Question 1

The difference between the cost of production on a piece of land less the cost of production on marginal land is called

Accepted Answer

The difference between the cost of production on a piece of land less the cost of production on marginal land is called rent. This is because the difference in productivity between higher quality land and marginal land is often reflected in the rent that is charged for the use of the higher quality land. Profit is the difference between revenue and cost, while usury refers to excessive interest rates charged on loans. Interest is the cost of borrowing money. None of these terms accurately describe the difference in production costs between high-quality land and marginal land.

Question 2

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

Accepted Answer

The proposal for a "single tax" on land was put forward by Henry George in his book "Progress and Poverty" in 1879. The idea was to tax only land and not other forms of wealth, as George saw land as a resource that was commonly owned and its value created by the community rather than individual landowners. This proposal gained significant support and had an impact on political and economic thought in the United States and elsewhere.

Question 3

An increase in land rents

Accepted Answer

An increase in land rents typically indicates a higher demand for land, which can make previously unprofitable or zero-rent land viable for production as landowners and producers seek more cost-effective options.

Question 4

Because the supply of a fixed factor is vertical,

Accepted Answer

The supply of a fixed factor is vertical because it cannot be increased in the short run. Therefore, the price will be set where the quantity supplied of the factor equals the quantity demanded, as there is no room for adjustment in the supply. The owners of the factor will not accept all prices above zero because they have a limited supply and only offer that supply at a fixed price. Likewise, both the supply and demand for the factor matter in determining the price, not just one or the other.

Question 5

The theory of land rent holds that

Accepted Answer

The theory of land rent asserts that the rent for any land plot will be equal to the difference between the cost of production on that plot and the cost of production on the least productive land plot, also known as the marginal plot. This is because land is a fixed resource, so as demand for land increases, it is necessary to use less productive land plots to meet that demand, increasing the cost of production. As a result, rent is seen as a surplus above the cost of production on the least productive land plot, and the amount of rent is determined by the productivity of the land plot in question relative to the least productive land plot.

Question 6

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 7

Which is not an example of rent seeking?

Accepted Answer

Rent seeking is when individuals or firms seek to increase their wealth through non-productive means, such as lobbying for special privileges or creating barriers to entry for competitors. Option D is not an example of rent seeking because the firm is responding to market signals and increasing production in response to a price increase, rather than seeking to manipulate the market. Options A through C are all examples of rent seeking, as they involve attempts to gain an advantage through government intervention or preventing competition.

Question 8

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 9

Consider four parcels of peanut growing land.The nonland peanut production costs are $1,000 for Parcel A, $1,200 for Parcel B, $1,600 for Parcel C, and $1,700 for Parcel D.If, before rents are charged, farmers are indifferent between planting on Parcel, then which of the following is true?

Accepted Answer

If farmers are indifferent between parcels before rents are charged, it means the total costs (nonland costs plus rent) of producing peanuts on each parcel must be equal. Since Parcel D has the highest nonland production cost ($1,700) and if its rent is $0, then for farmers to be indifferent, the total cost of producing on each of the other parcels must also come to $1,700. This means Parcel A's rent must be $700 ($1,700 total cost - $1,000 nonland cost), not $600 as stated. However, given the options provided and the principle that the total costs must be equal for indifference, option D is the closest to a logical explanation, assuming a typo in the rent amount for Parcel A. The correct interpretation should consider the principle of equalizing total costs across parcels for farmer indifference, which suggests a mistake in the provided choices.

Question 10

Which of the following is not a result of the theory of land rent?

Accepted Answer

The answer of Which of the following is not a...

Question 11

In a competitive market for Sardines, if Mama Jessica's chain of pizza restaurants decides to support hard-working sardine fishers by paying 15 percent above market price, what would the theory of economic rent predict?

Accepted Answer

The answer of In a competitive market for Sardines, if...

Question 12

Rent seeking

Accepted Answer

Rent seeking involves individuals or groups trying to obtain economic benefits through the manipulation of the social or political environment, rather than through productive activity. This can lead to large opportunity costs, as resources are diverted away from productive uses and towards rent-seeking activities.

Question 13

Suppose maple syrup is illegal in the country of Pancake.If there are two ways to smuggle maple syrup into Pancake: one through overland and one by sea.If the proud Pancakian coast guard is able to arrest all who attempt to smuggle syrup by sea, what would the theory of rent predict?

Accepted Answer

The theory of rent predicts that if one smuggling route (sea) becomes unavailable due to effective law enforcement, demand for the alternative route (land) will increase. This increased demand for the land route will likely raise the costs (or "rents") associated with using it, as it becomes the only option for smuggling maple syrup into Pancake. However, the overall profitability for smugglers may decrease due to these increased costs, making them on net likely not better off.

Question 14

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

Accepted Answer

Rent seeking refers to the pursuit of profit or resources through means other than creating new wealth or through trade. Hiring a lobbyist is an activity often associated with rent seeking, as it involves attempting to influence government policy and regulations in order to gain an advantage or financial benefit. Buying an apartment building, voting for a politician who supports government spending, and buying common stock are all economic activities that involve creating new wealth or engaging in trade, and are not typically considered rent seeking.

Question 15

Rent-seeking activity by firms

Accepted Answer

Rent-seeking activity by firms often involves using resources to obtain monopoly power or government favors, which can lead to inefficiencies and a waste of economic resources.

Question 16

Rent is defined as

Accepted Answer

The answer of Rent is defined as
...

Question 17

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 an example of rent-seeking behavior because the groups are spending money to gain a monopoly and exclude competitors rather than improving their products or services.

Question 18

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

Accepted Answer

The term "rents" refers to the income earned from a natural resource or other assets for which the owner didn't have to put in much effort to create. Therefore, since oil is a natural resource, the huge returns on oil production can be considered rents.

Question 19

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

Economic rent is a term used in economics to refer to the difference between the price that is paid for using a particular resource and its actual opportunity cost. In this case, the increase in demand for retail space in Ginza led to an increase in its price, even though the supply curve for retail space is perfectly inelastic. This increase in price represents economic rent, which is the extra return earned by the owners of the resource because of its scarcity or uniqueness.

Question 20

The cost of production on the "bottom forty" is $100,000 for a given size crop.On the "north forty," due to erosion of the soil, the cost is $150,000.If both are being farmed by tenants, we would expect the rent on the "bottom forty" to be

Accepted Answer

The rent on the "bottom forty" would likely be higher than on the "north forty" because its lower cost of production ($100,000 vs. $150,000) makes it more profitable or desirable for farming, assuming revenue from the crops is the same for both.

Quiz 18: Pricing the Factors of Production