Question 1

If the rate of interest increases, firms will most likely respond by

Accepted Answer

A)  increasing investment. 
B)  decreasing investment. 
C)  not changing investment. 
D)  increasing capital stock. 
A)  increasing investment. 
B)  decreasing investment. 
C)  not changing investment. 
D)  increasing capital stock.

Question 2

The marginal productivity principle has relevance only in a capitalist economy, and not in a socialist system.

Accepted Answer

A) True 
 B)False

Question 3

Innovation is

Accepted Answer

A)  the same thing as invention. 
B)  the desired result of invention. 
C)  the necessary precondition of invention. 
D)  unrelated to invention. 
A)  the same thing as invention. 
B)  the desired result of invention. 
C)  the necessary precondition of invention. 
D)  unrelated to invention.

Question 4

In the United States, the money for loans to businesses comes mainly from

Accepted Answer

A)  corporate profits. 
B)  the federal government. 
C)  savings held in lending institutions. 
D)  state and local governments. 
A)  corporate profits. 
B)  the federal government. 
C)  savings held in lending institutions. 
D)  state and local governments.

Question 5

A firm should make an investment only if

Accepted Answer

A)  it is profitable in every year. 
B)  the present value of the profits exceeds the present value of the costs. 
C)  the present value of the revenues exceeds the present value of the costs. 
D)  there are no large losses in the early years. 
A)  it is profitable in every year. 
B)  the present value of the profits exceeds the present value of the costs. 
C)  the present value of the revenues exceeds the present value of the costs. 
D)  there are no large losses in the early years.

Question 6

A sum of money received at a future date

Accepted Answer

A)  is worth less than the same sum of money received today. 
B)  is worth more than the same sum of money received today. 
C)  has the same value as the same sum of money received today. 
D)  is worth less than the same sum of money received yesterday. 
A)  is worth less than the same sum of money received today. 
B)  is worth more than the same sum of money received today. 
C)  has the same value as the same sum of money received today. 
D)  is worth less than the same sum of money received yesterday.

Question 7

The demand curve for capital is

Accepted Answer

A)  its entire marginal physical product curve. 
B)  the downward-sloping portion of its marginal physical product curve. 
C)  its entire marginal revenue product curve. 
D)  the downward-sloping portion of its marginal revenue product curve. 
A)  its entire marginal physical product curve. 
B)  the downward-sloping portion of its marginal physical product curve. 
C)  its entire marginal revenue product curve. 
D)  the downward-sloping portion of its marginal revenue product curve.

Question 8

The only circumstance under which a factor will earn no rent is when the factor's supply curve is

Accepted Answer

A)  vertical. 
B)  upward sloping. 
C)  perfectly horizontal. 
D)  kinked. 
A)  vertical. 
B)  upward sloping. 
C)  perfectly horizontal. 
D)  kinked.

Question 9

The rent earned on marginal land is

Accepted Answer

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. 
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.

Question 10

Invention is the discovery of a new process or idea.Innovation is

Accepted Answer

A)  the continuing search for inventions. 
B)  copying ideas from rival firms. 
C)  putting an invention to work. 
D)  basic research. 
A)  the continuing search for inventions. 
B)  copying ideas from rival firms. 
C)  putting an invention to work. 
D)  basic research.

Question 11

The distribution of income in a market economy is determined by the minimum wage laws.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is an example of an investment?

Accepted Answer

A)  A company placing cash reserves in a bank. 
B)  A company buying Yahoo shares. 
C)  A company augmenting its production capacity. 
D)  A company issuing bonus shares. 
A)  A company placing cash reserves in a bank. 
B)  A company buying Yahoo shares. 
C)  A company augmenting its production capacity. 
D)  A company issuing bonus shares.

Question 13

The difference between the cost of production on a piece of land less the cost of production on marginal land is called

Accepted Answer

A)  usury. 
B)  profit. 
C)  rent. 
D)  interest. 
A)  usury. 
B)  profit. 
C)  rent. 
D)  interest.

Question 14

Usury laws are often politically popular because

Accepted Answer

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)  those concerned with affordable housing for the poor favor ceilings on mortgage rates. 
D)  All of the above are correct. 
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)  those concerned with affordable housing for the poor favor ceilings on mortgage rates. 
D)  All of the above are correct.

Question 15

Invention is the act of generating a new idea.

Accepted Answer

A) True 
 B)False

Question 16

The demand for capital is

Accepted Answer

A)  directly related to the interest rate. 
B)  inversely related to the interest rate. 
C)  unrelated to the interest rate. 
D)  first falls, and then rises, in relation to the interest rate. 
A)  directly related to the interest rate. 
B)  inversely related to the interest rate. 
C)  unrelated to the interest rate. 
D)  first falls, and then rises, in relation to the interest rate.

Question 17

Suppose that 19th-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

Accepted Answer

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. 
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.

Question 18

A worker can always build a chair in four hours.If a chair sells for $40 in a perfectly competitive market, then the equilibrium wage per hour in a perfectly competitive labor market is

Accepted Answer

A)  $4. 
B)  $10. 
C)  $40. 
D)  $160. 
A)  $4. 
B)  $10. 
C)  $40. 
D)  $160.

Question 19

Figure 19-1
  
-Mr.Paque is a bear hunter for timber companies that want to diminish damage to trees done by bears in the spring.Due to a reduction in the bear population between 1995 and 2005, Mr.Paque finds fewer bears each year and additional hours spent hunting produce fewer additional bears.With the information given and noting that the bounty on bears has risen, one can conclude that (i) Mr.Paque's income per hunting hours will fall; (ii) the derived demand for Mr.Paque's services will shift left.

Accepted Answer

A)  i and ii 
B)  i not ii 
C)  ii not i 
D)  neither i nor ii 
A)  i and ii 
B)  i not ii 
C)  ii not i 
D)  neither i nor ii

Question 20

Explain how usury laws distort the market for funds.What is the most likely result if a usury law is passed and enforced?

Accepted Answer

A usury law sets a maximum interest rate

Exam 19: Pricing the Factors of Production

If the rate of interest increases, firms will most likely respond by

The marginal productivity principle has relevance only in a capitalist economy, and not in a socialist system.

Innovation is

In the United States, the money for loans to businesses comes mainly from

A firm should make an investment only if

A sum of money received at a future date

The demand curve for capital is

The only circumstance under which a factor will earn no rent is when the factor's supply curve is

The rent earned on marginal land is

Invention is the discovery of a new process or idea.Innovation is

The distribution of income in a market economy is determined by the minimum wage laws.

Which of the following is an example of an investment?

The difference between the cost of production on a piece of land less the cost of production on marginal land is called

Usury laws are often politically popular because

Invention is the act of generating a new idea.

The demand for capital is

Suppose that 19th-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 worker can always build a chair in four hours.If a chair sells for $40 in a perfectly competitive market, then the equilibrium wage per hour in a perfectly competitive labor market is

Explain how usury laws distort the market for funds.What is the most likely result if a usury law is passed and enforced?

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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