Q.1 What is the main determinant of the price of a factor of production in a competitive market?
Government policy
Supply and demand for the factor
Firm's profit
Consumer preferences
Explanation - In competitive markets, factor prices are determined by the interaction of supply and demand for the factor.
Correct answer is: Supply and demand for the factor
Q.2 If the marginal product of labor increases, what is likely to happen to the demand for labor?
It decreases
It increases
It remains unchanged
It becomes zero
Explanation - A higher marginal product of labor increases the value of the additional output, thus increasing labor demand.
Correct answer is: It increases
Q.3 The payment to land as a factor of production is called:
Rent
Wages
Interest
Profit
Explanation - Rent is the return for the use of land, which is a factor of production.
Correct answer is: Rent
Q.4 Which of the following is considered a derived demand?
Demand for consumer goods
Demand for labor
Demand for entertainment
Demand for leisure
Explanation - Demand for factors of production like labor is derived from the demand for the goods and services they help produce.
Correct answer is: Demand for labor
Q.5 Which factor of production typically earns interest as its reward?
Labor
Capital
Land
Entrepreneurship
Explanation - Interest is the payment for the use of capital such as machinery, equipment, or money.
Correct answer is: Capital
Q.6 What is the term for a firm's additional output obtained by employing one more unit of a factor?
Average product
Marginal product
Total product
Net product
Explanation - Marginal product measures the change in total output when one additional unit of a factor is employed.
Correct answer is: Marginal product
Q.7 Which of the following can shift the supply curve of labor?
Change in consumer tastes
Change in wage rates
Immigration or population growth
Government subsidies on products
Explanation - An increase in the number of workers shifts the labor supply curve to the right.
Correct answer is: Immigration or population growth
Q.8 The wage rate in a perfectly competitive labor market is determined by:
Government regulation
Trade unions
Interaction of labor supply and demand
Firms' production technology
Explanation - In competitive labor markets, the equilibrium wage is determined by where labor demand equals labor supply.
Correct answer is: Interaction of labor supply and demand
Q.9 Which of the following is a characteristic of monopsony in labor market?
Many buyers of labor
Single buyer of labor
Perfectly elastic labor supply
Wage is equal to marginal revenue product
Explanation - A monopsony occurs when there is only one employer in the labor market, giving them wage-setting power.
Correct answer is: Single buyer of labor
Q.10 The return to entrepreneurship is called:
Profit
Rent
Wages
Interest
Explanation - Profit is the reward for organizing and taking risk in production, which is the function of entrepreneurship.
Correct answer is: Profit
Q.11 If the price of a product rises, what happens to the demand for labor producing that product, all else equal?
It decreases
It increases
It remains unchanged
It becomes zero
Explanation - A higher product price raises the marginal revenue product of labor, increasing labor demand.
Correct answer is: It increases
Q.12 Which of the following statements is true in the case of derived demand?
Demand for factors depends on demand for final goods
Demand for factors is independent of goods
Demand for factors depends only on supply
Demand for factors is always elastic
Explanation - Factor demand is derived because it comes from the demand for the goods and services the factors produce.
Correct answer is: Demand for factors depends on demand for final goods
Q.13 Which factor’s price is least likely to be influenced by labor unions?
Wages
Interest
Profit
Rent
Explanation - Labor unions influence wages by bargaining, but rent is determined by land supply and demand.
Correct answer is: Rent
Q.14 What is marginal revenue product (MRP) of a factor?
The cost of employing the factor
The total output produced by the factor
The additional revenue generated by one more unit of the factor
The average product of the factor
Explanation - MRP measures the extra revenue a firm earns by employing one additional unit of a factor.
Correct answer is: The additional revenue generated by one more unit of the factor
Q.15 If labor is paid according to its marginal product, what kind of distribution system is this?
Profit-sharing
Marginal productivity theory of distribution
Rent-seeking
Capitalism
Explanation - The theory states that each factor is paid equal to the value of its marginal product.
Correct answer is: Marginal productivity theory of distribution
Q.16 Which factor’s supply is perfectly inelastic?
Labor
Capital
Land
Entrepreneurship
Explanation - Land supply is fixed in quantity, making it perfectly inelastic.
Correct answer is: Land
Q.17 What is the effect of technological improvement on the demand for labor?
Always decreases labor demand
Always increases labor demand
Can increase or decrease depending on type of labor
No effect
Explanation - Technology can complement some labor (increasing demand) or substitute for it (reducing demand).
Correct answer is: Can increase or decrease depending on type of labor
Q.18 Which of the following best explains the concept of rent in economics?
Payment for services
Payment for land use
Payment for labor
Payment for capital
Explanation - Rent refers to payment made for using land or natural resources.
Correct answer is: Payment for land use
Q.19 What is the primary reward for providing capital in production?
Wages
Rent
Interest
Profit
Explanation - Interest is the payment for the use of capital such as machinery or money.
Correct answer is: Interest
Q.20 If the wage rate is above the equilibrium level, what is likely to happen in the labor market?
Labor shortage
Labor surplus
No change
Demand for labor increases
Explanation - A higher than equilibrium wage leads to more people willing to work than there are jobs, creating surplus.
Correct answer is: Labor surplus
Q.21 Which factor of production is rewarded with profit?
Land
Labor
Capital
Entrepreneurship
Explanation - Entrepreneurs earn profit for taking risks and organizing production.
Correct answer is: Entrepreneurship
Q.22 The elasticity of factor demand measures:
Responsiveness of factor supply to price change
Responsiveness of factor demand to price change
Responsiveness of product demand to factor demand
None of the above
Explanation - Elasticity of factor demand indicates how sensitive the quantity demanded of a factor is to changes in its price.
Correct answer is: Responsiveness of factor demand to price change
Q.23 Which of the following is NOT a determinant of factor pricing?
Marginal productivity of the factor
Supply of the factor
Demand for the product
Consumer tastes for luxury goods
Explanation - Factor pricing depends on productivity, supply, and derived demand, not directly on consumer tastes unrelated to the factor's output.
Correct answer is: Consumer tastes for luxury goods
Q.24 A monopsonist in the labor market will:
Pay a wage equal to marginal revenue product
Pay a wage lower than in a competitive market
Hire more labor than in competitive market
Have no effect on wages
Explanation - A monopsonist can influence wages and typically pays less than the competitive equilibrium wage.
Correct answer is: Pay a wage lower than in a competitive market
Q.25 The total earnings of a factor is calculated by:
Price × Quantity of factor employed
Total output × Price of product
Total profit × Factor share
None of the above
Explanation - Total earnings or income of a factor is its wage, rent, or interest multiplied by the quantity employed.
Correct answer is: Price × Quantity of factor employed