AGEC 203 - Ch. 9, 8, 15

(1) 31922.46 $30,000 x (1.0125)^5

A customer deposited ​$30,000 in a certificate of deposit​ (CD) with an interest rate of 1.25​%, compounded annually. The future value of the CD at its maturity in 5 years is (1). (Enter your response rounded to two decimal​ places.)

(1) c. one​ person's use of the good does not preclude consumption by others

A good is non−rival in consumption if​ (1). a. the demand for the good increases with an increase in the​ consumer's income b. people cannot be prevented from using it c. one​ person's use of the good does not preclude consumption by others d. the government can regulate its production

(1) c. command−and−control approach

A government regulation that bans the use of a certain polluting technology in the production of a good is an example of a​ (1) used to solve an externality. a. social enforcement mechanism b. market−based approach c. command−and−control approach d. Coasian approach

(1) c. choosing a card from a deck of cards, not replacing it, and then choosing another card.

All of the following are examples of independent outcomes except: (1) a. rolling a die, then rolling a die again. b. flipping a coin, then flipping a coin again. c. choosing a card from a deck of cards, not replacing it, and then choosing another card. d. choosing a card from a deck of cards, replacing it, and then choosing another card.

(1) -26.15 (.10) x $175/(1.1^2) + (.10) x $125/(1.1^3) - $50 (2) should not buy (3) negative

Allison bought a​ Blu-ray DVD player from the store for $275 that came with a​ one-year warranty. At​ checkout, she was asked if she would like to buy a​ two-year extended warranty that would replace her DVD player with an identical one if it broke down. The extended warranty costs $50​, and Allison expects that the DVD player will depreciate in value by​ $50 every year as new models come out​ (this means a replacement would cost $175 after 2 years and $125 after 3 years). Suppose Allison pays for the purchase of the extended warranty with her credit​ card, which has a 10 percent interest rate. Also assume that Allison knows there is a 10 percent chance that the DVD player will break in any given year. The present value of buying the extended warranty is $(1). (Round your response to two decimal places and use a minus sign if necessary.​) Based on this information, Allison (2) the extended warranty, since the expected value to Allison from buying the warranty is (3).

(1) b. an economic activity affects third parties not engaged in the activity

An externality occurs when (1). a. the government regulates production and consumption decisions b. an economic activity affects third parties not engaged in the activity c. the quantity supplied of a good exceeds the quantity demanded d. the quantity demanded of a good exceeds the quantity supplied

(1) 11105 $20,000/(1.04^15)

An investor wants to produce $20,000 15 years from now through an investment that has a 4​% rate of return. The amount of money the investor needs right now is $(1). (Enter your response rounded to the nearest whole​ number.)

(1) b. the outcome of either a good or bad event is not known in advance. (2) must

An outcome is described to be risky when​ (1). a. the outcome of an event that can turn out to be bad is not known in advance. b. the outcome of either a good or bad event is not known in advance. c. the probability that you will lose money is greater than the probability that you will make money. d. the probability that you will lose money is positive and the probability that you will make any money at all is zero. For an outcome to be risky, it (2) be random.

(1) ​a. No, if there is a positive interest rate the same amount of money is worth more today than receiving it in the future.

As long as you receive the same​ amount, is a sum of money worth the same today and one year​ later? (1) a. ​No, if there is a positive interest rate the same amount of money is worth more today than receiving it in the future. b. ​Yes, receiving the same amount today or in the future is the same as long as the interest rate is positive. c. ​Yes, as long as you receive the same amount today and one year​ later, it is the same regardless of the interest rate. d. ​No, if there is a positive interest rate the same amount of money is worth more in the future than receiving it today.

(1) 62.5 $100/1.6 (2) 162.50 $100 x 1 + [1/(1 + 0.6)] x $100 (3) 266.67 1/(1-(1/1.6)) x 100

Assume the interest rate is 60 percent. If a payment of $100 is paid one year from​ now, the present value of this payment will be $(1). (Round your answer to two decimal places as​ needed) If $100 is paid today and ​$100 is paid a year from​ now, the present value of these payments will be $(2). (Round your answer to two decimal places as​ needed) Suppose $100 is paid​ today, plus ​$100 is paid a year from​ now, plus $100 is paid the year after​ that, and so​ on, forever. The present value for this infinite stream of payments will be $(3). (Round your answer to two decimal places as​ needed)

(1) 0.20 (2) 8

Assume the opportunity costs for apples and peaches produced by New York and Georgia are as​ follows: The trading price of apples for peaches acceptable to both parties would range​ (high to​ low) from (1) to (2). ​(Enter your response rounded to two decimal​places, if necessary​.)

(1) Risk neutrality (2) Risk seeking (3) Risk aversion (4) a. People psychologically weigh a gain and a loss equally. / d. All economists feel that loss aversion is a legitimate preference that should be respected.

Based on the given information in the table below, identify the category of risk preference. Examples - Kyra is indifferent between an investment with a 50-50 change of 30 percent and 0 percent returns and an investment with a guaranteed rate of return of 15 percent. (a) - Diana prefers the investment with a 50-50 chance of 40 percent and 0 percent returns over an investment that has a guaranteed rate of return of 20 percent. (b) - Kat prefers an investment with a guaranteed rate of return of 10 percent over an investment that has a 50-50 chance of 20 percent and 0 percent returns. (c) Category of risk preference - (a): (1) - (b): (2) - (c): (3) Which of the following statements regarding loss aversion are not true? (Check all that apply.​) (4) a. People psychologically weigh a gain and a loss equally. b. It is an example of a risk preference. c. A loss averse person might be indifferent between $0 for sure or a coin toss with these two outcomes: heads is a gain of $180 and tails is a loss of $90. d. All economists feel that loss aversion is a legitimate preference that should be respected.

(1) private good (2) common pool resource (3) public good (4) public good (5) club good

Classify the following goods and services as private goods, common pool resources, club goods, or public goods. a). Health insurance is a (1). b). Radio spectrum is a (2). c). A video on YouTube is a (3). d). A mosquito control program in a city is a (4). e). A library's collection of e-books is a (5).

(1) c. put all the​ up-front costs and future benefits of going to college into comparable units so they can be compared.

Consider going to college. This decision has​ up-front costs and delayed benefits that occur at different times. To optimize your decision of whether or not to attend​ college, you should​ (1). a. overestimate the risk of going to​ college, because future benefits are not predictable. b. assume that all costs and benefits are fixed in advance. c. put all the​ up-front costs and future benefits of going to college into comparable units so they can be compared. d. weight the​ up-front costs of college more heavily than the delayed benefits.

(1) Korea (2) Korea (3) Taiwan (4) Korea

Consider the figure on the right. The blue line shows how many units of goods A and B a worker in Taiwan can​ produce, and the tan line shows the number of units of goods A and B that a worker in Korea can produce. Does this figure indicate anything about either worker having a comparative or absolute advantage in either​ good? According to the​ figure, (1) has an absolute advantage in the production of good A and (2) has an absolute advantage in the production of good B. Considering comparative​ advantage, (3) has a comparative advantage in the production of good A and (4) has a comparative advantage in the production of good B.

(1) is not (2) is

Consider the private market for these pesticides shown in the graph on the right. It shows the equilibrium level of pesticides that will be produced in the​ private, unregulated market for these pesticides. This outcome (1) socially efficient. In the​ graph, how would you account for the​ pesticides' effect on​ honeybees? ​1.) Using the line drawing tool​, draw either a new supply curve or demand curve to account for the​ pesticides' effect on honeybees. ​2.) Using the point drawing tool​, indicate the new equilibrium. Label your point ​'E2​'. This outcome is (2) socially efficient.

(3) a. Yes, buying the policy gives you wealth of $796,500 with certainty, which is the same as the expected value of wealth you get without insurance and thus added risk. If your marginal utility of consumption declines, you would prefer the certainty over the risk.

Continued from last question... Suppose your utility function exhibits diminishing marginal utility of consumption. Should you buy this insurance policy? Defend your answer. (3) a. Yes, buying the policy gives you wealth of $796,500 with certainty, which is the same as the expected value of wealth you get without insurance and thus added risk. If your marginal utility of consumption declines, you would prefer the certainty over the risk. b. No, buying the policy gives you wealth of ​$800,000 with​ certainty, which is greater than the expected value of wealth you get without insurance and thus added risk. If your marginal utility of consumption​ declines, you would prefer more risk and a smaller premium. c. No, buying the policy gives you wealth of ​$796,500 with​ certainty, which is the same as the expected value of wealth you get without insurance and thus added risk. If your marginal utility of consumption​ declines, you would prefer more risk and a smaller premium. d. Yes, buying the policy gives you wealth of ​$800,000 with​ certainty, which is greater than the expected value of wealth you get without insurance and thus added risk. If your marginal utility of consumption​ declines, you would prefer the certainty over the risk.

(1) exporter

Draw the world price line on Figure 2 to help determine whether the United States is an importer or an exporter. Using the line drawing​ tool, draw the world price line. Label this line ​'Pworld​.' With​ trade, the United States is an (1).

(1) b. risk averse (2) b. sell many extended warranties since people are willing to pay extra to avoid the risk of a loss

Economists have done numerous studies on how much risk people willing to take in a variety of situations. They have found that in most situations people overall are (1). a. risk seeking b. risk averse c. risk loving d. risk neutral Given your response to the previous question and the fact that most extended warranties that are offered on smaller electronic purchases tend to cost more than the benefits they provide it is likely true that firms (2). a. sell no extended warranties since customers understand that the cost of the warranty is greater than the benefit b. sell many extended warranties since people are willing to pay extra to avoid the risk of a loss c. sell very few extended warranties since most people have a neutral stance on risk

(1) c. positive; less than

Economists often analyze decisions that involve​ up-front costs and delayed benefits. When economists value rewards that will be experienced in the​ future, they multiply the reward by a​ (1) factor that is​ (1) one to capture the idea that future rewards are worth less than current rewards. a. negative; greater than. b. negative; less than. c. positive; less than. d. positive; greater than.

(1) b. a​ probability-weighted value that gives the average payoff from an event. (2) b. multiplying the probability of each possible outcome by the dollars associated with each outcome.

Expected value is (1). a. the minimum possible payout from an event. b. a​ probability-weighted value that gives the average payoff from an event. c. the dollar amount needed to make the average payout of an event equal zero. d. the maximum possible payout from an event. Expected value is calculated by (2). a. dividing the minimum possible payout by the probability of that outcome. b. multiplying the probability of each possible outcome by the dollars associated with each outcome. c. dividing the maximum possible payout by the probability of that outcome. d. adding all possible payoffs together and dividing by the number of outcomes to find the average.

(1) d. cause markets to produce suboptimal social outcomes.

Externalities are called market failures because they (1). a. raise prices in an unfair manner for the poor. b. raise prices for everyone. c. cause markets to overproduce when there is inflation. d. cause markets to produce suboptimal social outcomes.

(1) 40

Figure 1 on the right shows the world market for tennis​ shoes, and Figure 2 shows the U.S. market for tennis shoes without trade. Suppose the United States opens to free trade with other countries. The price of tennis shoes in the United States with trade is ​$(1).

(1) a. Firm A is not allowed by the government to produce more than 100 units if it does not use​ environment-friendly technology. / b. The government makes it compulsory for firm A to use environment friendly technology.

Firm A uses production technology that affects the environment. Which of the following are​ command-and-control policies used by the government to regulate firm​ A? ​(Check all that apply.​) (1) a. Firm A is not allowed by the government to produce more than 100 units if it does not use​ environment-friendly technology. b. The government makes it compulsory for firm A to use environment friendly technology. c. Firm A receives a reward from the government for using​ environment-friendly technology. d. Firm A has to pay a penalty to the government for not using​ environment-friendly technology.

(1) c. By comparing the upfront cost of a project to the discounted value of the future benefits from the project. (2) positive

How is net present value used to decide whether a project should be undertaken or​ not? (1) a. It determines the interest rate that the government must set in order to make projects by firms profitable. b. The net present value of a project is divided by the costs of the project to determine the​ project's profits. c. By comparing the upfront cost of a project to the discounted value of the future benefits from the project. d. The net present value of a project is multiplied by the costs of the project to determine the​ project's profits. A project should be undertaken if the net present value is (2).

(1) d. the optimal price of the good is higher than the market price of the good

If the production of a good involves negative​ externalities, (1). a. the quantity of the good supplied in the market is lower than the efficient level b. total welfare can be increased by increasing the production of the good c. the average cost of production can be reduced by increasing output above the optimal level d. the optimal price of the good is higher than the market price of the good

(1) b. less risk.

If two investments have the same expected return, people who are risk averse will prefer the investment with (1). a. either less risk or more risk. b. less risk. c. more risk. d. random rewards.

(1) pizza (2) chocolate cake

Joe and Samantha decide to work together and specialize. What will each of them specialize in​ making? Joe will specialize in making (1), and Samantha will specialize in making (2). Using the figure on the​ right, draw the new PPC when Joe and Samantha specialize and indicate the point on the new PPC where production will occur. ​1.) Using the multipoint curve drawing​ tool, draw the PPC that results when Joe and Samantha work together. Label your curve​ 'Joint PPC.' ​2.) Using the point drawing​ tool, locate the point where production will occur when Joe and Samantha specialize. Label your point​ 'T.'

(1) increases (2) an increasing rate (3) a. The development of a faster computer.

Kentucky has a production possibilities curve for the production of wine and cotton as shown in the graph. If Kentucky moves its resources increasingly into the production of​ cotton, the opportunity cost of doing so (1) at (2). Which of the following factors will shift the PPC outward in the long​ run? (3) a. The development of a faster computer. b. The employment of the less educated workforce. c. A hurricane demolished a factory. d. A military conflict that destroys infrastructure.

(1) is not (2) is

Many cities tax or ban plastic grocery bags. The rationale for these taxes and bans is an externalities​ argument: plastic bags are an​ eyesore, take up space in​ landfills, and damage​ fish, birds, and other wildlife. In a​ diagram, show the efficient number of plastic bags and the equilibrium number of plastic bags in the absence of any government policies. ​1.) Using the line drawing tool​, draw the supply curve. Properly label your curve. ​2.) Using the line drawing tool​, draw the demand curve. Properly label your curve. ​3.) Using the point drawing tool​, indicate the equilibrium in the private market. Label your point ​'E1​'. The outcome (1) socially efficient. Now assume consumers are forced to pay a tax on each plastic bag used equal to the negative externality. ​4.) Using the line drawing tool​, draw either a new supply curve or demand curve to account for the plastic bag tax. Properly label your curve. ​5.) Using the point drawing tool​, indicate the new equilibrium. Label your point ​'E2​'. The outcome (2) socially efficient.

(1) d. The Coase Theorem does not hold for baseball playing services in MLB.

Many economists and legal scholars interpret the​ [Coase] theorem as containing two propositions. The first is​ that, in the absence of transactions costs and wealth​ effects, parties will bargain to an efficient outcome. The second holds that the same outcome will be achieved regardless of the distribution of property rights.​ ? Major League Baseball​ [MLB] presents a natural experiment consisting of an industry in which there has been an explicit change in the assignment of property rights. Beginning in​ 1879, ? a player could negotiate salary only with the team that owned his contract and the team could trade or sell the player as management saw fit. In 1976 this system was replaced by the institution of free agency whereby a player with at least six years of Major League experience acquired the right to sell his services to prospective​ buyers?. The empirical analysis shows that after the introduction of free​ agency, the pitchers with greater longevity in the major leagues are less likely to move relative to their mobility in the pre−free agency period. The results also indicate​ that, in​ general, better pitchers are less likely to move and that pitchers playing on teams with higher winning percentages or in large market cities were less likely to move. What does the empirical analysis by these researchers​ imply? (1) a. MLB incurred a large loss of revenue after 1976. b. Players who became free agents were able to negotiate a better terms than non−free agents. c. The Coase Theorem holds for baseball playing services in MLB. d. The Coase Theorem does not hold for baseball playing services in MLB.

(1) 76.10 (.10 x $500/(1.05^3) + (.10 x $400/(1.05^4) (2) 6.10 $76.10-$70 (3) good

Michael decides to buy a cell phone for $600 on his credit card with an interest rate of 5%. The phone comes with a 2 year warranty. If Michael wants to extend this warranty for two more years, he has to purchase now, an extended warranty worth $70 on his credit card. This extended warranty will repair or replace the original broken cell phone which is worth only $500 in year three and only $400 in year four. Suppose each year, the probability of breakdown is 10%. Given this information answer the following questions. ​(Round your answers to two decimal places​.) The extended warranty provides expected benefits with the present value of $(1). The net present value of the extended warranty is $(2). Therefore, buying the extended warranty is a (3) deal for Michael.

(1) c. multiplying the reward by a positive factor that is less than 1. (2) less than

Most decisions have costs and benefits that occur at different times. To value the delayed​ benefits, economists weight the reward by​ (1). a. subtracting the​ up-front costs of the reward from the future benefits of the reward. b. multiplying the reward by a positive factor that is greater than 1. c. multiplying the reward by a positive factor that is less than 1. d. dividing the reward by a factor equal to 100. This process implies that future rewards are worth (2) current rewards.

(1) a. $10 per ton

Most municipalities and states in the northeastern United States use rock salt to​ "produce" ice−free roadways in the face of winter snowstorms. But using rock salt has several​ drawbacks: it speeds up corrosion of bridges and​ cars; it can choke​ vegetation; as​ runoff, it is harmful to creeks and​ rivers; and it is not very effective in de−icing roads at low temperatures. If the marginal private cost of rock salt is​ $60 per ton and the marginal external cost of rock salt is​ $10 per​ ton, the optimal corrective tax is​ (1). a. $10 per ton b. $60 per ton c. $50 per ton d. $70 per ton

(1) a. 0 Handbags and 20 Clutches / b. 10 Handbags and 0 Clutches (2) 4 handbags and 12 clutches (3) 6 handbags and 4 clutches (4) 8 handbags and 8 clutches

Queen Manufacturing Corporation manufactures handbags and clutches for women. It has to figure out its production possibilities in a​ 5-hour day. The following production schedule shows output levels based on the number of hours spent on each of the two​ tasks: Hours Spent on Handbags 5 4 3 2 1 0 Number of Handbags Manufactured 10 8 6 4 2 0 Hours Spent on Clutches 0 1 2 3 4 5 Number of Clutches Manufactured 0 4 8 12 16 20 Using the multipoint curve drawing tool​, draw a PPC of the Queen Manufacturing Corporation. Which of the following points represents the most extreme​ trade-offs faced by the Queen Manufacturing​ Corporation? (Check all that apply.) (1) a. 0 Handbags and 20 Clutches b. 10 Handbags and 0 Clutches c. 8 Handbags and 16 Clutches d. 10 Handbags and 20 Clutches A point on the graph that represents (2) is attainable and efficient. A point on the graph that represents (3) is attainable but inefficient. A point on the graph that represents (4) is unattainable.

(1) c. 2

Scenario: Suppose there are only three houses on a street. The table shows each​ homeowner's willingness to pay for street lights. It costs​ $700 to install a street light. The socially optimal number of street lights for this street is​ (1). a. 0 b. 1 c. 2 d. 3

(1) c. Assigning the property rights creates an incentive for owners to manage the resource so it is not depleted.

Scenario: The following excerpt is from Michael A. McPherson and Michael L.​ Nieswiadomy, "African​ Elephants: The Effects of Property Rights and Political​ Stability," Contemporary Economic Policy​ 18, no. 1​ (2007). African elephant populations have declined by more than​ 50% over the past 20 years. International outrage over the slaughter led to a worldwide ban on ivory sales beginning in​ 1989, despite the objections of many economists and​ scientists, and of several southern African countries that have established systems of property rights over elephants. Far from​ declining, elephant populations in many of these countries have increased to levels at or above the carrying capacity of the ecosystem. This article estimates the determinants of changes in elephant populations in 35 African countries over several time periods. The authors find​ that, controlling for other​ factors, countries with property rights systems or community wildlife programs have more rapid elephant population growth rates than do those countries that do not. Political instability and the absence of representative governments significantly lower elephant growth rates. Which of the following is consistent with a solution to the elephant population decline described in the​ quote? (1) a. There is no effective solution to management of common pool resources. b. Banning the trade of a declining resource is an effective way of managing it. c. Assigning the property rights creates an incentive for owners to manage the resource so it is not depleted. d. Government ownership of a declining resource protects it from depletion.

(1) c. $60

Scenario: Vacant​ houses, foreclosed or​ abandoned, are typically boarded up with plywood that many people consider unsightly and likely to invite vandalism. An alternative is clear plastic​ (polycarbonate) panels. The figure shows the demand and the supply of polycarbonate panels used for boarding up houses in a hypothetical town. To answer some of the​ questions, it will be useful to find the equations of the three lines in the figure. For each additional polycarbonate panel generates​ (1) worth of social benefit beyond the private marginal benefit. a. $0 b. $75 c. $60 d. $100

(1) Graph

Suppose domestic demand is QD=16 − P and domestic supply is QS=P. The world price is​ $2, and the import tariff is​ $3 per unit. Using the triangle drawing tool​, shade consumer​ surplus, producer​ surplus, and the deadweight loss from the tariff. (1)

(1) 4.80 (2) importer (3) Sweden is a small buyer of Good Z (4) a. The producer surplus is indicated by the area O.​ Therefore, Swedish producers are worse off because of trade. / c. The consumer surplus is indicated by the areas L+M+N. ​Therefore, Swedish consumers are better off because of trade. (5) gains (6) N

Suppose the world price of Good Z is​ $40. With the assumption of a perfectly competitive​ market, the equilibrium price and quantity demanded of Good Z in Sweden is​ $57.50 and 4.90 million respectively. Once Sweden is open to​ trade, Swedish producers will curb their production from 4.90 million units of Good Z to 2.60 million units and receive the world price of​ $40 per unit. At that​ price, Swedish consumers will demand to 7.40 million units of Good Z. These movements lead to an excess demand of (1) million units of Good Z in Sweden. In this case, Sweden is an (2) of Good Z. This added demand does not change the world price because (3). Consider the graph and the after trade situation in Sweden. Which of the following statements are​ true? ​(Check all that apply.​) (4) a. The producer surplus is indicated by the area O.​ Therefore, Swedish producers are worse off because of trade. b. The consumer surplus is indicated by the area L.​ Therefore, Swedish consumers are worse off because of trade. c. The consumer surplus is indicated by the areas L+M+N. ​Therefore, Swedish consumers are better off because of trade. d. The producer surplus is indicated by the areas O+M. Therefore, Swedish producers are better off because of trade. For​ Sweden, the overall (5) because of trade are represented by the area(s) (6).

(1) b. The probability of drawing a heart the first time is the same as the probability of drawing one the second time. (2) 25 13/52 (3) b. The probability of drawing a heart the second time is greater than the probability of drawing one the first time. (4) 23.53 12/51

Suppose you draw a card from a standard deck of 52​ cards, put that card back in the​ deck, and draw a second card. What do we know about the events​ "Draw a heart the first​ time" and​ "Draw a heart the second​ time"? (1) a. The probability of drawing a heart the first time is less than the probability of drawing one the second time. b. The probability of drawing a heart the first time is the same as the probability of drawing one the second time. c. The probability of drawing a heart the first time is greater than the probability of drawing one the second time. If there are 13 heart cards in a​ deck, the probability of drawing a heart the second time is (2) percent. (Round your response to two decimal places.​) Suppose you draw a card from a standard deck of 52​ cards, you do not put that card back in the deck​, and draw a second card. What do we know about the events "Draw a heart the second time" if we did not "Draw a heart the first time"? (3) a. The probability of drawing a heart the second time is the same as the probability of drawing one the first time. b. The probability of drawing a heart the second time is greater than the probability of drawing one the first time. c. The probability of drawing a heart the second time is less than the probability of drawing one the first time. If there are 13 heart cards in a deck, the probability of getting a heart the second time if you chose a heart the first time is (4) percent. (Round your response to two decimal places.​)

(1) d. All of the above. (2) 23132.60 $60,000/1.10^10 (3) 49737.04 ($20,000/1.1) + ($20,000/1.1^2) + ($20,000/1.1^3) (4) 54710.74 $20,000 + ($20,000/1.1) + ($20,000/1.1^2)

Suppose you hear about a business opportunity where you will give a small firm​ $1,000 now to help set up its web platform to sell its items online with the promise that you will receive​ $5,000 back in 10 years. What do you need to take into consideration when deciding whether or not to lend this​ money? (1) a. Time value of money. b. Opportunity cost of the investment. c. Prevailing interest rate. d. All of the above. You win the state lottery jackpot of $60,000 and are given the following three​ options: getting a​ lump-sum payment for the entire amount 10 years from​ now, receiving three equal payments of ​$20,000 over 3 years with the first payment starting next​ year, or receiving three equal payments of ​$20,000 with the first payment starting today and the next payments occurring over the following 2 years. If the interest rate is 10 ​percent, then receiving the​ lump-sum payment 10 years from now would have a present value of ​$(2). (Round your response to two decimal places​.) If the interest rate is 10 percent, then receiving three equal payments of $20,000 over 3 years with the first payment starting next year would have a present value of ​$(3). ​(Round your response to two decimal places​.) If the interest rate is 10 percent, then receiving three equal payments of ​$20,000 with the first payment starting today and the next payments occurring over the following 2 years would have a present value of $(4). ​(Round your response to two decimal places​.)

(1) d. the tragedy of the commons

Suppose you live in a housing co−op with eleven other college students. The kitchen is constantly a​ mess; virtually nobody in the house cleans​ up, and the sink is overflowing with dirty dishes. This is an example of​ (1). a. a club good b. a private provision c. a private good d. the tragedy of the commons

(1) principal (2) time value of money (3) 107 $100 + $100 x (.07) (4) 131.08 $100 x (1.07)^4 (5) d. compounding

Suppose you put ​$100 into a bank account that has a 7 percent interest rate. In this example, the $100 reflects the (1) and the 7 percent reflects the (2). If you leave your money in the bank for 1 year, then the future value of your money is $(3). (Enter your response as an integer​.) If you leave all your money in the bank for 4 years, then the future value of your money after those 4 years is $(4). (Round your response to two decimal places.​) The idea of leaving all the money in an account and earning interest not only on the original deposit but also on the past interest earned is called​ (5). a. rate multiplication. b. expansion. c. interest reduction. d. compounding. The graph on the right shows how much an initial deposit grows over time if all the money is left in your account and the interest rate is 5 percent. How would the future value of your deposit be different at a different interest​ rate? ​1.) Using the​ 3-point drawing tool​, illustrate the value of your deposit over time if the interest rate is 7 percent. Label your new curve appropriately.

(1) 485 (100/1.01) + (100/1.01^2) + (100/1.01^3) + (100/1.01^4) + (100/1.01^5) (2) 5 payments

Suppose you win the Powerball lottery this​ year, which is worth ​$500 million. You can choose to take a lump sum now of $475 million or you can "annuitize" your winnings. Annuitization means that you will receive the total jackpot money in 5 equal annual payments of $100 million starting next year. Assume that your lottery winnings are not taxed. If the interest rate is 1.0 ​percent, the present value of the 5 equal payments is $(1) million. (Round your response to two decimal places.​) Given this​ information, you would be more likely to choose the (2).

(1) d. private bargaining will result in an efficient allocation of resources. (2) a. transaction costs become high. / b. when property rights are not clearly defined. / c. there are a large numbers of agents.

The Coase Theorem states that (1). a. government and private partnerships will result in an efficient allocation of resources. b. public and private partnerships will result in an efficient allocation of resources. c. public bargaining will result in an efficient allocation of resources. d. private bargaining will result in an efficient allocation of resources. The Coase Theorem will will breakdown when (2). (select all that​ apply) a. transaction costs become high. b. when property rights are not clearly defined. c. there are a large number of agents. d. the dispute becomes a high priority to the agents involved. e. agents decide to negotiate directly with each other.

(1) b. a market−based government solution

The congestion charge is an example of​ (1) to the negative externality associated with common pool resources. a. a command−and−control government solution b. a market−based government solution c. a private bargaining solution d. a social norm solution

(1) 0.5 (2) 2 (3) 2 (4) 0.5 (5) a. Joe has a comparative advantage in​ pizza, and Samantha has a comparative advantage in cake.

The figure at right shows production possibilities curves (PPC) for Joe and Samantha. Each of them can spend time making pizzas or chocolate cakes. Using the information in the​ figure, calculate the opportunity costs of making pizza and chocolate cake for both Joe and Samantha and then complete the table below. (Round your responses to one decimal place.​) Opportunity Cost of Pizza - Joe: (1) cake(s) - Samantha: (2) cake(s) Opportunity Cost of Cake - Joe: (3) pizza(s) - Samantha: (4) pizza(s) Who has the comparative advantage in the production of pizza and chocolate​ cake? (5) a. Joe has a comparative advantage in​ pizza, and Samantha has a comparative advantage in cake. b. Samantha has a comparative advantage in both goods. c. Joe has a comparative advantage in both goods. d. Neither has a comparative advantage in either good. e. Samantha has a comparative advantage in​ pizza, and Joe has a comparative advantage in cake.

(1) a. Point A. / b. Point B. / d. Point D. / e. Point E. (2) a. Point A. / b. Point B.

The figure at right shows a production possibilities curve (PPC) for Joe. He can spend his time making pizzas or chocolate cakes. For​ Joe, which production points are​ attainable? ​(Check all that apply.​) (1) a. Point A. b. Point B. c. Point C. d. Point D. e. Point E. For​ Joe, which production points are​ efficient? ​(Check all that apply.​) (2) a. Point A. b. Point B. c. Point C. d. Point D. e. Point E. Joe decides to go to baking school and learns to make chocolate cakes faster. ​1.) Using the line drawing​ tool, draw a new PPC where point C is now attainable and efficient. Label your line​ 'PPC2.'

(1) d. 4

The figure depicts four different scenarios in which the blue line represents​ California's production possibilities curve​ (PPC) and the red line represents​ Texas' PPC. These two states trade wine and cloth. In what scenario would the terms of trade of wine for cloth be between 0.67 and​ 0.75? (1) a. 1 b. 2 c. 3 d. 4

(1) c. 40 units

The figure shows the demand​ curve, D, and the supply​ curve, S, for calculators in Barylia. The world price of calculators is​ $40. If Barylia does not engage in international​ trade, what is the production of calculators in the​ country? (1) a. 10 units b. 20 units c. 40 units d. 60 units

(1) b. Q2 units is the efficient level of output of Good X.

The figure shows the private cost and social cost of producing Good X. Which of the following statements is true in this​ case? (1) a. P1 is the socially optimal price for Good X. b. Q2 units is the efficient level of output of Good X. c. Q2 units is the quantity supplied of Good X in a free market. d. P2 is the price of Good X in a free market.

(1) c. common pool resources are overused. (2) a. Overfishing in public waters.

The tragedy of the commons results when​ (1). a. people are excluded from public goods. b. common pool resources are underused. c. common pool resources are overused. d. too many public goods are provided. Which of the following best illustrates the tragedy of the​ commons? (2) a. Overfishing in public waters. b. Buying a Nintendo DS instead of funding the public library. c. Sneaking into a concert without paying for a ticket. d. Donating to the World Wildlife Fund.

(1) b. the marginal benefit to a group is different than to that of the individual.

The​ free-rider dilemma occurs because (1) a. public goods are​ non-rival. b. the marginal benefit to a group is different than to that of the individual. c. public goods​ can't be produced using​ cost-benefit analysis. d. free markets​ don't adequately produce private goods.

(1) c. knowing about one outcome does not help you predict the other outcome. (2) a. ignore the independence of outcomes in some games and believe they are on a hot streak.

Two outcomes are said to be independent when (1). a. the probability of one outcome is different from the probability of another outcome. b. the payoff from one outcome does not impact the payoff from the other outcome. c. knowing about one outcome does not help you predict the other outcome. d. knowing about one outcome helps you predict the other outcome. The gambler's fallacy occurs when gamblers (2). a. ignore the independence of outcomes in some games and believe they are on a hot streak. b. believe they cannot predict outcomes of independent games by using information from previous plays. c. believe that all events are random events. d. believe that betting larger sums of money will result in larger payoffs in the long run.

(1) 60.50 (2) 12.50 (3) 18 (4) 9

Using the rectangle drawing tool​,shade the government tax revenue from the tariff. Using the information given​ above, the consumer surplus will be ​$(1), the producer surplus will be $(2), the government revenue will be $(3), and the deadweight loss from the tariff will be $(4). (Round your response to the nearest penny.)

(1) c. To induce producers of a negative externality to reduce production to the socially optimal level.

What is the intent of a Pigouvian​ tax? (1) a. To mandate by government fiat the reduction of production to the socially optimal level. b. To eliminate the force of the invisible hand in market transactions. c. To induce producers of a negative externality to reduce production to the socially optimal level. d. To encourage producers of a negative externality to increase production to the socially optimal level.

(1) a. Starting a company in isolation may deprive it of​ "technological spillovers" that its​ competitors, all located near one​ another, may enjoy.

What is the problem with the argument that infant industries need to be protected from foreign​ competition? (1) a. Starting a company in isolation may deprive it of​ "technological spillovers" that its​ competitors, all located near one​ another, may enjoy. b. Foreign companies may do a better job of providing the good or service. c. Since the stock of deadweight losses builds up over​ time, the total lost surplus will never be made up. d. Because the world price will continue to​ drop, the domestic industry will never catch up in any case. e. Changing a comparative advantage is nearly impossible and so the domestic industry will not likely survive anyway.

(1) borrowing from (2) later to now (3) c. higher than (4) 96463 $10,000 x (1.12)^20

When you take out a loan from a bank, you are (1) the bank. This moves your spending from (2). The interest rates on loans tend to be (3) the interest rates on investments. a. completely unrelated to. b. equal to. c. higher than. d. lower than. Suppose that in your senior year you find that you need to take out a student loan for the first time. You borrow ​$10,000 from a bank that gives you the option to make no payments now but to pay the entire amount back plus interest in 20 years. If the interest rate is 12 percent, then the amount of money due after 20 years is $(4). ​(Enter your response as an integer​.)

(1) 12033 $5000 x (1 + .05)^18

When you were​ born, your parents deposited ​$5,000 in the bank. The bank offers a fixed interest rate of 5percent. On your 18th​ birthday, your parents decide to withdraw the money that they deposited to pay for your college tuition. If interest is compounded​ annually, you can expect to withdraw $(1) on your 18th birthday.​ (Round your response to the nearest​ dollar)

(1) c. National defense

Which of the following is an example of a public​ good? (1) a. Designer clothes b. Music downloads c. National defense d. Natural forests

(1) b. If the production of a good gives rise to a negative​ externality, it can be internalized by taxing the producers of the good.

Which of the following is true? (1) a. If the production of a good gives rise to a positive​ externality, it can be internalized by taxing the consumers of the good. b. If the production of a good gives rise to a negative​ externality, it can be internalized by taxing the producers of the good. c. If the consumption of a good gives rise to a positive​ externality, it can be internalized by taxing the producers of the good. d. If the consumption of a good gives rise to a negative​ externality, it can be internalized by subsidizing the purchase of the good.

(1) d. Present value = Payment T periods from now / ((1 + interest rate)^T)

Which of the following represents how you would calculate the present value of a future​ payment? (1) a. Present value = ((Payment T periods from now) x (Interest rate)) / T b. Present value = (Payment T periods from now) x (1 + interest rate)^T c. Present value = ((Payment T periods from now)^T) / Interest rate d. Present value = Payment T periods from now / ((1 + interest rate)^T)

(1) c. The principle of comparative advantage provides a range of prices within which trade will occur.

Which of the following statements is​ true? (1) a. The principle of absolute advantage forms the basis of trade when a nation can produce more goods and services compared to other nations. b. The principle of absolute advantage provides a basis for the determination of the terms of trade between two trading nations. c. The principle of comparative advantage provides a range of prices within which trade will occur. d. The principle of comparative advantage provides a basis for trade when two nations have the same opportunity cost of producing a good.

(1) a. It occurs when all of the costs are predictable. (2) a. A current reward is worth more than a future reward. / b. The value of a future reward is obtained by multiplying the reward by a positive factor that is less than 1. / c. The economic tools used to value them use weights.

Which of the following statements regarding risk is not​ true? (1) a. It when all of the costs are predictable. b. It means some of the costs and benefits are not fixed in advance. c. Both good and bad choices involve risks. d. It affects economic value. Which of the following statements are true regarding future rewards and risky​ rewards? ​(Check all that apply.​) (2) a. A current reward is worth more than a future reward. b. The value of a future reward is obtained by multiplying the reward by a positive factor that is less than 1. c. The economic tools used to value them use weights. d. The value of a risky reward is obtained by multiplying the reward by a positive factor that is less than 1.

(1) d. The parties involved negotiating with each other and reaching an agreement

Which of the following will lead to an efficient private solution if negative externalities are present in a​ market? (1) a. The government paying a subsidy to the parties involved in generating externalities b. The party suffering from the externality having legal property rights c. The party creating the externality having legal property rights d. The parties involved negotiating with each other and reaching an agreement

(1) c. because the public good is​ non-rival, so you and others can consume every unit of the good at the same time.

Why is the market demand curve for public goods calculated as a vertical summation of individual demand​ curves? (1) a. because public goods require vertical summation to account for the higher level of fairness compared to private goods. b. because public goods are finite in availability of​ consumption, so the vertical summation accounts for the limit. c. because the public good is​ non-rival, so you and others can consume every unit of the good at the same time. d. because public goods are the opposite of private​ goods, therefore the summing must be done similar to club goods.

(1) c. people weight, say, a $100 loss more heavily than a $100 gain.

With loss aversion, (1). a. fewer people will purchase expensive insurance, such as an extended warranty, since it is usually a bad deal. b. since most people are averse to small financial losses, they will be risk neutral in most situations. c. people weight, say, a $100 loss more heavily than a $100 gain. d. people weight, say, a $100 gain twice as heavily as a $100 loss.

(1) Q2-Q3 (2) area D (3) area B (4) a. it raises prices for consumers (5) a. A defense-oriented nation. / b. A nation who wants to preserve their cultural uniqueness.

With the help of the given graph answer the following​ question: When the nation imposes a​ tariff, the imports of the nation falls to (1). However, government revenue increases by (2) and producer surplus increases by (3). This nation may not favor imposing tariffs on imports because (4) a. it raises prices for consumers. b. it raises social surplus for consumers. c. it reduces the work load of the government. d. it makes producers worse off. Which of the following nations will be against free​ trade? (Check all that apply.​) (5) a. A defense-oriented nation. b. A nation who wants to preserve their cultural uniqueness. c. A nation with lax environmental policies. d. A nation that has the comparative advantage.

(1) 30 (2) area A (3) is equal to (4) c. the marginal social benefit is greater than the marginal cost to produce at the market equilibrium (5) c. It affects other people only through market price.

With the help of the​ graph, it is observed that the marginal private benefit of the good is​ $95 and, due to a positive​ externality, the marginal benefit to society is​ $125. In this​ case, the marginal external benefit created by the positive externality is ​$(1). In the graph, (2) represents a deadweight loss. The deadweight loss (3) the foregone benefit to society of the externality. Positive externality will occur when (4). a. the marginal social benefit is equal to marginal social cost to produce at the market equilibrium b. the marginal social benefit is equal to deadweight loss c. the marginal social​ benefit is greater​ than the marginal cost to produce at the market equilibrium d. the marginal social benefit is equal to marginal private benefit Which of the following statements is true regarding pecuniary​ externalities? (5) a. It causes market inefficiencies. b. It is a branch of the negative externality. c. It affects other people only through market price. d. It leads to wrong equilibrium quantities.

(1) b. 1/4; 3/4. 13/52; 39/52 (2) -6 1/4($40-$16) + 3/4(-$16)

You are interested in playing a card game. The rules of the game are such that you pick a card from a deck of cards and if the card is a​ diamond, you win $40. The catch​ is, every time you want to pick a card you have to pay the dealer a fee of $16. A standard deck of cards consists of 52​ cards, with 13 diamonds in the deck of cards. The probability of picking a diamond is (1) and the probability of not picking a diamond is (1). a. 3/4; 1/4. b. 1/4; 3/4. c. 1/4; 4/1. d. 3/4; 4/3. The expected value of this gamble is $(2). (Round your response to two decimal places and include a minus sign if necessary.​)

(1) public good (2) free rider (3) low (4) low (5) a. Exclude citizens from benefiting from the good or service.

You are the County Commissioner of Hazard County. Recently a severe wave of storms swept across Hazard​ County, spawning several tornadoes and creating a wide path of mayhem. The citizens of Hazard County are demanding that you do something to protect them. You decide to install some early warning tornado sirens.​ However, there is no money left in the county​ budget, so you ask each citizen to donate some money to build the system. Many citizens donate money to help build the warning​ system; however, Ms.​ Nancy, who is​ wealthy, decides she is not going to donate. The early warning sirens are an example of a (1), and Ms. Nancy represents a (2). Public goods are (3) in rivalry and (4) in excludability. What approach would be the least effective way to deal with free riders? (5) a. Exclude citizens from benefiting from the good or service. b. Threaten to expose the free riders to their neighbors. c. Appeal to their civic sense of responsibility. d. Offer citizens a favor or a small gift if they agree not to free ride.

(1) command and control (2) 4.71 (3) 4.79 (4) 3 (5) 6.64 (6) decreases (7) increases (8) decreases

You are the County Commissioner of Hazard County.​ Dwight's neighbors bring a complaint before you that​ Dwight's hog farm is creating a terrible​ odor, and they are demanding government action. You respond to the​ neighbor's complaints by limiting the number of hogs that Dwight can have on his farm. Limiting the amount of​ Dwight's production is an example of (1). Using the graph to the​ right, answer the following questions. Before your production limit goes into​ effect, Dwight will produce (2) thousand hogs and sell them for a price of $(3) per pound. (Enter your responses to two decimal places​.) After your production limit goes into​ effect, Dwight will produce (4) thousand hogs and sell them for a price of $(5) per pound. (Enter your responses to two decimal places​.) As a result of the production limit, supply (6), price (7), and the negative externality (8).

(1) the free market outcome is not efficient (2) produce too much (3) produce too little

You have just been appointed as the County Commissioner of Hazard County. After your first day of​ work, you realize that many people talked to you about externalities that day. Based on your conversations today and your economics​ experience, you conclude that when externalities are​ present, (1). ​Furthermore, you conclude that when there are negative externalities​ present, free markets (2), and when there are positive externalities present, free markets (3). To help the citizens of Hazard County understand the effects of​ externalities, you draw the following figure. Assume there is a free market. ​1.) Using the line drawing​ tool, draw a marginal revenue curve. Label your curve​ 'MR'. ​2.) Using the line drawing​ tool, draw a marginal cost curve. Label your curve​ 'MC'. ​3.) Using the point drawing tool​, indicate the equilibrium point in the private market. Label your point ​'E1​'. Now assume that the producer is creating a negative externality through the production process. ​4.) Using the line drawing​ tool, draw a new curve that reflects the impact of the externality. Label your curve appropriately. ​5.) Using the point drawing tool​, indicate the new equilibrium in the private market. Label your point ​'E2​'. ​6.) Using the triangle drawing tool​, shade in the area of the forgone benefit of the externality.

(1) 33.33 $160 = $120 x (1 + r) → solve for r (2) 14.29 $160 = $140 x (1 + r) (3) a. An increase in the price of bonds will lower the market interest rate.

You observe a banker pay $120 for a bond that pays out $160 in one year​ (with no​ risk). Based on this observation, the interest rate is (1) percent. (Round your final answer to two decimal​ places.) Suppose that the price of this bond today suddenly increases to $140. Even though the price changed this bond still pays out $160 in one year. Based on this​ observation, the new interest rate is (2) percent. ​(Round your final answer to two decimal​ places.) Which of the following statements is likely to be true if there is an increase in the price of bonds​ today? (3) a. An increase in the price of bonds will lower the market interest rate. b. An increase in the price of bonds will increase the market interest rate. c. An increase in the price of bonds will have no impact on the market interest rate.

(1) 796500 0.99($450,000 + $350,000) + .01($450,000) (2) a. ​Yes, the premium is exactly equal to the expected value of the claim the insurance company would have to pay in the event of a fire.

Your house is worth $450,000​, and the price of housing is not changing. You have $350,000 in a savings account paying no interest. There is a 1 percent chance of a fire in your house during the next year. If the fire​ occurs, there will be $350,000 of damage. Suppose you do not have fire insurance. If the fire​ occurs, you will have to pay​ $300,000 to repair your house. The expected value of your wealth​ (including both the value of your home and your savings​ account) at the end of the year is $(1). We will say that an insurance policy is fair insurance if the premium for the policy equals the expected value of the claims the insurance company will have to pay. An insurance company offers you a fire insurance policy. If a fire​ occurs, it will pay to repair your home. The premium for the policy is ​$3,500. Has the insurance company offered you fair insurance? (2) a. ​Yes, the premium is exactly equal to the expected value of the claim the insurance company would have to pay in the event of a fire. b. ​No, the premium is less than the expected value of the claim the insurance company would have to pay in the event of a fire. c. ​Yes, the premium is less than the expected value of the claim the insurance company would have to pay in the event of a fire. d. ​No, the premium is greater than the expected value of the claim the insurance company would have to pay in the event of a fire.

(1) b. Yes, but only when the negotiations are relatively costless.

​Scenario: A chemical factory is located upstream on a river. The factory dumps its liquid waste into the river. A microbrewery is located downstream on this​ river; it uses the river water in its production process and values the clean water. The chemical factory can filter its liquid waste before dumping it into the​ river, but it would be costly to the factory. The table shows the profit to these two businesses under different circumstances. Profit with Filtering - Chemical factory: $800 - Microbrewery: $400 Profit without Filtering - Chemical factory: $1,000 - Microbrewery: $100 Could this externality problem be resolved by private negotiations between the chemical factory and the​ microbrewery? (1) a. No, because dumping the waste into the river is free for the chemical factory. b. Yes, but only when the negotiations are relatively costless. c. ​No, because filtering the waste decreases the profit of the chemical factory. d. Yes, but the chemical factory should be forced to pay a fine for polluting the river.

(1) d. loss in Good X/gain in Good Y

​Scenario: Suppose a country produces only two​ goods: Good X and Good Y. The opportunity cost of producing Good Y equals​ (1). a. loss in Good X/loss in Good Y b. gain in Good X/gain in Good Y c. gain in Good Y/gain in Good X d. loss in Good X/gain in Good Y

(1) b. C + E

​Scenario: Suppose the world price is​ $2 per​ bushel, and U.S. wheat growers are dissatisfied with the level of wheat imports into the United States. They lobby Congress for a​ $1 per bushel tariff on imported wheat. The figure shows the U.S. wheat market. The deadweight loss arising from the tariff is represented by which​ area? (1) a. E b. C + E c. C d. C + D + E