Exam 1: Homework Review
Consider the following figure, showing Angela's biological survival constrant, reservation indifference curve, and the feasible frontier. In which of the following cases would the area of the economically feasible set increase? (In each case assume that all other factors remain the same). A) New technology increases Angela's productivity. B) Angela's ration from the government is increased to 3 bushels. C) Angela becomes leaner and is able to survive on less bushels of grain. D) Angela becomes less keen to work and would demand more grain for each extra hour of work.
A
Which of the following statements regarding procedural judgements of fairness is correct? A) A transfer system where income-earners are taxed to provide benefits to the unemployed may or may not be considered to be procedurally fair. B) Consider an ultimatum game where only those with university degrees can be the Proposer. As the Proposer is free to propose any amount and the Responder's choice of response is voluntary, the game is procedurally fair. C) Substantive fairness implies procedural fairness. D) Procedural fairness implies substantive fairness.
A
Consider a laboratory experiment where participants play 10 rounds of a public goods game. In each round the subjects are given $20. In a randomly selected group of four they simultaneously and privately decide on a contribution from their $20 to a common pool of money, where each person in the group receives $0.40 for every dollar contributed, including the contributor. For example, if the other three members contribute $10 each then your payoff is $32 if you don't contribute, or $26 if you do. The following figure shows the evolution of average contributions over the rounds when the experiment was conducted in different locations around the world. Based on this information, which of the following statements is correct? The results prove that subjects are completely selfish. Repeating the game makes the subjects more altruistic in later rounds. A disappointed expectation of reciprocity may be the reason for the falling contributions over the rounds. The evidence suggests that playing only one round ensures high contributions.
A disappointed expectation of reciprocity may be the reason for the falling contributions over the rounds.
Which of the following statements is correct? A social interaction is a strategic interaction where people are aware of the ways that their actions affect each other. A strategy is an action that a person may take when that person is unaware of the effect of their action on others. A best response is the strategy that results in the socially optimal outcome if all players choose it. A dominant strategy is the strategy that gives the player the highest payoff, irrespective of the strategies selected by other players.
A dominant strategy is the strategy that gives the player the highest payoff, irrespective of the strategies selected by other players.
Which of the following statements is correct? Factors of production are the factories in which the goods are produced. A production function describes the amount of output that will result for different combinations of inputs. Average product of labour is the average quality of the goods produced by the workers. Diminishing average product of labour refers to the diminishing quality of goods produced.
A production function describes the amount of output that will result for different combinations of inputs.
The following table shows how the payoffs to the Singhs and Kapurs depend on their choice of cars. The first entry in each box is the payoff to the Singhs. Consider the following proposed remedies for the positional externality. Which of these would induce both families to choose small environmentally friendly cars? A tax of 1.75 on large petrol hungry cars. A legally binding agreement that if they buy different types of cars, the family which buys the large car will pay 1.0 to the other family. A subsidy of 1.75 on small environment-friendly cars.
A tax of 1.75 on large petrol hungry cars. A subsidy of 1.75 on small environment-friendly cars.
According to the Great Economists box in Section 1.3 of The Economy, which of the following statements regarding Adam Smith are correct? - -- A) Adam Smith claimed that coordination among large number of economic actors (producers, transporters, sellers, consumers), often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it. B) Adam Smith believed in the role of the government to improve societal welfare. C) Adam Smith advocated that economic agents were guided entirely by self-interest. D) Adam Smith believed that all markets were characterised by perfect competition.
A, B
The ultimatum game and the interaction between Angela the farmer and Bruno the landowner are similar because: A) Like the Proposer in the ultimatum game, Bruno has more bargaining power. B) As in the ultimatum game, if Bruno's offer to Angela is refused, Bruno (the Proposer) ends up with nothing. C) As in the ultimatum game where the presence of more than a single responder results in the proposer getting more, Bruno will get more if there are many farmers in a situation similar to Angela.
A, B, C
Angela is a farmer who cares both about her free time and the amount of grain she gets and Bruno, the owner of the land cares only about the amount of grain that he gets. If the owner can dictate the rent and all the farmer can do is take the offer or leave it, the outcome: A) Will be Pareto efficient. B) Will leave the farmer no better off than if she did not have the right to refuse the offer. C) Will give Angela the same utility as her reservation option.
A, C
Alan and Beatrice are students who are suspected of colluding on their assignment. The examiners are going to interview each of them individually, in separate rooms. The following table shows the payoffs of Alan and Beatrice, if both were completely selfish, depending on whether each decides to Deny or Confess. Assume that unless stated otherwise, Alan and Beatrice are completely selfish. In which of the following cases could the examiners' scheme fail to produce the outcome (Confess, Confess)? Alan is so fond of Beatrice that he would never confess that they colluded. Alan and Beatrice manage to communicate using their mobile phones. If one person continues to deny but then finds out that the other person has confessed, the disappointment is equivalent to an extra 10 marks off the mark he/she is given. Alan and Beatrice hate lying.
Alan is so fond of Beatrice that he would never confess that they colluded. Alan and Beatrice manage to communicate using their mobile phones.
Which of the following statements regarding social preferences are correct? They are the preferences of society as a whole. Altruism is an example of social preferences. An individual has social preferences if he does not care about the outcomes of others in society. "Keeping up with the Joneses" is an example of behaviour that could be motivated by social preferences.
Altruism is an example of social preferences. "Keeping up with the Joneses" is an example of behaviour that could be motivated by social preferences.
Capitalism is an economic system in which private property, markets, and firms play an important role. Which of the following statements related to the terms in this definition are correct? An economic system is a way of organising the production and distribution of goods and services in an entire economy. The knowledge you attain from the CORE programme is considered private property. Forced labour where the workers receive some daily allowance is an example of a market. Employee-owned cooperatives are not firms.
An economic system is a way of organising the production and distribution of goods and services in an entire economy. Employee-owned cooperatives are not firms
The figure shows a student's feasible frontier and her indifference curves for her final exam grade and the hours of free time per day. Based on this information, which of the following statements is correct? The student prefers D to C, as D is on the feasible frontier. A or B may be chosen over C despite being on a lower indifference curve, as the student would never choose a point below the feasible frontier. Any points above IC_3 are strictly preferred to the student's final choice but are unattainable. The student should try to attain as high a grade as possible.
Any points above IC_3 are strictly preferred to the student's final choice but are unattainable.
The following table describes the production function of cloth. Based on this information, which of the following statements is correct? The production function exhibits diminishing average product of labour at all levels of labour input. The average product of labour when the number of workers is 400 is 10 metres. When 300 workers are employed, the first 200 workers produce 12.5m each while the next 100 workers produce 11m each. As the number of workers is increased from 100 to 500, the average product of labour falls by 20%.
As the number of workers is increased from 100 to 500, the average product of labour falls by 20%.
The figure shows a student's feasible frontier and her indifference curves for final exam marks and the hours of free time per day. The table also gives the marginal rate of substitution (MRS) and the marginal rate of transformation (MRT) for the points shown in the figure. Based on this information, which of the following statements is correct? At A, one hour of free time is equivalent in value to 3 grade points. However, 1 extra hour of studying leads to 9 extra grade points. She should therefore study more. At B, one hour of free time is equivalent in value to 2 grade points. However, 1 extra hour of studying leads to 20 extra grade points. She should therefore study more. At D, the MRT of 4 means that if she gives up all of her free time, she can attain 60 extra grade points. At E, the MRS matches the student's MRT. Therefore she should exchange one hour of free time with 7 extra grade points.
At A, one hour of free time is equivalent in value to 3 grade points. However, 1 extra hour of studying leads to 9 extra grade points. She should therefore study more.
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. Angela and Bruno's feasible frontier is downward sloping and concave, while Angela's biological survival constraint is downward sloping and convex (as shown in the figure). If Bruno has all the bargaining power, which of the following statements is correct? A) The marginal rate of transformation (MRT) of work hours into grain output is the slope of Angela's biological survival constraint, while the marginal rate of substitution (MRS) of work hours into subsistence requirements is the slope of the feasible frontier. B) When the MRT of work hours into grain output is greater than the MRS of work hours into subsistence requirements, then Bruno should decrease Angela's free time. C) When the MRT of work hours into grain output is lower than the MRS of work hours into subsistence requirements, then Angela's allocation of grain should be increased. D) Angela's most preferred option is where the MRT equates her MRS.
B
The following diagram shows the Lorenz curves for market income and disposable income for the Netherlands in 2010. Disposable income is market income minus any taxes and plus any government transfers. A' is the area between the perfect equality line and the disposable income Lorenz curve, while B' is the area under the disposable income Lorenz curve. Based on this information, which of the following statements are correct? A) The Gini coefficient for disposable income is the ratio A'/B'. B) The Gini coefficient for market income is higher than that for disposable income. C) Taxes and transfers reduce income inequality in the Netherlands. D) After taxes and transfers, the poorest 50% of the population receive about 20% of the total income.
B, C
Which of the following statements about institutions (only considering the usage of the term in economics) are correct? A) Institutions include organisations such as universities. B) Institutions are the rules of the game. C) Institutions must be written down. D) Institutions determine the power individuals have to get what they want in interactions with others.
B, D
Anna and Brian are discussing what to watch on the TV tonight. There are two choices: a film or the snooker world championships. They can either watch one of the two programmes together, or watch different programmes in separate rooms. The following table represents the payoffs of Anna and Brian, depending on their choice of programme (the first number is Brian's payoff while the second number is Anna's). Based on this information, which of the following statements are correct? Brian's dominant strategy is to watch snooker. Anna's dominant strategy is to watch the film. The dominant strategy equilibrium is for both to watch snooker. There is no dominant strategy equilibrium.
Brian's dominant strategy is to watch snooker. There is no dominant strategy equilibrium.
Which of the following transfers are classified as markets? Birthday presents. Theft of property. Taxes and benefits. Buy-now-pay-later deals.
Buy-now-pay-later deals.
Anil and Bala have the choice of using either Integrated Pest Control (IPC) or Terminator (T) to solve the problem of pest insects. The table below shows their payoffs depending on their choice. The following diagram shows these possible outcomes on a graph. Based on the information above, which of the following is correct? A) (I, I) is the unique Pareto efficient outcome. B) (T, I) Pareto-dominates (T, T). C) (T, T) is the only Pareto inefficient outcome. D) Anil and Bala will both be happy to move from the Pareto efficient (I, T) to the 'fairer' Pareto efficient outcome (I, I).
C
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. 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 maximise total production. B) In a voluntary exchange where Bruno has all the bargaining power, B is the best choice for Bruno as it maximises 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 instead, then she would choose A, where her rent is maximised.
C
Which of the following statements regarding bargaining power are correct? A) In an ultimatum game, the Proposer has all of the bargaining power. B) In an ultimatum game, increasing the number of Responders reduces the Proposer's bargaining power. C) In a dictator game, the Proposer has all the bargaining power. D) In a dictator game, increasing the number of Responders reduces the Proposer's bargaining power.
C
Consider a world of just two individuals, Greta and Carlos, who each need both of two goods, apples and wheat, to survive. They differ in how productive they are in growing apples and wheat. Based on this information, which of the following statements is correct? Greta has an absolute disadvantage in both crops. Greta has a comparative advantage in both crops. Greta has a comparative advantage in producing wheat. Carlos has a comparative disadvantage in producing apples.
Carlos has a comparative disadvantage in producing apples.
Which of the following are classified as firms? Companies employing unpaid student interns as well as paid workers. Nationalized railways. Non-profit organizations. Employee-owned cooperations.
Companies employing unpaid student interns as well as paid workers.
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, where Bruno makes a take-it-or-leave-it offer. The figure shows Angela and Bruno's feasible frontier and Angela's reservation indifference curve. Now the government introduces new laws that limits Angela's work time and/or sets a minimum pay in bushels of grain. If D is the outcome before any laws, which of the following statements is correct? A) If the new law limits Angela's working hours to 4 hours, then the outcome will be F. B) If the new law sets the minimum pay to 4.5 bushels, then the outcome will be I. C) If the new law limits Angela's working hours to 8 hours and sets the minimum pay to 6.5 bushels, then the outcome will be C. D) If the new law limits Angela's working hours to 10 hours and sets the minimum pay to 4.5 bushels, then the outcome will be D.
D
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. Currently, if Angela does not work she receives a ration of 2.5 bushels from the government. Of the four depicted in the figure, which allocation strictly Pareto dominates Z? A B C D
D
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. 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) Angela's reservation indifference curve can be below her biological survival constraint. C) Angela's reservation indifference curve may not necessarily go through Z. D) The economically feasible set can be an empty set.
D
Peter and John have two apples and two oranges to share. The value of consuming a fruit depends on whether they already have a fruit of the same kind or not, but is independent of the consumption of the other kind of fruit. Their marginal values for each fruit are given in the table below. For example, if Peter consumes two apples and John two oranges, then the value of their consumption is 10 + 6 = 16 for Peter and 4 + 3 = 7 for John. Based on this information, which of the following is a Pareto efficient allocation? A) Peter has two apples and John has two oranges. B) Peter has two oranges and John has two apples. C) Peter has one orange and John has one orange and two apples. D) Peter has one apple and two oranges and John has one apple.
D
You are given the following graph of Gini coefficients over the past three centuries for three capitalist economies: Britain, the US, and the Netherlands. The information in the figure suggests that: A) Capitalist economies tend to have similar degrees of equality. B) Of these three countries, the Netherlands was the most equal country over the past three centuries. C) In the most recent decade where data is available, the US and British economies are at their most unequal level since the 1750s. D) Over time, capitalist economies can become less as well as more equal.
D
Which of the following statements is correct regarding disposable income? Disposable income is the amount of income that is disposed (given away). Disposable income is total income, calculated as the sum of an individual's wages, profit, rent, interest, and transfer payments from the government. Disposable income is the maximum amount of expenditure (e.g. food, housing, clothing, and other goods and services) possible without having to borrow or sell possessions. Disposable income is the exact measure of one's wellbeing.
Disposable income is the maximum amount of expenditure (e.g. food, housing, clothing, and other goods and services) possible without having to borrow or sell possessions.
The following figures show the real wage index in England from 1750 to 2000, and the explanation of how England escaped the Malthusian trap in the period up to 1900. Based on this information, which of the following statements are correct? These figures show evidence that increased productivity of labour increases wages immediately. Throughout the 1800s, political developments led to a fall in the workers' bargaining power, keeping the real wage low. England was able to escape from the Malthusian trap after the 1830s by being able to increase the workers' share of the rising output, due to an increase in the workers' bargaining power. These figures demonstrate that the size of pie (the total output) does not determine the wage rate, but it merely sets a limit on how high the wage could possibly be.
England was able to escape from the Malthusian trap after the 1830s by being able to increase the workers' share of the rising output, due to an increase in the workers' bargaining power. These figures demonstrate that the size of pie (the total output) does not determine the wage rate, but it merely sets a limit on how high the wage could possibly be.
Which of the following statements is correct? A model is an exact representation of what goes on in the economy. A model is an economic relationship that is only represented by mathematics. Equilibrium is a self-perpetuating situation that does not change, unless a force for change is introduced from the outside and alters the basic data describing the situation. Equilibrium in GDP growth rate is when the growth rate is zero.
Equilibrium is a self-perpetuating situation that does not change, unless a force for change is introduced from the outside and alters the basic data describing the situation.
Which of the following statements regarding the labour market are correct? The labour market is not really a market as firms do not buy or sell workers. Firms are the demand side of the labour market Wages are the prices in the labour market that determine the level of demand and supply. The labour market is always very competitive.
Firms are the demand side of the labour market Wages are the prices in the labour market that determine the level of demand and supply.
An individual's well-being can be partly measured by: Her disposable income. The quality of her social and physical environment, such as friendship and clean air. Goods and services that are provided by the government, such as healthcare and education. Goods and services that are produced within the household, such as meals and childcare.
Her disposable income. The quality of her social and physical environment, such as friendship and clean air. Goods and services that are provided by the government, such as healthcare and education. Goods and services that are produced within the household, such as meals and childcare.
The table shows the study time, study environment and the resulting grade (average GPA) for 84 students. Based on this information, which of the following statements are correct? Holding environment constant, high study time leads to a better grade. The amount of time spent studying is important, while the environment has no effect on the results. More students spend a longer time studying if their environment was bad compared to if their environment was good. All students who spend a longer time studying attain a higher grade on average than those who study fewer hours, irrespective of their study environment.
Holding environment constant, high study time leads to a better grade. More students spend a longer time studying if their environment was bad compared to if their environment was good.
Anthony loves going to the opera while Becky loves watching football. The following diagram shows the payoffs 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, respectively. Assume that they can only choose one activity (i.e. they cannot randomise). Based on this information, which of the following statements is correct? There are two Nash equilibria: (Opera, Opera) and (Football, Football). If Anthony announces that he will choose Opera and sticks to it, then (Opera, Opera) will be chosen. If Anthony offers £20 to Becky for coming to the opera with him, then (Opera, Opera) may be chosen. If Anthony offers £50 to Becky for coming to the opera with him, then (Opera, Opera) will definitely be chosen.
If Anthony offers £20 to Becky for coming to the opera with him, then (Opera, Opera) may be chosen.
Production of cloth requires two inputs: L workers and R tonnes of coal. The following diagram depicts the isocost associated with the production. You are also given that the wage cost is w= $20, the price of coal is p= $30 and the cost associated with the isocost is c= $180. Which of the following statements are correct? If the wage cost increases to w = $30, then the isocost will have the same horizontal axis intercept but a higher vertical axis intercept. If the price of coal falls to p = $20, then the isocost will have the same horizontal axis intercept but a higher vertical axis intercept. The isocost with cost c = $210 would be steeper than the one depicted. The isocost with cost c = $150 would be a line shifted inwards with the same slope.
If the price of coal falls to p = $20, then the isocost will have the same horizontal axis intercept but a higher vertical axis intercept. The isocost with cost c = $150 would be a line shifted inwards with the same slope.
The following diagram depicts the production function of grain, where diminishing average product of labour is assumed. At A the average product of labour is 500,000/800 = 625 kg of grain per farmer. At B the average product of labour is 732,000/1,600 = 457.5 kg of grain per farmer. If you know that the grain output for 2,800 farmers is 896,000kg, then which of the following statements is/are correct? In a year with exceptionally good weather conditions, the production function curve will be higher and parallel to the curve above. If the production curve is an upward-sloping straight line, the average product of labour is constant. When the labour input is 2,800, the average product of labour is 320 kg.
If the production curve is an upward-sloping straight line, the average product of labour is constant. When the labour input is 2,800, the average product of labour is 320 kg.
Which of the following statements is correct? You are investigating the effect of a rise in oil price on commuters' use of bicycles. Ceteris paribus means that you keep the number of commutes by car constant. If you are paid a fixed salary independent of your output, then you may be tempted to put in less effort. This is an example of an economic incentive. You are thirsty and are choosing between two drinks to buy. Given that both drinks are affordable to you, the main factor that affects your choice is the absolute price of each drink. You are currently unemployed but are being interviewed for a job. Your reservation position is your position in the interview queue.
If you are paid a fixed salary independent of your output, then you may be tempted to put in less effort. This is an example of an economic incentive.
Which of the following statements regarding Nash equilibrium are correct? In a Nash equilibrium, all players choose their best response strategy given the other players' strategies. No player has an incentive to unilaterally deviate from a Nash equilibrium. A dominant strategy equilibrium is a Nash equilibrium. A Nash equilibrium is a dominant strategy equilibrium.
In a Nash equilibrium, all players choose their best response strategy given the other players' strategies. No player has an incentive to unilaterally deviate from a Nash equilibrium. A dominant strategy equilibrium is a Nash equilibrium.
Which of the following statements are correct? In economics, a model is a simplified representation (diagrammatical or physical) that helps us to understand what is going on by focusing attention on what is important. Ceteris paribus is an assumption used in economic models in which the important variables that you are focusing on are kept constant. An equilibriumis a self-perpetuating situation that does not change, even when a force for change is introduced from the outside that alters the basic data describing the situation. An economic rent is the benefit you receive above what you would have earned from your reservation option.
In economics, a model is a simplified representation (diagrammatical or physical) that helps us to understand what is going on by focusing attention on what is important. An economic rent is the benefit you receive above what you would have earned from your reservation option.
Which of the following statements regarding the Malthusian model are correct when there is a positive one-off technological shock (such as an improved seed)? There is an immediate and permanent rise in the average product of labour. The population initially rises but then falls to the pre-technological shock level. Income initially rises but then falls to the subsistence level in equilibrium. Malthus' Law states that an increase in productivity will result in both increased population and wages in the long run.
Income initially rises but then falls to the subsistence level in equilibrium.
The following table shows the nominal GDP (in 2015 US dollars) and the population of Japan in 2013 and 2014 (source: The World Bank). Based on this information, which of the following statements regarding GDP per capita is correct? Japan's GDP per capita in 2013 was $36,194.42. Japan's GDP per capita fell by 6.74% between 2013 and 2014. The fall in the population was enough to offset the fall in GDP, for an overall growth in GDP per capita between 2013 and 2014. Japan's GDP per capita fell by 6.31% between 2013 and 2014.
Japan's GDP per capita fell by 6.31% between 2013 and 2014.
Which of the following characterise capitalism as an economic system? Many forms of production are organized by and take place in firms. Production is undertaken for the purposes of making a profit. Owners do not manage their firms; this is done by managers.
Many forms of production are organized by and take place in firms. Production is undertaken for the purposes of making a profit.
Which of the following statements about economic rents is correct? You and your employees have worked overtime this month to produce a record monthly profit. This is the economic rent achieved by your firm. Economic rents provide strong incentives for innovation even in a centrally planned economy. Markets provide a competitive environment where those unable to copy others' innovations would fail. This provides the 'stick' that drives the innovation process. Family businesses are the type of productive organization that can reap the most benefits from the economic rents earned from their new innovations.
Markets provide a competitive environment where those unable to copy others' innovations would fail. This provides the 'stick' that drives the innovation process.
According to Malthus, which of the following are the causes of diminishing average product of labour? More labour is devoted to a fixed quantity of land. The new land brought into cultivation is of inferior quality. Coordination problems due to a larger labour force. Environmental effects of over-cultivation (e.g. increased carbon emissions).
More labour is devoted to a fixed quantity of land The new land brought into cultivation is of inferior quality.
Which theories of why the Industrial Revolution happened in Britain long before countries such as China are correct? Some claim that Britain led the Industrial Revolution innovations before the rest of the world because it was a low-wage and high-energy-cost economy. Others claim that the real sources of technological change are found in Europe's scientific revolution and in the skilled artisans who made it possible to build the machines. Still others claim that China lagged behind, as its state was too weak to promote innovation. Some historians claim that Britain's access to agricultural production in its New World colonies also contributed.
Others claim that the real sources of technological change are found in Europe's scientific revolution and in the skilled artisans who made it possible to build the machines. Some historians claim that Britain's access to agricultural production in its New World colonies also contributed.
Which of the following economic institutions play an important role in capitalism as an economic system? Families. Government. Private Property. Markets.
Private Property. Markets.
Capitalism as an economic system can be dynamic and successful because: It allows firms to gain market power and thus eliminate their competitors. Profits are claimed by the capitalists. It allows failing firms to go bankrupt. The government is absent.
Profits are claimed by the capitalists. It allows failing firms to go bankrupt.
Which of the following are examples of capital goods? Raw materials. Buildings. Intellectual property. Patents.
Raw materials. Buildings. Intellectual property. Patents.
According to Elinor Ostrom, which of the following statements about the problem of "tragedy of the commons" are correct? Social norms can be drawn on to enforce sustainable resources, although it does not always succeed. Even if all individuals were completely selfish, repeated interactions would definitely result in cooperative outcomes. Individuals care about trust and reciprocity. Agreements for cooperation must be enforced by governments.
Social norms can be drawn on to enforce sustainable resources, although it does not always succeed. Individuals care about trust and reciprocity.
Which of the following are public goods? Streetlights. Library books. Fresh air. Official statistics.
Streetlights Fresh air. Official statistics.
Which of the following statements are correct regarding hours of work and income? The 'price' of an hour of free time is the hourly wage rate. From Figure 3.2 (Unit 3), we can infer that countries with similar GDP per capita have similar working hours. An increase in the real wage rate might encourage you to work more as the opportunity cost of leisure becomes higher. An increase in the real wage rate might encourage you to work less as your income from working a given number of hours is now higher than before.
The 'price' of an hour of free time is the hourly wage rate. An increase in the real wage rate might encourage you to work more as the opportunity cost of leisure becomes higher. An increase in the real wage rate might encourage you to work less as your income from working a given number of hours is now higher than before.
The figure depicts the annual number of hours worked against GDP per capita in the US, France, and the Netherlands between 1870 and 2000. Which of the following is true? The graph proves that workers in the US produce higher outputs than their counterparts in France or the Netherlands because they work longer hours. US workers have always worked longer hours than French or Dutch workers have. The Great Depression in 1929 had the effect of reducing both hours worked and output in both the US and France. As GDP per capita increases, the number of hours worked continues to fall in all countries shown.
The Great Depression in 1929 had the effect of reducing both hours worked and output in both the US and France.
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? The MPL at 4 hours is 12.5. The MPL is the slope of the tangent line. The MPL is decreasing beyond 15 hours of study. Beyond the first hour, the MPL is strictly less than the average product of labour.
The MPL is the slope of the tangent line. Beyond the first hour, the MPL is strictly less than the average product of labour.
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? The change in the choice from A to C represents the substitution effect. The change in the choice from C to D represents the effect of a higher MRT. The income effect on the hours of free time is always positive. The substitution effect on the hours of free time is always positive.
The change in the choice from C to D represents the effect of a higher MRT.
You have two choices for how you are going to spend Saturday evening. You can go to the pub with your friends, which will cost you £30 for the evening. The pleasure you anticipate from this experience is worth £50 to you. Or you can go to the theatre. The ticket will cost you £50, but you value the experience at £60. Based on this information, which of the following statements is correct? The opportunity cost of an evening at the theatre is £10. The economic cost of going to the theatre is £60. The economic rent of going to the theatre is -£10. Based on economic rent alone, you would choose to go to the theatre.
The economic rent of going to the theatre is -£10.
Alan and Beatrice have broken the rules and colluded in their coursework assignment, so the examiners are going to interview them. The interviews are taking place simultaneously and there is no communication allowed between the two. The students can either deny or confess to have colluded. The raw marks without penalty are 65 for Alan and 70 for Beatrice. The examiners have decided on the following scheme: if they both deny they will still be penalised by 20 marks respectively, if one denies and the other confesses then the denying student gets zero marks while the confessing student retains their raw mark, and if they both confess, then they both get the pass mark of 40. The possible outcomes are summarised in the table below. Based on this information which of the following statements is correct? Confessing is the dominated strategy. The dominant strategy equilibrium will result in the highest aggregate mark. The examiners have managed to devise a scheme in which the students will definitely confess. It is in the interest of the students to deviate from the dominant strategy equilibrium.
The examiners have managed to devise a scheme in which the students will definitely confess.
The following diagram plots the path of the UK's real wage index against its population over the years 1280- 1600. Based on this information, which of the following statements are correct? The graph shows a negative correlation between the real wage index and the UK population. The UK population consistently shrunk during the 14th century. The graph shows that the population rises when the real wage is low, and the population falls when the real wage is high. The graph is consistent with the Malthusian trap story that high real wages encourage population growth, while a larger population forces real wages to fall back to subsistence level.
The graph shows a negative correlation between the real wage index and the UK population. The UK population consistently shrunk during the 14th century. The graph is consistent with the Malthusian trap story that high real wages encourage population growth, while a larger population forces real wages to fall back to subsistence level.
Consider an individual's indifference curves for the consumption of two goods (things you would like to have more of). In this case, which of the following statements are true? The indifference curves are downward-sloping. The indifference curves can sometimes cross. The indifference curves cannot have sections that are straight lines. The indifference curves cannot have kinks.
The indifference curves are downward-sloping.
Production of cloth requires two inputs: L workers and R tonnes of coal. The following diagram depicts the isocost associated with production. You are also given that the wage (w) is $20 and the price (p) of coal is $30. Which of the following statements is correct? The isocost suggests that 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. The slope of the isocost is -1/3. The cost associated with the isocost is $120. All points above the isocost would cost more than $210.
The isocost suggests that 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.
The following diagram is the feasible set of a student, showing the combinations of her final grade and the hours of free time per day. Based on this information, we can say that: Whether the student would choose A or B depends on her preferences. At A, the student can attain grade of 81 for 14 hours of study. C would never be chosen over A. The marginal rate of transformation increases with higher number of free hours.
The marginal rate of transformation increases with higher number of free hours.
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? The Responder should not accept any offer less than $50. The economic rent of taking part in this game is $50 each. The next best alternative for both players is $0. If a large group of participants play the game, then the average share across pairs will be 50:50.
The next best alternative for both players is $0.
The following figure shows the distribution of income across and within countries in 2014. The height of each bar represents the annual income of the population (for each decile), measured in 2005 US$, 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. Based on this information, which of the following statements is correct? Income inequality is lower in poorer countries compared with richer countries. Countries with a larger population are poorer. The income ranking between countries has remained broadly the same between 1980 and 2014. The poorest decile in the richest countries earns more than the richest decile of the poorest countries.
The poorest decile in the richest countries earns more than the richest decile of the poorest countries.
Innovation rents are: The increased land rent that landlords can charge when agricultural productivity increases. The profits made by being among the first to adopt a cost-reducing technology. Subsidies paid to inventors and other innovators by the government to overcome the externality associated with innovation.
The profits made by being among the first to adopt a cost-reducing technology.
Bruce owns a cooperative project with two other members. Any member that chooses to put in a full day of work faces a cost of £50 but produces a total income of £120, which is shared amongst the three. So, for example, if Bruce and one other member do a full day of work, then the income per member is (£120 x 2)/3 = £80, leaving Bruce with a net income of £80 - £50 = £30. Assume that a member must either put in a full day of work or none at all. Based on this information, we can conclude that: The socially optimal outcome (one with the highest total net income) is when all work. The dominant strategy equilibrium of this public goods game is when no one works. Bruce is better off not working, irrespective of the actions of the other members. Bruce's net income when all three members work is £80.
The socially optimal outcome (one with the highest total net income) is when all work. The dominant strategy equilibrium of this public goods game is when no one works. Bruce is better off not working, irrespective of the actions of the other members.
Ten individuals play a game where their strategies are all the real numbers between zero and 100. The winner is the person whose stated number is closest to one half the average of all the numbers in the group. If there is more than one winner, they divide the prize (100 pounds) equally. Playing 50 is never a best response to any strategy of the other players. The strategy profile where all individuals say 25 is a Nash equilibrium. The strategy 40 is a best-response for one player if all other players choose 50.
The strategy 40 is a best-response for one player if all other players choose 50.
Consider a worker whose choice is between hours of free time and consumption. His company has now cut his wage rate. Which of the following statements is correct? As a result of the substitution effect, the worker would reduce his free time. The income effect means that the worker would increase his free time. The worker may or may not reduce his free time as a result of the wage cut. The income effect will always dominate the substitution effect of the wage cut.
The worker may or may not reduce his free time as a result of the wage cut.
The following game represents the interaction between two software engineers, Astrid and Bettina, who are working together to write code as a part of a project. Astrid is better at writing Java code, while Bettina prefers C++. The numbers represent the pay in thousands of dollars for completion of the project. Based on this information, which of the following are true? There are two Nash equilibria: (Java, Java) and (C++, C++). If Astrid can choose the format first and commit to it, then (Java, Java) will be chosen. If the two can make an agreement beforehand, including a transfer of $500 from Bettina to Astrid, then (C++, C++) will be chosen. If the two can make an agreement beforehand, including a transfer of $3,500 from Bettina to Astrid, then (C++, C++) will be chosen.
There are two Nash equilibria: (Java, Java) and (C++, C++). If Astrid can choose the format first and commit to it, then (Java, Java) will be chosen.
In the following game, 2 people are choosing simultaneously what to plant. The first entry shows the row player's payoff and the second entry, the column player's payoff. Which of the following statements is true? Cassava is a dominant strategy for both players. There is exactly one Nash equilibrium in this game. There are two ways this game could be played that would maximize the sum of payoffs but differ in the distribution of payoffs between the two players.
There are two ways this game could be played that would maximize the sum of payoffs but differ in the distribution of payoffs between the two players.
Which of the following statements regarding the Rock-Paper-Scissors game is correct? Playing Scissors is the dominant strategy. There exists a pure strategy Nash equilibrium (where players are only allowed to play one strategy). There exists a mixed strategy Nash equilibrium (where players are allowed to randomise). There exists more than one mixed strategy Nash equilibria
There exists a mixed strategy Nash equilibrium (where players are allowed to randomise).
The following table shows the hours of free time and consumption per day across five different countries in 2013. The diagram below shows this data, along with hypothetical indifference curves. Based on this information, which of the following statements is correct? The indifference curves can be estimated from the data in the table. The evidence from the Netherlands shows that tripling the wage rate in Turkey would cause daily consumption to more than double. The data suggests that the positive income effect of a rise in the wage rate on the hours of free time always dominates its negative substitution effect. There is evidence that the US workers value free time more relative to consumption compared to South Korean workers.
There is evidence that the US workers value free time more relative to consumption compared to South Korean workers.
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: If your wage rate increases to £16 an hour, then your free time will increase by 6%. To have 12.5% more free time, your wage rate needs to increase by £8. Doubling the wage rate would decrease your working hours by a third. A wage cut of 25% leaves you with only 100 hours of free time.
To have 12.5% more free time, your wage rate needs to increase by £8.
Consider an ultimatum game in which a Proposer offers a two-way split of $100 to two respondents. If either of the Responders accepts but not the other, that Responder and the Proposer get the split and the other Responder gets nothing. If no one accepts, no one gets anything, including the Proposer. If both Responders accept, one is chosen at random to receive the split. The following figure shows some laboratory evidence of this ultimatum game, with the proportion offered to the Responder on the horizontal axis. Based on this information, which of the following statements is correct? Introducing competition in the ultimatum game invariably increases the probability of the offer being accepted at all levels. The laboratory evidence indicates that Responder becomes more self-interested when there is competition. When competition is introduced, the Responders may have a higher probability of accepting, as they can no longer be sure that their rejection will punish the Proposer. The Proposers would offer a higher share to the Responders when competition is introduced.
When competition is introduced, the Responders may have a higher probability of accepting, as they can no longer be sure that their rejection will punish the Proposer.
The following 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? Workers in the US and Turkey enjoy a similar amount of free time despite the huge disparity of income. Japanese workers require more hours of work to produce the same level of output per capita as Korean workers. If German workers worked as many hours as the Norwegians, then they will be able to produce a similar level of output per capita. The plot gives strong evidence that workers choose to enjoy more free time as their living standards rise.
Workers in the US and Turkey enjoy a similar amount of free time despite the huge disparity of income.
The following table gives different technologies that produce 100 metres of cloth. Based on this information, which of the following statements is correct? You would never choose technology B. Technology C is more energy-intensive than technology A. Shifting from technology C to technology D is labour saving. Technology D uses the least total number of workers and tonnes of coal. Therefore this is the technology you would choose.
You would never choose technology B.
The following figure depicts possible indifference curves of Alan, whose utility depends on his and/or his friend Beatrice's levels of consumption. Alan's consumption is along the horizontal axis while Beatrice's consumption is along the vertical axis. Which of the indifference curves below represent altruistic preferences? a b c d
b c d
