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Module 70

This document contains a module on land and capital markets, including questions to check understanding. It discusses how events like increasing land supply through land reclamation or improving farm productivity through fertilizers would affect land rental rates and quantities. It also explains that firms competing for the same land will pay the same value of marginal product for land regardless of industry. The multiple choice questions cover topics like implicit costs, supply curves for land, and the marginal productivity theory of income distribution.

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avril genao
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110 views

Module 70

This document contains a module on land and capital markets, including questions to check understanding. It discusses how events like increasing land supply through land reclamation or improving farm productivity through fertilizers would affect land rental rates and quantities. It also explains that firms competing for the same land will pay the same value of marginal product for land regardless of industry. The multiple choice questions cover topics like implicit costs, supply curves for land, and the marginal productivity theory of income distribution.

Uploaded by

avril genao
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Module 70: The Markets for Land and Capital

Avril Antonella Genao Cerda

CHECK YOUR UNDERSTANDING


1. Explain how each of the following events would affect the equilibrium rental rate and the
equilibrium quantity in the land market.ce
a. Developers improve the process of lling in coastal waters with rocks and soil to form large
new are as of land: The supply curve would shift rightwards changing the equilibrium rental
rate since supply of land increases. (Higher quantity & rental rate)

b. New fertilizers improve the productivity of each acre of farmland: Higher quantity & rental
rate would be created since new fertilizers improving land give it a higher value of the marginal
product of land.

2. Explain the following statement: “When rms in different industries all compete for the same land,
the value of the marginal product of the last unit of land rented will be equal across all rms,
regardless of whether they are in different industries.”
- Every unit of land will be paid by the equilibrium rental rate, meaning rms will pay until the
value of the output last generated is the same as the rental rate

MULTIPLE CHOICE QUESTIONS


1. The implicit cost of capital that you own is
A. the rental rate: “the cost, explicit or implicit, of using a unit of that asset for a given period of
time” - book
B. greater than the rental rate.
C. the original purchase price of the capital.
D. greater than the original purchase price of the capital.
E. zero because you already own it.

2. Which of the following is true in relation to a very steep supply curve for land?
I. It is relatively elastic.
II. The quantity of land is very responsive to price changes.
III. Finding new supplies of land is relatively expensive and dif cult.
A. I only
B. II only
C. III only: Finding new supplies of land is relatively expensive and dif cult since increasing
quantity of land is extremely hard making it have little responsiveness to price changes
therefore making it a very steep supply curve
D. I and II only
E. I, II, and III



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3. The explicit cost of land you don’t own is equal to the
A. rental rate: again “the cost, explicit or implicit, of using a unit of that asset for a given period
of time” - book
B. interest rate.
C. pro t received from using that land.
D. market wage rate.
E. marginal product of land.

4. A rm will continue to employ more land until its value of the marginal product of land is
A. zero.
B. maximized.
C. equal to the rental rate: the marginal productivity theory of income distribution says that
every factor of production is paid the equilibrium value of its marginal product
D. equal to the wage rate.
E. equal to the value of the marginal product of labor and capital.

5. According to the marginal productivity theory of income distribution,


A. each unit of a factor will be paid the value of its marginal product.
B. as more of a factor is used, its marginal productivity increases.
C. factors that receive higher payments are less productive.
D. capital should receive the highest portion of factor income.
E. each factor is paid the equilibrium value of its marginal product: because yes idk how to
explain that one, its just because the book says so "every factor of production is paid the
equilibrium value of its marginal product"

FREE RESPONSE QUESTIONS


1. Refer to the table below. Assume that the price of the product is $10 and the rental rate for capital
is $100 per unit.

- What is the VMP of the 2nd unit of capital? 25*10 = 250


- Will the rm employ the 2nd unit of capital? Yes since the rental rate is $100 and VMP is
higher than this, being $250
- How many units of capital will the rm hire? Until 3 since here is where the VMP is higher
than the rental rate
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2. Draw a correctly labeled graph showing how the market rental rate and quantity of land are
determined in the land market. On your graph, be sure to include each of the following: the supply
and demand curves for land, the equilibrium rental rate, the equilibrium quantity of land employed,
and correct labels on the axes.

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