Test Questions with Answers
Chapter 16. Market Theory II.
Factor Markets. Income Distribution. Present Value. Wage Theory
Chapter 16 ― Question 1
Which of the following is an investment in human capital
- employee purchases of company stock
- social-security contributions paid by employers for their employees
- employee payments into an old-age pension scheme
- an internship in a hospital for a student of medicine
*D. An investment in human capital improves the productivity of workers.
Chapter 16 ― Question 2
The wage rate increases from $8 to $10. As a result. a worker increases his labour hours from 4 to 6. What is the worker's supply elasticity?
* It is percentage change in quantity/ percentage change in price. 50 percent/25 percent = 2.0.
Chapter 16 ― Question 3
The demand curve for labour is downward sloping because
- less labour is available as the wage rate falls
- the performance of labour declines if there is full employment
- the marginal product of labour declines as more labour is hired
- the firm must lower price to sell more units of output
*C. Answer A is a statement about the supply curve of labour. Answer D is a statement about the demand curve for the firm's product.
Chapter 16 ― Question 4
Please define present value.
* Present value equals the amount of money that you must invest today in securities to receive the same future payoffs that you would receive from capital investment.
Chapter 16 ― Question 5
Write down the formula to calculate present value of capital.
| * | Present Value = | N1 | + | N2___ + .... |
| (1 + i) | (1+i) 2 |
Chapter 16 ― Question 6
If the rent received for a building is $10,000 per year and interest foregone is 5 percent, what is the present value of the building?
- $2,000
- $200,000
- $50,000
- none of the above
*B. Rent received per year
Interest
The interest rate must be transformed into a decimal. 5 percent becomes 0.05.
Chapter 16 ― Question 7
Is present value low or high when interest and the number of years are high?
* The higher interest rates and the number of years are, the lower present value is. Present value is negatively related to interest rates and the number of investment years. This is because both of them are in the denominator and make the value of the fraction smaller.
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