Deck 9: Markets for Factors of Production and the Monetary System

Question 1

Which of the following correctly identifies the difference between the demand for factors of production and the demand for final goods?

A) The demand for factors of production is fixed over time, whereas the demand for final goods changes with changes in tastes and preferences.
B) The demand for final goods is fixed over time, whereas the demand for factors of production changes with changes in tastes and preferences.
C) The demand for final goods is derived from the demand for labor, whereas the demand for factors of production is independent of the demand for final goods.
D) The demand for factors of production is derived from the demand for final goods, whereas the demand for final goods is independent of the demand for factors of production.

Answer 1

The demand for factors of production is derived from the demand for final goods, whereas the demand for final goods is independent of the demand for factors of production.

Question 2

Suppose a firm sells its product in a competitive market. If the ongoing wage rate in a competitive labor market is $30 and the market price of a firm's product is $2, then which of the following statements is true?

A) The firm should continue to hire workers until the marginal product of the last worker hired is 2 units.
B) The firm should continue to hire workers until the marginal product of the last worker hired is 5 units.
C) The firm should continue to hire workers until the marginal product of the last worker hired is 10 units.
D) The firm should continue to hire workers until the marginal product of the last worker hired is 15 units.

Answer 2

The firm should continue to hire workers until the marginal product of the last worker hired is 15 units.

Question 3

In 1986, Roger Clemens pitched 254 innings and finished with a 24-4 record during the regular season. He struck out 238 batters, recorded an earned run average of 2.148 and a WHIP (walks plus hits per inning pitched) of 0.969. He earned $340,000, which converts to $644,998 in 2007 dollars. In 2007, Roger Clemens pitched 99 innings and finished with a record of 6-6 during the regular season. He recorded 68 strikeouts, an ERA of 4.18 and a WHIP of 1.33. He was paid $17,690,413 for the 2007 season. Which of the following is the most likely explanation for the increase in Clemens? salary from 1986 to 2007?

A) The marginal revenue associated with an additional win in baseball increased.
B) The marginal revenue associated with an additional win in baseball decreased.
C) The quantity demanded of baseball players decreased.
D) Clemens' marginal product of labor increased.

Answer 3

The marginal revenue associated with an additional win in baseball increased.

Question 4

In Major League Baseball, a player's WAR (wins above replacement) is a rough measure of the player's marginal product of labor. Specifically, WAR measures how many additional wins a player's performance would register for the team above the performance of the average player at his position. For 2015, center fielder Mike Trout of the Los Angeles Angels had a war of 7.55. (Assume that Trout's performance in 2016 is expected to be exactly the same as in 2015.) Suppose an additional win is worth $1.7 million to the Angels in 2016. What is Trout's value of marginal product of labor in 2016? Explain your answer.

A) $1.7 million
B) $7.55 million
C) $12.84 million
D) $17 million

Question 5

The table below lists salary and ?productivity? data for two Major League Baseball pitchers, Sandy Koufax and Clayton Kershaw. The players are not contemporaries; their careers were roughly a half-century apart. Nonetheless, each pitcher is/was considered the dominant pitcher of his era. Comparing productivity for Koufax?s 1963 season to Kershaw?s 2016 season, Koufax was more productive (in terms of wins, complete games, innings pitched and strikeouts), yet Kershaw?s salary was 126 times Koufax?s salary, adjusting for inflation. What is the most likely explanation for the salary differential between Koufax and Kershaw?

Question 6

Meryl works 10 hours a day in an hourly job that pays $15 per hour. Suppose her wage rate increases to a really high rate of $10,000 per hour. In this case, Meryl will ________.

A) supply more than 10 hours of work, because her wage rate is much higher
B) supply less than 10 hours of work, because she can now afford the time off
C) at first supply more, and then supply less than 10 hours of work
D) both A and B apply at the same time, and Meryl?s supply will depend of their relative strengths

Question 7

The following table shows the demand and supply of labor in the steel manufacturing industry.
a) What is the equilibrium wage rate and employment level in the industry? Illustrate graphically.
b) If the labor demand shifts to the right, without any change in the labor supply curve, what is likely to happen to the equilibrium wage and the employment level? Explain your answer with the help of a suitable diagram.
c) If the labor supply curve shifts to the left, without any change in the labor demand curve, what is likely to happen to the equilibrium wage and employment level? Explain your answer with the help of a suitable diagram.

Question 8

In Oettinger's paper studying the labor supply decisions of stadium vendors, he considered the following complication. For games played on weekends, for games played in good weather, and for games where the Rangers' opponent was popular and/or enjoying on-field success, the potential to earn more during the game increased, but all other vendors realized this as well. In essence, a vendor might actually make less during a "high total revenue potential" game if lots of other vendors decided to work that game as well. The likelihood of finding that vendors were more likely to "participate"for high total revenue potential games ________ by accounting for the strategic behavior of other vendors. Explain your answer.

A) is increased
B) is decreased
C) stays the same
D) cannot be determined given the information provided

Question 9

The labor market in Delaware is depicted in the following figure. Suppose 10,000 out-of-state workers move to Delaware.


-Refer to the scenario above. Before this migration, the employment in Delaware was equal to ________, and after this migration the employment will equal ________.

A) 25,000; 20,000
B) 25,000; 30,000
C) 25,000; 35,000
D) 20,000; 25,000

Question 10

Which of the following correctly identifies a difference between taste-based discrimination and statistical discrimination?

A) Taste-based discrimination is observed in the service sector, whereas statistical discrimination is observed in the manufacturing sector.
B) Taste-based discrimination is observed in the manufacturing sector, whereas statistical discrimination is observed in the service sector.
C) Employers engaging in taste-based discrimination are willing to forgo profits, whereas employers engaging in statistical discrimination are trying to enhance profits.
D) Employers engaging in statistical discrimination are willing to forgo profits, whereas employers engaging in taste-based discrimination are trying to enhance profits.

Question 11

Victoria Corp. makes running shoes by employing a robotics technology that requires at most a few, but highly skilled, workers for monitoring and maintenance of the robots. Each robot costs $240,000. The table below shows the marginal product of capital (MPK) per month when the firm employs one worker versus when it employs two workers. Each pair of Victoria shoes sells for $150.


-Refer to the scenario above. If the firm decides to employ one worker, and the wage is $40,000 per month, the firm?s maximum profit is ________.

A) $10,000
B) $20,000
C) $30,000
D) $40,000

Question 12

Victoria Corp. makes running shoes by employing a robotics technology that requires at most a few, but highly skilled, workers for monitoring and maintenance of the robots. Each robot costs $240,000. The table below shows the marginal product of capital (MPK) per month when the firm employs one worker versus when it employs two workers. Each pair of Victoria shoes sells for $150.


-Refer to the scenario above. If the firm decides to employ two workers, and the wage for each worker is $40,000 per month, the firm's maximum profit is ________.

A) $10,000
B) $20,000
C) $30,000
D) $40,000

Question 13

Suppose a firm uses land, labor, and capital for its production process. If it is renting the equilibrium quantity of all three factors of production, then which of the following conditions will be true?

A) Marginal product from the last dollar spent on land = Marginal product from the last dollar spent on labor > Marginal product from the last dollar spent on capital
B) Marginal product from the last dollar spent on land > Marginal product from the last dollar spent on labor > Marginal product from the last dollar spent on capital
C) Marginal product from the last dollar spent on land > Marginal product from the last dollar spent on labor = Marginal product from the last dollar spent on capital
D) Marginal product from the last dollar spent on land = Marginal product from the last dollar spent on labor = Marginal product from the last dollar spent on capital

Question 14

In an economy, if the money supply is $100,000, currency in circulation is $50,000, amount in savings accounts is $18,000, amount in travelers? checks is $12,000, and the amount in money market accounts is $9,000, then what is the amount held in checking accounts in the economy?

Question 15

An economy produces only cell phones. In 2015, the economy manufactured 275 cell phones, and each cell phone sold for $200. In 2016, the economy manufactured 280 cell phones, but the price of each cell phone fell to $180.

-Refer to the scenario above. What is the nominal GDP of the economy in 2015?

A) $47,000
B) $49,500
C) $55,000
D) $56,000

Question 16

An economy produces only cell phones. In 2015, the economy manufactured 275 cell phones, and each cell phone sold for $200. In 2016, the economy manufactured 280 cell phones, but the price of each cell phone fell to $180.

-Refer to the scenario above. Using 2015 as the base year, what was the real GDP of the economy in 2016?

A) $47,000
B) $49,500
C) $55,000
D) $56,000

Question 17

An economy produces only cell phones. In 2015, the economy manufactured 275 cell phones, and each cell phone sold for $200. In 2016, the economy manufactured 280 cell phones, but the price of each cell phone fell to $180.

-Refer to the scenario above. Using 2015 as the base year, what was the real GDP of the economy in 2015?

A) $45,000
B) $55,000
C) $57,500
D) $75,000

Question 18

An economy produces only cell phones. In 2015, the economy manufactured 275 cell phones, and each cell phone sold for $200. In 2016, the economy manufactured 280 cell phones, but the price of each cell phone fell to $180.

-Refer to the scenario above. Using 2016 as the base year, what was the real GDP of the economy in 2015?

A) $40,500
B) $49,500
C) $50,000
D) $52,500

Question 19

Bookland is a country that produces only books. In 1990, Bookland produced 10,000 books at a market price of $10 each. In 1991, Bookland produced 11,000 books at a market price of $12 each.

-Refer to the scenario above. The nominal GDP in Bookland in 1990 was ________.

A) $10,000
B) $100,000
C) $110,000
D) $120,000

Question 20

Bookland is a country that produces only books. In 1990, Bookland produced 10,000 books at a market price of $10 each. In 1991, Bookland produced 11,000 books at a market price of $12 each.

-Refer to the scenario above. The nominal GDP in Bookland in 1991 was ________.

A) $110,000
B) $120,000
C) $132,000
D) $144,000

Question 21

The Federal Reserve is relatively independent. Which U.S. institution largely controls the Federal Reserve?

A) The U.S. Supreme Court
B) The U.S. Congress
C) The U.S. Treasury
D) None of the above