Question 1

Explain the distinction between investment and capital.

Accepted Answer

Investment is the flow of resources into

Question 2

The theory of factor pricing uses supply-demand analysis.

Accepted Answer

A) True 
 B)False

Question 3

All the land in a California valley is owned by one person. The supply of land is fixed and is rented each year to farmers who bid for it in an open auction. Given the rents they must pay, the farmers barely earn subsistence. Sympathy for the poor farmers leads the state to bring in irrigation facilities to raise the productivity of the farms and raise the farmers' income. The most likely outcome is

Accepted Answer

A) the farmers will be better off. 
B) the farmers and the landlord will share the new prosperity. 
C) only the landlord will be better off. 
D) no one will prosper. 
A) the farmers will be better off. 
B) the farmers and the landlord will share the new prosperity. 
C) only the landlord will be better off. 
D) no one will prosper.

Question 4

The quantity demanded of an input normally rises as its price rises.

Accepted Answer

A) True 
 B)False

Question 5

If savers do not have fixed savings goals, the supply curve of loanable funds will generally be

Accepted Answer

A) horizontal. 
B) downward sloping. 
C) vertical. 
D) upward sloping. 
A) horizontal. 
B) downward sloping. 
C) vertical. 
D) upward sloping.

Question 6

Mr. Calhoun owned a worn-out piece of farmland for growing cotton, which he had been unable to rent for years. Suddenly he was getting offers from cotton farmers to lease his land. What is the most likely explanation of this?

Accepted Answer

A) The price of cotton went down. 
B) The physical productivity of the land went up. 
C) Taxes on land went up. 
D) The price of cotton went up. 
A) The price of cotton went down. 
B) The physical productivity of the land went up. 
C) Taxes on land went up. 
D) The price of cotton went up.

Question 7

A change in the interest rate changes the demand for loanable funds.

Accepted Answer

A) True 
 B)False

Question 8

Which factor of production receives the greatest share of the U.S. national income?

Accepted Answer

A) Land 
B) Labor 
C) Capital 
D) Entrepreneurship 
A) Land 
B) Labor 
C) Capital 
D) Entrepreneurship

Question 9

Activist capitalists who seek out or create earnings opportunities and assume risk, for which they receive profits, are called

Accepted Answer

A) rent seekers. 
B) entrepreneurs. 
C) muckrakers. 
D) marginalists. 
A) rent seekers. 
B) entrepreneurs. 
C) muckrakers. 
D) marginalists.

Question 10

What is the present value of an infinite stream of annual payments of $10,000 per year if the first payment is received one year from today? Assume the interest rate is 10 percent.

Accepted Answer

A) $100,000 
B) $1,000,000 
C) $10,000,000 
D) $1,000,000,000 
A) $100,000 
B) $1,000,000 
C) $10,000,000 
D) $1,000,000,000

Question 11

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 12

Factor demand is based on

Accepted Answer

A) marginal productivity theory. 
B) the law of supply. 
C) game theory. 
D) the principle of economies of scale. 
A) marginal productivity theory. 
B) the law of supply. 
C) game theory. 
D) the principle of economies of scale.

Question 13

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 14

In the U.S. economy, labor receives

Accepted Answer

A) the lowest share of income. 
B) the highest share of income. 
C) about a quarter of income. 
D) about three-quarters of income. 
A) the lowest share of income. 
B) the highest share of income. 
C) about a quarter of income. 
D) about three-quarters of income.

Question 15

According to the principle of marginal productivity, if

Accepted Answer

A) the product price is less than MRP, the firm is using too little of the input. 
B) the price of an input rises, the quantity demanded of the input will increase. 
C) MRP is greater than product price, the firm should reduce the use of the input. 
D) price of the input equals MRP, the firm is maximizing profit. 
A) the product price is less than MRP, the firm is using too little of the input. 
B) the price of an input rises, the quantity demanded of the input will increase. 
C) MRP is greater than product price, the firm should reduce the use of the input. 
D) price of the input equals MRP, the firm is maximizing profit.

Question 16

Which of the following statements is correct?

Accepted Answer

A) The demand for capital is derived from the demands for outputs. 
B) The demands for output are derived from the demand for capital. 
C) The demand for capital is derived from the demand for rent. 
D) The demand for rent is derived from the demand for capital. 
A) The demand for capital is derived from the demands for outputs. 
B) The demands for output are derived from the demand for capital. 
C) The demand for capital is derived from the demand for rent. 
D) The demand for rent is derived from the demand for capital.

Question 17

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 18

A ptomaine poisoning scare causes a decrease in the demand for canned tuna fish. Everything else equal, the demand curve for aluminum cans will

Accepted Answer

A) become steeper. 
B) become flatter. 
C) fall. 
D) rise. 
A) become steeper. 
B) become flatter. 
C) fall. 
D) rise.

Question 19

Which of the following is not true about marginal revenue product?

Accepted Answer

A) It shows the value of the marginal physical product. 
B) It is the marginal physical product times price of the product under perfect competition. 
C) It is the marginal physical product times marginal revenue. 
D) It shows the marginal costs of inputs. 
A) It shows the value of the marginal physical product. 
B) It is the marginal physical product times price of the product under perfect competition. 
C) It is the marginal physical product times marginal revenue. 
D) It shows the marginal costs of inputs.

Question 20

Define the following terms and explain their importance to the study of economics. 
a. Principle of marginal productivity 
b. Marginal physical product 
c. Marginal revenue product 
d. Derived demand 
e. Economic rent

Accepted Answer

a. The marginal productivity principle s

Exam 18: Pricing the Factors of Production

Explain the distinction between investment and capital.

The theory of factor pricing uses supply-demand analysis.

The quantity demanded of an input normally rises as its price rises.

If savers do not have fixed savings goals, the supply curve of loanable funds will generally be

Mr. Calhoun owned a worn-out piece of farmland for growing cotton, which he had been unable to rent for years. Suddenly he was getting offers from cotton farmers to lease his land. What is the most likely explanation of this?

A change in the interest rate changes the demand for loanable funds.

Which factor of production receives the greatest share of the U.S. national income?

Activist capitalists who seek out or create earnings opportunities and assume risk, for which they receive profits, are called

What is the present value of an infinite stream of annual payments of $10,000 per year if the first payment is received one year from today? Assume the interest rate is 10 percent.

Capital is appropriately classified as a

Factor demand is based on

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

In the U.S. economy, labor receives

According to the principle of marginal productivity, if

Which of the following statements is correct?

Rent-seeking activity by firms

A ptomaine poisoning scare causes a decrease in the demand for canned tuna fish. Everything else equal, the demand curve for aluminum cans will

Which of the following is not true about marginal revenue product?

Define the following terms and explain their importance to the study of economics. a. Principle of marginal productivity b. Marginal physical product c. Marginal revenue product d. Derived demand e. Economic rent

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

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

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

Filters