Final Exam ECON 202 CSU

Watch our 'Economist in action' video of James Heckman. According to Heckman, which of the following individual attributes are NOT among the reasons for persistent poverty in a family from generation to generation? A. inherited IQ B. limited schooling C. race D. social behaviour

A. inherited IQ (Inherited IQ could contribute to persistent poverty, but it is not mentioned in the video.)

When a firm can set its price, the market allocation A. maximizes the total surplus B. maximizes the producer surplus C. maximizes consumers WTP D. maximizes consumer surplus

B. maximizes the producer surplus

A price taking firm chooses its A. profit maximizing price B. profit maximizing quantity C. all of the above D. none of the above

B. profit maximizing quantity

Image 25: The Nash Equilibrium in this game is: A. (IPC, IPC) B. (IPC, Terminator) C. (Terminator, IPC) D. (Terminator, Terminator)

D. (Terminator, Terminator)

Since 1900 in the US A. wages have decreased, and work hours have shortened B. wages have decreased, and work hours have lengthened C. wages have increased, and work hours have shortened D. wages have increased, and work hours have lengthened

C. wages have increased, and work hours have shortened

Figure 8.5 shows a price-taking bakery's marginal and average cost curves, and its isoprofit curves. The market price for bread is P*= €2.35. Which of the following statements is correct? Image 2 A. The firm's supply curve is horizontal. B. At the market price of €2.35, the firm will supply 62 loaves, at the point where the firm makes zero profit. C. At any market price, the firm's supply is given by the corresponding point on the average cost curve. D. The marginal cost curve is the firm's supply curve.

D. The marginal cost curve is the firm's supply curve. (At each price, the firm maximizes profit by choosing the corresponding quantity on the marginal cost curve. So the marginal cost curve is its supply curve.)

The Gini coefficient when income is distributed perfectly equally would be A. 0 B. 0.5 C. 0.9 D. 1

A. 0

Which of the following statements are correct? A. A fall in the mortgage interest rate would shift up the demand curve for new houses. B. The launch of a new Sony smartphone would shift up the demand curve for existing iPhones. C. A fall in the oil price would shift up the demand curve for oil. D. A fall in the oil price would shift down the supply curve for plastics.

A. A fall in the mortgage interest rate would shift up the demand curve for new houses. D. A fall in the oil price would shift down the supply curve for plastics. (If mortgage borrowing becomes cheaper, more people will want to buy houses at each house price. The marginal cost of producing plastics would fall, so the supply curve would shift down.)

Which of the following statements are correct? A. A market is in equilibrium if the actions of buyers and sellers have no tendency to change the price or the quantities bought and sold. B. The market-clearing price is the price at which all supplies are sold. C. Buyers are price-takers if they have bargaining power. D. In a competitive equilibrium, neither buyers or sellers are price-takers.

A. A market is in equilibrium if the actions of buyers and sellers have no tendency to change the price or the quantities bought and sold. (The definition of a (Nash) equilibrium is that)

Figure 9.16 is the Lorenz curve associated with a particular labour market equilibrium. In a population of 100, there are 10 firms, each with a single owner, 80 employed workers, and 10 unemployed workers. The employed workers receive 60% of the total income as wages. The Gini coefficient is 0.36. In which of the following cases would the Gini coefficient increase, keeping all other factors unchanged? Image 22: A. A rise in the unemployment rate. B. A rise in the real wage. C. A rise in the workers' productivity while the real wage is unchanged. D. A rise in the degree of competition faced by the firms.

A. A rise in the unemployment rate. C. A rise in the workers' productivity while the real wage is unchanged. (A rise in the unemployment rate would shift the first kink of the Lorenz curve to the right. This shifts the curve down, increasing the Gini coefficient. This implies a rise in the markup, or equivalently, a fall in the wage share in total income. This shifts the second kink of the Lorenz curve downwards, increasing the Gini coefficient.)

As a student representative, one of your roles is to organize a second-hand textbook market between the current and former first-year students. After a survey, you estimate the demand and supply curves to be the ones shown in Figures 8.1 and 8.2. For example, you estimate that pricing the book at $7 would lead to a supply of 20 books and a demand of 26 books. Which of the following statements is correct? A. A rumour that the textbook may be required again in Year 2 would change the supply curve, shifting it upwards. B. Doubling the price to $14 would double the supply. C. A rumour that the textbook may no longer be on the reading list for the first-year students would change the demand curve, shifting it upwards. D. Demand would double if the price were reduced sufficiently.

A. A rumour that the textbook may be required again in Year 2 would change the supply curve, shifting it upwards. (The rumour would make the former first-year students less willing to sell. Their WTAs would rise, shifting the supply curve upwards. Equivalently, the number of students willing to supply their book at each price would be lower.)

Which of the following statements are correct? A. Endowments are facts about an individual that may affect his or her income. B. Having or not having a degree does not constitute a difference in endowments if it is a matter of individual choice. C. All individuals have the same reservation option irrespective of their endowments. D. A visa (permission to work for a non-citizen) is not an element of an individual's endowment because it cannot be sold.

A. Endowments are facts about an individual that may affect his or her income. (This is the definition of endowment.)

Which of the following statements regarding monopoly and perfectly competitive markets are correct? A. In a monopoly market, the firm is a price-setter. B. In a perfectly competitive market, there is lots of advertising. C. In a monopoly market, owners receive no economic rent. D. In a perfectly competitive market, firms invest in research and innovation

A. In a monopoly market, the firm is a price-setter. (In a monopoly market the firm sets the price to maximize its profit i.e. it is a price-maker rather than a price-taker.)

An increase in unemployment _____ workers' employment rents and _____ workers' effort. A. Increase, increase B. increase, decrease C. decrease, increase D. decrease, decrease

A. Increase, increase

Which of the following statements are correct? A. Market failures happen because market prices do not always take into account of the full effect of their actions on others. B. The existence of an externality always leads to overprovision of goods. C. Market failures can always be solved by private bargaining. D. Property rights are always enforceable.

A. Market failures happen because market prices do not always take into account of the full effect of their actions on others. (Market failures occur whenever there are (positive or negative) externalities from market transactions.)

Consider Figure 19.10. Which of the following statements cannot be inferred from the figure? Image 18 A. Men earn lower incomes in Denmark than in the US. B. Boys with poor fathers have a better chance of earning a high income in Denmark than in the US. C. Boys with rich fathers are more likely to earn low incomes in Denmark than in the US. D. The intergenerational mobility is greater in Denmark than in the US.

A. Men earn lower incomes in Denmark than in the US. (While men may earn higher incomes in the US than in Denmark, it cannot be inferred from Figure 19.10. The figure says nothing about the earnings of men in the 1st or 5th quintile, only about how men's relative earnings are transmitted from one generation to the next.)

Which of the following statements regarding segmented labour markets are correct? A. The 'gig economy' is not part of the primary labour market. B. Workers in the secondary labour market are better paid than those in the primary labour market. C. Trade unions have attempted to reduce hours of work by introducing zero hours contracts. D. Primary labour market jobs are concentrated in agriculture.

A. The 'gig economy' is not part of the primary labour market. (The 'gig economy' is part of the secondary labour market.)

A bakery is one of many that operate in the bread industry. The market demand curve for bread is downward-sloping. The bakery incurs fixed costs and has an upward-sloping marginal cost curve. Which of the following statements is correct? A. The bakery faces a flat demand curve. B. The bakery's supply curve is horizontal. C. The bakery always makes a positive economic rent. D. The bakery can raise the market price by constraining its production.

A. The bakery faces a flat demand curve. (For the bakery, it is not the market demand curve that affects its demand, but instead the price charged by its competitors. The demand curve faced by the bakery is therefore horizontal at this price.)

Which of the following markets best approximates perfect competition? A. The market for milk. B. The market for new textbooks. C. The market for cell phones. D. The market for Hamilton tickets.

A. The market for milk. (Milk is highly substitutable. There are many sellers and many buyers. Therefore the milk market is highly competitive.)

Consider the figure in Question 1. Suppose instead the government decides to impose a specific (or fixed) tax of T per kg of salt, to be paid by the suppliers. Which of the following statements is correct? A. The supply curve shifts up in a parallel manner. B. The new equilibrium price is P*+T. C. Consumers bear the entire tax burden. D. The tax raised is T×Q*.

A. The supply curve shifts up in a parallel manner. (Unlike a sales tax, where the tax is a percentage of the price, with a specific tax the amount of tax is fixed at T for all prices. Therefore the supply curve shifts up in a parallel manner.)

In which of the following cases is there an adverse selection problem? A. A motor insurance market, in which the insurers do not know how carefully the insured people drive. B. A health insurance market, in which the insurers do not know whether or not the applicants for insurance are habitual smokers. C. Online sales of nutritional supplements, when consumers cannot tell whether their contents are as claimed by sellers. D. A firm that employs home-workers, but cannot observe how hard they are working.

B. A health insurance market, in which the insurers do not know whether or not the applicants for insurance are habitual smokers. C. Online sales of nutritional supplements, when consumers cannot tell whether their contents are as claimed by sellers. (Smoking is a hidden attribute as smokers have higher risks. If the premium was set for people of average risk, non-smokers would be less likely to apply for insurance. The quality of the product is a hidden attribute. If the price was equal to the marginal cost of average quality products, only the producers of poor quality or fake products would want to sell.)

The figure shows the marginal private cost and marginal social cost of producing bananas while using pesticides. The per-tonne price of bananas is constant at $400. Image 14 Based on the figure, which of the following statements regarding point A is correct? A. The marginal external cost at A is $670. B. A is the banana producers' profit-maximizing outcome. C. Producing 1 ton less at A leads to a fall of $400 in the producers' profit. D. A is the Pareto optimal outcome.

B. A is the banana producers' profit-maximizing outcome. (A is where the marginal private cost equates the marginal benefit (the price). Therefore this is the profit-maximizing level.)

Price-setting firms sell A. Generic goods B. Differentiated goods C. Homogeneous goods D. Goods with no substitutes

B. Differentiated goods

Figure 19.10 shows the proportion of children in earnings quantile conditional on their father's earnings quantile in the US and Denmark, respectively. Image 23 Based on this information, which of the following statements is correct? A. The data provides support for the 'American Dream', a term coined in 1931 by James Truslow Adams that refers to 'a dream of social order in which each man and woman shall be able to attain to the fullest stature of which they are innately capable ... regardless of the fortuitous circumstances of birth or position' (in The Epic of America, 1931). B. In the US, 7.4% of those from the poorest 20% of families managed to move up to become part of the richest 20%. C. In Denmark, it is far more difficult for the richest families to preserve their status for the next generation than in the US. D. The figure suggests that there is very little governments can do to reduce intergenerational transmission of economic status.

B. In the US, 7.4% of those from the poorest 20% of families managed to move up to become part of the richest 20%. (The first purple bar in the left panel shows this information.)

Which of the following statements is correct? A. The problem with the credit market is that rich people will always get a loan irrespective of the quality of their project. B. It is easier for rich people to get loans because they are able to provide equity or collateral. C. Banks are described as 'too big to fail' when their large size makes them safe institutions. D. Banks that are 'too big to fail' are careful not to make risky loans.

B. It is easier for rich people to get loans because they are able to provide equity or collateral. (Lenders can reduce the moral hazard problem by requiring equity or collateral, which only richer people are able to provide.)

Which of the following statements about a competitive equilibrium allocation are correct? A. It is the best possible allocation. B. No buyer's or seller's surplus can be increased without reducing someone else's surplus. C. The allocation must be Pareto efficient. D. The total surplus from trade is maximized.

B. No buyer's or seller's surplus can be increased without reducing someone else's surplus. D. The total surplus from trade is maximized. (This must be true, since the allocation maximizes the total surplus. This is a general property of competitive equilibrium.)

Which of the following statements is correct regarding policies on inequality? A. Japan has a more equal society compared to the US due to its large equalizing effect of taxes and transfers. B. Providing high-quality education to citizens is a way of raising the endowments of less well off people. C. An increase in the minimum wage increases unemployment, leading to higher inequality unambiguously. D. Non-compete contracts mean that workers can demand higher wages, leading to reduced inequality.

B. Providing high-quality education to citizens is a way of raising the endowments of less well off people. (Giving everyone access to education, regardless of wealth, is one way to make the human capital endowments of the rich and poor more equal.)

Review Figure 19.2 below. Which of the following statements is true? Image 17 A. Wealth inequality changes little over time. B. The UK had a relatively high level of wealth inequality until 1970 C. The French Revolution achieved a steady decline in wealth inequality in France. D. The US has always had a relatively high level of wealth inequality.

B. The UK had a relatively high level of wealth inequality until 1970 (The share of total wealth held by the richest 1% in the UK was higher than in the other countries listed, although the data shows the similar pattern over time with inequality rising (until about 1918) and falling (until about 1980).)

The figure shows the demand and supply curves in the salt market. The government imposes a sales tax of 30% on the price of salt, to be paid by the suppliers. This decreases the quantity traded from Q* to QT, decreases the price received by producers from P* to PT1, and increases the price paid by consumers from P* to PT2. Which of the following statements is correct following the imposition of the tax? Image 16 Which of the following statements is correct following the imposition of the tax? A. The consumer surplus is A + B. B. The gains from trade are A + B + D + F. C. The tax revenue is B + C. D. The deadweight loss is B + C + D + E.

B. The gains from trade are A + B + D + F. (The gains from trade are the sum of the consumer surplus A, the producer surplus F, and the tax revenue B + D.)

There are two different types of producers of a good in an industry where firms are price-takers. The marginal cost curves of the two types are given below: Image 3 Type A is more efficient than Type B: for example, as shown, at the output of 20 units, the Type A firms have a marginal cost of $2, as opposed to a marginal cost of $3 for the Type B firms. There are 10 Type A firms and 8 Type B firms in the market. Which of the following statements is correct? A. At price $2, the market supply is 450 units. B. The market will supply 510 units at price $3. C. At price $2, the market's marginal cost of supplying one extra unit of the good will depend on the type of the firm that produces it. D. With different types of firms, we cannot determine the marginal cost curve for the market.

B. The market will supply 510 units at price $3. (At $3, type A firms supply 35 units and type B firms supply 20 units. So the market supply is (10 × 35) + (8 × 20) = 510.)

Consider the case where a government introduces a specific tax on cigarettes, which reduces the consumption of cigarettes. Which of the following statements is correct? A. This is a bad policy as it creates a deadweight loss. B. The tax may increase social welfare. C. The more elastic (flat) the demand for cigarettes, the larger the tax revenue. D. The tax rate should be determined so as to maximize tax revenue.

B. The tax may increase social welfare. (If cigarettes harm smokers and others, the tax may increase welfare by decreasing smoking. Note the cost of tax collection is also an important consideration. For example, the Danish tax on butter was abolished after only 15 months due to the administrative burden it placed on firms, despite reducing the consumption level by 20%.)

If gas has an external cost, then ___ the price and ____ the quantity increases the total surplus. A. raising, raising B. raising, lowering C. lowering, raising D. lowering, lowering

B. raising, lowering

Wealth, earnings, and disposable income are just three of several ways of looking at inequality. Imagine a household that earns $80,000 per year from labor. In that year, it also receives an income of $3,000 from investments, pays $12,000 in tax, and receives $7,000 in benefits from the state. Which of the following is an accurate statement of its market income and its disposable income? A. $80,000; $68,000. B. $83,000; $71,000. C. $83,000 $78,000. D. $80,000; $75,000.

C. $83,000 $78,000. (Market income is $83,000 and disposable income requires us deduct taxes ($12,000) and to add any cash transfers received ($7,000).)

There are 10 cars on the market, of which six are good quality cars worth $9,000 to buyers, and the others are lemons, worth zero. There are many potential buyers who do not know the quality of each car, but they know the proportion of good quality cars, and are willing to pay the average value. All sellers are happy to accept a price at least half the value of their car. Based on this information, which of the following statements is correct? A. The buyers are willing to pay at most $4,500. B. Only the lemons will be sold in this market. C. All cars will be sold at a price of $5,400. D. All cars will be sold at a price of $4,500.

C. All cars will be sold at a price of $5,400. (There are many buyers willing to pay the average value, which is $5,400. At this price, all sellers are willing to sell, so all cars will be sold, and competition between buyers will ensure that the price will be the most they are willing to pay: $5,400.)

The diagram shows the demand and the supply curves for a textbook. The curves intersect at (Q, P) = (24, 8). Which of the following is correct? Image 1: A. At price $10, there is an excess demand for the textbook. B. At $8, some of the sellers have an incentive to increase their selling price to $9. C. At $8, the market clears. D. 40 books will be sold in total.

C. At $8, the market clears. (At $8, the quantity demanded is equal to the quantity supplied—that is, the market clears.)

The figure shows a bakery's marginal and average cost curves, and its isoprofit curves. The bakery is a price-taker in a large bread market. Image 6 Based on this figure, which of the following statements is correct? A. At a price of P3, the bakery will choose to operate at C. B. At B, the bakery makes zero profits. C. At A, the bakery would be making a loss. D. If the market price is P2, then the bakery can undercut this price to capture a higher market share.

C. At A, the bakery would be making a loss. (P1 is below the bakery's average cost for all quantities produced. If the price were P1, the bakery would produce at A to minimize its loss until it could go out of business.)

Consider again the figure in Question 3. The government could implement four different policies to ensure the Pareto efficient outcome. When 38,000 bananas are produced, the difference between the marginal social cost (MSC) and the marginal private cost (MPC) is $105. In which of the following policies do the banana producers make the highest profit? A. Government regulation that limits production to 38,000 tons of bananas a day. B. Pigouvian tax of $105 per tonne of bananas. C. Coasean bargaining when the banana producers have the right to pollute. D. Coasean bargaining when the fishermen have the right to clean water.

C. Coasean bargaining when the banana producers have the right to pollute. (When the producers have the right to produce, the fishermen have to pay them to reduce their production level to 38,000 tons, and the producers' profits equal the producer surplus plus this payment. This is the best option for the banana producers.)

Which of the following is the best example of a non-excludable public good? A. A bicycle B. Empty seats in a cinema C. Free WiFi D. An open-access fishery

C. Free WiFi (Free WiFi is non-excludable (because it is free) and non-rival (because one person's use does not diminish another person's use, at least until huge numbers of people are using the service). Free WiFi is a good example of a non-excludable public good.)

Price taking firms sell A. Differentiated goods B. Goods in markets with high barriers to entry C. Generic goods D. Good protected by patents

C. Generic goods

Which of the following goods is not allocated by markets in the U.S. because doing so is widely viewed as repugnant? A. Higher education B. Housing C. Human kidneys D. Childcare

C. Human kidneys (Human kidneys are allocated through a matching algorithm that was developed in part by the economist Alvin Roth using non-market mechanisms.)

Reconsider Figure 19.5 shown above. Which of the following statements is true? Image 20 A. If you had a 50-50 chance of being rich or poor, then your expected income would be maximized at point B. B. If you only care about the income of the rich, then you will prefer point D. C. If you are inequality-averse, then you will prefer a point between R and A. D. If you are inequality-averse, then any point between R and F on the frontier is preferable to any point inside the frontier.

C. If you are inequality-averse, then you will prefer a point between R and A. (A citizen who is extremely inequality averse will choose to maximize the income of the poor at point R. A citizen who is less inequality averse will accept greater inequality as long as it increases average income, which is not possible after point A.)

An equilibrium is an outcome in which A. No one can be better off without making someone worse off B. The surplus is maximized C. No one has an incentive to change behavior D. Everyone's needs are met

C. No one has an incentive to change behavior

For an allocation to be efficient, all of the following statements must be true except A. The surplus is maximized B. No one can be better without someone else worse off C. No one has an incentive to change behavior D. No Pareto improvement is possible

C. No one has an incentive to change behavior

In Figure 8.9a, the market equilibrium output and price of the bread market is shown to be at (Q*, P*) = (5,000, €2). Suppose that the mayor decrees that bakeries must sell as much bread as consumers want, at a price of €1.50. Which of the following statements are correct? Image 4 A. The consumer and producer surpluses both increase. B. he producer surplus increases but the consumer surplus decreases. C. The consumer surplus increases but the producer surplus decreases. D. The total surplus is lower than at the market equilibrium.

C. The consumer surplus increases but the producer surplus decreases. D. The total surplus is lower than at the market equilibrium. (The consumers benefit from the lower price, but producers lose because the price is below marginal cost. There is a deadweight loss, equal to the area of the triangle between the supply and demand curves to the right of equilibrium.)

Figure 8.14 shows the demand and supply curves for salt, and the shift in the supply curve due to the implementation of a 30% tax on the price of salt. Which of the following statements are correct? Image 11: A. In the post-tax equilibrium, the consumers pay P₁ and the producers receive P*. B. The government's tax revenue is given by (P* - P0)Q1. C. The deadweight loss is given by (1/2)(P1 - P0)(Q* - Q1). D. As a result of the tax, the consumer surplus is reduced by (1/2)(Q1 + Q*)(P1 - P*).

C. The deadweight loss is given by (1/2)(P1 - P0)(Q* - Q1). D. As a result of the tax, the consumer surplus is reduced by (1/2)(Q1 + Q*)(P1 - P*). (This is the area of the triangle between the supply and demand curves, below AB. This is the area of the trapezium between the horizontal dotted lines through A and B.)

Figure 9.11 depicts the labour market model. Consider now a reduction in the degree of competition faced by the firms. Which of the following statements is correct regarding the effects of reduced competition? image 21 A. The price-setting curve shifts up. B. The wage-setting curve shifts down. C. The equilibrium real wage falls. D. The unemployment level falls.

C. The equilibrium real wage falls. (Decreased competition leads to a lower price-setting curve, while the wage-setting curve is unaffected. Therefore the equilibrium (the intersection of the two curves) shifts down and to the left, implying lower real wage and higher unemployment.)

Figure 8.8 shows the equilibrium of the bread market to be 5,000 loaves per day at price €2. A year later, we find that the market equilibrium price has fallen to €1.50. What can we conclude? Image 10 A. The fall in the price must have been caused by a downward shift in the demand curve. B. The fall in the price must have been caused by a downward shift in the supply curve. C. The fall in price could have been caused by a shift in either curve. D. At a price of €1.50, there will be an excess demand for bread.

C. The fall in price could have been caused by a shift in either curve. (A downward shift in either curve would cause the price to fall. If we knew whether output had increased or decreased, we could determine which curve had shifted.)

Consider the perfectly competitive market for bread analyzed in Unit 8. Why is the competitive equilibrium Pareto efficient? A. Producers earn a positive economic profit. B. Everyone who needs bread gets it. C. The gains from trade are maximized. D. The total surplus is split equally between producers and consumers.

C. The gains from trade are maximized. (This is true, because every producer sells bread at its marginal cost, so every loaf is sold where WTP > WTA.)

In which of the following markets is the equilibrium efficient? A. The market for a differentiated good. B. The market for labor, when workers' effort levels are non-verifiable C. The market for a homogenous good that has no external effect D. The market for a homogenous good that generates pollution

C. The market for a homogenous good that has no external effect (This market has a Pareto efficient competitive equilibrium.)

The figure shows the market supply curve for second-hand textbooks, together with original and new demand curves, where the curve has shifted due to the arrival of new students. Based on the figure, which of the following statements is correct? Image 8 A. All buyers who would have bought under the original demand curve would also be buying under the new demand curve. B. There has been an increase in supply C. The more elastic (or more flat) the supply curve, the smaller the price rise. D. The more inelastic (or more steep) the supply curve, the larger the increase in the equilibrium quantity.

C. The more elastic (or more flat) the supply curve, the smaller the price rise.

The figure shows the demand and supply curves in the salt market. Image 15 The government now decides to impose a sales tax of 30% on the price of salt, to be paid by the suppliers. Which of the following statements is correct? A. The supply curve shifts up in a parallel manner. B. The new equilibrium price is 30% higher than P*. C. The tax causes a decline in the quantity traded. D. The tax raised is 0.3(P*×Q*).

C. The tax causes a decline in the quantity traded. (The quantity traded is reduced to the point where the difference between the price on the demand curve (the price received by the consumers) and the price on the supply curve (the price received by the suppliers) is 30% of the latter.)

Figure 8.17 shows the effect of a tax intended to reduce the consumption of butter. The before-tax equilibrium is at A = (2.0 kg, 45 kr) and the after-tax equilibrium is at B = (1.6 kg, 54 kr). The tax imposed is 10 kr per kg of butter. Which of the following statements is correct? Image 12: A. The producers receive 45 kr per kg of butter. B. The tax policy would be more effective if the supply curve were less elastic. C. The very elastic supply curve implies that the incidence of the tax falls mainly on consumers. D. The loss of consumer surplus due to tax is (1/2) × 10 × (2.0 - 1.6) = 2.0.

C. The very elastic supply curve implies that the incidence of the tax falls mainly on consumers. (The elastic supply curve means that the price paid by consumers changes much more than the price received by producers.)

There are five students who are looking to buy one second-hand textbook each. Their willingness-to-pay are £5, £6, £8, £12, and £15, respectively. Based on this information, which of the following statements is correct? A. The student with a willingness-to-pay of £15 is the richest. B. Their willingness-to-pay indicates an upward-sloping demand curve. C. To sell three books, the maximum price that can be charged is £8. D. If a seller is has a reservation price is £8, then he is guaranteed to sell his textbook.

C. To sell three books, the maximum price that can be charged is £8. (If the price is £8, the demand is 3 books, and demand is less than 3 books for prices higher than £8.)

Wealth is usually more unequally distributed than earnings. This is mainly because: A. The value of assets increases more rapidly than earnings over time. B. Zoning restrictions keep home values artificially high. C. Wealth is accumulated savings that can be passed on from parents to children. D. Wealth is taxed at a lower rate than earnings.

C. Wealth is accumulated savings that can be passed on from parents to children. (Bequests of inherited wealth are a major route through which parents influence the life chances of children. Most children inherit little or no wealth from their parents, while a few inherit large fortunes. Parents' earnings do not similarly affect their children's ability to earn income, although wealthy parents are able to buy superior education and other advantages for their children.)

Review Figure 19.13. Which of the following statements is true. Image 19 A. The poorest 40% of Americans owns about 15% of the nation's wealth. B. The richest 20% of Americans owns about 60% of the nation's wealth. C. Wealth is distributed more unequally than most people think. D. People with high incomes support a lower level of wealth inequality than people with low incomes.

C. Wealth is distributed more unequally than most people think. (People estimate that the richest 20% of Americans own about 60% of the nation's wealth, but the richest quintile actually owns about 85% of all wealth.)

A price setting firm will choose a price A. below AC B. above WTP C. above MC D. none of the above

C. above MC

The share of the US incomegoing to the top 1% ___ from 1929 to 1980 and _____ from 198- to 2018. A. Increase, increase B. increase, decrease C. decrease, increase D. decrease, decrease

C. decrease, increase

In a malthusian trap, an increase in labor productivity leads to ______ in the long run. A. higher living standards B. lower living standards C. high population D. lower population

C. high population

A perfectly competitive market A. Maximizing firms' profits B. maximizes the consumer surplus C. maximizes the total surplus D. meets everyone's needs

C. maximizes the total surplus

The diagram shows the market demand and supply curves for the bread market. You know that there are 250 identical bakeries operating in the market, but you do not know their cost structure (i.e. their average cost and marginal cost curves). Image 7 Based on this information, which of the following statements is correct? A. At a price of €2.50, all 250 bakeries will sell 26 loaves. B. In equilibrium, each bakery supplies 18 loaves each. C. At a price of €1.50, all of the bakeries would be making a loss. D. A bakery's marginal cost of producing the 21st loaf is approximately €2.

D. A bakery's marginal cost of producing the 21st loaf is approximately €2 (At €2, the quantity supplied is 5000 loaves. Therefore each bakery will supply 20 loaves. This means that their marginal cost of supplying the 21st loaf is approximately €2.)

Which of the following is an example of a negative externality? A. A firm training a worker who may quit for a better job B. A country investing in technologies to reduce carbon emissions C. A student getting a well-rounded education D. A commuter driving to work instead of taking public transportation

D. A commuter driving to work instead of taking public transportation (This is an example of a negative externality, where the driver does not take into account the negative effect on other drivers.)

Consider Figure 19.15 in the text. Image 20 Which of the following statements about the feasible frontier is correct? A. The poor are better off at point B than point R. B. Increasing inequality always increases average income. C. Moving from B to A decreases average income. D. All the outcomes between points R and F are Pareto efficient.

D. All the outcomes between points R and F are Pareto efficient. (The feasible frontier is downward sloping from point R to point F, which means it is only possible to increase the income of the rich by decreasing the income of the poor and vice versa, so all points along this segment are Pareto efficient. Note that Points E and D are not Pareto efficient because in those cases it is possible to make both the poor and the rich better off.)

Which of the following statements is correct regarding the effects of a rise in the real wage on the labour supply of a worker? A. The income effect means that the worker will increase his labour supply. B. The substitution effect means that the worker will increase his consumption of free time. C. The income and substitution effects always enhance each other, leading to higher labour supply. D. At high wage levels, the income effect dominates the substitution effect, leading to lower labour supply.

D. At high wage levels, the income effect dominates the substitution effect, leading to lower labour supply. (The negative income effect and the positive substitution effect always work against each other. At high wages the former more than offsets the latter, implying that the worker reduces his labour supply (he already earns enough).)

Figure 19.15 shows the feasible frontier of the incomes of the rich and the poor. Image 24 Which of the following statements is correct? A. E, the point of maximum equality, is Pareto efficient. B. For the inequality-averse citizen shown, any point between R and F on the frontier is preferable to any point inside the frontier. C. If you had a 50-50 chance of being rich or poor, then your expected income is maximized at point B. D. Between D and F, lower income for the poor leads also to lower income for the rich.

D. Between D and F, lower income for the poor leads also to lower income for the rich. (Between D and F, incomes of both the rich and poor decrease. This could occur because the rich have to dedicate resources to protecting their wealth from the poor, resulting in lower total output.)

Which of the following statements about merit goods is correct? A. Merit goods are allocated according to consumers' willingness-to-pay. B. Goods with a positive externality on society are merit goods. C. Merit goods should be provided by the private sector. D. Emergency healthcare is a merit good.

D. Emergency healthcare is a merit good. (Most would agree that emergency healthcare should be available to all, regardless of their ability to pay. In the U.S., emergency rooms do not have the right to turn away patients who are unwilling or unable to pay. This makes emergency healthcare a merit good.)

Which of the following statements is correct? A. Some public goods are rival. B. A public good must be non-excludable. C. A good cannot be rival and non-excludable. D. If a good is non-rival, then the cost of an additional person consuming it is zero.

D. If a good is non-rival, then the cost of an additional person consuming it is zero. (A good is non-rival if its use by one person does not reduce its availability to others, so it can be made available to another person without cost.)

Which of the following statements most accurately summarizes recent trends in global income inequality, as presented in Unit 19.1? A. Most of the inequality in the world results from inequality between countries, and this is declining. B. Most of the inequality in the world results from inequality between countries, and this is increasing. C. Inequality between individuals within most countries is declining, leading to a decline in global inequality. D. Inequality between countries is declining, while within-country inequality is rising, with the net effect being falling global inequality.

D. Inequality between countries is declining, while within-country inequality is rising, with the net effect being falling global inequality. (Whatever the gains and losses to Western economies arising from globalization, it has helped rapid income growth in countries like India and China. Since these are also very large countries (as measured by population), the overall effect on world inequality has been negative.)

The figure shows the market demand curve for bread, together with original and new supply curves, where the curve has shifted due to new bakeries entering the market. All bakeries are identical, and there are no entry costs. Which of the following statements is correct? Image 9 A. The bakeries' marginal cost of production has fallen. B. The supply of bread has become less elastic. C. With the fall in price, the bakeries now make a loss. D. New bakeries will continue to enter until the price equals their average cost.

D. New bakeries will continue to enter until the price equals their average cost. (If there are no entry costs -- as we assumed in this question -- then bakeries will continue to enter until the price equals the minimum of the average cost.)

The diagram shows the demand and the supply curves for textbooks. Image 5 Based on this figure, which of the following statements is correct? A. At a price of $12, 40 books will be sold. B. At a price of $6, there is an excess demand of 4 books. C. There are sellers willing to give away their textbooks for free. D. The Nash equilibrium price is $8.

D. The Nash equilibrium price is $8. In equilibrium, no one has an incentive to deviate, which is the case when supply equals demand. Therefore $8 is the Nash equilibrium.

Look again at Figure 8.18, which shows the market for Choccos and for all chocolate bars. Based on the two diagrams, which of the following statements is correct? image 13: A. The firm that makes Choccos chooses to produce at the bottom of the U-shaped isoprofit curve. B. All chocolate bars will be sold at the same price P*. C. The existence of many competitors means that the firm is a price-taker. D. The market marginal cost (MC) curve is approximately the sum of the MC curves of all the producers of the chocolate bars.

D. The market marginal cost (MC) curve is approximately the sum of the MC curves of all the producers of the chocolate bars. (Each firm produces close to its MC curve, so the MC curve is approximately the firm's supply curve, and so market supply is approximately the sum of the firms' MC curves.)

Which of these models generates an efficient equilibrium? A. The prisoners dilemma B. The price setting firm C. The price taking firm with external costs D. The price taking firm with no external costs

D. The price taking firm with no external costs

According to our 'Economist in action' video of Arin Dube, which of the following was a finding of his study of the minimum wage increase? A. Increasing the minimum wage increased worker turnover. B. A 10% increase in minimum wage resulted in a 4% increase in earnings. C. A 10% increase in minimum wage resulted in a 4% decrease in employment. D. There was a minimal negative effect on employment.

D. There was a minimal negative effect on employment. (This is definitely stated in the video.)

In Guadeloupe and Martinique, the use of pesticide chlordecone on banana plantations devastated fishing communities downstream. Which of the following statements is correct? A. Clean water was a right for the fishing community. B. The use of pesticide was a right for the banana producers. C. The problem arose when actors took into account the costs their decisions impose on others. D. This was an example of a social dilemma.

D. This was an example of a social dilemma. (Here the unregulated pursuit of self-interest leads to outcomes that are Pareto inefficient, compared to the outcome when individuals take into account the effect of their decision on others. Therefore it is an example of a social dilemma.)

Capitalism is an economic system built on A. private property B. firms C. markets D. all of the above

D. all of the above

In a negotiation with a landlord, the farmer's bushels depends on A. The farmer's total product B. the number of other landless farmers C. the farmer's reservation option D. all of the above

D. all of the above

Price setting firms set a price that ensures A. Profits are maximized B. marginal revenue equals marginal cost C. the demand curve is tangent to an isoprofit curve D. all of the above

D. all of the above

The equilibrium in the labor market is characterized by A. Employment rents B. unemployment C. positive work effort D. all of the above

D. all of the above