PPD 373 Midterm Exam #1

4 social welfare functions we learned in class:

utilitarian, rawlsian, egalitarian, multiplicative

make consumer/ producer/ DWL notes on sheet

!!

multiplicative social welfare equation

SW=U1 x U2 x U3...

example of club/toll good

IP

Concerned with the level of wellbeing of the least well off member of society.

Rawlsian

egalitarian social welfare equation

SW=1/(Umax-Umin)

utilitarian social welfare equation

Social welfare= utility1 + utility 2....

Does the Prisoners dilemma lead to a Pareto efficient outcome?

Yes, when there is a dominant strategy

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 rumor 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 rumor 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

Which of the following statements about the outcome of an economic interaction is correct? a. If the allocation is Pareto efficient, then you cannot make anyone better off without making someone else worse off. b. All participants are happy with what they get if the allocation is Pareto efficient. c. There cannot be more than one Pareto-efficient outcome. d. According to the Pareto criterion, a Pareto-efficient outcome is always better than an inefficient one.

a

Which of the following statements is correct? a. Consumer surplus is the difference between the consumers' willingness to pay and what they actually pay. b. Producer surplus equals the firm's profit. c. Deadweight loss is the loss incurred by the producer for not selling more cars. d. All possible gains from trade are achieved when the firm chooses its profit-maximizing output and price.

a

The GDP per capita of Greece was $22,494 in 2012 and $21,966 in 2013. Based on these figures, the growth rate of GDP between 2012 and 2013 (to two decimal places) was: a. -2.40% b. 2.35% c. -2.35% d. -0.24% divide by ______ income

a, 2012

Imagine that the GDP per capita of a country had doubled every 100 years. You are asked to draw both linear and ratio scale graphs that plot GDP on the vertical axis, and the year on the horizontal axis. What will be the shapes of the curves? Linear scale graph Ratio scale graph a. An upward-sloping curve with increasing slope (called convex shape) b. An upward-sloping straight line A straight horizontal line c. An upward-sloping straight line d. an upward-sloping curve with concave shape a. An upward-sloping convex curve b. An upward-sloping straight line c. An upward-sloping curve with decreasing slope (called concave shape)

a, b

Figure 11.22 illustrates the rental housing market. Initially, the market clears at €500 with 8,000 tenancies. Then, there is an outward shift in the demand curve, as shown in the diagram. In response, the city authority imposes a rent ceiling of €500 and prohibits subletting. Based on this information, which of the following statements are correct? a. There are 4,000 potential tenants who are left unhoused. b. The market would clear at €1,100. c If subletting was possible, then those renting could earn an economic rent of €330. d. Excess demand could be eliminated in the long run by building more houses.

a, d

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., d.

non-rival

available to everyone at no additional cost

The policy process in 4 steps?

agenda setting, alternative specification, choice by relevant authority, implemendation

One party to the transaction knows more than the other party.

asymmetric 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

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., c.

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? 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

In Figure 4.5 Anil has just won the lottery and has received 10,000 rupees. He is considering how much (if at all) he would like to share this sum with his friend Bala. Before he manages to share his winnings, Anil receives a tax bill for these winnings of 3,000 rupees. Based on this information, which of the following statements is true? a. Bala will receive 3,000 rupees if Anil is somewhat altruistic. b. If Anil was somewhat altruistic and kept 7,000 rupees before the tax bill, he will still keep 7,000 rupees after the tax bill by turning completely selfish. c. Anil will be on a lower indifference curve after the tax bill. d. Had Anil been so extremely altruistic that he only cared about Bala's share, then Bala would have received the same income before and after the tax bill.

c

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

non-excludable

cannot exclude individuals who have not paid from using it

When supply and demand both change in the same direction quantity: price:

changes in that direction to, unknown: depends on size of shifts

Which step of the 4 steps of policy process does policy analysis inform?

choice by relevant authority

two types of public goods

club, pure

non-rival excludable goods (also a type of public good)

club/ toll goods

non-excludable and rival goods are called

common-pool resources

______ definitions: what it is in ____ that you are trying to measure (With BMI, we try to measure healthy weight) ______ definitions: how you report your measurement (BMI=WH^2)

conceptual, theory, operational

In a simultaneous one-shot game: a. A player observes what others do before deciding how to act. b. A player decides his or her action, taking into account what other players may do after knowing his or her move. c. Players coordinate to find the actions that lead to the optimal outcome for society. d. A player chooses an action taking into account the possible actions that other players can take.

d

What does UK GDP per capita measure? a. the total output of London's economy b. the average disposable income of a UK resident c. the total output of the UK residents, divided by the number of the residents d. the total output of the UK's economy, divided by the country's population

d

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

8 steps of Bardach's policy analysis path

define the problem, assemble the evidence, construct the alternatives, select the criteria, project the outcomes, confront the tradeoffs, decide, tell your story

Decreasing satisfaction or usefulness as additional units of a product are acquired (think money)

diminishing marginal utility (money)

when both players have/play their dominant strategy:

dominant strategy equilibrium

• A more equal society is a better society

egalitarian

most policies face tradeoffs between ________ and _______ Others decrease both and very few increase both

equity, efficiency

types of market failure:

externalities, public goods, monopolies, asymmetric information

Costs (or benefits) affecting a third party, not the producer or the consumer.

externality

example of common-pool resource

fish stock in lake

a ratio scale measures/ compares ___ ___

growth rates

example of public good

lighthouse

Benefits received as a result of the individual's political position, in excess of those received without a position. common in dictatorships

political rents

When a market left to itself does not allocate resources efficiently.

market failure

• Everyone's utility matters. • Emphasis on making sure everyone has a minimum standard of living. • Research shows this to be the most realistic model of how people evaluate questions of distribution.

multiplicative

PURE public goods are

non-excludable and non-rival

State of the world in which it is not possible to make anyone better off without making someone else worse off.

pareto efficiency

A transaction or policy that makes at least one person better off without making anyone else worse off.

pareto improvement transaction

Supply / demand equation form represents the assumption of causal inference: changes in _____ cause changes in _______, not the other way around.

price, quantity,

excludable and rival goods=

private

Firehose of falsehood

should i add anything?

two key characteristics of successful interest groups:

small in size, strong preferences

do not compare __ __ ___ outcomes to one another (rather compare before/ after policy implementation of same function)

social welfare function

Rawlsian social welfare equation

social welfare= minimum utility

to find equilibrium, set ____ and ____ equations equal

supply (Qs), demand (Qd)

at equilibrium price...

supply=demand

problem with common-pool resources

tragedy of the commons

Concerned with maximizing the total amount of wellbeing. • Each person's wellbeing is of equal value to society

utilitarian

an index made up of multiple indicators

weighted average