ECON Final Exam

Which of the following statements best illustrates the time-value of money concept?

Bob is willing to forgo receiving $100 today in order to receive $110 next month

Define Usury laws

establish a legal ceiling on interest rates

A profit-maximizing firm will?

expand employment if marginal revenue product exceeds marginal resource cost

In the circular-flow diagram, firms produce?

goods and services using services of production

What does equality refer to?

how the pie is divided

What will shift the labor SC?

in response to changes in the same factors that shift demand for goods and services

If migration is costless and unimpeded, the average level of wages will?

increase in Alphania and decrease in Betania

Marginal revenue product (MRP) of labor refers to the?

increase in total revenue resulting from the hire of one more unit of labor

Construction workers frequently sponsor political lobbying in support of greater public spending on highways and public buildings. One reason for this is to?

increase the demand for construction workers

As a percentage of GDP, health care spending in the United States has?

increased substantially since 1960

The demand for Godiva pumpkin truffles is likely quite elastic because of?

other types of chocolate are good substitutes for this particular flavor

TRUE OR FALSE: Wealth is less equally distributed than income and therefore increases income inequality?

true

What is not a way for the government to solve the problem of excessive use of common resources?

turning the common resource into a public good

Principle Agent Problem

one person can makes decisions on behalf of someone else

On a bowed production possibilities frontier, what happens as you move down along the curve?

- more of one good must be given up to receive one unit of the other good - the available production technology does not change. - the opportunity cost increases.

Why is health care so expensive?

-the cost of running the HC system is so high -we pay more for medications and equipment -we have the opportunity to receive more medical care than any other country

Why might the labor supply curve be backward bending?

-wages increase beyond a certain level -people use substitutions -D for labor decreases

What factors will shift the demand curve for labor?

-when output price rises it shifts to the right *more labor is demanded -when output price falls less labor is demanded and shifts to the left

Which of the following would likely reduce income inequality?

A reduction in the number of high school dropouts

Which of the following would most likely increase income inequality?

Fewer differences in working conditions across occupations

Under what circumstances will immigration be most likely to equalize wage rates across countries?

Immigration is costless and unimpeded

Which of the following cases best illustrates economic immigration?

Julio migrated to Australia to take a job paying three times what he earned at home

If Callum is consuming his utility maximizing bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Callum do?

MU/P has decreased and Callum should buy less of this good

If migration is costless and unimpeded...

Workers will move from Alphania to Betania

What will cause a shift in the DC for a good?

a change in the price

What would cause an increase in the supply of winter coats?

a decrease in price of zippers and snaps

Uninsurable Risk

a hazard or condition that has either a high likelihood of loss, or in which the insurance would be considered against the law

Gini Ratio

a measure of statistical dispersion intended to represent the income *used to measure the inequality

Insurable Risk

a risk that meets the ideal criteria for efficient insurance *cannot be a big risk

Wage Differentials

analyze the relation between the wage rate and the risks of the job

What cognitive biases best explains this disconnect between these people's fears and the statistical realities?

availability heuristic

In a labor market characterized by bilateral monopoly, the wage rate will?

be indeterminate

How did health insurance come to be privately provided as a fringe benefit?

because the employer pays for the health insurance

Suppose the consumer's income decreases while the prices of the goods remain constant. Then the____

budget constraint shifts inward parallel to the original budget constraint

Adverse Selection

buyers and sellers do not have all of the information from either one

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because of?

buyers tend to be much more sensitive to a change in price when given more time to react

Utilitarian

capitalist approach to inequality

Goods that are rival in consumption but not excludable would be considered?

common resources

If the cross-price elasticity of two goods is negative, then the two goods are?

complements

Externality

consequence of an activity that affects other parties without this being reflected in the cost of the goods or services

Last year, Shelley bought 6 pairs of designer jeans when her income was $40,000. This year, her income is $50,000, and she purchased 5 pairs of designer jeans. Holding other factors constant, it follows that Shelley?

considers jeans to be an inferior good

We would expect a flow of remittances from migrants to?

decrease the national income loss in Betania

The marginal revenue product (MRP) of land declines as more land is brought into use. As a result the...

demand curve for land is downsloping

Optimal Amount

distribution of income to families

Employer-provided private health insurance began in the United States because?

during World War II, wage and price controls forced employers to use nonwage forms of compensation to attract workers

The XYZ Corporation can make a real (inflation-adjusted) return on an investment of 9 percent. The nominal rate of interest is 13 percent and the rate of inflation is 7 percent. We can conclude that the?

investment will be profitable

Substitution Effect

is the economic understanding that as prices rise — or income decreases — consumers will replace more expensive items with less costly alternatives

National defense is a classic example of a public good because?

it is difficult to exclude people from receiving the benefits from national defense once it is provided

If a firm is hiring a certain type of labor under purely competitive conditions, what happens?

its labor demand curve will be perfectly elastic at the market-determined wage rate.

Moral Hazard

lack of incentive to guard against risk where one is protected *insurance

Income Elasticity of Demand

measures the responses of Q based on the change of income

Price Elasticity of Demand

measures the responses to the Q demanded

Because public goods are______ they are_____?

not excludable, people have an incentive to be free riders

principal-agent problem

one party agrees to work for another because of the incentives

What happens when a good is excludable?

people can be prevented from using the good

The provision of a public good generates a?

positive externality and the use of a common resource generates a negative externality

Usury Laws

regulates the amount of interest that can be charged on a loan *protects the consumer from high rates

The price elasticity of demand for health care is?

relatively inelastic

Income Effect

represents the change in an individual's or economy's income

What happens when there is a decrease in quantity demanded?

results in a movement upward and to the left along a demand curve

The real interest rate can be estimated by?

subtracting the real wage from the nominal interest rate

What happens to the total surplus in a market when the government imposes a tax?

total surplus decreases

Those who believe that "there is no such thing as bad publicity" base this argument on which of the following ideas from behavioral economics?

that the recognition heuristic will overcome any negative emotional associations

What is the role for interest rates?

the cost if borrowing

Fiscal Impact

the estimation of the net impact on government of a particular project *how much the government is paying

what does efficiency refer to?

the size of the economic pie

Health Care Expenditure

the sum off all the costs being added together

What is a competitive market?

there are so many buyers and so many sellers that they impact on the price of the product

A key determinant of the price elasticity of supply is the?

time horizon

The opportunity cost of an item is?

what you give up to get the item

Neoclassical economists generally believe which of the following about human behavior?

when individuals make mistakes in decision making, they adjust to these errors and rarely repeat them

Under what conditions will a profit maximizing firm stop hiring labor?

when the firm has enough profit or when the firm is shutting down

Under what conditions will a profit maximizing firm hire more labor?

when there is an increase in output

Under what conditions will a profit maximizing firm hire less labor?

when there is less output and when MPL is high

People's incomes are relatively low when they are young, reach a peak in middle age, and then decline. This fact helps explain?

why the lifetime distribution of income is more equal than the distribution in any given year

A monopsonist's wage cost in hiring an additional worker is the?

worker's wage rate plus the wage increases paid to all workers already employed