Business Finance

Factor Markets

17. Factor markets are

1. markets for commodities such as gold, oil and other metals and minerals.
2. markets for land and mineral resources.
3. markets for land, labor, raw materials and capital used as inputs to the production process.
4. markets for non-renewable resources.

18. At profit maximization, when a competitive factor market is in equilibrium, the price of the factor will equal

1. the additional revenue resulting from the sale of the output produced by the use of one addition unit of the factor of production.
2. The marginal revenue product of the factor.
3. The price at which the factor market quantity demanded equals the quantity supplied of the factor.
4. All of the above.

19. The backward bend in the individual’s labor supply curve is due to

1. the income effect of the higher wage: The worker is able to purchase more leisure, and work fewer hours, at higher wage levels.
2. the substitution effect of the higher wage which encourages the worker to work more hours.
3. higher level of injuries that occur at higher wages and increased work time: Workers eventually become injured as they are enticed by higher wages to work more and so must then cut back on hours worked.
4. All of the above.

20. Economists expect that with a government imposed minimum wage, if set above the competitive labor market equilibrium wage and all else remains equal, would tend to

1. increase employment and earnings, as more people want to work at the higher wage.
2. increase the earnings of those workers who remain employed, and increase unemployment.
3. decrease the earnings of those workers who remain employed, and reduce the number of workers seeking employment.
4. increase the earnings of those workers who remain employed, and reduce the number of workers seeking employment.

Thinking like an Economist

21. Your opportunity cost of going to a movie is

1. The price of the ticket
2. The price of the ticket plus the cost of popcorn you buy at the theater
3. The total cash expenditure needed to go to the movie, plus the value of your time
4. Zero, as long as you enjoy the movie and consider it a worthwhile use of time and money.

22. Governments may intervene in a market economy in order to

1. Protect property rights
2. Correct a market failure due to externalities
3. Achieve a more equal distribution of income
4. All of the above

23. A point inside the production possibilities frontier is

1. Efficient but not feasible
2. Feasible but not efficient
3. Both efficient and feasible
4. Neither efficient nor feasible.

24. Which of the following is a positive, rather than a normative, statement?

1. Law X will reduce national income
2. Law X is a good piece of legislation
3. Congress ought to pass law X
4. The President should veto law X.

25. Which goods will a nation typically import?

1. Those goods in which the nation has an absolute advantage.
2. Those goods in which the nation has a comparative advantage.
3. Those goods in which the other nation has an absolute advantage.
4. Those goods in which the other nation has a comparative advantage.

PART B: What happens to Price and Quantity When Supply and/or Demand Shifts?(no change, increase, decrease, or ambiguous)

	No Change in Supply	An Increase in Supply	A Decrease in Supply
No Change in Demand	P ?? no change Q ?? no change	P ?? Q ??	P ?? Q ??
An Increase in Demand	P ?? Q ??	P ?? Q ??	P ?? Q ??
A Decrease in Demand	P ?? Q ??	P ?? Q ??	P ?? Q ??

PART C – CPI and PPP

Nominal (current) vs Real (constant) prices – use CPI handout from 2-13-2019

1. What was the inflation rate between 1989 and 1990?
2. What was the average annual inflation rate in the 10 years between 1980 and 1990?
3. Purchasing Power Parity (PPP): Assume no border controls between the US and Mexico, a Big Mac costs $5 in the US and 100 pesos in Mexico.
   1. If the exchange rate were $1 = 10 pesos, would you expect anyone to exchange their currency and purchase their Big Mac across the border?In which direction?
   2. At this exchange rate, according to PPP, is the peso overvalued or undervalued?
   3. If PPP holds, what would the long run, PPP$ exchange rate be?

4.Look up the following 2015 WHO data for Bangladesh, Switzerland and the United States

http://apps.who.int/gho/data/node.main.HEALTHFINANCING

	Bangladesh	Switzerland	United States
Current health expenditure (CHE) per capita in US$
Current health expenditure (CHE) per capita in PPP$

PART D – What is the 2017 (1-year estimate) Gini Coefficient for your geography?Use ACS table B19083.Is it higher or lower than the 2017 Gini Coefficient for the U.S.?