Econ
Suppose a machine generates $500 worth of revenue at the end of each of the next three years, at which time it can be sold to a salvage company for $350. If the annual rate of interest is 0.08, what is the maximum amount a business would pay for this machine if maintenance costs are $100 per year?
$1309
A machine produces no benefits now, but $200 in benefits at the end of a year. At the end of the year it falls apart into a heap of dust never to be used again. The present value of its income stream is approximately
$182 if the interest rate is 10%.
Suppose you are deciding how much oil to pump from your oil well in the next ten years. If you know oil would sell for $5 per gallon in ten years and the real interest rate is about 4%, the present value of the opportunity cost of selling the oil today would be about
$3.38
Consider a perpetual bond that pays $150/yr to its owner. What would be the price of the consol if the interest rate is 2 percent?
$7,500
Consider a perpetual bond that pays $200 per year to its owner. By how much would the price of this bond fall if the interest rate rose from 0.04 to 0.05?
1,000
If the both Peter and John could negotiate a settlement without transactions costs, how many phone calls would John end up making if Peter had the rights to stop any cell phone calls from taking place at the coffee shop?
2
If the both Peter and John could negotiate a settlement without transactions costs, how many phone calls would John end up making if he (John) had the rights to make any calls he liked at the coffee shop?
2
If the nominal interest rate is 10% and the rate of inflation is 7%, what is the real rate of interest?
2.8%
Marginal product of the fifth person employed is 10 and the product price is 5, then the VMPL is
50 if the product market is perfectly competitive
If negotiation costs are zero and she has the property rights to the airwaves, how loud will the music be played?
6
If negotiation costs are zero and you have the property rights to the airwaves, how loud will the music be played? The answer to the questions are to the nearest whole dial number.
6
If the fishery was own collectively by all the fishermen, how many boats would be sent out fishing?
6
Suppose Chase Bank owns a truck that it leases to Ryder Inc. The truck's value is $100,000 and it is expected to deteriorate at a rate of 5 percent per year. If the real interest rate is 2 percent, then Chase's total costs of owning the truck are
7,000
If there were no controls over fishing, how many vessels would be sent out fishing?
8
Which of the following would cause the demand curve for automobile workers to increase?
A better organized assembly line where specialization increased output
Many minor league ballplayers get called up to play in the majors and then get sent back down again to the minors. Jim makes $26,000 in the minors and then when he gets called up he makes $125,000, though he never plays and is an unknown name to the fans. It is most likely true that
A portion of Jim's major league salary is economic rent.
If grazing land is used by all individuals on a free open range, they will operate until the
AP of the land equals the opportunity cost of the input.
If Alex seeks to maintain a constant income level, and all workers in his industry, including Alex, get a wage increase, which of the following will always be true?
Alex will have a backward bending supply curve for his labor
Which of the following is considered financial capital?
All of these are financial capital.
Which of the following three statements is true: I) The amount of capital equipment a firm wishes to buy depends on the rate of interest; II) The amount of capital equipment a firm wishes to buy depends on the purchase price of capital; III) The amount of capital equipment a firm wishes to buy depends on the rates of technological and physical depreciation.
All three statements are true.
Which of the following is true for labor union effects on labor markets?
Approx 90% of the wage difference
When a CEO gets 20 million dollars a year in salary is any of that considered rent?
Because he would leave the company if he got less, none of the money is considered rent.
Why is it difficult to get a cab on a rainy day?
Cab drivers have backward bending daily supply curve
The hiring rule for a firm that faces a downward sloping demand curve for its output is to hire that amount of labor for which the wage rate is equal to
MRPL
According to the text discussion of efficient capital markets, which of the following would a well-trained economist recognize as logical and expected?
Monkeys throwing darts at a financial page can hit stocks that perform as well as stocks picked by financial experts
The laws relating to trespass, the use of airspace
Property laws involve all of these considerations
What if negotiation is impossible and you have the rights to play?
She will insulate her walls and you will play at 10.
If transactions costs are very high and auctions for pollution permits are not possible, which of the following is the most effective way to deal with pollution?
Tax pollution
Since the last recession interest rates have been very low. Also it is generally known that we are close to major breakthroughs in solar energy and battery storage technology. How would these two factors impact the price of oil today?
The first factor will increase the current price of oil and the second factor would tend to decrease oil prices today.
Which of the following labor demand curves will be the least elastic?
The short-run demand for labor of a firm with L shaped Isoquants.
The value of your marginal product is 100 and you are getting paid 80
You value the high rank and leadership role as well
If she has the property rights with negotiation impossible, then what will the outcome be?
You will play to 3 and insulate so that the noise does not reach her.
Suppose you are deciding how much oil to pump from your oil well in the next two years. Other things equal, you will be more likely to pump more oil this year than next year if you expect
a higher price for oil this year than next year.
Risk premium is
a payment differential necessary to compensate the investor for having to bear a risk.
If relative income standing and job safety both matter, then
a prisoner dilemma problem may result where optimality requires collusion or a law requiring cooperation
An example of a positive externality is
an apple orchard increasing the number of trees next to a bee farm.
According to the Coase theorem, when the parties affected by externalities can negotiate costlessly with one another
an efficient outcome results no matter how the law assigns responsibility.
In the diagram below, the economic rent is represented by
area B.
According to the textbook, if a wave of pessimism cause stocks to become generally overvalued, the best investment strategy is to
continue to diversify your investment portfolio.
Say a firm that sells its product at a price of 40 is using 20 units of capital. If the marginal product of the last unit of capital used was 50, and the constant rental rate of capital is $2,000, then this firm should
continue to use same units of capital
Economic theory supports the view that increasing the minimum wage will
decrease the employment of teenagers
Proponents of the minimum wage implicitly assume that the __________ if they discount the unemployment effects of the policy.
demand curve for unskilled workers is inelastic
In the loanable funds market
demand is downward sloping because lower interest rates make more capital projects profitable.
A for-profit company that buys real capital and leases it to a non-profit company can
depreciate the leased capital to lower the firm's tax liability.
For the monopolist,
diminishing returns to production and a falling product price as output increases causes the short-run demand curve for labor to be downward sloping.
Economists are strongly united in their belief that the stock market is
efficient
B/c the monopolist takes into account the effect that employment expansion has on wages paid to existing workers, it will
employ less and pay less
Pay rates within a firm seem to show less variation than marginal productivity rate differences. This is because
firms compensate their high producers with non-monetary perks
The income effect of an increase in the wage rate on quantity of leisure demanded
gives people more purchasing power and causes people to work less
Upward sloping portion of the supply curve for labor implies that
higher wages lead to an increase in hours of work supplied
The backward bending portion of the labor supply curve implies that
higher wages lead to fewer hours of work supplied
If the MRPL is greater than the wage rate, and the supply of labor is horizontal, the firm will
hire more labor
Say a firm that sells its product at a price of 20 is using 20 unites of labor. If the marginal product of the unit of labor hired was 10, and the firm pays each worker a wage of 40, then this firm should
hire more workers
In the short run, a profit maximizing firm will respond to a reduction in the wage rate by
hiring more labor
The demand for labor curve will be less elastic for the industry than for the firm because
if all firms hire more labor, increased output will lower product price and therefore the marginal revenue product curve.
In the market for loanable funds an increase in the government budget deficit will
increase the market rate of interest.
A monopolist is a firm which
is a "sole-buyer" in an input market.
Peak load pricing
is designed to move consumers up along their demand curve.
If a company dumps pollution in the water and fishermen are hurt and if transactions costs are prohibitively high and efficiency is the most important criteria,
liability should be placed on the group that has the least cost of solving the problem.
In general, when a test is less than accurate, our best estimate of a worker's productivity will
lie betw. his actual test score and the average productivity of the group to which he belongs
The market supply curve for any particular category of labor is
likely to be upward sloping.
The substitution effect of an increase in the wage rate on the quantity of leisure demanded
makes leisure more expensive which leads people to work more
The optimal level of employment for a monopolist is set at the point where the
marginal factor cost equal to the MRPL
Interest rates are determined by the
market supply and demand for loanable funds.
According to the text, a rise in the interest rate
may either raise or lower consumer savings.
The market demand for labor is
more elastic in the long run than in the short run
A positional externality occurs when
one person's increase in consumption lowers his neighbor's utility.
When an employer's information indicates that two individuals have exactly the same productivity, there will be competitive pressure to
pay higher wages to the person who belongs to the group with the higher average productivity.
The efficient market hypothesis would lead to the conclusion that
people who win big in the stock market are more lucky than smart.
An example of a negative externality is
pollution
The quantity of loanable funds supplied by firms is
positively related to the interest rate.
A cash register at a coffee shop should be considered
real capital
If minimum wages in a monops labor market set above the firm's MFC at its initial hiring level, the effect would be to
reduce employment
The competitive labor market model suggests that persistence of significant employer discrimination
requires the owners of the firm to supply capital at a rate of return substantially below its opportunity cost
The market demand for labor is
steeper than the horizontal summation of the individual demand curves
The competitive labor market model suggests that the persistence of significant employer discrimination requires the owners of the firm to
supply capital at a rate of return below what could be earned elsewhere.
According to Pigou, the best way to deal with a negative externality is to
tax it.
If the costs of negotiation are small but not negligible,
the best available outcome results if the liability is placed on the party with the lowest cost of prevention.
According to the textbook, proponents of minimum wage laws assume that
the demand curve for unskilled workers is nearly vertical.
Economic rent is
the difference between the payment actually received by the owner of a factor of production and her reservation price.
The value of the marginal product of labor, VMPL, for the perfectly competitive firm equals
the extra revenue the firm gets by selling the output of one additional unit of labor.
We see a backward-bending labor supply curve whenever
the income effect dominates the substitution effect over some range of wage rates
Negative externality occurs when
the production of a good harms third parties.
The hiring rule for the perfect competitor in the labor market is to choose the amount of labor for which the wage rate is exactly equal to
the value of the marginal product of labor, VMPL
The theory of internal wage structure predicts that worker pay will come closest to the value of their marginal product if
the work allows them to do most of their work at home
Peak load pricing helps firms gain profit because
they can serve their customers with a smaller capital base.
According to the text, if diamonds represent a form of conspicuous consumption, then
they should be taxed.
Given high transactions costs, the best way to deal with a positive externality is
to subsidize it
If a perfectly competitive firm can acquire the services of as much capital as it wishes at a constant rental rate of r per year, it should employ capital up to the point at which the
value of the marginal product of capital is equal to r.
Laws are efficient if they
work to equate the marginal benefits
