The Markets for the Factors of Production
Multiple Choice – Section 00: Introduction
1. In 2012, the total income of all U.S. residents was about
a. $10 billion.
b. $15 billion.
c. $10 trillion.
d. $15 trillion.
2. Most of the total income earned in the U.S. economy is ultimately paid to
a. households in the form of wages and fringe benefits.
b. landowners in the form of rent.
c. landowners in the form of interest.
d. landowners in the form of profit.
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3. Most of the total income earned in the U.S. economy is ultimately paid to
a. landowners in the form of rent.
b. owners of capital in the form of interest.
c. households in the form of wages and fringe benefits.
d. households in the form of welfare, disability, and Social Security payments.
4. Of the total income earned in the U.S. economy, approximately
a. 33 percent is earned by workers, and 67 percent is earned by landowners.
b. 50 percent is earned by workers, 25 percent is earned by landowners, and 25 percent is earned
by owners of capital.
c. 67 percent is earned by workers, and 33 percent is earned by owners of land and capital.
d. 90 percent is earned by workers, and 10 percent is earned by owners of land and capital.
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5. Approximately how much of the income in the United States is earned by workers in the form of
wages and fringe benefits?
a. 25 percent
b. 50 percent
c. 67 percent
d. 90 percent
6. Because workers in the U.S. economy receive most of the total income earned, which of the
following factors of production is considered to be the most important?
a. profit
b. wages
c. interest
d. labor
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7. Total income in the United States is comprised of
a. wages only.
b. wages and fringe benefits only.
c. rents, profits, and interest payments only.
d. wages, fringe benefits, rents, profits, and interest payments.
8. The inputs used to produce goods and services are called
a. profit factors.
b. marginal products.
c. labor demands.
d. factors of production.
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9. Which of the following is an example of a factor of production?
a. rent
b. interest
c. land
d. Social Security payments
10. Which of the following is not an example of a factor of production?
a. labor
b. interest
c. land
d. capital
11. The factors of production are best defined as the
a. output produced from raw materials.
b. inputs used to produce goods and services.
c. wages paid to the workforce.
d. goods and services sold in the market.
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12. Suppose that a college professor is creating an exam in her university office. Which of the
following would be an example of a factor of production used by the professor?
(i) the professor’s time
(ii) a computer software program into which the professor types the exam questions
(iii) the physical space of the professors office where she works when creating the exam
(iv) the interest on the professor’s home mortgage
a. (i) only
b. (i) and (ii) only
c. (i), (ii), and (iii) only
d. (i), (ii), (iii), and (iv)
13. Suppose that Chloe opens a dog grooming business in a local shopping center. Which of the
following would be an example of a factor of production used by Chloe?
(i) her employees’ time
(ii) brushes, combs, scissors, and clippers
(iii) shampoo, water, and flea prevention treatments
(iv) Chloe’s time spent on bookkeeping and bill paying
a. (i) only
b. (i) and (ii) only
c. (i), (ii), and (iii) only
d. (i), (ii), (iii), and (iv)
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14. Capital, labor, and land
a. have derived demands.
b. are factors of production.
c. are inputs used in the production of goods and services.
d. All of the above are correct.
15. Which of the following is an example of a firm’s derived demand?
a. The wage that a worker earns is a function of her human capital.
b. A firm’s demand for college textbook study guide authors is inseparably linked to the supply of
college
textbooks.
c. Factors that increase the demand for labor will increase the equilibrium wage.
d. All of the above are correct.
4466 The Markets for the Factors of Production
16. Which of the following is an example of a firm’s derived demand?
a. Workers with higher levels of education earn more, on average, than workers with lower levels
of education.
b. Factors that decrease the demand for labor will decrease the equilibrium wage.
c. A tractor manufacturer’s demand for assembly–line workers is inseparably linked to the supply
of tractors.
d. All of the above are correct.
Multiple Choice – Section 01: The Demand for Labor
1. To say that a firm is competitive in the labor market is to say that the firm
a. has little or no control over the number of workers it hires.
b. has little or no control over the wage it pays its workers.
c. is aggressive in pursuing the most skilled workers in the labor market.
d. is aggressive in trying to keep its workers’ wages low.
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2. To say that a firm is competitive in the labor market is to say that the firm can choose
a. both the wage it pays its workers and the number of workers it hires.
b. neither the wage it pays its workers nor the number of workers it hires.
c. the wage it pays its workers, but it cannot choose how many workers to hire.
d. the number of workers it hires, but it cannot choose the wage it pays its workers.
3. Because a firm’s demand for a factor of production is derived from its decision to supply a good in
the market, it is called a
a. marginal product of demand.
b. secondary demand.
c. derived demand.
d. compensatory demand.
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4. The term “factor market” applies to the market for
a. labor.
b. capital.
c. land.
d. All of the above are correct.
5. Factor markets are different from product markets in an important way because
a. equilibrium is the exception, and not the rule, in factor markets.
b. the demand for a factor of production is a derived demand.
c. the demand for a factor of production is likely to be upward sloping, in violation of the law of
demand.
d. All of the above are correct.
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6. Factor markets for chocolate bars are influenced by the
a. demand for chocolate bars.
b. marginal productivities of labor and capital.
c. market prices for final goods and services.
d. All of the above are correct.
7. In order to study labor markets more easily, we make which of the following assumptions about
firms?
(i) Firms sell their products in competitive markets.
(ii) Firms buy their inputs in competitive markets.
(iii) Firms maximize profits.
(iv) Firms maximize revenues.
a. (iii) only
b. (i) and (iii) only
c. (i), (ii), and (iii) only
d. (i), (ii), (iii), and (iv)
4470 The Markets for the Factors of Production
8. Christopher owns and manages a small tea shop. We assume that Christopher
(i) does not directly care about the quantity of tea that he sells.
(ii) does not directly care about the number of workers that he hires.
(iii) wants to maximize the quantity of tea that he sells.
(iv) wants to minimize the number of workers that he hires.
(v) wants to maximize profits.
a. (i) and (ii) only
b. (i), (ii), and (v) only
c. (iii) and (iv) only
d. (iii), (iv), and (v) only
9. Economists refer to the inputs that firms use to produce goods and services as
a. derived factors.
b. derived resources.
c. factors of production.
d. instruments of revenue.
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10. The basic tools of supply and demand apply to
a. both markets for goods and services and markets for labor services.
b. markets for goods and services but not to markets for labor services.
c. markets for goods and services but not to markets for factors of production.
d. all markets except those in which demand is derived demand.
11. Labor markets are different from most other markets because labor demand is
a. unresponsive to changes in wages.
b. unresponsive to changes in the final prices of the products produced by the labor.
c. a derived demand.
d. very responsive to labor supply.
12. The production function is the
a. increase in the amount of output from an additional unit of labor.
b. marginal product of an input times the price of output.
c. relationship between the quantity of inputs and output.
d. shift in labor demand caused by a change in the price of output.
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13. The production function is
a. the increase in the amount of output from an additional unit of labor.
b. influenced by the productivity of workers.
c. the marginal revenue produce minus the wage rate paid to workers.
d. All of the above are correct.
14. Along the vertical axis of the production function we typically measure
a. revenue.
b. the marginal product of the input.
c. the quantity of input.
d. the quantity of output.
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15. Along the horizontal axis of the production function we typically measure
a. revenue.
b. the marginal product of the input.
c. the quantity of input.
d. the quantity of output.
16. When we focus on labor as an input in the production process, we typically draw the production
function by measuring the
a. quantity of labor on the horizontal axis and the quantity of output on the vertical axis.
b. quantity of labor on the horizontal axis and the marginal product of labor on the vertical axis.
c. quantity of labor on the horizontal axis and the value of the marginal product of labor on the
vertical axis.
d. value of the marginal product of labor on the horizontal axis and the quantity of output on the
vertical axis.
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17. The marginal product of labor is defined as the change in
a. output per additional unit of revenue.
b. output per additional unit of labor.
c. revenue per additional unit of labor.
d. revenue per additional unit of output.
18. The marginal product of labor is the
a. marginal revenue product minus the wage paid to the worker.
b. total amount of output divided by the total units of labor.
c. increase in the amount of output from an additional unit of labor.
d. None of the above is correct.
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19. When a production function exhibits a diminishing, but positive, marginal product of labor,
a. output increases, but at an increasing rate, as more workers are employed.
b. output increases, but at a decreasing rate, as more workers are employed.
c. output declines as more workers are employed.
d. the effects on marginal product are ambiguous.
20. If hiring more workers results in each additional worker contributing successively smaller amounts
of output, then which of the following is present?
a. diminishing profitability
b. diminishing total product
c. diminishing marginal product
d. Both b and c are correct.
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21. Diminishing marginal product affects the shape of the production function in what way?
a. The slope of the production function decreases as the quantity of input increases.
b. The production function becomes steeper as the quantity of input increases.
c. The production function slopes downward.
d. The production function is horizontal beyond a certain quantity of input.
22. Diminishing marginal product is closely related to
a. diminishing total cost.
b. diminishing marginal cost.
c. increasing price.
d. increasing marginal cost.
23. Diminishing marginal product occurs when
a. the marginal product of an input increases as the quantity of the input increases.
b. the marginal product of an input decreases as the quantity of the input increases.
c. total output increases as the quantity of an input increases.
d. total output decreases as the quantity of an input increases.
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24. Diminishing marginal product occurs when
a. the increases to total output are declining.
b. marginal product is negative.
c. total output is decreasing.
d. All of the above are correct.
25. If a firm experiences diminishing marginal productivity of labor, the marginal product
a. increases as total product increases.
b. decreases as total product increases.
c. increases as total product decreases.
d. decreases as total product decreases.
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26. A profit-maximizing, competitive firm for which the marginal product of labor is diminishing also
experiences
a. a perfectly inelastic supply of labor.
b. a perfectly elastic supply of labor.
c. a downward-sloping demand for labor.
d. an upward-sloping demand for labor.
27. Typically, as a firm hires additional workers, the marginal product of labor
a. decreases, and the value of the marginal product of labor decreases.
b. stays constant, and the value of the marginal product of labor decreases.
c. decreases, and the value of the marginal product of labor stays constant.
d. decreases, and the value of the marginal product of labor increases.