Question 1

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 point where the supply and demand curves intersect represents equilibrium in the market, where the quantity of capital supplied equals the quantity of capital demanded. At this equilibrium point, the value of the marginal product of capital is equal to the price of capital, which in this case is $200. Therefore, choice B is correct. Choices A, C, and D are not necessarily true based on the information given in the graph.

Question 2

Who receives income from capital in the United States?

Accepted Answer

All three groups receive income from capital in the United States. Bank depositors receive interest on their deposits, bondholders receive interest on their bonds, and stockholders receive dividends on their stocks.

Question 3

The rental price of capital is determined by the

Accepted Answer

The rental price of capital, also known as the interest rate, is determined by the forces of supply and demand in capital markets. The supply of capital comes from savers and investors who are willing to lend their money, while the demand for capital comes from borrowers who need funds to invest in their business or projects. As with any market, the price (interest rate) is determined by the intersection of supply and demand curves.

Question 4

Assume all capital is owned by firms, rather than by households. Under this assumption, capital is paid according to the value of its marginal product

Accepted Answer

Under the assumption that all capital is owned by firms, the capital is paid according to the value of its marginal product irrespective of whether this income is transmitted to households in the form of interest or dividends or whether it is kept within firms as retained earnings.

Question 5

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 6

Which of the following qualify as part of our economy's capital income?

Accepted Answer

The answer of Which of the following qualify as part...

Question 7

The rental price of capital is

Accepted Answer

The rental price of capital is the price paid to use capital for a limited time period, which is different from the purchase price. A is incorrect because the rental price is determined within the factor markets. C is incorrect because it is referring to the purchase price, not the rental price. D is not necessarily true, as the rental price can be less or more than the purchase price depending on various factors such as market demand and supply.

Question 8

The demand curve for capital

Accepted Answer

The demand curve for capital reflects the marginal productivity of capital, meaning that the willingness to pay for marginal units of capital depends on the additional output that capital can generate. This is because firms will only continue to demand more capital if it contributes to their profits by producing additional output. Thus, the demand curve for capital is downward sloping, reflecting diminishing marginal returns to capital. Therefore, choice D is the best option. A, B, and C are incorrect because they do not accurately describe the demand curve for capital.

Question 9

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 the price of firms' output will increase firms' profitability, which will increase their demand for capital equipment. As a result, the demand for capital equipment will shift to the right, causing the equilibrium rental price of capital equipment to increase.

Question 10

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 implies that the marginal revenue product of capital equipment has increased. To maximize profits, firms will be willing to pay a higher rental price for capital equipment. As a result, the equilibrium rental price of capital equipment will increase.

Question 11

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 would be considered as part of the university's stock of capital, which refers to the total value of assets (including physical and intellectual) that the university owns and uses in its operations.

Question 12

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, as indicated by the label "r" on the axis.

Question 13

The purchase price of capital is

Accepted Answer

The purchase price of capital refers to the amount a person pays to own that factor of production (capital) indefinitely. This is in contrast to the rental price, which refers to the price a firm pays to temporarily use capital. Option A is incorrect as the purchase price is specific to the person or firm buying the capital and may not reflect the value of the capital to other firms. Option B is incorrect as the rental price may be less than or greater than the purchase price depending on the circumstances. Option C is incorrect as it refers to the flow of services from the capital, not the price of purchasing it.

Question 14

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, not above it.

Question 15

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 16

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 owners of capital is determined by the value of the marginal product of capital, which represents the additional value generated by an additional unit of capital. In other words, the rental income paid to owners of capital will align with the productivity of the capital, which is represented by its marginal product. A higher marginal product will result in a higher rental income for owners of capital, as they are able to generate greater returns on their investment.

Question 17

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 have an incentive to increase their investment in capital equipment since the expected return from each unit of capital equipment has increased. As a result, the demand for capital equipment will increase, which will lead to an increase in the equilibrium quantity of capital equipment.

Question 18

The wage is to the labor market as the

Accepted Answer

The wage is the price of labor in the labor market, just as the rental price of capital is the price of capital in the capital market. This reflects the supply and demand for capital in the economy, just as the wage reflects the supply and demand for labor.

Question 19

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, their profit will decrease. As a result, firms will reduce their investment in capital equipment to cut costs, which will lead to a decrease in demand for capital equipment. This decrease in demand will cause a shift in the demand curve for capital equipment to the left, resulting in a lower equilibrium quantity of capital equipment.

Question 20

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

Accepted Answer

All three options are correct ways for households to receive earnings from capital. 
A) Households can earn rental income by owning capital (such as property, equipment, or land) and renting it to firms.
B) Households can earn interest income by lending money to firms (such as by purchasing bonds or providing loans).
C) Households can earn dividend income by owning stock in firms, which distribute a portion of their profits to shareholders.

Quiz 18: The Markets for the Factors of Production

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