Question 1

Firms should stop borrowing funds

Accepted Answer

A) as soon as the bank raises the interest rate. 
B) when the MRP of borrowed funds is equal to the cost of borrowing. 
C) whenever the future of the firm looks gloomy. 
D) if their debts are more than 25 percent of the value of the firm. 
A) as soon as the bank raises the interest rate. 
B) when the MRP of borrowed funds is equal to the cost of borrowing. 
C) whenever the future of the firm looks gloomy. 
D) if their debts are more than 25 percent of the value of the firm.

Question 2

Which is not true of the interest rate?

Accepted Answer

A) It is the price at which funds can be rented. 
B) It is the price at which funds can be borrowed. 
C) It affects the marginal revenue product of capital. 
D) It does not affect the marginal revenue product of capital. 
A) It is the price at which funds can be rented. 
B) It is the price at which funds can be borrowed. 
C) It affects the marginal revenue product of capital. 
D) It does not affect the marginal revenue product of capital.

Question 3

The derived demand for an input decreases when

Accepted Answer

A) the price of the input increases. 
B) the price of the output increases. 
C) the price of the input decreases. 
D) the price of the output decreases. 
A) the price of the input increases. 
B) the price of the output increases. 
C) the price of the input decreases. 
D) the price of the output decreases.

Question 4

A sum of money received at a future date is worth less than the same sum of money received today.Why? Explain this with an example.

Accepted Answer

A dollar obtainable sooner is worth more

Question 5

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 6

In 1862, the Homestead Act made land available to farmers at zero cost.Yet many farmers preferred to purchase land along the rail line from the railroad.The farmers

Accepted Answer

A) were duped by the railroads. 
B) knew the soil was better near the railroads. 
C) realized that crops would be less costly to grow and transport on land near the railroads. 
D) were exploited by the railroads. 
A) were duped by the railroads. 
B) knew the soil was better near the railroads. 
C) realized that crops would be less costly to grow and transport on land near the railroads. 
D) were exploited by the railroads.

Question 7

The marginal productivity principle says that a profit-maximizing firm should

Accepted Answer

A) hire capital until its marginal product is zero. 
B) hire labor until another worker costs more to hire than he or she can earn for the firm. 
C) hire the quantities of capital and of labor at which their marginal products are equal. 
D) hire capital until its marginal product is negative. 
A) hire capital until its marginal product is zero. 
B) hire labor until another worker costs more to hire than he or she can earn for the firm. 
C) hire the quantities of capital and of labor at which their marginal products are equal. 
D) hire capital until its marginal product is negative.

Question 8

"Rent seeking" describes the search and battle for opportunities to collect economic rents.

Accepted Answer

A) True 
 B)False

Question 9

Each firm's capital stock is fixed in the short run.Therefore, if the price of capital increases, then in the short run the market demand curve for labor in a perfectly competitive market will

Accepted Answer

A) shift inward. 
B) be unaffected. 
C) shift outward. 
D) change slope. 
A) shift inward. 
B) be unaffected. 
C) shift outward. 
D) change slope.

Question 10

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 11

Use the concept of economic rent to explain how rent controls could have an effect quite opposite to the intention.

Accepted Answer

Only economic rent can be taxed away wit

Question 12

Between 1988 and 1989, the price of retail space in Ginza, Tokyo's premier commercial and entertainment center, rose from $400 to $625 per square foot.This was the result of an increase in demand in the face of a perfectly inelastic supply curve for retail space.Economists call this

Accepted Answer

A) monopoly profit. 
B) economic rent. 
C) usury. 
D) marginal revenue product. 
A) monopoly profit. 
B) economic rent. 
C) usury. 
D) marginal revenue product.

Question 13

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 14

Rent-seeking activity by firms

Accepted Answer

A) often wastes economic resources. 
B) increases economic efficiency. 
C) continues even when an industry is in long-run competitive equilibrium. 
D) increases the total amount of economic rent available. 
A) often wastes economic resources. 
B) increases economic efficiency. 
C) continues even when an industry is in long-run competitive equilibrium. 
D) increases the total amount of economic rent available.

Question 15

Capital is appropriately classified as a

Accepted Answer

A) flow. 
B) process. 
C) stock. 
D) growth rate. 
A) flow. 
B) process. 
C) stock. 
D) growth rate.

Question 16

An increase in interest rates decreases the marginal revenue product of investment.

Accepted Answer

A) True 
 B)False

Question 17

What is the relevance of the marginal productivity principle in explaining the use of inputs in production?

Accepted Answer

According to the marginal productivity p

Question 18

Entrepreneurship is the act of starting new firms and taking the risks that are necessary in business opportunities.

Accepted Answer

A) True 
 B)False

Question 19

The demand for borrowed funds is a derived demand.

Accepted Answer

A) True 
 B)False

Question 20

If investment is zero, the capital stock

Accepted Answer

A) continues to flow. 
B) falls to zero. 
C) remains constant. 
D) grows steadily. 
A) continues to flow. 
B) falls to zero. 
C) remains constant. 
D) grows steadily.

Exam 18: Pricing the Factors of Production

Firms should stop borrowing funds

Which is not true of the interest rate?

The derived demand for an input decreases when

A sum of money received at a future date is worth less than the same sum of money received today.Why? Explain this with an example.

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

In 1862, the Homestead Act made land available to farmers at zero cost.Yet many farmers preferred to purchase land along the rail line from the railroad.The farmers

The marginal productivity principle says that a profit-maximizing firm should

"Rent seeking" describes the search and battle for opportunities to collect economic rents.

Each firm's capital stock is fixed in the short run.Therefore, if the price of capital increases, then in the short run the market demand curve for labor in a perfectly competitive market will

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

Use the concept of economic rent to explain how rent controls could have an effect quite opposite to the intention.

Between 1988 and 1989, the price of retail space in Ginza, Tokyo's premier commercial and entertainment center, rose from $400 to $625 per square foot.This was the result of an increase in demand in the face of a perfectly inelastic supply curve for retail space.Economists call this

The demand curve for capital is

Rent-seeking activity by firms

Capital is appropriately classified as a

An increase in interest rates decreases the marginal revenue product of investment.

What is the relevance of the marginal productivity principle in explaining the use of inputs in production?

Entrepreneurship is the act of starting new firms and taking the risks that are necessary in business opportunities.

The demand for borrowed funds is a derived demand.

If investment is zero, the capital stock

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

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