Question 1

It is not true of economic profits that they
A)are a reward for bearing risks.
B)are generally greater than accounting profits.
C)are zero in a competitive market.
D)are difficult to measure.

Accepted Answer

Economic profits are not generally greater than accounting profits. Economic profits take into account both explicit and implicit costs, including opportunity costs, whereas accounting profits consider only explicit costs. This typically makes economic profits lower than accounting profits, not greater.

Question 2

Innovation is
A)the same thing as invention.
B)the desired result of invention.
C)the necessary precondition of invention.
D)unrelated to invention.

Accepted Answer

Innovation is the process of creating something new that adds value, improves on an existing idea, or solves a problem. Invention is the creation of a new product or process. While invention can be a part of innovation, it is not the same thing as innovation. The desired result of invention is to come up with a new product or process, but the desired result of innovation is to create something new that is not only useful but can transform an industry or society. Therefore, innovation is the desired result of invention.

Question 3

Putting new ideas to work is called
A)invention.
B)innovation.
C)management.
D)MPP.

Accepted Answer

Invention refers to the creation of a new product or process, while innovation refers to the implementation of new ideas or methods to improve an existing product or process. Management is a broader concept that involves overseeing resources and activities to achieve organizational goals. MPP (which stands for Master of Public Policy) is unrelated to the concept of putting new ideas to work. Therefore, the best choice is B, as it specifically relates to the implementation of new ideas.

Question 4

In 2017, corporate profits were about ____ percent of national income.
A)7.2
B)12.6
C)25.3
D)44.1

Accepted Answer

According to the Bureau of Economic Analysis, in 2017 corporate profits accounted for approximately 12.6% of national income.

Question 5

Suppose that one could determine the amount of income that is pure economic rent. If a law were passed that taxed 50 percent of that rent, what would happen to the amount of work that people perform?
A)It would increase as people seek higher income.
B)It would be unchanged.
C)It would decrease as people suffer a loss of income.
D)It would increase for some and decrease for others.

Accepted Answer

Economic rent refers to income earned from an inelastic supply of resources or talents. Taxing this rent does not affect the supply of work because it does not alter the marginal productivity or the decision-making process regarding labor supply.

Question 6

Suppose that a community seeks to preserve air quality, and zones a "green belt" around the city, which prevents property development within the belt. What is the most likely result of this law?
A)Interest rates will increase.
B)Labor income will increase.
C)Economic rent will increase.
D)Profits will increase.

Accepted Answer

The green belt law would restrict the available land for property development, leading to an increase in demand for the remaining land. This would lead to an increase in economic rent, the amount of income earned from ownership of land.

Question 7

Invention is the discovery of a new process or idea. Innovation is
A)the continuing search for inventions.
B)copying ideas from rival firms.
C)putting an invention to work.
D)basic research.

Accepted Answer

Innovation is the application of an invention or idea to create new value. It involves implementing and commercializing an idea or invention to bring it to the market and make it available to consumers. Therefore, choice C, putting an invention to work, is the best answer to describe innovation.

Question 8

The three major sources of economic profit are
A)risk-bearing, innovation, and exercise of monopoly power.
B)risk-bearing, rent seeking, and discounting.
C)innovation, invention, and speculation.
D)exercise of market power, marginalization, and speculation.

Accepted Answer

Economic profit is the profit earned by a firm above the normal rate of return on its invested capital. The three major sources of economic profit are: 
1) Risk-bearing - assuming the risk of uncertain outcomes and earning a profit from successful outcomes
2) Innovation - introducing new products, production methods, or business models that create value and generate profit
3) Exercise of monopoly power - having control over a significant portion of the market and being able to charge a price above the competitive level. Rent-seeking, which involves obtaining economic gain through political influence rather than market competition, is not considered a legitimate source of economic profit. Discounting and speculation are not considered major sources of economic profit.

Question 9

It is not true of profits that they
A)are what remains from the selling price after factors have been paid.
B)accrue to entrepreneurs.
C)account for a relatively small portion of national income.
D)account for about as much national income as wages and salaries.

Accepted Answer

According to the text, profits account for about as much national income as wages and salaries, making choice D the correct answer. Choice A is incorrect because profits include factors such as labor and capital, not just what remains after they have been paid. Choice B is partially correct, as entrepreneurs do receive profits, but other factors can also receive profits. Choice C is incorrect as profits are a significant portion of national income.

Question 10

Entrepreneurship is
A)restricted to perfect competition.
B)occurs only in well-functioning markets.
C)the process of planting new crops.
D)the process of taking business risks.

Accepted Answer

Entrepreneurship involves taking business risks to start or grow a business. It is not restricted to perfect competition or well-functioning markets, and has nothing to do with planting new crops.

Question 11

A tax on accounting profits in an industry
A)will lead to more inefficiency if economic profits are high.
B)will lead to more inefficiency if economic profits are low
C)will increase the MRP curve of nonfixed factors.
D)will increase the MRP curve of fixed factors.

Accepted Answer

A tax on accounting profits in an industry will lead to more inefficiency if economic profits are low because it reduces the incentive to innovate and invest in productive activities. If economic profits are high, then the industry is already profitable and the tax may not have a significant impact on incentives for innovation and investment.

Question 12

Activist capitalists who seek out or create earnings opportunities and assume risk, for which they receive profits, are called
A)rent seekers.
B)entrepreneurs.
C)muckrakers.
D)marginalists.

Accepted Answer

Activist capitalists who seek out or create earnings opportunities and assume risk, for which they receive profits, are called entrepreneurs. Rent seekers seek to extract economic gains by manipulating the political or social environment, without creating any benefits for society. Muckrakers are journalists or authors who expose corruption, while Marginalists analyze the economic decisions of individuals, companies, and governments that affect markets.

Question 13

At the Trolley House bar even the worst bartender makes $50 in tips a night, but most make $100. Tom, however, is the rare bartender who do fancy tricks with the bottles and make snazzy jokes. Tome earns $250 in tips per night. Tom's economic rent is
A)$50.
B)$150.
C)$200.
D)$250.

Accepted Answer

Economic rent is the extra amount earned over and above the next best alternative. Since most bartenders make $100 and Tom makes $250, his economic rent is $250 - $100 = $150. However, the question states that even the worst bartender makes $50, suggesting that $100 is the average, not the minimum. Therefore, Tom's economic rent is actually $250 (what he earns) - $100 (what most make) = $150. The correct calculation based on the provided information should be $250 - $50 = $200, considering the minimum guaranteed tips as the baseline for comparison, but the question's focus on "most make $100" as the standard for comparison leads to the initial misinterpretation. The correct answer, based on the premise that economic rent is calculated over the "next best alternative" which is presented as $100 (the amount most bartenders make), should indeed be $150, but given the choices and the explanation provided, the answer aligns with $200 due to the phrasing of the question. This seems to be a discrepancy in the explanation process. The correct interpretation, based on the standard economic definition, would consider the comparison to the average or common earnings ($100), but the answer choice and explanation provided do not align with this interpretation.

Question 14

In a free market for rental housing, effective rent control would have which effect?
A)It would cause a reduction in the number of available apartments.
B)It would cause an increase in the number of available apartments, since landlords would try to increase their profits through larger scale.
C)It would have no effect on the number of available apartments offered in the market.
D)The results are impossible to predict.

Accepted Answer

Effective rent control would limit the amount of rent that landlords could charge for their apartments. With a reduction in profits, landlords would be less incentivized to offer their apartments to renters. Therefore, there would likely be a reduction in the number of available apartments in the market.

Question 15

In Japan, the market value of the land is approximately four times that of all the land in the United States, even though Japan is only about the size of California. The most likely explanation for this fact is
A)greater demand for land in Japan relative to the supply than in the United States.
B)land is very productive in Japan.
C)land is not fixed in supply in the United States.
D)Japanese workers are very productive.

Accepted Answer

The high market value of land in Japan relative to the US despite being much smaller in size suggests that there is a greater demand for land in Japan relative to the supply. This is likely due to Japan's high population density and limited available land for development.

Question 16

Which factor receives the profit from production?
A)Land
B)Labor
C)Capital
D)Entrepreneurship

Accepted Answer

Entrepreneurship receives the profit from production as they are responsible for taking the risk and organizing the other factors of production (land, labor, and capital) to produce goods or services.

Question 17

Owners of buildings can expect to collect ____ economic rent in the long run.
A)much
B)marginal
C)a competitive
D)little or no

Accepted Answer

In the long run, economic rent tends to be competed away through new construction or increases in the quantity supplied of similar properties. Therefore, owners of buildings can expect to collect little or no economic rent in the long run.

Question 18

Suppose Billy runs a baseball team but has far less money to pay players than other teams. So he figures out how to find overlooked players who are worth more than other teams realize. Billy pays these players less than other teams would be willing to pay if they knew how good they were. As a result, Billy's team wins a lot of games without spending much on players. Which of the following is likely not true?
A)Billy's rent will equal the payroll costs of other teams with a similar number of wins less his payroll costs.
B)Billy's rent will equal his payroll costs less the payroll costs of other teams with a similar number of wins.
C)When rich teams realize how valuable these players are, they compete for the rent Billy is receiving by offering higher pay.
D)When rich and poor teams realize how valuable the players Billy finds are, they compete for the rent Billy is receiving by copying his methods for evaluating players.

Accepted Answer

The answer of Suppose Billy runs a baseball team but...

Question 19

Steph Curry loves playing basketball so much that he would be willing accept a salary that simply keeps him housed and fed. But because his skills are so rare, professional basketball teams will compete to pay him tens of millions of dollars to play for them. These tens of millions of dollars are
A)pure profit.
B)economic rent.
C)marginal rent.
D)competitive rent.

Accepted Answer

The tens of millions of dollars that professional basketball teams are willing to pay Steph Curry for his basketball skills are an example of economic rent. Economic rent refers to the payment made for a factor of production that is in fixed supply and cannot be replicated, such as special skills or abilities, in this case, Steph Curry's rare basketball skills.

Question 20

In a free market for rental housing, the average rental rate
A)includes a large amount of economic rent.
B)includes zero economic rent.
C)is entirely economic rent, since rental housing is fixed in supply.
D)includes some economic rent.

Accepted Answer

The average rental rate in a free market for rental housing includes some economic rent. Economic rent is the difference between the actual payment made for a factor of production (in this case, housing) and the minimum payment required to obtain it. In a free market, the rental rate includes both the cost of providing the housing (such as maintenance, taxes, and utilities) as well as the extra payment required to secure the housing due to its location, amenities, or other factors that make it more desirable than other available options. This extra payment is the economic rent. While rental housing is not fixed in supply in the long run, it can be limited in the short run due to factors such as zoning regulations or lack of available land, which can increase the amount of economic rent included in the rental rate.

Quiz 18: Pricing the Factors of Production

It is not true of economic profits that they

Innovation is

Putting new ideas to work is called

In 2017, corporate profits were about ____ percent of national income.

Suppose that one could determine the amount of income that is pure economic rent. If a law were passed that taxed 50 percent of that rent, what would happen to the amount of work that people perform?

Suppose that a community seeks to preserve air quality, and zones a "green belt" around the city, which prevents property development within the belt. What is the most likely result of this law?

Invention is the discovery of a new process or idea. Innovation is

The three major sources of economic profit are

It is not true of profits that they

Entrepreneurship is

A tax on accounting profits in an industry

Activist capitalists who seek out or create earnings opportunities and assume risk, for which they receive profits, are called

At the Trolley House bar even the worst bartender makes $50 in tips a night, but most make $100. Tom, however, is the rare bartender who do fancy tricks with the bottles and make snazzy jokes. Tome earns $250 in tips per night. Tom's economic rent is

In a free market for rental housing, effective rent control would have which effect?

In Japan, the market value of the land is approximately four times that of all the land in the United States, even though Japan is only about the size of California. The most likely explanation for this fact is

Which factor receives the profit from production?

Owners of buildings can expect to collect ____ economic rent in the long run.

Steph Curry loves playing basketball so much that he would be willing accept a salary that simply keeps him housed and fed. But because his skills are so rare, professional basketball teams will compete to pay him tens of millions of dollars to play for them. These tens of millions of dollars are

In a free market for rental housing, the average rental rate