Micro exam 4

Which of the following is a list of common resources only?

a public beach, soup kitchen meals, public roads

A rival good is one where

one person's use prevents another person's ability to use that good at the same time

When a health insurance company sells an insurance policy, adverse selection suggests

only unhealthy people will purchase a policy

Ratings and reviews on online stores are examples of

providing better information to customers to prevent moral hazard

Uncongested, nontoll roads are a good example of a

public good

A free rider is a person who

receives the benefits of a good but avoids paying for it

Marginal product of labor

the increase in a firm's revenues created by hiring an additional laborer

In the market for used cars, half of the cars are of good quality and would sell for $14,000, while half of the cars are of poor quality and would sell for $10,000. If a buyer possessed no information about the quality of the car she was considering, what would she be willing to pay for it?

$10,000

Why are special interest groups so powerful?

-Because voters are rationally ignorant about how laws designed to help special interest groups are harmful to everyone else -Because special interest groups have a self-interest in passing favorable legislation—they stand to gain millions of dollars, while each taxpayer loses only several dollars

Which of the following statements is TRUE?

-If a fisherman catches a lot of fish, he creates a negative externality because there are less fish to catch for everyone else -There is no incentive for an individual to fish less simply to leave more fish for everyone else to catch

In September 2009, President Obama placed high tariffs on imported tires from China. Why did the President do this?

Although the policy harms the consumers of tires, the policy directly benefited the United Steelworkers, a special interest group that provides political support to the Democratic Party, of which President Obama is a member

The diffusion of costs and concentration of benefits

I. leads to rational ignorance on the part of voters. II. is the formula to which the sugar quota owes its existence. III. is a formula for reelection to political office

Which of the following explains why it is difficult to determine the optimal quantity of public goods that the government should produce?

It is difficult to assess exactly how much each individual values a public good

Policy A adversely affects 50 million people at a cost of $1 per person. But Policy A also benefits 1,000 people at $30,000 per person. Which of the following statements is TRUE?

Policy A is likely to be supported by politicians even though it makes society worse off

Which of the following statements is TRUE?

Rational ignorance is bad because it leads to uninformed voters making decisions

Compensating differential

a difference in wages that offsets differences in working conditions

Truck drivers who drive on the ice roads in Alaska and Canada (like those on Ice Road Truckers) earn

a compensating wage differential

credible

a strategy or promise is credible if it is in an agent's interest to follow through on that strategy or keep the promise

Moral hazard is the problem of

an agent trying to exploit an information advantage in a dishonest way

Which is an example of asymmetric information?

an employer not knowing which job candidate will do the best job

Signal

an expensive action that is taken to reveal information

Markets work best when

both buyers and sellers know what is being exchanged

A person ________ be cheaply prevented from using national defense, a(n) ________ good

cannot; nonexcludable

Economic theory suggests that college graduates receive higher wages than those with only a high school education because

college graduates are more productive

Sugar quotas

cost the typical family about $6 per year but provide millions of dollars of benefits to Florida sugar producers

A newly imposed binding minimum wage

decreases employment

Which of the following types of discrimination tends to break down most easily?

discrimination by employers

Statistical discrimination

discrimination using information about group averages to make conclusions about individuals

Which of the following is NOT a kind of preference-based discrimination?

discrimination using statistics

Which three variables have been shown to have strong predictive power for election results?

disposable income, the inflation rate, and years in office for the party in power

Cellular phone service is an example of a good that is generally:

excludable and nonrival

One problem with moral hazard is that

goods and services are produced that no one actually wants or needs

Private goods

goods that are excludable and rival

Club goods

goods that are excludable but nonrival

Public goods

goods that are nonexcludable and nonrival

Common resources

goods that are nonexcludable but rival

A firm is willing to hire a worker when the marginal product of labor is

greater than the wage

Discrimination by customers

means that some customers might not want to do business with firms that hire certain workers

Which of the following is most likely to happen just before an election?

higher government spending

When labor demand increases, the wage is expected to

increase

Unions may ________ the wages of their members but they might ________ the wages of everyone else

increase; decrease

If employers discriminate against redheads

it becomes more profitable to hire redheads

Suppose that a firm plans to provide defense against asteroids striking the earth. Which of the following is TRUE?

most people will not pay a firm for asteroid defense

Possible results of asymmetric information include all of the following EXCEPT:

new sellers will enter the market sensing profit opportunities

A public good is

nonrival and nonexcludable

All of the following are examples of signaling EXCEPT

requiring people to purchase health insurance

Public roads sometimes get congested, suggesting that public roads are

rival

Private goods are both

rival and excludable

The tragedy of the commons is the tendency for any good which is

rival and nonexcludable to be overused and undermaintained

A tragedy of the commons often results from ______ and ______

rivalry; nonexcludability

Free rider

someone who consumes a public good without paying a share of the costs

Forced riders

someone who must pay a share of the costs of a public good but who does not enjoy the benefits

Which of the following goods best exemplifies a nonrival good?

the Internet

Rational ignorance is when

the benefit of becoming fully informed is lower than the cost

Which of the following theories works to explain which voters will get their way in a democratic election?

the median voter theorem

Median voter theorem

the principle that when voters vote for the policy that is closest to their ideal point on a line, then the ideal point of the median voter will beat any other policy in a majority rule election

If higher wages give the incentive for some workers to work fewer hours

the quantity of labor supplied in the market will still rise as new workers enter the market

Suppose that the market for window cleaners is in equilibrium at a wage of $16. If window cleaning becomes safer

the supply of window cleaners will increase, causing the equilibrium wage to fall below $16

Tragedy of the commons

the tendency of any resource that is unowned and hence nonexcludable to be overused and undermaintained

Arguably, one of the best ways to explain why Americans seemingly know very little about current government policies or the state of the economy is that

the time and resources it costs to attain and process this information is more than the benefit received from having this information

It is possible for an individual to have a downward-sloping labor supply curve if

the wage increases enough that a worker may decide to work less and enjoy the income

Human capital

tools of the mind, the stuff in people's heads that makes them productive

The theory of the median voter may not work if

voters do not vote. II. voters do not vote for the policy closest to their own positions

Moral hazard

when an agent tries to exploit an information advantage in a dishonest or undesirable way

Adverse selection

when an offer conveys negative information about the product being offered

Nonrival goods

when one person's use of the good does not reduce the ability of another person to use the same good

Nonexcludable goods

when people who don't pay cannot easily be prevented from using the good

Rationally ignorant

when the benefits of being informed are less than the costs of becoming informed it is rational to be ignorant