Pricing The Factors Of Production Test Bank Docx Chapter 18 - Microeconomics Principles and Policy 14e | Test Bank by Baumol by William J. Baumol. DOCX document preview.
Indicate whether the statement is true or false. |
1. Economic rent is the payment made to a factor of production above the amount necessary to induce any of that factor to be supplied at its present employment.
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2. The change in the capital stock is the return on investment.
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3. A change in the interest rate changes the demand for loanable funds.
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4. Economic rent is a payment for a factor of production that elicits an increase in the quantity supplied.
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5. The marginal revenue product of an input is the marginal physical product times the price per unit of output under perfect competition.
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6. The marginal productivity principle has some relevance to organizing production in a socialist society.
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7. Innovation is the act of putting an invention to practical use.
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8. A sum of money to be received in the future is worth more than a sum of money today.
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9. The theory of factor pricing uses supply-demand analysis.
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10. A profit-maximizing firm will hire inputs until MRP = P of the input.
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11. “Rent seeking” describes the search and battle for opportunities to collect economic rents.
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12. As interest rates rise, more and more investments become profitable for a firm.
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13. If marginal revenue product is less than price of the input, the firm should use more of the input.
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14. The theory of economic rent can be used to explain high incomes received by movie stars and athletes.
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15. Discounted cash flows shows that dollars received now are worth less than dollars received in the future.
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16. An increase in interest rates decreases the marginal revenue product of investment.
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17. Usury laws are designed to ensure that interest rates in the market do not exceed acceptable norms.
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18. One major fault with factor pricing analysis is that marginal productivity theory merely attempts to justify the income distribution that the capitalist system yields.
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19. On the surface, Usury laws are designed to protect consumers from exorbitant interest rates.
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20. Marginal land can be defined as land that earns neither profits nor losses.
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21. The supply curve for land is perfectly elastic.
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22. Interest is the payment for the use of funds used to produce capital.
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23. The marginal productivity principle has relevance only in a capitalist economy, and not in a socialist system.
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24. An increase in price for an output good decreases the quantity demanded for input factors.
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25. The distribution of income in a market economy is determined by the minimum wage laws.
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26. MRP represents what the marginal physical product is worth.
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27. Discounting or computing present value is a way of comparing dollar values that will appear at different points in time.
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28. Usury laws interfere with the automatic workings of the market mechanism.
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29. The price for loanable funds is the interest rate.
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30. The demand for borrowed funds is a derived demand.
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31. Entrepreneurship is the act of starting new firms and taking the risks that are necessary in business opportunities.
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32. The marginal productivity principle demonstrates that distribution under a capitalist system is ethically valid.
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33. As the rate of interest on borrowed funds increases, the quantity of investment funds demanded diminishes.
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34. If the credit market is close to being a competitive market, an interest rate ceiling imposed by usury laws will bring misallocations of resources.
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35. Marginal land is land that is not worth anything under any circumstances.
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36. Invention is the act of generating a new idea.
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37. An inward shift of the demand curve for a product causes outward shifts in the demand curves for all the factors used to produce the product.
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38. The quantity demanded of an input normally rises as its price rises.
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39. When the interest rate is higher, the difference between the value of money today and tomorrow is smaller.
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40. MPP is the additional output that results from a one-unit increase in use of the input.
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41. Profit is the return to entrepreneurship.
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42. Economic rent is the minimum payment necessary to induce any of the factor to be supplied.
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43. Investment is a flow of resources into the production of new capital.
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44. Innovation is the act of generating an idea for a new product.
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45. Economic rent refers to profit derived from owning real estate.
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46. In general, the quantity of savings supplied to be used for lending increases with the rate of interest.
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47. The derived demand curve for an input is the MPP curve.
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48. Demand for an input is derived from the demand for the final product.
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49. Price ceilings can be used to lower usurious interest rates.
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50. The demand curve for any input is the downward-sloping portion of its marginal revenue product curve.
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51. Economic rent is paid only to land, and not to other resources.
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52. The marginal productivity theory is irrelevant to organizing production in a socialist society.
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53. Corporate profits account for the largest portion of U.S. national income.
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54. The derived demand for borrowed funds has the characteristic negative slope of any demand curve.
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55. The difference in values between money today and money in the future is lower when the rate of interest is higher.
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56. Economists consider rent seeking activity to be highly productive.
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57. Capital is a flow of resources into the production of investment goods.
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58. High profits in some risky industries attract additional entrepreneurs to those industries.
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59. The rate of interest is the price at which money is borrowed and loaned.
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60. Marginal land is on the borderline of being used in production.
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61. Economic rent is the amount of money above and beyond that necessary to keep the factor of production employed where it is.
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62. Almost all of the rent that tenants pay to landlords of apartments buildings is economic rent.
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63. Capital refers to an inventory or a stock of productive equipment and machines.
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Indicate the answer choice that best completes the statement or answers the question. |
64. If mining companies are indifferent between operating and not operating a quarry, that quarry is
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65. Marginal land is land on the borderline of
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66. Which is not a criticism of the marginal productivity theory of distribution?
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67. The demand curve for a factor is that part of the MRP where marginal product is
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68. Suppose the marginal physical product of labor at a shoe string factory is 1,500 shoestrings per hour at 80 hours, 1,200 per hour shoestrings at 90 hours, 800 shoestrings per at 100 hours, and 300 shoestrings per hour at 110 hours. If a shoestring maker’s wages are $60 per hour and each string sells for $0.05. What is the optimal use of labor for making shoestrings?
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69. Consider four parcels of peanut growing land. The nonland peanut production costs are $1,000 for Parcel A, $1,200 for Parcel B, $1,600 for Parcel C, and $1,700 for Parcel D. If, before rents are charged, farmers are indifferent between planting on Parcel, then which of the following is true?
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70. If investment is zero, the capital stock
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71. An increase in rent will ordinarily lead to
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72. If the rate of interest increases, firms will most likely respond by
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73. Critics of the huge net returns on, for example, oil production will claim that the returns are
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74. As interest rates increase,
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75. Investment is the amount by which ____ grows.
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76. Suppose that a community seeks to preserve air quality, and zones a “green belt” around the city, which prevents property development within the belt. What is the most likely result of this law?
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77. Discounting allows comparisons of
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78. At the Trolley House bar even the worst bartender makes $50 in tips a night, but most make $100. Tom, however, is the rare bartender who do fancy tricks with the bottles and make snazzy jokes. Tome earns $250 in tips per night. Tom’s economic rent is
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79. At high levels of interest, borrowers will borrow ____ and suppliers will supply ____.
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80. Rent-seeking activity by firms
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81. If a ton of steel sells for $15,000 and a car made from a ton of steel sells for $30,000, then if all markets are perfectly competitive, how many cars can be made from the last ton of steel used by a profit-maximizing firm?
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82. Which of the following would be classified as an innovation?
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83. If factor markets are competitive, a profit maximizing firm should buy inputs where MRP is
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84. 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
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85. Which is not a reason the demand curve for loanable funds slopes down?
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86. The marginal productivity principle says that a profit-maximizing firm should
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87. The equilibrium rent for marginal land
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88. In the United States, the money for loans to businesses comes mainly from
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89. A landlord will supply his or her land for rental only if in equilibrium
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90. The distinguishing feature of the land market is that the
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91. 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?
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92. Demand for inputs is a derived demand because
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93. A ceiling on interest rates is likely to lead to
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94. The marginal productivity principle implies that
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95. 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.
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96. No economist today would claim that
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97. Which is not a reason Usury laws are often politically popular?
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98. Capital is the
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99. The marginal productivity theory of distribution holds that
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100. A lottery promises a $250,000 prize. But the prize money is paid out in $50,000 annual installments with the first installment received today. The winner is offered the option of an immediate lump-sum payment. If the interest rate remains at 10 percent for the entire period, what is the smallest amount the winner should accept?
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101. Invention is the discovery of a new process or idea. Innovation is
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102. The three major sources of economic profit are
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103. The one feature of capital that makes it unlike most inputs is that
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104. The theory of land rent holds that
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105. It is not true of economic profits that they
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106. Rent seeking
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107. If the demand for land shifts upward, rents will be
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108. Which is not an example of rent seeking?
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109. A tax on accounting profits in an industry
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110. If savers do not have fixed savings goals, the supply curve of loanable funds will generally be
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111. Rent is defined as
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112. Which of the following is not true about marginal revenue product?
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113. Suppose maple syrup is illegal in the country of Pancake. If there are two ways to smuggle maple syrup into Pancake: one through overland and one by sea. If the proud Pancakian coast guard is able to arrest all who attempt to smuggle syrup by sea, what would the theory of rent predict?
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114. The windfall profits tax on oil will curtail oil production if
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115. In a free market for rental housing, the average rental rate
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116. Regulations to prevent Usury are meant to
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117. In a free market for rental housing, effective rent control would have which effect?
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118. Innovation is
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119. Which of the following is not true of derived demand?
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120. 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
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121. 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
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122. Steph Curry loves playing basketball so much that he would be willing accept a salary that simply keeps him housed and fed. But because his skills are so rare, professional basketball teams will compete to pay him tens of millions of dollars to play for them. These tens of millions of dollars are
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123. Which factor of production receives the greatest share of the U.S. national income?
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124. An example of an investment is
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Figure 19-2  |
125. In Figure 19-2, the derived demand curve is the line
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126. According to the principle of marginal productivity, if
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127. Marginal physical product is
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128. Which of the following statements is correct?
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129. A ptomaine poisoning scare causes a decrease in the demand for canned tuna fish. Everything else equal, the demand curve for aluminum cans will
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130. An employer would never operate on the upward-sloping part of an MRP curve because
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131. Putting new ideas to work is called
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132. Which of the following is not a result of the theory of land rent?
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133. The derived demand curve for loans slopes downward because as interest rates
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134. If interest rates fall,
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135. Firms should stop borrowing funds
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136. In 2017, corporate profits were about ____ percent of national income.
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137. A “single tax” on land was proposed in the nineteenth century by
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138. Demand for labor is
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139. The demand for borrowed funds is
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140. Changes in the economic rent paid to land
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141. A recent decline in interest rates made home construction more affordable for many families. The consequent increase in construction produced a rightward shift in the demand curves for construction materials. Economists would say that the change in demand for materials is due to
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142. The rent earned on marginal land is
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143. Which is not true of the interest rate?
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144. The interest rate is the
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145. 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. This means that Mr. Paque’s (i) overall productivity has fallen; (ii) marginal product has fallen.
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146. Suppose that one could determine the amount of income that is pure economic rent. If a law were passed that taxed 50 percent of that rent, what would happen to the amount of work that people perform?
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147. If the interest rate is positive, the present value of $10 to be received in the future is
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148. California passed a law called “Proposition 2 ½” that limited property taxes to 2.5 percent of property value. Naturally this reduced taxes on many properties, and apartment landlords had more money at the end of the year at given rents. This windfall could be called an economic rent only if
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149. On January 1, 2010, a homeowner borrowed $5,000 for a term of six months to complete some home improvements, paying an annual interest rate of 8 percent. How much principal and interest will the homeowner pay back on July 1, 2010?
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150. An increase in land rents
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151. A certain machine will last one year, will produce $120 in income (received one year later), and will cost $100. The lowest interest rate at which this investment will be unprofitable is
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152. Which of the following activities is most likely to be considered rent seeking?
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153. Firms will borrow to finance capital expansion until the MRP of the investment equals the
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154. Capital is to investment as
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155. The difference between the cost of production on a piece of land less the cost of production on marginal land is called
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156. Owners of buildings can expect to collect ____ economic rent in the long run.
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157. Suppose that nineteenth-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
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158. Entrepreneurship is
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159. Suppose that the rate of interest increases. What will happen to the discounted present value of an investment?
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160. Under the marginal productivity principle,
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161. The derived demand for an input decreases when
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162. Marginal productivity analysis shows that a drop in the price of the product will cause input use to
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163. Suppose Billy runs a baseball team but has far less money to pay players than other teams. So he figures out how to find overlooked players who are worth more than other teams realize. Billy pays these players less than other teams would be willing to pay if they knew how good they were. As a result, Billy’s team wins a lot of games without spending much on players. Which of the following is likely not true?
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164. If the demand for softballs increases, one could expect the demand for leather to increase. This is attributable to the
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165. When a few rival groups spend money in competition for a license that grants them a monopoly for the provision of cable TV for an area, economists label this activity
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166. Marginal land is land
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167. 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
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168. In a competitive market for Sardines, if Mama Jessica’s chain of pizza restaurants decides to support hard-working sardine fishers by paying 15 percent above market price, what would the theory of economic rent predict?
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169. A usury ceiling will be effective depending on
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170. Activist capitalists who seek out or create earnings opportunities and assume risk, for which they receive profits, are called
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171. The economic rent analysis does not apply to any factor
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172. The cost of production on the “bottom forty” is $100,000 for a given size crop. On the “north forty,” due to erosion of the soil, the cost is $150,000. If both are being farmed by tenants, we would expect the rent on the “bottom forty” to be
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173. A firm should make an investment only if
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174. Changes in market rents are mainly determined by changes in
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175. Capital is defined as
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176. Which of the following is not true of Usury laws that set maximum interest rates?
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177. Usury laws typically regulate
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178. Interest is the payment for the use of
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179. Ms. Dunlap has just won the big bingo prize. She has two options for receiving her prize. She can either take a $1,050 now or two installments of $550, one now and one next year. At what interest rate would the two payments be equivalent?
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180. The loan supply curve has a positive slope
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181. Land rents account for nearly
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182. What involves taking the risks that are necessary to seek out business opportunities?
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183. Economic rents are earned whenever
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184. The demand curve for loanable funds is downward sloping because
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185. Investments
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186. Which of the following is an example of a change in derived demand?
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187. Which of the following is not held constant along a demand curve for labor by a firm?
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188. Discounting is the process of
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189. Usury laws carry the potential of hurting
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190. If the equilibrium rate of interest would be 10 percent, but the usury law sets 8 percent,
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191. If the interest rate is r (expressed as a decimal number), the present value today of $1 to be received n years from today equals ____.
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192. It is not true of profits that they
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193. In the U.S. economy, labor receives
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194. The distribution of income in a market economy is determined by
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195. Capital is appropriately classified as a
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196. When determination of rent is left to the market,
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197. A sum of money received at a future date
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198. On January 1, 2006, a consumer borrowed $10,000 for a term of one year at an interest rate of 12 percent. How much principal and interest will the consumer pay back on January 1, 2007?
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Figure 19-3  |
199. Which panel in Figure 19-3 represents the case of an effective usury law?
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200. Which of the following is usually a durable good?
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201. Factor demand is based on
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202. Rock Crushers Limited produces smaller rocks from larger rocks. As part of the production process, Rock Crusher Limited takes the below listed actions. Which is a capital investment?
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203. It is true of the demand side of the market for input pricing that
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204. The supply of loanable funds is not
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205. The quantity of loanable funds demanded
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206. Interest payments account for about ___ percent of U.S. national income.
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207. Because the supply of a fixed factor is vertical,
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208. In Japan, the market value of the land is approximately four times that of all the land in the United States, even though Japan is only about the size of California. The most likely explanation for this fact is
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209. The demand curve for capital is
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210. Which factor receives the profit from production?
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211. 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
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212. Distinguish between invention and innovation. |
213. How does the market mechanism distribute income? |
214. The functioning of a market economy is very dependent upon investment for provision of capital and future growth. Describe the process of investment and employment of the created capital in production. |
215. Explain what is meant by “derived demand” as it relates to factors of production. |
216. Use the concept of economic rent to explain how rent controls could have an effect quite opposite to the intention. |
217. List three primary ways in which profits above “normal” levels can be earned. |
218. 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. |
219. What is the relevance of the marginal productivity principle in explaining the use of inputs in production? |
220. What is the distinction between innovation and invention? |
221. How can bonuses to exceptional employees be considered economic rents? |
222. Why is the supply of loanable funds often relatively inelastic with respect to interest rates? |
223. Explain how usury laws can distort the market for funds. What is the most likely result if a usury law is passed and enforced? |
224. Define the following terms briefly and concisely and indicate their importance to the study of economics. a. Entrepreneurship b. Investment c. Capital d. Innovation e. Discounting |
225. If a small firm wishes to pay cash in one year for a $10,000 machine, how much must the firm currently place in savings at 5 percent in order to have the necessary total cash in one year? |
226. Explain how to derive the demand for an input. |
227. If a manager has determined that a particular piece of capital is likely to increase the cash flow of a business by $10,000 for the next five years, what is the present value of the capital at an interest rate of 10 percent? (Assume that the cash flow first increases one year from today.) |
228. Contrast the shapes of the supply curves for financial capital and land. |
229. Explain the distinction between investment and capital. |
230. What are the factors that contribute to productivity growth in the market economy and which of them is considered most important? |
231. What is the distribution of national income currently among the owners of the factors of production—land, labor, capital, and entrepreneurship? |
232. 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 |
233. Explain the effect of a usury law. |
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Microeconomics Principles and Policy 14e | Test Bank by Baumol
By William J. Baumol