Deck 18: Markets for Factors of Production

Question 1

Choose the statement that is incorrect.

A)Labour services are the physical and mental work effort that people supply to produce goods and services.
B)A labour market is a collection of people and firms who trade labour services.
C)The price of labour services is the wage rate.
D)Most labour services are traded on a contract, called a job.
E)All labour markets are competitive.

Answer 1

E

Question 2

Firms hire labour

A)to minimize the average cost of the employment of labour.
B)to exploit workers.
C)to maximize profit.
D)because capital is more expensive.
E)to minimize costs.

Answer 2

C

Question 3

Suppose a gift shop in Corner Brook, Newfoundland, hires workers to personalize ornaments for Christmas.The store sells the personalized ornaments for $6 each.The value of marginal product of this store's fourth worker is $60.The marginal product of the fourth worker is

A)6 ornaments.
B)10 ornaments.
C)60 ornaments.
D)360 ornaments.
E)90 ornaments.

Answer 3

B

Question 4

Natural resources that are depleted as they are used

A)should not be used.
B)are called nonrenewable natural resources.
C)should be used for only highly valued purposes.
D)should be conserved for future generations.
E)are called renewable natural resources.

Question 5

Choose the statement that is incorrect.

A)Entrepreneurship is a factor of production.
B)Entrepreneurs receive the profit or bear the loss that results from their business decisions.
C)Entrepreneurship consists of all the gifts of nature.
D)Entrepreneurial services are traded in markets.
E)Both C and D are incorrect.

Question 6

Coal is an example of

A)a nonrenewable natural resource.
B)a renewable natural resource.
C)a public resource.
D)a common resource.
E)capital.

Question 7

Water from the Mackenzie River is an example of

A)a nonrenewable natural resource.
B)a natural resource that can be used repeatedly.
C)capital.
D)a static resource.
E)a capital service.

Question 8

Tim is opening a new online store.He plans to hire two workers at $10 an hour.Tim is also considering buying or leasing some new computers.The purchase price of a computer is $900 and after three years it is worthless.The annual cost of leasing a computer is $450.The price of capital equipment is ________.The rental rate of capital is ________.

A)$900; $450
B)$450; $450
C)$900; $900
D)$450; $900
E)100 percent; 50 percent

Question 9

The Brown's Egg store in Lethbridge Alberta hires workers to paint eggs.The price of an egg is $2.50.The value of marginal product of this store's fifth worker is $25.The marginal product of the fifth worker is

A)62.5 eggs.
B)25 eggs.
C)2 eggs.
D)10 eggs.
E)0.1 eggs.

Question 10

An example of a nonrenewable natural resource is

A)oil.
B)Lake Erie.
C)rain.
D)sunshine.
E)the St. Lawrence River.

Question 11

To maximize profit, the firm must equate the

A)wage rate to the price of the good.
B)wage rate to the marginal product of labour.
C)value of marginal product to the factor price.
D)marginal factor cost to the price of the output.
E)marginal cost of the factor to the marginal product of the factor.

Question 12

Use the table below to answer the following questions.
Table 18.2.1

Refer to Table 18.2.1.If the firm can sell all the output it wants for the price of $5 a unit, what is the value of marginal product of the 6th worker?

A)$20
B)$0
C)$25
D)$40
E)$185

Question 13

The value of marginal product of labour is the revenue

A)generated by selling an additional unit of output.
B)needed to hire an additional unit of labour.
C)generated by the employment of an additional unit of labour.
D)needed to cover the cost of producing an additional unit of output.
E)generated to cover the cost of hiring an extra unit of labour.

Question 14

Use the table below to answer the following questions.
Table 18.2.1

Refer to Table 18.2.1.If the firm can sell all the output it wants for the price of $4 a unit, what is the profit-maximizing number of workers if the wage rate is $12?

A)zero
B)10
C)4
D)8
E)6

Question 15

Choose the statement that is incorrect.

A)Capital consists of the tools, instruments, machines, buildings, and other constructions that have been produced in the past and that businesses now use to produce goods and services.
B)A market for capital services is a rental market.
C)The services of the capital that a firm owns and operates have an implicit price that arises from depreciation and interest costs.
D)Capital is a factor of production.
E)Most capital services are traded in a market.

Question 16

The four factors of production are

A)productive factors, neutral factors, entrepreneurial factors, and nonproductive factors.
B)men, women, animals, and children.
C)labour, capital, entrepreneurship, and land.
D)machines, factories, buildings, and farms.
E)labour, money, profits, and land.

Question 17

Consider the factors of production.The price in a(n)________ market is a rental rate.

A)capital
B)housing
C)entrepreneurship
D)labour
E)capital services

Question 18

If the marginal product of a baker is 10 loaves of bread, and the price of a loaf of bread is $2, the baker's value of marginal product is

A)$2.00.
B)$20.00.
C)$0.20.
D)$5.00.
E)$12.00.

Question 19

If marginal product of a restaurant employee is 10 customers per hour, and the price of a meal is $15, the restaurant employee's value of marginal product is

A)$15.
B)$7.5.
C)$12.5.
D)$10.
E)$150.

Question 20

To maximize profit, a firm hires labour until

A)there is no more labour available at the market wage rate.
B)they can sell that labour for no more than what they paid for it.
C)the wage rate paid to the labour equals the marginal cost of production.
D)the additional benefit from hiring the labour is equal to the additional revenue the labour generates.
E)the value of marginal product equals the wage rate.

Question 21

A decrease in the price of factors of production that are substitutes for labour shifts the labour

A)demand curve leftward.
B)demand curve rightward.
C)supply curve leftward.
D)supply curve rightward.
E)demand curve leftward and the labour supply curve leftward.

Question 22

Use the table below to answer the following questions.
Table 18.2.1

Refer to Table 18.2.1.If the firm can sell all the output it wants for the price of $10 a unit, what is the profit-maximizing number of workers if the wage rate is $30?

A)1
B)5
C)6
D)8
E)9

Question 23

A profit-maximizing firm will continue to hire labour until the

A)wage rate equals the last worker's marginal product.
B)last worker's value of marginal product is maximized.
C)last worker's value of marginal product is negative.
D)wage rate equals the last worker's value of marginal product.
E)last worker's value of marginal product equals zero.

Question 24

A technological change that increases the value of marginal product of labour shifts the labour

A)demand curve leftward.
B)demand curve rightward.
C)supply curve leftward.
D)supply curve rightward.
E)demand curve rightward and the labour supply curve rightward.

Question 25

A decrease in the price of a firm's output

A)decreases the supply of labour.
B)increases the supply of labour.
C)increases the value of marginal product of labour.
D)decreases the quantity of labour demanded.
E)decreases the value of marginal product of labour.

Question 26

Mr.Shaw has a small factory in Estevan, Saskatchewan.He will continue hiring labour as long as the value of marginal product of labour ________ the wage rate.

A)is greater than
B)is less than
C)is less than or equal to
D)determines
E)maximizes

Question 27

The demand curve for labour will shift rightward as a result of

A)a decrease in the price of the firm's output.
B)an increase in the wage rate.
C)a decrease in the price of a substitute factor of production.
D)an increase in the price of a substitute factor of production.
E)a decrease in the wage rate.

Question 28

Mr.Smith's firm competes in a perfectly competitive market.The firm is currently hiring 30 workers.The value of marginal product of the last worker is $7.00 per hour.The wage rate is $8.00 per hour.To increase profit, Mr.Smith should

A)continue hiring 30 workers because the firm earns a surplus of $1.00 on each worker hired.
B)increase the price of the firm's product so that the value of marginal product increases to $8.00 per hour.
C)decrease the price of the firm's product so that the value of marginal product increases to $8.00 per hour.
D)decrease the number of workers until the value of marginal product of labour equals $8.00.
E)increase the number of workers until the value of marginal product of labour equals $8.00.

Question 29

Use the table below to answer the following questions.
Table 18.2.2
Wendy owns an apple orchard and she employs students
to pick the apples. In an hour they can pick the following amounts:

Refer to Table 18.2.2.If the price of apples is $0.50 per kilogram, the value of marginal product of the 5th student is

A)$0.50 an hour.
B)$72.50 an hour.
C)$14.50 an hour.
D)$12.50 an hour.
E)$10 an hour.

Question 30

When the price of a firm's output increases,

A)the supply of labour increases.
B)the firm hires less labour.
C)the marginal product of labour increases.
D)the firm's demand for labour curve shifts leftward.
E)the value of marginal product of labour increases.

Question 31

Suppose a profit-maximizing firm hires labour in a competitive labour market.If the value of marginal product of labour is greater than the wage rate, the firm should

A)increase the wage rate.
B)decrease the wage rate.
C)increase the quantity of labour it hires.
D)decrease the quantity of labour it hires.
E)shift to a more labour-intensive production process.

Question 32

Use the table below to answer the following questions.
Table 18.2.1

Refer to Table 18.2.1.If the firm can sell all the output it wants for the price of $5 a unit, what is the profit-maximizing number of workers if the wage rate is $30?

A)1
B)3
C)5
D)6
E)7

Question 33

If the price of the firm's output decreases, the value of marginal product curve

A)remains unchanged.
B)becomes more elastic.
C)becomes more inelastic.
D)shifts leftward.
E)shifts rightward.

Question 34

A shift in a firm's demand curve for labour occurs for all of the following reasons except a change in

A)the prices of other factors of production.
B)technology.
C)the price of the firm's output.
D)wage rate.
E)marginal product of labour.

Question 35

A shift in a firm's demand curve for labour occurs when there is a change in the

A)wage rate.
B)opportunity cost of labour.
C)price of the output.
D)working-age population.
E)marginal cost of labour.

Question 36

The demand curve for labour will shift leftward as a result of

A)a decrease in the wage rate.
B)an increase in the wage rate.
C)a decrease in the price of a substitute factor of production.
D)an increase in the price of a substitute factor of production.
E)an increase in the price of the firm's output.

Question 37

Use the table below to answer the following questions.
Table 18.2.2
Wendy owns an apple orchard and she employs students
to pick the apples. In an hour they can pick the following amounts:

Consider Table 18.2.2.If the price of apples is $0.50 per kilogram, and the wage rate for apple pickers is $7.50 per hour, then the number of pickers that Wendy will hire is

A)1.
B)3.
C)5.
D)7.
E)8.

Question 38

A firm's value of marginal product of labour curve is also its

A)marginal cost curve of labour.
B)demand curve for labour.
C)supply curve of labour.
D)supply curve of output.
E)marginal product curve.

Question 39

Suppose a profit-maximizing firm hires labour in a competitive labour market.If the value of marginal product of labour is less than the wage rate, the firm should

A)increase the wage rate.
B)decrease the wage rate.
C)increase the quantity of labour it hires.
D)decrease the quantity of labour it hires.
E)shut down.

Question 40

The demand for a factor of production is

A)a determined demand.
B)a derived demand.
C)a kinked demand.
D)an insatiable demand.
E)a desperate demand.

Question 41

The labour supply curve may eventually become "backward bending" at high wages because

A)the income effect of the higher wage is dominated by the substitution effect.
B)the income effect of the higher wage dominates the substitution effect of the higher wage.
C)firms will demand added productivity from the workers as the wage reaches very high levels.
D)firms will demand longer hours in trade for the higher wages.
E)people get tired of working so many hours and refuse to increase their labour supply.

Question 42

If the wage rate increases, the substitution effect gives a household the incentive to

A)raise its reservation wage.
B)increase leisure and decrease work.
C)increase work and decrease leisure.
D)increase both work and leisure.
E)decrease both work and leisure.

Question 43

If the wage rate increases, the income effect gives a household the incentive to

A)raise its reservation wage.
B)increase leisure and decrease work.
C)increase work and decrease leisure.
D)increase both work and leisure.
E)decrease both work and leisure.

Question 44

The demand for the services of labour ________ a derived demand and the demand for the services of land ________ a derived demand.

A)is not; is not
B)is not; is
C)is; is not
D)is; is
E)sometimes is and sometimes is not; sometimes is and sometimes is not

Question 45

The substitution effect on labour supply refers to the degree to which

A)the firm can substitute other factors of production for labour.
B)buyers can substitute other products for the products that are made by organized labour.
C)labour is willing to substitute nonlabour income for wages.
D)labour prefers to substitute nonmonetary payments for money wages.
E)labour is willing to substitute work for leisure.

Question 46

If the supply of labour decreases, which of the following events will occur?

A)The wage rate will decrease and firms will increase the number of workers to the point at which the value of marginal product equals the new wage rate.
B)The wage rate will decrease and firms will decrease the number of workers to the point at which the value of marginal product equals the new wage rate.
C)The wage rate will increase and firms will decrease the number of workers to the point at which the value of marginal product equals the new wage rate.
D)The wage rate will increase and firms will decrease the number of workers to the point at which the value of marginal product is greater than the new wage rate.
E)The wage rate will increase and firms will decrease the number of workers to the point at which the value of marginal product is less than the new wage rate.

Question 47

A firm can sell its output for $40 per unit.When it increases its labour force from 4 workers to 5 workers, its output increases from 15 to 17 units.The value of marginal product of the 5th worker is

A)$80.
B)$40.
C)$600.
D)$680.
E)$136.

Question 48

If the desire for leisure increased, the wage rate would

A)rise and employment would fall.
B)rise and employment would rise.
C)fall and employment would fall.
D)fall and employment would rise.
E)fall and employment would rise or fall.

Question 49

The income effect on labour supply refers to

A)the fact that at higher wages the worker earns more income.
B)the fact that as the wage rate increases and income increases, labourers demand more of all normal goods, including leisure activities.
C)the increase in the income of firms that is necessary to pay higher wages.
D)the fact that as workers become more productive, they earn more income.
E)the fact that as the wage rate increases and income increases, labourers demand more of all normal goods, including labour.

Question 50

The idea that the demand for tire workers stems from the demand for automobiles is

A)the value of the marginal product of labour.
B)the value of the marginal product of tire workers.
C)the value of the marginal product of auto workers.
D)an output demand.
E)a derived demand.

Question 51

The demand for labour is a derived demand because it is derived from

A)the demand for the output the labour produces.
B)the supply of labour.
C)union pressure.
D)natural law.
E)years of accumulated capital and technological advances.

Question 52

Use the table below to answer the following questions.
Table 18.2.3

Emperor Spring Rolls produces spring rolls.The market for spring rolls is perfectly competitive, and the price of a spring roll is $3.50.The labour market is competitive, and the wage rate is $28 a day.Table 18.2.3 shows the workers' total product schedule.To maximize its profit, Emperor hires ________ workers a day.

A)2
B)3
C)4
D)5
E)6

Question 53

As the wage rate rises, a household will have a backward-bending supply of labour curve if

A)the income effect reinforces the substitution effect.
B)the wage rate rises above the reservation wage.
C)the substitution effect dominates the income effect.
D)the income effect dominates the substitution effect.
E)leisure is an inferior good.

Question 54

If the wage rate decreases, the substitution effect gives a household the incentive to

A)raise its reservation wage.
B)increase leisure and decrease work.
C)increase work and decrease work.
D)increase both work and leisure.
E)decrease both work and leisure.

Question 55

The value of marginal product is

A)the value to the firm of hiring one more unit of a factor of production.
B)the price of a unit of output multiplied by the marginal product of the factor of production.
C)calculated as total revenue divided by the total quantity employed.
D)calculated as marginal product divided by marginal benefit.
E)calculated as marginal product divided by the price of a unit of output .

Question 56

The reservation wage of labour is

A)the wage below which the labourer will be willing to work.
B)the wage above which the worker would be willing to retire.
C)the wage rate at which the firm would find it profitable to hire labour.
D)the wage rate that makes it necessary for the firm to shut down rather than pay this wage to labour.
E)the wage rate above which the worker would be willing to supply labour to the market.

Question 57

Use the information below to answer the following questions.
Fact 18.2.1
Wanda's is a fish store that hires students to pack the fish. The fish market is competitive. Originally the price is 50¢ a kilogram. The market for packers is competitive and their market wage rate is $7.50 an hour. Then the market price of fish falls to 33.33¢ a kilogram but the wage rate of fish packers remains at $7.50 an hour.
Refer to Fact 18.2.1.As a result, students' marginal product ________ and students' value of marginal product ________.

A)decreases; does not change
B)does not change; does not change
C)decreases; decreases
D)does not change; decreases
E)decreases; increases

Question 58

If the wage rate decreases, the income effect gives a household the incentive to

A)raise its reservation wage.
B)increase leisure and decrease work.
C)increase work and decrease leisure.
D)increase both work and leisure.
E)decrease both work and leisure.

Question 59

Use the information below to answer the following questions.
Fact 18.2.1
Wanda's is a fish store that hires students to pack the fish. The fish market is competitive. Originally the price is 50¢ a kilogram. The market for packers is competitive and their market wage rate is $7.50 an hour. Then the market price of fish falls to 33.33¢ a kilogram but the wage rate of fish packers remains at $7.50 an hour.
Refer to Fact 18.2.3.As a result,

A)Wanda's demand for labour curve shifts rightward and the firm hires more students.
B)the value of marginal product decreases, but Wanda's still continues to hire the same number of students.
C)Wanda's demand for labour curve shifts leftward and the firm hires fewer students.
D)marginal product increases so Wanda's hires more students.
E)Wanda's demand for labour curve shifts leftward and the students' supply of labour curve shifts leftward, and the firm hires fewer students.

Question 60

Use the table below to answer the following questions.
Table 18.2.3

Emperor Spring Rolls produces spring rolls.The market for spring rolls is perfectly competitive, and the price of a spring roll is $3.50.The labour market is competitive, and the wage rate is $28 a day.Table 18.2.3 shows the workers' total product schedule.To maximize its profit, Emperor produces ________ spring rolls a day.

A)32
B)44
C)54
D)62
E)66

Question 61

Use the figure below to answer the following questions.

Figure 18.3.1
Refer to Figure 18.3.1.This figure shows the value of marginal product of labour curve, the labour supply curve, and the marginal cost of labour curve.If this labour market is competitive, the quantity of labour employed is

A)zero hours.
B)50 hours.
C)75 hours.
D)100 hours.
E)greater than 100 hours.

Question 62

Unions try to raise minimum wages because

A)they wish to encourage employment among the poor.
B)they wish to help those on minimum wages.
C)this will decrease the supply of labour in their industry.
D)this will increase the demand for labour in their industry.
E)they want the minimum wage to be a living wage.

Question 63

For a monopsonist facing an upward-sloping supply curve of labour, the marginal cost of labour curve

A)intersects the value of marginal product curve of labour at the equilibrium wage rate.
B)is below and parallel to the supply of labour curve.
C)is identical to the supply of labour curve.
D)is above and parallel to the supply of labour curve.
E)is above the supply curve of labour.

Question 64

Which one of the following would unions be most likely to support?

A)increased barriers to imports
B)eased immigration restrictions
C)a decrease in the minimum wage
D)decreasing demand for the goods their workers produce
E)decreasing the marginal product of its workers

Question 65

Use the figure below to answer the following questions.

Figure 18.3.1
Refer to Figure 18.3.1.This figure shows the value of marginal product of labour curve, the labour supply curve, and the marginal cost of labour curve.If this labour market is competitive, the wage rate is

A)$3 an hour.
B)$5 an hour.
C)$6 an hour.
D)$7 an hour.
E)greater than $7 an hour.

Question 66

To increase the demand for union labour, unions do all of the following except

A)support increases in the minimum wage.
B)support increases in import restrictions.
C)encourage people to buy goods made by unionized workers.
D)support an increase in the supply of foreign workers.
E)support training schemes and apprenticeship programs.

Question 67

Use the figure below to answer the following questions.

Figure 18.3.1
Refer to Figure 18.3.1.This figure shows the value of marginal product of labour curve, the labour supply curve, and the marginal cost of labour curve.Suppose the government passes a minimum wage law that prohibits anyone from hiring labour at less than $6.50 per hour.The monopsonist will hire

A)50 hours of labour.
B)75 hours of labour.
C)62.5 hours of labour.
D)100 hours of labour.
E)125 hours of labour.

Question 68

If a strike or lockout occurs in a bilateral monopoly situation, it is usually because

A)the demand for labour is relatively inelastic.
B)the demand for labour is relatively elastic.
C)the supply of labour is relatively inelastic.
D)the supply of labour is relatively elastic.
E)one party has misjudged the costs each party can inflict on the other.

Question 69

A labour union is

A)an illegal conspiracy of workers formed to strike against employers.
B)a legal organization of workers with a goal to overthrow the capitalist class.
C)an organized group of workers that attempts to increase wages and influence other job conditions.
D)an organized group of crime syndicates.
E)a union with members working in the same industry, but in different jobs.

Question 70

Use the figure below to answer the following questions.

Figure 18.3.1
Refer to Figure 18.3.1.This figure shows the value of marginal product of labour curve, the labour supply curve, and the marginal cost of labour curve.If this labour market is controlled by a monopsony, the wage rate is

A)$7 an hour.
B)$6 an hour.
C)$3 an hour.
D)$5 an hour.
E)zero, because the market would shut down.

Question 71

Use the figure below to answer the following questions.

Figure 18.3.1
Refer to Figure 18.3.1.This figure shows the value of marginal product of labour curve, the labour supply curve, and the marginal cost of labour curve.If this labour market is controlled by a monopsony, then the monopsonist hires

A)zero hours of labour.
B)50 hours of labour.
C)75 hours of labour.
D)100 hours of labour.
E)greater than 100 hours of labour.

Question 72

A monopsony exists when there is

A)a single buyer in a market.
B)a single seller in a market.
C)a small number of large buyers in a market.
D)a small number of large sellers in a market.
E)an agreement amongst sellers in a market to set prices.

Question 73

A union is formed to restrict labour supply in a previously perfectly competitive labour market.If the union succeeds in raising the wage, everything else remaining the same,

A)employment will fall.
B)employment will rise.
C)employment will not change.
D)the total wage bill will rise.
E)the total wage bill will fall.

Question 74

Use the figure below to answer the following questions.

Figure 18.3.1
Refer to Figure 18.3.1.This figure shows the value of marginal product of labour curve, the labour supply curve, and the marginal cost of labour curve.If a union and the monopsonist in Figure 18.3.1 are equally strong, the outcome will be an hourly wage

A)of $7.
B)between $5 and $6.
C)between $5 and $7.
D)between $6 and $7.
E)of $6

Question 75

The income effect of a higher wage is defined as

A)the increased income workers must be paid to be willing to work more.
B)the increased prices of consumer goods that result from increased worker incomes.
C)the increased demand for leisure that results from increased worker incomes.
D)the increased workers' purchasing power that results from increased worker incomes.
E)the desire for workers to purchase more normal goods and fewer inferior goods as income rises.

Question 76

Use the figure below to answer the following questions.

Figure 18.3.1
Refer to Figure 18.3.1.This figure shows the value of marginal product of labour curve, the labour supply curve, and the marginal cost of labour curve.If this labour market is controlled by a monopsony, then the monopsonist

A)pays a wage rate that is greater than the value of marginal product of labour.
B)pays a wage rate exactly equal to the value of marginal product of labour.
C)pays a wage rate that is less than the value of marginal product of labour.
D)employs more labour hours per week than in a competitive labour market.
E)pays a wage equal to the marginal cost of labour.

Question 77

When compared to a monopsony labour market with the same value of marginal product curve and labour supply curve, a perfectly competitive labour market will pay a

A)lower wage and employ fewer workers.
B)lower wage and employ more workers.
C)higher wage and employ fewer workers.
D)higher wage and employ more workers.
E)higher wage and employ the same amount of workers.

Question 78

Which of the following would unions be least likely to support?

A)an increase in the minimum wage
B)immigration restrictions
C)increasing the value of marginal product of their workers
D)increasing demand for the goods their workers produce
E)reducing barriers to imports

Question 79

A constraint on union effectiveness is

A)the downward-sloping labour demand curve.
B)the minimum wage law.
C)the Fair Labour Standards Practices Act.
D)increasing export competitiveness.
E)the competition of other unions.

Question 80

Unions try to raise the demand for their labour by

A)raising wages.
B)encouraging imports.
C)supporting less restrictive immigration laws.
D)sponsoring training for union members.
E)lobbying against minimum wage laws.