Question 1

The economic rent analysis does not apply to any factor

Accepted Answer

Economic rent analysis applies to factors whose supply is perfectly inelastic (vertical supply curve) because it is based on the premise that the quantity of the factor cannot be increased regardless of price. When the supply curve is horizontal, it indicates perfect elasticity, meaning the quantity supplied can change significantly with price changes, which contradicts the concept of economic rent that is typically associated with fixed supply, such as land.

Question 2

Suppose that a community seeks to preserve air quality,and zones a "green belt" around the city which prevents property development within the belt.What is the most likely result of this law?

Accepted Answer

By preventing property development within the green belt, the supply of available land for development decreases, which in turn increases the economic rent (land value) of the remaining land within the city limits. This may lead to higher property values and rental rates, potentially increasing costs for businesses and residents.

Question 3

When a few rival groups spend money in competition for a license that grants them a monopoly for the provision of cable TV for an area,economists label this activity

Accepted Answer

This activity is known as rent-seeking. Rent-seeking is a term used by economists to describe an activity in which individuals or firms attempt to use political influence or other means to obtain economic rent or other benefits without creating new wealth. In this case, the rival groups are spending money to acquire a monopoly and gain a competitive advantage, rather than investing in new technology or improving services for consumers.

Question 4

Rent-seeking activity by firms

Accepted Answer

Rent-seeking activity by firms often involves using resources to obtain government regulations or subsidies, rather than actually creating value for the economy. This results in a waste of economic resources that could have been put to more productive uses. Therefore, choice A is correct. Additionally, rent-seeking activity is not necessary for economic efficiency, so choice B is incorrect. Rent-seeking can also occur in competitive markets, so choice C is incorrect. Lastly, rent-seeking does not increase the total amount of economic rent available, but rather redirects it from the broader economy to specific firms, so choice D is incorrect.

Question 5

Which of the following activities is most likely to be considered rent seeking?

Accepted Answer

Rent seeking involves seeking to increase one's share of existing wealth rather than creating new wealth. Hiring a lobbyist is an activity commonly associated with rent seeking as it involves attempting to influence the government to create policies or regulations that benefit a particular group or individual at the expense of others. Buying an apartment building or common stock does not necessarily involve rent seeking behavior, and voting for a politician who supports government spending only indicates a preference for a particular policy, but does not necessarily involve seeking personal gain at the expense of others.

Question 6

Between 1988 and 1989,the price of retail space in Ginza,Tokyo's premier commercial and entertainment center,rose from $400 to $625 per square foot.This was the result of an increase in demand in the face of a perfectly inelastic supply curve for retail space.Economists call this

Accepted Answer

The situation described is an example of economic rent, which is an increase in the price of a factor of production (in this case, retail space) due to a limited supply and increased demand. Monopoly profit would imply that there is only one seller of the retail space, which is not necessarily the case in Ginza. Usury refers to the practice of charging excessive interest rates, which is not relevant here. Marginal revenue product is the additional revenue generated by hiring one more unit of a factor of production, which is also not relevant to this scenario.

Question 7

An outward shift in the demand curve for land will

Accepted Answer

An outward shift in the demand curve for land indicates that demand for land has increased, leading to an increase in the price of land. This increase in price will make previously zero-rent land profitable, as it is now more valuable due to increased demand. Option B is incorrect as the shift in demand for land does not necessarily mean people will use land more extensively. Option C is also incorrect as an increase in demand would lead to an increase in rents, not a reduction. Option D is not necessarily true as the shift in demand may not always correspond to a shift in supply.

Question 8

In Japan,the market value of the land is approximately four times that of all the land in the United States,even though Japan is only about the size of California.The most likely explanation for this fact is

Accepted Answer

The high market value of land in Japan relative to the United States indicates that there is greater demand for land in Japan relative to the supply. This could be due to factors such as high population density, limited land availability, and cultural preferences for land ownership.

Question 9

Plots of land differ in

Accepted Answer

All of the above factors (quality of soil, topography, and proximity to marketplaces) affect the value and potential use of a plot of land. A plot with fertile soil is more desirable for agriculture, while a plot with a flat topography is better suited for construction. Proximity to marketplaces can also increase the value of the land by making it more accessible and attractive for development. Therefore, all three factors are important considerations when evaluating a plot of land.

Question 10

The only circumstance under which a factor will earn no rent is when the factor's supply curve is

Accepted Answer

The answer of The only circumstance under which a factor...

Question 11

Rent seeking

Accepted Answer

Rent seeking involves individuals or groups trying to obtain a larger share of existing resources without creating any new wealth or contributing to productivity. This often involves lobbying for favorable regulations or subsidies, which can lead to large opportunity costs in terms of lost economic efficiency. Therefore, option A is correct as rent seeking often entails large opportunity costs. Option B is incorrect as rent seeking does not prevent waste of resources, but rather contributes to it. Option C is incorrect as rent seeking is generally associated with unfair distribution of resources. Option D is incorrect as rent seeking can occur in any economic system, including a planned economy.

Question 12

A "single tax" on land was proposed in the nineteenth century by

Accepted Answer

The "single tax" on land was a proposal made by Henry George in the late 19th century. He argued that the value of land was created by the community, and therefore the community should be the ones to benefit from it through a tax on land values. This idea was central to his book "Progress and Poverty" and became known as the Georgist movement.

Question 13

The theory of land rent holds that

Accepted Answer

The theory of land rent states that rent on any piece of land will equal the difference between the cost of producing the output on that land and the cost of producing it on marginal land. This means that rent will only exist on superior or more productive plots of land, and will be equal to the additional return they provide compared to less productive plots. Therefore, option C is the correct answer. Option A is incorrect because the theory assumes that not all plots of land are identical. Option B is incorrect because the theory only applies to productive land that generates a positive return. Option D is incorrect because even superior plots of land will generate rent under the theory, albeit at a marginal return of zero.

Question 14

An increase in rent will ordinarily lead to

Accepted Answer

An increase in rent typically incentivizes landlords to maximize the use of their land, including bringing previously idle land into use, to capitalize on higher rental income. This is because higher rents can make it more economically viable to develop or utilize land that was not previously considered profitable.

Question 15

Owners of buildings can expect to collect ____ economic rent in the long run.

Accepted Answer

Economic rent refers to the excess payment made for a resource, such as land or buildings, beyond what would be necessary to keep it in its current use. In the long run, economic theory suggests that competition among property owners will drive down rents to the point where they are just sufficient to cover the cost of maintaining the building. Therefore, owners of buildings can expect to collect little or no economic rent in the long run.

Question 16

The theory of land rent holds that

Accepted Answer

The answer of The theory of land rent holds that
...

Question 17

An example of rent seeking is

Accepted Answer

All of the options listed involve rent seeking activities, as they are all focused on using political or legal influence to gain a competitive advantage or limit competition. Lobbying by industrial groups involves efforts to influence lawmakers and regulators to pass laws or regulations that benefit their industry, while lawsuits between rival firms can be a way to tie up competitors in costly legal battles. Battles over exclusive licenses involve attempts to gain control over a particular market or resource by limiting access to others. All of these activities can be viewed as rent seeking because they create inefficiencies and distortions in the market, benefiting those who engage in them at the expense of society as a whole.

Question 18

The market level (magnitude)of economic rent is determined by the

Accepted Answer

The answer of The market level (magnitude)of economic rent is...

Question 19

Figure 19-4
 
-The panels in Figure 19-4 represent the supply and demand conditions for a factor of production.In which case is the factor not earning any rent?

Accepted Answer

In case 3, the supply curve intersects with the demand curve at the equilibrium point where the price of the factor is the same as the marginal revenue product (MRP). This means that the factor is being paid its full marginal value and thus, is not earning any rent. In all other cases, the supply curve intersects with the demand curve at a price above the MRP, indicating that the factor is earning a positive rent.

Question 20

Critics of the huge net returns on,for example,oil production will claim that the returns are

Accepted Answer

The critics are referring to the "rents" on a natural resource, which refers to the economic concept of receiving income or profit from owning a scarce resource, such as oil reserves. This is distinct from interest on capital investment or profits on entrepreneurial activity. The option of taxing away these returns (option D) is not mentioned by the critics in the given statement.

Quiz 19: Pricing the Factors of Production

The economic rent analysis does not apply to any factor

Suppose that a community seeks to preserve air quality,and zones a "green belt" around the city which prevents property development within the belt.What is the most likely result of this law?

When a few rival groups spend money in competition for a license that grants them a monopoly for the provision of cable TV for an area,economists label this activity

Rent-seeking activity by firms

Which of the following activities is most likely to be considered rent seeking?

Between 1988 and 1989,the price of retail space in Ginza,Tokyo's premier commercial and entertainment center,rose from $400 to $625 per square foot.This was the result of an increase in demand in the face of a perfectly inelastic supply curve for retail space.Economists call this

An outward shift in the demand curve for land will

In Japan,the market value of the land is approximately four times that of all the land in the United States,even though Japan is only about the size of California.The most likely explanation for this fact is

Plots of land differ in

The only circumstance under which a factor will earn no rent is when the factor's supply curve is

Rent seeking

A "single tax" on land was proposed in the nineteenth century by

The theory of land rent holds that

An increase in rent will ordinarily lead to

Owners of buildings can expect to collect ____ economic rent in the long run.

The theory of land rent holds that

An example of rent seeking is

The market level (magnitude) of economic rent is determined by the

Figure 19-4 -The panels in Figure 19-4 represent the supply and demand conditions for a factor of production.In which case is the factor not earning any rent?

Critics of the huge net returns on,for example,oil production will claim that the returns are