Question 1

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

FIGURE 13-2
-Refer to Figure 13-2.This factor market is in equilibrium at point B.In equilibrium,the 20th unit of the factor is being paid transfer earnings of ________ and economic rent of ________.
A)$120; -$2
B)$16; $2
C)$320; $80
D)$120; $40
E)$6; $2

Accepted Answer

The answer of The demand and supply curves shown below...

Question 2

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

FIGURE 13-2
-Refer to Figure 13-2.This factor market is in equilibrium at point B.In equilibrium,the 30th unit of the factoris being paid transfer earnings of ________ and economic rent of ________.
A)$120; -$2
B)$16; $2
C)$7; $1
D)$210; $1
E)$6; $2

Accepted Answer

At equilibrium, the quantity demanded and supplied is 30 units, and the price is $7. The transfer earnings of the 30th unit is equal to the price, which is $7. Economic rent is the difference between the price and the transfer earnings of the last unit, which is $1 ($8 (price) - $7 (transfer earnings)). Thus, the answer is (C) $7; $1.

Question 3

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

FIGURE 13-2
-Refer to Figure 13-2.This factor market is in equilibrium at point B.Which of the following statements best describes factor payments at point B?
A)total income paid to the factor is $8
B)total of economic rent plus transfer earnings is $320
C)total factor earnings are $320 and the 40th unit earns zero rent
D)total factor earnings are $320 and the 40th unit earns economic rent of $8
E)economic rent to the 40th unit is $320

Accepted Answer

At point B, the market is in equilibrium, meaning the total factor earnings equal the area under the demand curve up to that point. The 40th unit earns zero economic rent because it is exactly at the equilibrium price, where its price equals its minimum supply price.

Question 4

Choose the statement that best describes the difference between ʺeconomic rentʺ and other factor payments.
A)Economic rent is unearned income of the factor whereas other payments are earned.
B)Economic rent is not a cost to the firm but other payments are.
C)A reduction in economic rent will not reduce the availability of the factor whereas reducing other payments of factors will reduce their availability.
D)There is no difference between economic rent and other factor payments.
E)Economic rent is the sum of all factor payments.

Accepted Answer

Economic rent refers to the payment to a factor of production over and above what is necessary to keep it in its current use. Reducing economic rent does not affect the availability of the factor because it is already being paid more than what is needed to keep it in operation. Other factor payments, such as wages or interest, are essential to maintain the supply of those factors; reducing these payments could lead to a decrease in their availability.

Question 5

Which of the following would be least likely to earn economic rent?
A)an owner of land located on Yonge Street,near downtown Toronto
B)Lady Gaga
C)John Smith,an auto-plant worker in Oshawa,Ontario
D)Robert Bateman,famous wildlife artist
E)a university professor who loves every bit of his job

Accepted Answer

Economic rent is the surplus income earned by a factor of production (such as land, labor, or capital) over and above what is required to keep it in its current use. Auto-plant workers, like John Smith, are not likely to earn economic rent as their skills are relatively common and they can be replaced easily. Lady Gaga and Robert Bateman, on the other hand, have unique talents that are in high demand, making them more likely to earn economic rent. The owner of land on Yonge Street in Toronto may also earn economic rent due to its strategic location. The university professor may earn a comfortable salary for their work, but they are not likely to earn economic rent as their skills and job are not necessarily unique or in high demand.

Question 6

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

FIGURE 13-2
-Refer to Figure 13-2.This factor market is initially in equilibrium at point B,but changes occur that cause the equilibrium to shift to point D (S curve shifts left).At the new equilibrium,total factor earnings ________compared to the initial equilibrium.
A)decreased by $30
B)increased by $30
C)remained the same
D)increased by $10
E)increased by $330

Accepted Answer

The answer of The demand and supply curves shown below...

Question 7

Suppose Harrison Ford makes 2 movies per year and earns $10 million per movie.Suppose that if he werenʹt making movies his next best alternative would be to earn $500 000 per year endorsing shampoo.By making movies,Harrison Ford
A)is earning economic rent of $20 500 000 per year.
B)is earning economic rent of $20 000 000 per year.
C)is earning economic rent of $19 500 000 per year.
D)is earning economic rent of $500 000 per year.
E)is not earning economic rent.

Accepted Answer

Economic rent is the difference between what a person is paid and the minimum amount they are willing to accept to do the same job. In this case, Harrison Ford is earning $20 million per year from making movies, but his next best alternative is to earn $0.5 million per year endorsing shampoo. Therefore, his economic rent is $19.5 million per year ($20 million - $0.5 million).

Question 8

John Smith plays baseball for $500 000 per year,but if he were not a baseball player,his next best alternative would be to earn $35 000 per year as a sales representative.By playing baseball,Smith is earning economic rent of
A)$535 000.
B)$500 000.
C)$465 000.
D)$35 000.
E)zero.

Accepted Answer

Economic rent is the difference between the earnings gained from a given resource or asset and that which would be earned from the next-best alternative. In this case, John Smith's economic rent can be calculated as:

$500 000 (salary as a baseball player) - $35 000 (salary as a sales representative) = $465 000

Therefore, John Smith's economic rent is $465 000. Choosing any other alternative would result in a lower income, and hence a lower economic rent.

Question 9

Consider the mobility of any factor of production. The more broadly we define the use of the factor, the ________ is the mobility of the factor and the ________ is the share of the factor payment that is economic rent.
A)lower; lower
B)lower; higher
C)higher; higher
D)higher; lower

Accepted Answer

The answer of Consider the mobility of any factor of...

Question 10

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

FIGURE 13-2
-Refer to Figure 13-2.This factor market is initially in equilibrium at point B.Assume that there is a decrease in the demand for widgets and a new equilibrium is established at point A.Which of the following statements about point A is true?
A)Total economic rent is $120.
B)The marginal revenue product of the 20th unit of the factor is $6 and economic rent of the 20th unit of the factor is $0.
C)The marginal revenue product of the 20th unit of the factor is $120 and economic rent of the 20th unit of the factor is $6.
D)Total transfer earnings are $120.
E)Transfer earnings for the 20th unit of the factor are $6 and economic rent of the 20th unit of the factor is $2.

Accepted Answer

At point A, the marginal revenue product (MRP) of the 20th unit of the factor is equal to its price, which is $6, indicating that the factor is being paid exactly its marginal contribution to revenue, leaving no economic rent for the 20th unit.

Question 11

Kobe Bryant is a highly paid professional basketball player in the National Basketball Association.From the perspective of the whole NBA,Kobe Bryantʹs economic rent would be ________, while from the perspective of his individual team it would be ________.
A)very small; very large
B)zero; impossible to calculate
C)close to his whole salary; very small
D)zero; close to his whole salary
E)very large; close to his whole salary

Accepted Answer

The answer of Kobe Bryant is a highly paid professional...

Question 12

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.

FIGURE 13-2
-Refer to Figure 13-2.This factor market is in equilibrium at point B.If a technological change occurs in the production of widgets that allows for increased production from each factor,then
A)economic rents to the initial 40 units of the factor will decrease.
B)equilibrium will move toward point D and the factor price will rise.
C)total factor earnings will rise and economic rent to the 40th unit will be zero.
D)equilibrium will move toward point C and economic rent to the initial 40 units will increase.
E)total factor earnings will decrease and economic rent to the initial 40 units will increase.

Accepted Answer

A technological change that allows for increased production from each factor would shift the supply curve to the right, as producers can now supply more widgets at every given price level. This would lead to a new equilibrium point, which would be at a lower factor price and a higher quantity of the factor sold.

At the new equilibrium point, economic rent to the initial 40 units of the factor would increase, as the factor price rises but the marginal cost of producing the widgets remains the same. This means that the producers who own or rent the initial 40 units have a higher bargaining power, and can charge a higher price for their factor input.

Therefore, the correct answer is D: equilibrium will move toward point C and economic rent to the initial 40 units will increase.

Quiz 13: How Factor Markets Work

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets. FIGURE 13-2 -Refer to Figure 13-2.This factor market is in equilibrium at point B.In equilibrium,the 30th unit of the factoris being paid transfer earnings of and economic rent of .

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets. FIGURE 13-2 -Refer to Figure 13-2.This factor market is in equilibrium at point B.Which of the following statements best describes factor payments at point B?

Choose the statement that best describes the difference between ʺeconomic rentʺ and other factor payments.

Which of the following would be least likely to earn economic rent?

Suppose Harrison Ford makes 2 movies per year and earns $10 million per movie.Suppose that if he werenʹt making movies his next best alternative would be to earn $500 000 per year endorsing shampoo.By making movies,Harrison Ford

John Smith plays baseball for $500 000 per year,but if he were not a baseball player,his next best alternative would be to earn $35 000 per year as a sales representative.By playing baseball,Smith is earning economic rent of

Consider the mobility of any factor of production. The more broadly we define the use of the factor, the is the mobility of the factor and the is the share of the factor payment that is economic rent.

Kobe Bryant is a highly paid professional basketball player in the National Basketball Association.From the perspective of the whole NBA,Kobe Bryantʹs economic rent would be , while from the perspective of his individual team it would be .