Factor Pricing and Distribution MCQs 2026

The demand for a factor is called derived demand because

1. Ait is independent of output✓
2. Bfactors are free✓
3. Cit depends on demand for the final product✓
4. Dwages are fixed by law only✓

According to Ricardian theory, rent arises because of

1. Alabour productivity alone✓
2. Bdifferences in fertility and scarcity of land✓
3. Cinterest on capital only✓
4. Dmonopoly of money✓

Ricardian rent is

1. Aa surplus over the cost of production on intramarginal land✓
2. Bthe wage of labour✓
3. Cinterest on loans✓
4. Dprofit of the entrepreneur✓

Quasi-rent refers to

1. Apermanent Ricardian rent only✓
2. Binterest only✓
3. Ctransfer earnings only✓
4. Dshort-run surplus earned by factors fixed in supply✓

Transfer earnings of a factor are

1. Atotal rent always✓
2. Beconomic profit only✓
3. CMRP minus VMP✓
4. Dthe minimum payment needed to keep it in its present use✓

Economic rent is

1. Aonly contractual wage✓
2. Bpayment to a factor above its transfer earnings✓
3. Conly interest rate✓
4. Daccounting cost only✓

The marginal productivity theory of distribution says a factor is paid

1. Aits marginal revenue product (under competition)✓
2. Baverage fixed cost✓
3. Ctotal revenue only✓
4. Dhistorical cost✓

MRP equals

1. AATC × AFC✓
2. Bonly total product✓
3. CMPP × MR (or VMP = MPP × P under perfect competition in product market)✓
4. Dinterest rate✓

Under imperfect competition in the product market, MRP is

1. Aequal to VMP always✓
2. Bgreater than VMP always✓
3. Cless than VMP because MR < P✓
4. Dequal to AFC✓

Wage differentials may persist due to

1. Adifferences in skill, risk, location and non-competing groups✓
2. Bidentical MRP everywhere✓
3. Czero mobility costs always✓
4. Dperfect information only✓

Subsistence theory of wages is associated with

1. AKeynes only✓
2. BChamberlin only✓
3. Cclassical economists (iron law of wages)✓
4. DRicardo on interest only✓

The residual claimant theory treats profit as

1. Aa contractual wage✓
2. Bpure interest only✓
3. CRicardian rent only✓
4. Dwhat remains after paying other factors✓

Interest, in classical/loanable funds views, is the price of

1. Aborrowing/lending (waiting or use of capital)✓
2. Bland services only✓
3. Clabour hours only✓
4. Dmonopoly power only✓

Liquidity preference theory of interest is associated with

1. ADavid Ricardo✓
2. BJ.M. Keynes✓
3. CAdam Smith only✓
4. DChamberlin✓

According to Keynes, the three motives for holding money are

1. Aonly investment motive✓
2. Brent, wage and profit✓
3. Conly precautionary✓
4. Dtransactions, precautionary and speculative✓

The speculative demand for money varies

1. Adirectly with interest always✓
2. Bnot at all with interest✓
3. Conly with land rent✓
4. Dinversely with the rate of interest✓

Profit as a reward for uncertainty-bearing is associated with

1. AF.H. Knight✓
2. BRicardo on differential rent✓
3. CMarshall on quasi-rent only✓
4. DWalras on tatonnement only✓

Schumpeter linked profit mainly to

1. Asubsistence wages only✓
2. BRicardian rent only✓
3. Cliquidity preference only✓
4. Dinnovation and creative destruction✓

Collective bargaining can raise wages above competitive levels if

1. Aunions have bargaining power and firms have rents to share✓
2. Blabour supply is perfectly elastic forever✓
3. CMRP is zero✓
4. Dproduct markets are perfectly competitive with free entry always and no rents✓

The addition to total cost from employing one more unit of a factor is

1. Aaverage revenue✓
2. BAFC only✓
3. Cconsumer surplus✓
4. Dmarginal factor cost (MFC)✓

A monopsonistic employer hires where

1. Awage = MRP always✓
2. BMFC = AFC✓
3. CMR = AR✓
4. DMRP = MFC, paying a wage below MRP✓

Euler's theorem (under constant returns and competitive pricing) implies

1. Arent is always zero✓
2. Bprofit is always maximum✓
3. Cwages equal rent✓
4. Dtotal product is exhausted by factor payments at MRP✓

Land's supply is often treated as

1. Aperfectly elastic at zero price✓
2. Bperfectly inelastic (in Ricardian pure theory)✓
3. Cidentical to labour supply✓
4. Dupward then backward always✓

Backward-bending labour supply can occur when

1. Asubstitution effect always dominates✓
2. Bleisure is inferior always✓
3. Cincome effect of higher wages outweighs substitution effect✓
4. DMRP is negative✓

Human capital theory explains higher wages partly by

1. Aonly inherited land rent✓
2. Beducation and training raising productivity✓
3. Cliquidity preference✓
4. Dcartel pricing of goods only✓

The interest rate in loanable funds theory is determined by

1. Aonly money illusion✓
2. Bonly wage bargains✓
3. Csupply of saving and demand for investment funds✓
4. Donly land fertility✓

Risk premium in interest rates compensates lenders for

1. Apossibility of default and uncertainty✓
2. Bguaranteed zero risk✓
3. Conly inflation exactly measured✓
4. DRicardian rent✓

Normal profit is best treated as

1. Athe opportunity cost of entrepreneurship (included in cost)✓
2. Balways a monopoly rent✓
3. Calways zero accounting profit✓
4. Dinterest on government bonds only✓

Supernormal (economic) profit is

1. Aequal to wages✓
2. Breturn above normal profit✓
3. Cequal to transfer earnings only✓
4. Dalways negative✓

VMP (value of marginal product) equals

1. AMPP × MR under monopoly✓
2. BATC × P✓
3. CMPP × product price✓
4. Donly wage✓

Factor intensity of a technique refers to

1. Arelative use of labour vs capital (or other factors)✓
2. Bonly absolute output✓
3. Conly money wages✓
4. Donly land rent✓

The elasticity of demand for labour is higher when

1. Aproduct demand is perfectly inelastic and no substitutes exist✓
2. BMRP is undefined✓
3. Cproduct demand is more elastic and labour's share/substitutability is greater✓
4. Dcapital is useless✓

Differential rent of the first order (Ricardo) is due to

1. Adifferences in interest rates only✓
2. Bdifferences in land fertility✓
3. Cunion power only✓
4. Dmoney supply only✓

Situation rent arises from

1. Aadvantageous location✓
2. Bonly soil chemistry✓
3. Conly patents✓
4. Donly speculative money demand✓

Scarcity rent appears when

1. Aall land is free✓
2. Bsupply of land is infinite at zero price✓
3. Ceven the least fertile land in use earns a surplus due to overall scarcity✓
4. Dwages equal zero✓

Profit theory of innovation implies profits are

1. Apermanent without entry✓
2. Btemporary until imitation erodes the advantage✓
3. Cequal to wages always✓
4. Dindependent of technology✓

Real wages differ from money wages because real wages

1. Aignore price level✓
2. Bmeasure purchasing power (money wages deflated by prices)✓
3. Cequal nominal GDP✓
4. Dequal interest rates✓

The functional distribution of income studies shares of

1. Aonly personal disposable income by household✓
2. Bonly regional GDP✓
3. Cwages, rent, interest and profit✓
4. Donly tax brackets✓

In a competitive labour market, the firm's labour demand curve is

1. Athe MFC curve above supply✓
2. Bhorizontal at subsistence✓
3. Cidentical to labour supply✓
4. Dthe MRP curve (downward sloping portion)✓

Exploitation of labour in the Pigouvian/Robinson sense occurs when

1. Awage equals MRP✓
2. Bwage is less than MRP (or VMP)✓
3. Cwage exceeds MRP always✓
4. Drent equals zero✓