Question 1

Which of the following qualify as part of our economy's capital income?

Accepted Answer

Capital income refers to income earned from investments, such as interest earned on corporate bonds. Wages paid to workers (A) and salaries paid to CEOs (C) are considered labor income. Therefore, only B qualifies as part of our economy's capital income.

Question 2

Suppose that a large lake in the middle of Minnesota evaporates,leaving more fertile farm land for growing corn available.Assuming that land and labor are complements in a farming production function,what would happen to the wages earned by workers and rents earned by landowners?

Accepted Answer

With more fertile land available, the demand for labor will increase, causing an increase in wages. On the other hand, with more land available for farming, the supply of land will increase, causing a decrease in rents. Therefore, wages would increase while rents would decrease.

Question 3

Suppose the government designates certain areas within a community to be "wetlands," making it illegal to build on the land.What happens to land not classified as "wetlands" within the community?

Accepted Answer

The answer of Suppose the government designates certain areas within...

Question 4

As a result of severe flooding,a farmer loses half of his productive farmland.If the property of diminishing returns applies to all factors of production,he should expect to see

Accepted Answer

The answer of As a result of severe flooding,a farmer...

Question 5

The equilibrium rental income paid to landowners at any point in time equals the

Accepted Answer

The equilibrium rental income paid to landowners at any point in time equals the value of the marginal product of land. This means that the rental income is equal to the additional output (or value) that an additional unit of land could provide, holding other inputs constant. This is because the rental income represents the opportunity cost of using the land for alternative uses, such as farming, real estate, or other economic activities. Therefore, the correct answer is B.

Question 6

Consider the market for capital equipment.Suppose the value of the marginal product of capital equipment increases.Holding all else constant,what will happen to the equilibrium rental price of capital equipment?

Accepted Answer

An increase in the value of the marginal product of capital equipment means that the demand for capital equipment has increased, which leads to an increase in the equilibrium rental price of capital equipment.

Question 7

Owners of land are compensated according to the

Accepted Answer

Owners of land are compensated according to the value of the marginal product of land, which is the additional value that an additional unit of land can bring to production. This means that compensation is based on the productivity and profitability of the land, rather than its purchase price or ability to support laborers.

Question 8

Consider the market for capital equipment.Suppose the value of the marginal product of capital equipment increases.Holding all else constant,what will happen to the equilibrium quantity of capital equipment?

Accepted Answer

An increase in the value of marginal product of capital equipment means that each unit of capital equipment is producing more output. This will increase the demand for capital equipment, and the equilibrium quantity will increase to meet this demand. Therefore, the best choice is (A) The equilibrium quantity of capital equipment increases.

Question 9

The current value of the marginal product of land influences

Accepted Answer

The current value of the marginal product of land affects the demand for land, which in turn influences both the equilibrium rental price and the equilibrium purchase price of land.

Question 10

Who receives income from capital in the United States?

Accepted Answer

All three choices receive income from capital in the United States. Bank depositors earn interest on their deposits, bondholders earn interest on their bonds, and stockholders earn dividends on their shares of stock.

Question 11

As a result of severe flooding,a farmer loses half of his productive farmland.He should expect to see the marginal productivity of his remaining land

Accepted Answer

The answer of As a result of severe flooding,a farmer...

Question 12

Suppose that a toxic waste spill renders half of the land in New Jersey uninhabitable.Assuming that land and labor are complements in the production function,what would happen to the wages earned by workers and rents earned by landowners?

Accepted Answer

Since land and labor are complements in the production function, a decrease in the availability of land would reduce the productivity of labor, leading to a decrease in wages earned by workers. However, since the supply of land has decreased, rents earned by landowners would increase as the demand for the remaining land would be higher. Therefore, wages would decrease, and rents would increase.

Question 13

As a result of a fire,a small business owner loses some of her computers and other equipment.If the property of diminishing returns applies to all factors of production,she should expect to see

Accepted Answer

The law of diminishing returns suggests that as one factor of production (in this case, capital in the form of computers and equipment) decreases, the marginal productivity of that factor increases because the remaining units are used more intensively. However, the marginal productivity of labor may decrease because there are fewer capital resources for each worker to use, potentially making their work less efficient.

Question 14

Suppose that a rare virus infects and kills a significant percentage of the population.Assuming that land and labor are complements in a farming production function,what would happen to the wages earned by workers and the rents earned by landowners?

Accepted Answer

With a decrease in population, there would be a decrease in labor supply. Assuming land and labor are complementary inputs in farming, this would lead to a decrease in the marginal product of land, causing rents to decrease. However, with a decrease in supply of labor, the marginal product of labor would increase, causing wages to increase. Therefore, the correct answer is that wages would increase and rents would decrease.

Question 15

Consider the market for capital equipment.Suppose the price of firms' output increases.Holding all else constant,what will happen to the equilibrium rental price of capital equipment?

Accepted Answer

When the price of firms' output increases, the firms will have more revenue to invest in capital equipment. This will increase the demand for capital equipment in the market, causing a shift to the right in the demand curve. As a result, the equilibrium rental price of capital equipment will increase, reflecting the new balance between higher demand and limited supply.

Question 16

An increase in population can be expected to

Accepted Answer

The answer of An increase in population can be expected...

Question 17

Suppose that due to flooding in Louisiana,100,000 farmers relocate from Louisiana to Texas.Assuming that land and labor are complements in a farming production function,what would happen to the wages earned by workers and the rents earned by landowners in Texas?

Accepted Answer

The answer of Suppose that due to flooding in Louisiana,100,000...

Question 18

Consider the market for capital equipment.Suppose the market price of firms' output decreases.Holding all else constant,what will happen to the equilibrium quantity of capital equipment?

Accepted Answer

When the market price of firms' output decreases, all else constant, the firms will experience a decrease in revenue. This will lead to a reduction in their ability to purchase capital equipment as they aim to cut costs to keep their profits from falling too much. Therefore, the demand for capital equipment will decrease, causing a leftward shift in the demand curve. This will result in a lower equilibrium quantity of capital equipment traded in the market.

Question 19

The rental price of land is

Accepted Answer

The rental price of land refers to the price paid for the use of the land over a specified time period, not for ownership. It is possible for the rental price to be higher than the purchase price, but this is not always the case. Therefore, option B is the most accurate description of the rental price of land.

Question 20

A decrease in population can be expected to

Accepted Answer

A decrease in population leads to a decrease in demand for land, which results in a decrease in rents on land. The marginal product of land may or may not increase, depending on whether the decrease in population results in a decrease in the amount of land being used. The supply of land is not affected by changes in population. The demand for land is expected to decrease with a decrease in population, not increase.

Quiz 18: The Markets for the Factors of Production