If an Earthquake Destroys Some of the Capital Stock, the Neoclassical

question 59

Multiple Choice

If an earthquake destroys some of the capital stock, the neoclassical theory of distribution predicts:

• A) the real wage will rise and the real rental price of capital will fall.
• B) both the real wage and the real rental price of capital will fall.
• C) both the real wage and the real rental price of capital will rise.
• D) the real wage will fall and the real rental price of capital will rise.

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Definitions:

Elastic Demand

A situation where the demand for a product or service significantly changes in response to price fluctuations, with greater sensitivity indicating higher elasticity.

Single Price

A market condition where a good or service is sold at the same price to all customers, regardless of purchase quantity or location.

Nondiscriminating Monopolist

A monopolist that charges the same price to all customers, as opposed to engaging in price discrimination where different prices are charged to different customers.

Natural Monopoly

A market condition where due to high fixed or startup costs, a single firm can supply a good or service to an entire market at a lower cost than multiple companies.