Deck 19: Pricing the Factors of Production

Question 1

The demand for borrowed funds is a derived demand.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

Interest is the payment for the use of funds.

Question 6

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

Question 7

The demand curve for any input is the MP curve.

Question 8

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

Question 9

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.

Question 10

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

Question 11

MRP represents what the marginal physical product is worth.

Question 12

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

Question 13

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

Question 14

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

Question 15

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 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

The supply curve for land is perfectly elastic.

Question 28

A usury rate is like a price ceiling.

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

Invention is the act of generating a new idea.

Question 45

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 46

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

Question 47

Economists consider rent seeking activity to be highly productive.

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

In 2009,corporate profits in the U.S.economy were about 10 percent of national income.

Question 57

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 58

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

Question 59

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

Question 60

Profit is the return to entrepreneurship.

Question 61

Of all the payments made to factors of production in the United States in 2009,____ received the lowest share.

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

Question 62

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 63

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 64

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 65

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 66

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 67

In 2009,interest payments were about ____ percent of national income.

A)0.51/2
B)1.29
C)4.0
D)6.4

Question 68

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

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

Question 69

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 70

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 71

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

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

Question 72

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.

Question 73

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 74

A ptomaine poisoning scare causes a decrease in the demand for canned tuna fish.Everything else equal,the demand curve for aluminum cans will

A)become steeper.
B)become flatter.
C)fall.
D)rise.

Question 75

Which of the following is not held constant along a demand curve for labor by a firm?

A)the firm's technology of production
B)the price of the firm's output
C)the marginal product of labor for the firm
D)the price of substitutes for the firm's output

Question 76

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 77

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 78

In 2009 ____ of national factor income consisted of employee compensation.

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

Question 79

According to the principle of marginal productivity,the quantity of an input demanded depends on the

A)price of the input.
B)price of outputs in which the input is used.
C)technology of production.
D)All of the above are correct.

Question 80

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.