Question 1

Suppose that a rare virus infects and kills a significant percentage of the population. Assuming that land and labor are complements in a farming production function, what would happen to the wages earned by workers and the rents earned by landowners?

Accepted Answer

With a significant decrease in the population due to the virus, there will be fewer workers available for farming, and this scarcity will drive up their wages. On the other hand, there will be more land available per worker, which will decrease the demand and price of land, and thus decrease the rents earned by landowners. This implies that wages would increase, and rents would decrease.

Question 2

Suppose that the labor market for life guards is initially in equilibrium. Whistles are an important safety tool that life guards use as a part of their jobs. A fire destroys the largest factory that produces whistles. What happens to the equilibrium wage and quantity of life guards?

Accepted Answer

The answer of Suppose that the labor market for life...

Question 3

Suppose that the labor market for life guards is initially in equilibrium. Then a new television series debuts which glamorizes the social opportunities for life guards. What happens to the equilibrium wage and quantity of life guards?

Accepted Answer

The answer of Suppose that the labor market for life...

Question 4

Suppose that the labor market for life guards is initially in equilibrium. Then the marginal productivity of life guards increases. What happens to the equilibrium wage and quantity of life guards?

Accepted Answer

If the marginal productivity of life guards increases, it means that they are more productive and valuable to employers, and thus demand for them increases. This will lead to an increase in their equilibrium wage, as employers bid up the wage to attract more life guards. Additionally, more individuals will be incentivized to enter the life guarding industry, leading to an increase in the equilibrium quantity of life guards.

Question 5

Suppose that the labor market for life guards is initially in equilibrium. Whistles are an important safety tool that life guards use as a part of their jobs. A fire destroys the largest factory that produces whistles. In the market for life guards the equilibrium wage

Accepted Answer

The destruction of the factory that produces whistles would decrease the marginal productivity of life guards since they are now unable to use this important safety tool. As a result, the demand for life guards would decrease, leading to a decrease in the equilibrium wage.

Question 6

Suppose that a college physics experiment goes horribly wrong and releases an electronic pulse that renders all electronic equipment in the cities of Columbus, Cleveland and Cincinnati, Ohio permanently useless. No people are hurt, and no buildings are damaged. After the accident, the wages earned by Ohio workers will

Accepted Answer

The loss of electronic equipment will negatively impact the productivity of Ohio workers as they rely heavily on technology and machinery to perform their jobs. With reduced productivity, wages earned by Ohio workers will decrease.

Question 7

Suppose that the labor market for life guards is initially in equilibrium. Then swimming pool owners adopt a new labor-saving technology that uses computers to monitor the locations of swimmers in the pool. What happens to the equilibrium wage and quantity of life guards?

Accepted Answer

The new technology reduces the demand for lifeguards, leading to a decrease in both the equilibrium wage and quantity of lifeguards.

Question 8

"The firm hires the factor up to the point where the value of the factor's marginal product is equal to the factor's price." This statement applies to which factor of production?

Accepted Answer

This statement applies to all factors of production (land, labor, and capital) as it is a basic principle of profit-maximization in production theory that firms hire factors up to the point where the value of their marginal product equals their price.

Question 9

Suppose that the labor market for high school chemistry teachers is initially in equilibrium. Chemistry teachers use laboratory chemicals as an important part of their jobs. New environmental regulations ban the use of many chemicals, which means that fewer laboratory chemicals are available for high school chemistry teachers to use in their jobs. In the market for high school chemistry teachers, the equilibrium wage

Accepted Answer

With fewer chemicals available, the marginal productivity of high school chemistry teachers decreases as they have fewer resources to work with. This will lead to a decrease in the demand for chemistry teachers and a decrease in the equilibrium wage. Note that the supply of chemistry teachers is not affected by this environmental regulation, since it is a factor outside of the labor market for such workers.

Question 10

Suppose that a toxic waste spill renders half of the land in New Jersey uninhabitable. Assuming that land and labor are complements in the production function, what would happen to the wages earned by workers and rents earned by landowners?

Accepted Answer

Since land and labor are complements in the production function, a decrease in the availability of land would reduce the productivity of labor, leading to a decrease in wages earned by workers. However, since the supply of land has decreased, rents earned by landowners would increase as the demand for the remaining land would be higher. Therefore, wages would decrease, and rents would increase.

Question 11

Suppose that the labor market for high school chemistry teachers is initially in equilibrium. Chemistry teachers use laboratory chemicals as an important part of their jobs. New environmental regulations ban the use of many chemicals, which means that fewer laboratory chemicals are available for high school chemistry teachers to use in their jobs. What happens to the equilibrium wage and quantity of high school chemistry teachers?

Accepted Answer

The ban on chemicals reduces the demand for chemistry teachers, as their ability to perform their job is hindered, leading to a decrease in both equilibrium wage and quantity.

Question 12

Which of the following statements is correct?

Accepted Answer

The answer of Which of the following statements is correct?
...

Question 13

Suppose that due to a severe drought in Texas, 100,000 farmers relocate from Texas to Louisiana. Assuming that land and labor are complements in a farming production function, what would happen to the wages earned by workers and the rents earned by landowners in Louisiana?

Accepted Answer

The answer of Suppose that due to a severe drought...

Question 14

An increase in population can be expected to

Accepted Answer

An increase in population typically increases the demand for land, which can lead to an increase in the marginal product of land as more people utilize the same amount of land.

Question 15

Suppose that a large tornado destroys the fleet of fire trucks for the city of Omaha, Nebraska. What happens to the earnings of firefighters in Omaha?

Accepted Answer

The destruction of fire trucks reduces the firefighters' ability to perform their duties effectively, lowering their marginal productivity and thus causing their equilibrium wage to fall.

Question 16

A decrease in population can be expected to

Accepted Answer

The answer of A decrease in population can be expected...

Question 17

As a result of a fire, a small business owner loses some of her computers and other equipment. If the property of diminishing returns applies to all factors of production, she should expect to see

Accepted Answer

The law of diminishing returns suggests that as one factor of production (in this case, capital in the form of computers and equipment) decreases, the marginal productivity of that factor increases because the remaining units are used more intensively. However, the marginal productivity of labor may decrease because there are fewer capital resources for each worker to use, potentially making their work less efficient.

Question 18

Suppose that an industrial accident at a factory destroys a significant number of high-speed blenders that bartenders use to mix frozen drinks. What will happen in the labor market for bartenders?

Accepted Answer

The destruction of high-speed blenders reduces the capacity to serve customers efficiently, likely decreasing demand for bartenders as fewer frozen drinks can be made. This would lead to both lower wages and employment in the bartender labor market.

Question 19

The distinction between purchase price and rental price applies to which factor(s) of production?

Accepted Answer

Purchase price and rental price both refer to the cost of using land and capital, but not labor. Therefore, the distinction applies to the factors of production of land and capital only.

Question 20

Suppose that a large rogue wave destroys the (thankfully unoccupied) fleet of swordfish fishing boats docked in the Gloucester, Massachusetts harbor. What happens to the earnings of fishermen and women in Gloucester?

Accepted Answer

With a decrease in the supply of fishing boats, the marginal productivity of the remaining fishermen and women will decrease, as they will have to work with less capital. Therefore, the equilibrium wage in the market will fall.

Quiz 18: The Markets for the Factors of Production