product curve.
C)its entire marginal revenue product curve.
D)the downward-sloping portion of its marginal revenue product curve.

Question 71

One major fault with factor pricing analysis is that marginal productivity theory merely attempts to justify the income distribution that the capitalist system yields.

Question 72

The marginal revenue product

A)tells how many dollars the marginal physical product is worth.
B)is the marginal physical product times price of the product under perfect competition.
C)is the marginal physical product times marginal revenue.
D)All of the above are correct.

Question 73

Of all the payments made to factors of production in the United States in 2013, ____ received the lowest share.

A)land rents
B)labor
C)interest payments
D)corporate profits

Question 74

The marginal productivity theory is irrelevant to organizing production in a socialist society.

Question 75

The marginal productivity theory of distribution holds that

A)each factor is paid what it deserves.
B)the owner of each factor is paid the amount that the factor contributes to earnings.
C)each factor's income depends on how hard it works.
D)each factor receives an equal share of the revenue from production.

Question 76

The distribution of income in a market economy is determined by

A)the level of employment and prices of the factors of production.
B)the prices of factors of production.
C)largely unknown forces which economists seek to discover.
D)decisions of government offices related to distribution.

Question 77

Marginal productivity analysis shows that a drop in the price of the product will cause input use to

A)increase.
B)decrease.
C)stay the same.
D)The information is insufficient to provide an answer.

Question 78

When factor markets are competitive, it always pays a profit-maximizing firm to

A)use more of the factor.
B)bid very low prices for inputs.
C)reduce the use of all inputs.
D)use that quantity of input that makes MRP equal to the price of the input.

Question 79

In 2013 ____ of national factor income consisted of employee compensation.

A)90 percent
B)50 percent
C)60 percent
D)70 percent

Question 80

The marginal productivity principle implies that

A)quantity demanded of an input normally declines as the input price falls.
B)at equilibrium, profit from the last unit of input will be zero.
C)for maximizing profit, marginal revenue product should be greater than price.
D)marginal productivity of inputs increase when price of inputs increase.