Deck 19: The Markets for the Factors of Production

Question 1

The idea that rational employers think at the margin is central to understanding how many units of labour they choose to employ.

Answer 1

True

Question 2

In general, less productive workers are paid less than more productive workers.

Answer 2

True

Question 3

Assuming the standard criteria for profit maximisation, a competitive firm's final good price will equal the wage paid to labourers divided by their marginal product.

Answer 3

True

Question 4

If Alpha Star is a competitive firm in the market for labour, it has great influence over the wage it pays its employees.

Question 5

The supply of labour in any one market depends on the opportunities available in other markets.

Question 6

Movements of workers from country to country can cause shifts in the labour supply curve.

Question 7

The demand for apple pickers is derived from the demand for apples.

Question 8

Changes in supply and demand in the labour market will cause changes in wages.

Question 9

The quantity available of one factor of production can affect the marginal product of other factors.

Question 10

If less women leave the labour force to stay at home and raise families, the labour supply curve will decrease.

Question 11

The opportunity cost of leisure is impossible to measure, since we can't measure leisure time in dollars.

Question 12

The labour supply curve reflects how workers' decisions about the labour-leisure trade-off respond to changes in the opportunity cost of leisure.

Question 13

Suppose there is a profit-maximising competitive firm. If it increases the number of workers it employs it will notice that the value of the marginal product of labour falling.

Question 14

In a competitive labour market, wages will adjust to equal the marginal product of labour.

Question 15

As the number of concrete workers in Australia falls, the wage paid to the remaining concrete workers will fall as well.

Question 16

Technological progress has led to a decrease in the demand for labour

Question 17

In a competitive market for labour, the equilibrium wage always equals the value of the marginal product.

Question 18

A decrease in the price of milk products will not have any effect on the wages of dairy-farm workers.

Question 19

A competitive profit-maximising firm hires workers up to the point where the wage equals the price of the final good.

Question 20

The production function is the relationship between the quantity of inputs used to make a good and the quantity of output of that good.

Question 21

During the Black Death, with fewer workers available to farm the land, an additional unit of land produced less additional output.

Question 22

Productivity is low in most Asian countries.

Question 23

The purchase price of capital is the price a person pays to own that factor of production indefinitely, while the rental price of capital is the price paid to use capital for a limited time period.

Question 24

When a firm decides to retain its earnings instead of pay dividends, the shareholders are not being rewarded.

Question 25

If land used for forestry loses its fertility, then over time the value of the marginal product of land will fall and the rental price on that land will fall.

Question 26

The value of the marginal product of any input is equal to the marginal product of that input multiplied by the market price of the output.

Question 27

If there is a change in the supply of labour there is no change to the earnings from capital and land.

Question 28

In the fishing industry, the capital stock includes the fishing-boats, nets and lines.

Question 29

The basic purpose of the theory of factor markets is to explain how income is distributed among factors of production.

Question 30

Capital income does not include income paid to households for the use of their capital.

Question 31

A firm's demand for a factor of production is derived from its decision to supply a good in the market and is therefore referred to as a derived demand.

Question 32

As the rental price of capital increases, less capital is used in production.

Question 33

As the rental price of capital decreases, less capital is used in production and the marginal product of capital increases.

Question 34

Capital owners are compensated according to the value of the marginal product of that capital.

Question 35

Increases in productivity are not responsible for increased standards of living in Australia.

Question 36

During the Black Death, with fewer workers available to farm the land, employers were able to choose better skilled labour to employ.

Question 37

Firms pay out all of their earnings in the form of interest and dividend payments.

Question 38

The demand curve for each factor reflects the marginal productivity of that factor.

Question 39

A competitive, profit-maximising firm hires workers until marginal product equals zero.

Question 40

If workers respond to an increase in the opportunity cost of leisure by taking less of it, their labour supply curve is backward sloping, while if workers respond to an increase in the opportunity cost of leisure by taking more of it, their labour supply curve is upward-sloping.

Question 41

Factor market analysis could not be complete without some characterisation of:

A) the marginal productivities of the different factors
B) market prices for final goods and services
C) product market demand
D) all of the above

Question 42

When a petrol station sells petrol, which of the following would qualify as capital? (i) the service attendants' time
(ii) the physical space on which the station exists
(iii) the petrol tanks and pumps

A) (i) only
B) (iii) only
C) (i) and (iii)
D) (ii) and (iii)

Question 43

The term 'factor markets' is used to describe markets for:

A) labour only
B) all inputs into the production process
C) all factors determining supply and demand
D) fixed inputs only

Question 44

Rent, interest and profit are all forms of income paid to the owners of:

A) aggregate stock
B) aggregate demand
C) land and capital
D) long-term inventory

Question 45

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

A) an increase in the wages of abalone fishers will lead to an increase in the demand for fishing boats in boat factories
B) an abalone farm's decision to supply more abalone results from a decrease in the demand for station abalone
C) an increase in the price of fuel will lead to an increase in the demand for smaller fishing boats
D) an abalone fishing firm's decision to supply more abalone will lead to an increase in the demand for abalone fishers

Question 46

An example of capital would be:

A) the amount of bank financing needed to keep a business solvent
B) the number of wrenches used by a mechanic
C) the amount of equity used to finance a business
D) all of the above

Question 47

Owners of capital earn their income in the form of which of the following? (i) interest
(ii) profit
(iii) wages

A) (i) and (ii)
B) (ii) and (iii)
C) (i) and (iii)
D) (i), (ii) and (iii)

Question 48

What are the three most important factors of production?

A) land, labour and profit
B) labour, wages and interest
C) land, labour and capital
D) capital, wages and profit

Question 49

A firm's willingness to pay for a factor of production ultimately depends on the demand for the goods the input is used to produce. This type of demand is called:

A) ultimate demand
B) derived demand
C) labour demand
D) supplied demand

Question 50

Gertrude Kelp owns three boats that participate in commercial fishing for fresh tuna. As part of her business she hires a captain and several crew members for each boat. In the market for fresh tuna, Gertrude is one of thousands of fishers. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of tuna is negligible relative to the size of the market.
According to the information provided, what type of market structure is most likely to characterise the fresh tuna market?

A) natural resource
B) oligopolist
C) perfect competitor
D) monopolistic competitor

Question 51

When labour supply increases, the equilibrium wage falls and employment increases.

Question 52

Gertrude Kelp owns three boats that participate in commercial fishing for fresh tuna. As part of her business she hires a captain and several crew members for each boat. In the market for fresh tuna, Gertrude is one of thousands of fishers. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of tuna is negligible relative to the size of the market.
According to the information provided, when Gertrude participates in the labour market to hire crew members for her boats, she is most likely considered a:

A) good employer
B) seller
C) buyer
D) discriminator

Question 53

An example of labour in the fishing industry would be the:

A) trawling time saved by using motorised winches
B) trawling time saved by employing larger nets
C) increase in catch from better fish-finding technology
D) time that a fisher takes to sort the catch

Question 54

Factor markets are different from product markets in an important way, because:

A) factor markets are fraught with disequilibrium
B) the factor supply function is likely to be downward-sloping
C) factor demand is a derived demand
D) factor demand is likely to be upward-sloping

Question 55

Labour markets are governed by the force(s) of:

A) supply and demand
B) regulation and supply
C) demand only
D) supply only

Question 56

The economy's stock of equipment and structures is best described as?

A) aggregate stock
B) aggregate structures
C) capital
D) shares and derivatives

Question 57

For a forestry firm, capital could be thought of as which of the following? (i) wages paid to loggers
(ii) sawmill plant and machinery
(iii) the government bonds the company directors have invested in

A) (i) only
B) (ii) only
C) (i) and (iii)
D) (ii) and (iii)

Question 58

Labour markets are different from most product markets because labour demand is:

A) horizontal
B) upward-sloping
C) derived
D) based on social needs, not economic

Question 59

If the forestry sector decreases its demand for land, then the equilibrium land rental price will rise but the land made available for forestry will not change.

Question 60

The factors of production are best defined as the:

A) the factual description of the production process
B) the labour used to produce goods and services
C) wages paid to the workforce
D) inputs used to produce goods and services

Question 61

Gertrude Kelp owns three boats that participate in commercial fishing for fresh tuna. As part of her business she hires a captain and several crew members for each boat. In the market for fresh tuna, Gertrude is one of thousands of fishers. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of tuna is negligible relative to the size of the market.
According to the information provided, if Gertrude is a price taker in the crew market she has only to decide:

A) how many crew members to hire
B) the wage to pay the crew she hires
C) the size of the boats others use to catch tuna
D) the price of the tuna she will catch

Question 62

When a firm is a profit maximiser:

A) it is driven to produce as much of its product as possible
B) it does not care directly about the number of workers it hires
C) it will measure its success by the number of employees it has
D) its revenue will always be maximised as well

Question 63

The x-axis of the production function typically measures:

A) revenue
B) inputs
C) outputs
D) marginal product

Question 64

Diminishing marginal product serves to have what effect on the shape of the production function?

A) the slope of the production function increases as the units of input increases
B) the production function decreases at a decreasing rate
C) it becomes flatter as input usage increases
D) all of the above

Question 65

The value of the marginal product of labour is equal to the change in:

A) total revenue with the addition of the last worker
B) total cost with the addition of the last worker
C) total profit with the addition of the last worker
D) marginal cost with the addition of the last worker

Question 66

Gertrude Kelp owns three boats that participate in commercial fishing for fresh tuna. As part of her business she hires a captain and several crew members for each boat. In the market for fresh tuna, Gertrude is one of thousands of fishers. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of tuna is negligible relative to the size of the market.
According to the information provided, in the fresh tuna product market Gertrude only has control over the:

A) price she charges for her fresh tuna
B) quantity of fresh tuna to catch and sell in the market
C) overall number of boats used to harvest fresh tuna
D) competitive environment of the market

Question 67

Marginal product of labour is defined as the change in:

A) output per additional unit of input
B) revenue per additional unit of input
C) revenue per additional unit of output
D) output per additional unit of revenue

Question 68

Gertrude Kelp owns three boats that participate in commercial fishing for fresh tuna. As part of her business she hires a captain and several crew members for each boat. In the market for fresh tuna, Gertrude is one of thousands of fishers. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of tuna is negligible relative to the size of the market.
Refer to the information provided. If Gertrude is a competitor in both the fresh tuna market and the market for crew workers, she is called a price:

A) taker in the tuna market and a wage setter in the crew market
B) taker in both markets
C) taker in the crew market and a price setter in the tuna market
D) setter in both markets

Question 69

The contribution to profit from an additional worker can be measured by the change in:

A) revenue - wage
B) profit - wage
C) profit - marginal product
D) cost - wage

Question 70

The value of the marginal product of labour curve is:

A) S-shaped
B) upward-sloping
C) downward-sloping at the start, then upward-sloping at the middle
D) downward-sloping

Question 71

If hiring more workers causes each additional worker to contribute less to the total output:

A) diminishing profitability is present
B) diminishing marginal product is present
C) increasing marginal product is present
D) diminishing marginal cost is present

Question 72

Suppose that the value of the marginal product of labour is now less than the wage. Hiring an additional worker would be:

A) profitable
B) unprofitable
C) either profitable or unprofitable depending on other circumstances
D) a socially responsible thing to do

Question 73

The value of the marginal product of any input is equal to the marginal product of that input multiplied by the:

A) marginal cost of the output
B) change in total profit
C) market price of the output
D) additional revenue

Question 74

Gertrude Kelp owns three boats that participate in commercial fishing for fresh tuna. As part of her business she hires a captain and several crew members for each boat. In the market for fresh tuna, Gertrude is one of thousands of fishers. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of tuna is negligible relative to the size of the market.
According to the information provided, labour market theory assumes that Gertrude's demand for crew workers and her supply of fresh tuna results from:

A) her intrinsic desire to provide people a living wage
B) altruistic motives to provide tuna to consumers
C) her primary goal of maximising profit
D) all of the above

Question 75

The value of the marginal product curve gets its shape from:

A) diminishing marginal product
B) increasing marginal product
C) tight labour markets
D) a surplus of workers

Question 76

The decision on whether a firm should hire an additional worker is based on the impact of this on:

A) productivity
B) wages
C) tax liabilities
D) total profit

Question 77

The production function describes the relationship between the variables:

A) inputs and cost
B) inputs and revenue
C) outputs and cost
D) inputs and outputs

Question 78

Gertrude Kelp owns three boats that participate in commercial fishing for fresh tuna. As part of her business she hires a captain and several crew members for each boat. In the market for fresh tuna, Gertrude is one of thousands of fishers. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of tuna is negligible relative to the size of the market.
Refer to the information provided. Suppose the price of fresh tuna suddenly increases, Gertrude is likely to react by:

A) becoming a seller in the factor market
B) hiring less crew workers
C) increasing her demand for crew workers
D) trying to decrease her catch to preserve fish stocks

Question 79

If an increase in the number of workers leads to all workers becoming less productive, this situation is called:

A) diminishing profitability
B) diminishing marginal product
C) increasing marginal product
D) lessening production

Question 80

To maximise profit, a competitive firm hires workers up to the point where the:

A) marginal product and marginal cost curves intersect
B) value of the marginal product and marginal revenue curves intersect
C) value of the marginal product and the wage curves intersect
D) wage and the total revenue curves intersect