Deck 19: Factor Markets and the Distribution of Income

Question 1

The category compensation of employees doesn't capture the full income of labor because:

A) it doesn't include the earnings of proprietors.
B) it doesn't include benefits such as health insurance.
C) a sizable fraction of it can be attributed to the return on human capital.
D) it excludes payments in kind that are common in rural areas.

Answer 1

A

Question 2

The demand for factors of production is called a derived demand because it is:

A) derived from the demand for the outputs that are produced by the factors of production.
B) derived from the available supply of factors, such as land, that can be overexploited.
C) not easy to determine and must be derived by a technical (and often complicated) process.
D) derived on the basis of questions posed to residents during the census.

Answer 2

A

Question 3

Which of the following is a factor of production at a college?

A) the faculty
B) lab concentrations to use in experiments
C) electricity
D) Scantron sheets

Answer 3

A

Question 4

The largest component of the factor distribution of income in the United States is:

A) interest and rents.
B) taxes.
C) corporate profits.
D) compensation of employees.

Question 5

Which of the following is NOT a factor of production at a college?

A) the faculty
B) classroom buildings
C) electricity
D) the computer labs

Question 6

G. Reecy's Hamburger Joint is a fast-food restaurant. Which of the following is a factor of production?

A) the raw meat used for the hamburgers
B) the hamburger buns
C) the cook
D) the concentrate that is diluted to make the soft drinks

Question 7

In terms of contribution to total income in the United States, the single most important factor of production is:

A) capital.
B) labor.
C) natural resources.
D) entrepreneurship.

Question 8

Factor demand is called derived demand because it:

A) requires the use of other factors.
B) depends on demand for the product that the factor produces.
C) has a downward-sloping demand curve.
D) has a constant marginal factor cost.

Question 9

Which of the following is NOT true about the factor distribution of income?

A) It is the division of total income among labor, land, and capital.
B) Labor receives the bulk of the income in the modern U.S. economy.
C) The returns to human capital are easily measured.
D) A part of the proprietor's income should be considered wages that the business owners pay themselves.

Question 10

Human capital is the improvement in _____ produced by _____.

A) physical capital; technology
B) labor; education and knowledge
C) labor; physical capital
D) labor; management

Question 11

In the United States just after the turn of the twenty-first century, 70% of total income, by far the largest share, took the form of:

A) compensation of employees.
B) corporate profits.
C) interest income.
D) rental income.

Question 12

The key distinction between a factor of production and an input is that:

A) an input is an enduring source of income, but a factor of production is used up in production.
B) a factor of production earns income from selling its services over and over again, but an input cannot.
C) an input earns income from selling its services over and over again, but a factor of production cannot.
D) a factor of production has limited earning potential.

Question 13

Which of the following is an input in the production of croissants?

A) ovens
B) pastry chefs
C) flour
D) dough mixers

Question 14

When the demand for automobiles is high, the demand for workers who build automobiles is high. This relation between the market for automobiles and the market for the labor that builds automobiles is why demand in a factor market is called:

A) the marginal productivity theory of income distribution.
B) a compensating differential.
C) the factor distribution of income.
D) a derived demand.

Question 15

Human capital:

A) consists of man-made resources such as buildings and machines.
B) is the improvement in labor produced by education and knowledge that is embodied in the workforce.
C) has become less important because of the progress in technology.
D) is the improvement in labor produced by education, which has become less important because of the progress in technology.

Question 16

In the United States just after the turn of the twenty-first century, approximately _____ of total income in the economy took the form of compensation of employees.

A) 50%
B) 9%
C) 90%
D) 70%

Question 17

The demand for a factor of production is a(n) _____ demand.

A) derived
B) implicit
C) direct
D) distributional

Question 18

Now that Naila has her bachelor's degree, she has decided to pursue her master's degree. Naila's choice of additional education is called an investment in:

A) natural resources.
B) human capital.
C) physical capital.
D) labor.

Question 19

Manufactured resources such as equipment, buildings, and tools are also known as:

A) human capital.
B) labor.
C) physical capital.
D) natural resources.

Question 20

The category compensation of employees:

A) includes the earnings of proprietors.
B) doesn't include benefits such as health insurance.
C) can be attributed in a large part to the return on human capital.
D) includes payments in kind that are common in rural areas.

Question 21

Which of the following statements is TRUE?

A) The value of the marginal product of labor equals the marginal product of labor times price.
B) The value of the marginal product of labor equals a one-unit change in a factor divided by the change in total revenue.
C) Marginal cost equals change in total revenue divided by the one-unit change in a factor.
D) The value of the marginal product of labor equals the change in the quantity of a factor times the price of the factor.

Question 22

Use the following to answer question:
(Table: Workers and Art Output) Look at the table Workers and Art Output. Suppose you achieve your dream of opening an art studio specializing in selling mud statues. You pay $10 in fixed costs for equipment and $9 per day to each of your workers who make the mud statues. The industry is perfectly competitive, with a current market price of $1. How many statues should you produce?

A) 25
B) 35
C) 43
D) 48

Question 23

The amount by which the use of an additional unit of a factor of production increases a firm's total revenue during a period is called the:

A) value of the marginal product.
B) average product.
C) marginal factor cost.
D) marginal physical product.

Question 24

The amount by which an additional unit of a factor increases a firm's _____ during a period is the _____.

A) total revenue; value of the marginal product
B) total revenue; marginal factor cost
C) total cost; value of marginal product
D) total cost; marginal product

Question 25

Which of the following statements is TRUE?

A) The marginal product is the change in total revenue divided by a one-unit change in a factor.
B) The marginal revenue is the change in total output divided by the change in output.
C) The value of the marginal product is the marginal product times the price.
D) The marginal cost is equal to the average total cost.

Question 26

The value of the marginal product is equal to:

A) marginal product times the wage rate.
B) average product times the wage rate.
C) marginal product times the price per unit of output.
D) average product times the price per unit of output.

Question 27

Which of the following formulas is CORRECT?

A) VMPL = MC × P.
B) VMPL = MPL × P.
C) MPL = VMPL × P.
D) VMPL / MC = TR.

Question 28

The value of the marginal product is calculated as:

A) MP / MR.
B) MP / P.
C) MP × P.
D) MR / MP.

Question 29

Liyun owns a small flower shop, and the industry is perfectly competitive. She is considering whether to hire an additional worker. The wage rate for the worker is $500 per week; the marginal product of the additional worker would be 100 units per week; and the price of the units is $10 each. What should Liyun do?

A) hire the additional worker
B) not hire the additional worker
C) raise the price of the flower arrangements that she sells
D) Not enough information is given to answer the question.

Question 30

The amount that an additional unit of a factor adds to a firm's total revenue is called the:

A) marginal revenue.
B) marginal cost.
C) additional revenue product.
D) value of the marginal product.

Question 31

In terms of contribution to total U.S. income, the factor of production that receives the SMALLEST share is:

A) capital.
B) labor.
C) natural resources.
D) entrepreneurship.

Question 32

The marginal product times product price equals the:

A) marginal revenue.
B) value of the marginal product.
C) additional revenue product.
D) marginal cost.

Question 33

When labor is hired in a competitive market, the value of the marginal product of labor is computed by:

A) multiplying the price of the output by the marginal product of labor.
B) multiplying the price of the output by the wage paid to labor.
C) multiplying the wage paid to labor by the marginal product of labor.
D) dividing the marginal product of labor by the price of the output.

Question 34

Using standard economic theory, Scientific Superconductors should continue hiring workers until:

A) the marginal product of labor times price equals demand.
B) the quantity of labor supplied equals the quantity of labor demanded.
C) the marginal product of labor times price equals wage.
D) the marginal product of labor times wage equals price.

Question 35

Which of the following best describes the value of the marginal product?

A) the change in total output generated by a unit change in the quantity of a factor
B) the change in total revenue generated by a unit change in the quantity of a factor
C) the change in marginal cost generated by a unit change in the quantity of a factor
D) the ratio of total revenue to the quantity of a factor employed

Question 36

The value of the marginal product is the:

A) change in total output resulting from a unit change in the quantity of a factor.
B) change in total revenue resulting from a unit change in the quantity of a factor.
C) change in total cost resulting from a unit change in the quantity of a factor.
D) ratio of total revenue to the quantity of a factor employed.

Question 37

Use the following to answer question:
(Table: Droids and Moisture Output) Look at the table Droids and Moisture Output. Luke Skywalker uses droids to operate a moisture farm in a perfectly competitive market on the planet Tatooine. A barrel of moisture sells for 50 republic credits. A droid costs 675 republic credits per month to rent. How many droids should Luke rent?

A) one
B) two
C) three
D) four

Question 38

If the extra output that is produced by hiring one more unit of labor adds more to _____ than to _____, the firm will increase its profit by increasing the use of labor.

A) total cost; total revenue
B) total revenue; total cost
C) marginal cost; marginal revenue
D) marginal product; marginal cost

Question 39

As a rule, a profit-maximizing restaurant owner employs each factor of production up to the point at which the value of the marginal product of the _____ unit of the factor employed is _____ that factor's price.

A) first; greater than
B) last; equal to
C) first; equal to
D) last; less than

Question 40

The Bountiful Bakery is considering hiring another pastry chef. The bakery knows the average product of its chefs is 15 dozen croissants per day. It also believes that the next chef hired will produce an extra 12 dozen croissants per day. A dozen croissants sell for $30. The bakery should hire another worker:

A) only if the new chef's marginal product is 12 dozen or more.
B) only if the new chef's daily wage is $450 or less.
C) only if the new chef's daily wage is $360 or less.
D) because the marginal product is below the average product.

Question 41

The individual producer's labor demand curve is the:

A) marginal product of labor curve.
B) value of the average product of labor curve.
C) average product curve.
D) value of the marginal product of labor curve.

Question 42

Barry's Brewpub is considering hiring more brewmasters. A pint of brew sells for $3. The market wage of a brewmaster is $150 per day. Assuming that the market for beer is perfectly competitive, Barry's Brewpub will hire another brewmaster only if Barry believes the new brewmaster will:

A) produce the same number of pints per day as the last brewmaster hired.
B) produce 50 or more pints per day.
C) raise total production to 50 or more pints per day.
D) increase the marginal product by $150 per day.

Question 43

To maximize profits, a firm will employ workers until for the last worker employed:

A) marginal product of labor is equal to the nominal wage rate.
B) the value of the marginal product of labor is equal to the wage rate.
C) the value of the marginal product of labor is equal to the price per unit of output.
D) the value of the marginal product of labor is as high as possible.

Question 44

A firm's demand curve for labor is:

A) the upward-sloping portion of its value of the marginal product curve.
B) the downward-sloping portion of its marginal product curve.
C) the downward-sloping portion of its value of the marginal product curve.
D) horizontal for the firm in perfect competition.

Question 45

Maria operates a persimmon orchard in southeastern Oklahoma. She pays her workers $248 per week to pick and process persimmons, and she sells her persimmons for $6 per bushel. If she adds one more worker and that worker can pick and process 44 bushels per week, what will be the profit for Maria from hiring that worker?

A) $0
B) $16
C) $264
D) $544

Question 46

A determinant of the demand for a factor of production is the:

A) price of the factor.
B) productivity of the factor.
C) quantity of the factor supplied.
D) compensating differential.

Question 47

A firm has hired the profit-maximizing number of workers when the wage is:

A) less than the price of the product.
B) greater than the average product of the last worker hired.
C) equal to the average product of the last worker hired.
D) equal to the value of the marginal product of labor of the last worker hired.

Question 48

A firm's demand curve for labor is:

A) its marginal cost curve.
B) its marginal product curve.
C) its value of the marginal product of labor curve.
D) horizontal if it is in perfect competition.

Question 49

Barry's Brewpub is considering hiring more brewmasters. The market wage for a brewmaster is $120 per day. The average brewmaster produces 40 pints of beer per day, but Barry expects the next brewmaster to produce only 20 pints per day. Assuming the market for beer is perfectly competitive, Barry's Brewpub will hire another brewmaster only if:

A) a pint of brew sells for $3.
B) the new brewmaster can produce 40 pints.
C) a pint of brew sells for $2.
D) a pint of brew sells for $6 or more.

Question 50

As the _____ of labor used in production increases, ceteris paribus, eventually the _____ will _____.

A) price; supply of labor; increase
B) quantity; marginal product of labor; fall
C) quantity; marginal product of labor; rise
D) quantity; value of the marginal product of labor; rise

Question 51

José, a corn farmer operating in a perfectly competitive market, pays his workers $8 an hour. At his current level of labor use, the marginal product of an additional hour of labor is three bushels of corn. The market price of corn is $2.75. To maximize his profits, Jose should:

A) hire more labor.
B) hire less labor.
C) not change the amount of labor.
D) This question cannot be answered without knowing the average product of labor.

Question 52

Mary is considering hiring another worker in an assembly line for MP3 speakers. Mary knows the average product of labor is 15 speakers per day. She also believes that the next worker hired will produce an extra 12 speakers per day. A speaker sells for $10. Assuming that the market for speakers is perfectly competitive, Mary should hire another worker:

A) only if the new worker's marginal product is 12 or more.
B) only if the new worker's daily wage is $150 or less.
C) only if the new worker's daily wage is $120 or less.
D) since the marginal product is below the average product.

Question 53

If the marginal product is _____, the value of marginal product must be _____.

A) rising; falling
B) falling; falling
C) falling; rising
D) rising; zero

Question 54

Suppose Billy Bud's Bucking Broncos employs 20 workers at a daily wage of $60 each. The average product of labor is 30 bucking broncos per day; the marginal product of the last worker is 12 bucking broncos per day; and total fixed cost is $3,600 for equipment. What is the marginal cost of the last bucking bronco produced?

A) $0.20
B) $5.00
C) $240.00
D) $720.00

Question 55

The quantity demanded of labor will decrease if:

A) the price of the product that the labor produces increases.
B) the productivity of labor increases.
C) the price of labor rises.
D) there is an increase in the supply of a factor labor uses.

Question 56

For the Tampa Bay Rays baseball team, the value of the marginal product curve is the team's labor _____ curve. This means the marginal product curve has a _____ slope.

A) demand; positive
B) supply; positive
C) demand; negative
D) supply; negative

Question 57

When a firm is a perfect competitor in the product market, its demand curve for labor will _____ because the _____ product declines as additional workers are hired.

A) slope downward; marginal
B) be horizontal; average
C) slope upward; marginal
D) slope downward; average

Question 58

Suppose there are diminishing returns to labor. If the _____ of labor hired by a firm increases, holding everything else constant, the _____ labor will _____.

A) price; demand for; increase
B) quantity; marginal product of; fall
C) quantity; marginal product of; rise
D) quantity; value of the marginal product of; rise

Question 59

All perfectly competitive fast-food firms are hiring the profit-maximizing quantity of labor and are paying their workers $7 per hour. If the government raises the minimum wage to $8 per hour:

A) the value of the marginal product will exceed the wage, and firms will hire more workers.
B) the value of the marginal product will be less than the wage, and firms will lay off some workers.
C) firms will increase their prices to keep the value of the marginal product equal to the wage.
D) firms will have to exit the industry, since the value of the marginal product is always less than the wage.

Question 60

A profit-maximizing firm will base its decision to hire workers on the additional costs and benefits of each worker. If the extra output that is produced by hiring one more unit of labor adds more to _____ than to _____, the firm will increase its profit by increasing the use of labor.

A) total cost; total revenue
B) total revenue; total cost
C) marginal cost; marginal revenue
D) marginal cost; total cost

Question 61

If the wage rate rises, firms will find that:

A) their labor demand curve shifts leftward.
B) their labor demand curve shifts rightward.
C) they move upward and to the left along the labor demand curve.
D) they move downward and to the right along the labor demand curve.

Question 62

An increase in the demand for autoworkers may come about because of all of the following EXCEPT a(n):

A) increase in the price of cars.
B) decrease in the market wage rate.
C) increase in the productivity of autoworkers.
D) increase in the supply of other factors that autoworkers use in production.

Question 63

Suppose the labor market for plumbers is in equilibrium. Which of the following might DECREASE the wage for plumbers?

A) An economic boom increases the demand for new homes.
B) The plumbers union establishes a rigorous certification test that is difficult for aspiring plumbers to pass.
C) Unemployed manufacturing workers attend technical schools to learn the plumbing trade.
D) A minimum wage is imposed in the market for plumbers.

Question 64

Over the past several years, the demand for phone operators has fallen dramatically. Which of the following would account for this development?

A) an increase in the number of automated answering services
B) a decrease in the technology associated with phone equipment
C) an increase in the supply of phone operators
D) higher prices for long-distance service

Question 65

The government increases the sales tax on all goods. The government does not change the tax on income earned from labor. What happens?

A) The quantity of labor demanded decreases, but the demand for labor does not shift.
B) The demand for labor decreases.
C) The supply of labor increases.
D) There is no change in the labor market.

Question 66

An increase in the demand for autoworkers may come about because of:

A) a decrease in the price of cars.
B) a decrease in the productivity of autoworkers.
C) a decrease in the supply of other factors that autoworkers use in production.
D) an increase in the price of cars.

Question 67

Phil's Copy Studio pays its workers $60 per day and sells poster-size copies for $10 per print. If the market wage rises to $70:

A) the demand for labor increases.
B) the demand for labor decreases.
C) the quantity demanded of labor increases, but the demand for labor curve does not shift.
D) the quantity demanded of labor decreases, but the demand for labor curve does not shift.

Question 68

There will be an increase in factor demand because of a(n) _____ in the price of the _____.

A) increase; factor
B) increase; good the factor produces
C) decrease; factor
D) decrease; good the factor produces

Question 69

A profit-maximizing firm will hire workers up to the quantity of labor where:

A) VMPL > W.
B) VMPL = W.
C) VMPL < W.
D) MP × MR = VMPL.

Question 70

Labor with a particular skill level and training is used in only two industries: grape cultivation and cranberry cultivation. Which of the following is likely to cause an INCREASE in the demand for this type of labor?

A) improved technology that leads to more efficient machines for grape picking
B) publication of a report asserting that drinking two glasses of grape or cranberry juice every day improves digestion and heart health
C) a report by the USDA that an increasing proportion of grapes are contaminated with unacceptable pesticides
D) a decrease in the acreage of cranberry bogs

Question 71

Which of the following statements is TRUE?

A) If W < VMPL, the firm should hire more labor.
B) If W > VMPL, the firm should hire more labor.
C) If W = VMPL, the firm should hire more labor.
D) If W > 0, the firm should shut down.

Question 72

If a firm hires labor and with its current employees W = VMPL, then profit:

A) is maximized.
B) can be increased by hiring less labor.
C) can be increased by hiring more labor.
D) can be increased by increasing the wage rate.

Question 73

Phil's Copy Studio pays its workers $60 per day and sells poster-size copies for $10 per print. Now suppose during the holiday season the price of poster-size copies increases to $12. What happens?

A) The demand for labor increases.
B) The demand for labor decreases.
C) The quantity demanded of labor increases, but the demand for labor curve does not shift.
D) The quantity demanded of labor decreases, but the demand for labor curve does not shift.

Question 74

A factor demand curve will shift to the left because of a(n) _____ in the price of the _____.

A) increase; factor
B) increase; good the factor produces
C) decrease; factor
D) decrease; good the factor produces

Question 75

A factor demand curve will shift because:

A) of a change in the price of the good the factor produces.
B) the elasticity of demand for the final product is high.
C) of a change in the proportion of the factor's cost relative to total cost.
D) the slope of the MP curve is negative.

Question 76

Benny employs people to sell candy bars at intersections. The marginal product of the last worker Benny hired is 20 candy bars per hour. Benny pays $7 per worker per hour and sells the candy bars for $1 each. If the price of candy bars rises to $2, then the:

A) demand for labor increases.
B) demand for labor decreases.
C) quantity demanded of labor increases, but the demand for labor curve does not shift.
D) quantity demanded of labor decreases, but the demand for labor curve does not shift.

Question 77

If a firm hires labor such that W < VMPL, then profit:

A) is maximized.
B) can be increased by hiring less labor.
C) can be increased by hiring more labor.
D) can be increased by increasing the wage.

Question 78

If a firm hires labor such that W > VMPL, then profit:

A) is maximized.
B) can be increased by hiring less labor.
C) can be increased by hiring more labor.
D) can be increased by decreasing the price of the output.

Question 79

A firm's demand curve for labor in a perfectly competitive market is the downward-sloping portion of its _____ curve.

A) marginal revenue
B) average total cost
C) value of the marginal product of labor
D) total revenue

Question 80

An increase in the market demand for electricians might occur if:

A) the price of electrical repair and installation services rises.
B) the demand for new houses falls.
C) the price of copper electrical wiring increases.
D) the wage for electricians falls.