Exam 1- Quiz questions

According to the World Bank, real per capita income in the U.S. increased from $57,640 in 2015 to $58,030 in 2016. What was the approximate annual growth rate? 1) 0.7% 2) 1.0% 3) 6.8% 4) $390

1) 0.7%

Which of the following statements regarding the marginal rate of substitution (MRS) and the marginal rate of transformation (MRT) of a profit-maximising firm is correct? 1) The MRS is how much in price you are willing to give up for an incremental increase in the quantity, holding profits constant. 2) The MRT is how much in price the consumers are willing to give up for an incremental increase in the quantity consumed, keeping their utility constant. 3) If MRT > MRS then firms can increase their profit by increasing output. 4) The MRT is the slope of the isoprofit curves.

1) The MRS is how much in price you are willing to give up for an incremental increase in the quantity, holding profits constant. This is the definition of the MRS. It is the slope of the isoprofit curves.

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? 1) The best response curve describes the effort that the employee would choose for each level of the hourly wage 2) The best response curve is upward-sloping and convex. 3) The curve crosses the horizontal axis at the origin. 4) The average effort per dollar is increasing in wages.

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

In which of the following cases would a firm be maximizing profits? 1) The firm minimizes the cost per unit of effort. 2) The firm pays its employees their reservation wage. 3) The firm hires no workers. 4) The firm selects the lowest possible (least steep) isocost line, when the hourly wage is on the horizontal axis and effort per hour is on the vertical axis.

1) The firm minimizes the cost per unit of effort. Minimizing the cost per unit of effort minimizes the cost of production, hence maximizing the firm's profit.

Which of the following statements regarding piece rate wage contracts are correct? 1) They provide an employee an incentive to exert effort. 2) They are widely used in modern economies. 3)Piece rate wage contracts are easy to implement in modern knowledge- and service-based economies. 4) A piece rate wage contract would be appropriate for kitchen staff at a restaurant.

1) They provide an employee an incentive to exert effort. With a piece rate wage contract, employees take home more pay if they produce more output

How does a decrease in unemployment impact a worker's bargaining power? 1)A decrease in unemployment weakens workers' bargaining power. 2) A decrease in unemployment improves workers' bargaining power. 3) A decrease in unemployment will not change workers' bargaining power. 4) Unemployment is not related to workers' bargaining power.

2) A decrease in unemployment improves workers' bargaining power.

Which of the following statements about the wage-setting curve is correct? 1) The wage-setting curve depicts the workers' reservation wage for different levels of economy-wide employment. 2) At each point on the wage-setting curve, the workers are choosing their best response effort level given the real wage and unemployment rate. 3) A lower unemployment rate shifts the wage-setting curve down. 4) A higher unemployment rate shifts the wage-setting curve down.

2) At each point on the wage-setting curve, the workers are choosing their best response effort level given the real wage and unemployment rate. This is true. The wage-setting curve gives the real wage necessary at each level of economy-wide employment to provide workers with incentives to work hard and well.

The wage-setting curve shows that at relatively low levels of unemployment, economy-wide real wages will be relatively: 1) Low 2) High

2) High At low levels of unemployment, real wages will be relatively high

Suppose that everyone who had been looking for a job for more than six months gave up in despair and stopped looking for a job. What would happen to the unemployment rate? 1) It would increase 2) It would decrease 3) It would not change 4) It would change, but the effect cannot be predicted

2) It would decrease If unemployed individuals stop looking for a job, that means they are now no longer 'unemployed' but now merely out of the labor force. This means the unemployment rate would fall.

Which of the following statements about the price-setting curve is correct? 1) The price-setting curve simply depicts the firms' profit-maximizing price level for different levels of economy-wide employment. 2) Firms have to pay a higher real wage when the employment rate is higher. Therefore the price-setting curve is upward-sloping. 3) At points below the price-setting curve, the firms are setting prices too high compared to their profit-maximizing level. 4) At points above the price-setting curve, the firms are setting prices too high compared to their profit-maximizing level

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

Which of the following statements is correct regarding disposable income? 1)Disposable income is the amount of income that is given away. 2) Disposable income is total income from wages, profit, rent, and interest. 3)Disposable income is the maximum amount of expenditure possible without having to borrow or sell possessions. 4) Disposable income is the exact measure of one's wellbeing

3) Disposable income is the maximum amount of expenditure possible without having to borrow or sell possessions

Which of the following scenarios would cause the wage-setting curve to shift down? 1) Increase in unemployment benefits 2) A increase in the disutility of working 3) Firms implementing a new monitoring device used to detect shirking 4) A sudden drop in the working age population (i.e. the retirement of the baby-boomer generation)

3) Firms implementing a new monitoring device used to detect shirking

Which of the following statements is correct? 1) Firms aim to set as high a price/markup as possible. 2) Firms set the wage at the level where the workers are indifferent between working and not working in order for the firms to maximize profits. 3) If all firms set the same price and pay the same nominal wage, then the higher the real wage that they pay, the lower their markup. 4) In an equilibrium in the labor market, there is no unemployment.

3) If all firms set the same price and pay the same nominal wage, then the higher the real wage that they pay, the lower their markup. Feedback: The real wage is W/P while the markup is (P − W)/P = 1 − (W/P). So the higher the real wage, the lower the markup.

Which of the following variables has NOT followed the so-called 'hockey-stick' trajectory? 1) GDP per capita 2) Labor productivity 3)Inequality 4) CO2

3) Inequality

Look again at Figure 1.10, which shows a graph of GDP per capita for West and East Germany, Japan and Spain between 1950 and 1990. Which of the following statements is correct? 1) Having a much lower starting point in 1950 was the main reason for East Germany's poor performance compared to West Germany. 2) The fact that Japan and West Germany have the highest GDP per capita in 1990 implies that they found the optimal economic system. 3) Spain was able to grow at a higher growth rate than Germany between 1950 and 1990. 4) The difference in East and West Germany's performance proves that capitalism always promotes rapid economic growth while central planning is a recipe for stagnation.

3) Spain was able to grow at a higher growth rate than Germany between 1950 and 1990. The growth rate of an economy's GDP per capita can be inferred from the steepness of its curve when plotted on a ratio scale graph, as done here. The fact that the slope of Spain's curve is greater than that of either West or East Germany from 1950 to 1990 indicates that it grew at a faster rate.

Suppose that the unit cost of producing a tee shirt is $5, regardless of the level of output and there are no fixed costs. Which of the following statements is correct? 1) The marginal cost curve is upward sloping 2) The marginal cost curve is downward sloping 3) The marginal cost curve is a horizontal straight line 4)The marginal cost curve and average cost curve do not coincide

3) The marginal cost curve is a horizontal straight line The marginal cost is equal to $5 for all outputs. That means this is a horizontal straight line

The price-setting curve shows how output per worker is split between: 1) Unions (dues) and workers (real wage) 2) Firm owners (real profit) and unions (dues) 3)Workers (real wage) and firm owners (real profit) 4) None of the above.

3)Workers (real wage) and firm owners (real profit)

Consider a world of just two individuals, Gonzalo and Leila, who each need two goods to survive, apples and wheat. They differ in how productive they are in growing apples and wheat: 1)Leila has an absolute advantage in both crops. 2) Gonzalo has a comparative advantage in both crops 3) Gonzalo has a comparative advantage in producing wheat. 4) Leila has a comparative advantage in producing wheat.

4) Leila has a comparative advantage in producing wheat.

A firm's fixed cost is $0 and marginal cost is $20. P is the price of the unit and Q represents the number of units produced. Which of the following statements is correct? 1) Producing 1,000 units with a price of $100 (Q=1,000, P=100) is on the isoprofit curve representing the profit level of $8,000. 2) Producing 25 units with a price of $60 (Q=25, P=60) and producing 100 units with a price of $35 (Q=100, P=35) are both points on the same isoprofit curve. 3) Producing 25 units with a price of $60 (Q=25, P=60) lies on a higher isoprofit curve than producing 100 units with a price of $35 (Q=100, P=35). 4) Producing 2,000 units with a price of $40 (Q=2000, P=40) and producing 20,000 units with a price of $22 (Q=20,000, P=22) are both points on the same isoprofit curve.

4) Producing 2,000 units with a price of $40 (Q=2000, P=40) and producing 20,000 units with a price of $22 (Q=20,000, P=22) are both points on the same isoprofit curve. profit A = ($40-$20)(2,000)=$40,000. profit B= ($22-$20)(20,000)=$40,000. (same isoprofit)

You are given the following information for a country: Participation rate is 75%, the unemployment rate is 10%, the employment rate is 67.5%, and the number of employed is 27 million. Based on this information, which of the following is correct? 1) The working age population is 30 million 2) The size of the labor force is 40 million 3) The unemployment rate is 12%. 4) The number of unemployed is 3 million

4) The number of unemployed is 3 million Unemployed = Labor force - Employed Labor force = Employed + Unemployed