Deck 14: Capital, Interest, and Profits Part Four: Applications of Economic Principles

Question 1

If a farmer faces a drop in the rent he must pay for his land, he will react to this by:

A)dropping the price of his crop.
B)trying to move to a point on the production function where he uses more land and less of other inputs.
C)substituting away from land to inputs with higher marginal products.
D)shifting to another part of the production function where the marginal product of land is higher.
E)increasing the price of his crop.

Answer 1

trying to move to a point on the production function where he uses more land and less of other inputs.

Question 2

If you wanted to increase tax revenue most efficiently, you should advocate taxing:

A)goods with inelastic supply.
B)goods with inelastic demand like necessities.
C)inputs with inelastic derived demand curves.
D)inputs with totally inelastic supply.
E)any of the above.

Answer 2

any of the above.

Question 3

Pure economic rent is the payment to factors of production which:

A)have relatively inelastic supplies and have positive marginal products.
B)are depleted over time and have no external economies.
C)have no substitutes and are produced under perfectly competitive conditions.
D)have fixed supplies and no alternative uses.
E)have fixed supplies with many alternative uses.

Answer 3

have fixed supplies and no alternative uses.

Question 4

The derived demand for a factor tends to be inelastic if the demand for the product tends to be:

A)very inelastic.
B)very elastic.
C)moderately elastic.
D)capable of being met by a variety of modes of production.
E)very capricious and volatile.

Question 5

The basis for Henry George's single-tax program was to tax:

A)all implicit and explicit returns so as to prevent any shifting of the tax.
B)payments to landlords, with no attention to the distorting effects on production.
C)the earned increment of land value, and then to rebate part of the tax back to the landlord.
D)the unearned increment of land value without shifting the tax forward to consumers.
E)all land so as to do away with any neighborhood and externality effects.

Question 6

An externality is:

A)an activity that imposes involuntary costs or benefits on others, or an activity whose effects are not completely reflected in its market price.
B)an activity that does not impose involuntary costs or benefits on other, or an activity whose effects are completely reflected in its market price.
C)is not a consideration in economics.
D)none of the above.

Question 7

If a factor of production receives rent, the rent is determined by the:

A)price of the final good.
B)elasticity of the factor's supply.
C)cost of the factor's inputs.
D)price of all other factors.
E)all of the above.

Question 8

A tax on economic rent would most likely:

A)reduce considerably the supply of land in use.
B)increase greatly the supply of land in use.
C)have little or no effect on the supply of land in use.
D)change the supply of land in use, but not in a predictable way.
E)be shifted forward onto the consumer.

Question 9

Which of the following is not associated with the concept of profit?

A)Rewards for risk-taking.
B)Rewards for innovation.
C)Monopoly returns.
D)Implicit returns to factors supplied by owners.
E)All of the above are related to the concept of profit.

Question 10

"Pure economic rent" exists when the:

A)supply of land is perfectly inelastic.
B)supply of land is perfectly elastic.
C)demand for land is perfectly inelastic.
D)demand for land is perfectly elastic.
E)outright purchase and ownership of land is forbidden by law.

Question 11

A commodity is called appropriable when:

A)firms or consumers can capture its full economic value.
B)firms or consumers can not capture its full economic value
C)firms or consumers can capture only a small part of its economic value
D)none of the above.

Question 12

Which of the following are policies to correct the inefficiencies from externalities?

A)government programs, regulations
B)market solutions, market fees
C)market solutions, tradeable emissions permits
D)all of the above
E)none of the above.

Question 13

If you want to maximize tax revenue, you should advocate taxing inputs used in the production of goods:

A)with many substitutes.
B)that are elastically demanded.
C)that are inelastically demanded.
D)that have price elasticities of demand equal to approximately 1 so that total sales are unaffected.
E)with many complements.

Question 14

How does pollution lead to economic inefficiency?

A)damage is done to the factory, requires more maintenance.
B)external damage is done to the surrounding environment.
C)harming the air quality affects society.
D)all of the above.
E)none of the above.

Question 15

Appropriable natural resources include:

A)land
B)mineral resources
C)trees
D)all of the above
E)none of the above.

Question 16

The charge for the use of the summit of Mt.Everest by a snow cone company (allowing that the sale of snow cones is the only activity the summit is useful for)is an example of:

A)external economies.
B)pure economic rents.
C)backward-bending supply.
D)the law of diminishing returns.
E)none of the above.

Question 17

Which of the following was negotiated in 1997 that was a binding commitment to reduce emissions of greenhouse gases?

A)Greenhouse Protocol.
B)Kyoto Protocol.
C)Global Concern Protocol.
D)World Protocol.
E)none of the above.

Question 18

How does the government enforce a pollution regulation?

A)command and control regulations.
B)no regulations.
C)let firms regulate themselves.
D)provide incentives not to pollute.
E)none of the above.

Question 19

Which of the following are renewable resources?

A)agricultural land
B)forests
C)solar energy
D)all of the above
E)none of the above.

Question 20

The most important economic function of rental payments for the use of land is to:

A)assure owners of land some return for its use.
B)determine how land will be rationed into different uses.
C)assure an adequate supply of land in the society as a whole.
D)equalize the distribution of factor payments.
E)make sure that there is some land left for future use.

Question 21

Rent can be charged for factors of production which have elastic supply curves.

Question 22

A resource is inappropriable when some of the costs and benefits associated with its use do not accrue to its owner.

Question 23

Low-quality Belgian farmland can earn a higher rent than high-quality Argentine farmland.

Question 24

A tax on pure economic rent, such as Henry George advocated, would not tend to distort resource use in the short run.

Question 25

Rent does not enter into the cost of production.

Question 26

A tax on rent earned by an input should have no effect upon the output price.

Question 27

Public goods are ones whose benefits are indivisibly spread among the entire community, whether or not individuals desire to consume the public good.

Question 28

A nonrenewable resource is one whose supply is essentially fixed.

Question 29

From the point of view of the whole community, price-determined rent is a payment for a resource which can be used in any industry.

Question 30

An externality is an activity that imposes involuntary costs or benefits on others, or an activity whose effects are not completely reflected in its market price.

Question 31

Charging rents can lessen inefficient "externalities."

Question 32

Actions to slow global warming would be considered global public goods.

Question 33

Pure economic rent on land of fixed supply is a surplus which can be taxed without causing a decline in productive efficiency.

Question 34

If a tax is imposed upon the use of an inelastically supplied input with no alternate uses, then you should expect the price of the product to increase dramatically.

Question 35

Economists have determined that to find the socially efficient level of pollution, the marginal social benefit from abatement equal the marginal social costs of abatement.

Question 36

A renewable resource is one whose services are not replenished.

Question 37

If a factor of production has no alternative uses, there is no efficiency gain from charging rent for its use.

Question 38

Rent is calculated as dollars per unit of the fixed factor per unit of time.

Question 39

Pollution is a negative externality.

Question 40

The supply curve for land is completely inelastic, or vertical.

Question 41

If a single firm views its payment of rent as a cost, society also sees the rent as a cost.

Question 42

Emission fees are taxes firms pay on their pollution, equal to the external damage it causes.

Question 43

Command-and-control regulations are a tool used by the government to control pollution.

Question 44

Kyoto Protocol was a call for countries to reduce their greenhouse gas emissions.

Question 45

The distorting effects of taxes can be reduced by only taxing those goods with fixed supplies.

Question 46

Global warming is one of the most worrisome problems facing the world today.

Question 47

A market solution to pollution is the use of tradeable emissions permits.

Question 48

Liability laws also help in the control of pollution.

Question 49

It is very easy to determine the damage done to the environment and markets by pollution.

Question 50

The distorting effects of taxes can be diminished by taxing only inputs with price elastic supplies.