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The Markets for the Factors of Production 4679
True/False and Short Answer
1. A firm’s demand for labor is derived from its decision to supply a good in another market.
a. True
b. False
2. In 2012, the total income of all U.S. residents was approximately $120 billion.
a. True
b. False
3. In 2012, the total income of all U.S. residents was approximately $15 trillion.
a. True
b. False
4680 The Markets for the Factors of Production
4. Land, labor, and capital are examples of factors of production.
a. True
b. False
5. Stock dividends and interest payments are examples of factors of production.
a. True
b. False
6. The quantity available of one factor of production can affect the marginal product of other factors.
a. True
b. False
The Markets for the Factors of Production 4681
7. If the marginal productivity of the sixth worker hired is less than the marginal productivity of the
fifth worker hired, then the addition of the sixth worker causes total output to decline.
a. True
b. False
8. Let L represent the quantity of labor, and let Q represent the quantity of output. Suppose a certain
production function includes the points (L = 7, Q = 27), (L = 8, Q = 35), and (L = 9, Q = 45). Based
on these three points, this production function exhibits diminishing marginal product.
a. True
b. False
9. If a firm is able to charge a higher price for its output, all else equal, the value of the marginal
product of labor will decrease to offset the higher price.
a. True
b. False
4682 The Markets for the Factors of Production
10. Daryn is raking leaves to earn money for his university’s economics club. In the first hour, he
rakes 8 bags of leaves. In the second hour, he rakes 6 bags of leaves. If he earns $8 per hour, the
value of the marginal product of the second hour of labor is $48.
a. True
b. False
11. Daryn is raking leaves to earn money for his university’s economics club. In the first hour, he
rakes 8 bags of leaves. In the second hour, he rakes 6 bags of leaves. If he earns $8 per hour, the
value of the marginal product of the second hour of labor is $16.
a. True
b. False
12. In a competitive market for labor, the equilibrium wage always equals the value of the marginal
product.
a. True
b. False
The Markets for the Factors of Production 4683
13. In order to calculate the value of the marginal product of labor, a manager must know the
marginal product of labor and the wage rate of the worker.
a. True
b. False
14. The value of the marginal product of labor can be calculated as the price of the final good minus
the marginal product of labor.
a. True
b. False
15. The value of the marginal product of capital can be calculated as the market price of the good
multiplied by the marginal product of capital.
a. True
b. False
4684 The Markets for the Factors of Production
16. For competitive firms, the curve that represents the value of marginal product of labor is the same
as the demand for labor curve.
a. True
b. False
17. A profit-maximizing competitive firm will hire workers up to the point at which the wage equals
the price of the final good.
a. True
b. False
18. A profit-maximizing competitive firm will hire workers up to the point at which the wage equals
the marginal product of labor.
a. True
b. False
The Markets for the Factors of Production 4685
19. When a competitive firm hires labor up to the point at which the value of the marginal product of
labor equals the wage, it also produces up to the point at which the price of output equals average
variable cost.
a. True
b. False
20. The demand for computer programmers is inseparably tied to the supply of computer software.
a. True
b. False
21. If Firm X is a competitive firm in the market for labor, it has little influence over the wage it pays
its employees.
a. True
b. False
4686 The Markets for the Factors of Production
22. The idea that rational employers think at the margin is central to understanding how many units of
labor they choose to employ.
a. True
b. False
23. Technological advances can cause the labor demand curve to shift.
a. True
b. False
24. In the United States, technological advances help explain persistently rising employment in the
face of rising wages.
a. True
b. False
The Markets for the Factors of Production 4687
25. Labor-saving technological advances increase the marginal productivity of labor.
a. True
b. False
26. Labor-augmenting technological advances increase the marginal productivity of labor.
a. True
b. False
27. An increase in the output price will increase the firm’s demand for labor, all else equal.
a. True
b. False
4688 The Markets for the Factors of Production
28. Labor-saving technological advances decrease the marginal productivity of labor.
a. True
b. False
29. Labor-augmenting technological advances decrease the marginal productivity of labor.
a. True
b. False
30. An increase in a product’s price will shift the labor demand curve for workers who produce that
product to the left.
a. True
b. False
The Markets for the Factors of Production 4689
31. From 1960 to 2010, inflation-adjusted wages increased by 87 percent in the U.S. As a result,
firms reduced the amount of labor they employed by nearly 15 percent.
a. True
b. False
32. An increase in the wages paid to high-school student who detassle corn will increase the labor
supply of high-school students who weed soybean fields, all else equal.
a. True
b. False
33. The labor-supply curve is affected by the trade-off between labor and leisure.
a. True
b. False
4690 The Markets for the Factors of Production
34. The opportunity cost of leisure is impossible to measure because we cannot measure leisure time
in dollars.
a. True
b. False
35. The labor supply curve reflects how workers' decisions about the labor-leisure tradeoff respond to
changes in the opportunity cost of leisure.
a. True
b. False
36. Ellen receives a raise at her current part-time job from $8 to $10 per hour. If her labor supply
curve is upward sloping, she will work fewer hours after receiving the pay raise.
a. True
b. False
The Markets for the Factors of Production 4691
37. Jessica receives a raise at her current part-time job from $9 to $11 per hour. If her labor supply
curve is backward sloping, she will work fewer hours after receiving the pay raise.
a. True
b. False
38. Labor supply curves are always upward sloping.
a. True
b. False
39. When an individual’s income goes up, that individual may choose to supply less labor, resulting in a
backward-sloping labor supply curve.
a. True
b. False
4692 The Markets for the Factors of Production
40. The supply of labor in any one market depends on the opportunities available in other markets.
a. True
b. False
41. Movements of workers from country to country can cause shifts in the labor supply curves for
both countries.
a. True
b. False
42. If the demand for labor in a particular industry increases, the equilibrium wage in that industry will
also increase.
a. True
b. False
The Markets for the Factors of Production 4693
43. An increase in immigration will lower the equilibrium wage, all else held constant.
a. True
b. False
44. As the number of concrete workers in the United States falls, the wage paid to the remaining
concrete workers will necessarily fall as well.
a. True
b. False
45. If men’s preferences for work change such that more men want to be stay-at-home fathers, the
wages paid to men who remain in the workplace would rise, all else equal.
a. True
b. False
4694 The Markets for the Factors of Production
46. Oil field workers' wages are directly tied to the world price of oil.
a. True
b. False
47. Changes in supply and demand in the labor market will cause changes in wages.
a. True
b. False
48. In general, less productive workers are paid less than more productive workers.
a. True
b. False
The Markets for the Factors of Production 4695
49. If the demand for labor decreases and the supply of labor is unchanged, then the opportunity cost
of leisure will decrease.
a. True
b. False
50. Profit maximization by firms ensures that the equilibrium wage always equals the value of the
marginal product of capital.
a. True
b. False
51. Increases in productivity are not responsible for increased standards of living in the United States.
a. True
b. False
4696 The Markets for the Factors of Production
52. Average productivity can be measured as total output divided by total units of labor.
a. True
b. False
53. For a snow-removal business, the capital stock would include inputs such as snow blowers and
shovels.
a. True
b. False
54. When a firm decides to retain its earnings instead of paying dividends, the stockholders
necessarily suffer.
a. True
b. False
The Markets for the Factors of Production 4697
55. Capital owners are compensated according to the value of the marginal product of that capital.
a. True
b. False
56. If the output price of a product rises, the demand for capital will increase, raising the rental price
of capital.
a. True
b. False
57. Suppose the supply of capital decreases. As a result, the quantity of capital used in production and
the rental price of capital will both fall.
a. True
b. False
4698 The Markets for the Factors of Production
58. The rental price of capital is the price a person pays to own the capital indefinitely.
a. True
b. False
59. Capital income does not include income paid to households for the use of their capital.
a. True
b. False
60. Firms pay out a portion of their earnings in the form of interest and dividends, and those payments
are a portion of the economy's capital income.
a. True
b. False
