Download Foundations of Economics, 3e (Bade/Parkin)

Foundations of Economics, 3e (Bade/Parkin) - Testbank 2
Chapter 18 Demand and Supply in Factor Markets
1) The factors of production are
A) the levels of technology used to produce goods.
B) labor, capital, land, and entrepreneurship.
C) firms.
D) households.
E) wage, interest, rent, and normal profit.
Answer: B
Topic: Factors of production
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: SB
2) Which of the following describes in general the nature of returns to factors of production?
i. Land receives rental payments for the services it provides to production.
ii. Financial capital earns interest.
iii. Labor earns wages and salaries.
A) i only.
B) ii only.
C) iii only.
D) i and iii..
E) i, ii, and iii.
Answer: E
Topic: Factor markets
Skill: Level 2: Using definitions
Objective: Checkpoint 18.1
Author: TS
3) Which of the following are factor prices?
i) rent
ii) entrepreneurship
iii) interest
A) i and ii.
B) ii and iii.
C) i and iii.
D) i, ii, and iii.
E) iii only.
Answer: C
Topic: Factor markets
Skill: Level 2: Using definitions
Objective: Checkpoint 18.1
Author: CD
4) What factor of production does everybody personally own a unit of?
i. labor
ii. capital
iii. land
A) i only.
B) ii only.
C) i and iii.
D) i and ii.
E) i, ii, and iii.
Answer: A
Topic: Labor markets
Skill: Level 2: Using definitions
Objective: Checkpoint 18.1
Author: TS
5) A collection of people and firms who are trading labor services is called
A) human capital.
B) a labor market.
C) a factor price.
D) entrepreneurship.
E) a financial market.
Answer: B
Topic: Labor markets
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: SB
6) Financial capital is traded in which of the following markets?
i. stock market
ii. bond market
iii. commodity market.
A) ii only.
B) i and ii.
C) ii and iii.
D) i, ii, and iii.
E) i only.
Answer: B
Topic: Financial capital
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: CD
7) How do stocks and bonds differ?
A) They do not differ because they both entitle the owner to a share of the firm's profit.
B) A share of stock represents a loan to a firm while bonds entitle the owner to a share of the firm's profit.
C) They are different ways to loan funds to companies.
D) Bonds are traded in financial markets while stocks are not.
E) None of these describe the difference between stocks and bonds.
Answer: E
Topic: Stocks and bonds
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: TS
8) If you buy a share in the stock of a company, you
A) will receive specified amounts of money on specified dates.
B) are on the demand side of a financial market.
C) are entitled to a share in the profits of the company.
D) are on the demand side of a goods market.
E) are entitled to receive payments of rent on the share from the company.
Answer: C
Topic: Stocks
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: SB
9) The factor price for capital is
A) wage.
B) rent.
C) economic profit.
D) interest.
E) normal profit.
Answer: D
Topic: Financial market
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: SB
10) In a financial market, firms
A) are the suppliers and savers are the demanders.
B) are the demanders and savers are the suppliers.
C) and savers are both on the supply side.
D) and savers are both on the demand side.
E) are the suppliers and governments are the demanders.
Answer: B
Topic: Financial market
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: SB
11) In the bond market, ____ are the suppliers and ____ are the demanders of financial capital.
A) savers; firms
B) firms; savers
C) human capital; firms
D) entrepreneurs; human capital
E) governments; firms
Answer: A
Topic: Financial market
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: CD
12) How are financial markets related to resource markets?
A) Firms borrow funds in financial markets to purchase physical capital.
B) Financial markets generate funds that are used to hire labor.
C) The interest rate in financial markets determines labor's wage rate.
D) The interest rate in financial markets must equal the rental rate in land markets.
E) They are not related because financial and resource markets are completely independent.
Answer: A
Topic: Financial market
Skill: Level 2: Using definitions
Objective: Checkpoint 18.1
Author: TS
13) Raw materials (such as metal ores, oil, and natural gas) are traded in a
A) commodity market.
B) labor market.
C) capital market.
D) goods market.
E) bond market.
Answer: A
Topic: Commodity markets
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: SB
14) Commodity markets are the markets where ____ traded.
A) stocks are
B) bonds are
C) financial capital is
D) raw materials are
E) labor is
Answer: D
Topic: Commodity markets
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: CD
15) The four factors of production that produce goods and services are
A) labor, capital, profits, and entrepreneurship.
B) money, labor, rent, and profit.
C) labor, capital, land, and entrepreneurship.
D) wages, interest, rent, and profit.
E) wages, prices, quantities, and employment.
Answer: C
Topic: Factors of production
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: STUDY GUIDE
16) Individuals that create firms and hire labor, capital, and land in factor markets are called
A) politicians.
B) bureaucrats.
C) exploiters.
D) entrepreneurs.
E) capital workers.
Answer: D
Topic: Entrepreneurship
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: STUDY GUIDE
17) The wage paid to labor is
A) a factor output.
B) a factor price.
C) a factor input.
D) an input of the workforce.
E) part of the firm's normal profit.
Answer: B
Topic: Labor markets
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: STUDY GUIDE
18) ____ capital consists of the funds that firms use to buy and operate capital.
A) Human
B) Physical
C) Financial
D) Logistical
E) Actual
Answer: C
Topic: Financial capital
Skill: Level 1: Definition
Objective: Checkpoint 18.1
Author: STUDY GUIDE
19) Which of the following would be traded in the commodity market?
A) 1,200 shares of Coca-Cola stock
B) bonds issued by Cisco
C) interest-bearing securities of the federal government
D) petroleum
E) labor
Answer: D
Topic: Commodity markets
Skill: Level 2: Using definitions
Objective: Checkpoint 18.1
Author: STUDY GUIDE
20) What is meant by derived demand?
A) The demand is derived from income, tastes, etc. of sellers.
B) The demand for a resource is derived from the demand for what it can produce.
C) The demand is derived from the price elasticity of demand.
D) The demand exists because the government mandates production of the good.
E) The demand for a good is derived from the supply of the good.
Answer: B
Topic: Derived demand
Skill: Level 2: Using definitions
Objective: Checkpoint 18.2
Author: TS
21) Which of the following factors have a derived demand?
i) labor
ii) capital
iii) raw materials
A) i and ii.
B) ii and iii.
C) i and iii.
D) i, ii, and iii.
E) i only.
Answer: D
Topic: Derived demand
Skill: Level 2: Using definitions
Objective: Checkpoint 18.2
Author: CD
22) If the demand for a good increases, the demand for the factors used to produce the good
A) increases.
B) decreases.
C) stays the same.
D) could increase, decrease, or stay the same depending on whether the demand for the good is elastic,
inelastic, or unit elastic.
E) None of the above answers is correct.
Answer: A
Topic: Derived demand
Skill: Level 2: Using definitions
Objective: Checkpoint 18.2
Author: SB
23) The value of marginal product is calculated by multiplying the ____ by the ____.
A) quantity of labor; wage rate
B) total product; wage rate
C) marginal product; price of the product
D) wage; price of the product
E) marginal product; wage rate
Answer: C
Topic: Value of marginal product
Skill: Level 1: Definition
Objective: Checkpoint 18.2
Author: SB
24) As the quantity of land used increases, its value of marginal product
A) increases.
B) decreases.
C) remains constant.
D) might increase, decrease, or remain constant depending if the rent for the land rises, falls, or does not
change.
E) The premise of the question is wrong because land does not have a value of marginal product.
Answer: B
Topic: Value of marginal product
Skill: Level 4: Applying models
Objective: Checkpoint 18.2
Author: SB
25) The table above shows a the total product schedule of Piece a' Pi, a producer of pizza in a nearby college
town. Suppose workers are paid $10 per hour and the price per pizza is $10. The marginal product of the
third worker is
A) 5 pizzas per hour.
B) 17 pizzas per hour.
C) $220 per hour.
D) 7 1/3 pizzas per hour.
E) None of the above answers is correct.
Answer: A
Topic: Value of marginal product
Skill: Level 4: Applying models
Objective: Checkpoint 18.2
Author: CD
26) The table above shows a the total product schedule of Piece a' Pi, a producer of pizza in a nearby college
town. Suppose workers are paid $12 per hour and the price per pizza is $10. The value of marginal product
of the fourth worker is ____ per hour
A) $240
B) $220
C) $20
D) $12
E) $24
Answer: C
Topic: Value of marginal product
Skill: Level 4: Applying models
Objective: Checkpoint 18.2
Author: CD
27) The table above shows a the total product schedule of Piece a' Pi, a producer of pizza in a nearby college
town. Suppose workers are paid $12 per hour and the price per pizza is $10. The value of marginal product
of the fifth worker is ____ per hour
A) $240
B) $220
C) $24
D) $10
E) $12
Answer: D
Topic: Value of marginal product
Skill: Level 4: Applying models
Objective: Checkpoint 18.2
Author: MR
28) To decide what quantity of a factor of production to hire, a firm compares the ____ to the ____.
A) factor's output; average factor output
B) factor's price; average factor price
C) factor's price; value of the factor's marginal product
D) factor's output; value of the factor's marginal product
E) factor's price; price of the good or service produced by the firm.
Answer: C
Topic: Profit maximization
Skill: Level 1: Definition
Objective: Checkpoint 18.2
Author: SB
29) A profit-maximizing firm hires labor up to the point where
A) price equals the quantity of labor.
B) price equals the wage.
C) the wage multiplied by the quantity of labor equals the marginal product.
D) the wage equals the value of marginal product.
E) marginal revenue equals the wage.
Answer: D
Topic: Profit maximization
Skill: Level 2: Using definitions
Objective: Checkpoint 18.2
Author: SB
30) If the wage rate exceeds the value of marginal product, a firm
A) is maximizing its profit.
B) can increase its profit by hiring more workers.
C) can increase its profit by firing some workers.
D) can increase its profit by increasing the wage rate and not changing its employment.
E) can increase its profit by increasing the wage rate and increasing its employment.
Answer: C
Topic: Profit maximization
Skill: Level 2: Using definitions
Objective: Checkpoint 18.2
Author: SB
31) A company finds that the value of marginal product for the current level of employment is $53 and the wage
rate is $45. Which of the following is correct?
A) The firm is employing the profit-maximizing quantity of labor.
B) Too much labor is currently employed and the firm will lay off some workers.
C) Too few workers are currently employed and the firm will hire more workers.
D) The firm should shut down and produce nothing.
E) More information about the price of the product is needed to determine if the firm is hiring the profitmaximizing amount of labor.
Answer: C
Topic: Profit maximization
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: TS
32) A company finds that the value of marginal product for the current level of employment is $53 and the wage
rate is $53. Which of the following is correct?
A) The firm is employing the profit-maximizing quantity of labor.
B) Too much labor is currently employed and the firm will lay off some workers.
C) Too few workers are currently employed and the firm will hire more workers.
D) The firm should shut down and produce nothing.
E) More information about the price of the product is needed to determine if the firm is hiring the profitmaximizing amount of labor.
Answer: A
Topic: Profit maximization
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: TS
33) A company finds that the value of marginal product for the current level of employment is $53 and the wage
rate is $75. Which of the following is correct?
A) The firm is employing the profit-maximizing quantity of labor.
B) Too much labor is currently employed and the firm will lay off some workers.
C) Too few workers are currently employed and the firm will hire more workers.
D) The firm should shut down and produce nothing.
E) More information about the price of the product is needed to determine if the firm is hiring the profitmaximizing amount of labor.
Answer: B
Topic: Profit maximization
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: TS
34) A firm's demand for labor curve is also
A) its value of marginal product of labor curve.
B) the demand curve for the good it produces.
C) the supply of labor curve.
D) its marginal cost curve.
E) the supply curve for the good it produces.
Answer: A
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Objective: Checkpoint 18.2
Author: SB
35) Which of the following statements about a firm's demand for labor curve and its value of marginal product
of labor curve is true?
A) The value of marginal product curve slopes upward and the demand for labor curve slopes downward.
B) The demand for labor curve shows the amount of labor firms will hire based on the wage rate while the
value of marginal product curve shows the amount of output supplied based on the wage rate.
C) The value of marginal product curve is steeper than the demand for labor curve.
D) The demand for labor curve is the same as the value of marginal product curve.
E) The value of marginal product curve lies above the demand for labor curve.
Answer: D
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Objective: Checkpoint 18.2
Author: CD
36) The demand for labor curve slopes downward because
A) it takes more workers to produce more output.
B) the value of marginal product diminishes as the quantity of labor employed increases.
C) at lower wages, people are not willing to work as many hours.
D) wages are fixed.
E) the supply of labor curve is upward sloping.
Answer: B
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: SB
37) For a firm selling its product in a perfectly competitive market, the demand curve for a factor of production
is downward sloping because
A) of the diminishing marginal product of the factor.
B) to sell more output the firm must lower the price of its product.
C) firms must hire more factors of production if they want to increase their output.
D) a factor's marginal product increases when the price of the factor increases.
E) None of the above answers is correct.
Answer: A
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: TS
38) If the marginal product of labor increases, a firm's demand for labor curve
A) does not shift and there is no movement along it.
B) shifts leftward.
C) shifts rightward.
D) does not shift but there is a movement along it.
E) might shift leftward or rightward depending on whether the demand for the firm's product is elastic or
inelastic.
Answer: C
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: TS
39) In part, the demand for labor depends on the
A) supply of labor.
B) number of workers available.
C) price of the firm's output.
D) worker's income.
E) wage rate at which the labor supply curve starts to bend backwards.
Answer: C
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Objective: Checkpoint 18.2
Author: SB
40) If the price of the firm's output increases, the demand for labor curve
A) shifts rightward.
B) shifts leftward.
C) remains constant.
D) could shift rightward, leftward, or remain constant.
E) might shift leftward or rightward depending on whether the demand for the firm's product is elastic or
inelastic.
Answer: A
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: SB
41) If the price of a firm's product falls, the firm's demand for labor curve
A) does not shift and there is no movement along it.
B) shifts leftward.
C) shifts rightward.
D) does not shift but there is a movement along it.
E) might shift leftward or rightward depending on whether the demand for the firm's product is elastic or
inelastic.
Answer: B
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: TS
42) If a firm uses new technology that increases its demand for labor, the firm's demand for labor curve
A) shifts leftward.
B) shifts rightward only if the elasticity of demand for labor is elastic.
C) shifts rightward no matter if the elasticity of demand for labor is elastic or inelastic.
D) does not shift but there is a movement along it.
E) shifts rightward only if the elasticity of demand for labor is inelastic.
Answer: C
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: CD
43) If the wage rate increases, a firm's demand for labor curve
A) does not shift and there is no movement along it.
B) shifts leftward.
C) shifts rightward only if the elasticity of demand for labor is elastic.
D) does not shift but there is a movement along it.
E) shifts rightward only if the elasticity of demand for labor is inelastic.
Answer: D
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: TS
44) The price of capital falls. Assuming that the firm does not increase the quantity it produces, the firm's
demand for labor curve
A) does not shift and there is no movement along it.
B) shifts leftward.
C) shifts rightward only if the elasticity of demand for labor is elastic.
D) does not shift but there is a movement along it.
E) shifts rightward only if the elasticity of demand for labor is inelastic.
Answer: B
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: TS
45) If the price of capital falls, under what circumstance could the demand for labor increase?
A) The demand for labor can never increase when the price of capital falls.
B) The demand for labor will always increase when the price of capital falls.
C) It increases if the scale of production increases enough.
D) It increases if the demand for labor is inelastic.
E) None of the above answers is correct.
Answer: C
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: TS
46) If the price of capital rises, the demand for labor
A) definitely increases.
B) definitely decreases.
C) definitely is unaffected.
D) could increase or decrease, depending on the change in the scale of production.
E) changes only if the supply of labor changes.
Answer: D
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: SB
47) Which of the following is a correct statement of the relationship between advances in technology and the
demand for labor?
A) The demand decreases for some types of labor and increases for other types of labor.
B) The demand for labor always decreases when technology advances.
C) The demand for labor always increases when technology advances.
D) Technology advances when the demand for labor advances.
E) None of the above answers is correct.
Answer: A
Topic: Demand for labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.2
Author: TS
48) The demand for labor is derived from the
A) supply of labor.
B) wage rate.
C) supply of the good the labor is used to produce.
D) demand for the goods and services the labor helps produce.
E) supply of all the other factors of production that can be substituted for labor.
Answer: D
Topic: Derived demand
Skill: Level 2: Using definitions
Objective: Checkpoint 18.2
Author: STUDY GUIDE
49) Which of the following is true?
A) The value to a firm of hiring another worker is the worker's value of the marginal product.
B) A firm will hire more workers if the wage rate is greater than the value of the marginal product.
C) The value of the marginal product is the cost of hiring a worker.
D) The value of the marginal product increases as more workers are hired.
E) The value of the marginal product equals the price of the good produced divided by the marginal
product.
Answer: A
Topic: Value of the marginal product
Skill: Level 1: Definition
Objective: Checkpoint 18.2
Author: STUDY GUIDE
50) The value of the marginal product of labor is equal to the marginal product of labor ____ the price of a unit
of output.
A) divided by
B) multiplied by
C) minus
D) plus
E) squared and then multiplied by
Answer: B
Topic: Value of the marginal product
Skill: Level 1: Definition
Objective: Checkpoint 18.2
Author: STUDY GUIDE
51) The rule for maximizing profit is to hire labor up to the point at which the value of the marginal product
A) equals the wage rate.
B) is greater than the wage rate.
C) is less than the wage rate.
D) is a mirror image of the wage rate.
E) equals the price of the product produced.
Answer: A
Topic: Profit maximization
Skill: Level 1: Definition
Objective: Checkpoint 18.2
Author: STUDY GUIDE
52) An increase in the price of the firm's output leads to a
A) movement up along the demand for labor curve.
B) movement down along the demand for labor curve.
C) rightward shift of the demand for labor curve.
D) leftward shift of the demand for labor curve.
E) rightward shift of the supply of labor curve.
Answer: C
Topic: Demand for labor curve
Skill: Level 2: Using definitions
Objective: Checkpoint 18.2
Author: STUDY GUIDE
53) Which of the following statements about the supply of labor is correct?
A) It is perfectly inelastic at whatever quantity individuals are willing to work.
B) An individual's supply of labor curve is always upward sloping, like the supply curves of other items.
C) It is perfectly price elastic at the current wage rate.
D) An individual's supply of labor curve can bend backwards.
E) The supply of labor curve is shaped like an upside-down U.
Answer: D
Topic: Supply of labor, backward bending
Skill: Level 2: Using definitions
Objective: Checkpoint 18.3
Author: TS
54) When wages are low, for an individual an increase in the wage rate generally results in
A) an increase in the quantity of labor supplied.
B) a decrease in the quantity of labor supplied.
C) a rightward shift of the labor supply curve.
D) a leftward shift of the labor supply curve.
E) an increase in the quantity of the individual's labor demanded.
Answer: A
Topic: Supply of labor, backward bending
Skill: Level 2: Using definitions
Objective: Checkpoint 18.3
Author: SB
55) A change in the wage rate
A) shifts the supply of labor curve so that the supply becomes more elastic.
B) shifts the supply of labor curve leftward.
C) shifts the supply of labor curve rightward.
D) does not shift the supply of labor curve but instead leads to a movement along it.
E) either shifts the supply of labor curve leftward or rightward depending whether the demand for labor
curve shifts rightward or leftward.
Answer: D
Topic: Supply of labor curve
Skill: Level 2: Using definitions
Objective: Checkpoint 18.3
Author: TS
56) What is the effect on the supply of low-skilled labor of an increase in the number of people pursuing higher
education?
A) It becomes more inelastic.
B) The supply of low-skilled labor decreases.
C) The supply of low-skilled labor increases.
D) It becomes more elastic.
E) None of the above answers is correct.
Answer: B
Topic: Supply of labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.3
Author: TS
57) When more people remain in school for full-time education and training, the supply of low-skilled labor
____ and the supply of high-skilled labor ____.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Answer: C
Topic: Supply of labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.3
Author: SB
58) A surplus of workers occurs
A) when the wage rate exceeds the equilibrium wage rate.
B) when the wage rate is less than the equilibrium wage rate.
C) at the equilibrium wage rate.
D) whenever there is a shortage of goods.
E) whenever there is a surplus of goods.
Answer: A
Topic: Labor market equilibrium
Skill: Level 2: Using definitions
Objective: Checkpoint 18.3
Author: SB
59) In the labor market, in order for people to benefit from technological change,
A) wages must be held constant.
B) people must acquire new skills and change their jobs.
C) the labor market must be in equilibrium.
D) the number of jobs must be held constant.
E) the supply of labor must not be backward bending.
Answer: B
Topic: Eye on the U.S. economy, reallocating labor
Skill: Level 2: Using definitions
Objective: Checkpoint 18.3
Author: SB
60) An individual's labor supply curve eventually bends backward because, at high wage rates,
A) people are willing to work more hours.
B) employers are willing to hire more workers.
C) people begin to desire more leisure time.
D) very few workers are hired.
E) more people enter the labor market to search for jobs.
Answer: C
Topic: Supply of labor, backward bending
Skill: Level 2: Using definitions
Objective: Checkpoint 18.3
Author: STUDY GUIDE
61) How does an increase in the adult population affect the labor market?
A) The demand for labor will become more inelastic.
B) The supply of labor will decrease.
C) The supply of labor will increase.
D) The demand for labor will decrease.
E) The demand for labor will increase.
Answer: C
Topic: Supply of labor curve
Skill: Level 3: Using models
Objective: Checkpoint 18.3
Author: STUDY GUIDE
62) The supply of labor curve shifts leftward if
A) the population increases.
B) the demand for labor curve shifts leftward.
C) the supply of labor increases.
D) the wage rate falls.
E) the supply of labor decreases.
Answer: E
Topic: Supply of labor curve
Skill: Level 2: Using definitions
Objective: Checkpoint 18.3
Author: STUDY GUIDE
63) If the wage rate is above the equilibrium wage rate, the quantity of labor demanded is ____ the quantity of
labor supplied.
A) greater than
B) less than
C) equal to
D) the negative of
E) not comparable to
Answer: B
Topic: Labor market equilibrium
Skill: Level 2: Using definitions
Objective: Checkpoint 18.3
Author: STUDY GUIDE
64) The more people who remain in school for full-time education and training, the ____ is the ____ low-skilled
labor.
A) smaller; demand for
B) smaller; supply of
C) larger; supply of
D) larger; demand for
E) less elastic; demand for
Answer: B
Topic: Training
Skill: Level 2: Using definitions
Objective: Checkpoint 18.3
Author: STUDY GUIDE
65) The demand for financial capital increases when
A) people's expected future income falls.
B) the interest rate increases.
C) the population increases.
D) the supply of capital increases.
E) people's expected future income rises.
Answer: C
Topic: Demand for financial capital
Skill: Level 2: Using definitions
Objective: Checkpoint 18.4
Author: SB
66) If the population grows, what happens to the demand for financial capital and why?
A) It increases because the demand for all goods and services increases.
B) It decreases because the opportunities for investment are spread over more people.
C) It becomes perfectly elastic with respect to the rate of interest.
D) Nothing happens to the demand because it is the supply that increases.
E) None of the above answers is correct.
Answer: A
Topic: Demand for financial capital
Skill: Level 3: Using models
Objective: Checkpoint 18.4
Author: TS
67) Which of the following statements is (are) correct?
i. Population growth increases the demand for financial capital.
ii. Higher incomes increase the supply of financial capital.
iii. Technological advances decreases the demand for all capital.
A) i only.
B) ii only.
C) ii and iii.
D) i and ii.
E) i, ii, and iii.
Answer: D
Topic: Demand for financial capital
Skill: Level 2: Using definitions
Objective: Checkpoint 18.4
Author: TS
68) If the interest rate decreases, the demand for financial capital curve
A) shifts rightward.
B) shifts leftward.
C) does not shift but there is an upward movement along it.
D) does not shift but there is a downward movement along it.
E) becomes more vertical.
Answer: D
Topic: Demand for financial capital curve
Skill: Level 2: Using definitions
Objective: Checkpoint 18.4
Author: TS
69) A firm is considering purchasing $100,000 of capital. If the value of marginal product of the capital is
estimated at $6,000 per year, what is the maximum annual interest rate the firm is willing to pay for the
financial capital to fund this purchase?
A) 10 percent
B) 6 percent
C) 5 percent
D) 4 percent
E) 3 percent
Answer: B
Topic: Demand for financial capital curve
Skill: Level 4: Applying models
Objective: Checkpoint 18.4
Author: SB
70) Which of the following occurs when the interest rate rises?
i. current consumption is reduced
ii. a larger amount is saved
iii. there is less borrowing to purchase physical capital
A) ii only.
B) i, and ii.
C) ii and iii.
D) i and iii.
E) i, ii, and iii.
Answer: E
Topic: Demand and supply of financial capital
Skill: Level 2: Using definitions
Objective: Checkpoint 18.4
Author: TS
71) The amount of an individual's saving
A) is fairly constant over his or her lifetime.
B) reaches a maximum during the retirement years.
C) peaks in middle age.
D) is high when the person is young.
E) is at its lowest amount in middle age and during retirement.
Answer: C
Topic: Supply of financial capital
Skill: Level 1: Definition
Objective: Checkpoint 18.4
Author: SB
72) Which of the following decreases the supply of financial capital?
A) an increase in population
B) the expectation that future incomes will be higher than present incomes
C) an increase in the interest rate
D) an increase in the average income
E) a decrease in investment
Answer: B
Topic: Supply of financial capital
Skill: Level 2: Using definitions
Objective: Checkpoint 18.4
Author: SB
73) Which of the following statements about the U.S. financial markets is true?
A) Interest rates do not fluctuate very much.
B) The supply of capital fluctuates more than the demand for capital.
C) The return on stocks fluctuates more than the interest rate on bonds.
D) Bonds have a higher return than stocks.
E) The average return on bonds is almost precisely equal to the average return on stocks.
Answer: C
Topic: Eye on the U.S. economy, interest rate fluctuations
Skill: Level 2: Using definitions
Objective: Checkpoint 18.4
Author: SB
74) The demand for financial capital stems from a firm's
A) need to pay for benefits.
B) requirement to pay its wages.
C) demand for physical capital.
D) demand for labor.
E) supply of physical capital.
Answer: C
Topic: Demand for financial capital
Skill: Level 2: Using definitions
Objective: Checkpoint 18.4
Author: STUDY GUIDE
75) When the interest rate falls, the ____ financial capital ____.
A) demand for; increases
B) demand for; decreases
C) quantity demanded of; increases
D) quantity demanded of; decreases
E) supply of; increases
Answer: C
Topic: Demand for financial capital
Skill: Level 2: Using definitions
Objective: Checkpoint 18.4
Author: STUDY GUIDE
76) The quantity of financial capital supplied results from people's ____ decisions.
A) saving
B) spending
C) investing
D) employment
E) labor supply
Answer: A
Topic: Supply of financial capital
Skill: Level 1: Definition
Objective: Checkpoint 18.4
Author: STUDY GUIDE
77) The higher the interest rate, the
A) more incentive people have to consume.
B) less incentive people have to save.
C) higher the opportunity cost of current consumption.
D) lower the opportunity cost of current consumption.
E) larger the demand for investment.
Answer: C
Topic: Supply of financial capital
Skill: Level 2: Using definitions
Objective: Checkpoint 18.4
Author: STUDY GUIDE
78) If a household's current income is ____ and its expected future income is low, it will have ____.
A) zero; a high level of saving
B) high; a negative level of saving
C) high; no saving
D) high; a high level of saving
E) low but not zero; a high level of saving
Answer: D
Topic: Supply of financial capital
Skill: Level 2: Using definitions
Objective: Checkpoint 18.4
Author: STUDY GUIDE
79) Which of the following is a renewable resource?
i) a forest of pine trees grown by Georgia-Pacific
ii) oil reserves in Saudi Arabia
iii) the Everglades
A) i and ii.
B) ii and iii.
C) i and iii.
D) i, ii, and iii.
E) i only.
Answer: C
Topic: Natural resources
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: CD
80) Considered as a factor of production, coal is a
A) form of physical capital.
B) type of embodied labor.
C) nonrenewable natural resource.
D) renewable natural resource.
E) form of financial capital.
Answer: C
Topic: Natural resources
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: SB
81) The aggregate quantity of land supplied
A) varies depending on its price.
B) depends on the buying and selling decisions of individuals.
C) is constantly increasing.
D) is fixed.
E) is perfectly elastic.
Answer: D
Topic: Market for land, supply
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: SB
82) The market for land
A) has an elastic supply.
B) has an perfectly inelastic supply.
C) determines the equilibrium interest rate.
D) has an upward sloping supply curve.
E) has no equilibrium because both the demand curve and the supply curve are vertical.
Answer: B
Topic: Market for land, supply
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: CD
83) The supply of land is perfectly ____ because no matter the amount of rent offered for land, the quantity of
land is ____.
A) elastic; fixed
B) inelastic; fixed
C) elastic: renewable
D) inelastic; nonrenewable
E) elastic; nonrenewable
Answer: B
Topic: Market for land, supply
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: CD
84) In the market for land, the supply curve is
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
E) U-shaped.
Answer: D
Topic: Market for land, supply
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: SB
85) In the market for land, an increase in demand
A) increases the rent.
B) decreases the rent.
C) increases the quantity.
D) decreases the quantity.
E) has no effect on the rent and no effect on the quantity.
Answer: A
Topic: Market for land
Skill: Level 3: Using models
Objective: Checkpoint 18.5
Author: SB
86) Economic rent is the
A) price of land.
B) income received by any factor of production above the amount required to induce a given quantity
supplied.
C) economic term for the dollars paid for the use of a renewable natural resource.
D) profit associated with land use.
E) income earned by any factor that has a perfectly elastic supply.
Answer: B
Topic: Economic rent
Skill: Level 1: Definition
Objective: Checkpoint 18.5
Author: SB
87) Which of the following is correct?
A) Economic rent is the return to a factor of production that has perfectly inelastic supply.
B) The equilibrium land rent is determined by a downward-sloping demand curve and an upwardsloping supply curve.
C) If the rent falls, the quantity of land supplied will decrease.
D) A decrease in the demand for land increases the equilibrium rent.
E) If a factor has a perfectly elastic supply, then all its income is economic rent.
Answer: A
Topic: Economic rent
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: TS
88) Which of the following resources can receive economic rent?
i) land.
ii) labor.
iii) capital.
A) i only.
B) i and ii.
C) ii only.
D) i, ii, and iii.
E) i and iii.
Answer: D
Topic: Economic rent
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: CD
89) Economic rent earned by an entertainer or sports star is
A) equal to the person's opportunity cost.
B) a payment above the opportunity cost of the individual.
C) untaxed income.
D) equal to the person's factor income.
E) None of the above answers is correct.
Answer: B
Topic: Economic rent
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: TS
90) Over time, the price of a nonrenewable natural resource
A) falls.
B) rises.
C) stays the same.
D) could rise, fall, or stay the same.
E) first rises and then falls.
Answer: D
Topic: Natural resources prices
Skill: Level 3: Using models
Objective: Checkpoint 18.5
Author: SB
91) A natural resource is renewable if it
A) never has to rest.
B) can be used repeatedly.
C) cannot be replaced once it has been used.
D) is available at a price of zero.
E) has a perfectly elastic supply.
Answer: B
Topic: Natural resources
Skill: Level 1: Definition
Objective: Checkpoint 18.5
Author: STUDY GUIDE
92) Oil is an example of
A) a nonrenewable natural resource.
B) a renewable natural resource.
C) physical capital.
D) a resource for which the true value of the resource cannot be measured.
E) a resource with a perfectly inelastic demand.
Answer: A
Topic: Natural resources
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: STUDY GUIDE
93) The supply of each particular block of land is
A) perfectly elastic.
B) unit elastic.
C) elastic but not perfectly elastic.
D) perfectly inelastic.
E) inelastic but not perfectly inelastic.
Answer: D
Topic: Market for land, supply
Skill: Level 2: Using definitions
Objective: Checkpoint 18.5
Author: STUDY GUIDE
94) Economic rent is the income over and above
A) opportunity cost.
B) average cost.
C) factor income.
D) marginal cost.
E) variable cost.
Answer: A
Topic: Economic rent
Skill: Level 1: Definition
Objective: Checkpoint 18.5
Author: STUDY GUIDE
95) The income required to induce the supply of a given quantity of a factor of production is its
A) value of the marginal product.
B) marginal cost.
C) opportunity cost.
D) economic rent.
E) economic profit.
Answer: C
Topic: Opportunity cost
Skill: Level 1: Definition
Objective: Checkpoint 18.5
Author: STUDY GUIDE