econ test

Signals are believable when the cost of sending a ________ is known to be ________. false signal; high false signal; low true OR false signal; low true signal; low true signal; high

false signal; high

For a hotdog vendor, the hotdog buns represents his variable input. fixed input. sunk cost. none of the above.

variable input.

What is the difference between a public franchise and a public enterprise? A public enterprise is owned by the public through its holdings of shares of stock in the enterprise. A public franchise is a firm owned by the government. Both refer to a service provided directly to consumers through the government, but "public franchise" is a term more commonly used in the United States while "public enterprise" is more commonly used in European countries. A public franchise grants a firm the right to be the sole legal provider of a good or service. A public enterprise refers to a service that is provided directly to consumers through the government. A public enterprise grants a firm the right to be the sole legal provider of a good or service. A public franchise refers to a service that is provided directly to consumers through the government.

A public franchise grants a firm the right to be the sole legal provider of a good or service. A public enterprise refers to a service that is provided directly to consumers through the government.

Scenario: Elly owns a small coffee shop. She has only one employee. One weekend, she decides to take a break from work. She is wondering whether she should trust her employee to run the shop in her absence. If she does not trust him, she would have to keep the shop closed, in which case neither she nor her employee will be able to make money. In contrast, if she trusts him, he can either cooperate and run the shop or he can defect and steal from the shop. If he cooperates, both of them will earn money. If he steals from the shop, he will make more money while she will lose. Refer to the scenario above. Which of the following is likely to happen if Elly is known to be vengeful? Both Elly and her employee will earn money. Only Elly's employee will make money. Neither of them will make money. Only Elly will make money.

Both Elly and her employee will earn money.

You have been hired by the No Hassle Collection Agency to provide economic advice. The owner of the agency tells you that No Hassle's only variable input is the number of collection agents. The hourly wage for collection agents is $30.00. The marginal revenue product curve for collection agents reaches its maximum at five workers with a marginal revenue product of $34.00. What advice would you give this firm? Shut down immediately, as the firm is not able to cover all of its variable costs. Hire five collection agents so as to maximize profits. Decrease the wage rate paid to collection agents so that their marginal revenue product will decrease. Hire collection agents until the marginal revenue product is equal to the wage — which will occur when more than five agents are employed.

Hire collection agents until the marginal revenue product is equal to the wage — which will occur when more than five agents are employed.

What is moral hazard? It refers to the private, self-interested actions that people pursue, which when taken collectively leads to a loss in economic surplus. It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction. It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.

It refers to the actions people take after they have entered into a transaction that makes the other party to the transaction worse off.

Suppose the market for tortillas is initially in equilibrium, but then the equilibrium wage rate and the equilibrium quantity of labor both increased. What happened in the market for tortilla? The demand for tortillas decreased. The supply for tortillas decreased. The supply for tortillas increased. The demand for tortillas increased.

The demand for tortillas increased.

What does it mean to say that a game is in "extensive form"? The game is written out as often as the situation calls for it to be played. The game is presented as a matrix. Strategies are described, rather than just numbered. The game is presented as a decision tree. All payoffs are shown.

The game is presented as a decision tree.

An increase in wages raises the opportunity cost of leisure and leads to an increase in the quantity of labor supplied. True False

True

The most important factor contributing to wage differences in the labor market is differences in the level of education and training among workers. True False

True

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run? Yes, it should continue to produce because its price exceeds its average fixed cost. Yes, it should continue to produce because the firm's revenues cover the total variable cost of $16,000. No, it should shut down because it is making a loss. There is insufficient information to answer the question.

Yes, it should continue to produce because the firm's revenues cover the total variable cost of $16,000.

Compared to a perfectly competitive market, a monopoly sets a lower price. the same price. a higher price. a price that might be higher, lower, or the same depending on whether the monopoly's marginal revenue curve lies above, below, or on its demand curve. a price that might be higher, lower, or the same depending on whether the monopoly's marginal cost curve lies above, below, or on its marginal revenue curve.

a higher price.

The opportunity cost of leisure is the substitution effect. the income effect. a person's wage rate. a person's income.

a person's wage rate

Marginal cost is the additional cost of producing an additional unit of output. change in average cost when an additional unit of output is produced. change in the price of inputs if a firm buys more inputs to produce an additional unit of output. additional output when total cost is increased by one dollar.

additional cost of producing an additional unit of output.

Which one of the following is an example of asymmetric information? A homeowner knowingly sells a house that has hidden electrical problems. A company hires an employee who has an addiction to sleeping pills. A supermarket repackages packages of stale meat and sells them. all of the above

all of the above

A decrease in the wage rate causes a rightward shift of the firm's labor demand curve. an increase in the quantity of labor demanded. a decrease in labor's productivity. a leftward shift of the firm's labor demand curve.

an increase in the quantity of labor demanded.

Adverse selection occurs when there is a worker who shirks because his boss does not watch him. an unobserved characteristic. full information. unobserved behavior.

an unobserved characteristic.

If in the market for used bikes only sellers can distinguish between good quality and bad quality used bikes, then in that market there exists: asymmetric information. public information. duopoly information. perfect information.

asymmetric information.

The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is inefficient market hypothesis. asymmetric information. information disparity. moral hazard.

asymmetric information.

Scenario: Jack and Jill are two siblings. Jack's father asked him how much he would offer to Jill if he gives him $50 as pocket money. He also told Jack that if Jill refuses the offer Jack makes, neither of them will get any money. Refer to the scenario above. A player should use ________ to play this game. his dominated strategy backward induction forward induction mixed strategies

backward induction

The first mover in an extensive-form game should use ________ to win the game. mixed strategies pure strategies backward induction forward induction

backward induction

Why does a monopoly cause a deadweight loss? because it does not produce some output for which demand exceeds supply because it stops producing output at a point where price is above marginal cost because it appropriates a portion of consumer surplus for itself because it increases producer surplus at the expense of consumer surplus

because it stops producing output at a point where price is above marginal cost

In a market with asymmetric information, ________. buyers and sellers have different information about the good being traded buyers have very low bargaining power buyers tend to forget relevant information about the good being traded buyers set the price of the good being traded

buyers and sellers have different information about the good being traded

In the market for health​ insurance, asymmetric information problems arise because health insurance policies always include clauses that only the companies understand. the sellers of health insurance require medical exams that give them more information than the buyers normally have. buyers of health insurance policies always know more about the state of their health than do the insurance companies. privacy laws prevent the sellers of health insurance from asking buyers pertinent lifestyle questions.

buyers of health insurance policies always know more about the state of their health than do the insurance companies.

The marginal product of labor is the: change in output resulting from adding an additional unit of labor. change in labor necessary to produce an additional unit of output. cost of additional labor necessary to produce an additional unit of output. change in revenue resulting from adding an additional unit of labor.

change in output resulting from adding an additional unit of labor.

Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms. A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes. What are these points called? either-or terminals decision nodes decision options option points

decision nodes

Buyers in the market for used guitars are getting more pessimistic about the possibility of getting a good guitar. This will cause the price of used guitars to ________ and the percentage of good used guitars to ________. decrease; increase increase; increase increase; decrease decrease; decrease

decrease; decrease

A more realistic theory than the traditional theory of consumer behavior would: introduce some rules of thumb to explain complex behavior that the basic theory cannot explain. take into account the fairness of an economic transaction. the context, or setting one is in. do all of the above.

do all of the above.

In game theory, the strategy that always yields the highest benefit for the player using it is the prisoners' strategy. dominant strategy. matrix strategy. cooperative strategy.

dominant strategy.

In behavioral economics, we assert that: people sometimes do things because they think it is the fair thing to do, even if there is no financial or other material benefit. sometimes expecting nothing in return, but most often expecting real gains also. but only if the net gains exceed the net losses. but actions based on fairness must also be backed by real financial gains or other material or tangible benefit.

even if there is no financial or other material benefit.

In an extensive-form game, payoff to a player is usually higher if ________. he is smarter than the other player he is the second mover he is the first mover he picks a strategy at random

he is the first mover

Scenario: Phillip and Joseph are two classmates who represented their college in a quiz competition as a team and won $500. However, the winning amount was handed over by the organizers to their professor who had accompanied them. The professor gave the money to Phillip and asked him to offer any amount he wants to Joseph. If Joseph accepts the offer, the money would be split in the decided proportion between them. However, if Joseph rejects the offer, the money would go to their college fund. Refer to the scenario above. If Joseph prefers fairness to money, ________. he will not accept any offer made by Phillip he will accept the offer if offered an equal share of the money he will always accept any offer made to him Phillip will offer the minimum amount of money to Joseph

he will accept the offer if offered an equal share of the money

The main difference between the short run and the long run is that: in the long run, the firm is making a constrained decision about how to use existing plant and equipment efficiently. in the short run all inputs are fixed, while in the long run all inputs are variable. in the short run, at least one of the firm's input levels is fixed. in the short run the firm varies all of its inputs to find the least-cost combination of inputs.

in the short run, at least one of the firm's input levels is fixed.

When the ________ effect dominates the ________ effect, the labor supply curve is ________. substitution; income; positively sloped substitution; income; horizontal income; substitution; vertical income; substitution; negatively sloped

income; substitution; negatively sloped

In situations where new technologies are considered complementary to workers, demand for these workers will ________, resulting in ________ in the equilibrium wage. decrease; an increase increase; a decrease increase; an increase decrease; a decrease

increase; an increase

A seller's verbal assurance that a used car is a plum (high-quality car): provides the same protection against adverse selection than does a repair guarantee. is an effective way for sellers to prove that the good they are selling is of high quality. is not effective at reducing the problems associated with asymmetric information. is a more efficient way to prove high quality than a money-back guarantee because it does not cost the seller any money to make the assurance.

is not effective at reducing the problems associated with asymmetric information.

The Aluminum Company of America (Alcoa) had a monopoly until the 1940s because it was a public enterprise. the company had a secret technique for making aluminum from bauxite. it had control of almost all the available supply of bauxite. it had a patent on the manufacture of aluminum.

it had control of almost all the available supply of bauxite.

A strategy is dominant if the player cannot gain by changing strategy, assuming that no other player changes strategy. it yields a payoff at least as large as that from any other strategy, regardless of the actions of other players. it is part of a Nash equilibrium. it yields a greater payoff than any other player receives.

it yields a payoff at least as large as that from any other strategy, regardless of the actions of other players.

The rutabaga market is perfectly competitive. Research is published claiming that eating rutabagas leads to gaining weight and so the demand for rutabagas permanently decreases. The permanent decrease in demand results in a lower price, economic profits for rutabaga farmers, and entry into the market. higher price, economic profits for rutabaga farmers, and entry into the market. lower price, economic losses by rutabaga farmers, and entry into the market. higher price, economic losses by rutabaga farmers, and exit from the market. lower price, economic losses by rutabaga farmers, and exit from the market.

lower price, economic losses by rutabaga farmers, and exit from the market.

The decision rule for a profit-maximizing firm operating in a competitive market to hire an additional worker is the value of the: average product of the worker being hired should be lower than the wage rate. average product of the worker being hired should be equal to the wage rate. marginal product of the worker should be equal to or lower than the wage rate. marginal product of the worker should be equal to or greater than the wage rate.

marginal product of the worker should be equal to or greater than the wage rate.

State provision of free healthcare may encourage individuals to engage in unhealthy behavior, such as excessive smoking or consumption of alcohol. This is an example of ________. adverse selection anchoring a positive externality moral hazard

moral hazard

A person who starts practicing poisonous snake charming after signing a contract with a health insurance company is an example of signaling. moral hazard. adverse selection. screening.

moral hazard.

A Nash equilibrium occurs when ________. none of the players has a dominant strategy each player can increase his payoff by choosing a different strategy none of the players can increase their payoffs by choosing a different strategy each player has a dominant strategy

none of the players can increase their payoffs by choosing a different strategy

A cooperative equilibrium is most likely to arise in a repeated game with a small number of players. repeated game with a large number of players. single-play game with a large number of players. single-play game without communication.

repeated game with a small number of players.

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm should increase price. should shut down. should increase output. is earning a profit.

should shut down.

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are nonmonetary opportunity costs. sunk costs. capital costs. implicit costs.

sunk costs.

Marginal revenue product for a perfectly competitive seller is equal to the output price multiplied by the total product of labor. the output price multiplied by the number workers hired. the change in total revenue that results from hiring another worker. the marginal cost of production.

the change in total revenue that results from hiring another worker.

The term "derived demand" refers to a firm's estimated demand curve derived from sales data. a demand curve that derives from the availability of resources. the demand for a factor of production that is derived from the demand for the good the factor produces. the demand for financial products called derivatives.

the demand for a factor of production that is derived from the demand for the good the factor produces.

If Alan Shaw reduces his work hours when his salary increases, then the income effect of his salary increase is completely offset by the substitution effect. the substitution effect of his salary increase dominates the income effect. leisure is an inferior good to Alan. the income effect of his salary increase dominates the substitution effect.

the income effect of his salary increase dominates the substitution effect.

One reason why the average salary of Major League Baseball players is higher than the average salary of college professors is the marginal revenue product of baseball players is greater than the marginal revenue product of college professors. the careers of most baseball players are much shorter than the careers of most college professors. competition among baseball club owners forces player salaries to be much higher than the players' marginal revenue products. college professors accept lower salaries in exchange for better working conditions.

the marginal revenue product of baseball players is greater than the marginal revenue product of college professors.

Implicit costs can be defined as the non-monetary opportunity cost of using the firm's own resources. the deferred cost of production. total cost minus fixed costs. accounting profit minus explicit cost.

the non-monetary opportunity cost of using the firm's own resources.

If productive efficiency characterizes a market firms produce the goods that consumers desire most. the marginal cost of production is minimized. firms use the best technology available to produce the good. the output is being produced at the lowest possible cost.

the output is being produced at the lowest possible cost.

A key aspect of the principal-agent problem is that the principal is always risk averse. the principal can perfectly monitor the agent's actions. the principal cannot perfectly monitor the agent's actions. the output level does not depend on the agent's actions.

the principal cannot perfectly monitor the agent's actions.

If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of the principle-agent problem. moral hazard. adverse selection. asymmetric information.

the principle-agent problem.

For a perfectly competitive corn grower in Nebraska, the marginal revenue curve is... the same as its demand curve. upward sloping. U-shaped. downward sloping. vertical at the profit maximizing quantity of production.

the same as its demand curve.

The minimum point on the average variable cost curve is called the point of diminishing returns. the shutdown point. the loss-minimizing point. the break-even point.

the shutdown point.

Health insurance companies impose deductibles on policies and co-payments on claims to increase prices. to reduces sunk costs. to reduce moral hazard problems. to increase sales.

to reduce moral hazard problems