Econ 101: Unit Quizzes & Lab Unit 6 Questions (In class True/False Quizzes)

Efficiency wage

a wage that is deliberately set above the market rate to increase worker productivity (wages set higher than the reservation wage so workers will care about losing the job and provide more effort)

Unit 10 Lab: Which of the following statements is correct? a) A bank is insolvent if the value of its liabilities exceeds the value of its assets b) The net worth of a bank belongs to its employees c) a loan is secured if it is default-free d) The more a bank holds in cash and reserves, the higher its profits

a) A bank is insolvent if the value of its liabilities exceeds the value of its assets

U3: The figure shows the indifference curves of a student for the two 'goods', free time and final grade. Based on this information, which of the following statements is correct? a) At A, the student is willing to give up 34 grade points for five extra hours of free time. b) A is the student's most preferred choice as she would be attaining the highest grade c) The student strictly prefers a grade of 54 with 19 hours of free time to a grade of 67 with 18 hours of free time d) If at B the number of free hours is 10, then the student is 50% happier at A than B

a) At A, the student is willing to give up 34 grade points for five extra hours of free time.

U2: Which of the following statements are correct? a) In economics, a model is a simplified representation (diagrammatical or physical) that helps us to understand what is going on by focusing attention on what is important. b) Certis paribus is an assumption used in economic models in which the important variables that you are focusing on are kept constant c) An equilibrium is a self-perpetuating situation that does not change, even when a force for change is introduced from the outside that alters the basic data describing the situation d) an economic rent is the cost of doing business in a capitalist economic system

a) In economics, a model is a simplified representation (diagrammatical or physical) that helps us to understand what is going on by focusing attention on what is important

U6: Consider an employee with a reservation wage of $6 an hour. The employee chooses an effort level between zero and one. Which of the following statements regarding her best response curve is correct? a) The best response curve describes the effort that the employee would choose for each level of the hourly wage b) The best response curve is upward-sloping and convex c) The curve crosses the horizontal axis at the origin d) The average effort per hour is increasing in wages

a) The best response curve describes the effort that the employee would choose for each level of the hourly wage

Optimal decision making

(MRS=MRT) The utility-maximizing choice is where the amount of one good the individual is willing to trade off for other goods (MRS) equals the actual tradeoff between the two goods (MRT)

Unit 6 Lab: The figure depicts the efficiency wage equilibrium of a worker and a firm. Based on this information, which of the following statements is correct? a) At A, given that the firm pays the hourly wage of $12 the workers best response is to exert an effort of 0.5 b) At A given that the worker exerts an effort level of 0.5, the firm's best response is to offer the hourly wage of $12 c) This is the sequential game where the firm chooses its action given the workers best response to its actions. Therefore, the worker receives no rent d) The employer makes profits by coercing the worker to put in some effort

A (At A, given that the firm pays the hourly wage of $12, the workers best response is to exert an effort of 0.5. Explanation: Definition of workers best response curve.

Unit 6 Lab: As the hourly wage rises, the worker's best response function(with effort on the vertical axis and wages on the horizontal axis) becomes flatter because: a) The disutility of work at the level chosen by the worker increases b) The workers goodwill towards the employer increases c) The marginal effect of effort on production is diminishing

A (The disutility of work at the level chosen by the worker increases) Explanation: As hourly wage rises the quality of work at the level chosen, influenced by the wages becomes greater for the maximization of profit for both employee and employer.

Unit 6 Lab: The figure below depicts the effect of an increase in the unemployment benefit on the workers' best response curve, when the unemployment rate is 12%. Which of the following statements is correct following a rise in the unemployment benefit, ceteris paribus? a) The firm's profit level falls b) The workers reservation wage falls c) The efficiency wage at any given level of employment falls d) The firm sets a lower efficiency wage

A (The firm's profit level falls.) Explanation: Higher unemployment benefits means that the workers' reservation wage will be higher, so the firm's profit level falls.

Unit 6 Lab: In the figure, suppose that unemployment benefits of $5 per hour are introduced. Which of the following are true in this situation? a) If the unemployment benefit stops after the first 22 weeks of unemployment, the total employment rent over the expected duration of unemployment is $3,850 b) If the unemployment benefit is lowered to $3 per hour but extended to the first 30 weeks of unemployment, the employment rent over the expected duration of unemployment will be higher than when there is a $5 per hour benefit for 22 weeks c) If the unemployment benefit is now $5 per hour again, but the disutility of an hour of effort has now fallen to zero, the employment rent per hour will be $5 per hour while the benefit is received, and $7 per hour thereafter

B ( If the unemployment benefit is lowered to $3 per hour but extended to the first 30 weeks of unemployment, the employment rent over the expected duration of unemployment will be higher than when there is a $5 per hour benefit for 22 weeks) Explanation: The unemployment rent under $5 per hour unemployment benefit employment rate under the $3 per hour benefit

Unit 6 Lab: For production to take place in the firm, the workers must supply some effort. Suppose that with the status quo best response curve in the figure below, the firm chooses the wage to minimize the cost of effort, and the worker's best response is an effort level of 0.6. Which of the following statements must be true in equilibrium? a) If the disutility of effort rises, then effort will fall b) If unemployment rises, then the wage will fall c) Any combination of e and w that is both on the isocost line and the best response curve is a Nash equilibrium

B (If unemployment rises, then the wage will fall) Explanation: Unemployment provides less jobs in the workforce resulting in the wage falling due to the supply and demand curve.

Unit 6 Lab: Maria earns $15 per hour in her current job and works 40 hours a week. Her disutility of effort is measured as $1 per hour of work. In the case that she loses her job, she receives $5 per hour unemployment benefit. Additionally, being unemployed has physiological and social costs which is a disutility equivalent to $2 per hour. Then, a) The employment rent per hour is $3 b) Maria's employment rent if she can get another job with the same wage rate after 44 weeks of being unemployed is more than $6,160 c) Maria's employment rent if she can only get a job at the same wage rate after 44 weeks of being unemployed is less than $7,700

B (Maria's employment rent if she can get another job with the same wage rate after 44 weeks of being unemployed is more than $6,160.) Explanation: The unemployment rate is 11 x (44 x 40)= $19,360

Unit 6 Lab: Which of the following statements is true: a) A labor contract transfers ownership of the employee from the employee to the employer b) The office where the employee works is a relation-specific asset because the employee cannot use it after leaving the firm c) In a labor contract, one side of the contract has the power to issue orders to the other side, but this power is absent from a sale contract. d) A firm is a structure that involves decentralization of power to the employees

C (In a labor contract, one side of the contract has the power to issue orders to the other side, but this power is absent from a sale contract. Explanation: A labor contract gives the employer the ability to direct the activities of employees. A sale contract transfers property rights.

Unit 6 Lab: If unemployment benefits increase: a) A workers effort increases because the employment rent increases b) Effort decreases because the disutility of effort decreases c) The employment rent will fall unless the firm raises the wage

C (The employment rent will fall unless the firm raises the wage) Explanation: The lost income relative to being employed falls, so the employment rent decreases, unless the firm increases the wage.

Unit 6 Lab: The figure depicts the efficiency wage equilibrium of a worker and a firm. According to his figure: a) At C, the marginal rate of the substitution (MRS) between higher wage cost and higher effort exceeds the marginal rate of transformation (MRT) b) At B, the MRS is higher than the MRT c) The firm would maximize its profits by paying an hourly wage that is $6 above the workers reservation wage d) The firm is able to increase its profit from those attained at A by inducing the worker to exert higher effort in return for a higher wage

C (The firm would maximize its profits by paying an hourly wage that is $6 above the workers reservation wage) Explanation: The firm's profit-maximizing point is A, where it pays an efficiency wage of $12 per hour. This is $6 above the reservation wage of $6)

Unit 6 Lab: Consider a worker's best response curve in the labor discipline model. Currently the firm chooses to pay 12 per hour to minimize the cost of effort, which induces an effort level of 0.6 from the worker. Now consider a rise in the unemployment benefit. Then: a) At the wage rate of $12 per hour the worker will now exert more than 0.6 of effort b) The firm can lower the wage rate to below $12 to maintain the effort level of 0.6 c) The firm's new wage offer that minimizes the cost of effort will be higher than $12 d) The firm's maximum units of effort per dollar of wage cost will be higher than before the rise in the unemployment benefit

C (The firm's new wage offer that minimizes the cost of effort will be higher than $12) Explanation: With the rightward shift in the best response curve, the point of tangency with the highest feasible isocost would shift to the right i.e. the firm will offer a higher equilibrium wage rate.

opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

Unit 6 Lab: Consider isocost lines drawn on a graph with hourly wage on the horizontal axis and effort per hour on the vertical axis. Which of the following statements is correct? a) Isocost lines intersect the horizontal axis at the reservation wage b) The slope of the isocost line is the employers marginal rate of transformation of higher wages into the worker effort c) Steeper isocost lines represent higher cost unit of effort d) For an isocost lines with a slope of 0.07, the cost of unit of effort is $14.3

D (For an isocost lines with a slope of 0.07, the cost of unit of effort is $14.30) Explanation: The slope of the isocost lines represents the units of effort per dollar of wage cost , which is the inverse of the cost per unit of effort. That latter is therefore 1/0.07 = $14.30.

Unit 6 Lab: Consider the labor discipline model applied to two countries, a high-wage country and a low-wage country. Assume that the high-wage country has a higher unemployment benefit. Consider a firm producing the same product in both countries. Which of the following statements is correct? a) The workers best response curve is the nigh-wage country is to the left of that in the low-wage country b) The efficiency wage offered in the low-wage country is higher than that in the high-wage country c) Firms would make lower profits in the low-wage country than in the high-wage country d) The threat of outsourcing from the high-wage country to the low-wage country would raise the workers' best response curve in the high-wage country

D (The threat of outsourcing from the high-wage country to the low-wage country would raise the workers' best response curve in the high-wage country.) Explanation: Due to the unemployment rate being higher in the high-wage country it would give the workers an incentive to put more effort into their work. Especially, if the potential to outsource from a cheaper country would cause a loss of work for the high-wage country they would want to put forth more effort at each level of wages.

Unit 6 Lab: Which of the following is correct regarding involuntary employment: a) When a firm sacks a worker against her wishes but she can get another job immediately, there is involuntary unemployment b) When there is involuntary unemployment, the employment rent is zero c) When there is no involuntary unemployment, firms must be employing workers without ever dismissing them d) There must be involuntary unemployment in an efficiency wage equilibrium

D (There must be involuntary unemployment in an efficiency wage equilibrium) Explanation: In an efficiency wage equilibrium, both wages and involuntary unemployment have to be high enough to ensure that there is enough employment rent for workers to put effort in.

Unit 10 In-Class Quiz: The policy rate is determined by the supply and demand of the money market. True or False?

False

Unit 2 In-Class Quiz: An economic rent is something you pay to do business True or False?

False

Unit 2 In-Class Quiz: Ceteris paribus is an assumption used in economics in which the important variables that you are focusing on are kept constant. True or False?

False

Unit 3 In-Class Quiz: True or False. The image above depicts preferences of "the student" 2. The student strictly prefers a grade of 54 with 19 hours of free time to a grade of 67 with 18 hours of free time.

False

Unit 6 In-Class Quiz: A rise in the unemployment rate will shift the best response curve to the right. True or False?

False

Unit 6 In-Class Quiz: The slope of the best response curve is the employers MRS and represents the rate that the employer is willing to substitute a higher wage for a greater level of effort. True or False?

False

Isocost Curve

Firm's 'indifference curves'

Marginal Rate of Substitution (MRS)

The marginal rate of substitution is the slope of the indifference curve and represents the rate at which a consumer would be willing to trade off one good for another

Unit 10 In-Class Quiz: Loans create deposits. True or False

True

Unit 10 In-Class Quiz: The policy rate is the rate at which the Central Bank lends to commercial banks. True or False?

True

Unit 2 In-Class Quiz: The table below gives different technologies that produce 100 yards of cloth. Using this information, you would never choose technology B. True or False?

True

Unit 3 In-Class Quiz: True or False. The image above depicts preferences of "the student" 1. At A, the student is willing to give up 34 grade points for five extra hours of free time.

True

Unit 6 In-Class Quiz: The creation of a high employment rent allows the firm to exert power over the employee True or False?

True

Unit 6 In-Class Quiz: The steeper an isocost line of effort is, the lower the cost per unit of effort is True or False?

True

Ceteris Paribus

a Latin phrase that means "all other things held constant"

Firm

a business organization which employs people, purchases inputs to produce market goods and services, Sets prices greater than the cost of production, "The firm in a capitalist economy is a miniature, privately owned, centrally planned economy."

Contracts

a legal document or understanding that specifies a set of actions that parties to the contact must undertake

Indifference Curves

a line that shows the consumption bundles that yield the same amount of total utility

Unit 10 Quiz: Which of the following statements about the banking system is correct? a) The policy rate is the rate at which the central bank lends to commercial banks b)The policy rate is determined by the supply and demand of the money market c) The bank lending rate is the rate at which the central bank lends to commercial banks d) The spread (markup) represents how the central banks money is distributed amongst the commercial banks

a) The policy rate is the rate at which the central bank lends to commercial banks

U3: "Figure 3.15 depicts your budget constraint when the hourly wage is $15. Which of the following is true? a) The slope of the budget constraint is the negative of the wage rate (-15) b) The budget constraint is a feasible frontier with a variable marginal rate of transformation c) An increase in the wage rate would cause a parallel upward shift in the budget constraint d) A gift of $60 would make the budget constraint steeper, with the intercept on the vertical axis increasing to $300

a) The slope of the budget constraint is the negative of the wage rate (-15)

Unit 9 Quiz: Which of the following statements about how a firm sets prices is correct? a) When all firms have set their profit-maximizing price, the real in the economy depends on the elasticity of demand and the average product of labor b) THe firms unit labor cost is equal to the nominal wage minus output per worker c) If the real wage is below the price-setting curve, firms can increase either profits by increasing the price

a) When all firms have set their profit-maximizing price, the real in the economy depends on the elasticity of demand and the average product of labor

U2: The following table gives different technologies that produce 100 meters of cloth. Based on this information, which of the following statements is correct? a) You would never choose technology B b) Technology C is more energy-intensive than technology A c) Shifting from technology C to technology D is labour saving d) Technology D uses the least total number of workers and tonnes of coal. Therefore this is the technology you would choose

a) You would never choose technology

Unit 9 Quiz: Which of the following statements about the wage-setting curve is correct? a) THe wage setting curve depicts the workers reservation wage for different levels of economy-wide unemployment b) At each point (U, w) on the wage-setting curve, the workers are choosing their best response effort the real wage (w) and the unemployment rate (u) c) A lower unemployment rate shifts the wage-setting curve to the left d) An exodus of european workers due to Brexit would, ceteris paribus, result in a downward shift of the UK's wage-setting curve

b) At each point (U, w) on the wage-setting curve, the workers are choosing their best response effort the real wage (w) and the unemployment rate (u)

Unit 9 Quiz: The figure depicts the labor market model, which is currently at point X. In which of the cases would the employment rate rise? a) A higher unemployment benefit b) Better monitoring of employees' effort c) higher degree of product differentiation d) lower labor productivity

b) Better monitoring of employees' effort

Unit 10 Quiz: Considering the balance sheets of firms, households... a) Loans made by banks to firms are the banks liabilities b) Household deposits are the banks liabilities and the household assets c) For a bank run to occur, its assets must be less than its liabilities

b) Household deposits are the banks liabilities and the household assets

Unit 10 Quiz: The following diagram depicts Julia's choice of consumption period). She has no income now and an income of $115 later. The current interest rate is 15%. Based on this information, which of the following statements is correct? a) The maximum that Julia can borrow to spend now is $91 b) If Julia borrows $80 to spend now, she will have $23 to spend later c) The consumption choice of $60 now and $50 later is a feasible option d) The feasible set will be smaller when the interest rate is 10%

b) If Julia borrows $80 to spend now, she will have $23 to spend later

U2: Which of the following statement is correct? a) You are investigating the effect of a rise in oil price on commuter's use of bicycles. Certis paribus means that you keep the number of commutes by car constant b) If you are paid a fixed salary independent of your output, then you may be tempted to put in less effort. This is an example of an economic incentive. c) You are thirsty and are choosing between two drinks to buy. Given that both drinks are affordable to you, the main factor that affects your choice is the absolute price of each drink. d) You are currently unemployed but are being interviewed for a job. Your reservation position is your position in the interview queue.

b) If you are paid a fixed salary independent of your output, then you may be tempted to put in less effort. This is an example of an economic incentive.

U6: The figure depicts the isocost lines of a firm. Which of the following statements is correct? a) The cost of production is constant along an isocost line b) Isocost A has the lowest cost per unit of effort of the three isocosts c) The units of the effort per dollar of wage cost for isocost B are 0.45 d) For the hourly wage of $12, the effort per hour is 0.8 on isocost A.

b) Isocost A has the lowest cost per unit of effort of the three isocosts

U3: You have two choices for how you are going to spend Saturday evening. You can go to the pub with your friends, which will cost you $30 for the evening. The pleasure you anticipate from this experience is worth $50 to you. Or you can go to the theatre the ticket will cost you $50, but you value the experience at $60. Based on this information, which of the following statements is correct? a) The opportunity cost of an evening at the pub is $60 b) The economic cost of going to the pub is $40 c) The economic rent of going to the pub is $0 d) based on economic rent alone, you would definitely choose to go to the theater

b) The economic cost of going to the pub is $40

U3: You have two choices for you are going to spend Saturday evening. You can go to the pub with your friends, which will cost you $30 for the evening. The pleasure you anticipate from this experience is worth $50 to you. Or you can go to the theatre the ticket will cost you $50, but you value the experience at $60. Based on this information, which of the following statements is correct? a) The opportunity cost of an evening at the pub is $60 b) The economic cost of going to the pub is $40 c) The economic rent of going to the pub is $0 d) based on economic rent alone, you would definitely choose to go to the theater

b) The economic cost of going to the pub is $40

U6: In which of the following cases would a firm be maximizing profits? a) The firm pays its employees their reservation wage b) The firm minimizes the cost per unit of effort c) The firm minimizes hourly wages d) The firm selects the lowest possible (least steep) isocost line. (Assume hourly wage is on the horizontal axis and effort per hour is on the vertical axis)

b) The firm minimizes the cost per unit of effort

Unit 9 Quiz: The figure depicts the labor market model. Which of the following statements are correct X? a) The firms wage offered at X is the lowest possible wage b) The firms price and output are the point of tangency between their isoprofit curve and their demand curve c) Once they have the job, employees are better off not exerting any effort in their work d)The unemployed can get a job offering to work for a wage lower than the equilibrium wage

b) The firms price and output are the point of tangency between their isoprofit curve and their demand curve

U6: The following figure depicts an employees best response to wage when the expected unemployment duration is 44 weeks. Which of the following statements is correct? a) In order to induce an extra o.1 per hour at any particular wage level, the employer needs to increase the hourly wage by $3 b) The slope of the best response curve is the employers marginal rate of transformation of higher wages into workers effort c) A fall in the unemployment rate would reduce the reservation wage is to below $6 d) The employer would still have to pay $24 per hour to have the effort level of 0.8 even if there is an increase in the unemployment benefit

b) The slope of the best response curve is the employers marginal rate of transformation of higher wages into workers effort

Unit 9 Quiz: The figure depicts the price-setting curve. Assume that the average product of labor on this figure, which of the following statements is correct? a) At C, the markup is below the firms profit maximizing level b) To go from A to B, the firm would be raising its price c) the firms profit is higher at A than at C d) D is not a feasible choice for a firm

b) To go from A to B, the firm would be raising its price

U3: You currently work 40 hours a week at wage rate of $12 an hour. Your free hours are defined as the number of hours not in work, which in this case is 24 hours X 7 days - 40 hours = 128 hours per week. Suppose that you are happy to keep your total weekly income constant. Then: a) If your wage rate increases to $16 an hour, then your free time will increase by 6% b) to have 12.5% more free time, your wage rate needs to increase by $8 c) doubling the wage rate would decrease your working hours by a third d) A wage cut of 25% leaves you with only 100 hours of free time

b) to have 12.5% more free time, your wage rate needs to increase by $8

Involuntary unemployment

being out of work, but preferring to have a job at the wages and working conditions that otherwise identical employed workers have

Unit 9 Quiz: Which of the following statements about the price-setting curve is correct? a) The price-setting curve depicts the firms profit-maximizing price level for different levels of economy wide employment b) Firms have to pay a higher real wage when the employment rate it higher, Therefore the price-setting curve is upward-sloping c) At points below the price-setting curve, the firms are setting prices too high compared to their profit maximizing level d) The price-setting curve represents the profit maximizing real wage

c) At points below the price-setting curve, the firms are setting prices too high compared to their profit maximizing level

U6: Which of the following statements regarding employment contracts are correct? a) The firm is required to state exactly what it needs the employee to do is an employment contract b) The firm needs to specify exactly how much effort employees are expected to put into their job c) Employee's effort levels cannot be the basis of an enforceable contract d) Employment contracts are incomplete as they can only specify things that both the employees and the business owner care about

c) Employee's effort levels cannot be the basis of an enforceable contract

Unit 10 Lab: The diagram depicts Marco's choice of consumption now and later (next period). He has $100 worth of grain now and no income later Marco has two choices. In scheme 1, eh can store the grain that he does not consume now. This results in a loss of 20% of the grain due to pest and rotting. In scheme 2 he can sell the grain that he does not consumer and lend the money at 10%. Based on this information, which of the following statements is correct? a) The sub effect implies that Marco will consume more now under scheme 2 than under scheme 1 b) The income effect implies that Marco will consume more later and less now under scheme 2 than under scheme 1 c) Marco will unambiguously consume more later under scheme 2 than in scheme 1 d) Marco will unambiguously consume less now under scheme 2 than in scheme 1

c) Marco will unambiguously consume more later under scheme 2 than in scheme 1

U2: Which of the following statements about economic rents is correct? a) You and your employees have worked overtime this month to produce a record monthly profit. This is economic rent achieved by your firm. b) Economic rent provide strong incentives for innovation even in centrally planned economy. c) Markets provide a competitive environment where those unable to copy other's innovations would fail. This provides the 'stick' that drives the innovation process d) Family businesses are the type of productive organizations that can rep the most benefits from the economic rents earned from their new innovations.

c) Markets provide a competitive environment where those unable to copy other's innovations would fail. This provides the 'stick' that drives the innovation process

Unit 10 Quiz: Which of the following statements is correct? a) Base money includes accounts held by households and businesses commercial banks b) The majority of money is legal tender by the central bank c) Not all of broad money is legal tender d) Money created by banks is an asset on their balance sheet

c) Not all of broad money is legal tender

U3: Consider indifference curves for consumption of milk and chocolate (you may assume that both are 'goods') The indifference curves are drawn with number of chocolate bars on the horizontal axis and pints of milk on the vertical axis. Consumer A has much stronger preference for chocolate relative to milk than consumer B. Compared to B's indifference curves, A's Indifference curves are: a) Higher b) Flatter c) Steeper D) More convex

c) Steeper

U3: The figure shows a students production function with the final grade (the output) realted to the number of hours spent studying (the input). Which of the following statements regarding marginal product of labor (MPL) are correct? a) the MPL is decreasing beyond 15 hours of study b) The MPL at 4 hours is 12.5 c) The MPL is the slope of the tangent line

c) The MPL is the slope of the tangent line

U2: Which of the following is an economic rent? a) The amount you pay your landlord for the use of an apartment b) The amount you pay to hire a car for a weekend c) The extra profit that a successful innovator makes on brining a new product to the markets before its competitors d) The extra profit that a firm makes when it doubles in size and there are no changes to costs or the price for each unit of its output

c) The extra profit that a successful innovator makes on brining a new product to the markets before its competitors

U2: After finishing university, Rani has three choices, listed in order of preference: (1) study for a Masters degree at UC Berkley, (2) work at Barclays, or (3) take a gap year. Her opportunity cost of studying at UC Berkley includes which of the following: a) The income she would have earned on her gap year b) The cost of a gap year c) The income she would have earned at Barclays

c) The income she would have earned at Barclays

U6: Which of the following statements best describe the game played by the employer and the employee in the labor discipline model? a) The game is a simultaneous game in which the employer chooses the wage level and the employee chooses the effort level simultaneously. b) The game is one-off game in which the wage and effort levels are determined once and for all c) The worker selects the effort level that balances his desire to keep his job with his desire to not exhaust himself on the job. d) The employer will attempt to maximize the firm's profits by offering a wage equal to the worker's reservation wage.

c) The worker selects the effort level that balances his desire to keep his job with his desire to not exhaust himself on the job.

Unit 10 Quiz: The diagram depicts Julia's choice of consumption now and later. She has no income now and an income of $100 later (next period). Based on this information, which of the following statements is correct? a) When the interest rate is 10%, if Julia borrows $23 now then she can consume $70 later b) When the interest rate is 10% the marginal rate of transformation of goods from consumption later to consumption now is 0.1 c) When the interest rate is 78% the maximum that Julia can borrow is $56 (rounded to the nearest dollar) d) When the interest rate is 78% a consumption plan of $30 now and 67$ later is in Julia feasible set.

c) When the interest rate is 78% the maximum that Julia can borrow is $56 (rounded to the nearest dollar)

U6: Which of the following statements is true? a) The managers are residual claimants of the firms profits b) The owners of a firm are the only individuals who hold the firm's shares c) With the separation of ownership and control, decisions are made by managers while the benefits of the decisions accrue to the owners. d) The separation of ownership and control has costs that almost always outweigh the benefits

c) With the separation of ownership and control, decisions are made by managers while the benefits of the decisions accrue to the owners.

Unit 9 Quiz: Ceteris paribus, in which of the following cases the wage setting curve shift up? a) Better monitoring by the employer b) a lower unemployment rate c)A more generous unemployment insurance scheme d) A sudden influx of immigration

c)A more generous unemployment insurance scheme

U2: Which of the following statements is correct? a) A model is an exact representation of what goes on in the economy b) A model is an economic relationship that is only represented by mathematics c)Equilibrium is a self-perpetuating situation that does not change, unless a force for change is introduced from the outside and alters the basic data describing the situation d) Equilibrium in GDP growth rate is when the growth rate is zero

c)Equilibrium is a self-perpetuating situation that does not change, unless a force for change is introduced from the outside and alters the basic data describing the situation

income effect

change in optimal choice when income changes, keeping opportunity costs (the budget constraint slope) fixed

Employment rent

cost of job loss

U6: Which of the following statements regarding employment rents are correct? a) They are the costs you have to pay for your employment b) It equals the wage you receive in your employment c) higher employment rents make workers likely to quit their job d) Employers can use high employment rents to exert power over employees

d) Employers can use high employment rents to exert power over employees

Unit 10 Quiz: Consider Esther's intertemporal choice of consumption (c1, c2) where c1 and c2 are the consumption level in periods 1 (horizontal axis variable) and 2 (vertical avis varaible), respectively. You are given that her preferences exhibit diminishing marginal returns to consumption. Which of the following statements is correct. a) If Esther is willing to sub 1 of c1 for 5 of c2 b) Esther indifference curve are concave c) Esther's marginal rate of substation is decreasing in c2 d) Esther prefers similar amounts of c1 and c2 compared to the extreme cases of consuming all of her income as c1 or c2

d) Esther prefers similar amounts of c1 and c2 compared to the extreme cases of consuming all of her income as c1 or c2

Unit 10 Lab: The figure depicts indifference curves for consumption today and consumption later for Abraham and Sarah. Which of the following statements is correct? a) Sarah's indifference curve exhibits a higher degree of diminishing marginal returns to consumption than Abraham's b) Abraham is more impatient than Sarah c) Abraham is more likely to want to smooth his consumption than Sarah d) Sarah is more likely to want to consume all her income now than Abraham.

d) Sarah is more likely to want to consume all her income now than Abraham.

Unit 10 Lab: The diagram depicts Julia's choice of consumption now and later. She has no income now and an income of $100 later. In scenario 1 the interest rate is 10%, while in scenario 2 it is 78%. Based on this information, which of the following statements is correct? a) Julia is able to consume more later at G under scenario 2 than at E under scenario 1, as her savings earn a higher interest b) Julia consumes less now at G under scenario 2 than at E under scenario 1, as she is less impatient at G c) The sub and income effects of the interest rate rise partially offset each other, resulting in lower consumption now under scenario 2. d) For the scenario of no income now and an income of $100 later, Julia is unambiguously worse off with an interest rate rise

d) For the scenario of no income now and an income of $100 later, Julia is unambiguously worse off with an interest rate rise

Unit 10 Quiz: The diagram depicts Julia choice of consumption now and consumption later (next period). She has no income now and an income of $100 later. n scenario 1 the interest rate is 10%, while in scenario 2 it is 78% Based on this info, which of the following statements is correct? a) Julia is able to consume more later at G under scenario 2 b) Julia consumes less now at G under scenario 2 than at E under scenario 1, as she is less impatient at G c) The sub and income effects of the interest rate rise partially offset each other, resulting in lower consumption now under scenario 2 d) For the scenario of no income now and an income of $100 later, Julia is unambiguously worse off with an interest rate rise.

d) For the scenario of no income now and an income of $100 later, Julia is unambiguously worse off with an interest rate rise.

U6: Which of the following statements regarding Karl Marx are correct? a) He did not think that the capitalist economy was the most dynamic economic system in human history b) He observed that the transactions in the labor market were between equals: nobody is in a position to order anyone else to employ or be employed c) He thought that the power wielded by employers over workers was a core strength of capitalism d) He thought that capitalism, by organizing production and allocation in anonymous markets, created atomized individuals instead of integrated communities.

d) He thought that capitalism, by organizing production and allocation in anonymous markets, created atomized individuals instead of integrated communities.

Unit 10 Quiz: The diagram depicts Julia's indifference curve for consumption now and later (next period). Based on this information, which of the following statements is correct? a) At consumption choice A, Julia values an extra unit of consumption later at 1.5 times the value of an extra unit of consumption now b) Julia is impatient at all points on the indifference curve c) If Julia had more pure impatience then her indifference curve would be flatter at A d) If Julia did not experience diminishing marginal returns to consumption and had no impatience, then her indifference curves would be straight lines with a slope of less than 1 (in absolute value)

d) If Julia did not experience diminishing marginal returns to consumption and had no impatience, then her indifference curves would be straight lines with a slope of less than 1 (in absolute value)

U6: Thomas earns $12 per hour in his current job and works 36 hours a week. He loves his job and puts in his maximum effort with no disutility. In fact, Thomas earns extra utility worth $3 per hour from camaraderie, status, and enjoyment of the job. If he loses this job Thomas has two choices. Either he is able to be self-employed, which earns him $7 an hour for 36 hours a week of work but also gives him disutility equivalent to $2 per hour, or he can be unemployed and receive an unemployment benefit of $150 per week. Thomas is expected to be able to find another job similar to his current one in 24 weeks. Then: a) Thomas next best option is to be unemployed b) The employment rent per hour is $8 c) Thomas's employment rent is $9,360 d) If Thomas chooses the self-employment option then his loss of employment rent is $8,640

d) If Thomas chooses the self-employment option then his loss of employment rent is $8,640

U6: Which of the following statements correctly identify who is the principal and who is the agent? a) In a public limited company, the managers are the principals and the shareholders are the agents b) In a contract to buy an essay from an online provider, the essay writer is the principal and the student is the agent c) In a contract between a football club and its star player, the club is the agent and the player is the principal d) In an Airbnb contract, the owner and the traveller are both principals and agents

d) In an Airbnb contract, the owner and the traveller are both principals and agents

Unit 10 Quiz: The diagram depicts Marco's choice of consumption in periods 1 and 2. He has $100 worth of grain in period 1 and no income in period 2. Marco had tow choices. In scheme 1, he can sell the grain that he does not consume and lend the money at %10. In scheme 2, he can invest the grain that he does not consumer (e.g. planting as seed) for return of 50%. Which of the following statements is correct? a) Marco is less impatient at than at A b) Going from scheme 1 to scheme 2, the sub and income effects have opposite effects on period t consumption c) Marco can do better than consumption choice B by investing all of his grain and consuming the output in period 2 d) Marco can do better than consumption choice B by investing all of his grain and borrowing his period 2 output

d) Marco can do better than consumption choice B by investing all of his grain and borrowing his period 2 output

Unit 10 Lab: The diagram depicts Marco's choice of consumptions in period 1 and 2> He has $100 worth of grain in period 1 and no income in period 2. Marco decides to consumer $65 worth of grain in period 1, sell the remaining grain and lend the money at an interest rate of 10%, which be uses to buy grain for his consumption in period 2 (point a). Which of the following statements regarding his balance sheet is correct? a) The asset after lending but before consumption is $65 b) The asset after consumption in period 1 is $39 c) The net worth before consumption in period 2 is $0 d) Marco's liabilities remain at 0 at all times

d) Marco's liabilities remain at 0 at all times

Unit 10 Lab: Which of the following statements is correct? a) In economics, money solely refers to the coins and notes in circulation b) I can exchange my apples for you oranges, Therefore apples can be classified as money c) Banks must exist for money to do its work d) Money allows purchasing power to be transferred between consumers

d) Money allows purchasing power to be transferred between consumers

Unit 9 Quiz: Consider an economy with firms selling differentiated products, where the only input to production is labor. Which of the following statements is correct? a) Firms make no economic rent b) Workers receive no employment rent c) Firms choose the level of nominal wage that corresponds to the workers maximum effort d) The more inelastic the demand curve faced by the firm, the higher the markup set by the firm

d) The more inelastic the demand curve faced by the firm, the higher the markup set by the firm

Unit 10 Quiz: The table shows a balance sheet of a bank, The interest rate charged on loans is 10%. Which of the following statements is correct? a) The bank holds 110 million of base money b) In one year's time, both assets and liabilities grow by 10 million c) The possibility that the loans will not be repaid is called the liquidity risk d) There is a bank run if depositors to withdraw more than 10 million of their deposits at the same time and the bank is unable to raise the difference

d) There is a bank run if depositors to withdraw more than 10 million of their deposits at the same time and the bank is unable to raise the difference

Incomplete Contracts

does not specify, in an enforceable way, every aspect of the exchange that affects the interests of parties Why incomplete: Fear of being fired Work ethic Feelings of responsibility Promotions Benefits for measurable output

Marginal Rate of Transformation (MRT)

is the slope of the feasible frontier

principal-agent

models capture interactions under incomplete

feasible frontier

shows the maximum output that can be achieved with a given amount of input.

Best Response Curve

shows the optimal amount of effort workers will exert for each wage offered, represents the firm's feasible frontier for wages and effort