Deck 12: The Supply of and Demand for Productive Resources

Question 1

If the demand for a consumer good decreases, the demand for resources required to make the good will

A)increase.
B)remain the same, but the quantity demanded will increase.
C)decrease.
D)increase or decrease depending on whether the demand for the product is elastic or inelastic.

Answer 1

C

Question 2

Table 12-1

Refer to Table 12-1. If the security guards can be hired for $75 per day, how many guards should the shop hire?

A)two
B)three
C)four
D)five
E)six

Answer 2

C

Question 3

If the demand for workers with doctorate degrees in economics increases, we would expect

A)the wages of economists to increase in the short run and the number of economists employed to increase in the long run.
B)the supply of economists to increase in the short run and their wages to rise in the long run.
C)a rapid increase in the supply of economists, causing wages to remain constant.
D)the wages of economists to decrease in the short run and the number of economists employed to increase in the long run.

Answer 3

A

Question 4

Which of the following is the best example of an investment in human capital?

A)an increase in the number of hours worked per week by a worker in an unskilled laboring job
B)the purchase of company stock by a worker
C)a summer internship at a law firm for someone going to law school
D)payments into a retirement pension plan by a skilled laborer

Question 5

Which of the following is the best example of an investment in human capital?

A)the purchase of an industrial development bond
B)the purchase of company stock by a worker
C)a student working as a waiter to pay for college
D)a laid-off stockbroker who is taking nursing courses

Question 6

The market where firms purchase factors of production is referred to as the

A)product market.
B)resource market.
C)capital market.
D)foreign exchange market.

Question 7

Suppose the United Auto Workers' Union succeeded in obtaining a 10 percent increase in the wages of its workers and that the wage increase caused automobile prices to rise. Employment in the auto industry would be most likely to decline significantly if

A)the demand for American-made automobiles was highly elastic.
B)the supply of foreign-produced automobiles was highly inelastic.
C)American consumers considered foreign automobiles a poor substitute for American automobiles.
D)the demand for American automobiles was relatively constant and highly inelastic.

Question 8

Physical and human capital investments are

A)different in that the opportunity for economic profit is present for physical capital but not for human capital investments.
B)different in that human capital decisions do not involve future income considerations, while physical capital investments do.
C)similar in that nonmonetary considerations play an equally important role in both.
D)similar in that both involve forgoing current income (and consumption) in an effort to achieve higher future income (and consumption).

Question 9

The demand curve for a human resource will be more elastic the

A)more and better substitutes are available for it.
B)more difficult it is to substitute other resources for it.
C)more inelastic the demand for the product the resource is used to produce.
D)shorter the time period under consideration.

Question 10

Which of the following is the best example of an investment in human capital?

A)on-the-job training received by an apprentice electrician
B)an increase in the number of hours worked per week by a worker in an unskilled laboring job
C)the purchase of company stock by a worker
D)payments into a retirement pension plan by a skilled laborer

Question 11

An increase in the demand for a product will cause

A)both the demand for and prices of the resources used to produce the product to decline.
B)both the demand for and prices of the resources used to produce the product to increase.
C)the demand for the resources used to produce the product to increase and their prices to decline.
D)the demand for the resources used to produce the product to decline and their prices to increase.

Question 12

Which of the following is the best definition of "physical capital"?

A)the labor utilized in the production process
B)man-made resources used to produce other goods
C)natural resources in their original state
D)the ownership of stock shares issued by a corporation

Question 13

Farmer Ted owned a worn-out piece of farmland for growing cotton, which he had been unable to rent for years. Suddenly he was getting offers from cotton farmers to lease his land. What is the most likely explanation of this?

A)The price of cotton went down.
B)The physical productivity of the land went up.
C)Taxes on the land went up.
D)The price of cotton went up.

Question 14

When an employer pays the cost of educating a worker, it is likely that the employer

A)is demonstrating altruistic motives.
B)is pursuing some objective other than profit-maximization.
C)hopes to recapture its investment in the form of increased labor productivity.
D)receives reimbursement from the government for the cost of the education.

Question 15

One way to invest in human capital is by

A)increasing your education.
B)avoiding on-the-job training programs.
C)doing nothing; it is impossible to improve your human capital. Human capital is solely determined by the abilities that you are born with.
D)investing in physical capital.

Question 16

Which one of the following labor resources will likely have the most inelastic supply schedule in the short run?

A)filling station attendants
B)sales clerks
C)construction laborers
D)dentists

Question 17

What concept implies that a firm's marginal revenue product curve for labor will slope downward in the short run?

A)diminishing marginal returns
B)the law of supply
C)the law of decreasing cost
D)the price equalization principle

Question 18

If skilled labor is three times the cost of unskilled labor, a profit-maximizing firm will vary the quantity of each type of labor until the

A)marginal product of each is the same.
B)amount of unskilled labor used is three times the quantity of skilled labor used.
C)amount of unskilled labor used is one-third the quantity of skilled labor used.
D)marginal product of unskilled labor is one-third that of skilled labor.

Question 19

In recent years, the ratio of earnings of the typical U.S. college graduate to the earnings of the typical high school graduate without additional education has

A)risen as the demand for skilled labor has increased relative to the demand for unskilled labor.
B)risen as the demand for skilled labor has decreased relative to the demand for unskilled labor.
C)fallen as the demand for skilled labor has increased relative to the demand for unskilled labor.
D)fallen as the demand for skilled labor has decreased relative to the demand for unskilled labor.

Question 20

The notion that the demand for inputs depends on the demand for outputs is termed

A)inverse demand.
B)derived demand.
C)proportional demand.
D)complementary demand.

Question 21

Which of the following is a correct statement about the labor market?

A)Workers determine the supply of labor, and firms determine the demand for labor.
B)Workers determine the demand for labor, and firms determine the supply of labor.
C)Workers determine the supply of labor, and government determines the demand for labor.
D)The forces of supply and demand, while present in the labor market, have nothing to balance in that market.

Question 22

As the price paid to a resource increases,

A)the supply of that resource will increase in the resource market.
B)the supply of that resource will decrease in the resource market.
C)resources will shift from other resource markets to this one.
D)resources will shift from this resource market to others.
E)resource usage will be unaffected.

Question 23

When a firm decides to hire more workers because local wage rates have decreased, this is an example of

A)market failure.
B)substitution in production.
C)labor exploitation.
D)substitution in consumption.

Question 24

Suppose the price of aluminum rises, and as a result, a manufacturing company purchases tin to use in place of the now higher-priced aluminum. This is referred to as

A)substitution in consumption.
B)substitution in production.
C)reverse substitution.
D)factor reversal.

Question 25

The demand for a factor of production depends largely on the

A)supply of the factor.
B)supply of other factors of production.
C)demand for other factors of production.
D)demand for the products that it helps to produce.

Question 26

If the price of airline tickets falls, what will happen to the demand curve for flight attendants?

A)It will shift to the right.
B)It will shift to the left.
C)The direction of the shift is ambiguous.
D)It will remain unchanged.

Question 27

A firm's demand curve for labor shifts when the

A)price of its output changes.
B)wage rate changes.
C)number of available workers changes.
D)All of the above are correct.

Question 28

When the price of steel rises, Ford uses more aluminum in the production of its cars. This is an example of

A)substitution in consumption.
B)substitution in production.
C)a change in the marginal productivity of a resource.
D)derived demand.

Question 29

When the price of a resource goes up and firms seek other suitable resources, this is called the

A)substitution in production effect.
B)substitution in demand effect.
C)elasticity effect.
D)inelasticity effect.

Question 30

Since the demand for a resource depends on the demand for goods that the resource helps produce, the demand for each resource is

A)an elastic demand.
B)an independent demand.
C)a derived demand.
D)inversely related to the marginal productivity of the resource.

Question 31

As the price of land decreases along its demand curve, the relative price of land

A)increases because the prices of other resources have also decreased.
B)decreases because the prices of other resources have also decreased.
C)increases because the prices of other resources have increased.
D)decreases because the prices of other resources are held constant.
E)remains constant because the prices of other resources also increase.

Question 32

Which of the following events could increase the demand for labor?

A)a decrease in output price.
B)a decrease in the amount of capital available for workers to use.
C)an increase in the marginal productivity of workers.
D)All of the above are correct.

Question 33

If unskilled labor is relatively plentiful and cheap in many foreign countries, then as the United States expands its trade with these foreign countries, the domestic demand for

A)unskilled labor will rise and skilled labor will fall.
B)skilled labor will rise and unskilled labor will fall.
C)both skilled and unskilled labor will rise proportionately.
D)both skilled and unskilled labor will be unaffected, assuming no barriers to free trade.

Question 34

The demand for accountants is a result of the complicated tax code. This is an example of

A)dependent demand.
B)resource demand.
C)derived demand.
D)none of the above.

Question 35

Which of the following scenarios would serve to decrease the demand for unskilled labor in our country?

A)increased productivity gains among the unskilled laborers.
B)increased demand for goods produced by unskilled labor.
C)increased international trade with countries where unskilled labor is more plentiful.
D)increased supply of migrant workers.

Question 36

Which of the following best illustrates the concept of "derived demand"?

A)A decrease in the price of glass causes the demand for plastic to decrease.
B)An increase in the demand for bread leads to an increase in the demand for flour.
C)A decrease in the price of air travel leads to an increase in the quantity demanded of air travel.
D)An increase in the demand for peanut butter leads to an increase in the demand for jelly.

Question 37

Which of the following most clearly illustrates the concept of "derived demand"?

A)An increase in the price of steak causes the demand for poultry to increase.
B)An increase in the demand for new houses leads to an increase in the demand for construction workers.
C)An increase in consumer income leads to an increase in the demand for services provided by the government.
D)An increase in the demand for new cars causes the demand for used automobiles to rise.

Question 38

As the price of a resource decreases,

A)demand for that resource increases.
B)the quantity demanded of that resource decreases.
C)the supply of that resource increases.
D)producers are more willing and able to hire that resource.
E)producers are less willing and able to hire that resource.

Question 39

Which of the following most clearly illustrates the concept of "derived demand"?

A)An increase in the price of steak causes the demand for poultry to increase.
B)As the price of coffee increases, the quantity demanded for coffee declines.
C)A boom in the housing market leads to an increase in the demand for lumber and electricians.
D)An increase in beer advertising on television leads to an increase in per capita beer consumption.

Question 40

The derived demand and, consequently, the demand curve for labor are determined by

A)labor's wage.
B)labor's marginal revenue.
C)the marginal cost of the input labor.
D)labor's marginal revenue product.

Question 41

The demand for a factor of production will be more inelastic

A)when the cost of the factor is small relative to the total cost of the product.
B)the more elastic the demand for the final product.
C)the easier it is to substitute other resources for the factor.
D)the more elastic the supply of products produced with the resource.

Question 42

Table 12-2

Refer to Table 12-2. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market. For which level of employment is the marginal product of labor greatest?

A)1 worker
B)2 workers
C)3 workers
D)4 workers

Question 43

Marginal revenue product is the

A)additional revenue from one additional dollar increase in price.
B)change in the revenue product resulting from one additional unit of input.
C)additional revenue from one additional unit of input.
D)change in revenue resulting in one additional dollar in price.

Question 44

The demand for most products is likely to be

A)more elastic in the long run than in the short run.
B)less elastic in the long run than in the short run.
C)equally elastic in the short and long run.
D)equally inelastic in the short and long run.

Question 45

A decrease in the demand for a product will cause output of that product to

A)increase and the demand for and prices of the resources used to produce the product to rise.
B)decrease and both the demand for and prices of the resources used to produce the product to fall.
C)decline; the demand for the resources used to produce the product will remain constant.
D)increase; the price of resources used to produce the product will rise if their supply is elastic but fall if supply is inelastic.

Question 46

The marginal productivity principle says that a profit-maximizing firm should

A)hire capital until its marginal product is zero.
B)hire labor until another worker costs more to hire than he can earn for the firm.
C)hire the quantities of capital and of labor at which their marginal products are equal.
D)hire capital until its marginal product is negative.

Question 47

The demand for a resource is generally more

A)elastic in the short run because it takes time to alter the ratio of resources used in many production processes.
B)inelastic in the short run because it takes time to alter the ratio of resources used in many production processes.
C)elastic in the short run because an increase in the price of the resource may not be expected to last.
D)inelastic in the short run because once resource suppliers find out they can charge a higher price, they will do so in the long run.

Question 48

Suppose land suitable for wheat production is highly inelastic. An increase in the demand for wheat bread will most likely

A)cause the prices of bread and wheat to increase but not affect the incomes paid to owners of wheat-growing land.
B)shift the demand curve for bread to the right and the supply curve for wheat to the left.
C)raise the price of land suitable for wheat production.
D)depress the incomes of owners of wheat growing land.

Question 49

Assume that the demand for paper products increases. Then, we expect that the

A)demand for trees will also increase.
B)demand for trees will stay the same.
C)demand for trees will decrease.
D)effect on the demand for trees is uncertain; it depends on the elasticity of the demand for paper.

Question 50

Other things constant, if the demand for a product is inelastic, the demand for a resource used as an input will tend to be

A)inelastic as well.
B)basically elastic.
C)of unitary elasticity.
D)the inverse of the elasticity coefficient of the product.

Question 51

A sudden increase in the demand for newly built homes will

A)decrease the demand for lumber, bricks, and steel.
B)decrease the demand for construction workers and architects.
C)increase the marginal product of workers in the construction industry.
D)increase the demand for construction workers and architects.

Question 52

Which of the following would tend to decrease the demand for coal miners?

A)an increase in the wages of coal miners
B)an increase in the price of oil
C)a decrease in the demand for coal
D)an increase in the supply of coal miners

Question 53

The demand for a resource depends largely on the

A)demand for the products that it produces.
B)price of the resource.
C)supply of the resource.
D)cost of producing the resource.

Question 54

Other things constant, if the demand for a final product is quite elastic, the demand for a resource used to produce the product will tend to be

A)highly inelastic.
B)of unitary elasticity.
C)a curve sloping upward to the right.
D)quite elastic as well.

Question 55

According to the principle of marginal productivity, if

A)the product price is less than MRP, the firm is using too little of the input.
B)the price of an input rises, the quantity demanded of the input will increase.
C)MRP is greater than product price, the firm should reduce the use of the input.
D)price of the input equals MRP, the firm is maximizing profit.

Question 56

If steel workers obtain a substantial wage increase, employment in the steel industry will be most likely to fall if

A)the demand curve for steel is highly inelastic.
B)the demand curve for steel is highly elastic.
C)the demand curve for steel workers is highly inelastic.
D)there are no good substitutes for steel.

Question 57

If the demand for a consumer good increases, the demand for resources required to make the good will

A)remain the same, but the quantity demanded will increase.
B)decrease if the demand for the consumer good is inelastic, otherwise the demand will increase.
C)stay the same, but the quantity demanded will decrease.
D)increase.

Question 58

An increase in the price of a resource would cause

A)producers to substitute other inputs for the resource.
B)consumers to increase consumption of the goods that increase in price as the result of the higher resource price.
C)an increase in the demand for products that use the resource intensely.
D)a reduction in the price of goods produced with the resource.

Question 59

When the price of a resource increases, thereby causing the price of the final product to rise, consumers will purchase less of the final product. This is called the

A)substitution in production effect.
B)substitution in consumption effect.
C)elasticity effect.
D)inelasticity effect.

Question 60

Table 12-2

Refer to Table 12-2. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market. What is the total revenue per day that the firm will earn if it employs five workers?

A)$500.
B)$300.
C)$2200.
D)$2500.

Question 61

The change in the total revenue of a firm that results from employing one additional unit of a factor of production is defined as the

A)total revenue product of the resource.
B)marginal product of the resource.
C)marginal revenue product of the resource.
D)average revenue product of the resource.

Question 62

If a college education did not increase worker productivity,

A)no one would go to college.
B)the earnings of workers with a college education would tend to be the same as for workers without a college degree.
C)the earnings of workers with a college education would still be higher than for those without a college degree.
D)the earnings of workers with a college education would be lower than for those without a college degree.

Question 63

If coal and oil are substitute inputs in the production of electricity, an increase in the price of oil

A)will increase the demand for coal.
B)will reduce the demand for coal.
C)will increase the supply of coal.
D)will reduce the supply of coal.
E)will not affect the demand for coal.

Question 64

Table 12-3

Refer to Table 12-3. Suppose that the firm pays its workers $75 per day. Each unit of output sells for $10. How many days of labor should the firm hire?

A)1
B)2
C)3
D)4

Question 65

If a firm is using a resource hired in a perfectly competitive market, and if the price of the resource exceeds the marginal revenue product of the resource,

A)more of the resource should be used.
B)less of the resource should be used.
C)the firm should pay a lower price for the resource.
D)the firm should pay a higher price for the resource.
E)the firm is using the optimal amount of the resource

Question 66

If the marginal revenue product of the fifth worker hired by a firm is $15 and the price of a unit of output is $5 regardless of how much is sold, then the marginal product of the fifth worker is

A)15 units of output.
B)5 units of output.
C)3 units of output.
D)45 units of output.
E)75 units of output.

Question 67

A competitive car wash currently hires 4 workers, who together can wash 80 cars per day. The market price of car washes is $5 per wash, and the price of workers is $60 per day. The car wash should hire a fifth worker if it would increase total production to at least

A)92 cars per day.
B)100 cars per day.
C)104 cars per day.
D)110 cars per day.

Question 68

An improvement in technology that allows workers to process twice as many insurance forms in an hour than before will cause

A)more labor to be employed because its marginal revenue product has fallen.
B)an increase in insurance premiums.
C)fewer workers to be employed because their marginal revenue product has decreased.
D)more workers to be employed because their marginal revenue product has increased.
E)fewer workers to be employed because their marginal revenue product has increased.

Question 69

Table 12-2

Refer to Table 12-2. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market. If the firm is maximizing the marginal product of labor, what is the firm's marginal revenue product?

A)140 baseballs.
B)$300.
C)$400.
D)$700.

Question 70

Tucker Corporation sells its product for $5.00. Tucker's industrial engineers have informed management that hiring one additional worker will increase output by five units per hour. Tucker should hire the additional worker only if the wage rate is

A)$5.00 or less per hour.
B)$1.00 or more per hour.
C)$25.00 or less per hour.
D)none of the above.

Question 71

Table 12-2

Diane's Auto World installs tires on automobiles, light trucks, and sport utility vehicles. She is a profit-maximizing business owner whose firm operates in a competitive market. The marginal cost of installing a tire is $10. The marginal productivity of the last worker that Diane hired was 2 tires per hour. What is the maximum hourly wage that Diane was willing to pay the last worker hired?

A)$5
B)$10
C)$20
D)There is insufficient information to answer this question.

Question 72

If a profit-maximizing firm hires an additional unit of labor, what must be true about labor's wage and marginal revenue product?

A)Its wage always equals its marginal revenue product.
B)Its wage is always greater than its marginal revenue product.
C)Its wage is always total revenue minus marginal revenue product.
D)Its wage is always less than or equal to its marginal revenue product.

Question 73

Troll Corporation sells dolls for $10.00 each in a market that is perfectly competitive. Increasing the number of workers from 100 to 101 would cause output to rise from 500 to 550 dolls per day. The marginal revenue product for the 101st worker is

A)$10.00.
B)$500.
C)$5,000.
D)$1,010.

Question 74

If a firm is using a resource hired in a perfectly competitive market, and if the marginal resource cost is less than its marginal revenue product,

A)more of the resource should be used.
B)less of the resource should be used.
C)the firm should pay a lower price for the resource.
D)the firm should pay a higher price for the resource.
E)the firm is using the optimal amount of the resource.

Question 75

Ten cases of spring water are sold for $6 each, and the marginal product of the last unit of labor is 5. If the price of a case increases from $6 to $8, then the marginal revenue product of the last unit of labor would

A)decrease by $10.
B)increase by $40.
C)decrease by $30.
D)increase by $10.
E)not change.

Question 76

The marginal revenue product of a resource

A)is defined as the marginal product of the resource multiplied by the resource price.
B)simply means that a firm should add to its capital stock as long as competition requires it.
C)equals the extra output produced by an additional unit of the resource multiplied by the marginal revenue per unit of that output.
D)equals the average product of the resource multiplied by the cost of hiring an additional (marginal) unit of the resource.

Question 77

An apple orchard currently hires 10 workers. The owner estimates that hiring an additional worker would increase apple yields by 20 bushels per day. The price of apples is $15 per bushel. The owner should hire the extra worker if the wage rate is no greater than

A)$50 per day.
B)$150 per day.
C)$200 per day.
D)$300 per day.

Question 78

Table 12-3

Refer to Table 12-3. What is the marginal product of the third worker?

A)7
B)8
C)25
D)75

Question 79

An increase in the demand for automobiles will increase the demand for labor used to produce the automobiles due to

A)an increase in the marginal revenue product of labor.
B)a decrease in the marginal revenue product of labor.
C)an increase in the marginal revenue product of automobiles.
D)a decrease in the marginal revenue product of automobiles.
E)a decrease in the price of automobiles.

Question 80

Table 12-3

Refer to Table 12-3. Suppose that the firm pays its workers $55 per day. Each unit of output sells for $12. How many days of labor should the firm hire?

A)3
B)4
C)5
D)6