Question 1

Figure 18-11 
-Refer to Figure 18-11. What is measured on the vertical axis of the graph?

Accepted Answer

The vertical axis of the graph measures the rental price of capital, which is the cost of renting capital goods.

Question 2

Figure 18-11 
-Refer to Figure 18-11. Suppose the intersection of the supply and demand curves matches with a value of $200 on the vertical axis. Then

Accepted Answer

The intersection of the supply and demand curves at $200 on the vertical axis indicates the value of the marginal product of capital, which is the additional revenue generated from using one more unit of capital.

Question 3

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

An increase in firms' output price will lead to an increase in firms' profits. This, in turn, will increase the demand for capital equipment as firms seek to expand production. As a result, the equilibrium rental price of capital equipment will increase to reflect this increased demand.

Question 4

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 and equipment, as well as human capital, such as skills and knowledge. Capital is a factor of production that is used alongside labor and land to create goods and services.

Question 5

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

If the value of the marginal product of capital equipment increases, it means that the additional output produced by using an additional unit of capital equipment has become more valuable. This will increase the demand for capital equipment, causing an increase in the equilibrium rental price. Specifically, the equilibrium rental price will increase until it reaches a new equilibrium where the increased demand for capital equipment is satisfied at the new, higher rental price.

Question 6

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

Accepted Answer

The economy's stock of equipment and structures is referred to as capital, which represents the long-term investments made by businesses to produce goods and services over time.

Question 7

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 8

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

Capital refers to physical assets used in production, such as computer equipment, not human resources or wages.

Question 9

The wage is to the labor market as the

Accepted Answer

The wage is the price of labor in the labor market, while the rental price of capital is the price of capital in the capital market. Both prices are determined by the intersection of supply and demand in these markets. Therefore, choice A is the best option. The purchase price of capital refers to the cost of acquiring capital, but it is not directly related to the capital market equilibrium. Similarly, choices C and D refer to the supply and demand for land, which are not directly related to the labor market.

Question 10

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

Accepted Answer

The equilibrium rental income is determined by the value of the marginal product of capital, which is the additional revenue generated by using one more unit of capital.

Question 11

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

Accepted Answer

When economists refer to a firm's capital, they are referring to the stock of equipment and buildings used in production. This includes physical assets such as machinery, buildings, and tools, which are used in the production process to create goods and services. It does not refer to markets or financing methods.

Question 12

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

Capital equipment is a factor of production that firms use to produce their goods and services. If the market price of firms' output decreases, their revenue will decrease, and they are likely to reduce their production. As a result, firms may decrease their demand for capital equipment since they need less equipment to produce a lower output quantity. This decrease in demand will shift the demand curve for capital equipment to the left, leading to a lower equilibrium quantity. Therefore, the equilibrium quantity of capital equipment will decrease.

Question 13

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 14

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

The term that refers to "the accumulation of goods produced in the past that are being used in the present to produce new goods and services" is capital. The other choices such as inventories, products and factors of production do not specifically refer to the accumulation of goods produced in the past.

Question 15

Which of the following is not correct?

Accepted Answer

This statement is incorrect. Firms earn the highest profits when the owners of capital receive a value equal to the marginal product.

Question 16

The purchase price of capital is

Accepted Answer

The purchase price of capital is the price a person pays to own that factor of production indefinitely. This means that the firm or individual must pay the entire cost of the capital upfront in order to own it indefinitely, rather than renting it over time.

Question 17

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

Capital refers to the tools, equipment, and facilities used in the production of goods and services. In this context, the gas tanks and pumps are considered capital as they are essential equipment for the operation of the gasoline station. The service attendants' time is labor, and the plot of land is a natural resource, not capital.

Question 18

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 tangible assets that contribute to the university's ability to produce educational services. Therefore, they are considered part of the university's stock of capital.

Question 19

The demand curve for capital

Accepted Answer

The demand curve for capital reflects the marginal productivity of capital. This means that the curve shows how much capital a firm is willing to demand at various prices, based on the additional output (and thus revenue) that each unit of capital can produce. Therefore, the demand curve is downward sloping because as the price of capital increases, marginal productivity decreases, and firms are less willing to demand more capital.

Question 20

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

An increase in the value of the marginal product of capital equipment implies that the productivity of each unit of capital increases. This makes it more profitable for firms to invest in capital equipment, which in turn leads to an increase in the demand for capital equipment. As a result, the equilibrium quantity of capital equipment will increase.

Quiz 18: The Markets for the Factors of Production

Figure 18-11 -Refer to Figure 18-11. What is measured on the vertical axis of the graph?

Figure 18-11 -Refer to Figure 18-11. Suppose the intersection of the supply and demand curves matches with a value of $200 on the vertical axis. Then