Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 7, Problem 3.4P
(a)
To determine
What kind of building represents substitution of capital for land.
(b)
To determine
Reason for the difficulty in substitution of capital for land.
(c)
To determine
Graphical illustration of total cost.
(d)
To determine
Why the demand for land is high in the center of the city.
(e)
To determine
Supply of land.
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Since the end of World War II, manufacturing firms in the United States and in Europe have been moving farther and farther outside of central cities. At the same time, firms in finance, insurance, and other parts of the service sector have been locating near downtown areas in tall buildings. One major reason seems to be that manufacturing firms find it difficult to substitute capital for land, whereas service-sector firms that use office space do not.
a. What kinds of buildings represent the substitution of capital for land?
b. Why do you think that manufacturing firms might find it difficult to substitute capital for land?
c. Why is it relatively easier for a law firm or an insurance company to substitute capital for land?
Since the end of World War II, manufacturing firms in the United States and in Europe have been moving farther and farther outside of central cities. At the same time, firms in finance, insurance, and other parts of the service sector have been locating near downtown areas in tall buildings. One major reason seems to be that manufacturing firms find it difficult to substitute capital for land, whereas service-sector firms that use office space do not.
d. Why is the demand for land likely to be high near the center of a city?
*e. One of the reasons for substituting capital for land near the center of a city is that land is more expensive near the center. What is true about the relative supply of land near the center of a city? (Hint: What is the formula for the area of a circle?)
Which of the following statements about capital are correct?
a) In economic jargon capital is the net worth of a business enterprise.
b) Capital is defined as anything that is produced that then produces other things
c) An increase in capital will grow the economy because capital is a resource in the production process and an increase in resources increases the production possibilities or potential production of the economy.
d) Capital represents the tools that labor uses and thus an increase in capital tends to increase the productivity of labor (and possibly other resources) and that magnifies economic growth.
e) Most technological advances involve improvements to the tools of production, which is capital, so embodiment of new technology in capital is yet another way capital fosters economic growth.
f) increasing capital in the economy has to lead to greater income inequality, since most capital is owned by the rich.…
Chapter 7 Solutions
Principles of Economics (12th Edition)
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