Question 1

When economists refer to a firm's capital,they are describing the

Accepted Answer

When economists refer to a firm's capital, they are describing the stock of equipment and buildings used in production. This includes tangible assets like machinery, tools, and buildings owned by the firm that are used to produce goods and services. It does not refer to financing or markets for goods and services.

Question 2

The demand curve for capital

Accepted Answer

The demand curve for capital reflects the marginal productivity of capital, or the additional output that can be produced by adding one more unit of capital. As the cost of capital increases, the marginal productivity of capital decreases, resulting in a downward sloping demand curve.

Question 3

Which of the following best describes the economy's stock of equipment and structures?

Accepted Answer

The stock of equipment and structures is commonly referred to as "capital," which is one of the four factors of production (along with land, labor, and entrepreneurship).

Question 4

The accumulation of machinery and buildings used in the production of new goods and services is referred to as

Accepted Answer

The accumulation of machinery and buildings used in the production of new goods and services is referred to as capital.

Question 5

The rental price of capital is

Accepted Answer

The rental price of capital refers to the price paid to use capital for a limited time period. It is the cost incurred to utilize assets other than labor and is determined within the realm of factor markets. It is not the price paid for ownership of the capital, which is the purchase price. The statement that it is always more than the purchase price is not accurate, as the rental price can be less or more than the purchase price depending on various factors.

Question 6

Capital is paid according to the value of its marginal product

Accepted Answer

According to the theory of marginal productivity, the payment of a factor of production (including capital) will depend on its marginal productivity, regardless of whether the earnings are passed on to households as dividends or kept within firms as retained earnings. Therefore, option C is the correct answer. Option D is incorrect as earnings from capital are directly related to the value of its marginal product. Options A and B are incorrect as they limit the payment of capital to only one form of earnings distribution, which is not always the case.

Question 7

Which of the following accurately describes how earnings from capital eventually get paid to households?

Accepted Answer

All of the options listed - owning capital and renting it to firms, lending money to firms and receiving interest payments, and owning stock in firms and receiving dividends - are potential ways that households can receive earnings from capital.

Question 8

The equilibrium rental income paid to the owners of capital at any point in time equals the

Accepted Answer

The equilibrium rental income paid to the owners of capital is determined by the value of the marginal product of capital, which indicates the additional output produced by each additional unit of capital. Capital owners will continue to invest in capital until the rental income equals the value of the marginal product of capital, which represents their opportunity cost of investing in other projects. Therefore, the equilibrium rental income paid to the owners of capital is equal to the value of the marginal product of capital.

Question 9

Consider the market for capital equipment.Suppose the value of the marginal product of capital equipment increases.Holding all else constant,the equilibrium rental price of capital equipment will

Accepted Answer

An increase in the value of the marginal product of capital equipment means that each unit of capital equipment is now generating more value. This will increase the demand for capital equipment, and since the supply is fixed in the short run, the equilibrium rental price of capital equipment will increase.

Question 10

Which of the following would be an example of capital for a computer software firm? (i)
The firm's computer programmers
(ii)
The wages the firm pays to its computer programmers
(iii)
Computer equipment

Accepted Answer

The answer of Which of the following would be an...

Question 11

Which term below refers to "the accumulation of goods produced in the past that are being used in the present to produce new goods and services"?

Accepted Answer

Capital refers to the accumulation of goods produced in the past that are being used in the present to produce new goods and services.

Question 12

Which of the following would be an example of capital for a retail gasoline station? (i)
The gas tanks and pumps
(ii)
The service attendants' time
(iii)
The plot of land on which the station sits

Accepted Answer

The answer of Which of the following would be an...

Question 13

The purchase price of capital is

Accepted Answer

The purchase price of capital refers to the price a person pays to own that factor of production indefinitely. It is not the value of the capital to the firm (choice A), nor is it always less than the rental price (choice B). It is also not the price received from the flow of some capital services (choice C).

Question 14

Consider the market for capital equipment.Suppose the price of firms' output increases.Holding all else constant,the equilibrium rental price of capital equipment will

Accepted Answer

A higher price for firms' output indicates that firms are earning higher revenue and may be able to afford to pay a higher rental price for capital equipment. As a result, the equilibrium rental price of capital equipment will increase.

Question 15

Consider the market for capital equipment.Suppose the value of the marginal product of capital equipment increases.Holding all else constant,the equilibrium quantity of capital equipment will

Accepted Answer

When the value of the marginal product of capital equipment increases, firms will demand more capital equipment. This will lead to an increase in the equilibrium quantity of capital equipment.

Question 16

Consider the market for capital equipment.Suppose the market price of firms' output decreases.Holding all else constant,the equilibrium quantity of capital equipment will

Accepted Answer

When the market price of firms' output decreases, it will lead to a decrease in revenue and profits of the firms. In order to cut down the cost and maintain the profitability, the firms will reduce their demand for capital equipment. This will ultimately result in a decrease in the equilibrium quantity of capital equipment.

Question 17

The owners of capital resources are compensated according to the

Accepted Answer

The value of the marginal product of capital represents the additional output produced by an additional unit of capital. This determines the compensation received by the owners of capital resources. Therefore, choice C is the best answer.

Question 18

Which of the following is not correct?

Accepted Answer

Firms may earn the highest profits when the owners of capital receive a value equal to the marginal product of capital or slightly above it, but not above it. If the value of payment to the owners of capital exceeds the marginal product, then the firm's profits will decrease. Therefore, D is not correct.

Question 19

Economists define capital as the

Accepted Answer

Economists define capital as the accumulation of goods produced in the past that are being used in the present to produce new goods and services. This includes physical capital such as machinery, equipment, and buildings, as well as human capital such as knowledge, skills, and abilities acquired through education and training. Capital is essential for economic growth and development, as it enables firms to increase their productivity and output over time.

Question 20

If one were to consider a university as a business,the computers in the computer labs would be regarded by economists as

Accepted Answer

The computers in the computer labs are a part of the university's stock of capital. Capital refers to the tools, equipment, and other assets that are used in the production of goods or services. In this case, the computers are used by students and faculty in the production of their work, and therefore are a part of the university's stock of capital.

Quiz 18: The Market for the Factors of Production