Factor Pricing and Distribution MCQs 2026

Land's supply is often treated as

1. A perfectly elastic at zero price ✓
2. B perfectly inelastic (in Ricardian pure theory) ✓
3. C identical to labour supply ✓
4. D upward then backward always ✓

The demand for a factor is called derived demand because

1. A it is independent of output ✓
2. B factors are free ✓
3. C it depends on demand for the final product ✓
4. D wages are fixed by law only ✓

According to Ricardian theory, rent arises because of

1. A labour productivity alone ✓
2. B differences in fertility and scarcity of land ✓
3. C interest on capital only ✓
4. D monopoly of money ✓

Ricardian rent is

1. A a surplus over the cost of production on intramarginal land ✓
2. B the wage of labour ✓
3. C interest on loans ✓
4. D profit of the entrepreneur ✓

Quasi-rent refers to

1. A permanent Ricardian rent only ✓
2. B interest only ✓
3. C transfer earnings only ✓
4. D short-run surplus earned by factors fixed in supply ✓

Transfer earnings of a factor are

1. A total rent always ✓
2. B economic profit only ✓
3. C MRP minus VMP ✓
4. D the minimum payment needed to keep it in its present use ✓

Economic rent is

1. A only contractual wage ✓
2. B payment to a factor above its transfer earnings ✓
3. C only interest rate ✓
4. D accounting cost only ✓

The marginal productivity theory of distribution says a factor is paid

1. A its marginal revenue product (under competition) ✓
2. B average fixed cost ✓
3. C total revenue only ✓
4. D historical cost ✓

MRP equals

1. A ATC × AFC ✓
2. B only total product ✓
3. C MPP × MR (or VMP = MPP × P under perfect competition in product market) ✓
4. D interest rate ✓

Under imperfect competition in the product market, MRP is

1. A equal to VMP always ✓
2. B greater than VMP always ✓
3. C less than VMP because MR < P ✓
4. D equal to AFC ✓

Wage differentials may persist due to

1. A differences in skill, risk, location and non-competing groups ✓
2. B identical MRP everywhere ✓
3. C zero mobility costs always ✓
4. D perfect information only ✓

Subsistence theory of wages is associated with

1. A Keynes only ✓
2. B Chamberlin only ✓
3. C classical economists (iron law of wages) ✓
4. D Ricardo on interest only ✓

The residual claimant theory treats profit as

1. A a contractual wage ✓
2. B pure interest only ✓
3. C Ricardian rent only ✓
4. D what remains after paying other factors ✓

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

1. A borrowing/lending (waiting or use of capital) ✓
2. B land services only ✓
3. C labour hours only ✓
4. D monopoly power only ✓

Liquidity preference theory of interest is associated with

1. A David Ricardo ✓
2. B J.M. Keynes ✓
3. C Adam Smith only ✓
4. D Chamberlin ✓

According to Keynes, the three motives for holding money are

1. A only investment motive ✓
2. B rent, wage and profit ✓
3. C only precautionary ✓
4. D transactions, precautionary and speculative ✓

The speculative demand for money varies

1. A directly with interest always ✓
2. B not at all with interest ✓
3. C only with land rent ✓
4. D inversely with the rate of interest ✓

Profit as a reward for uncertainty-bearing is associated with

1. A F.H. Knight ✓
2. B Ricardo on differential rent ✓
3. C Marshall on quasi-rent only ✓
4. D Walras on tatonnement only ✓

Schumpeter linked profit mainly to

1. A subsistence wages only ✓
2. B Ricardian rent only ✓
3. C liquidity preference only ✓
4. D innovation and creative destruction ✓

Collective bargaining can raise wages above competitive levels if

1. A unions have bargaining power and firms have rents to share ✓
2. B labour supply is perfectly elastic forever ✓
3. C MRP is zero ✓
4. D product 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. A average revenue ✓
2. B AFC only ✓
3. C consumer surplus ✓
4. D marginal factor cost (MFC) ✓

A monopsonistic employer hires where

1. A wage = MRP always ✓
2. B MFC = AFC ✓
3. C MR = AR ✓
4. D MRP = MFC, paying a wage below MRP ✓

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

1. A rent is always zero ✓
2. B profit is always maximum ✓
3. C wages equal rent ✓
4. D total product is exhausted by factor payments at MRP ✓

Backward-bending labour supply can occur when

1. A substitution effect always dominates ✓
2. B leisure is inferior always ✓
3. C income effect of higher wages outweighs substitution effect ✓
4. D MRP is negative ✓

Human capital theory explains higher wages partly by

1. A only inherited land rent ✓
2. B education and training raising productivity ✓
3. C liquidity preference ✓
4. D cartel pricing of goods only ✓

The interest rate in loanable funds theory is determined by

1. A only money illusion ✓
2. B only wage bargains ✓
3. C supply of saving and demand for investment funds ✓
4. D only land fertility ✓

Risk premium in interest rates compensates lenders for

1. A possibility of default and uncertainty ✓
2. B guaranteed zero risk ✓
3. C only inflation exactly measured ✓
4. D Ricardian rent ✓

Normal profit is best treated as

1. A the opportunity cost of entrepreneurship (included in cost) ✓
2. B always a monopoly rent ✓
3. C always zero accounting profit ✓
4. D interest on government bonds only ✓

Supernormal (economic) profit is

1. A equal to wages ✓
2. B return above normal profit ✓
3. C equal to transfer earnings only ✓
4. D always negative ✓

VMP (value of marginal product) equals

1. A MPP × MR under monopoly ✓
2. B ATC × P ✓
3. C MPP × product price ✓
4. D only wage ✓

Factor intensity of a technique refers to

1. A relative use of labour vs capital (or other factors) ✓
2. B only absolute output ✓
3. C only money wages ✓
4. D only land rent ✓

The elasticity of demand for labour is higher when

1. A product demand is perfectly inelastic and no substitutes exist ✓
2. B MRP is undefined ✓
3. C product demand is more elastic and labour's share/substitutability is greater ✓
4. D capital is useless ✓

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

1. A differences in interest rates only ✓
2. B differences in land fertility ✓
3. C union power only ✓
4. D money supply only ✓

Situation rent arises from

1. A advantageous location ✓
2. B only soil chemistry ✓
3. C only patents ✓
4. D only speculative money demand ✓

Scarcity rent appears when

1. A all land is free ✓
2. B supply of land is infinite at zero price ✓
3. C even the least fertile land in use earns a surplus due to overall scarcity ✓
4. D wages equal zero ✓

Profit theory of innovation implies profits are

1. A permanent without entry ✓
2. B temporary until imitation erodes the advantage ✓
3. C equal to wages always ✓
4. D independent of technology ✓

Real wages differ from money wages because real wages

1. A ignore price level ✓
2. B measure purchasing power (money wages deflated by prices) ✓
3. C equal nominal GDP ✓
4. D equal interest rates ✓

The functional distribution of income studies shares of

1. A only personal disposable income by household ✓
2. B only regional GDP ✓
3. C wages, rent, interest and profit ✓
4. D only tax brackets ✓

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

1. A the MFC curve above supply ✓
2. B horizontal at subsistence ✓
3. C identical to labour supply ✓
4. D the MRP curve (downward sloping portion) ✓

Exploitation of labour in the Pigouvian/Robinson sense occurs when

1. A wage equals MRP ✓
2. B wage is less than MRP (or VMP) ✓
3. C wage exceeds MRP always ✓
4. D rent equals zero ✓