Question 1

Approximately 71% of income generated in the United States goes to corporate profit.

Accepted Answer

According to the Bureau of Economic Analysis, corporate profits accounted for approximately 6% of total U.S. income in 2019. The largest share of income goes to employee compensation and benefits, which accounted for approximately 50%.

Question 2

The importance of human capital has been increased by technological progress.

Accepted Answer

Technological progress has increased the demand for workers with high-level skills and knowledge, making human capital more important than ever before in today's economy.

Question 3

The marginal productivity theory of income distribution is based on the assumption that factor markets are perfectly competitive.

Accepted Answer

The marginal productivity theory of income distribution assumes that factor markets are perfectly competitive, meaning that there are many buyers and sellers and no one can influence the market price. In a perfectly competitive market, each factor of production (labor, capital, land) is paid according to its marginal product, or the additional output that is created by adding one more unit of that factor. Therefore, the theory assumes that in a competitive market, each factor of production will receive a wage or payment equal to its contribution to production.

Question 4

The clearest sign of discrimination against an individual is that that individual is paid less than the value of his or her marginal productivity.

Accepted Answer

The clearest sign of discrimination against an individual would involve unequal treatment or opportunities based on personal characteristics unrelated to job performance, such as race, gender, or age, rather than solely being paid less than the value of their marginal productivity, which can be influenced by various factors including market conditions, negotiation skills, and job demand.

Question 5

An input differs from a factor of production in that the former gets used up in production, while the latter is an enduring source of income for its owner.

Accepted Answer

This statement is true. Inputs, such as materials or labor, are consumed in the production process, while factors of production, such as capital or land, are not used up and can generate income for their owners over time.

Question 6

According to the marginal productivity theory of income distribution, every factor of production is paid a wage equal to the equilibrium value of its average product.

Accepted Answer

According to the marginal productivity theory of income distribution, every factor of production is paid a wage equal to the equilibrium value of its marginal product, not its average product.

Question 7

Suppose the factor market for computer engineers is competitive in India and the United States, but Indian engineers earn one-fifth of what American engineers earn. This means that in India engineers are price takers, but engineers in America are not.

Accepted Answer

In a competitive market, all participants are price takers. The wage difference could be due to other factors like cost of living, demand, and supply differences, not necessarily because one group is not a price taker.

Question 8

If the demand for orange juice increases, the derived demand for orange grove workers will decrease.

Accepted Answer

If the demand for orange juice increases, the demand for oranges will increase, which in turn will increase the demand for orange grove workers. Therefore, there would be an increase in the derived demand for orange grove workers, not a decrease.

Question 9

The marginal productivity theory of income distribution assumes that factor markets are perfectly competitive.

Accepted Answer

The marginal productivity theory assumes that all factors of production are paid their marginal product in perfectly competitive markets. This implies that there are many buyers and sellers, all with full information about the market, and no entity has market power to influence the price.

Question 10

The equilibrium value of the marginal product of a factor is the additional value produced by the most productive unit of that factor employed in the factor market as a whole.

Accepted Answer

The equilibrium value of the marginal product of a factor is the additional value produced by the last unit of that factor employed, not the most productive unit.

Question 11

The marginal productivity theory of income distribution assumes that factor markets are oligopolies.

Accepted Answer

The marginal productivity theory of income distribution assumes that factor markets are perfectly competitive, where the price of each factor is equal to its marginal product. It does not assume that factor markets are oligopolies.

Question 12

Although improved technology can either increase or decrease the demand for a factor of production, the usual effect of technological progress is to reduce demand for labor, holding everything else constant.

Accepted Answer

The answer of Although improved technology can either increase or...

Question 13

A profit-maximizing producer employs each factor of production up to the point at which the value of the marginal product of the last unit of the factor employed is equal to the price per unit of output.

Accepted Answer

A profit-maximizing producer employs each factor of production up to the point at which the value of the marginal product of the last unit of the factor employed is equal to the factor's price, not the price per unit of output.

Question 14

Your boss is trying to decide whether to buy out a rival company and asks for your advice. The boss says that she will buy the rival if there is evidence that the rival is operating inefficiently. (Your company will then improve its efficiency and increase profits.) She will not buy the rival if there is evidence that the rival is already operating efficiently. Your boss gives you the following data on the rival's operations: The average product of labor is 4, the marginal product of the last worker hired is 10, the wage is $20, and the price of output is $5. Based on this information, you should tell your boss to buy the rival.

Accepted Answer

The rival's marginal product of labor is greater than the wage (10 > 20), indicating they are not using labor efficiently. This means that there is potential for your company to buy the rival and increase efficiency, leading to increased profits.

Question 15

According to the marginal productivity theory of income distribution, every factor of production is paid a wage equal to the equilibrium value of its marginal product.

Accepted Answer

The marginal productivity theory of income distribution states that in a competitive market, each factor of production (e.g. labor, capital) is paid a wage or return equal to its marginal product, which is the additional output generated by one additional unit of that factor of production. This theory assumes perfect competition and no market imperfections, such as monopoly power or externalities.

Question 16

According to the marginal productivity theory of income distribution, in a competitive economy each factor of production is paid its equilibrium value of the marginal product.

Accepted Answer

The marginal productivity theory of income distribution posits that in a competitive economy, each factor of production (i.e. labor, capital, land) will be compensated according to its contribution to production as measured by the value of its marginal product. This is based on the assumption that markets are competitive and there are no barriers to entry or exit in any particular market. Therefore, in equilibrium, each factor of production will be paid its equilibrium value of the marginal product.

Question 17

Which of the following will NOT shift the labor supply curve?

Accepted Answer

A change in the wage rate results in a movement along the labor supply curve, not a shift of the curve itself.

Question 18

Assume that perfect competition exists in output and factor markets. The P = MC rule for profit maximization implies the same level of labor use that would be implied by using the VMPL = W rule.

Accepted Answer

In perfect competition, the price of the output is equal to the marginal cost of production. This means that the profit-maximizing level of output is where P=MC. Using this output level, the firm can determine the optimal amount of labor to hire by equating the value of the marginal product of labor (VMPL) to the wage rate (W). Therefore, the P=MC rule for profit maximization and the VMPL = W rule yield the same level of labor use in perfect competition.

Question 19

Capital, the factor of production, includes physical capital (such as buildings and machines), human capital (improvement in labor by education and knowledge), and financial capital (such as stock market investments).

Accepted Answer

The answer of Capital, the factor of production, includes physical...

Question 20

If a perfectly competitive firm chooses its level of output so that price equals marginal revenue, the value of the marginal product of labor will equal the wage rate.

Accepted Answer

The answer of If a perfectly competitive firm chooses its...

Quiz 19: Factor Markets and the Distribution of Income