5) Which of the following is true about the market for capital?
A) The demand for capital curve is upward sloping and the supply of capital curve is downward
sloping.
B) The supply of capital is perfectly elastic.
C) The supply of capital curve is upward sloping and the demand for capital curve is downward
sloping.
D) The supply of capital curve is vertical and the demand for capital curve is downward sloping.
E) None of the above answers is correct.
6) Land
A) is a nonrenewable resource.
B) has an elastic supply but not perfectly elastic.
C) is the only factor of production that is not traded in a market.
D) has a perfectly inelastic supply.
E) has a perfectly elastic supply.
7) 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
8) 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.
9) The rental rate of land is the payment for the resource land. The lower the rental rate, the
greater the
A) demand for land.
B) quantity demanded of land.
C) supply of land.
D) elasticity of supply for land.
E) quantity supplied of land.
10) If the supply of a factor is perfectly inelastic, then
A) no more than the existing quantity can be supplied.
B) the supply curve is horizontal.
C) sellers will provide whatever quantity is demanded at the going price.
D) a rise in price results in no quantity being supplied.
E) a fall in price results in no quantity being supplied.
11) 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.
12) The market for land
A) has an elastic supply.
B) has a 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.
13) 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
14) In the market for land, the supply curve is
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
E) U-shaped.
15) As the price of land rises, the quantity supplied
A) increases.
B) decreases.
C) at first increases and then decreases.
D) stays the same.
E) at first decreases and then increases.
16) In the market for land, an increase in demand ________ the equilibrium rent and ________
the equilibrium quantity.
A) raises; does not change
B) lowers; increases
C) raises; increases
D) does not change; increases
E) does not change; does not change
17) The supply of nonrenewable natural resources is
A) perfectly inelastic.
B) perfectly elastic.
C) always elastic but not necessarily perfectly elastic.
D) inelastic at high prices and elastic at low prices.
E) elastic at high prices and inelastic at low prices.
18) The proposition that the price of a resource is expected to rise at a rate equal to the interest
rate is called the
A) Discounted Value Proposition.
B) derived demand for productive resources.
C) diminishing marginal revenue product.
D) Interest Rate Theory.
E) Hotelling Principle.
19) According to the Hotelling Principle, the price of an nonrenewable resource is expected to
A) fall slowly over time.
B) fall at a rate equal to the interest rate.
C) fluctuate randomly.
D) rise at a rate equal to the interest rate.
E) remain constant over time.
20) The price of an nonrenewable resource is expected to rise at a rate equal to the
A) rate of supply.
B) rate of population growth.
C) rate of technological change.
D) rate of demand.
E) interest rate.
21) According to the Hotelling Principle, the price of a nonrenewable resource is expected to
A) rise at a rate higher than the interest rate.
B) fall at a rate greater than the interest rate.
C) rise at a rate less than the interest rate.
D) rise at a rate equal to the interest rate.
E) fall at a rate equal to the interest rate.
22) If a nonrenewable natural resource’s price is expected to increase at a rate faster than the
interest rate, then the
A) owners will sell all that they can today.
B) owners will sell nothing today.
C) consumers will demand nothing today.
D) owners will sell their entire supply.
E) the current price will probably fall.
23) If Saudi Arabia expects the price of oil to rise by a larger percentage than the interest rate,
Saudi Arabia will ________. If Saudi Arabia expects the price of oil to rise by a smaller
percentage than the interest rate, Saudi Arabia will ________.
A) hold oil off the market; want to sell oil today
B) want to sell oil today; hold oil off the market
C) decrease its demand for oil; increase its demand for oil
D) increase its demand for oil; decrease its demand for oil
E) None of the above answers are correct because the interest rate has nothing to do with Saudi
Arabia’s decisions in the oil market.
24) The price of coal is currently $80 per ton and the interest rate is 10 percent per year. If next
year’s expected price is $86 per ton, a firm that owns 1,000 tons of coal
A) will sell all its coal now.
B) will sell none of its coal now but will sell it all next year regardless of the price next year.
C) will sell none of its coal now but might sell it all next year.
D) will sell half of the coal today and half of it next year.
E) might or might not sell the coal today, depending on the price the firm paid for the coal.
25) Over time, the actual (not expected) 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.
26) The equilibrium quantity of capital is
A) determined by only the supply of capital because the supply is perfectly inelastic.
B) determined by only the supply of capital because the supply is perfectly elastic.
C) expected to increase at the same rate as the interest rate.
D) determined by the supply of capital and the demand for capital.
E) the only factor of production whose quantity is not determined in a market.
27) 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.
28) 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.
29) 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 cannot be measured.
E) a resource with a perfectly inelastic demand.
30) The demand for a nonrenewable resource is
A) determined by the value of its marginal product.
B) fixed and cannot change.
C) perfectly inelastic.
D) perfectly elastic.
E) not defined because the resource can be used only once.
31) A producer’s supply of a nonrenewable natural resource is
A) always decreasing because the resource is always being used.
B) perfectly inelastic.
C) perfectly elastic.
D) not relevant because nonrenewable resources are used only once.
E) is determined by the value of the resource’s marginal product.
18.4 Chapter Figures
The figure above shows a firm’s VMP curve.
1) Suppose that a new technology doubles the marginal product of the workers and the price of
the product does not change. As a result, the value of the marginal product of the second worker
A) remains $12..
B) becomes $6.
C) becomes $24.
D) becomes $30.
E) More information about the supply of labor is needed to answer the question.
2) Suppose that the price of the product doubles and the marginal product of the workers does
not change. As a result, the value of the marginal product of the second worker
A) remains $12..
B) becomes $6.
C) becomes $24.
D) becomes $30.
E) More information about the supply of labor is needed to answer the question.
3) Suppose that the price of the product rises. As a result,
A) there is a movement upward along the curve, such as a movement from point C to point B.
B) there is a movement downward along the curve, such as a movement from point C to point D.
C) the curve shifts rightward.
D) the curve shifts leftward.
E) More information is needed to answer the question.
4) Suppose that new technology raises the workers’ marginal product. As a result,
A) there is a movement upward along the curve, such as a movement from point C to point B.
B) there is a movement downward along the curve, such as a movement from point C to point D.
C) the curve shifts rightward.
D) the curve shifts leftward.
E) More information is needed to answer the question.
The figure above shows a labor market in which a union has formed.
5) Labor unions’ support for import restrictions represents an attempt to shift the
A) labor demand curve from LD0 to LD1.
B) labor demand curve from LD1 to LD0.
C) labor supply curve from LS0 to LS1.
D) labor supply curve from LS1 to LS0.
E) None of the above answers is correct.
6) Labor unions’ support for increasing the minimum wage represents an attempt to shift the
A) labor demand curve from LD0 to LD1.
B) labor demand curve from LD1 to LD0.
C) labor supply curve from LS0 to LS1.
D) labor supply curve from LS1 to LS0.
E) None of the above answers is correct.
7) Labor unions’ support for programs that increase their members’ marginal products represents
an attempt to shift the
A) labor demand curve from LD0 to LD1.
B) labor demand curve from LD1 to LD0.
C) labor supply curve from LS0 to LS1.
D) labor supply curve from LS1 to LS0.
E) None of the above answers is correct.
18.5 Integrative Questions
1) The value of marginal product of labor curve
A) is upward sloping because firms want to hire more workers to increase production.
B) shows the price of a factor of production multiplied by the amount of the factor employed.
C) is the same as a firm’s supply of labor curve.
D) is downward sloping because each additional worker brings in a decreasing amount of
revenue.
E) is U-shaped.
2) Which rule does the United Corporation use when maximizing profit?
A) Employ all resources until the value of their marginal products is equal.
B) If the value of the marginal product of labor exceeds the wage rate, hire fewer workers.
C) Hire labor up to point at which the value of marginal product of labor equals the wage rate.
D) Reduce the wage rate until it equals the marginal product of labor.
E) Hire labor up to point at which the value of marginal product of labor equals the price of the
good or service the labor produces for United Corporation.
3) The supply of labor curve for nurses shifts if
A) the wage rate paid nurses increases.
B) there is an increase in the time spent in nursing school.
C) the value of marginal product of nurses increases.
D) the value of marginal product of nurses decreases.
E) the marginal product of nurses decreases.
4) The demand for labor curve of nurses shifts rightward if the
A) value of marginal product of nurses increases.
B) wage rate paid to nurses rises.
C) supply of labor curve for nurses shifts leftward.
D) wage rate paid to nurses falls.
E) supply of labor curve for nurses shifts rightward.
5) Which of the following curves is most inelastic?
A) the supply of land
B) the supply of labor for an individual worker
C) the supply of labor for all workers
D) the demand for capital
E) the demand for labor
18.6 Essay: The Demand for a Factor of Production
1) Why is the demand for labor a “derived demand”?
2) What is the value of marginal product of labor? What is the formula that can be used to
calculate? How does the value of the marginal product affect how much labor a firm hires?
3) “As the quantity of labor hired increases, the value of the marginal product stays constant as
long as the wage rate is constant for all workers.” Is the previous statement correct or incorrect?
Explain your answer.