Deck 18: The Market for the Factors of Production

Question 1

Figure 18-4
Refer to Figure 18-4.The graph above illustrates the market for bakers who make homemade breads and breakfast pastries.If the supply of commercial-grade ovens in which the bakers bake their breads and pastries decreases,what happens in the market for bakers?

A)Demand increases from D1 to D2.
B)Demand decreases from D2 to D1.
C)Supply increases from S1 to S2.
D)Supply decreases from S2 to S1.

Answer 1

B

Question 2

Figure 18-1.On the graph,L represents the quantity of labor and Q represents the quantity of output per week.
Refer to Figure 18-1.The marginal product of the fourth worker is

A)60 units of output.
B)75 units of output.
C)285 units of output.
D)345 units of output.

Answer 2

A

Question 3

For a competitive,profit-maximizing firm,the labor demand curve is the same as the

A)marginal cost curve.
B)value of marginal product curve.
C)production function.
D)profit function.

Answer 3

B

Question 4

For a competitive firm experiencing diminishing marginal productivity,the value of the marginal product
(i)increases when the price of output decreases.
(ii)changes when marginal product changes.
(iii)diminishes as the number of workers rises.

A)(i)and (ii)
B)(i)and (iii)
C)(ii)and (iii)
D)All of the above are correct.

Question 5

Figure 18-4
Refer to Figure 18-4.The graph above illustrates the market for bakers who make homemade breads and breakfast pastries.If bakeries adopt new labor-saving technologies,what happens in the market for bakers?

A)Demand increases from D1 to D2.
B)Demand decreases from D2 to D1.
C)Supply increases from S1 to S2.
D)Supply decreases from S2 to S1.

Question 6

For a profit-maximizing,competitive firm,the value of the marginal product of labor

A)increases when the price of output decreases.
B)is the firm's demand for labor.
C)equals the marginal product of labor divided by the wage rate.
D)All of the above are correct.

Question 7

The inputs used to produce goods and services are called

A)Luddite factors.
B)marginal products.
C)labor demands.
D)factors of production.

Question 8

Which of the following is an example of a firm's derived demand?

A)Workers with higher levels of education earn more,on average,than workers with lower levels of education.
B)Factors that decrease the demand for labor will decrease the equilibrium wage.
C)A tractor manufacturer's demand for assembly-line workers is inseparably linked to the supply of tractors.
D)Factors that increase the demand for labor will increase the equilibrium wage.

Question 9

Factor markets are different from product markets in an important way because

A)equilibrium is the exception,and not the rule,in factor markets.
B)the demand for a factor of production is a derived demand.
C)the demand for a factor of production is likely to be upward sloping,in violation of the law of demand.
D)All of the above are correct.

Question 10

A competitive firm will hire workers up to the point at which the value of the marginal product of labor equals the

A)average total cost.
B)average variable cost.
C)wage.
D)price per unit of output.

Question 11

Which of the following would decrease the demand for labor?
(i)a decrease in the output price
(ii)an increase in the output price
(iii)a labor-saving technological advance
(iv)a labor-augmenting technological advance

A)(i)only
B)(i)and (iii)only
C)(ii)only
D)(ii)and (iv)only

Question 12

Figure 18-4
Refer to Figure 18-4.The graph above illustrates the market for bakers who make homemade breads and breakfast pastries.If the price of breakfast pastries falls,what happens in the market for bakers?

A)Demand increases from D1 to D2.
B)Demand decreases from D2 to D1.
C)Supply increases from S1 to S2.
D)Supply decreases from S2 to S1.

Question 13

Figure 18-1.On the graph,L represents the quantity of labor and Q represents the quantity of output per week.
Refer to Figure 18-1.The figure illustrates the

A)demand for labor.
B)supply of labor.
C)production function.
D)wage function.

Question 14

Scenario 18-2
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska.As part of her business she hires a captain and several crew members for each boat.In the market for fresh Pacific salmon,there are thousands of firms like Gertrude's.While Gertrude usually catches a significant number of fish each year,her contribution to the entire harvest of salmon is negligible relative to the size of the market.
Refer to Scenario 18-2.If the price of fresh Pacific salmon were to decrease significantly,it is most likely that Gertrude would

A)reduce her demand for crew members.
B)hire more boats.
C)become a seller in at least one factor market.
D)hire more crew members.

Question 15

Which of the following statements is correct?

A)An increase in the supply of other factors,such as capital,will increase the demand for labor.
B)Labor-saving technology will increase the demand for labor.
C)Labor-augmenting technology will decrease the demand for labor.
D)A decrease in the price of output will increase the demand for labor.

Question 16

Economists refer to the inputs that firms use to produce goods and services as

A)derived factors.
B)derived resources.
C)factors of production.
D)instruments of revenue.

Question 17

Scenario 18-2
Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska.As part of her business she hires a captain and several crew members for each boat.In the market for fresh Pacific salmon,there are thousands of firms like Gertrude's.While Gertrude usually catches a significant number of fish each year,her contribution to the entire harvest of salmon is negligible relative to the size of the market.
Refer to Scenario 18-2.Based on the given information,it is likely that Gertrude's firm has

A)some influence over the wages paid to crew members but no influence over the price of salmon.
B)some influence over the price of salmon but no influence over the wages paid to crew members.
C)some influence over both the price of salmon and the wages paid to crew members.
D)no influence over either the price of salmon or the wages paid to crew members.

Question 18

Typically,as a firm hires additional workers,the marginal product of labor

A)decreases,and the value of the marginal product of labor decreases.
B)stays constant,and the value of the marginal product of labor decreases.
C)decreases,and the value of the marginal product of labor stays constant.
D)decreases,and the value of the marginal product of labor increases.

Question 19

Figure 18-1.On the graph,L represents the quantity of labor and Q represents the quantity of output per week.
Refer to Figure 18-1.The marginal product of the second worker is

A)90 units of output.
B)105 units of output.
C)210 units of output.
D)330 units of output.

Question 20

The marginal product of labor is defined as the change in

A)output per additional unit of revenue.
B)output per additional unit of labor.
C)revenue per additional unit of labor.
D)revenue per additional unit of output.

Question 21

What happens to labor supply in the pear-picking market when the wage paid to apple pickers increases?

A)The labor supply will stay unchanged until the wages paid to pear pickers change.
B)The labor supply will decrease.
C)The labor supply will increase.
D)The labor supply may fall or rise,depending on the price of pears.

Question 22

Suppose that the market for labor is initially in equilibrium.An increase in the price of output will cause the equilibrium wage

A)and the equilibrium quantity of labor to rise.
B)and the equilibrium quantity of labor to fall.
C)to rise and the equilibrium quantity of labor to fall.
D)to fall and the equilibrium quantity of labor to rise.

Question 23

Figure 18-5
The figure shows a particular profit-maximizing,competitive firm's value-of-marginal-product (VMP)curve.On the horizontal axis,L represents the number of workers.The time frame is daily.
Refer to Figure 18-5.Assume that two points on the firm's production function are (L = 2,Q = 180)and (L = 3,Q = 228),where L = number of workers and Q = quantity of output.The firm pays its workers 120 per day.The firm's non-labor costs are fixed,and they amount to 250 per day.We can conclude that

A)the firm sells its output for 12 per unit.
B)if the firm is currently employing 2 workers per day,then profit could be increased by 48 per day if a third worker is hired.
C)the marginal cost per unit of output is 2.50 when output is increased from 180 units per day to 228 units per day.
D)the firm's maximum profit occurs when it hires 3 workers per day.

Question 24

Which of the following best illustrates the concept of "derived demand?
"

A)An increase in the wages of auto workers will lead to an increase in the demand for robots in automobile factories.
B)An automobile producer's decision to supply more cars will lead to an increase in the demand for automobile production workers.
C)An automobile producer's decision to supply more minivans results from a decrease in the demand for station wagons.
D)An increase in the price of gasoline will lead to an increase in the demand for small cars.

Question 25

When the wages paid to government economists increase,the labor supply curve for academic economists

A)shifts to the left.
B)shifts to the right.
C)will become backward-sloping.
D)will not change.

Question 26

The term Luddite is used to describe

A)a person who readily adopts the latest technological advances.
B)a person who is opposed to a reduction in the number of immigrants that are allowed into the country each year.
C)a person who opposes technological advance.
D)any mythical historical figure.

Question 27

Consider the market for university economics professors.Suppose the opportunity cost of going to graduate school to get a Ph.D.in economics decreases for many individuals.Suppose it generally takes about five years to get a Ph.D.in economics.Holding all else constant,in five years the equilibrium wage for university economics professors will

A)increase.
B)decrease.
C)not change.
D)It is not possible to determine what will happen to the equilibrium wage.

Question 28

When a labor market experiences a surplus of labor,there is downward pressure on

A)the supply of labor.
B)the final product price.
C)wages.
D)the demand for labor.

Question 29

Figure 18-8
This figure below shows the labor market for automobile workers.The curve labeled S is the labor supply curve,and the curves labeled D₁ and D₂ are the labor demand curves.On the horizontal axis,L represents the quantity of labor in the market.
Refer to Figure 18-8.What is measured along the vertical axis on the graph?

A)the quantity of automobiles produced
B)the price of automobiles
C)the wage paid to automobile workers
D)time spent by workers producing automobiles

Question 30

When we focus on the firm as a supplier of a good or a service,we assume that the firm is a profit maximizer.When we focus on the firm as a demander of labor,we assume that the firm's objective is to

A)minimize wages.
B)minimize variable costs.
C)maximize the number of workers hired.
D)maximize profit.

Question 31

Figure 18-7
Refer to Figure 18-7.Which of the following would shift the labor supply curve from S₁ to S₂?

A)technological progress
B)a decrease in the price of the firm's output
C)a change in workers' attitudes toward the work-leisure tradeoff
D)an increase in the price of the firm's output

Question 32

If Ernie's individual labor supply curve is upward sloping,then Ernie responds to an increase in the

A)wage by working more hours per week.
B)opportunity cost of leisure by working fewer hours per week.
C)opportunity cost of leisure by taking more hours of leisure per week.
D)Both a and b are correct.

Question 33

Figure 18-8
This figure below shows the labor market for automobile workers.The curve labeled S is the labor supply curve,and the curves labeled D₁ and D₂ are the labor demand curves.On the horizontal axis,L represents the quantity of labor in the market.
Refer to Figure 18-8.Which of the following is a possible explanation of the shift of the labor-demand curve from D₁ to D₂?

A)The wage earned by automobile workers increased.
B)The price of automobiles increased.
C)The opportunity cost of leisure,as perceived by automobile workers,decreased.
D)Large segments of the population changed their tastes regarding leisure versus work.

Question 34

Your best friend receives a pay raise at her part-time job from 8 dollars to 10 dollars per hour.She used to work 20 hours per week,but now she decides to work 16 hours per week in order to spend more time studying economics.For this price range,her labor supply curve is

A)vertical.
B)horizontal.
C)upward sloping.
D)backward sloping.

Question 35

In a representative labor market,

A)the wage adjusts to balance the supply and demand for labor.
B)the wage equals the value of the marginal product of labor.
C)an increase in the supply of labor increases the equilibrium wage.
D)Both a and b are correct.

Question 36

Figure 18-5
The figure shows a particular profit-maximizing,competitive firm's value-of-marginal-product (VMP)curve.On the horizontal axis,L represents the number of workers.The time frame is daily.
Refer to Figure 18-5.Suppose one point on the firm's production function is
(L = 3,Q = 180),where L = number of workers and Q = quantity of output.If the firm sells its output for $5 per unit,then

A)a second point on the firm's production function is (L = 4,Q = 216).
B)the firm's production function exhibits the property of diminishing marginal product of labor.
C)the firm will maximize profit by hiring four workers if it pays workers 160 per day.
D)All of the above are correct.

Question 37

Figure 18-7
Refer to Figure 18-7.If the relevant labor supply curve is S₂ and the current wage is W₁,

A)there is a surplus of labor.
B)the quantity of labor demanded exceeds the quantity of labor supplied.
C)an increase in the minimum wage could restore equilibrium in the market.
D)firms will need to raise the wage to restore equilibrium.

Question 38

Which of the following would shift a market labor supply curve to the right?

A)an increase in the price of output
B)an increase in immigration
C)a labor-saving technological change
D)a decrease in the wage rate

Question 39

For a competitive,profit-maximizing firm,the demand curve for labor will shift in response to a change in the

A)wage rate.
B)quantity of labor demanded.
C)price of the product that the firm sells.
D)an increase in the supply of labor.

Question 40

An upward-sloping labor supply curve means that

A)workers prefer to buy more leisure time when their incomes increase.
B)workers prefer to supply less labor when wages are high.
C)an increase in the opportunity cost of leisure leads workers to increase the quantity of labor they supply.
D)All of the above are correct.

Question 41

Labor supply curves are always upward sloping.

Question 42

Because of diminishing returns,a factor in abundant supply has a

A)high marginal product and a high rental price.
B)high marginal product and a low rental price.
C)low marginal product and a high rental price.
D)low marginal product and a low rental price.

Question 43

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

A)increase.
B)decrease.
C)not change.
D)It is not possible to determine what will happen to the equilibrium rental price of capital equipment.

Question 44

An increase in the output price will increase the firm's demand for labor,all else equal.

Question 45

Let L represent the quantity of labor,and let Q represent the quantity of output.Suppose a certain production function includes the points (L = 7,Q = 27),(L = 8,Q = 35),and
(L = 9,Q = 45).Based on these three points,this production function exhibits diminishing marginal product.

Question 46

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

A)an increase in the marginal productivity of her remaining capital and an increase in the marginal productivity of her labor.
B)an increase in the marginal productivity of her remaining capital and a decrease in the marginal productivity of her labor.
C)a decrease in the marginal productivity of her remaining capital and an increase in the marginal productivity of her labor.
D)a decrease in the marginal productivity of her remaining capital and a decrease in the marginal productivity of her labor.

Question 47

A profit-maximizing competitive firm will hire workers up to the point at which the wage equals the marginal product of labor.

Question 48

Which of the following would be an example of capital for a computer software firm?
(i)the firm's computer programmers
(ii)the wages the firm pays to its computer programmers
(iii)computer equipment

A)(i)only
B)(ii)only
C)(iii)only
D)(i)and (iii)only

Question 49

When economists refer to a firm's capital,they are describing the

A)markets for final goods and services.
B)stock of equipment and buildings used in production.
C)amount of bank financing used by the firm.
D)amount of financing provided by the equity markets.

Question 50

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?

A)Both the equilibrium wage and quantity increase.
B)Both the equilibrium wage and quantity decrease.
C)The equilibrium wage increases,and the equilibrium quantity decreases.
D)The equilibrium wage decreases,and the equilibrium quantity increases.

Question 51

In economics,the term capital refers to

A)money.
B)stocks and bonds.
C)equipment and structures used in production.
D)All of the above are correct.

Question 52

The rental price of land is

A)the price paid for ownership of the land.
B)the price paid for the flow of services from land over a specified time period.
C)always more than the purchase price.
D)All of the above are correct.

Question 53

Land,labor,and capital are examples of factors of production.

Question 54

For competitive firms,the curve that represents the value of marginal product of labor is the same as the demand for labor curve.

Question 55

Movements of workers from country to country can cause shifts in the labor supply curves for both countries.

Question 56

According to the neoclassical theory of distribution,the wages paid to workers depend on the

A)supply of labor.
B)demand for labor.
C)marginal productivity of labor.
D)All of the above are correct.

Question 57

The value of the marginal product of labor can be calculated as the price of the final good minus the marginal product of labor.

Question 58

In a competitive market for labor,the equilibrium wage always equals the value of the marginal product.

Question 59

Technological advances can cause the labor demand curve to shift.

Question 60

When firms are able to increase the amount of physical capital available to workers,the

A)marginal product of labor will decrease.
B)value of the marginal product of labor will decrease.
C)value of the marginal product of labor will increase.
D)final product price will increase.

Question 61

Describe the difference between the purchase price of capital and the rental price of capital.If you know the value of marginal product from the flow of capital services,how would you determine the market price for the capital stock?

Question 62

Describe the process by which the market for capital and the market for land reach equilibrium.As part of your description,elaborate on the role of the stock of the resource versus the flow of services from the resource.

Question 63

Explain how a firm values the contribution of workers to its profitability.Would a profit-maximizing competitive firm ever stop increasing employment as long as marginal product is rising?
Explain your answer.

Question 64

Changes in supply and demand in the labor market will cause changes in wages.

Question 65

If the output price of a product rises,the demand for capital will increase,raising the rental price of capital.

Question 66

Using the theory of wage determination,explain why wages in developing countries,where levels of capital are small,are typically quite low.

Question 67

An event that changes the supply of any factor of production can alter the earnings of all the factors.

Question 68

Describe the difference between a diminishing marginal product of labor and a negative marginal product of labor.Why would a profit-maximizing firm always choose to operate where the marginal product of labor is decreasing (but not negative)?

Question 69

The marginal product of land depends on the quantity of land that is available.

Question 70

Capital income does not include income paid to households for the use of their capital.