Question 1

California passed a law called "Proposition 2 ½" that limited property taxes to 2.5 percent of property value. Naturally this reduced taxes on many properties, and apartment landlords had more money at the end of the year at given rents. This windfall could be called an economic rent only if
A)we push the definition of economic rent too far.
B)the supply of rental units can be expanded.
C)the supply of rental units is fixed.
D)competitors can build housing at costs that yield the return that was earned before the tax cut.

Accepted Answer

Economic rent can only occur when the supply of a good or service is fixed. In this case, the supply of rental units is fixed, as landlords cannot easily expand the number of units they have in response to the tax cut. The fact that landlords have more money is simply a function of the tax policy, not due to any increase in their productivity or efficiency. Therefore, the windfall is an economic rent.

Question 2

If mining companies are indifferent between operating and not operating a quarry, that quarry is
A)discounted.
B)usurious.
C)marginal.
D)nonexcludable.

Accepted Answer

A quarry that mining companies are indifferent between operating and not operating is called a marginal quarry. This means that the quarry is not particularly profitable, but it is also not prohibitively expensive to operate. Mining companies will only choose to operate a marginal quarry if there are no better options available. Discounted, usurious, and nonexcludable do not accurately describe this situation.

Question 3

Which is not a reason Usury laws are often politically popular?
A)Few people sympathize with banks and other lenders who are suspected of price gouging.
B)Consumers are in favor of the lower lending rates.
C)The lower rates allow people to borrow more.
D)Lenders, not the Usury laws, are often blamed by people who do not get loans.

Accepted Answer

Usury laws set maximum interest rates that lenders can charge, which can limit the amount people can borrow rather than allow them to borrow more. Lower rates might reduce the lender's willingness to offer loans, especially to higher-risk borrowers, rather than enabling people to borrow more.

Question 4

The equilibrium rent for marginal land
A)equals zero.
B)depends on the supply and demand of land.
C)exceeds the opportunity cost of the land.
D)is always greater than the equilibrium rent for nonmarginal land.

Accepted Answer

Marginal land refers to the least productive land that is still used for production. Its equilibrium rent equals zero because it does not generate any economic surplus; its output just covers the cost of cultivation or use, with no extra profit to pay for rent.

Question 5

When determination of rent is left to the market,
A)that rent price is almost entirely determined by the supply side.
B)that price can settle at politically unpopular levels.
C)land is fairly distributed among the members of society.
D)the supply of land will be perfectly elastic.

Accepted Answer

When rent determination is left to the market, prices can settle at politically unpopular levels because landlords can charge high rents due to high demand and limited supply, leading to affordability issues for tenants. Factors like the economy, location, and demand play a significant role in rent pricing, and without regulation or interventions, the market can fail to provide affordable housing options for all members of society.

Question 6

All the land in a California valley is owned by one person. The supply of land is fixed and is rented each year to farmers who bid for it in an open auction. Given the rents they must pay, the farmers barely earn subsistence. Sympathy for the poor farmers leads the state to bring in irrigation facilities to raise the productivity of the farms and raise the farmers' income. The most likely outcome is
A)the farmers will be better off.
B)the farmers and the landlord will share the new prosperity.
C)only the landlord will be better off.
D)no one will prosper.

Accepted Answer

The supply of land is fixed, and the introduction of irrigation facilities will increase the productivity of the land, likely leading to higher bids in the open auction for the land. Since the farmers bid for the land each year, the increased productivity will likely result in higher rents, which will be captured by the landlord as the sole owner of the land. The farmers' costs (in terms of rent) may increase proportionally with the productivity gains, leaving their net income similar to before the introduction of irrigation, thus primarily benefiting the landlord.

Question 7

Figure 19-3

Which panel in Figure 19-3 represents the case of an effective usury law?
A)1
B)2
C)3
D)4

Accepted Answer

The answer of Figure 19-3

Which panel in Figure 19-3 represents...

Question 8

A usury ceiling will be effective depending on
A)whether the usury rate is above 10 percent.
B)whether the usury rate is above 8 percent.
C)whether that rate is below what the equilibrium rate of interest would have been in a free market.
D)how well organized the lending institutions are.

Accepted Answer

A usury ceiling will only be effective if the rate is set below the equilibrium rate of interest in a free market. If the rate is set too high, lenders will simply not lend, and borrowers will have to turn to illegal sources of credit. The effectiveness of a usury ceiling is not necessarily related to a specific percentage, such as 8 or 10 percent, but rather to how well it is calibrated to the market conditions. The effectiveness also does not depend on how organized the lending institutions are.

Question 9

Changes in market rents are mainly determined by changes in
A)the demand for the fixed factors.
B)the elasticity of supply.
C)the supply of fixed factors.
D)the intensity of production on the land.

Accepted Answer

The answer of Changes in market rents are mainly determined...

Question 10

Marginal land is land
A)that is unprofitable under any circumstances.
B)that is the most productive in the area.
C)that is on the borderline of profitability.
D)of average productivity.

Accepted Answer

Marginal land refers to land that is on the border or fringe of profitability. It may require more inputs and resources to yield profitable results, but it is not completely unproductive.

Question 11

The rent earned on marginal land is
A)zero.
B)the average of all qualities of land.
C)above the average of all qualities of land.
D)below the average of all qualities of land.

Accepted Answer

Marginal land refers to the least productive land that is still in use for agricultural purposes. The rent earned on such land is considered to be zero because it only covers the cost of cultivation, leaving no surplus or rent.

Question 12

In 1862, the Homestead Act made land available to farmers at zero cost. Yet many farmers preferred to purchase land along the rail line from the railroad. The farmers
A)were duped by the railroads.
B)knew the soil was better near the railroads.
C)realized that crops would be less costly to grow and transport on land near the railroads.
D)were exploited by the railroads.

Accepted Answer

Farmers realized that it would be more cost-effective to purchase land near the railroads because it would be easier and cheaper to transport their crops to market. This was because the railroads offered a faster and more efficient means of transportation, reducing the cost of transporting goods compared to other means. As a result, farmers would have been able to sell their crops at a better price and earn a higher profit.

Question 13

A landlord will supply his or her land for rental only if in equilibrium
A)he or she receives economic rent on the land.
B)he or she is paid at least the opportunity cost of using the land himself or herself.
C)his or her land is marginal.
D)his or her rate of return on his or her investment in the land is zero.

Accepted Answer

A landlord will only supply his or her land for rental if he or she is paid at least the opportunity cost of using the land himself or herself. This means that the landlord must be compensated for giving up the ability to use the land for his or her own purposes. This compensation must, at a minimum, cover the income or other benefits that the landlord would have received if he or she had used the land himself or herself.

Question 14

The distinguishing feature of the land market is that the
A)supply is highly inelastic.
B)supply is highly elastic.
C)demand is highly inelastic.
D)demand is highly elastic.

Accepted Answer

The distinguishing feature of the land market is that the supply is highly inelastic because land is a fixed resource, and the quantity available is limited. Therefore, even if the demand for land increases, the quantity supplied will not increase significantly.

Question 15

If the equilibrium rate of interest would be 10 percent, but the usury law sets 8 percent,
A)the quantity of funds supplied would be greater than the quantity demanded.
B)economic efficiency would be promoted.
C)some applicants for loans would likely be turned down.
D)lenders would be able to fund fully all requests for loans.

Accepted Answer

With the equilibrium rate of interest being 10 percent, setting the limit at 8 percent through usury law would likely result in some lenders being unwilling to lend money. This would lead to some loan applicants being turned down, as the quantity of funds supplied would be less than the quantity demanded. Economic efficiency would not be promoted, as the law would create inefficiencies in the market. Lenders would not be able to fully fund all requests because of the lower rate.

Question 16

Suppose that nineteenth-century politicians had succeeded in their attempt to impose a "single tax"-a tax on suppliers of land (i.e., landlords). Most of the economic burden of the tax would have been borne by
A)renters, because the demand for land is generally less elastic than its supply.
B)renters, because the demand for land is generally more elastic than its supply.
C)landlords, because the demand for land is generally less elastic than its supply.
D)landlords, because the demand for land is generally more elastic than its supply.

Accepted Answer

The economic burden of the tax would fall mainly on the landlords because the demand for land is generally more elastic than its supply. This means that landlords would likely have to absorb some of the cost of the tax without being able to pass it on fully to renters. Additionally, some landlords may choose to leave the land idle rather than pay the tax, which would reduce the supply of land and put further upward pressure on the price that landlords could charge. Therefore, based on the theory of supply and demand, the answer is D.

Question 17

Marginal land is land on the borderline of
A)producing revenue.
B)being used profitably.
C)producing economic rent.
D)a facility that produces output.

Accepted Answer

Marginal land refers to land that has low productivity, thus making it difficult to use for profitable agriculture or other economic activities. It is not completely non-productive or unused, but it generates less income than other more productive land. Therefore, marginal land is on the border of being used profitably.

Question 18

Economic rents are earned whenever
A)demand for a factor is perfectly inelastic.
B)a factor receives a reward that exceeds its cost.
C)a factor earns a reward that is greater than the amount needed to keep the factor in its present employment.
D)a factor's supply curve intersects its demand curve at a point where demand is inelastic.

Accepted Answer

The answer of Economic rents are earned whenever
A)demand for a...

Question 19

If the demand for land shifts upward, rents will be
A)earned by some land that was formerly unprofitable.
B)lost to many landowners.
C)diminished for society as a whole.
D)taxed away to help pay the costs of government.

Accepted Answer

If the demand for land shifts upward, rents will increase, making previously unprofitable land now profitable. Therefore, some land that was formerly unprofitable will now earn rent.

Question 20

Changes in the economic rent paid to land
A)only affect marginal land.
B)equal the difference in production costs between the old marginal land and new marginal land.
C)reduce the use of land because the cost of using land is now higher.
D)equal the difference in production costs between productive land and nonproductive land.

Accepted Answer

Economic rent changes reflect the difference in production costs between the old marginal land and new marginal land, not just the costs associated with productive versus nonproductive land, the exclusive effect on marginal land, or a direct reduction in land use due to higher costs.

Quiz 18: Pricing the Factors of Production

California passed a law called "Proposition 2 ½" that limited property taxes to 2.5 percent of property value. Naturally this reduced taxes on many properties, and apartment landlords had more money at the end of the year at given rents. This windfall could be called an economic rent only if

If mining companies are indifferent between operating and not operating a quarry, that quarry is

Which is not a reason Usury laws are often politically popular?

The equilibrium rent for marginal land

When determination of rent is left to the market,

Figure 19-3 Which panel in Figure 19-3 represents the case of an effective usury law?

A usury ceiling will be effective depending on

Changes in market rents are mainly determined by changes in

Marginal land is land

The rent earned on marginal land is

In 1862, the Homestead Act made land available to farmers at zero cost. Yet many farmers preferred to purchase land along the rail line from the railroad. The farmers

A landlord will supply his or her land for rental only if in equilibrium

The distinguishing feature of the land market is that the

If the equilibrium rate of interest would be 10 percent, but the usury law sets 8 percent,

Suppose that nineteenth-century politicians had succeeded in their attempt to impose a "single tax"-a tax on suppliers of land (i.e., landlords) . Most of the economic burden of the tax would have been borne by

Marginal land is land on the borderline of

Economic rents are earned whenever

If the demand for land shifts upward, rents will be

Changes in the economic rent paid to land