$$1,000 \times (1 + 0.05)^3$ = 1$$,157.63$

Question 1

Which of the following best describes the demand for a factor of production?

Accepted Answer

It is a derived demand, based on the demand for the goods and services produced by the factor.

Question 2

A firm will hire labor up to the point where:

Accepted Answer

The wage rate equals the value of marginal product of labor.

Question 3

If the marginal product of labor is 5 units and the price of output is $10, what is the value of marginal product of labor?

Accepted Answer

$50

Question 4

Which equation correctly represents the value of marginal product (VMP)?

Accepted Answer

$$VMP = MP 	imes P$$

Question 5

What happens to the demand for labor curve if the price of the firm's output increases?

Accepted Answer

It shifts to the right.

Question 6

In a competitive labor market, the equilibrium wage rate is determined by:

Accepted Answer

The intersection of the market demand and supply curves for labor.

Question 7

Which of the following best explains the backward-bending labor supply curve?

Accepted Answer

At higher wage rates, the income effect outweighs the substitution effect, leading to less labor supplied.

Question 8

A labor union can increase the wage rate for its members by:

Accepted Answer

Lobbying for minimum wage laws and restricting the supply of labor.

Question 9

The supply of land is considered perfectly inelastic because:

Accepted Answer

The total quantity of land is fixed and cannot be increased by human action.

Question 10

Which of the following is NOT a factor of production?

Accepted Answer

Money

Question 11

A firm is deciding whether to rent or buy a piece of equipment. To make this decision, the firm should:

Accepted Answer

Compare the present value of the purchase cost with the stream of future rental costs.

Question 12

If the interest rate is 5% and you invest $1,000 for 3 years, what is the future amount using compound interest?

Accepted Answer

$$1,000 	imes (1 + 0.05)^3$ = 1$$,157.63$

Question 13

Which of the following best describes the Gini ratio?

Accepted Answer

It equals the area between the Lorenz curve and the line of equality divided by the entire area beneath the line of equality.

Question 14

Which of the following is a source of economic inequality according to the study materials?

Accepted Answer

Differences in human capital, discrimination, and contests among superstars.

Question 15

If the value of marginal product of oil decreases as more oil is extracted, what happens to the demand curve for oil?

Accepted Answer

It slopes downward.

Question 16

Suppose a new technology increases the productivity of labor. What is the likely effect on the demand for labor?

Accepted Answer

The demand for labor curve shifts to the right.

Question 17

Which of the following is true about the distribution of wealth compared to the distribution of income?

Accepted Answer

Wealth is distributed much more unequally than income.

Question 18

A country has a high Gini ratio and a Lorenz curve far from the line of equality. What does this indicate?

Accepted Answer

There is a high degree of income inequality.

Question 19

Which of the following policies is an example of income redistribution?

Accepted Answer

Income maintenance programs and subsidized services.

Question 20

If the expected future price of oil increases, what is the likely effect on the current supply of oil?

Accepted Answer

The current supply of oil decreases as producers hold back oil for future sale.

Markets for Factors of Production and Economic Inequality

Study Guide - Practice Questions