Econ Test #1
Which type of experiment is likely to yield more accurate results?
Randomized, because a natural experiment may not be completely randomized
The statement that the U.S. government should increase carbon taxes to reduce carbon emissions that cause global warming is...?
a normative statement, because it describes what ought to be done and is therefore not possible to confirm with data
Does the shape of the market demand curve differ from the shape of an individual demand curve?
no, they both tend to be downward-sloping curves
In an episode of Seinfeld, Jerry and his friends are waiting to be seated at a restaurant. Tired of waiting, Elaine convinces the others that they should bribe the waitress to get a table. What is the key factor that they should consider when deciding how much to bribe the waitress?
The opportunity cost of their time while waiting
To allocate the goods produced to the people who value them the most we use...?
The price mechanism
Which of the following is the best example of causation (versus correlation)?
oil prices go up and gasoline prices go up
We make the assumption of holding all else equal when considering demand curves since we want to focus on the changes in the quantity demanded that result from changes in...?
only the price of a good
The three principles of economics are...?
optimization, equilibrium, and empircism
Optimization describes a situation where...?
people weigh cost and benefits when making a decision
Optimization in levels examines______, while optimization in differences analyzes _______.
total net benefits of alternatives; the change in net benefits
The table above shows that for a given budget if you increase the amount of one type of good that you buy, you must *decrease* the amount of the other good that you buy. Therefore, a budget constraint implies that the consumer faces...?
trade-offs
Empiricism is a principle in economics that...?
uses data to test economic models
In a perfectly competitive market, sellers _______ and buyers_____.
cannot charge more than the market price; cannot pay less than the market price
Market demand is derived by....?
fixing the price and adding up the quantities that each buyer demands
The concept of diminishing marginal benefits...?
holds true for goods that you like a lot
What are some things considered as scare resources for producers?
labor skill, natural resources for production, equipment and tools, machinery, land
In a perfectly competitive market, of one seller chooses to charge a price for its goof that is slightly higher than the market price, then it will...?
lose all or almost all of its costumers
If Jerry and his friends decide to pay an amount that is higher than the value of the meal they would of had, then we know they...?
may be acting rationally, depending on how greatly they value catching the movie after dinner. If they put a high value on the movie, then the bribe is rational
How does a natural experiment differ from a randomized one?
A natural experiment uses existing variation, while a randomized experiment generates variation
Which of the following are subject to the free rider problem?
A neighborhood watch, National security, public libraries
What is meant by comparative statics?
A change in an outcome, such as consumption, that results from a change in a factor, such as the price
Which of the following is NOT an important property of an economic model?
It predicts actual results over half the time
Optimization is the process that describes...?
The choices that businesses make
How would a decrease in supply affect the equilibrium price in a market?
The equilibrium price increases
Does the principle of optimization imply that people always make the best choices?
Yes, it is a good approximation for the decisions people make
Suppose 4,814 people bought popsicles on a hot summer day. If the average number of popsicles that each person bought is 10, the number of popsicles sold that day is...?
48140
Suppose you have to give up a job that pays you $40,000 a year to attend business school. how would this affect your calculation of whether to attend business school?
It will increase the indirect cost of your time, making you less likely to attend business school
Determine if the following statements better describe optimization in levels or optimization in differences. Nikki decided to take the first available parking space as she entered the student lot. She felt that the first available space had a $5 premium compared with all other possible spaces since she did not want to risk being late for her exam.
Optimization in differences, she is calculating the change in net benefits between alternatives
What does it mean to say that we are running out of "cheap oil"?
That oil reserves are becoming more expensive to find and extract over time
How is the mean calculates from a series of observations?
The mean is the average value of a set of observations
Give an example of a pair of variables that have negative correlation.
The number of winter coats sold and the temperature outside
The cost of many food safety regulations can be calculated in dollars, but the benefits are often in terms lives saved (mortality) or decreases in the incidence of a particular illness (morbidity). What does this imply about the cost-benefit analysts of food safety regulations?
We must first translate the mortality and morbidity data into dollars in order to compare its costs of the regulations.
consider the following situation: your math professor tells your class that the mean score on the final exam is a 43. The test was scored on a total of 100 points. Given only this information, is it mathematically possible that you score a grade of 100 percent on
Yes, because a single value in a set of observations can be different from the mean.
What is a positive statement?
an objective statement about the world that can be confirmed with test data
Since inputs used to produce goods are scarce, the total amount produced of most goods is...?
below the amount consumers would like to buy
Economists mostly use optimization in differences, as opposed to optimization in levels, because...?
comparing different features of alternatives is simple
Assume that every semester after finals you fly back home using a $300 plane ticket you bought online. You have 40,000 frequent flier miles. You could exchange your miles for a round trip to the Bahamas over spring-break. If you choose to exchange your miles for a free trip to the Bahamas, then your trip...?
costs $300, since your next best alternative was to use your miles to fly home at the end of the next semster
If the number of sellers of a sparkling wine decreases significantly, then the supply curve for sparkling wine would__________.
decrease (shift left)
Empiricism describes a situation where...?
economist use data to analyze what is happening in the world
For a trade to take place, a buyer's willingness to pay must be_______.
higher than the seller's willingness to accept, and equal to the seller's willingness to accept
The fact that George and Elaine have movie tickets _____ the amount they are willing to pay as a bribe to be seated faster at dinner.
increases
Which of the following is not a item studied under macroeconomics?
prices of individual goods
What is an example of a normative statement?
production in the automobile industry is slow and should be subsidized by the government
What is a normative statement?
reflects what people ought to do and is almost always dependent on subjective judgement
The Law of Supply states than, in most cases, the quantity supplied of a good______ when the price of the good rises. This means we would expect a typical supply curve to be_______.
rises; upward-sloping
What is meant by randomization in the context of an economic experiment?
subjects are assigned by chance, rather than by choice, to a group
What is an example of a positive statement?
the U.S. automobile industry had it's highest growth in 5 years in 2012
The concept of opportunity cost is the measure of...?
the best alternate use of a resource
A budget restraint represents...?
the bundle of goods or activities a consumer can choose given her limited budget
You are thinking about buying a house. You find one that costs $200,000. You learn the bank will give you a mortgage of $160,000, and you will have to use all of your savings to make a $40,000 down payment on the house. You calculate that the mortgage payments, property taxes, insurance, maintenance, and utilities would total $960 per month. Given the information above, if the interest rate on your savings account is 4% a year, then the opportunity cost of you using this money to make a down payment is equal to...
$1,600
What is Meant by holding all else equal and how is this concept used when discussing movements along the demand curve?
All variables that can affect the demand for the good are held constant
Is optimization analysis positive or normative or both?
Both because it examines whether people optimize and how to better optimize
Suppose the market price of corn is $5.50 per bushel Which of the following is NOT one of the three conditions that will be satisfied for the corn market to be in equilibrium at this price?
Both buyers and sellers of corn could benefit by making small changes to their market behavior
Suppose you are accepted at all of the three business schools to which you applied. Consider all the factors that could matter when it comes to choosing a business school. How would you go about making an optimal decision about which school to attend?
By comparing the net benefits from attending the three schools
If new irrigation technology improves the average yield of a vineyard, then the supply curve for sparkling wine would_________.
Increase (shift right)
If the number of people over the age of 16 in the country increased significantly, then the demand for the Toyota Rav4 SUV would...?
Increase (shift right)
Which of the following is true regarding the concept of causation?
It describes how one event can bring about change in another
This chapter discussed natural and randomized experiments. Which of the following is not a characteristic of a natural experiment?
It is an inferior approach to randomized method
You are thinking about buying a house. You find one that costs $200,000. You learn the bank will give you a mortgage of $160,000, and you will have to use all of your savings to make a $40,000 down payment on the house. You calculate that the mortgage payments, property taxes, insurance, maintenance, and utilities would total $960 per month. Which of the following is true regarding your calculation of the cost of owning a house?
It should include the opportunity cost of the money used to make the down payment. This money could be earning interest in the bank.
There is an old saying "The proof of the pudding is in the eating" which means that by definition good decisions work out well and poor decisions work out badly.
No, because decsions are evaluated based on the information available at the time they are made
Some studies found that people who owned guns were more likely to be killed with a gun. On this evidence alone, do you think there is conclusive evidence in favor of stricter gun control laws?
No, because it is possible that the studies may be confusing correlation with causation
A simple economic model predicts that a fall in the price of a bus ticket means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell. Is the model incorrect?
No, because it predicts the outcome of increased bus ridership on average
There is a proverb "anything worth doing is worth doing well." Do you think an economist would agree with the proverb?
No, because the marginal cost of extra effort may be greater than the marginal benefit
You are given a class assignment to find out if people's political learnings affect the newspaper or magazine that they choose to read. You survey two students taking a political science class and five people at a coffee shop. Almost all the people you have spoken to tell you that their political affiliations do not affect what they read. Based on the results of your study, you conclude that there is no relationship between political inclinations and the choice of a newspaper. Is this a valid conclusion? why or why not?
No, because the newspapers that people read could affect their political inclinations.
Your uncle tells you that the newspaper or magazine that people buy will depend on their age. He says that he believes this because, at home, his wife and his teenage children read different papers.
No, because the sample set is too small and the people surveyed were not selected randomly
Some people chose to love close to the city center, other choose to live away from the city center and take a longer commute to work every day. Does this mean that those who stay away from the city center are being irrational?
No, because their opportunity cost of commuting must be lower
We are running out of "cheap oil" What does this imply for the price of oil in the future?
The supply of oil will decrease, which will lead to higher prices in the future.
Determine if the following statements better describe optimization in levels or optimization in differences. John is attempting to decide on a movie. He determines that the new Batman movie provides him with $5 more of a benefit than the new Spiderman movie.
Optimization in differences, since he is calculating the change in the net benefits between alternatives
Determine if the following statements better describe optimization in levels or optimization in differences. Marcia finds that the net benefit of flying from Chicago to Honolulu on a non-stop United Airlines flight is $400, and the net benefit for the same trip flying on a one-stop American Airlines flight is $200
Optimization in levels, since she is comparing the net benefits between alternatives
Determine if the following statements better describe optimization in levels or optimization in differences. Reagan determined that the net benefit of taking the combination of two lecture courses and an online lecture course was $100. The same three courses gave her a net benefit of $80, and all three in a lecture-based format gave her a net benefit of $90
Optimization in levels, since she is comparing the net benefits between alternatives
suppose you had to find the effect of seatbelt rules on road accident fatalities. Would you choose to run a randomized experiment or would it make sense to use natural experiments here?
Randomized, because seatbelt rules may be influenced by road accident fatalities
Suppose you thought income inequality in the United States has increased over time. Based on your answers to this question, would you expect the ratio of the mean income in the Unites states to the median income has risen or fallen?
Risen, because means change more with extreme values
Refer to the optimization analysis used to make a decision about the choice of an apartment. Suppose the government in a certain country wants to reduce urban sprawl. What measures could it take to ensure that people choose to live closer to the central business district?
Tax traffic moving in and out of the city
How would the equilibrium price in a market be affected if there were a small decrease in supply and a large decrease in demand?
The equilibrium price decreases
How would the equilibrium price in a market be affected if there were a small increase in supply and a large increase in demand
The equilibrium price increases
For your business communication class, you are supposed to work on a group assignment in a team of six. The team is supposed to work together and turn in one copy of the assignment when completed for a grade. Given this information, which of the following is most likely to happen?
The free rider problem
How does the sample size affect the validity of an empirical argument?
The larger the sample size the better
Consider the total cost of traveling from point A to point B. The cost of traveling by car would include the cost of gasoline and the opportunity of time; the cost of hopping on a bus would include the bus ticket and the opportunity cost of time. Assume that the bus ticker costs less than the gasoline. Does this imply that using a bus to get to the destination involves lower total costs than getting there by car? What id the bus doesn't take the fastest route from point A to point B?
The marginal cost of using a bus may be higher if it takes more time than by car
Which of the following are more susceptible to the free rider problem: fishing in public lakes or street lights?
The use of street lights, because even those who don't pay taxes can benefit, while fishing in public lakes can charge for a fishing license, so that everyone who goes pays their share
Which of the following is NOT true about economic models?
They are not useful, since they do not include all variables
How do economist distinguish between models that work and those that don't?
They test their models against real world data
Suppose you have a flashlight that takes three batteries to power it. If you buy the batteries one at a time, for which purchase will diminishing benefits set in?
When you buy the fourth battery
The lowest price that a seller is willing to receive to sell an extra unit of a good is called______, while the highest price that a buyer is willing to pay for and extra unit of a good is called________.
Willingness to accept; willingness to pay
The Taft Harley Act allows workers to be employed at a firm without joining the union at their workplace or paying membership fees to join the union. The arrangement is known as an open shop. Considering unions negotiate terms of employment and wages on behalf of all workers at the firm, which of the following are true?
Workers are not likely to join a union, since they will not have to pay union dues and still be able to free ride from the benefits of union negotiation.
There is an old saying "The proof of the pudding is in the eating" which means that by definition good decisions work out well and poor decisions work out badly. Your friend lives in a city where it often rains in May. Nonetheless, the plan a May outdoor wedding and have no backup plan if it does rain. The weather turns out lovely on their wedding day. Do you think your friends were being rational when they made their wedding plans?
Yes, because the net benefit of an outdoor May wedding was greater than the net benefit in other months or inside
You usually have to see a doctor several times a year. You decided to buy health insurance the start of last year. It turns out you were never sick last year and never had to go to the doctors. Do you think you were being rational when you bought the health insurance?
Yes, if the net benefit of having health insurance was greater than not having health insurance
Suppose there are three activities for you to participate in: 1. The opportunity cost of the first activity is missing 3 hours of work 2. The opportunity cost of the second activity is missing the concert that you have tickets to 3. The opportunity cost of third activity is missing the afternoon nap you take every day Which of these activities would you be able to compare opportunity costs?
You can compare all of the activities once you translate the missed activites into dollar amounts
Suppose your new year's resolution was to get into shape. you are considering various ways to do this: you can get a gym membership, walk to work, talk the stairs instead of the elevator, or diet. How would you evaluate these options and chose the optimal one?
You do a cost-benefit analysts to compare the alternatives
A simple economic model predicts that a fall in the price of a bus ticket means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell. How would you test this model?
You should run a natural experiment by analyzing bus ridership and price changes
In general people with more education earn higher salaries. The human capital argument implies that...?
a college student who drops out of school one month before graduation should earn almost the same as a student who graduates.
In general people with more education earn higher salaries. The signaling argument implies that...?
a college student who drops out of school one month before graduation should earn much less than a student who graduates
The concept of opportunity cost would explain whether someone chooses to drive, take a cab, take a bus, or walk to school or work because someone with______.
a high wage is more likely to drive or take a cab to work because his time is worth more
As the texts explains, it can sometimes be very difficult to sort out the direction of causality. Causation occurs when there is...?
a logical cause-and-effect relationship
To say that economists use the scientific method means that they are using...?
an ongoing process to develop models of the world and then test and evaluate those models
Suppose you have just landed a job near the center of a city and you now need to decide where to live. If you live close to the city center, your round-trip commute will be 15 minutes. If you live in the distant suburbs, your round-trip commute will be 60 minutes. There are lots of workers like you who work downtown. Since there are inly a limited number of apartments near the city center, these apartments will be allocated based on...?
both the costs and benefits that you face. This process is known as optimization.
If widespread unemployment leads to a drop in incomes, then the demand for the Toyota Rav4 SUV would...?
decrease (shift left)
When making your decision about which activity to choose, you should consider the monetary cost *as well as* the opportunity costs of the activities. The goal is to choose the option that has the greatest...?
net benefit
Equilibrium describes a situation where...?
no one would benefit from changing his or her behavior
Suppose you had information on the sales of similar homes just east and just west of the boundaries between two school districts. Also suppose schools on one side of the school boundary are better than the schools on the other side in terms of test scores. You could estimate the average value that parents place on a one-point increase in test scores by...?
dividing the differences in the prices of similar homes between districts by the difference in test scores between districts
which of the following is not an example of causation?
driving without car insurance will lead to getting into an accident
The concept of diminishing marginal benefits means that...?
each additional unit consumed is worth less to you than the previous one
Consider the following statements: 1. You can either stand during a football game or sit. You believe you will see the game very well if you stand and others sit, but you will not be able to see if you sit and others stand. Therefore you decide to stand. 2. Your friend tells you that expects many people to stand during the football game. 3. An economist studies photos of many college football games and estimates that 75% of football fans stand and 25% sit Statement 3 deals with...?
empiricism, because it describes people using real-world data
Consider the following statements: 1. You can either stand during a football game or sit. You believe you will see the game very well if you stand and others sit, but you will not be able to see if you sit and others stand. Therefore you decide to stand. 2. Your friend tells you that expects many people to stand during the football game. 3. An economist studies photos of many college football games and estimates that 75% of football fans stand and 25% sit Statement 2 deals with...?
equilibrium, because your friend presumes everyone is behaving optimally
For your business communication class, you are supposed to work on a group assignment in a team of six. The team is supposed to work together and turn in one copy of the assignment when completed for a grade. If you were the proffesor, how would you reduce the incentive of the free rider problem?
have each group member turn in their own paper
How does microeconomics differ from macroeconomics?
microeconomics is the study of individual, household, firm and government made decisions, while macroeconomics is the study of the economy as a whole
Consider the following statements: 1. You can either stand during a football game or sit. You believe you will see the game very well if you stand and others sit, but you will not be able to see if you sit and others stand. Therefore you decide to stand. 2. Your friend tells you that expects many people to stand during the football game. 3. An economist studies photos of many college football games and estimates that 75% of football fans stand and 25% sit Statement 1 deals with...?
optimization, because you are choosing your best feasible option
Free riding occurs when...?
people's private benefits are out of sync with the public interest
What are some areas addressed in the study of economics?
pollution reduction policies, money, the benefits associated with decisions, prices