One issue with using lifetime earnings as a proxy for human life is that it treats
upper-income jobs and hence individuals in those jobs as more valuable than
lower-income individuals.
Answer:
When some people do not act rationally, others can profit from that irrationality.
Answer:
The payoff matrix shows the outcome for only one player in a game situation.
Answer:
When there are market externalities, the market allocation of resources will be optimal.
Answer:
Mechanism designers start by building models and then look for problems that their
models can solve.
Answer:
Monopolies that exist because economies of scale create a barrier to entry are called
natural monopolies.
Answer:
The Herfindahl index is calculated by adding the squared value of the market shares of
all the firms in the industry.
Answer:
When the person who chooses how much to purchase doesn’t have to bear the full cost,
the quantity demanded tends to be higher.
Answer:
Economists generally prefer direct regulation to incentive-based programs because
explicit regulation tends to be more efficient.
Answer:
Larry Summers once suggested outsourcing polluting industries to low-income
countries because it would involve a lower economic cost in those countries.
Answer:
Significant barriers to entry exist in a monopolistically competitive industry.
Answer:
Behavioral economists and traditional economists both believe that everything matters.
Answer:
Courts often estimate the value of human life on the basis of a person’s earnings over
that person’s remaining life span.
Answer:
Because only competitive firms are price takers, only competitive firms have supply
curves.
Answer:
Most economists believe that the infant industry argument for protection, though
theoretically justified, has been overused in practice.
Answer:
A perfectly competitive market is one in which many firms produce many different
varieties of the same product.
Answer:
Technical efficiency in production means a given level of output is produced with the
minimum amount of inputs.
Answer:
Moral hazard problems can occur when insured individuals change their behavior to the
detriment of the insurer.
Answer:
In strategic trade bargaining it is sometimes reasonable to be unreasonable.
Answer:
Economists’ suggestions for social policy are determined by subjective value judgments
as well as by objective economic analyses.
Answer:
The central element of the oligopoly model is that each firm produces a differentiated
product.
Answer:
Most economists would agree that each human life is beyond price.
Answer:
In experiments testing game theory, cheap talk does not affect the outcome of a game.
Answer:
An increase in demand causes equilibrium price and quantity to rise, other things
constant.
Answer:
A traditional economist believes that people are always rational.
Answer:
Under normal monopoly, P > MC, and so the marginal benefit to society of increasing
output exceeds the marginal cost. This means that an increase in output will increase
welfare.
Answer:
When the market is in equilibrium, total surplus is maximized.
Answer:
Suppose there is diminishing, but not negative, marginal utility and no inflation. If the
price of labor goes up, a worker will supply more labor. (Hint: The worker measures his
marginal costs in terms of hours worked.)
Answer:
The military draft can be seen as an implicit tax on potential recruits and a subsidy to
those who demand defense services.
Answer:
Feudalism and mercantilism relied on markets to solve the three main coordination
problems.
Answer:
The United States has a trade deficit when the value of the goods and services we
import exceeds the value of the goods and services we export.
Answer:
Tariffs are taxes that governments place on internationally traded goods.
Answer:
Economists deduce the value people place on their own lives by looking at what people
will pay to reduce the probability of death.
Answer:
A social entrepreneur’s central motivation in creating “for-benefit” corporations is to
achieve social, not just economic, ends.
Answer:
A price-discriminating monopolist will make less in profit than will one that does not
price-discriminate.
Answer:
Competitive pressure places a limit on firms’ laziness.
Answer:
Direct regulation means that government sets specific limits on the use of scarce
resources.
Answer:
When judging the competitiveness of markets by the size and number of firms in that
market, one is using the:
A. “judgment by performance” criteria.
B. “judgment by structure” criteria.
C. “judgment by merger” criteria.
D. “judgment by antitrust” criteria.
Answer:
If two choices are the same but one is presented in a positive manner and one in a
negative context, people:
A. are rational and respond the same.
B. respond the same because of loss aversion.
C. respond differently because of loss aversion.
D. respond differently because of the framing effect.
Answer:
If an economist believes that choice architecture is important, he or she is more likely to
be a:
A. traditional economist.
B. Keynesian economist.
C. behavioral economist.
D. formal economist.
Answer:
Refer to the graph shown. The richest 25 percent of the families earn:
A. 6 percent of the income.
B. 19 percent of the income.
C. 36 percent of the income.
D. 64 percent of the income.
Answer:
Assume the graphs shown reflect the egg market. The arrow that would best capture the
impact of cheaper, prefabricated henhouses on the egg market is:
A. W
B. X
C. Y
D. Z
Answer:
A decrease in the number of consumers in a market causes market demand to:
A. decrease, resulting in a surplus which will be eliminated as price rises.
B. decrease, resulting in a surplus which will be eliminated as price falls.
C. increase, resulting in a shortage which will be eliminated as price rises.
D. increase, resulting in a shortage which will be eliminated as price falls.
Answer:
Refer to the graph shown. If the firm increases output from 40 to 50, total revenue will
increase:
A. more than total cost, and so profit will increase.
B. more than total cost, and so profit will decrease.
C. less than total cost, and so profit will increase.
D. less than total cost, and so profit will decrease.
Answer:
If a positive externality is associated with the purchase of smoke detectors:
A. the marginal social benefit of smoke detectors exceeds their price.
B. the marginal social benefit of smoke detectors is zero.
C. the marginal social benefit of smoke detectors equals their price.
D. more than the efficient quantity of smoke detectors will be sold.
Answer:
Refer to the graph shown for a small country that is a price taker internationally.
Assume the foreign supply of this product is perfectly elastic at a price of $4 per unit.
Starting from a free trade equilibrium, a tariff in the amount of $2 per unit would be
expected to cause domestic production to:
A. increase from 2,400 to 7,400.
B. increase from 2,400 to 3,600.
C. decrease from 4,800 to 3,600.
D. decrease from 7,400 to 6,100.
Answer:
Which policy is likely to be the most efficient in dealing with automobile emission
pollution?
A. A mandatory requirement to reduce pollution
B. Voluntary emission control guidelines
C. Subsidizing research and development for alternative forms of transportation
D. An emission tax
Answer:
When a tax is proportional, the average tax rate:
A. decreases with income.
B. is constant with income.
C. increases with income.
D. first increases with income, then decreases with income.
Answer:
Refer to the following table.
If the price of Alpo increases from $0.50 to $1, Mr. Tightwad, a utility-maximizing
consumer, would spend his $4 on which of the following?
A. 4 McBurgers
B. 3 McBurgers and 1 can of Alpo
C. 2 McBurgers and 2 cans of Alpo
D. 1 McBurger and 3 cans of Alpo
Answer:
A factory producing calculators employs four workers. At current levels of operation
each worker produces 40 calculators per week. Assuming labor is the only variable
input and the weekly wage is $400 per worker:
A. average variable cost is $10.
B. variable cost is $10.
C. average variable cost is $40.
D. average fixed cost is $10.
Answer:
Based on scientific nutritional studies, in most countries an income of $1 a day does not
provide sufficient food, shelter, and clothing to live. Under these conditions the medical
risk of death is high. This statement is:
A. a normative statement.
B. a subjective statement.
C. an art-of-economics statement.
D. an objective statement.
Answer:
According to the law of supply:
A. supply curves slope upward.
B. supply curves slope downward.
C. price and quantity supplied are negatively related.
D. price and quantity supplied are inversely related.
Answer:
Suppose a chemical plant dumps waste in a stream that also is used by a fish farm. If
the chemical plant is granted the right to dump waste in the stream but is free to give up
that right in exchange for a payment from the fish farm, the chemical plant will:
A. never consider the damage done to the stream by its wastes as a cost.
B. never agree to give up the right to emit waste in the stream.
C. view the dumping damage as part of the opportunity cost of its output.
D. have the same opportunity cost of dumping before and after it is granted the right to
dump.
Answer:
Market and socialist economies can be contrasted in all the following ways except that:
A. under a market economy labor is allocated by individual choice based on wage
levels; under traditional socialism it is allocated by a government planning board.
B. under a market economy government plays no role in the market; under socialism,
government planning boards make most major economic decisions.
C. under a market economy the distribution of income is to each according to his
ability, effort, and inheritance; under ideal socialism the distribution of income is to
each according to his need.
D. under a market economy self-interest is the primary motive of economic activity;
under socialism, individuals are supposed to act from considerations of the general
good.
Answer:
Among economists, a basic economic policy debate regarding markets is:
A. whether markets ought to have prices.
B. whether to let economic forces exist.
C. whether to have a market solution.
D. what coordinating mechanism will best solve a specific problem.
Answer:
Opponents of government intervention argue that government makes decisions based
on:
A. marginal social costs and marginal social benefits.
B. marginal political costs and marginal political benefits.
C. irrational choices.
D. total costs and total benefits.
Answer:
A proposal to build a dam on a wild river may look like a good idea from the
cost/benefit study done by the Army Corps of Engineers, but an analysis done by the
Sierra Club might suggest that the dam would be a complete waste of money. When
different groups give us radically different cost/benefit results:
A. we have an example of how cost/benefit analysis does not work as a way of forming
policy.
B. the studies may still be useful if we can see the underlying assumptions and
estimates of each group.
C. we should realize that sometimes it is best to trust in the political process rather than
trying to use an economic approach.
D. we should conclude that the best way to decide who is telling the truth is to find
which group has the best intentions.
Answer:
Refer to the graph shown. The top 20 percent of the families earn:
A. 32.6 percent of the income.
B. 45.3 percent of the income.
C. 54.7 percent of the income.
D. 67.4 percent of the income.
Answer:
Under monopolistic competition, a long-run equilibrium exists when price equals:
A. marginal cost.
B. average total cost.
C. minimum average total cost.
D. marginal revenue.
Answer:
Refer to the graph shown. Assuming that the industry continues to operate under
conditions of perfect competition and that the cost curves do not shift, in the long run
this firm will produce:
A. 800 units of output.
B. 1,000 units of output.
C. 1,200 units of output.
D. 1,400 units of output.
Answer:
A market structure in which there are a few interdependent firms is called:
A. monopolistic competition.
B. monopoly.
C. oligopoly.
D. perfect competition.
Answer:
An entrepreneur most likely would develop a product if expected average total cost is:
A. $50 and expected price is $75.
B. $60 and expected price is $65.
C. $65 and expected price is $40.
D. $50 and expected price is $60.
Answer:
Why are the gains from trade often difficult to recognize?
A. The United States does not keep accurate records of employment.
B. The gains are spread out over a wide variety of goods and consumers.
C. There are no gains from trade.
D. The gains are in services, which are difficult to measure.
Answer:
Dynamic efficiency refers to a market’s ability to:
A. respond to increased foreign competition.
B. react to changes in government regulation.
C. shift the burden of taxation to consumers.
D. promote cost-reducing or product-enhancing technological change.
Answer:
If a firm is operating at the point of tangency between an isoquant and an isocost line,
its production is:
A. technically efficient but economically inefficient.
B. technically inefficient but economically efficient.
C. both technically and economically efficient.
D. both technically and economically inefficient.
Answer:
If a corrective tax on gasoline results in the efficient output of gasoline by internalizing
negative externalities associated with pollution:
A. pollution from gasoline will increase because people are also harmed by the tax.
B. there will be no effect on pollution from gasoline because the tax is paid by the
supplier.
C. pollution from gasoline will be zero because environmental cleanliness is priceless.
D. the tax will generate enough revenue to compensate society for the damages
resulting from the pollution that still occurs.
Answer:
The discovery of a new source of oil will lead to:
A. increased demand for another currency; appreciation of the currency.
B. increased demand for domestic currency; depreciation of the currency.
C. decreased demand for domestic currency; appreciation of the currency.
D. increased demand for domestic currency; appreciation of the currency.
Answer: