Question 1

Factor market analysis could not be complete without some characterisation of:

Accepted Answer

To fully analyze factor markets, one needs to consider the marginal productivities of different factors (option A), market prices for final goods and services (option B), and product market demand (option C). The marginal productivities of different factors determine the total output and costs associated with the use of those factors. Market prices for final goods and services affect the demand for factors used in their production. Product market demand for the goods and services produced by firms determines the demand for factors of production. Therefore, all of the options (A, B, and C) are important for a complete factor market analysis.

Question 2

When a petrol station sells petrol, which of the following would qualify as capital? (i) the service attendants' time
(ii) the physical space on which the station exists
(iii) the petrol tanks and pumps

Accepted Answer

The answer of When a petrol station sells petrol, which...

Question 3

The term 'factor markets' is used to describe markets for:

Accepted Answer

Factor markets refer to markets where factors of production are bought and sold, including but not limited to labor, capital, and land. Therefore, option B is the correct answer as it includes all inputs, while options A, C, and D are too narrow or insufficient in scope.

Question 4

Rent, interest and profit are all forms of income paid to the owners of:

Accepted Answer

Rent, interest, and profit are all forms of income paid to the owners of land and capital.

Question 5

Which of the following best illustrates the concept of 'derived demand'?

Accepted Answer

The answer of Which of the following best illustrates the...

Question 6

An example of capital would be:

Accepted Answer

Capital in economics refers to physical assets used in production, like tools and machinery, such as wrenches used by a mechanic.

Question 7

Owners of capital earn their income in the form of which of the following? (i) interest
(ii) profit
(iii) wages

Accepted Answer

Owners of capital earn their income in the form of interest and profit, but not wages which are earned by labor.

Question 8

What are the three most important factors of production?

Accepted Answer

The three most important factors of production are land, labor and capital. Land refers to all natural resources used to produce goods and services, labor is the human effort used in production and capital is the machinery, tools and other man-made resources used in production. Profit, wages and interest are not factors of production but are outcomes or rewards for the use of these factors in the production process.

Question 9

A firm's willingness to pay for a factor of production ultimately depends on the demand for the goods the input is used to produce. This type of demand is called:

Accepted Answer

The answer of A firm's willingness to pay for a...

Question 10

Gertrude Kelp owns three boats that participate in commercial fishing for fresh tuna. As part of her business she hires a captain and several crew members for each boat. In the market for fresh tuna, Gertrude is one of thousands of fishers. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of tuna is negligible relative to the size of the market.
-According to the information provided, what type of market structure is most likely to characterise the fresh tuna market?

Accepted Answer

The fresh tuna market is characterized as a perfect competition due to the large number of fishers, and Gertrude's contribution being negligible relative to the size of the market. This indicates that no single producer has significant market power to affect the price or control supply.

Question 11

When labour supply increases, the equilibrium wage falls and employment increases.

Accepted Answer

This statement reflects the basic principle of supply and demand. When the labor supply increases (i.e. more people are willing and able to work), the supply curve shifts to the right. This leads to a surplus of workers, meaning there are more workers than jobs available at the current wage rate. To adjust for this surplus, employers will lower wages to attract more workers and be able to hire more. As a result, the equilibrium wage falls and employment increases.

Question 12

Gertrude Kelp owns three boats that participate in commercial fishing for fresh tuna. As part of her business she hires a captain and several crew members for each boat. In the market for fresh tuna, Gertrude is one of thousands of fishers. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of tuna is negligible relative to the size of the market.
-According to the information provided, when Gertrude participates in the labour market to hire crew members for her boats, she is most likely considered a:

Accepted Answer

Gertrude is hiring crew members for her boats, which makes her a buyer in the labor market. She is not selling anything, nor is she discriminating based on the information provided.

Question 13

An example of labour in the fishing industry would be the:

Accepted Answer

Sorting the catch is a specific task performed by labour in the fishing industry. Trawling time saved by using motorised winches (A) and employing larger nets (B) are examples of technology improving efficiency, while an increase in catch from better fish-finding technology (C) is a result of technological advancements rather than labour.

Question 14

Factor markets are different from product markets in an important way, because:

Accepted Answer

Factor demand is a derived demand, meaning that it is based on the demand for the final product. In contrast, product markets involve the demand and supply of final goods and services. Option A is incorrect, as disequilibrium can exist in both factor and product markets. Option B is also incorrect, as the factor supply function is typically upward-sloping. Option D is likewise incorrect, as factor demand is usually downward-sloping.

Question 15

Labour markets are governed by the force(s) of:

Accepted Answer

Labour markets are governed by the forces of supply and demand, meaning that the amount of labour available (supply) and the amount of labour needed (demand) determine the wage and employment levels. This is a basic principle of economics and applies to all markets, including labour markets.

Question 16

The economy's stock of equipment and structures is best described as?

Accepted Answer

The stock of equipment and structures is referred to as capital, which is a factor of production in the economy. The other options refer to financial assets and do not accurately describe the physical stock of equipment and structures.

Question 17

For a forestry firm, capital could be thought of as which of the following? (i) wages paid to loggers
(ii) sawmill plant and machinery
(iii) the government bonds the company directors have invested in

Accepted Answer

Capital refers to long-term assets that are used in the production of goods and services. In this case, sawmill plant and machinery are the long-term assets essential for forestry activities, and hence, (ii) is the correct choice. Wages paid to loggers are operational expenses, and government bonds the company directors have invested in are not assets owned by the company.

Question 18

Labour markets are different from most product markets because labour demand is:

Accepted Answer

Labour demand is derived from the production and sale of goods and services. It is not based on social needs but rather on economic needs. The other options are not correct.

Question 19

If the forestry sector decreases its demand for land, then the equilibrium land rental price will rise but the land made available for forestry will not change.

Accepted Answer

If the demand for land in the forestry sector decreases, this would lead to a decrease in the equilibrium land rental price as there would be less competition for the available land. Additionally, if the demand for land decreases, some landowners may choose to switch to other uses or sell their land, thus making less land available for forestry. So, the statement is false.

Question 20

The factors of production are best defined as the:

Accepted Answer

The factors of production refer to the inputs used in the production process, including land, labor, capital, and entrepreneurship. Therefore, the best choice is D. A is incorrect because it only refers to the description of the production process, while B and C are specific aspects of labor and wages, respectively, which are only one of the factors of production.

Quiz 19: The Markets for the Factors of Production