d.
rent seeking.
economics, and definitions of economics
The study of economics, and defi – The study of economics, and definitions of economics
The Determination of Rent
178. An example of rent seeking is
a.
lobbying by industrial groups.
b.
lawsuits between rival firms.
c.
battles over exclusive licenses.
d.
All of the above are correct.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Determination of Rent
179. Rent seeking
a.
often entails large opportunity costs.
b.
prevents waste of resources.
c.
often promotes fairness in distribution of resources.
d.
cannot occur in a planned economy.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
The Determination of Rent
180. Between 1988 and 1989, the price of retail space in Ginza, Tokyo’s premier commercial and entertainment center,
rose from $400 to $625 per square foot. This was the result of an increase in demand in the face of a perfectly inelastic
supply curve for retail space. Economists call this
a.
monopoly profit.
b.
economic rent.
c.
usury.
d.
marginal revenue product.
181. In Japan, the market value of the land is approximately four times that of all the land in the United States, even
though Japan is only about the size of California. The most likely explanation for this fact is
a.
greater demand for land in Japan relative to the supply than in the United States.
b.
land is very productive in Japan.
c.
land is not fixed in supply in the United States.
d.
Japanese workers are very productive.
182. Owners of buildings can expect to collect ____ economic rent in the long run.
a.
much
b.
marginal
c.
a competitive
d.
little or no
183. Suppose that a community seeks to preserve air quality, and zones a “green belt” around the city which prevents
property development within the belt. What is the most likely result of this law?
a.
Interest rates will increase.
b.
Labor income will increase.
c.
Economic rent will increase.
d.
Profits will increase.
DISC: Supply and demand
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – OH – Default City – Supply and demand
Supply and demand
The Determination of Rent
184. Suppose that one could determine the amount of income that is pure economic rent. If a law were passed which taxed
50 percent of that rent, what would happen to the amount of work that people perform?
a.
It would increase as people seek higher income.
b.
It would be unchanged.
c.
It would decrease as people suffer a loss of income.
d.
It would increase for some and decrease for others.
DISC: Supply and demand
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – OH – Default City – Supply and demand
Supply and demand
The Determination of Rent
185. The income of Lebron James above the minimum payment needed to acquire the type of service he performs is
a.
pure profit.
b.
economic rent.
c.
marginal rent.
d.
competitive rent.
186. The income of Lebron James, for example, is determined by
a.
the position of the demand curve.
b.
the number of athletes in the NBA.
c.
his supply curve for labor services.
d.
marginal rent.
187. The income to someone such as Lebron James is
a.
mostly pure rent.
b.
composed of a payment necessary to induce him into employment plus economic rent.
c.
a return to a factor in fixed supply; there is only one of him.
d.
All of the above are correct.
188. In a free market for rental housing, the average rental rate
a.
includes a large amount of economic rent.
b.
includes zero economic rent.
c.
is entirely economic rent, since rental housing is fixed in supply.
d.
is about 10 percent economic rent.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
failure, and externalities
Markets, market failure, and ext – Markets, market failure, and externalities
The Determination of Rent
189. In a free market for rental housing, effective rent control would have which effect?
a.
It would cause a reduction in the number of apartments.
b.
It would cause an increase in the number of apartments, since landlords would try to increase their profits
through larger scale.
c.
It would have no effect on the number of apartments offered in the market.
d.
The results are impossible to predict.
190. Profits
a.
are what remains from the selling price after factors have been paid.
b.
accrue to entrepreneurs.
c.
are lower than most people think.
d.
All of the above are correct.
Moderate
United States – BPROG: Analytic
economics, and definitions of economics
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
191. In 2013, corporate profits were about ____ percent of national income.
a.
7.2
b.
14.0
c.
25.3
d.
44.1
DISC: Measuring the Economy
United States – BPROG: Analytic
United States – OH – Default City – Measuring the Economy
Measuring the Economy
Payments to Business Owners: Are Profits Too High or Too Low?
192. Which factor receives the profit from production?
a.
land
b.
labor
c.
capital
d.
entrepreneurship
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
193. The three major sources of economic profit are
a.
risk-bearing, innovation, and exercise of monopoly power.
b.
risk-bearing, rent seeking, and discounting.
c.
innovation, invention, and speculation.
d.
exercise of market power, marginalization, and speculation.
a
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
194. Economic profit can be viewed as
a.
a reward for bearing risks.
b.
an undeserved “reward” for exercising monopoly power.
c.
a reward for innovation.
d.
All of the above are correct.
Moderate
economics
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
195. Which of the following have been suggested as sources of economic profit?
a.
exercise of monopoly power by firms
b.
accepting a large degree of risk
c.
successful innovation
d.
All of the above are correct.
Moderate
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
196. Activist capitalists who seek out or create earnings opportunities and assume risk, for which they receive profits, are
called
a.
rent seekers.
b.
entrepreneurs.
c.
muckrakers.
d.
marginalists.
Moderate
United States – BPROG: Analytic
economics, and definitions of economics
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
197. Entrepreneurs differ from managers because
a.
they use innovation to gain advantage over their competitors.
b.
managers use established managing styles; entrepreneurs do not.
c.
entrepreneurs tend to take more risk than managers.
d.
All of the above are correct.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
198. Innovation is
a.
the same thing as invention.
b.
the desired result of invention.
c.
the necessary precondition of invention.
d.
unrelated to invention.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
199. Entrepreneurship is
a.
restricted to perfect competition.
b.
occurs only in well-functioning markets.
c.
the process of planting new crops.
d.
the process of taking business risks.
United States – BPROG: Analytic
economics, and definitions of economics
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
200. Invention is the discovery of a new process or idea. Innovation is
a.
the continuing search for inventions.
b.
copying ideas from rival firms.
c.
putting an invention to work.
d.
basic research.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
201. Which of the following would be classified as an innovation?
a.
Edwin H. Land perfects the single-step photographic process in 1947.
b.
Polaroid markets the single-step film in 1948.
c.
Thomas Alva Edison perfects the incandescent lamp with carbon filament in 1879.
d.
In 1803, Robert Fulton constructs his first small steamboat in Paris.
United States – BPROG: Reflective Thinking – BPROG: Analysis
The study of economics, and defi – The study of economics, and definitions of economics
Payments to Business Owners: Are Profits Too High or Too Low?
202. The windfall profits tax on oil will curtail oil production if
a.
oil executives decide to be spiteful.
b.
the demand for oil is inelastic.
c.
the supply curve for oil is upward sloping.
d.
the supply curve for oil is vertical.
DISC: Elasticity
United States – BPROG: Analytic
United States – OH – Default City – Elasticity
Payments to Business Owners: Are Profits Too High or Too Low?
203. The marginal productivity theory of distribution has been criticized because
a.
it assumes that the existing distribution of ownership factors is fair and just when it may not be.
b.
it does not tell us much about real policy matters.
c.
a factor’s MRP does not in any way correspond to productive effort.
d.
All of the above are correct.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – OH – Default City – Entrepreneurship
Markets, market failure, and ext – Markets, market failure, and externalities
Criticisms of Marginal Productivity Theory
204. No economist today would claim that
a.
marginal productivity analysis is either just or unjust.
b.
the marginal productivity theory of distribution is a theory of the demand side of the pertinent market.
c.
payments are made not to factors of production but to the people who happen to own them.
d.
a productive input’s MRP depends in part on how much of it is employed.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Reflective Thinking – BPROG: Analysis
United States – OH – Default City – marginal productivity analysis
Criticisms of Marginal Productivity Theory
205. Discounting is the process of
a.
cutting prices to get rid of surplus stocks.
b.
finding the present value of future dollars.
c.
finding the future value of present dollars.
d.
giving special concessions to special customers.
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
Appendix: Discounting and Present Value
206. A certain machine will last one year, will produce $120 in income (received one year later), and will cost $100. The
lowest interest rate at which this investment will be unprofitable is
a.
10 percent.
b.
11 percent.
c.
19 percent.
d.
22 percent.
Moderate
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Appendix: Discounting and Present Value
BLOOMS: Application
207. A lottery promises a $250,000 prize. But the prize money is paid out in $50,000 annual installments with the first
installment received today.. The winner is offered the option of an immediate lump-sum payment. If the interest rate
remains at 10 percent for the entire period, what is the smallest amount the winner should accept?
a.
$189,540
b.
$192,970
c.
$208,494
d.
$225,000
c
Moderate
Models
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Appendix: Discounting and Present Value
BLOOMS: Application
208. A firm should make an investment only if
a.
it is profitable in every year.
b.
the present value of the profits exceeds the present value of the costs.
c.
the present value of the revenues exceeds the present value of the costs.
d.
there are no large losses in the early years.
c
Easy
and applying economic models
Understanding and applying econo – Understanding and applying economic models
Appendix: Discounting and Present Value
209. What is the present value of an infinite stream of annual payments of $10,000 per year if the first payment is received
one year from today? Assume the interest rate is 10 percent.
a.
$100,000
b.
$1,000,000
c.
$10,000,000
d.
$1,000,000,000
a
Difficult
United States – BPROG: Reflective Thinking – BPROG: Analysis
Understanding and applying econo – Understanding and applying economic models
Appendix: Discounting and Present Value
BLOOMS: Application
210. If the interest rate is r (expressed as a decimal number), the present value today of $1 to be received n years from
today equals ____.
a.
$1rn
b.
$1(1 + r)n
c.
$1/(1 + r)n
d.
$1/(1 + n)r
c
Moderate
United States – BPROG: Reflective Thinking – BPROG: Analysis
and applying economic models
Understanding and applying econo – Understanding and applying economic models
Appendix: Discounting and Present Value
BLOOMS: Application
211. If the interest rate is positive, the present value of $10 to be received in the future is
a.
less than $10.
b.
equal to $10.
c.
more than $10.
d.
Any of the above is possible, depending on the interest rate and when the payment is to be received.
United States – BPROG: Analytic
Understanding and applying econo – Understanding and applying economic models
Appendix: Discounting and Present Value
212. Define the following terms and explain their importance to the study of economics.
a.
principle of marginal productivity
b.
marginal physical product
c.
marginal revenue product
d.
derived demand
e.
economic rent
important in determining the demand for the input.
good. The portion of MRP which is downward sloping is demand for the input.
DISC: The study of economics, an – DISC: The study of economics, and definitions in
economics
213. Define the following terms briefly and concisely and indicate their importance to the study of economics.
a.
entrepreneurship
b.
investment
c.
capital
d.
innovation
e.
discounting
Moderate
214. What is the distribution of national income currently among the owners of the factors of production-land, labor,
capital, and entrepreneurship?
of national income.
Easy
215. How does the market mechanism distribute income?
216. Explain what is meant by “derived demand” as it relates to factors of production.
217. Explain how to derive the demand for an input.
218. Explain the distinction between investment and capital.
219. A sum of money received at a future date is worth less than the same sum of money received today. Why? Explain
this with an example.
220. What is the relevance of the marginal productivity principle in explaining the use of inputs in production?
Moderate
221. The functioning of a market economy is very dependent upon investment for provision of capital and future growth.
Describe the process of investment and employment of the created capital in production.
Easy
222. Contrast the shapes of the supply curves for financial capital and land.
Easy
223. Explain the effect of a usury law.
Moderate
224. Explain how usury laws distort the market for funds. What is the most likely result if a usury law is passed and
enforced?
225. Use the concept of economic rent to explain how rent controls could have an effect quite opposite to the intention.
226. How can bonuses to exceptional employees be considered economic rents?
227. What is the distinction between innovation and invention?
228. Why is the supply of loanable funds often interest inelastic?
229. List three primary ways in which profits above “normal” interest rate levels can be earned.
230. If a manager has determined that a particular piece of capital is likely to increase the cash flow of a business by
$10,000 for the next five years, what is the present value of the capital at an interest rate of 10 percent? (Assume that the
cash flow first increases one year from today.)
231. If a small firm wishes to pay cash in one year for a $10,000 machine, how much must the firm currently place in
savings at 5 percent in order to have the necessary total cash in one year?
232. What are the factors that contribute to productivity growth in the market economy and which of them is considered
most important?
233. Distinguish between invention and innovation.