ECON PRACTICE TEST 3 BIH

"The idea or assumption that people behave more profligately when they're shielded from the consequences" is known as: a. moral hazard. b. signaling. c. discounting. d. public choice theory. e. a Type II error.

a.

A front-page Chicago Tribune story a few years ago read: "Pork thrives amid state's fiscal crisis." And the story began: "Despite a growing fiscal crisis, Illinois lawmakers greatly accelerated a spending spree on pet projects leading up to the fall elections." These types of public-sector decisions: a. would be predicted by public choice theory. b. entail the usual risk and reward calculus like any investment. c. are an illustration of worrying too much about Type I errors and too little about Type II ones. d. reflect the usual shamefully low discount rate of public officials and candidates for political office. e. constitute actions that create and perpetuate equity problems in our society.

a.

A less charitable explanation of public subventions for the above cultural/educational amenities would be: a. the special-interest effect; b. rational ignorance; c. Type II errors; d. free-riding. e. asymmetric information effects.

a.

An art museum: a. may be thought of a having some positive external consumption benefits. b. is a good example of a pure public good. c. is both nonrival and nonexcludable. d. constitutes a common-property resource for the community and thus will be overused. e. should not be allowed to charge admission fees, especially to the poor.

a.

At an interest rate of 8 percent, the present value of $110 to be received three years from now is about: a. $92; b.$102; c. $109; d. $118; e. $137.

a.

Governments tend to subsidize higher education (for the right reason!) because: a. education produces positive externalities. b. you'd have a huge free-rider problem otherwise. c. of adverse selection and moral hazard problems. d. college graduates can earn higher salaries than high school graduates. e. a lot of colleges couldn't afford to operate, and students couldn't afford to go, with these subsidies.

a.

If a person is risk averse, then she: a. has diminishing marginal utility of wealth, implying that her utility function gets flatter as her wealth increases. b. will choose not to play a game if she has a 75% chance of winning $5 and a 25% chance of losing $5. c.has a utility function that has a positive slope and gets steeper as her wealth increases. d. has increasing marginal utility of wealth but decreasing total utility of wealth. e. will, over time, earn a higher rate of return on her investment portfolio than a non-risk-averse person.

a.

Negative externalities lead private markets to: a. produce outputs greater than the efficient level and have prices that are too low. b. produce outputs greater than the efficient level and charge prices that are too high to be efficient. c. produce outputs that are too low than efficient and charge prices that are higher than efficient markets. d. under-produce, which is bad, and also over-charge, another defect. c. gouge poorer buyers more than richer ones, thus creating an equity concern or problem.

a.

Private information creates which two problems? a. moral hazard and adverse selection b. externalities and public goods c. deadweight losses and economic rent d. risk and uncertainty. e. income and substitution effects.

a.

The Tragedy of the Commons is the result of, or is best described by: a. a good being rival in consumption and not excludable. b. the example of "The Mice in Council" from Aesop's Fables. c. the Coase theorem. d. "The Tortoise and the Hare" example from Aesop's Fables. e. members of society having very low discount rates.

a.

The labor supply curve represents a tradeoff between: a. work and leisure. b. money now v. (a discounted value of) money later. c. adverse selection and moral hazard. d. efficiency and equity. e. the needs of the employer v. the preferences of the employee.

a.

The labor supply curve would always be positively sloped were it not for: a. the income effect. b. the reservation wage. c. monopsony power. d. the law of diminishing returns. e. compensating differentials

a.

The use of political power to redistribute wealth rather than to create wealth is a common definition of: a. rent-seeking; b. a Type I error; c. discounting; d. the shortsightedness effect; e. the social-interest theory of government.

a.

The value of the marginal product of labor, VMP (or, alternatively, MRP) is all of the following except: a. it will decrease in the face of increases in the supply of other factors, such as capital and technological change. b. the firm's demand for labor. c. the additional revenue earned from hiring one more unit of labor. d. it will just equal the wage rate in a competitive-labor-market equilibrium. e. is calculated as the price of the final good times the marginal product of that unit.

a.

Universal health coverage (that is, every person in a country is automatically insured - and is required to be insured) is one way to combat or address the _______________________ problems. a. b. c. d. e. 24. In a. b. c. d. e. an efficiency wage.a compensating differential.signaling.an exercise of Saban's monopsony power. economic rent. deciding whether or not a good is a public good, one must first determine:the incomes of those who would benefit most from consuming it.the extent to which consumption of the good is excludable.the benefits and costs associated with producing and consuming it.whether there are positive or negative externalities, or neither, inherent with it. if the median voter wants to consume it disproportionately. a. adverse selection; b. moral hazard; d. principal-agent; e. signaling; c. present value; f. risk aversion

a.

When negative externalities are present in a market and not effectively "internalized," a. producers will supply too much of the product. b. private costs will be greater than social costs. c. it strengthens the role of the "invisible hand" in reaching a new equilibrium. d. the cost to producers will be greater than the cost to society. e. a market won't be able to achieve an equitable distribution of resources or output.

a.

When people behave irresponsibly because they don't bear the consequences of their actions, this is a reasonable definition or example of: a. moral hazard; b. a public good; c. adverse selection; d. signaling e. a negative externality; f. risk aversion

a.

When the supply of a factor of production (that is, an input) is perfectly elastic, that factor's entire income: is opportunity cost. is economic rent. could be considered unearned. is pure economic profit. should be discounted.

a.

Which of the following is not true with regard to a firm's demand curve for labor? a. It is the same things as its marginal revenue curve. b. It is a depiction of how much labor the firm would hire at different wage rates. c. It shifts to the right (increases) when the price of a firm's output increases. d. It is the same thing as its marginal revenue product of labor curve. e. It is downward sloping because the marginal (physical) product of labor decreases.

a.

With a change in the law, the minimum wage rises from $7.25 an hour to $15. As a result: a. the opportunity cost of an hour of leisure goes up. b. the worker will choose to work more hours and get more income. c. firms will decrease their demand for labor. d. the value of the marginal revenue product of labor will increase. e. nothing will change because the new wage floor is likely not binding.

a.

______________________ will create above-equilibrium wages for some unskilled workers. a. Minimum-wage laws b. Compensating differentials c. Labor market discrimination d. Signaling e. Low reservation wages

a.

According to the efficient markets hypothesis, a. investors are risk averse, have high discount rates, and tend not to diversify their portfolios. b. the current price of an asset fully reflects all available information. c. at the current market price, the number of shares being offered for sale will exceed the number of shares people want to buy. d. better-than-expected news about a corporation's earnings won't translate into a higher price for its stock. e. markets are better at allocating scarce re sources than the government is.

b.

An efficiency wage: a. gives employees an incentive to shirk their duties. b. is higher than the equilibrium wage. c. is the result of employer discrimination. d. is the result of customer discrimination. e. is approximately the same thing as "the beauty premium" and is paid to Superstars.

b.

Another name for a person's wage rate is his/her: a. reservation wage.; b. supply of labor curve; c. opportunity cost of leisure. d. derived demand; e. economic rent; f. substitution effect.

b.

At an interest rate of 10%, about how long would it take $1,000 to quadruple in value? a. 10 years; b. 14 years; c. 20 years; d. 28 years; e. 30 years; f. 40 years

b.

Automobile production and operations are subject to a lot of restrictions and regulations. Which one of the following reasons would be the hardest to justify on Economics 198 grounds? a. antitrust legislation and actions to prevent a merger between Ford and General Motors b. laws that say adult occupants of the vehicle must use seat belts and the car must have air bags. c. a requirement that cars be inspected periodically for pollution emissions levels. d. a car's lights and brakes must be in good working order. e. minimum age limits and regular eye exams for drivers, as well as stiff fines for DUI/DWI violations.

b.

Differences in wages that reflect differences in the non-monetary features of jobs are called: a. reservation wages. b. compensating differentials. c. economic rent. d. risk premiums. e. efficiency wages.

b.

George and Brad are servers in a restaurant heavily populated by female customers. George earns higher tips than Brad. Which of the following is the least likely to account for that? a. the beauty premium; b. compensating differentials; c. customer discrimination; d. the "superstar" phenomenon; e. efficiency wages; f. reservation wages

b.

If the demand for wedding cakes increases, then the value of the marginal product of labor for bakers will: a. not change if we assume that labor markets are competitive. b. also increase. c. be uncertain because it depends on the relative strengths of the income effect v. the substitution effect. d. decrease if the wage rate firms have to pay bakers increases as a result. e. decrease because of diminishing returns.

b.

In deciding whether or not a good is a public good, one must a. first determine:the incomes of those who would benefit most from consuming it. b. the extent to which consumption of the good is excludable. c. the benefits and costs associated with producing and consuming it. d. whether there are positive or negative externalities, or neither, inherent with it. e. if the median voter wants to consume it disproportionately.

b.

Mr. Sanderson believes that _______________ is not very important in explaining M:F wage differentials. a. age b. employer discrimination c. marital status d. industry and occupation e. customer discrimination

b.

Mr. Sanderson does not allow students to audit or attend his courses unless they are officially registered and paying the University an appropriate tuition. What is he most trying to prevent with this policy? a. a principal-agent problem b. a public goods problem c. erosion of his natural monopoly power as the sole instructor for the courses he teaches d. rent-seeking e. type II errors

b.

Our "belling the cat" example from Aesop's Fables used in lecture is an illustration of: a. the applicability of the Coase theorem. b. a public-goods problem. c. dealing with moral hazard. d. the market for "lemons." e. risk aversion.

b.

The Ally Bank YouTube video with Tom Sargent and the US Bank Giant Football Helmet YouTube video are illustrations of ___________________________ and _____________________________, respectively: a. risk and rate of return in financial markets; Type I v. Type II errors b. the Efficient Markets Hypothesis; the Coase theorem c. negative externalities; public goods d. economic rent; compensating differentials e. present value; the shortsightedness effect

b.

The Ally Bank ad suggests that Tom Sargent: a. is risk averse. b. believes in the efficient markets hypothesis. c. thinks that managed funds will outperform index funds. d. would argue that markets are frequently subject to irrational exuberance. e. has a low discount rate.

b.

The Public Choice model posits that: a. workers' compensation-at the top and the bottom-should be set by public officials and not left to market forces. b. government policy makers are likely to pursue their own self-interest even if it conflicts with the public's interest. c. the rich do not pay enough in taxes to offset the benefits they receive and the damage they cause. d. people often act irrationally and make decisions on the basis of too little information. e. public-policy makers have incentives to intervene in the economy in ways that promote efficiency.

b.

The labor supply curve would always be positively sloped were it not for: a. the reservation wage. b. the income effect. c. monopsony power on the part of employers. d. the law of diminishing returns. e. discounting and the shortsightedness effect.

b.

The surplus earned by a factor of production-let's say labor-in excess of its opportunity cost is called: a. a compensating differential; b. economic rent; c. its reservation wage; d. the income effect; e. a risk premium; f. a positive externality.

b.

Why have Mankiw, your instructor, and Gary Becker argued that a wage differential due to discrimination would be unlikely to exist in competitive markets? a. It's against the law, and firms will go to some lengths to avoid bad publicity and possible prison time. b. There is a cost advantage for firms that do not discriminate, and thus they'll earn higher profits. c. Employers typically base their pay scales to prevailing wages in the marketplace and don't deviate. d. In spite of their implicit goal of maximizing profits, firms exhibit a lot of social responsibility as well. e. Fear of reprisal by unions - strikes and walkouts - on behalf of their members against employers.

b.

___________ is most likely to agree with this statement from Aristotle: "When men are friends they have no need of justice." a. Pigou; b. Ostrom; c. Sargent; d. Buchanan; e. Fama; f. Shiller

b.

"Darts Are Beating the Investing Pros." So read a recent Wall Street Journal headline. The end of the first paragraph: "Investors would have been better off picking companies by throwing darts at stock tables rather than listening to Wall Street geniuses." This should bring to mind immediately: a. the special-interest effect. b. present discounted value principles. c. Eugene Fama and Tom Sargent. d. Fundamental Analysis. e. public goods and free-riding.

c.

A college diploma tells an employer that a particular job applicant probably possesses desirable but otherwise not easily observed characteristics. This would be an example of: a. reducing or eliminating a moral hazard problem. b. countering monopsony power in a labor market. c. signaling. d. a derived demand. e. rational ignorance.

c.

A job with less pleasant and/or even less safe working conditions likely pays: a. economic rent; b. an efficiency wage; c. a compensating differential; d. a reservation wage; e. EMH; f. a lower discount rate.

c.

A person's tendency to supply less labor in response to a higher wage rate is called: a. the reservation wage effect; b. the substitution effect; c. the income effect; d. the efficiency wage effect; e. moral hazard; f. rent-seeking.

c.

Living together before getting married is perhaps an efficient way for "couples" or "partners" to deal with: a. the transactions costs associated with wedding planning, legal and family hassles. b. adverse selection. c. asymmetric information and the "lemons" market. d. moral hazard. e. principal-agent problems.

c.

Market failure associated with the free-rider problem is primarily the result of: a. the poor or undeserving being able to get welfare benefits without having to work hard for them. b. relying too much on not making Type I errors that you end up making a Type II error. c. benefits accruing to, or being captured by, those who didn't have to pay. d. the social benefit being less than the private benefit. e. union that capture "rents" that should have gone to the individual worker.

c.

Most financial decisions involve the two related concepts or elements of: a. interest rates and present value; b.saving and consumption; c.time and risk; d.market risk and firm-specific risk; e. adverse selection and moral hazard.

c.

Mr. Sanderson regards family pets as: a. a waste of money that should have been spent on the homeless and destitute populations. b. walking, whining, barking negative externalities. c. "goods" with high income elasticities. d. cruel, in the sense that these creatures, along with zoo animals, should not be in captivity. e. public or club goods as opposed to private goods.

c.

Once a person purchases insurance, she has less incentive to avoid risk. We refer to this as: a. discounting; b. risk preference; c. moral hazard; d. adverse selection; e. EMH; f. a compensating differe ntial.

c.

Solving, or preventing, Tragedy of the Commons problems by restricting access through community norms is the strategy or approach suggested by: a. Pigou; b. Fama and Shiller; c. Ostrom; d. Mankiw; e. Coase

c.

Someone offers you the choice of having $100 today or $200 in 10 years. You would take the $100 now if: a. there was likely to be any inflation in the next 10 years. b. a bank would promise you a 5 percent annual return on your $100 deposit. c. your personal discount rate were higher than 7 percent. d. you had a positive rate of time preference. e. your income effect was larger than your substitution effect.

c.

The marginal product of labor is: a. the change in revenue per additional unit of labor. b. marginal revenue product minus the wage paid to the worker. c. the change in output per additional unit of labor. d. likely to decrease because at some point workers will want to take more leisure instead of income. e. output minus costs times the number of employees.

c.

The negative slope of the value of the marginal product curve is most easily explained by: a. the concept of present value. b. the fact that as firms hire more and more labor, the wage rate rises. c. diminishing marginal product. d. the fact that labor is a derived demand. e. the tragedy of the commons.

c.

The temptation of imperfectly monitored workers to shirk their responsibilities is an example of: a. signaling; b. rational ignorance; c. moral hazard; d. the shortsightedness effect; e. an adverse-selection problem.

c.

The theory that asset prices reflect all publicly available information about them is referred to as: a. present value. b. symmetric information equilibrium. c. the efficient markets hypothesis. d. discounting. e. signaling.

c.

To say that a firm is competitive in the labor market is to say that the firm: a. is aggressive in pursuing the most skilled workers, and it adjusts wages to ensure it keeps them content. b. can decide on how many workers it wants to hire and the wages and benefits package it will pay them. c. has little if any control or discretion over the wages it pays its workers. d. is a price taker when it comes to the price it can charge for its products. e. will hire workers up to the point where their marginal product begins to slow down or decline.

c.

When the wages paid to government economists increase, the labor supply curve for academic economists (that is, those who want to teach and do research at a university): a. will change from being upward sloping to backward bending. b. will also increase. c. will shift to the left. d. will exhibit diminishing returns. e. There won't be any change in supply, only a change in the quantity of labor supplied.

c.

When you were born, if your grandparents had put $100 into a saving account earning 10 percent annually, approximately how much would that be worth when you turn 21? a. $300; b. $400; c. $800; d. $1,600; e. impossible to say without knowing the average rate of inflation over that 21-year period.

c.

Which parable describes the problem of wild animals that are hunted to the point of extinction? a. The Mice In Council; b. The Coase theorem; c. The Tragedy of the Commons; d. The Tortoise and the Hare; e. The Wizard of Oz

c.

A negative externality that has not been internalized causes: a. the optimal social quantity to exceed the equilibrium quantity. b. an equity problem on either the demand side or the supply side or both. c. a good to be produced when it fact it should have been prohibited by the government in the first place. d. the current market equilibrium price to be too low. e. the social cost curve to lie above the private cost curve.

d.

Economic theory predicts that an increase in a worker's wage rate: a. will cause that person to work less. b. will cause that person to work more. c. will make the worker more productive. d. might cause this wage earner to work more or to work less; a priori we can't tell for sure. e. will cause the worker to consume less of the good - in this case leisure time - that has gone up in price.

d.

In baseball, to some extent a batter has to guess as to whether the pitcher's next delivery to home plate will be a fastball, a slider, a curveball, a split-finger pitch, etc. In economics this situation might be called: a. a moral hazard problem. b. a Type I error situation. c. a Type II error situation. d. an asymmetric information problem. e. a principal-agent problem.

d.

In the midst of a strike against 27 Broadway theaters a few years ago, one union representative blurted out: "Cuts in our jobs and wages will never result in lower ticket prices." What is the point of economic theory that implicitly lies behind this comment, whether he realized it or not? a. risk aversion; b. present value; c. collective action and free-rider problems d. derived demand; e. Type I v. Type II errors; f. efficiency v. equity issues

d.

In which of the following situations is compensating differentials not likely to be a factor in observed pay a. Park rangers at the Grand Canyon and Yellowstone National Park v. equally skilled workers b. workers who work the night shift as opposed to those who do identical work during the day shift c. construction workers in comparison with bank tellers or department store clerks d. Harvard econ graduates v. those with art history degrees from a BSU (Big State University) e. long-distance truck drivers v. local UPS and FedEx delivery drivers

d.

The "Giant Helmet" YouTube advertisement Mr. Sanderson sent you is an excellent example of the theory or contribution of what famous scholar? a. Tom Sargent; b. A.C. Pigou; c. Elinor Ostrom; d. Ronald Coase; e. James Buchanan.

d.

The first sentence from the October 26, 2010, Editorial in the Chicago Maroon: "The University requires almost every first-year to pass the swim test or, if that doesn't pan out, to take a swim class, presumably so they won't sink the next time they find themselves hanging out in open water." Your instructor: a. would essentially concur that the swim requirement should exist and for the reason the Maroon gives. b. would look at this as an example of the shortsightedness effect. c. doesn't think it's necessary because students have such low discount rates and are not risk averse. d. sees the actual reason for the requirement turning on externality or special-interest-effect grounds. e. views the University's decision as a prudent one, and based on moral hazard grounds.

d.

The main justification for subsidizing museums, universities, inoculations, and orchestras is based on: a. equity issues - that is, the poor wouldn't be able to attend or "consume" these things otherwise. b. the fact that they would all be classified as public goods. c. the theory of public choice. d. the assumption that everything in this list may contain positive consumption externalities. e. the assumption that individuals have high discount rates.

d.

The main positive externality of higher education for society is: a. higher earnings for the college graduate. b. better personal health and a longer life expectancy. c. more enjoyment of life. d. lower crime and unemployment rates in the society. e. students paying tuition, which creates more jobs in the economy.

d.

The problem of "moral hazard" arises in insurance markets because: a. people are generally risk averse. b. of adverse selection - only people who expect to die early will purchase a life-insurance policy. c. there are diminishing returns to wealth, so a person's utility function decreases. d. once people purchase insurance, they have less of an incentive to be careful about their risky behaviors. e. of the efficient markets' hypothesis.

d.

The proposition that if property rights are well-defined, the number of parties is small, and transactions costs are low, private parties may be able to negotiate or bargain over the allocation of resources, thus solving the externality problem on their own is called, or is an example of: a. the Golden Rule. b. The Ostrom conjecture. c. the Pigovian equilibrium. d. the Coase theorem. e. the Invisible Hand outcome.

d.

The slope of the VMP of labor curve is most easily explained by: a. the income effect dominating the substitution effect. b. the fact that the demand for labor is a derived demand. c. a rising wage rate. d. diminishing marginal product. e. the substitution of capital for labor.

d.

The use of political power to redistribute wealth rather than to create wealth is called: a. discounting; b. the shortsightedness effect; c. a Type II error; d. rent-seeking; e. the median-voter theorem; f. a derived demand

d.

The value of the marginal product of any input is equal to the marginal product of that input multiplied by: a. the hourly wage. b. the change in total profit. c. the marginal cost. d. the market price of the output. e. the number of workers the firm employs.

d.

Unable to agree among themselves on how to solve an externality problem, parties employ a lawyer to draft and enforce a private contract for them. This is an example of: a. the Coase theorem. b. the shortsightedness effect. c. risk aversion d. a transactions cost. e. a principal-agent problem.

d.

When technology allows the best producer to supply every customer at a low cost, which of the following is a possible or even likely result? a. Efficiency wages will be paid to that person. b. The person will earn a beauty premium. c. Signaling will be a large factor in the wage determination. d. The market might well be subjected to the superstar phenomenon. e. The person will likely benefit from compensating differentials.

d.

When the Disney Corporation bought up a lot of land surrounding its planned Disney World theme park in Orlando, Florida, many years ago it was probably attempting to: a. become a monopolist in the restaurant and hotel industries as well as in recreation. b. turn a private good into a public good. c. prevent free riders (from looking at the rides and sneaking in). d. capture the positive externalities that would otherwise accrue to property owners once the park opened e. create a stream of extra costs and losses to reduce its tax liabilities.

d.

Your best friend and Econ 198 classmate receives a boost in pay for her part-time campus job from $12 an hour to $15 an hour. As a result she decides to increase the amount of time she works from 12 hours a week to 15 hours a week. From this information we could conclude that: a. for her, leisure time is an inferior good. b. the value of her marginal product is not decreasing. c. her labor supply curve has shifted to the right (that is, increased). d. for her the substitution effect of a wage increase dominates the income effect. e. the demand for her labor services is quite elastic.

d.

"Nonrival" and "nonexcludable" are terms most closely associated with: a. rational ignorance; b. negative or positive externalities; c. risk and the market for insurance; d. equity concerns; e. free-rider issues. f. club goods.

e.

5' 6", 66-year-old Nick Saban is paid $11 million a year to coach the University of Alabama football team. Mr. Sanderson probably regards this salary as mainly: a. an efficiency wage.a compensating differential. b. signaling. c. an exercise of Saban's monopsony power. d. economic rent.

e.

A college diploma tells a prospective employer that a particular job candidate possesses desirable but otherwise not easily observable characteristics or traits. This would be an example of: a. labor-market discrimination. b. rational ignorance. c. derived demand. d. the human capital theory of education. e. signaling.

e.

Corrective taxes: a. are a form of, or an example of, direct command-and-control regulation. b. are unlike most other taxes because they do not distort incentives. c. are thought by economists to be more efficient than issuing tradable pollution permits. d. are also known as Coasian taxes. e. move the allocation of resources closer to the social optimum.

e.

Free riding is most closely associated with: a. common resources; b. club goods; c. goods with positive externalities; d. private goods; e. goods that are not rival in consumption nor excludable.

e.

In the midst of a strike against 27 Broadway theaters, one union representative blurted out: "Cuts in our jobs and wages will never result in lower ticket prices." What is the point of economic theory that lies implicitly behind this comment, whether he knew it or not? a. the economics of bureaucracy b. risk aversion c. Type I vs. Type II errors d. collective action and free riders e. derived demand

e.

It is well known that Microsoft Corp goes to extremes - many rounds of interviews, a battery of tests given to job candidates - to avoid hiring the wrong person. This behavior or policy most reflects: a. the fact that they are worried about the adverse selection problem. b. the fact that they are worried about moral hazard. c. the unavoidable economics of bureaucracy. d. their desire to uncover the hidden superstar among the field of candidates. e. not wanting to commit a Type I error.

e.

Our "belling the cat" example from class, taken from Aesop's Fables, is an illustration of: a. an application of the Coase theorem. b. establishing and enforcing property rights. c. dealing with a moral hazard. d. the market for "lemons". e. a public goods problem.

e.

The "Golden Rule"-"Do unto others as you would have them do unto you"- is an example of: a. the "invisible hand" at work-and play. b. society operating at the appropriate discount rate. c. workers being paid the value of their marginal product. d. the Coase theorem. e. a private solution for internalizing externalities.

e.

The "Public Choice" theory or model posits that: a. workers' compensation should be set by the government and not left to market forces. b. the rich do not pay enough taxes to offset the benefits they receive and the societal damage they cause. c. people often act irrationally and make decisions on the basis of too little - or biased - information. d. policy makers will intervene in the economy in ways that improve economic efficiency. e. government officials are likely to pursue their own interests over those of society as a whole.

e.

The adage "Don't put all your eggs in one basket" is mainly about: a. the inherent deficiencies associated with monopolies; b. the efficient markets hypothesis; c. moral hazard; d. risk aversion; e. diversification.

e.

The backward-bending supply of labor curve is mainly due to: a. differences in individuals' reservation wages and personal discount rates. b. the size of the (economic) rent component in earnings. c. changes in population, technology and capital accumulation over time. d. the law of diminishing returns to labor and other inputs. e.the income effect dominating the substitution effect.

e.

The downward-sloping or negative or inverse slope of the VMP of labor is most easily explained by: a. the substitution of capital, natural resources and other inputs for labor. b. an increase in the wage rate. c. the income effect dominating the substitution effect. d. the substitution effort dominating the income effect. e. diminishing marginal product.

e.

The main source(s) of market power in U.S. labor markets is/are: a. large corporations. b. monopsonistic employers. c. racial and gender discrimination. d. the impacts of minimum wage laws and efficiency wages in distorting labor-market outcomes. e. unions.

e.

The possibility that there could be overprovision of public goods and other wasteful, inefficient spending on the part of government is emphasized by: a. the Coase theorem. b. the market-imperfection theory. c. the tragedy of the commons. d. the theory of economic rent. e. public choice theory.

e.

When deciding whether or hire an additional worker, firms need only consider how that would affect: a. the wage rate; b. costs; c. revenues; d. output; e. profits.

e.

Which one of the following articles of Mr. Sanderson's was not a class handout in this section of Econ100? a. a Chicago Tribune op-ed column on the case for paying college athletes b. a Chicago Life column - "Reflections on Work" - on various aspects of labor markets. c. a Chicago Life column on the economics of pets and their owners ("Bow Wow & Meow") d. a Chicago Life column on "Plastics" e. a Chicago Tribune column - "Would You Like Some Corruption with That?" - on local government

e.

Which theory explains why increased education translates into higher wages? a. the income effect dominating the substitution effect b. compensating differentials c. efficiency wages d. the efficient-markets hypothesis e. human-capital theory

e.