Question 1

Assume the market for handkerchiefs is competitive. A decrease in the market price of handkerchiefs

Accepted Answer

A decrease in the market price of handkerchiefs will lead to a decrease in the revenue of firms producing handkerchiefs. This will then lead to a decrease in demand for workers who make handkerchiefs, as firms will reduce their hiring to cut costs. As a result, the equilibrium wage for these workers will also decrease.

Question 2

Assume the market for handkerchiefs is competitive. A new invention leads to labor-augmenting technological progress in the production of handkerchiefs. This development

Accepted Answer

Labor-augmenting technological progress leads to an increase in labor productivity, which subsequently increases the demand for labor, including workers who make handkerchiefs. The increase in demand for workers results in an increase in their equilibrium wage. Therefore, (B) is the best choice.

Question 3

Suppose the wage earned by pear pickers suddenly rises. Which of the following effects would we most likely observe as a result?

Accepted Answer

When the wage earned by pear pickers rises, it becomes more profitable for workers to become pear pickers instead of apple pickers. This decreases the supply of apple pickers and increases the equilibrium wage of apple pickers, as there are now fewer workers available to pick apples. Therefore, choice B is the correct answer.

Question 4

An increase in the demand for houses

Accepted Answer

An increase in the demand for houses will increase the demand for carpenters, causing an increase in their equilibrium wage. Additionally, as the demand for carpenters increases, their marginal product of labor will also increase, leading to an increase in its value. Therefore, choice A is the correct answer.

Question 5

Which of the following would be an example of capital for a computer software firm? (i) the firm's computer programmers
(ii) the wages the firm pays to its computer programmers
(iii) computer equipment

Accepted Answer

Computer equipment would be an example of capital for a computer software firm, as it is a long-term asset used to produce the firm's goods or services. The firm's computer programmers and the wages paid to them would be considered labor and operating costs, respectively, rather than capital.

Question 6

Consider the labor market for short-order cooks. A labor-augmenting technological change such as a faster food processor will cause

Accepted Answer

The answer of Consider the labor market for short-order cooks....

Question 7

Both theory and history point to a close relationship between increases in

Accepted Answer

According to the theory of supply and demand, an increase in labor demand without a corresponding increase in labor supply leads to an increase in the equilibrium wage rate (real wages). Additionally, historical evidence suggests that productivity gains have been the primary driver of long-term increases in real wages. Therefore, there is a close relationship between the productivity of labor and increases in real wages.

Question 8

Which term below refers to "the accumulation of goods produced in the past that are being used in the present to produce new goods and services"?

Accepted Answer

The term that refers to "the accumulation of goods produced in the past that are being used in the present to produce new goods and services" is capital. Factors of production refer to the resources needed to produce goods and services, while inventories and products refer to the output of the production process rather than the accumulation of goods.

Question 9

Which of the following would be an example of capital for a retail gasoline station? (i) the gas tanks and pumps
(ii) the service attendants' time
(iii) the plot of land on which the station sits

Accepted Answer

The answer of Which of the following would be an...

Question 10

Capital is paid according to the value of its marginal product

Accepted Answer

Capital is paid according to the value of its marginal product regardless of whether earnings from capital are paid to households in the form of dividends or whether those earnings are kept within firms as retained earnings. The value of the marginal product of capital represents the additional output that can be produced by adding one more unit of capital, and the payment to capital is determined by the marginal productivity theory of distribution.

Question 11

An increase in the supply of labor

Accepted Answer

According to the law of supply, an increase in the supply of labor will lead to a decrease in the equilibrium wage rate. This is because there would be a larger number of people competing for the same number of jobs, which would put downward pressure on wages. As for the value of the marginal product of labor, this would also decrease since, with more workers available, each additional worker would be adding less and less additional output (due to diminishing marginal returns). Thus, both the equilibrium wage and the value of the marginal product of labor would decrease with an increase in the supply of labor.

Question 12

Economists define capital as the

Accepted Answer

Economists define capital as the accumulation of goods produced in the past that are being used in the present to produce new goods and services. This includes physical capital such as machinery and equipment, as well as human capital such as knowledge and skills.

Question 13

Suppose an increase in the demand for labor results in an increase of $4 per hour in the equilibrium wage. How does the increase in the demand for labor affect the value of the marginal product of labor (VMPL)?

Accepted Answer

In a competitive labor market, the equilibrium wage equals the VMPL. If the wage increases by $4 per hour, then the VMPL must also increase by $4 per hour to maintain equality in the labor market equilibrium. Therefore, the increase in the demand for labor results in an increase in the VMPL by $4.

Question 14

A significant slowdown in the growth of productivity persisted in the U.S. economy between

Accepted Answer

According to various data sources and economic analyses, the period between 1973 and 1995 saw a significant decline in the growth rate of labor productivity in the U.S. economy. This was marked by lower levels of investment in physical and human capital, slow technological change, and other structural factors. While there have been some variations in the pace of productivity growth in the decades since then, no other period has shown such a sustained and broad-based slowdown as this one. Therefore, option B is the correct choice.

Question 15

Consider the labor market for short-order cooks. A shortage in the availability of frying pans will cause

Accepted Answer

The answer of Consider the labor market for short-order cooks....

Question 16

Which of the following best describes the economy's stock of equipment and structures?

Accepted Answer

Equipment and structures are assets used for the production of goods and services over a long period of time, which are considered capital in the economy.

Question 17

Which of the following statements is correct?

Accepted Answer

Both economic theory and evidence from the U.S. economy suggest that there is a close link between productivity and real wages. Economic theory suggests that productivity growth leads to higher wages, as it enables firms to pay higher wages without reducing profitability. Evidence from the U.S. economy also supports this link, as periods of high productivity growth have been associated with higher real wages. However, the degree of this link may vary depending on other factors such as the bargaining power of workers and the level of competition in the labor market.

Question 18

When economists refer to a firm's capital, they are describing the

Accepted Answer

A firm's capital refers to the stock of equipment and buildings used in production. It is a factor of production and an important input in the production process. The other choices (A, C, and D) are not accurate descriptions of a firm's capital.

Question 19

Which of the following is not correct?

Accepted Answer

Low-skilled immigration may have a small negative impact on the wages of native-born workers, but the overall effect on the economy is positive. Studies have shown that immigrants of all skill levels contribute to economic growth and job creation. However, the exact impact of low-skilled immigration on wages is still a topic of debate among economists.

Question 20

In economics, the term capital refers to

Accepted Answer

Capital refers specifically to the equipment and structures used in production, such as machinery, tools, factories, and warehouses. While money (A) can be used to purchase capital, it is not capital in and of itself. Stocks and bonds (B) are financial instruments that represent ownership in a company or debt owed by a company, and are therefore not capital either.

Quiz 18: The Markets for the Factors of Production