Question 1

The demand curve for capital

Accepted Answer

The demand curve for capital reflects the marginal productivity of capital. This means that firms will demand more or less capital based on the expected return (in the form of increased productivity and profits) from using that capital. The demand curve for capital is therefore downward sloping. Choices A and B are incorrect because neither of them accurately reflects the nature of the demand curve for capital. Choice C is partially correct in that households' saving and spending decisions can impact the supply of capital, but it is not directly related to the shape of the demand curve for capital.

Question 2

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

When the price of firms' output increases, firms are able to generate more revenue and may want to invest in more capital equipment to produce more output. This increase in demand for capital equipment will drive up the equilibrium rental price.

Question 3

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 4

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

Accepted Answer

Households can earn income from capital in multiple ways, including owning a stock of capital and renting it to firms (option A), lending money to firms and receiving interest payments (option B), or owning stock in firms and receiving dividends (option C). Therefore, option D - which states that all of the above are correct - is the most accurate choice.

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

An increase in the value of the marginal product of capital equipment means that the productivity of the equipment has increased. As a result, the demand for capital equipment will increase. Since the supply of capital equipment is fixed in the short run, the increase in demand will lead to an increase in the equilibrium rental price of capital equipment.

Question 6

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 the owners of capital is determined by the value of the marginal product of capital. This means that the rental income will equal the additional value created by using one more unit of capital. This is the equilibrium point where the supply and demand for capital will meet, and capital owners will receive the value of their contribution to production.

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

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 part of the university's stock of capital, which includes all the physical assets that the university owns and uses to produce its services, such as buildings, equipment, and land. These assets are important for the university to provide high-quality educational experiences to students, and they are a long-term investment that generates a return over time.

Question 9

Who receives income from capital in the United States?

Accepted Answer

All of the choices receive income from capital in the United States. Bank depositors earn interest on their deposits, bondholders receive interest payments, and stockholders earn dividends and capital gains from the appreciation of their stocks.

Question 10

The wage is to the labor market as the

Accepted Answer

The wage is the price of labor and is determined by the supply and demand in the labor market. Similarly, the rental price of capital is the price of capital and is determined by the supply and demand in the capital market. Therefore, the rental price of capital is the equivalent to the wage in the labor market.

Question 11

Which of the following is not correct?

Accepted Answer

Firms earn the highest profits when the owners of capital receive a value equal to the marginal product, not above it. If the value received by the owners of capital is above the marginal product, the firm will be paying too much for the capital, which will result in lower profits.

Question 12

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 answer of Figure 18-11 
-Refer to Figure 18-11. Suppose...

Question 13

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

If all capital is owned by firms, then the firms would receive the full value of the marginal product of capital as revenue. Whether this revenue is distributed to households in the form of interest or dividends, or kept within the firms as retained earnings, does not affect the fact that the capital is being paid according to its marginal product. Therefore, D is the correct answer.

Question 14

The rental price of capital is determined by the

Accepted Answer

The rental price of capital is determined by the forces of supply and demand in capital markets. In other words, the price of capital is determined by the availability of capital and the demand for it. When there is a lot of capital available and not much demand for it, the rental price will be lower. Conversely, when there is a scarcity of capital and high demand, the rental price will be higher.

Question 15

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, usually determined by a rental agreement. It is not the price paid for ownership of the capital (C) and it may or may not be more than the purchase price (D). It is determined within the realm of factor markets, where factors of production are bought and sold.

Question 16

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 production is commonly referred to as capital. Choice A, production factors, is a broader term that refers to any resource used in the production process such as labor, natural resources, and capital. Choice B, output factors, is not a commonly used term in economics. Choice D, equity, refers to ownership in a company and does not relate specifically to the accumulation of machinery and buildings.

Question 17

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

If the market price of firms' output decreases, firms will have less revenue to allocate towards capital equipment, thus decreasing the demand for capital equipment. As a result, the equilibrium quantity of capital equipment will decrease.

Question 18

The purchase price of capital is

Accepted Answer

The purchase price of capital refers to the price a person pays to own that factor of production indefinitely. It is the cost a firm incurs to acquire ownership of capital assets such as buildings, machinery, and equipment. This cost includes all expenses related to acquiring and installing the capital, such as purchase price, transportation costs, installation costs, and any modifications required to make the capital asset usable. It is different from the rental price, which is the cost of leasing capital assets for a specified period of time.

Question 19

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, it becomes more profitable for firms to use more capital equipment. This leads to an increase in the demand for capital equipment, which in turn leads to an increase in the equilibrium quantity.

Question 20

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 represents the rental price of capital, which refers to the cost of renting or leasing capital goods such as machinery, equipment, and buildings used in production.

Quiz 18: The Markets for the Factors of Production