Chapter 17 Micro - M/C with answers PDF

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Chapter 17 The Land Market and Natural Resources MULTIPLE CHOICE 1. The category of resources economists call “land” refers to all of the following, except: a. nonrenewable natural resources. b. renewable natural resources. c. oceans. d. minerals. e. buildings. ANS: E DIF: Easy REF: 1 OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 2. In the market for land as a resource, the demand curve is elastic while the supply curve is perfectly inelastic. Identify the underlying assumption. a. There are limited ways in which land can be used as a resource. b. Land as an input has large number of substitutes. c. There is a fixed supply of land. d. Land includes all immovable assets. e. Land looses productivity over time. ANS: C DIF: Challenging REF: 1.a OBJ: ch. 17, 1 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Land MSC: Comprehension 3. The earnings of which of the following resources will comprise entirely of economic rent? a. Unskilled labor b. Coal c. Timber d. Water e. Biomass ANS: B DIF: Moderate REF: 1.a OBJ: ch. 17, 1 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Land MSC: Application 4. The supply curve in the market for land that has limited availability is: a. perfectly elastic. b. relatively inelastic. c. unit elastic. d. perfectly inelastic. e. relatively elastic. ANS: D DIF: Easy REF: 1.a OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 5. For resources with upward-sloping supply curves: a. earnings consist solely of economic rent. b. earnings consist of both transfer earnings and economic rent. c. earnings are called transfer earnings. d. earnings are called dividends.

e. earnings consist entirely of in-kind transfers. ANS: B DIF: Moderate REF: 1.a OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 6. What are the earnings of a resource with a perfectly elastic supply curve called? a. Transfer earnings b. Dividends c. Economic rent d. Capital gain e. Interest ANS: A DIF: Easy REF: 1.a OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 7. The returns that skilled engineering professionals earn consist of both transfer earnings and economic rent. This implies: a. demand for these professionals is highly elastic. b. the supply curve of skilled engineering professionals is upward-sloping. c. the supply curve of skilled engineering professionals is backward bending. d. demand for these professionals is perfectly inelastic. e. the supply curve of skilled engineering professionals is vertical. ANS: B DIF: Moderate REF: 1.a OBJ: ch. 17, 1 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Land MSC: Application 8. An increase in economic rent is simply a transfer from the buyer to the seller without any change in quantity. Identify the underlying assumption. a. Quantity supplied remains unchanged even when economic rent increases. b. Quantity supplied is positively related to economic rent. c. The relation between quantity supplied and economic rent is indeterminate for nonrenewable resources. d. Bargaining power of buyers is greater than sellers. e. Consumer surplus is a positive function of economic rent. ANS: A DIF: Challenging REF: 1.a OBJ: ch. 17, 1 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Land MSC: Analysis 9. When does the entire earning of a resource comprise of economic rent? a. When the supply curve of the resource is relatively elastic b. When the supply curve of the resource is horizontal c. When the supply curve of the resource is vertical d. When the supply curve of the resource is relatively inelastic e. When the supply curve of the resource is a ray through the origin ANS: C DIF: Moderate REF: 1.a OBJ: ch. 17, 1 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 10. Which of the following is true of earnings from land? a. An increase in economic rent leads to an increase in the supply of land.

b. c. d. e.

A decrease in transfer earnings from land leads to an increase in its demand. An increase in economic rent does not lead to an increase in the supply of land. A decrease in transfer earnings from land leads to a decrease in its supply. An increase in economic rent raises the elasticity of supply of land.

ANS: C DIF: Easy REF: 1.a OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 11. Unproductive actions designed to increase income or wealth are known as: a. transfer search. b. incorporation. c. profit seeking. d. income search. e. rent seeking. ANS: E DIF: Easy REF: 1.a OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 12. Which of the following actions can be categorized as rent seeking? a. Increase in the income tax rates by the government b. Lobbying efforts of individuals or groups to gain favors from the government c. Profit maximizing firms charging a price greater than their marginal costs d. Export of goods from developing to developed countries e. Government intervention in the real estate market ANS: B DIF: Moderate REF: Ch 17, 1.a OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 13. Lobbying efforts by individuals and firms: a. increase productive activities in the economy. b. merely transfer income and wealth from one individual or group to another. c. enable the firms to experience economies of scale. d. improves the overall standard of living in the economy. e. helps the economy to produce the efficient level of output. ANS: B DIF: Moderate OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge NARRBEGIN: Figure 17.1 The figure given below represents an imperfectly competitive resource market. Here common land (and not land used for specific purpose) is under consideration. Figure 17.1

NARREND 14. In Figure 17.1, the curve A indicates: a. demand curve for land. b. supply curve of land. c. marginal factor cost of land. d. marginal revenue product curve for land. e. value of marginal product curve of land. ANS: B DIF: Moderate REF: 1.a OBJ: ch. 17, 1 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Land MSC: Application 15. In Figure 17.1, the curve B indicates: a. supply curve of land. b. marginal revenue product curve for land. c. value of marginal product curve of land. d. marginal factor cost curve of land. e. marginal product curve of land. ANS: B DIF: Moderate REF: 1.a OBJ: ch. 17, 1 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Land MSC: Application 16. The supply curve of land in the market for uses of land is: a. perfectly inelastic. b. nonexistent. c. perfectly elastic. d. positively sloped. e. negatively sloped. ANS: D DIF: Moderate REF: 1.b OBJ: ch. 17, 1 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 17. Which of the following is a nonrenewable source of energy?

a. b. c. d. e.

Corn Ethanol Petroleum Bagasse Biomass

ANS: C DIF: Moderate REF: 2 OBJ: ch. 17, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Application 18. For any particular period of time, say a year, the supply of exhaustible resources: a. decreases infinitely with increase in price. b. remains unaffected by any change in price. c. increases infinitely with increase in price. d. increases to a certain extent with increase in price. e. decreases to a certain extent with increase in price. ANS: D DIF: Easy REF: 2 OBJ: ch. 17, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Knowledge 19. The marginal cost of extraction of a nonrenewable resource increases with passage of time because: a. the technology used in extraction depreciates in value. b. the price of the product that uses this resource increases. c. the exchange rate in the international market appreciates. d. the tragedy of commons problem is encountered. e. the resource gradually becomes scarce. ANS: E DIF: Moderate REF: 2 OBJ: ch. 17, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Knowledge 20. What is the most likely consequence when people’s preference for current consumption rises in relation to future consumption? a. Interest rates will fall, and the rate of extraction of exhaustible natural resources will decrease. b. Interest rates will fall, and the rate of extraction of exhaustible natural resources will increase. c. Interest rates will rise, and the rate of extraction of exhaustible natural resources will decrease. d. Interest rates will rise, and the rate of extraction of exhaustible natural resources will increase. e. Interest rates will fall, and there will be no effect on the rate of extraction of exhaustible natural resources. ANS: D DIF: Moderate REF: 2 OBJ: ch. 17, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Application 21. Because there is a finite supply of a nonrenewable resource: a. it has inadequate substitutes. b. any use of that resource today will leave less available for tomorrow. c. such resources are replenished faster than they are consumed. d. the government subsidizes the extraction of such resources. e. any use of that resource today means the value of the resource in the future will be less.

ANS: B DIF: Easy REF: 2 OBJ: ch. 17, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Knowledge 22. As extraction of a nonrenewable resource increases, the supply curve shifts up because: a. more substitutes become available. b. competition among the existing suppliers intensifies. c. the marginal cost of extracting any given amount increases. d. the resource finds alternative usage. e. the resource becomes less productive. ANS: C DIF: Challenging REF: 2 OBJ: ch. 17, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Application 23. On account of a massive construction boom in a country, the demand for iron ore increases substantially. This causes iron ore prices to escalate. Producers increase iron ore mining considerably in the short run, in spite of knowing that this will adversely affect future availability of ore. Which of the following is most similar to the scenario described above? a. Corn producers hoard their supplies in order to induce a price hike. b. Petroleum manufacturers increase extraction in response to sky-rocketing fuel prices. c. The government of a country makes aforestation mandatory for lumber firms. d. Impressive revenue generation induces the government of a country to impose additional fuel surcharge. e. To discourage smoking, the government of a country increases sales tax on cigarettes. ANS: B DIF: Challenging REF: 2 OBJ: ch. 17, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Analysis 24. The market’s role is to ensure that nonrenewable resources are allocated across time to where they are most highly valued. This implies, if more is used today: a. the future supply curve shifts downward. b. financial investments offer a lower rate of return. c. the return on saving the resource for future use rises. d. the expected demand for the resource in the future is low. e. technological advancement will guarantee a steady future supply. ANS: C DIF: Moderate REF: 2 OBJ: ch. 17, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Analysis 25. In the market for crude oil, everything held constant, if rate of interest of simple bank accounts or interest-bearing investments decline: a. the consumption of crude oil declines in the present period. b. the extraction of crude oil will increase today. c. the price of the crude oil in the international market falls in the present period. d. greater research and developments are conducted to locate new sites of crude oil in the present period. e. the extraction of crude oil will fall in the present period. ANS: E DIF: Moderate REF: 2 OBJ: ch. 17, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Application

26. As suppliers and potential suppliers of exhaustible resources continually calculate whether to extract now or in future, and how much to extract, an equilibrium arises when: a. the cost of extracting such resources is equal to its price. b. the rate of return for such resources equals the rate of interest on alternative uses of the funds. c. the cost of extracting such resources is equal to the price of the commodity using these resources. d. the price of such resources is equal to the rate of interest of bank accounts and other interest-bearing investments. e. the rate of return on alternative investments is equal to the cost of extracting such resources. ANS: B DIF: Moderate REF: 2 OBJ: ch. 17, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Knowledge 27. The supply of hydro electric power: a. can be varied infinitely in the short run. b. remains fixed in the long run. c. decreases with increase in price in the short run. d. reduces in the future due to continuous consumption today. e. increases with increase in price in the long run. ANS: E DIF: Moderate REF: 3 OBJ: ch. 17, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Renewable Resources MSC: Application 28. In the market for hardwood, everything else held constant, if the rate of interest increases: a. the price of the hardwood will fall today. b. the lumberjacks will harvest fewer trees today. c. prices of boats and furniture will increase in the present period. d. the lumberjacks will harvest all the trees leaving nothing for the future. e. the price of the hardwood will fall in the future. ANS: A DIF: Moderate REF: 3 OBJ: ch. 17, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Renewable Resources MSC: Application 29. The markets for renewable and nonrenewable resources operate to ensure that: a. the producers using these resources earn above-normal profits even in the long run. b. the current and future prices of such resources remain high. c. the cost of extraction of such resources increase with increase in price. d. the current price of such resources should remain low but the future prices should increase to increase profitability of the producers. e. the current and future wants for these resources are satisfied in the least costly manner. ANS: E DIF: Moderate REF: 3 OBJ: ch. 17, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Renewable Resources MSC: Knowledge

30. The people of Andres, a small fishing village in a country, are facing extremely difficult times as their source of livelihood is threatened. Unregulated by the government, the coastline was subject to overfishing for a long time, adversely affecting the stock of fish. The variety of fish has declined and it takes much longer to haul in a decent catch these days. People in Andres are worried that they may have to migrate to other areas or look for alternative sources to earn a living. Which of the following is most similar to this scenario? a. Oil producers hoard the extracted oil to increase prices. b. Public highways get congested because they are nonexclusive. c. Poaching of the Javan rhino for its priced horns in unprotected forest belts of Indonesia has led to its near extinction. d. People in Jinbong village now have to pay to be able to fish in the local pond. e. A farmer shifts from potato to corn cultivation because the latter offers more profits. ANS: C DIF: Challenging REF: 3 OBJ: ch. 17, 3 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Renewable Resources MSC: Analysis 31. Lack of well-defined ____ may cause market failures. a. fiscal policies b. public transportation systems c. private property rights d. interest rates e. monetary policies ANS: C DIF: Easy REF: Ch 17, 3 OBJ: ch. 17, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Renewable Resources MSC: Knowledge 32. Common ownership of resources: a. is a system by which the government allocates the rights to harvest renewable resources. b. may fail to ensure that harvesting of renewable resources does not exceed the maximum sustainable yield. c. is an environmentally effective method of correcting for an externality problem in renewable resource conservation. d. efficiently controls the harvesting of renewable resources. e. usually helps in preventing market failures. ANS: B NAT: Analytic

DIF: Moderate REF: Ch 17, 3 TOP: Renewable Resources

OBJ: ch. 17, 3 MSC: Comprehension

33. In the market for both renewable and nonrenewable resources, the timing of the use of resources depends on: a. the alternatives uses to which the resource is put. b. the market rate of interest. c. the availability of substitutes. d. the elasticity of demand for resources. e. government regulations. ANS: B DIF: Easy REF: 3 OBJ: ch. 17, 3 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Renewable Resources MSC: Knowledge TRUE/FALSE

1. For resources with vertical supply curves, earnings comprise of both economic rent and transfer earnings. ANS: F DIF: Easy REF: 1.a OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 2. The supply of land being fixed, the earnings from land are called transfer earnings. ANS: F DIF: Easy REF: 1.a OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 3. An increase in economic rent is accompanied by an increase in the quantity supplied of a resource. ANS: F DIF: Moderate OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 4. Like profit-seeking, rent seeking is also a productive activity and contributes to the growth of the economy. ANS: F DIF: Easy REF: 1.a OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 5. An increase in demand for housing will lead to less land to be available for cultivation. ANS: T DIF: Easy REF: 1.b OBJ: ch. 17, 1 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Land MSC: Knowledge 6. Extraction of petroleum in the current period will shift the supply curve of petroleum outward in the future resulting in a fall in price of petroleum. ANS: F DIF: Moderate REF: 2 OBJ: ch. 17, 2 NAT: Reflective Thinking | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Application 7. Gold mining and the supply of gold not only depend on its price but also on the market rate of interest. ANS: T DIF: Easy REF: 2 OBJ: ch. 17, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Application 8. With the passage of time as the availability of an exhaustible resource declines, the cost of extraction of the resource increases. ANS: T DIF: Easy REF: 2 OBJ: ch. 17, 2 NAT: Analytic | The Study of Economics, and Definitions in Economics TOP: Nonrenewable Resources MSC: Knowledge 9. Anything that affects the marginal revenue product of a nonrenewable resource will affect the demand for that resource.

ANS: T NAT: Analytic

DIF: Moderate REF: Ch 17, 2 TOP: Renewable Resources

OBJ: ch. 17, 2 MSC: Knowledge

10. If the owner of a nonrenewable resource expects his profits to be high in future, he will abstain from resource extraction in the present period. ANS: T DIF: Easy REF:...