CSU Micro Econ 202 Final

Which of the following statements regarding Nash equilibrium are correct? a. Some players have an incentive to deviate from a Nash equilibrium. b. A Nash equilibrium will always exist. c. In a Nash equilibrium, all players choose their best response strategy given the other players' strategies. d. A dominant strategy equilibrium is not a Nash equilibrium.

In a Nash equilibrium, all players choose their best response strategy given the other players' strategies.

Consider a world of just two individuals, Gonzalo and Leila, who each need two goods to survive, apples and wheat. They differ in how productive they are in growing apples and wheat (see graph) Based on this information, which of the following statements is correct? a. Leila has a comparative advantage in producing wheat. b. Gonzalo has a comparative advantage in both crops c. Gonzalo has a comparative advantage in producing wheat. d. Leila has an absolute advantage in both crops.

Leila has a comparative advantage in producing wheat.

According to Malthus, which of the following are the causes of diminishing average product of labor? a. There is an infinite amount of resources. b. Environmental effects of over-cultivation (e.g. increased carbon emission). c. More labor is devoted to a fixed quantity of land, or new land brought into cultivation is of inferior quality. d. Coordination problems due to a larger labor force. This is the main cause of diminishing average product of labor.

More labor is devoted to a fixed quantity of land, or new land brought into cultivation is of inferior quality.

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? a. The supply of bread has become less elastic. b. The bakeries' marginal cost of production has fallen. 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.

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.)

In the following diagram you are given two technologies, A and B, which can produce 100 meters of cloth. Technology A uses 1 worker and 4 tonnes of coal, while technology B uses 4 workers and 2 tonnes of coal. The diagram also depicts three examples of isocost curves, NM, GF and JH. The wage and the price of coal are denoted by w and p, respectively. In period 1, the wage cost and the price of coal are (w, p) = ($10, $20) and in period 2, the wage cost and the price of coal change to (w, p) = ($20, $10). Which of the following statements is correct? a. Technology A is cheaper than Technology B in both periods. b. Technology A is cheaper in period 1 and Technology B is cheaper in period 2. c. Technology B is cheaper in period 1 and Technology A is cheaper in period 2. d. Technology B is cheaper than Technology A in both periods.

Technology A is cheaper in period 2. (In period 1, Technology B is cheaper, because it costs 4*$10 + 2*$20 = $80 instead of 1*$10 + 4*$20 = $90. In period 2, technology A is cheaper, because it costs 1*$20 + 4*$10 = $60 instead of 4*$20 + 2*$10 = $100.)

The figure shows a student's production function with the final grade (the output) related to the number of hours spent studying (the input). Which of the following statements regarding marginal product of labour (MPL) are correct? a. The MPL at 4 hours is 12.5. b. The MPL is always greater than the APL. c. The MPL is 6 at 15 hours. d. The MPL at 4 hours is the slope of the tangent line.

The MPL at 4 hours is the slope of the tangent line. (The MPL shows the rate of increase in the final grade as hours of study increase. Note you can calculate that the MPL is between 7 and 8 (since the grade increases by 8 points when study hours are increased from 3 to 4, and it increases by another 7 hours when study hours are increased from 4 to 5).

Production of cloth requires two inputs: L workers and R tonnes of coal. The following diagram depicts the isocost line associated with production. The wage (w) is $20 and the price of coal (p) is $30. Which of the following statements is correct? a. The cost associated with the isocost line is $120. b. The slope of the isocost line is -1/3. c. The cost of using 6 workers and 2 tonnes of coal is the same as that of using 3 workers and 4 tonnes of coal. d. All points above the isocost line would cost more than $210.

The cost of using 6 workers and 2 tonnes of coal is the same as that of using 3 workers and 4 tonnes of coal. (All points above the isocost line would cost more than $210.)

Consider the following four games where players Row and Column each have two strategies: A and B. (this is not a question just a reminder flashcard)

This is a prisoners' dilemma because there is a single Nash equilibrium, (B, B), and this dominant strategy equilibrium is worse for both players than if both players played the strategy A.

You currently work for 40 hours a week at wage rate of £12 an hour. Your free hours are defined as the number of hours not in work, which in this case is 24 hours × 7 days - 40 hours = 128 hours per week. Suppose that you are happy to keep your total weekly income constant. Then: a. If your wage rate increases to £16 an hour, then your free time will increase to 130 hours. b. Doubling the wage rate would decrease your working hours to 30 hours per week. c. If your pay is cut to £9, in order to keep your income constant, you'll only get 100 hours of free time. d. To have 16 hours of more free time, your wage rate needs to increase by £8.

To have 16 hours of more free time, your wage rate needs to increase by £8. (The current total weekly income is £12 × 40 hours = £480. 16 extra hours of free time means 128 hours + 16 hours = 144 hours of free time, or 24 hours of work. To keep your weekly income constant, your wage rate needs to increase to £480 / 24 = £20 an hour, which is an increase of £8.)

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. $83,000 $78,000. b. $83,000; $71,000. c. $80,000; $68,000. d. $80,000; $75,000.

a. $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).)

Imagine an economy that grows at a constant rate for the 21st century. A plot of the level of GDP over time will fit: a. A convex line on a linear scale, and a straight upward-sloping line on a ratio scale. b. A downward-sloping line on both a linear scale and a ratio scale. c. A straight upward-sloping line on a linear scale, and a convex line on a linear scale. d. A concave line on a linear scale, and a straight upward-sloping line on a ratio scale.

a. A convex line on a linear scale, and a straight upward-sloping line on a ratio scale. (As explained in Unit 1.3., a series that grows at a constant rate looks like a convex line on a linear scale and a straight upward-sloping line on a ratio scale.)

The figure shows the indifference curves of a student for the two 'goods', free time and final grade. Based on this information, which of the following statements is correct? a. At A, the student is willing to give up 34 grade points for five extra hours of free time. b. A is the student's most preferred choice as she would be attaining the highest grade. c. The student strictly prefers a grade of 54 with 19 hours of free time to a grade of 67 with 18 hours of free time. d. The student is twice as happy at point A than at point B.

a. At A, the student is willing to give up 34 grade points for five extra hours of free time.

Refer to the figure in question 6. Which of the following statements is correct? a. At B, the decrease in price that keeps profits constant when one extra car is sold is larger than the decrease in price required to sell one extra car. b. A profit-maximising firm would select the quantity at which the average cost is minimized. c. At D, the price equals the marginal cost and therefore the firm makes no profit. d. The profit margin is the highest at C.

a. At B, the decrease in price that keeps profits constant when one extra car is sold is larger than the decrease in price required to sell one extra car. (The price decrease that keeps the profit constant when one extra car is sold is the MRS (the slope of the isoprofit curve), while the decrease in price required to sell one extra car is the MRT (the slope of the demand curve). At B, the MRS is higher than the MRT.)

Which of the following statements is correct regarding disposable income? a. Disposable income is the maximum amount of expenditure possible without having to borrow or sell possessions. b. Disposable income is the total income from wages, profit, rent, and interest. c. Disposable income is the amount of income that is given away. d. Disposable income is the exact measure of one's well-being

a. Disposable income is the maximum amount of expenditure possible without having to borrow or sell possessions. (Disposable income is total income minus transfers to others such as taxes, which is the maximum amount of possible expenditure without borrowing or selling.)

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

a. 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 goods is not allocated by markets in the U.S. because doing so is widely viewed as repugnant? a. Human kidneys b. Childcare c. Housing d. Higher education

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

Which of the following statements regarding bargaining power is correct? a. In a dictator game, the Proposer has all the bargaining power. b. In a dictator game, increasing the number of Responders reduces the Proposer's bargaining power. c. In an ultimatum game, the Proposer has all of the bargaining power. d. In an ultimatum game, increasing the number of Responders reduces the Proposer's bargaining power.

a. In a dictator game, the Proposer has all the bargaining power. (In a dictator game, the Responder has no role other than to take whatever is offered, if anything. Therefore the Responder has no bargaining power and the Proposer has all the bargaining power.)

Which of the following statements is true? a. In a labor contract, one side of the contract has the power to issue orders to the other side, but this power is absent from a sale contract. b. The office where the employee works is a relation-specific asset, because the employee cannot use it after leaving the firm. c. A firm is a structure that involves decentralization of power to the employees. d. A labour contract transfers ownership of the employee from the employee to the employer.

a. In a labor contract, one side of the contract has the power to issue orders to the other side, but this power is absent from a sale contract. (A labor contract gives the employer the authority to direct the activities of the employee, whereas a sale contract transfers property rights and does not bind the parties to further actions.)

Which of the following statements regarding the Malthusian model are correct when there is a permanent, positive technological shock (such as an improved seed)? a. Income initially rises but then falls back to the subsistence level. b. The population initially rises but then falls to the pre-technological shock level. c. There is an immediate and permanent rise in the average product of labour. d. Both increased population and higher wages in the long run.

a. Income initially rises but then falls back to the subsistence level.

Consider an ultimatum game where the Proposer has $100 and offers a proportion of it to the Responder, who can either accept or reject the offer. If the Responder accepts, both the Proposer and the Responder keep the agreed share, while if the Responder rejects, then both receive nothing. Which of the following statements is correct? a. Responders often reject offers greater than $0. b. If a large group of participants play the game, then the average share across pairs will always be 50:50. c. Based on experimental evidence, many Responders will accept an offer of $0. d. The Responder should not accept any offer less than $60.

a. Responders often reject offers greater than $0. (Even though the next best alternative for the Responder is to receive $0, experimental evidence shows most people reject low offers to punish Proposers who violate social norms.)

Which of the following is a non-excludable public good? a. Streetlights b. Netflix c. Library books d. A sweater

a. Streetlights (Streetlights are non-excludable (since you cannot stop your neighbours from benefitting) and non-rival (since your use does not reduce the light available to your neighbours). This makes them a pure public good)

The following table gives different technologies that produce 100 meters of cloth (see graph) Based on this information, which of the following statements is correct? a. Technology B is never cost-minimizing. b. Technology D uses the least total number of workers and tonnes of coal, so it is always cost-minimizing. c. Shifting from technology C to technology D is labor-saving. d. Technology C is more energy-intensive than technology A.

a. Technology B is never cost-minimizing. (Technology B is dominated by technology C. Therefore it will never be chosen.)

The figure shows a student's production function with the final grade (the output) related to the number of hours spent studying (the input). Which of the following statements regarding the average product of labour (APL) is correct? a. The APL at 4 hours is 12.5. b. The APL at 10 hours is 3. c. The APL is the slope of the tangent line. d. The APL at 15 hours is 0.

a. The APL at 4 hours is 12.5.

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? Which of the following statements is correct following the imposition of the tax? a. The gains from trade are A + B + D + F. b. The deadweight loss is B + C + D + E. c.The tax revenue is B + C. d. The consumer surplus is A + B.

a. 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.)

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

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

Consider a student whose final grade increases with the number of hours spent studying. Her choice is between more free time and higher grades, both of which are 'goods'. Which of the following is not the same as her marginal rate of transformation between the two goods? a. The number of percentage points the student is willing to give up for another hour of free time. b. The number of percentage points the student would gain by giving up another hour of free time. c. The opportunity cost of free time. d. The slope of the student's feasible frontier.

a. The number of percentage points the student is willing to give up for another hour of free time.

The following figure depicts an employee's best response to wage when the expected unemployment duration is 44 weeks. Which of the following statements is correct? a. The slope of the best response curve is the employer's marginal rate of transformation of higher wages into worker effort. b. A wage of $24 per hour will still result in an effort level of 0.8 if there is an increase in the unemployment benefit. c. A fall in the unemployment rate would reduce the reservation wage to below $6. d. In order to induce an extra effort of 0.1 per hour, the employer needs to increase the hourly wage by $3.

a. The slope of the best response curve is the employer's marginal rate of transformation of higher wages into worker effort.

The figure depicts the demand curve of a firm producing cars, together with its marginal cost, average cost, and isoprofit curves. At C, the firm sets the price at $5,440, sells 32 cars, and earns a profit of $63,360. Which of the following statements is correct? a. The total cost of producing 32 cars is $110,720. b. The total revenue from selling 32 cars is $63,360. c. The marginal cost of producing the 32nd car is $3,460. d. The firm can sell its 33rd car at $5,440.

a. The total cost of producing 32 cars is $110,720. (The total revenue at C is 5,440 × 32 = $174,080. The profit at C is $63,360. Therefore the total cost is 174,080 - 63,360 = $110,720.)

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

a. 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.)

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. To sell three books, the maximum price that can be charged is £8. b. If a seller is has a reservation price is £8, then he is guaranteed to sell his textbook. c. Their willingness-to-pay indicates an upward-sloping demand curve. d. The student with a willingness-to-pay of £15 is the richest.

a. 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)

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

a. 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.)

Figure 3.2 is a plot of GDP per capita against average annual hours of free time per worker in different countries. Which of the following statements is correct? a. Workers in the US and Turkey enjoy a similar amount of free time despite a large disparity in income. b. Japanese workers require more hours of work to produce the same level of output per capita as Korean workers. c. If German workers worked as many hours as the Norwegians, then they will be able to produce a similar level of output per capita. d. Countries with higher incomes always enjoy more free time.

a. Workers in the US and Turkey enjoy a similar amount of free time despite a large disparity in income.

Diminishing average product of labor means a. as more labor is used in a production process, the amount produced per worker decreases. b. that there are less workers working a plot of land. c. that the the number of workers employed in the production process has no impact on the amount produced per worker. d. as more labor is used in a production process, the amount produced per worker increases.

as more labor is used in a production process, the amount produced per worker decreases. (This is the foundations of Mathus' model. Recall the famer example in the text: as more farmers work on a fixed amount of land, the average product of labor (total output divided by total number of workers) falls)

According to the World Bank, real per capita income in the U.S. increased from $57,640 in 2015 to $58,030 in 2016. What was the approximate annual growth rate? a. 1.0% b. 0.7% c. 6.8% d. $390

b. 0.7% (The growth rate can be calculated using the equation in Unit 1.3. Here, the growth rate = ($58,030-$57,640)/$57,640 = 0.007 or 0.7%.)

In their study of a firm during 2006-2010 that includes the financial crisis, Lazear and his co-authors found that (i) the firm's productivity increased dramatically as unemployment rose, and (ii) the wage level was kept unchanged. Based on this information, which of the following statements are correct? a. The increase in the productivity primarily reflects that the least productive workers were fired in the downturn. b. A possible explanation for why the wage level was not cut may be that the firm judged that the costs of lower employee morale and retention would be greater than what they would have saved in wages. c. The labor discipline model predicts that a rise in unemployment would have no impact on the wage level. d. The rise in productivity is inconsistent with the predictions of the labour discipline model.

b. A possible explanation for why the wage level was not cut may be that the firm judged that the costs of lower employee morale and retention would be greater than what they would have saved in wages. (This is a possible explanation for why the wage was not cut during the recession. This was also suggested by Bewley in his study of 300 business people, labor leaders, business consultants, and career advisors in the US.)

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno as rent for the use of the land. Consider the following figure, which shows Angela's and Bruno's combined feasible set and the interpretation of the allocation at point E. Based on the figure, which of the following statements are correct? a. If Bruno is totally selfish, then H would be his preferred allocation. b. Depending on the shape of her indifference curves, Angela may prefer G to E, she may prefer E to G, or she may be indifferent between the two. c. Bruno receives more grain at allocation G than at allocation F. d. Angela prefers G to working 12 hours and consuming 10 bushels.

b. Depending on the shape of her indifference curves, Angela may prefer G to E, she may prefer E to G, or she may be indifferent between the two. (If Angela's indifference curves (ICs) were steep then E would be on a higher IC than G, but if her ICs were flat then G would be on a higher IC. Finally, it is also possible that the same IC would pass through both points.)

Which of the following statements regarding employment rents is correct? a. It equals the wage you receive in your employment. b. Employers can use high employment rents to exert power over employees. c. Higher employment rents make workers more likely to quit their job. d. They are the costs you have to pay for your employment.

b. Employers can use high employment rents to exert power over employees. (Employers can use the implicit threat of being fired to make the worker perform in ways that he would not choose unless they had something to lose.)

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

b. 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.)

Which of the following statements regarding Karl Marx are correct? a. He observed that the transactions in the labor market were between equals: nobody is in a position to order anyone else to employ or be employed. b. He thought that capitalism, by organizing production and allocation in anonymous markets, created atomised individuals instead of integrated communities. c. He thought that the power wielded by employers over workers was a core strength of capitalism. d. He did not acknowledge that the capitalist economy was the most dynamic economic system in human history.

b. He thought that capitalism, by organizing production and allocation in anonymous markets, created atomised individuals instead of integrated (This argument was an important component of Marx's critique of capitalism.)

Reconsider Figure 19.5 shown above. Which of the following statements is true? a. If you are inequality-averse, then any point between R and F on the frontier is preferable to any point inside the frontier. b. If you are inequality-averse, then you will prefer a point between R and A. c. If you only care about the income of the rich, then you will prefer point D. d. 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 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.)

Consider an ultimatum game of sharing a pie of $100. The first table shows the cumulative percentage of the Responders who accept the amount offered by the Proposers for when the game was played with two separate groups (Kenyan farmers and US university students). The second table shows the percentage of the Proposers who made those offers in the two groups. Based on this information, which of the following statements is correct? a. Proposers are always best off offering $10. b. In both groups, the highest proportion of Proposers offered the amount that maximized their expected payoff. c. For the US students, the Proposer's expected payoff from offering $20 is $12.60. d. Knowing that no Responder would accept an offer of $0, no Proposers would propose this.

b. In both groups, the highest proportion of Proposers offered the amount that maximized their expected payoff.

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

b. 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.)

Capitalism is an economic system based on: a. Markets and state-owned firms b. Private property, markets, and firms c. Private property d. Private property and markets

b. Private property, markets, and firms (While many economic systems are built on private property and markets, capitalism is unique in that most people work for firms rather than for themselves.)

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

b. 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.)

Consider an employee with a reservation wage of $6 an hour. The employee chooses an effort level between zero and one. Which of the following statements regarding her best response curve is correct? a. The best response curve is upward-sloping and convex. b. The best response curve describes the effort that the employee would choose for each level of the hourly wage. c. The average effort per dollar is increasing in wages. d. The curve crosses the horizontal axis at the origin.

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

The diagram depicts the demand curve of a product. Assume that there are 100 potential buyers who can choose to purchase one unit each. Based on this graph, which of the following statements is correct? a. At an output of 20, the willingness to pay of all 20 consumers who buy the product is £8,000. b. The diagram demonstrates the Law of Demand. c. Half of the potential buyers are not willing to pay more than £2,000 for the product. d. The firm should sell all 100 units in order to maximize its profits.

b. The diagram demonstrates the Law of Demand. (The Law of Demand states that when the price is high, demand is low, while when the price is low, demand is high. The downward sloping demand curve clearly demonstrates this.)

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno's feasible frontier, Angela's biological survival constraint, and Angela's reservation indifference curve. If Angela does not work, she receives a ration of 2.5 bushels from the government. Which of the following statements is correct? a. The economically feasible set is the area between Angela's biological survival constraint and the feasible frontier. b. The economically feasible set is a subset of the technically feasible set. c. Angela's reservation indifference curve can be below her biological survival constraint. d. Angela's reservation indifference curve may not necessarily go through Z.

b. The economically feasible set is a subset of the technically feasible set. (Any allocation between the biological survival constraint and the feasible frontier is technically feasible, but only allocations between the reservation indifference curve and the feasible frontier are economically feasible. Angela will only voluntarily agree to allocations in the economically feasible set when her reservation option is point Z.)

The following figure shows labor productivity and the real wage index in England from 1750 to 2000. Based on this information, which of the following statements is correct? a. The extension of voting rights in 1875, 1918, and 1928 lead to lower real wages. b. The graph demonstrates the importance of bargaining power for workers to benefit from higher labor productivity. c. The real wage did not rise in the 18th century due to stagnating labor productivity. d. The Factory Acts of 1833 and 1844 and the Ten Hours Act of 1847 reduced the bargaining power of the workers.

b. The graph demonstrates the importance of bargaining power for workers to benefit from higher labor productivity.

Which of the following markets best approximates perfect competition? a. The market for new textbooks. b. The market for milk. c. The market for cell phones. d. The market for Hamilton tickets.

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

Figure 1.2 shows the distribution of income across and within countries in 2014. The height of each bar represents the annual income of the population (for each decile), measured in 2005 US$, while the width of each country's bar represents its population. The red countries were the poorest countries in 1980, while the green countries were the richest in 1980. a. Income inequality is higher in Japan than in the United States. b. The poorest decile in the US earns more than the richest decile in some poor countries. c. Countries with a larger population are poorer. d. The income ranking between countries has remained broadly the same between 1980 and 2014.

b. The poorest decile in the US earns more than the richest decile in some poor countries. (The poorest Americans are better off than the richest people in poor countries, because the first column in the US is higher than the last column in the poorest country (which is the country furthest to the left).

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 new equilibrium price is P*+T. b. The supply curve shifts up in a parallel manner. c. Consumers bear the entire tax burden. d. The tax raised is T×Q*.

b. 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.)

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. Wealth is accumulated savings that can be passed on from parents to children. c. Zoning restrictions keep home values artificially high. d. Wealth is taxed at a lower rate than earnings.

b. 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.)

The figure below is the Lorenz curve of a population. Based on this figure, which of the following statements are correct? a. The wealthiest 30% of the population owns 70% of the land. b. 80% of the population owns no land. c. 50% of the population owns 100% of the land. d. The wealthiest 1% of the population owns 5% of the land.

c. 50% of the population owns 100% of the land. (The poorest 50% own no land. The other 50% owns all of the land.)

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

c. A commuter driving to work instead of taking public transportation

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. Based on the figure, which of the following statements regarding point A is correct? a. The marginal external cost at A is $670. b. Producing 1 ton less at A leads to a fall of $400 in the producers' profit. c. A is the banana producers' profit-maximizing outcome. d. A is the Pareto optimal outcome.

c. 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.)

Which of the following statements regarding Adam Smith are correct? a. Adam Smith advocated that economic agents were guided entirely by self-interest. b. Adam Smith argued that all markets were characterised by perfect competition. c. Adam Smith claimed that coordination among large number of economic actors, often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it. d. Adam Smith believed there should be no government involvement in the economy.

c. Adam Smith claimed that coordination among large number of economic actors, often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it. (This is Adam Smith's idea of the "invisible hand": "It is not from the benevolence of butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest, led by an invisible hand to promote an end which was no part of his intention.")

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

c. 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 regarding social preferences is correct? a. "Keeping up with the Joneses" (i.e. envy) is not an example of behavior motivated by social preferences. b. Social preferences are the preferences of a society as a whole. c. Altruism is an example of social preferences. d. An individual has social preferences if they do not care about inequality in society.

c. Altruism is an example of social preferences. (Altruism is the willingness to bear a cost in order to benefit somebody else. Therefore it is an example of social preferences.)

Which of the following statements regarding Pareto efficiency is correct? a. There can be many Pareto-inefficient allocations, but only one Pareto-efficient allocation. b. A Pareto-efficient allocation is a fair allocation. c. At a Pareto-efficient allocation, it is impossible to make one person better off without making another person worse off. d. A Pareto-efficient allocation dominates every Pareto-inefficient allocation.

c. At a Pareto-efficient allocation, it is impossible to make one person better off without making another person worse off. (A Pareto-efficient allocation cannot be dominated by any other allocation, so it is impossible to make one person better off without making another person worse off.)

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. Coasean bargaining when the fishermen have the right to clean water. b. Pigouvian tax of $105 per tonne of bananas. c. Coasean bargaining when the banana producers have the right to pollute. d. Government regulation that limits production to 38,000 tons of bananas a day.

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.)

Anthony loves going to the opera while Becky loves watching football. The following is the payoff table for their choice of activity: For example if Anthony chooses opera and Becky chooses football, then the activities are valued at $10 to Anthony and $20 to Becky. Assume that they can only choose one activity (i.e. they cannot randomize). Based on this information, which of the following statements is correct? a. There are two Nash equilibria: (Opera, Opera) and (Football, Football). b. If Anthony announces that he will choose opera and sticks to it, then (Opera, Opera) will be chosen. c. If Anthony offers $20 to Becky for coming to the opera with him, then (Opera, Opera) may be chosen. b. Anthony is willing to pay Becky up to $80 to go with him to the opera.

c. If Anthony offers $20 to Becky for coming to the opera with him, then (Opera, Opera) may be chosen.

The figure below illustrates Maria's employment rent on her current job, given her wage, her disutility of work, the unemployment benefit, and the expect duration of unemployment. Which of the following statements is correct. a. The cost to Maria of losing her job is $9,240. b. Maria's employment rent per hour is $6. c. If the expected duration of unemployment falls to 22 weeks, Maria's employment rent will be $3,080. d. If the unemployment benefit is cut to $5 an hour, Maria's unemployment rent will be $10,780.

c. If the expected duration of unemployment falls to 22 weeks, Maria's employment rent will be $3,080. (Halving the duration of unemployment will halve Maria's employment rent to, $4/hr ✕ 770 hrs. = $3,080.)

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

c. 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.)

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno's feasible frontier, Angela's biological survival constraint and her reservation indifference curve, and how many bushels Angela would get at allocations B and D. Based on the figure, which of the following statements is correct? a. If Bruno can use coercion then he would force Angela to work 21 hours to maximize total production. b. In a voluntary exchange where Bruno has all the bargaining power, B is the best choice for Bruno as it maximizes his rent. c. In a voluntary exchange where Bruno has all the bargaining power, if Bruno charges 4.5 bushels of rent for the use of his land, then Angela would choose to work 8 hours. d. If Angela owned the land herself, then she would choose A, where her rent is maximized.

c. In a voluntary exchange where Bruno has all the bargaining power, if Bruno charges 4.5 bushels of rent for the use of his land, then Angela would choose to work 8 hours. (The maximum distance between the feasible frontier and Angela's reservation indifference curve is CD, where Angela works 8 hours. If she is charged 4.5 bushels of rent, working any other number of hours would place her below her reservation indifference curve.)

The figure shows the Lorenz curve for market income and disposable income in the Netherlands in 2010. Which of the following statements are correct? a. The entire Dutch population earns significant market income. b. The Gini coefficient is larger for disposable income than for market income. c. One-fifth of the Dutch population has virtually no market income. d. The poorest one-fifth of the population receives about 20% of all disposable income.

c. One-fifth of the Dutch population has virtually no market income. (This is evident from the Lorenz curve for market income, which shows that the poorest 20% of the population collectively receive about 1% of market income.)

The figure depicts the demand curve of a firm producing cars, together with its marginal cost, average cost, and isoprofit curves. Based on the figure, which of the following statements is correct? a. The producer surplus in the Pareto efficient outcome is $112,960. b. The consumer surplus in the profit-maximizing outcome is $97,500. c. The deadweight loss in the profit-maximizing outcome is $23,580. d. The firm's profit in the Pareto efficient outcome is $100,000.

c. The deadweight loss in the profit-maximizing outcome is $23,580. (The profit-maximizing outcome is C. The deadweight loss is ½ × (5440 - 2820) × (50 - 32) = $23,580.)

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? a. There has been an increase in supply. b. 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. d. All buyers who would have bought under the original demand curve would also be buying under the new demand curve.

c. The more elastic (or more flat) the supply curve, the smaller the price rise. (For a given shift in the demand curve, the price rise would is smaller the more elastic (or more flat) the supply curve.)

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. The more elastic (flat) the demand for cigarettes, the larger the tax revenue. b. This is a bad policy as it creates a deadweight loss. c. The tax may increase social welfare. d. The tax rate should be determined so as to maximize tax revenue.

c. 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%.)

Consider the technologies and costs of the previous problem. In period 1, the wage and the price of coal are (w, p) = ($10, $20) and the firm uses technology B. In period 2, the wage cost and the price of coal change to (w, p) = ($20, $10). The price of the cloth is $2 per meter in both periods. Which of the following statements is correct? a. The economic rent of switching to technology A in period 2 is $60. b. If the firm employs technology B in both periods, then the profit level would be the same in both periods. c. There is a positive economic rent in switching from technology B to A in period 2. d. In period 1, the firm's profit per 100 meters of cloth is $100.

c. There is a positive economic rent in switching from technology B to A in period 2. (This is true - the cost of labor has increased relative to the price of coal in period 2, so there is a benefit in switching the technology to a more energy-intensive one.)

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno's feasible frontier, Angela's biological survival constraint and her reservation indifference curve. If Angela does not work she receives a ration of 2.5 bushels from the government. Of the four points depicted in the figure, which allocation Pareto dominates Z? b. a. c. d.

d.

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). Based on this information, which of the following statements is correct? a. In equilibrium, each bakery supplies 18 loaves each. b. At a price of €2.50, all 250 bakeries will sell 26 loaves. 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 statements are correct? a. The market-clearing price is the price at which all supplies are sold. b. In a competitive equilibrium, neither buyers or sellers are price-takers. c. Buyers are price-takers if they have bargaining power. d. 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.

d. 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.

Labor contracts are incomplete because a. The firm cannot contract an employee not to leave. b. The firm cannot specify every eventuality of a contract. c. The firm cannot observe exactly how an employee fulfills the contract. d. All of the above.

d. All of the above. (Employment contracts are incomplete for a number of reasons, including all the reasons above. This distinguishes the labor market from markets with complete contracts (such as the market for apples)

The figure depicts the efficiency wage equilibrium of a worker and a firm. Which of the following statements is correct? a. This is a sequential game where the firm chooses its action given the worker's best responses to its actions. Therefore the worker receives no rent. b. At A, given that the worker exerts an effort level of 0.5, the firm's best response is to offer the hourly wage of $12. c. The employer makes profits by coercing the worker to put in some effort. d. At A, given that the firm pays the hourly wage of $12, the worker's best response is to exert an effort of 0.5.

d. At A, given that the firm pays the hourly wage of $12, the worker's best response is to exert an effort of 0.5. (This is true, given the definition of the worker's best response curve.)

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. 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. If the market price is P2, then the bakery can undercut this price to capture a higher market share. c. At B, the bakery makes zero profits. d. At A, the bakery would be making a loss.

d. 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.)

Which of the following statements regarding employment contracts is correct? a. he firm needs to specify exactly how much effort employees are expected to put into their job. b. The firm is required to state exactly what it needs the employee to do in an employment contract. c. Unlike salary contracts, an hourly wage contract is a complete contract, because workers only get paid for the hours they work. d. Employees' effort levels cannot be the basis of an enforceable contract.

d. Employees' effort levels cannot be the basis of an enforceable contract. (For example, a restaurant owner cannot take an employee to a court to decide whether he can withhold wages because the waiter had not smiled often enough.)

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno's feasible frontier, two of Angela's indifference curves, and the Pareto efficiency curve CD. Note that Angela's preferences are quasi-linear, so IC2 is simply IC1 shifted upwards. Based on this information, which of the following statements is correct? a. The relative bargaining power of Bruno and Angela determines the number of hours worked along the Pareto efficiency curve. b. Moving from F to any point on line CD is Pareto-improving. c. Depending on the slope of the feasible frontier, both Bruno and Angela can be better off at F than at D. d. F is not Pareto efficient because the marginal rate of substitution does not equal the marginal rate of transformation at this point.

d. F is not Pareto efficient because the marginal rate of substitution does not equal the marginal rate of transformation at this point. (At point F, the MRS does not equal the MRT, so total surplus is not maximized. Moving from F to any point on the line HG will make either Angela or Bruno or both better off. Hence, F is Pareto inefficient.)

Which of the following statements most accurately summarizes recent trends in global income inequality, as presented in Unit 19.1? a. Inequality between individuals within most countries is declining, leading to a decline in global inequality. b. Most of the inequality in the world results from inequality between countries, and this is increasing. c. Most of the inequality in the world results from inequality between countries, and this is declining. 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.)

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

d. 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.

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

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

According to Elinor Ostrom, which of the following statements about the problem of tragedy of the commons are correct? a. Repeated games would definitely result in cooperative outcomes. b. Agreements for cooperation must be enforced by governments. c. Reciprocity exacerbates the tragedy of the commons. d. Social norms can be drawn on to enforce sustainable resources, although it does not always succeed.

d. Social norms can be drawn on to enforce sustainable resources, although it does not always succeed.

Consider the Lorenz curves for pirate ships and navy ships. Given the information in the figure, which of the following statements must be true? a. Pirate crewmen earned higher incomes than pirate captains. b. Pirate crewmen earned higher incomes than navy crewmen. c. More equal crews are fiercer fighters. d. The Gini coefficient on pirate ships was much lower than the Gini coefficient on navy ships.

d. The Gini coefficient on pirate ships was much lower than the Gini coefficient on navy ships. (Recall the Gini coefficient = A/(A+B), and the area A is very small for the Royal Rover.)

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

d. 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).)

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 can raise the market price by constraining its production. b. The bakery's supply curve is horizontal. c. The bakery always makes a positive economic rent. d. The bakery faces a flat demand curve.

d. 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.)

The following diagram depicts the effect of the change in wage level on a worker's choice of consumption and hours of free time. The choice before and after the wage rise are given by A and D, respectively. Based on this information, which of the following statements is correct? a. The change in the choice from A to C represents the substitution effect. b. The overall effect of a wage increase on the hours of free time is always positive. c. The substitution effect of a wage increase on the hours of free time is always positive. d. The change in the choice from C to D represents the substitution effect.

d. The change in the choice from C to D represents the substitution effect.

Select the correct statement regarding the Gini coefficient. a. If the government redistributes income from rich to poor, the Gini coefficient in disposable income is higher than the Gini coefficient in market income. b. A lower Gini coefficient means greater income inequality. c. The larger the area between the Lorenz curve and the perfect equality line, the more equal the distribution. d. The coefficient takes the value of 1 when a single individual receives all income.

d. The coefficient takes the value of 1 when a single individual receives all income. (The Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality), which would be the case when one person receives all income.)

Which of the following are factors that contribute to a firm's diseconomies of scale? a. Network effects of its output goods. b. Fixed costs such as political lobbying. c. Doubling the capacity of a pipe to transport fuel when the production level is doubled. d. The difficulty of monitoring workers' effort as the number of employees increases.

d. The difficulty of monitoring workers' effort as the number of employees increases. (If you only have one employee then you can make sure that they work hard. You cannot do this when there are 100 workers. This leads to diseconomies of scale.)

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

d. The firm minimizes the cost per unit of effort. (What matters to a firm's profit is not the number of hours worked but the amount of effort put in by its employees. Minimizing the cost per unit of effort minimizes the cost of production, hence maximizing the firm's profit.)

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. The total surplus is split equally between producers and consumers. c. Everyone who needs bread gets it. d. The gains from trade are maximized.

d. 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.)

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

d. The marginal cost curve is a horizontal straight line

In Britain before 1870, both wages and hours worked rose, while after 1900 working hours fell as wages continued to rise. Based on this information, which of the following statements is correct? a. In the period before 1870, the income effect dominated the substitution effect. b. Sometime between 1870 and 1900 the substitution effect of a rise in the wage rate on the hours of free time changed from negative to positive. c. After 1900, the substitution effect dominated the income effect, so that hours of free time rose. d. The substitution effect dominated the income effect before 1870, but the income effect dominated the substitution effect after 1900.

d. The substitution effect dominated the income effect before 1870, but the income effect dominated the substitution effect after 1900.

The figure shows the demand and supply curves in the salt market. 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 tax raised is 0.3(P*×Q*). b. The new equilibrium price is 30% higher than P*. c. The supply curve shifts up in a parallel manner. d. The tax causes a decline in the quantity traded.

d. 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.

The process of requiring fewer inputs to produce the same output is referred to as: a. Capitalism b. Specialization c. History's hockey stick d. The technological revolution

d. The technological revolution (The Industrial Revolution launched the permanent technological revolution in Britain around 1800.)

The figure shows a demand curve for Cheerios. Based on this figure, which of the following statements is correct? a. The demand curve suggests that halving the price doubles the pounds sold b. If the price was $2 then the total demand would be 40,000 pounds. c. If the firms want to sell 24,000 pounds then they should charge $2. d. There is no demand if the price is set above $7.20.

d. There is no demand if the price is set above $7.20. (The vertical axis intercept shows that no one would purchase a pound for more than $7.20.)

The 1978 law that protected Bengali sharecroppers from eviction and increased their share of the crop from 50% to 75% did all the following except a. increase agricultural output. b. decrease the Gini coefficient in market income. c. incentivize farmers to work hard and invest in their land. d. generate a Pareto improvement.

d. generate a Pareto improvement. (The law increased the incomes of sharecroppers by more than it increased total output, so it necessarily reduced the income of landowners. Although the policy raised efficiency, it did not generate make everyone better off, so it did not generate a Pareto improvement.)

In economics, institutions refer to a. established laws. b. organizations such as universities. c. financial corporations. d. the rules of the game.

d. the rules of the game