Question 1

Unlike economic profit, economic rent:

Accepted Answer

Economic rent is earned by factors of production that are unique. As a result, competition does not drive economic rent to zero.

Question 2

Mary Jane is willing to babysit for $6 an hour. Her neighbor has asked her to babysit for $8 an hour. Assuming Mary Jane accepts the offer:

Accepted Answer

Economic rent is the part of the payment for a factor of production that exceeds the owner's reservation price.

Question 3

Factors of production are the most likely to earn economic rent when they:

Accepted Answer

Economic rent is bid up to prevent a unique factor from moving to another firm.

Question 4

The statement, "If a deal is too good to be true, then it probably is not true," is most closely related to which core economic principle?

Accepted Answer

The No-Cash-on-the-Table Principle (or the Equilibrium Principle)states that a market equilibrium leaves no unexploited opportunities for individuals.

Question 5

Economic rent is:

Accepted Answer

Economic rent is the part of the payment for a factor of production that exceeds the owner's reservation price.

Question 6

If the market demand curve does not capture all of the benefits to society of buying an additional unit of good, then:

Accepted Answer

If the supply and demand curves do not capture all of the costs and benefits of producing another unit of output, then the market equilibrium will not be efficient.

Question 7

If it is possible to make a change that will help some people without harming others, then the situation is:

Accepted Answer

A situation is efficient if no change is possible that will help some people without harming others.

Question 8

Professor Plum, who earns $100,000 per year, read in the paper today that the university pays its basketball coach one million dollars per year in exchange for his agreement to remain at the university for at least three more years. The coach earns more than Professor Plum because:

Accepted Answer

A coach with unique talents will be able to extract economic rent from the University.

Question 9

Suppose several United States software design companies compete with each other in a perfectly competitive environment. If one company decides to move some of its offices to a low-wage country in order to reduce operating costs, then:

Accepted Answer

Firms have an incentive to find the least-cost production methods. If one company employs a lower-cost method, the others must follow in order to remain competitive.

Question 10

Superstar professional athletes can sustain their economic rents because:

Accepted Answer

Economic rent often arises when competitors bid on a unique input, driving its price up.

Question 11

Duke is a highly skilled negotiator who could work for many law firms. The law firm that hires Duke is able to collect twice as much revenue per hour of Duke's time than it can for any other negotiator in town. The increased revenue will:

Accepted Answer

Economic rent is bid up to prevent a unique factor from moving to another firm.

Question 12

Angelina Jolie's economic rent from starring in a movie is equal to the difference between:

Accepted Answer

Economic rent is the part of the payment for a factor of production that exceeds the factor owner's reservation price.

Question 13

If the market supply curve does not capture all of the costs to society of producing an additional unit of good, then:

Accepted Answer

If the supply and demand curves do not capture all of the costs and benefits of producing another unit of output, then the market equilibrium will not be efficient.

Question 14

Consider a perfectly competitive industry in a long-run equilibrium. If a single firm in that industry discovers a significant cost-saving production technology, then:

Accepted Answer

Firms have an incentive to find the least-cost production methods.

Question 15

The No-Cash-on-the-Table Principle states that there are:

Accepted Answer

The No-Cash-on-the-Table Principle (or the Equilibrium Principle)states that a market equilibrium leaves no unexploited opportunities for individuals, but may not exploit all potential gains through collective action.

Question 16

Which of the following is a characteristic of economic rent?

Accepted Answer

Economic rent is the part of the payment for a factor of production that exceeds the owner's reservation price.

Question 17

The supplier of a factor of production has a reservation price of $100. The purchaser of the factor of production has a reservation price of $200. If the factor of production is unique, then:

Accepted Answer

Economic rent is bid up to prevent a unique factor from moving to another firm. Here, the purchaser of the factor will be willing to pay his reservation price to prevent the unique factor from going elsewhere.

Question 18

The phrase "smart for one, but dumb for all" refers to the idea that the individual pursuit of self-interest:

Accepted Answer

The individual pursuit of self-interest often (but not always)leads to an efficient outcome.

Question 19

A cost-saving innovation in a perfectly competitive industry will lead to:

Accepted Answer

The first firms to adopt a cost-saving innovation will profit for a short time, but eventually all firms will adopt the same technology.

Question 20

Adam Smith believed that the individual pursuit of self-interest:

Accepted Answer

Adam Smith believed that the individual pursuit of self-interest often (but not always)promotes the broader interests of society.

Quiz 7: Efficiency, Exchange, and the Invisible Hand in Action

Unlike economic profit, economic rent:

Mary Jane is willing to babysit for $6 an hour. Her neighbor has asked her to babysit for $8 an hour. Assuming Mary Jane accepts the offer:

Factors of production are the most likely to earn economic rent when they:

The statement, "If a deal is too good to be true, then it probably is not true," is most closely related to which core economic principle?

Economic rent is:

If the market demand curve does not capture all of the benefits to society of buying an additional unit of good, then:

If it is possible to make a change that will help some people without harming others, then the situation is:

Professor Plum, who earns $100,000 per year, read in the paper today that the university pays its basketball coach one million dollars per year in exchange for his agreement to remain at the university for at least three more years. The coach earns more than Professor Plum because:

Suppose several United States software design companies compete with each other in a perfectly competitive environment. If one company decides to move some of its offices to a low-wage country in order to reduce operating costs, then:

Superstar professional athletes can sustain their economic rents because:

Duke is a highly skilled negotiator who could work for many law firms. The law firm that hires Duke is able to collect twice as much revenue per hour of Duke's time than it can for any other negotiator in town. The increased revenue will:

Angelina Jolie's economic rent from starring in a movie is equal to the difference between:

If the market supply curve does not capture all of the costs to society of producing an additional unit of good, then:

Consider a perfectly competitive industry in a long-run equilibrium. If a single firm in that industry discovers a significant cost-saving production technology, then:

The No-Cash-on-the-Table Principle states that there are:

Which of the following is a characteristic of economic rent?

The supplier of a factor of production has a reservation price of $100. The purchaser of the factor of production has a reservation price of $200. If the factor of production is unique, then:

The phrase "smart for one, but dumb for all" refers to the idea that the individual pursuit of self-interest:

A cost-saving innovation in a perfectly competitive industry will lead to:

Adam Smith believed that the individual pursuit of self-interest: