Question 1

Consider the mobility of any factor of production.The more broadly we define the use of the factor,the ________ is the mobility of the factor and the ________ is the share of the factor payment that is economic rent.
A)lower; lower
B)lower; higher
C)higher; higher
D)higher; lower

Accepted Answer

When a factor of production is defined broadly, it has fewer alternative uses, reducing its mobility. This limited mobility increases the share of its payment that is economic rent, as it cannot easily be transferred to other uses.

Question 2

If the supply curve for a factor is perfectly inelastic,the payments to the factor are
A)wholly economic rent.
B)wholly transfer earnings.
C)partly economic rent and partly transfer earnings.
D)neither economic rent nor transfer earnings.
E)an unnecessary tax on the factor.

Accepted Answer

If the supply curve for a factor is perfectly inelastic, it means that no matter what the price of the factor is, the quantity supplied remains constant. Therefore, the factor is considered to be a fixed resource, and any payments made to it are purely economic rent, meaning that the factor earns additional income without any additional cost or effort on its part.

Question 3

Suppose Harrison Ford makes 2 movies per year and earns $10 million per movie.Suppose that if he weren't making movies his next best alternative would be to earn $500 000 per year endorsing shampoo.By making movies,Harrison Ford
A)is earning economic rent of $20 500 000 per year.
B)is earning economic rent of $20 000 000 per year.
C)is earning economic rent of $19 500 000 per year.
D)is earning economic rent of $500 000 per year.
E)is not earning economic rent.

Accepted Answer

Harrison Ford's opportunity cost of making one movie is $500,000. Therefore, his economic rent per movie is $10 million - $500,000 = $9.5 million. Since he makes 2 movies per year, his total economic rent is $19 million. Therefore, option C is correct.

Question 4

Choose the statement that best describes the difference between "economic rent" and other factor payments.
A)Economic rent is unearned income of the factor whereas other payments are earned.
B)Economic rent is not a cost to the firm but other payments are.
C)A reduction in economic rent will not reduce the availability of the factor whereas reducing other payments of factors will reduce their availability.
D)There is no difference between economic rent and other factor payments.
E)Economic rent is the sum of all factor payments.

Accepted Answer

Economic rent is the extra payment made to a factor of production over what is necessary to keep it in its current use. Reducing economic rent does not affect the availability of the factor, unlike reducing other factor payments which could lead to a decrease in supply.

Question 5

Which of the following concepts is most similar to the concept of "transfer earnings"?
A)factor mobility
B)factor price differentials
C)factor payments
D)equal net advantage
E)opportunity cost

Accepted Answer

Transfer earnings refer to the minimum payment required to keep a factor of production in its current use, which is similar to the concept of opportunity cost, as it represents the next best alternative foregone.

Question 6

Consider the following demand and supply curves in factor markets.  FIGURE 13-4
-Refer to Figure 13-4.Assume that all four factor markets are labour markets.The total amount paid to the workers is "transfer earnings" in diagram
A)1.
B)2.
C)3.
D)4.
E)1 or 4

Accepted Answer

The answer of Consider the following demand and supply curves...

Question 7

Consider the following demand and supply curves in factor markets.  FIGURE 13-4
-Refer to Figure 13-4.The panel that best illustrates the short-run supply of a factor to the economy as a whole is
A)1.
B)2.
C)3.
D)4.
E)1 or 4.

Accepted Answer

In the short run, the supply of a factor to the economy as a whole is typically inelastic, as factors like labor and capital cannot be easily increased or decreased. Panel 3 likely represents this inelastic supply curve.

Question 8

Consider the following demand and supply curves in factor markets.  FIGURE 13-4
-Refer to Figure 13-4.In diagrams 1 and 4,the marginal worker is earning
A)transfer earnings only.
B)economic rent only.
C)both transfer earnings and economic rent.
D)a wage greater than the equilibrium market wage.
E)a wage greater than the worker should receive for the product produced.

Accepted Answer

In diagrams 1 and 4, the marginal worker is earning transfer earnings only, which is the minimum payment required to keep the worker in their current employment.

Question 9

John Smith plays baseball for $500 000 per year,but if he were not a baseball player,his next best alternative would be to earn $35 000 per year as a sales representative.By playing baseball,Smith is earning economic rent of
A)$535 000.
B)$500 000.
C)$465 000.
D)$35 000.
E)zero.

Accepted Answer

Economic rent is the difference between the income earned from a current occupation and the income that could have been earned from the next best alternative occupation. In this case, Smith's economic rent is $500 000 - $35 000 = $465 000, as he is earning $465 000 more than his next best alternative.

Question 10

If the supply curve for a factor is perfectly elastic,the payments to the factor are
A)wholly economic rent.
B)wholly transfer earnings.
C)partly economic rent and partly transfer earnings.
D)neither economic rent nor transfer earnings.
E)an unnecessary tax on the factor.

Accepted Answer

If the supply curve for a factor is perfectly elastic, it means that the factor can be obtained in any quantity at a certain price, which is the transfer earnings of the factor. Economic rent only exists when the supply curve is not perfectly elastic, and there are limited factors available at different prices. Therefore, the payments to the factor in this case will be wholly transfer earnings.

Question 11

Consider the following demand and supply curves in factor markets.  FIGURE 13-4
-Refer to Figure 13-4.Assume that all four factor markets are labour markets.The total amount paid to the workers is "economic rent" in diagram
A)1.
B)2.
C)3.
D)4.
E)1 or 4.

Accepted Answer

Economic rent is the portion of payment to a factor of production that exceeds the owner's reservation price, often represented by the area above the supply curve and below the price level in a supply and demand diagram.

Question 12

Alfred Marshall's concept of "transfer earnings" denotes
A)the value of the factor to its user.
B)a return to a particular factor which must be the same for all uses of that factor.
C)the amount a factor earns over and above what is necessary to keep the factor from transferring to an alternative use.
D)the amount that a factor must earn to keep it from transferring to another use.
E)the amount the factor earns every time it transfers between locations.

Accepted Answer

Transfer earnings refer to the minimum amount a factor must earn to prevent it from moving to an alternative use.

Question 13

The earnings of a factor in its best alternative use is called its
A)intrinsic value.
B)alternative value.
C)transfer earnings.
D)economic earnings.
E)economic profit.

Accepted Answer

Transfer earnings refer to the earnings that a factor can generate in its best alternative use. It is the minimum payment that a factor must receive to stay in its current use. Therefore, option C is the correct answer. Options A, B, D, and E are either incorrect or do not accurately describe transfer earnings.

Question 14

Consider the following demand and supply curves in factor markets.  FIGURE 13-4
-Refer to Figure 13-4.The panel that best illustrates the supply of a factor to a specific firm in the economy is
A)1.
B)2.
C)3.
D)4.
E)1 or 4.

Accepted Answer

The answer of Consider the following demand and supply curves...

Question 15

Which of the following would be least likely to earn economic rent?
A)an owner of land located on Yonge Street,near downtown Toronto
B)Lady Gaga
C)John Smith,an auto-plant worker in Oshawa,Ontario
D)Robert Bateman,famous wildlife artist
E)a university professor who loves every bit of his job

Accepted Answer

Economic rent refers to the surplus income earned by a factor of production beyond what is required to keep it in its current use. An auto-plant worker is typically not in a position to earn economic rent as they do not possess a unique or specialized skill that commands a premium in the market.

Question 16

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.  FIGURE 13-2
-Refer to Figure 13-2.This factor market is in equilibrium at point B.Which of the following statements best describes factor payments at point B?
A)total income paid to the factor is $8
B)total of economic rent plus transfer earnings is $320
C)total factor earnings are $320 and the 40th unit earns zero rent
D)total factor earnings are $320 and the 40th unit earns economic rent of $8
E)economic rent to the 40th unit is $320

Accepted Answer

At point B, total factor earnings are $320, and since the 40th unit is the marginal unit, it earns zero economic rent.

Question 17

Suppose that the municipal government of Calgary decides to tax economic rent on a highly sought-after piece of land.The result would be
A)little or no effect on the supply of the land.
B)an increase in the supply of the land.
C)a reduction in the supply of land.
D)a shift of the entire tax onto the consumer.
E)a rise in the price of land.

Accepted Answer

Taxing economic rent on land does not affect its supply because the supply of land is perfectly inelastic; the quantity of land is fixed and cannot be increased or decreased by changes in price or taxation.

Question 18

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.  FIGURE 13-2
-Refer to Figure 13-2.This factor market is in equilibrium at point B.In equilibrium,the 20th unit of the factor is being paid transfer earnings of ________ and economic rent of ________.
A)$120; -$2
B)$16; $2
C)$320; $80
D)$120; $40
E)$6; $2

Accepted Answer

The answer of The demand and supply curves shown below...

Question 19

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets.  FIGURE 13-2
-Refer to Figure 13-2.This factor market is initially in equilibrium at point B,but changes occur that cause the equilibrium to shift to point D (S curve shifts left).At the new equilibrium,total factor earnings ________ compared to the initial equilibrium.
A)decreased by $30
B)increased by $30
C)remained the same
D)increased by $10
E)increased by $330

Accepted Answer

The answer of The demand and supply curves shown below...

Question 20

Kobe Bryant is a highly paid professional basketball player in the National Basketball Association.From the perspective of the whole NBA,Kobe Bryant's economic rent would be ________,while from the perspective of his individual team it would be ________.
A)very small; very large
B)zero; impossible to calculate
C)close to his whole salary; very small
D)zero; close to his whole salary
E)very large; close to his whole salary

Accepted Answer

Kobe Bryant's economic rent from the perspective of the whole NBA would be very small because there are many other players who could take his place. However, from the perspective of his individual team, his economic rent would be very large because he is a key player who helps them win games.

Quiz 13: How Factor Markets Work

Consider the mobility of any factor of production.The more broadly we define the use of the factor,the is the mobility of the factor and the is the share of the factor payment that is economic rent.

If the supply curve for a factor is perfectly inelastic,the payments to the factor are

Suppose Harrison Ford makes 2 movies per year and earns $10 million per movie.Suppose that if he weren't making movies his next best alternative would be to earn $500 000 per year endorsing shampoo.By making movies,Harrison Ford

Choose the statement that best describes the difference between "economic rent" and other factor payments.

Which of the following concepts is most similar to the concept of "transfer earnings"?

Consider the following demand and supply curves in factor markets. FIGURE 13-4 -Refer to Figure 13-4.Assume that all four factor markets are labour markets.The total amount paid to the workers is "transfer earnings" in diagram

Consider the following demand and supply curves in factor markets. FIGURE 13-4 -Refer to Figure 13-4.The panel that best illustrates the short-run supply of a factor to the economy as a whole is

Consider the following demand and supply curves in factor markets. FIGURE 13-4 -Refer to Figure 13-4.In diagrams 1 and 4,the marginal worker is earning

John Smith plays baseball for $500 000 per year,but if he were not a baseball player,his next best alternative would be to earn $35 000 per year as a sales representative.By playing baseball,Smith is earning economic rent of

If the supply curve for a factor is perfectly elastic,the payments to the factor are

Consider the following demand and supply curves in factor markets. FIGURE 13-4 -Refer to Figure 13-4.Assume that all four factor markets are labour markets.The total amount paid to the workers is "economic rent" in diagram

Alfred Marshall's concept of "transfer earnings" denotes

The earnings of a factor in its best alternative use is called its

Consider the following demand and supply curves in factor markets. FIGURE 13-4 -Refer to Figure 13-4.The panel that best illustrates the supply of a factor to a specific firm in the economy is

Which of the following would be least likely to earn economic rent?

The demand and supply curves shown below apply to a competitive market for a factor used in the production of widgets. FIGURE 13-2 -Refer to Figure 13-2.This factor market is in equilibrium at point B.Which of the following statements best describes factor payments at point B?

Suppose that the municipal government of Calgary decides to tax economic rent on a highly sought-after piece of land.The result would be

Kobe Bryant is a highly paid professional basketball player in the National Basketball Association.From the perspective of the whole NBA,Kobe Bryant's economic rent would be ,while from the perspective of his individual team it would be .