The Markets for the Factors of Production 4639
68. Consider the labor market for short-order cooks. A labor-augmenting technological change such
as a faster food processor will cause
a. both equilibrium wages and equilibrium employment to increase.
b. both equilibrium wages and equilibrium employment to decrease.
c. equilibrium wages to increase and equilibrium employment to decrease.
d. equilibrium wages to decrease and equilibrium employment to increase.
69. Consider the labor market for short-order cooks. A shortage in the availability of frying pans will
cause
a. both equilibrium wages and equilibrium employment to increase.
b. both equilibrium wages and equilibrium employment to decrease.
c. equilibrium wages to increase and equilibrium employment to decrease.
d. equilibrium wages to decrease and equilibrium employment to increase.
4640 The Markets for the Factors of Production
70. Assume the market for handkerchiefs is competitive. A decrease in the market price of
handkerchiefs
a. decreases the demand for workers who make handkerchiefs and decreases their equilibrium
wage.
b. decreases the demand for workers who make handkerchiefs and increases their equilibrium
wage.
c. increases the demand for workers who make handkerchiefs and decreases their equilibrium
wage.
d. increases the demand for workers who make handkerchiefs and increases their equilibrium
wage..
71. Assume the market for handkerchiefs is competitive. A new invention leads to labor-augmenting
technological progress in the production of handkerchiefs. This development
a. decreases the demand for workers who make handkerchiefs and decreases their equilibrium
wage.
b. increases the demand for workers who make handkerchiefs and increases their equilibrium
wage.
c. increases the supply of workers who make handkerchiefs and decreases their equilibrium
wage.
d. increases the supply of workers who make handkerchiefs and increases their equilibrium wage.
The Markets for the Factors of Production 4641
72. An increase in the demand for houses
a. increases the equilibrium wage of carpenters and increases the value of carpenters’ marginal
product of labor.
b. increases the equilibrium wage of carpenters and decreases the value of carpenters’ marginal
product of labor.
c. decreases the equilibrium wage of carpenters and increases the value of carpenters’ marginal
product of labor.
d. decreases the equilibrium wage of carpenters and decreases the value of carpenters’ marginal
product of labor.
73. An increase in the supply of labor
a. increases the equilibrium wage and increases the value of the marginal product of labor.
b. increases the equilibrium wage and decreases the value of the marginal product of labor.
c. decreases the equilibrium wage and increases the value of the marginal product of labor.
d. decreases the equilibrium wage and decreases the value of the marginal product of labor.
4642 The Markets for the Factors of Production
74. Suppose the wage earned by pear pickers suddenly rises. Which of the following effects would
we most likely observe as a result?
a. The supply of apple pickers would decrease and the equilibrium wage of apple pickers would
decrease.
b. The supply of apple pickers would decrease and the equilibrium wage of apple pickers would
increase.
c. The demand for apple pickers would increase and the equilibrium wage of apple pickers would
decrease.
d. The demand for apple pickers would decrease and the equilibrium wage of apple pickers would
decrease.
75. Which of the following is not correct?
a. High-skilled immigration has many economic benefits.
b. Each year in the United States, about one-third of the people earning a PhD. in science or
engineering are foreign born.
c. Low-skilled immigration lowers the earnings of native-born workers by 10–20 percent.
d. Illegal immigrants may pay less in taxes, but they also are ineligible for many government
benefits.
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76. A significant slowdown in the growth of productivity persisted in the U.S. economy between
a. 1959 and 1973.
b. 1973 and 1995.
c. 1973 and 2012.
d. 1995 and 2012.
77. Both theory and history point to a close relationship between increases in
a. labor demand and increases in labor supply.
b. labor demand and decreases in real wages.
c. the productivity of labor and increases in real wages.
d. interest rates and decreases in real wages.
4644 The Markets for the Factors of Production
78. Which of the following statements is correct?
a. Neither economic theory nor evidence from the U.S. economy suggests that there is a close
link between productivity and real wages.
b. Economic theory suggests that there is a close link between productivity and real wages, but
evidence from the U.S. economy fails to confirm that link.
c. Evidence from the U.S. economy suggests a close link between productivity and real wages,
but economic theory provides no basis for such a link.
d. Both economic theory and evidence from the U.S. economy suggest that there is a close link
between productivity and real wages.
79. Suppose an increase in the demand for labor results in an increase of $4 per hour in the
equilibrium wage. How does the increase in the demand for labor affect the value of the marginal
product of labor (VMPL)?
a. The VMPL increases by less than $4.
b. The VMPL increases by $4.
c. The VMPL increases by more than $4.
d. The VMPL decreases by $4.
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Multiple Choice – Section 04: The Other Factors of Production: Land and Capital
1. In economics, the term capital refers to
a. money.
b. stocks and bonds.
c. equipment and structures used in production.
d. All of the above are correct.
2. Capital is paid according to the value of its marginal product
a. only if earnings from capital are paid to households in the form of dividends.
b. only if earnings from capital are kept within firms as retained earnings.
c. regardless of whether earnings from capital are paid to households in the form of dividends or
whether those earnings are kept within firms as retained earnings.
d. None of the above is correct; unlike labor, capital is a factor of production for which earnings
are unrelated to the value of marginal product.
4646 The Markets for the Factors of Production
3. Which of the following best describes the economy’s stock of equipment and structures?
a. capital
b. aggregate demand
c. long–term inventory
d. aggregate stock
4. Which of the following would be an example of capital for a computer software firm?
(i) the firm’s computer programmers
(ii) the wages the firm pays to its computer programmers
(iii) computer equipment
a. (i) only
b. (ii) only
c. (iii) only
d. (i) and (iii) only
The Markets for the Factors of Production 4647
5. Which of the following would be an example of capital for a retail gasoline station?
(i) the gas tanks and pumps
(ii) the service attendants‘ time
(iii) the plot of land on which the station sits
a. (i) only
b. (iii) only
c. (i) and (iii) only
d. (ii) and (iii) only
6. Which term below refers to “the accumulation of goods produced in the past that are being used in
the present to produce new goods and services“?
a. inventories
b. products
c. factors of production
d. capital
4648 The Markets for the Factors of Production
7. Economists define capital as the
a. accumulation of goods produced in the past that are being used in the present to produce new
goods and services.
b. goods and services that are most affected by changes in technology.
c. factors of production that can be rented by firms.
d. factors of production that can be purchased by firms.
8. When economists refer to a firm’s capital, they are describing the
a. markets for final goods and services.
b. stock of equipment and buildings used in production.
c. amount of bank financing used by the firm.
d. amount of financing provided by the equity markets.
The Markets for the Factors of Production 4649
9. The accumulation of machinery and buildings used in the production of new goods and services is
referred to as
a. production factors.
b. output factors.
c. capital.
d. equity.
10. If one were to consider a university as a business, the computers in the computer labs would be
regarded by economists as
a. technology flows.
b. mechanization flows.
c. part of the university’s stock of capital.
d. a flow of services from the university‘s stock of capital.
4650 The Markets for the Factors of Production
11. The purchase price of capital is
a. the value of the capital to the firm.
b. always less than the rental price.
c. the price received from the flow of some capital services.
d. the price a person pays to own that factor of production indefinitely.
12. The owners of capital resources are compensated according to the
a. purchase price of the capital stock.
b. marginal product of capital.
c. value of the marginal product of capital.
d. absolute level of production of final goods and services.
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13. Consider the market for capital equipment. Suppose the price of firms’ output increases. Holding
all else constant, the equilibrium rental price of capital equipment will
a. increase.
b. decrease.
c. not change.
d. It is not possible to determine what will happen to the equilibrium rental price of capital
equipment.
14. Consider the market for capital equipment. Suppose the value of the marginal product of capital
equipment increases. Holding all else constant, the equilibrium quantity of capital equipment will
a. increase.
b. decrease.
c. not change.
d. It is not possible to determine what will happen to the equilibrium quantity of capital equipment.
4652 The Markets for the Factors of Production
15. Consider the market for capital equipment. Suppose the market price of firms’ output decreases.
Holding all else constant, the equilibrium quantity of capital equipment will
a. increase.
b. decrease.
c. not change.
d. It is not possible to determine what will happen to the equilibrium quantity of capital equipment.
16. Which of the following is not correct?
a. Earnings from capital may be paid to households in the form of dividends.
b. Earnings from capital may be retained by firms to purchase additional capital.
c. Firms may not pay out all of their earnings to households.
d. Firms earn the highest profits when the owners of capital receive a value above the marginal
product.
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17. The demand curve for capital
a. is vertical.
b. is horizontal.
c. is derived from households’ decisions concerning saving and spending.
d. reflects the marginal productivity of capital.
18. The equilibrium rental income paid to the owners of capital at any point in time equals the
a. marginal product of capital.
b. value of the marginal product of capital.
c. percentage of profits paid out to stockholders in the form of dividends.
d. equilibrium purchase price of capital.
4654 The Markets for the Factors of Production
19. Consider the market for capital equipment. Suppose the value of the marginal product of capital
equipment increases. Holding all else constant, the equilibrium rental price of capital equipment
will
a. increase.
b. decrease.
c. not change.
d. It is not possible to determine what will happen to the equilibrium rental price of capital
equipment.
The Markets for the Factors of Production 4655
Figure 18-11
20. Refer to Figure 18-11. What is measured on the vertical axis of the graph?
a. the rate of technological progress
b. wages paid to workers in markets where capital goods are produced
c. wages paid to workers in markets where capital goods are not produced
d. the rental price of capital
4656 The Markets for the Factors of Production
21. Refer to Figure 18-11. Suppose the intersection of the supply and demand curves matches with
a value of $200 on the vertical axis. Then
a. the marginal product of capital is 200.
b. the value of the marginal product of capital is $200.
c. a unit of capital can be purchased for $200.
d. each worker in markets that produce capital goods earns a wage of $200.
22. The wage is to the labor market as the
a. rental price of capital is to the capital market.
b. purchase price of capital is to the capital market.
c. supply of land is to the land market.
d. demand for land is to the land market.
The Markets for the Factors of Production 4657
23. Which of the following accurately describes how earnings from capital eventually get paid to
households?
a. Households can own a stock of capital and rent it to firms.
b. Households lend money to firms, who then pay interest to the households.
c. Households that own stock in firms receive dividends.
d. All of the above are correct.
24. The rental price of capital is
a. determined outside the realm of factor markets.
b. the price paid to use capital for a limited time period.
c. the price paid for ownership of the capital.
d. always more than the purchase price.
4658 The Markets for the Factors of Production
25. The rental price of capital is determined by the
a. forces of supply and demand in capital markets.
b. amount of equity that is generated in equity markets.
c. amount of bond financing used by profit-maximizing firms.
d. amount of dividends paid out to stockholders by profit-maximizing firms.
26. Who receives income from capital in the United States?
a. bank depositors
b. bondholders
c. stockholders
d. All of the above are correct.
27. Which of the following qualify as part of our economy‘s capital income?
a. wages paid to workers
b. interest paid to the owners of corporate bonds
c. rent paid on farmland
d. All of the above are correct.