micro test 2

Which of the following is closest to the future value of a $40,000 deposit earning 3 percent interest annually after 5 years? Select one: a. $41,282 b. $46,021 c. $46,371 d. $41,150

The correct answer is: $46,371

Which of the following constitutes a negative externality in consumption. Select one: a. Paper mill releasing pollution during production process b. A person smoking while eating dinner with friends c. A person renovating their house d. Patents on new medical procedures and prescription drugs

The correct answer is: A person smoking while eating dinner with friends

All games involve which of the following? Select one: a. Multiple players b. Strategies c. Payoffs d. All games involve all of these things.

The correct answer is: All games involve all of these things.

If Don has budget constraint C in the graph shown, what is the trade-off he faces in terms of the two goods? Select one: a. Two cases of soda for every three gallons of milk b. One case of soda for every one and a half gallons of milk c. Three cases of soda for every four and a half gallons of milk d. All of these accurately reflect Don's tradeoff.

The correct answer is: All of these accurately reflect Don's tradeoff.

An application of behavioral economics is: Select one: a. time inconsistency. b. thinking irrationally about costs. c. forgetting the fungibility of money. d. All of these are applications of behavioral economics.

The correct answer is: All of these are applications of behavioral economics.

An example of a real-life rule that might constrain people's behavior is: Select one: a. minimum wage legislation. b. having 24 hours in a day. c. the earth's limited supply of oil. d. All of these are examples of real-life rules.

The correct answer is: All of these are examples of real-life rules.

An example of a public good that is difficult to make excludable is: Select one: a. sewer systems. b. fire protection. c. national defense. d. All of these are nonexcludable public goods.

The correct answer is: All of these are nonexcludable public goods.

Which of the following is true about fixed costs? Select one: a. Fixed costs do not change when production levels change and cannot be adjusted in the short-run. b. Fixed costs do not change when production levels change and cannot be adjusted in the long-run. c. Fixed costs change when production levels change and cannot be adjusted in the long-run. d. Fixed costs change when production levels change and can be adjusted in the short-run.

The correct answer is: Fixed costs do not change when production levels change and cannot be adjusted in the short-run.

Which of the following items is non-rival? Select one: a. Automobiles b. Fisheries c. Flood control d. Healthcare

The correct answer is: Flood control

Mike wants to open his own repair shop, and is considering using his savings of $30,000 to get it started. He is currently earning 3 percent interest on his savings. His friend Bob calls him and asks to borrow $30,000 to start up a bagel shop; Bob offers to pay him 5 percent interest if he loans him the money. If Mike were to use the money to open his own repair shop, how can he accurately account for his costs? Select one: a. Mike must consider the $900 in forgone interest on his savings as an implicit cost. b. Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an implicit cost. c. Mike must consider the $900 in forgone interest on his savings as an explicit cost. d. Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an explicit cost.

The correct answer is: Mike must consider the $1,500 in forgone interest from loaning the money to Bob as an implicit cost.

What is the decision rule for a firm to temporarily stop production? Select one: a. P < AVC b. P < ATC c. MR = MC d. P < AFC

The correct answer is: P < AVC

In Dan Ariely's presentation, he conducted an experiment on perceptions of people's attractiveness. Which of the following summarizes his findings? Select one: a. People should go bar hopping with someone that is a slightly less attractive. b. People tend to view others with similar physical features as less attractive. c. People prefer to date people that are slightly less attractive than they perceive themselves to be. d. People prefer to date people that are slightly more attractive than they perceive themselves to be.

The correct answer is: People should go bar hopping with someone that is a slightly less attractive.

According to the graph shown, the long-run output decision for this firm is: Select one: a. Q1, P1. b. Q1, P2. c. Q2, P1. d. Q3, P3.

The correct answer is: Q2, P1.

Which of the following is an example of a positive externality in production? Select one: a. Smoking in a bar b. Research at a firm c. Parent immunizing a kid d. Firm releasing pollution

The correct answer is: Research at a firm

Assume Roger's income to spend on books and movie tickets is $48, and his budget constraint is represented by line B. What would cause his budget constraint to move to A? Select one: a. Roger gets a raise at work. b. Roger gets unlimited coupons for $2 off the price of a movie ticket. c. The price of movie tickets increases to $8. d. None of these changes would cause Roger's budget constraint to move from B to A.

The correct answer is: Roger gets unlimited coupons for $2 off the price of a movie ticket.

Suppose Bev's Bags makes two kinds of handbags-large and small. Bev rents an industrial space where she keeps the fabric, the industrial sewing machine, her measuring board and cutting shears, extra needles, thread and buttons, and labels. Bev can produce three bags an hour, regardless of the size of bag. Which of the following would be considered a fixed cost of this company? Select one: a. The rent Bev pays b. The fabric c. The sewing thread d. None of these would be considered a fixed cost.

The correct answer is: The rent Bev pays

Value of a loan amount X with interest r after one period equals: Select one: a. (X * 1)/(X * r) b. X * (1 + r) c. X/(1 + r) d. All of these are true.

The correct answer is: X * (1 + r)

An insurance policy is a product that: Select one: a. allows people to pay to reduce uncertainty in some aspect of their lives. b. involves a company paying individuals very large sums of money if they encounter any risk. c. involves individuals paying a company to ensure they don't experience any risk. d. involves individuals paying a regular fee in return for an agreement that the insurance company will cover all expenses associated with risky behavior.

The correct answer is: allows people to pay to reduce uncertainty in some aspect of their lives.

Streaming Netflix movies would be considered: Select one: a. a common resource. b. a private good. c. a public good. d. an artificially scarce good.

The correct answer is: an artificially scarce good.

Both signaling and screening: Select one: a. reduce efficiency in the market. b. are effective ways to increase information available to both parties. c. benefit the sellers but harm the buyers. d. benefit the buyers but harm the sellers.

The correct answer is: are effective ways to increase information available to both parties.

In the short run, when a firm stops producing it: Select one: a. avoids paying fixed costs. b. avoids paying variable costs. c. can avoid earning profits less than zero. d. must be that ATC is lower than market price.

The correct answer is: avoids paying variable costs.

The principle that states the marginal product of an input decreases as the quantity of the input increases is called: Select one: a. diminishing marginal product. b. increasing rate of return. c. production function. d. total product optimization.

The correct answer is: diminishing marginal product.

Johnny spends his day doing a variety of activities; he spends the morning exercising and doing yard work, reads in the afternoon, and hosts a dinner party in the evening. Economists would say his choice to do a variety of activities instead of spending all of his time on one activity illustrates the concept of: Select one: a. tastes and preferences b. budget constraints c. diminishing marginal utility d. income effect

The correct answer is: diminishing marginal utility

If firms are producing at a profit-maximizing level of output where the price is less than the average total cost: Select one: a. economic profits may be positive. b. accounting profits will be zero. c. economic profits are negative. d. accounting profits must be positive.

The correct answer is: economic profits are negative.

Any cost that is imposed without compensation on someone other than the person who caused it is called: Select one: a. private cost. b. social cost. c. external cost. d. network cost.

The correct answer is: external cost.

If the graph shown represents Heather's budget constraint, and the price of hairbands were to decrease, the slope of Heather's budget constraint would become: Select one: a. flatter, reflecting the fact that hairbands are now relatively less expensive. b. steeper, reflecting the fact that hairbands are now relatively more expensive. c. flatter, reflecting the fact that earrings are now relatively less expensive. d. steeper, reflecting the fact that earrings are now relatively more expensive.

The correct answer is: flatter, reflecting the fact that hairbands are now relatively less expensive.

Which of the following is not a decision made by a perfectly competitive firm? Select one: a. how much to charge b. how much to produce c. how to produce d. how much of each input to demand

The correct answer is: how much to charge

The Coase theorem is the idea that: Select one: a. individuals can reach an efficient equilibrium through private trades, even in the presence of an externality. b. there are always mutually beneficial trades waiting to be exploited, and that creates a clear role for government taxation. c. the actions of private individuals and firms are insufficient to ensure efficient markets. d. None of these statements is true.

The correct answer is: individuals can reach an efficient equilibrium through private trades, even in the presence of an externality.

Collusion: Select one: a. rarely occurs in reality. b. never occurs in reality. c. has not occurred in the last hundred years or so, due to government policy outlawing it. d. is a common problem in reality.

The correct answer is: is a common problem in reality.

When a negative externality is present in a market, the quantity consumed: Select one: a. is always less than the socially optimal quantity. b. is more than the socially optimal quantity. c. is the same as the socially optimal quantity. d. is often less than the socially optimal quantity.

The correct answer is: is more than the socially optimal quantity.

Because government bodies have the power to impose limits on how much of a resource is consumed: Select one: a. it can be efficiency enhancing in markets for common resources. b. it will always cause deadweight loss. c. they decide what is the "right" amount for the public to consume. d. they will often correct a market before testing the effectiveness of social norms to correct the problem.

The correct answer is: it can be efficiency enhancing in markets for common resources.

When it's not clear how to translate available information into something personally meaningful, it's: Select one: a. more likely you'll make a mistake in your choice. b. less likely you'll make a mistake, given the amount of information. c. more likely you'll invest more time in making your choice. d. less likely the choice will have a big impact on you.

The correct answer is: more likely you'll make a mistake in your choice.

Neutral policy with respect to choice architecture is: Select one: a. not a clear concept across different choice scenarios. b. well established in all choice scenarios. c. the goal of all choice architects. d. generally regulated by state and federal government.

The correct answer is: not a clear concept across different choice scenarios.

This figure displays the choices and payoffs (company profits) of two music shops-MiiTunes and The Rock Shop. MiiTunes is an established business in the area deciding whether to charge its usual high prices or to charge very low prices, in the hopes that a new business will not be able to make a profit at such low prices. The Rock Shop is trying to decide whether or not it should enter the market and compete with MiiTunes. According to the figure, if MiiTunes charges low prices, The Rock Shop should: Select one: a. enter the market and earn $4 million. b. enter the market and lose $2 million. c. not enter the market and earn $0. d. It cannot be determined what The Rock Shop will do.

The correct answer is: not enter the market and earn $0.

John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000. If he does expand, there is a 30 percent chance he will earn $100,000, a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000. It will cost him $150,000 to expand. John should: Select one: a. expand, since he expects to earn $320,000 by expanding, and it will only cost him $150,000 to do so. b. not expand, because there is a chance John will earn the same as if he didn't expand and would be out the $150,000 investment. c. not expand, since he expects to earn $120,000 more by expanding than not, and it will cost him $150,000 to do so. d. expand, since he has a 70 percent chance of earning more than the cost of expansion.

The correct answer is: not expand, since he expects to earn $120,000 more by expanding than not, and it will cost him $150,000 to do so.

People: Select one: a. often have good enough information to make acceptable choices. b. always have enough information to make acceptable choices. c. always have access to complete information. d. never have access to complete information.

The correct answer is: often have good enough information to make acceptable choices.

The problem arising in the used car market can be alleviated by Select one: a. providing buyers with more complete information on the condition of a used car. b. sellers offering warranties. c. having third parties certify the condition of a used car. d. All of these statements are true.

The correct answer is: providing buyers with more complete information on the condition of a used car.

If a firm in a perfectly competitive market faces the cost curves in the graph shown and observes a market price of $13, the firm: Select one: a. can make positive profits by producing more than 35 units. b. can make positive profits by producing where MC = MR. c. cannot make positive profits and should shut down in the short run. d. should continue to operate in the short run, but plan to exit in the long run.

The correct answer is: should continue to operate in the short run, but plan to exit in the long run.

In the early 2000s, the government passed laws requiring banks and mortgage brokers to disclose the terms of home loans. This action by the government was an attempt to: Select one: a. solve the information asymmetry problem, but did not work as intended. b. solve the information asymmetry problem and led to an improvement in the housing market. c. screen out risky or shady banks and mortgage brokers. d. signal to consumers that the government cared about the value of their homes. Feedback

The correct answer is: solve the information asymmetry problem, but did not work as intended.

An insurance company offering discounts to students with high grades in school an example of: Select one: a. screening. b. signaling. c. statistical discrimination. d. building a reputation.

The correct answer is: statistical discrimination.

Adverse selection occurs in the insurance market because: Select one: a. the seller has more information than the buyer. b. the buyer has more information than the seller. c. both the buyer and the seller have incomplete information. d. Any of these could be the cause of adverse selection in insurance market.

The correct answer is: the buyer has more information than the seller.

Beverly spends $100 on a teeth whitening kit. After one application, her gums are inflamed and it feels like her mouth is on fire. Beverly is trying to decide whether to apply the treatment again, or throw the kit away. The opportunity cost of a second application is: Select one: a. $100. b. the pain and suffering involved with the second application. c. $100 + the pain and suffering involved with the second application. d. $100 + the pain and suffering involved with the first and second application.

The correct answer is: the pain and suffering involved with the second application.

People consistently consider sunk costs when weighing the trade-offs involved in a decision because: Select one: a. they are rational. b. they are utility-maximizers. c. they think at the margin. d. they find it hard to accept their losses.

The correct answer is: they find it hard to accept their losses.

Economists believe that people who force themselves to always eat everything on their plate at a restaurant, regardless of how full they might feel, likely do so because: Select one: a. they gain negative utility from insulting the chef. b. they overvalue the opportunity costs of their health and time involved with eating food they don't really want. c. they include the sunk cost of their meals in making their decision. d. they undervalue the true benefit of eating too much.

The correct answer is: they include the sunk cost of their meals in making their decision.

Your roommate tells you she's going to join the gym next week. A week and a half goes by and you ask her how the gym is going, and she tells you she's going to wait until the following week. Your roommate's preferences are: Select one: a. better today than tomorrow. b. time inconsistent. c. mistakes. d. considered bad choices.

The correct answer is: time inconsistent.

Nona has just gone on a bike ride for an hour and says it gave her a utility of 7. If she chooses to continue to ride her bike for another hour: Select one: a. we can assume she will get at least a marginal utility of more than 7. b. we can assume she will get a marginal utility of 7. c. we can assume she will get a marginal utility of less than 7. d. we can assume Nona's total utility will fall because of diminishing marginal utility.

The correct answer is: we can assume she will get a marginal utility of less than 7.

The Save More Tomorrow (SMarT) program is an example of a: Select one: a. weak commitment device that was successful. b. strong commitment device that was successful. c. weak commitment device that was unsuccessful. d. strong commitment device that was unsuccessful.

The correct answer is: weak commitment device that was successful.

The prisoner's dilemma game can be used to describe Select one: a. the game Rock Paper Scissors b. why candidates in elections go negative. c. how individuals acting in their self-interest leads to the best outcome overall. d. a zero sum game.

The correct answer is: why candidates in elections go negative.

If a Pigovian tax is not large enough, the resulting market quantity: Select one: a. will be equal to the efficient quantity. b. will be more than the efficient quantity. c. will be less than the efficient quantity. d. will be where the social marginal cost equals the social marginal benefit.

The correct answer is: will be less than the efficient quantity.

In the Mind Over Money video, we learned how the environment of trading has changed over time. Which of the following best describes this change? Select one: a. It has become more quantitative in a quiet environment. b. It has become more volatile in an unstable environment. c. It has become more predictable in a boring environment. d. It has become more risky in an unpredictable environment.

The correct answers are: It has become more risky in an unpredictable environment.

A firm has the cost structure provided in the table. What is the average total cost for this firm if production is set at 5 units (round to the nearest dollar)? Select one: a. 12 b. 14 c. 10 d. none of the other answers are correct

a. 12

What is the decision rule for a firm to temporarily stop production? Select one: a. P < AVC b. P < ATC c. MR = MC d. P < AFC

a. P < AVC

In the Mind Over Money video, what was the outcome when a $20 bill was auctioned off to a group of people? Select one: a. The winner of the auction paid more than $20 for the $20 bill. b. The winner of the auction paid less than $20 for the $20 bill. c. The winner of the auction paid exactly $20 for the $20 bill. d. Nobody won the auction.

a. The winner of the auction paid more than $20 for the $20 bill.

A motorist who chooses high-deductible versus low-deductible car insurance is signaling that he is: Select one: a. a safe driver. b. a reckless driver. c. likely to be a low income earner. d. likely to not pay.

a. a safe driver.

An important type of information asymmetry is: Select one: a. adverse selection. b. ethical constraint. c. advantage imbalance. d. information hazard.

a. adverse selection.

Excludability matters because it: Select one: a. allows owners to set an enforceable price on a good. b. allows consumers to control the price of a good. c. creates a perceived scarcity that allows the seller to keep the price artificially high. d. creates a perceived scarcity that causes buyers to have an inelastic demand for the good.

a. allows owners to set an enforceable price on a good.

To economists, a game is: Select one: a. any situation in which players pursue strategies designed to achieve their goals. b. a trivial pursuit that should not be used to analyze the economy or its actors. c. a way to simplify and minimize the true importance of situations like war. d. All of these statements are true.

a. any situation in which players pursue strategies designed to achieve their goals.

Disclosure laws: Select one: a. are an example of how government attempts to solve information asymmetry in markets. b. are an example of how government attempts to screen unethical businesses out of the marketplace. c. are an example of how government forces businesses to signal to consumers if they are credible. d. are a way businesses can build their reputation.

a. are an example of how government attempts to solve information asymmetry in markets.

Commitment strategies: Select one: a. are not necessary to reach a mutually beneficial equilibrium in repeated games. b. are always needed to reach a mutually beneficial equilibrium in single-round games. c. usually fail to work. d. are not observed in reality.

a. are not necessary to reach a mutually beneficial equilibrium in repeated games.

Someone who is risk-averse is likely to: Select one: a. buy a government bond instead of a stock. b. invest in a start-up company instead of putting her money under her mattress. c. buy company stock instead of putting money in a savings account. d. All of these statements are true. Feedback

a. buy a government bond instead of a stock.

To introduce his topic, Dan Ariely tells the audience that he proposed to his publisher that he would write a _____. Select one: a. cookbook b. gardening book c. policy failure book d. behavioral politics book

a. cookbook

If one player defects in a repeated game, and his opponent is following a tit-for-tat strategy, we can predict the opponent will: Select one: a. defect in the next round. b. renegotiate. c. cooperate and try to get his opponent to follow. d. collude.

a. defect in the next round.

In games, rules: Select one: a. define the actions that are allowed in a game. b. need to be loosely adhered to in order to predict an outcome. c. define the winners of a game. d. outline the wrong choices that could be made in a game.

a. define the actions that are allowed in a game.

Why does the total cost curve increase at an increasing rate? Select one: a. diminishing marginal product b. scarcity c. input prices d. marginal revenue rising faster than marginal cost

a. diminishing marginal product

An example of a good that is not excludable is: Select one: a. fish in the ocean. b. wireless connection to the Internet. c. a movie in a theater. d. a candy bar.

a. fish in the ocean.

People sometimes do not sign up for lucrative employee-based retirement plans when it is in their interest to do so. One way to help increase participation would be to _____. Select one: a. have employees decide to opt-out rather than opt-in. b. have employees decide to opt-in rather than opt-out. c. have employers opt-out of medicare and medicaid. d. have employers register participation at a health exchange.

a. have employees decide to opt-out rather than opt-in.

Present value is: Select one: a. how much a certain amount of money that will be obtained in the future is worth today. b. how much a certain amount of money that you have in the present will be worth in the future. c. the process of accumulation of additional interest paid on interest that has already been earned. d. how much a certain amount of money needs to be discounted to be meaningful.

a. how much a certain amount of money that will be obtained in the future is worth today.

Joe walks into Best Buy prepared to spend no more than $500 cash on a new computer, but the price turns out to be $600. Joe is told if he finances it on a Best Buy credit card, it will cost $600, but he will get a $25 gift card free with the computer. Joe opts to open the credit card and puts the full $600 on the account. According to economic theory, Joe's decision is: Select one: a. irrational. b. rational. c. budget-conscious. d. optimal.

a. irrational.

This table shows the total costs for various levels of output for a firm operating in a perfectly competitive market. Price Quantity TC $50 0 $10.00 $50 1 $20.00 $50 2 $27.50 $50 3 $77.50 $50 4 $147.50 $50 5 $250.00 According to the table shown, the firm's marginal revenue: Select one: a. is constant. b. increases as output increases. c. decreases as output increases. d. increases until the 3rd unit, then decreases.

a. is constant.

According to the graph shown, producing 14 units: Select one: a. is not as profitable as producing 11 units. b. will earn negative profits. c. will earn more profits than producing 9 or 11 units. d. will earn zero profit.

a. is not as profitable as producing 11 units.

If total product is rising, then marginal product _____. Select one: a. is positive b. is negative c. can be positive or negative d. is constant

a. is positive

Commitment devices are: Select one: a. mechanisms that allow people to voluntarily restrict their choices in order to make it easier to stick to plans. b. socially institutionalized practices that signal a particular commitment has been made by a person. c. policies that force participants to choose their future commitments. d. None of these statements is true.

a. mechanisms that allow people to voluntarily restrict their choices in order to make it easier to stick to plans.

A firm that is the sole seller of a product without close substitutes is considered a ____. Select one: a. monopoly b. natural monopoly c. oligopolist d. monopolistic competitive

a. monopoly

An example of an excludable good or service is a: Select one: a. movie in a theater. b. city park. c. rainbow. d. levee system.

a. movie in a theater.

In the short run, the fixed costs of a firm: Select one: a. must be paid regardless of level of output. b. should be strongly considered in deciding whether to shut down production. c. are zero when quantity produced is zero. d. must be higher than variable costs for the firm.

a. must be paid regardless of level of output.

Neutral policy with respect to choice architecture is: Select one: a. not a clear concept across different choice scenarios. b. well established in all choice scenarios. c. the goal of all choice architects. d. generally regulated by state and federal government.

a. not a clear concept across different choice scenarios.

When demand increases in a perfectly competitive market, in the short run __________________, and in the long run __________________. Select one: a. prices increase; supply increases b. prices increase; prices stay permanently higher c. quantity supplied increases; prices increase d. quantity supplied decreases; prices decrease Feedback

a. prices increase; supply increases

The foundational principle that makes insurance companies work is called: Select one: a. risk pooling. b. risk assignment. c. catastrophic causation. d. risk analysis.

a. risk pooling.

In the early 2000s, the government passed laws requiring banks and mortgage brokers to disclose the terms of home loans. This action by the government was an attempt to: Select one: a. solve the information asymmetry problem, but did not work as intended. b. solve the information asymmetry problem and led to an improvement in the housing market. c. screen out risky or shady banks and mortgage brokers. d. signal to consumers that the government cared about the value of their homes.

a. solve the information asymmetry problem, but did not work as intended.

Jason spends all afternoon baking a cake. When it comes out of the oven, it's burnt and sunk in the middle. Jason thinks about all the time he invested in making it and decides he'll spend more time frosting it and eat it anyway, even though it tastes pretty terrible. Jason's decision to continue to decorate and eat the cake is a good example of: Select one: a. someone focusing on sunk costs. b. someone ignoring sunk costs. c. someone thinking marginally. d. someone weighing the opportunity costs of frosting and eating the cake and the benefits of doing so.

a. someone focusing on sunk costs.

Efficiency is reached by allocating resources to those who have the greatest willingness to pay for them. This can be achieved in a market where a negative externality is present by: Select one: a. taxing consumers. b. giving consumers a subsidy. c. place a quota at the efficient level. d. All of these will achieve efficiency.

a. taxing consumers.

A mistake is a choice that: Select one: a. the chooser later regrets. b. the choice architect creates that has unintended consequences. c. society as a whole, but not necessarily the chooser, is left worse-off once it's made. d. policymakers think choosers should not make.

a. the chooser later regrets.

Money is: Select one: a. the clearest example of something that is fungible. b. always recognized as fungible by individuals. c. more fungible in cash form versus as checking account balances. d. All of these are true.

a. the clearest example of something that is fungible.

When a person's income increases: Select one: a. the individual's budget constraint shifts straight out, maintaining the same slope. b. the individual's budget constraint shifts straight in, maintaining the same slope. c. the individual's budget constraint rotates out and becomes flatter. d. the individual's budget constraint rotates in and becomes steeper.

a. the individual's budget constraint shifts straight out, maintaining the same slope.

Compounding is: Select one: a. the process of accumulation of additional interest paid on interest that has already been earned. b. the process of adding the percentage of interest times your initial principal yearly. c. the process of deposits steadily increasing a set amount annually. d. None of these statements is true.

a. the process of accumulation of additional interest paid on interest that has already been earned.

For a commitment strategy to work: Select one: a. the punishment must be so bad that it outweighs the incentive to defect in the game. b. the punishment must occur immediately after the game is played. c. both players must agree to a punishment. d. no player may have a dominant strategy. Feedback

a. the punishment must be so bad that it outweighs the incentive to defect in the game.

When negative externalities exist in a market, if the producers are forced to pay a Pigouvian tax then: Select one: a. those who interact in the market will lose surplus. b. those who interact in the market will gain surplus. c. producers will gain surplus. d. those who do not interact in the market but are affected by the externality will lose surplus.

a. those who interact in the market will lose surplus.

If you knew that an investment was going to pay you $215,892.50 in 10 years, and you knew that the annual interest rate over that time would be 8 percent, you could calculate the present value to be: Select one: a. $80,000. b. $100,000. c. $150,000. d. $125,000.

b. $100,000.

Using the illustration, which of the curves represents average total costs? Select one: a. A b. B c. C d. D

b. B

Assume Claudia's budget constraint is demonstrated by line A in the graph shown. Which of the following would cause Claudia's budget constraint to shift to line C? Select one: a. Claudia's income increased. b. Claudia's income decreased. c. Claudia's preferences for these two goods decreased. d. The prices of both goods have gone down.

b. Claudia's income decreased.

What is the difference between perfect competition and monopolistic competition? Select one: a. Perfect competition has a large number of small firms while monopolistic competition does not. b. In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods. c. Perfect competition has no barriers to entry, while monopolistic competition does. d. Perfect competition has barriers to entry while monopolistic competition does not.

b. In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.

Which of the following is a subtle way for a company to reassure their competitors that it is committed to a tit-for-tat strategy? Select one: a. Setting prices below cost b. Price-matching guarantees c. Collusion d. Offering a commitment strategy

b. Price-matching guarantees

Which of the following is an example of a positive externality in production? Select one: a. Smoking in a bar b. Research at a firm c. Parent immunizing a kid d. Firm releasing pollution

b. Research at a firm

If Bart has budget constraint A in the graph shown, what would cause his budget constraint to shift to B? Select one: a. Bart's income has decreased. b. The price of soda has increased. c. The price of soda has decreased. d. The price of milk has increased.

b. The price of soda has increased.

Bobby makes a New Year's resolution to lose weight. On January 3rd, he decides to go to Ben amp; Jerry's for ice cream instead of going to the gym. Using the concept of revealed preference, economists would most likely conclude that Bobby: Select one: a. is not a rational individual. b. actually gains more utility from ice cream than working out. c. has changed his preferences. d. has no choice over the actions he takes.

b. actually gains more utility from ice cream than working out.

One way people cope with uncertainty about the future is they: Select one: a. avoid risks when it is reasonable to do so. b. buy insurance. c. only select risky alternatives if the expected value is twice as high as for a safe alternative. d. All of these are ways individuals cope with uncertainty.

b. buy insurance.

Building a good reputation in the marketplace: Select one: a. is easy to fake. b. can take a long time to establish. c. is not a significant value to a seller. d. All of these statements are true.

b. can take a long time to establish.

Claire has just eaten her second bowl of cereal. We can say: Select one: a. her second bowl likely reduced her total utility. b. her second bowl likely added less to her total utility than the first. c. her third bowl will likely decrease her total utility. d. her third bowl will likely increase her total utility by at least as much as the second.

b. her second bowl likely added less to her total utility than the first.

According to the graph shown, the profits at point A are: Select one: a. higher than those at point B. b. lower than those at point B. c. the same as those at point B. d. higher than those at point C.

b. lower than those at point B.

When a positive externality is present in a market, total surplus is: Select one: a. higher when buyers only consider private costs. b. lower when buyers only consider private costs. c. lower when buyers consider social costs. d. None of these statements is true.

b. lower when buyers only consider private costs.

For a firm in a perfectly competitive market, a price decrease: Select one: a. increases the profit-maximizing quantity. b. lowers the profit-maximizing quantity. c. is unrelated to the profit-maximizing quantity. d. signifies the firm should leave the market.

b. lowers the profit-maximizing quantity.

One way to solve the free-rider problem is: Select one: a. have the government provide the good at a certain cost. b. make the good or service more excludable. c. tax those who truly value the good. d. tax everyone an equal amount for the good.

b. make the good or service more excludable.

This figure displays the choices being made by two coffee shops: Starbucks and Dunkin Donuts. Both companies are trying to decide whether or not to expand in an area. The area can handle only one of them expanding, and whoever expands will cause the other to lose some business. If they both expand, the market will be saturated, and neither company will do well. The payoffs are the additional profits (or losses) they will earn. According to the figure shown, if Starbucks expands in the market, then Dunkin Donuts should: Select one: a. also expand their business. b. not expand. c. give an ultimatum. d. None of these statements is true.

b. not expand.

Suppose studies showed that only 15 percent of all teens wear their bike helmets while riding their bikes. If policymakers wish to have more teens wear their bike helmets, they should: Select one: a. inform teens of the social norm. b. not inform teens of the social norm. c. Informing them of the social norm will have no impact on their individual situation. d. The statistic is likely to influence their personal decision, but it is impossible to predict in what way without more information.

b. not inform teens of the social norm.

Offering goods that are similar to competitors' products but more attractive in some ways is called: Select one: a. product distinction. b. product differentiation. c. price-point pinning. d. deceptive advertising.

b. product differentiation.

The nutritional information now available at many fast food restaurants is an example of: Select one: a. a failed attempt by government to reduce information asymmetry. b. requiring the more informed party to reveal the missing information. c. government regulation to screen out unhealthy food for consumers. d. government requiring the restaurants to signal whether food is healthy or not.

b. requiring the more informed party to reveal the missing information.

Which of the following is a public solution to a positive externality problem? Select one: a. social norms b. taxes c. tradable permit markets d. subsidies

b. taxes

Jim, an avid biker, broke his leg last year and will never be able to use his bike again. He was offered $100 for it last year, but Jim refused to sell it, insisting it was worth more. A year later, he's offered only $75 for it, but Jim still refuses to sell it. Jim's behavior could be explained by: Select one: a. limited processing power. b. the endowment effect. c. status quo bias. d. substitution effect.

b. the endowment effect.

If a monopolistically competitive firm is earning profits in the short run: Select one: a. the entry of competing firms will shift the firm's demand to the right. b. the entry of competing firms will shift the firm's demand to the left. c. the entry of competing firms will cause price to drop, but not affect the firm's demand curve. d. the entry of competing firms will cause price to rise, but not affect the firm's demand curve.

b. the entry of competing firms will shift the firm's demand to the left.

The principle of diminishing marginal product states: Select one: a. the total output produced increases as the quantity of the input increases. b. the marginal product of an input decreases as the quantity of the input increases. c. the marginal product of an input eventually will be negative. d. the total output produced decreases as the quantity of the input increases.

b. the marginal product of an input decreases as the quantity of the input increases.

Markets that are more likely to be subject to adverse selection problems are those where: Select one: a. information is easily available to consumers and sellers. b. there is an imbalance of information between buyers and sellers c. the goods sold in that market are highly uniform in quality. d. the market relies on independent certifiers of quality.

b. there is an imbalance of information between buyers and sellers

Jim bought a new bike and rides it every day, while his old one sits in the garage untouched. Jim's opportunity cost of keeping the old bike is: Select one: a. nothing, since he doesn't really value it anymore. b. whatever he could sell it for. c. whatever he would be willing to sell it for. d. All of these are true.

b. whatever he could sell it for.

Assume the graph shown shows Bobbi's budget constraint. If hairbands cost $5, then Bobbi's income to spend on these two items must be: Select one: a. $8. b. $6. c. $40. d. Cannot be determined without more information.

c. $40.

Suppose Winston's annual salary as an accountant is $60,000, and his financial assets generate $4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his financial assets to establish a consulting business, which he runs out of his home. To run the business, he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of $150,000. What are Winston's explicit costs? Select one: a. $64,000 b. $72,000 c. $8,000 d. $12,000

c. $8,000

Assume a company is at a point in production where marginal product is above average product. Which of the following must be true? Select one: a. Diminishing marginal product must not have set in yet. b. Marginal product must be rising. c. Average product must be rising. d. All of these are true.

c. Average product must be rising.

Which of the following items is non-rival? Select one: a. Automobiles b. Fisheries c. Flood control d. Healthcare

c. Flood control

This figure shows the payoffs involved when Sarah and Joe work on a school project together for a single grade. They both will enjoy a higher grade when more effort is put into the project, but they also get pleasure from goofing off and not working on the project. The payoffs can be thought of as the utility each would get from the effort they individually put forth and the grade they jointly receive. The outcome of the game in the figure shown will be: Select one: a. Joe puts forth high effort and Sarah puts forth low effort. b. Joe puts forth low effort and Sarah puts forth high effort. c. Joe and Sarah both put forth low effort. d. Joe and Sarah both put forth high effort.

c. Joe and Sarah both put forth low effort.

Suppose Winston's annual salary as an accountant is $60,000, and his financial assets generate $4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his financial assets to establish a consulting business, which he runs out of his home. To run the business, he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of $150,000. What costs would be considered when calculating accounting profit? Select one: a. The opportunity cost of his job and interest forgone of $64,000, and the explicit cost of $8,000 b. The implicit cost of the interest forgone of $4,000 and the explicit cost of $8,000 c. The explicit cost of $8,000 d. The implicit cost of his job of $60,000 and the opportunity cost of forgone interest of $4,000

c. The explicit cost of $8,000

Reading a Consumer Reports review of a vacuum cleaner before buying is the same way of dealing with information asymmetry as: Select one: a. an employer requiring a drug test. b. an insurance company offering different deductible-level plans. c. a buyer choosing a used car from a brand dealership. d. a college charging a high tuition relative to other schools.

c. a buyer choosing a used car from a brand dealership.

Commitment devices: Select one: a. need strong commitments that are hard to get out of in order to be successful. b. are never strong commitments that are hard to get out of. c. can be successful whether they have strong or weak commitments. d. are only successful if they are weak commitments that are easy to change.

c. can be successful whether they have strong or weak commitments.

All externalities: Select one: a. are harmful to society and create costs external to the decision maker. b. are beneficial to society and create benefits external to the decision maker. c. create either a cost or benefit to a person other than the person who caused it. d. are addressed by the government through taxation.

c. create either a cost or benefit to a person other than the person who caused it.

Behavioral economics can be characterized as _____. Select one: a. replacing standard economic understanding and theory. b. confirming the simplifying assumptions in standard economic theory. c. documenting systematic errors and biases in people's decisions. d. proving that people exhibit behavior that is perfectly rational.

c. documenting systematic errors and biases in people's decisions.

If firms are producing at a profit-maximizing level of output where the price is less than the average total cost: Select one: a. economic profits may be positive. b. accounting profits will be zero. c. economic profits are negative. d. accounting profits must be positive. Feedback

c. economic profits are negative.

Any cost that is imposed without compensation on someone other than the person who caused it is called: Select one: a. private cost. b. social cost. c. external cost. d. network cost. Feedback

c. external cost.

Alison is deciding how to spend the next hour. We ask her to rate the utility she would get from an hour of each activity. She would get utility of 4 from an hour of reading, utility of 2 from an hour of playing video games, and utility of 6 from jogging. Based on this information, economists could predict that Alison will: Select one: a. read. b. play video games. c. go jogging. d. do nothing, since none of the activities give her utility greater than 10.

c. go jogging.

Howard has just smoked a cigarette. If he chooses to smoke a second one: Select one: a. he will experience a drop in total utility. b. he is not acting rationally. c. he will derive less marginal utility from it than his first. d. None of these is true.

c. he will derive less marginal utility from it than his first.

People cope with uncertainty about the future: Select one: a. exactly the same way, regardless of the situation. b. in very similar ways, regardless of the situation. c. in many ways, such as buying insurance. d. by always avoiding it. Feedback

c. in many ways, such as buying insurance.

The principal-agent problem: Select one: a. is when the principal has more information than the agent. b. is when the agent is tempted to put in more effort than the principal would like. c. is commonly seen in the employer-employee relationship. d. is when the principal and agent have the same objectives.

c. is commonly seen in the employer-employee relationship.

The fewer the number of firms present in a market, the: Select one: a. more competition is likely to be present. b. less likely barriers to entry are present. c. more likely market power will exist. d. less like a monopoly it will behave.

c. more likely market power will exist.

Problems are most likely to arise when: Select one: a. complete information is impossible to obtain. b. people have good enough information to make acceptable choices. c. one person knows more than another. d. both parties lack the same information.

c. one person knows more than another.

Not having to pay for a good leads to: Select one: a. underconsumption. b. oversupply. c. overconsumption. d. irrational consumption.

c. overconsumption.

In the real world: Select one: a. businesses can easily identify different groups' willingness to pay, so price discrimination is prevalent in every market. b. price discrimination is practiced less today than it was in the mid-1900s. c. perfect price discrimination is impossible. d. price discrimination has only been observed where monopolies are present.

c. perfect price discrimination is impossible.

An employer that only employs applicants who have college degrees is an example of Select one: a. proofing. b. moral hazard. c. screening. d. mandating that information be shared.

c. screening.

Which of the following is a private solution that can increase the efficiency of a market with a negative externality? Select one: a. tradeable permit system b. taxes c. social norms d. subsidies

c. social norms

A network externality is: Select one: a. a direct effect on an economic decision maker. b. an indirect effect on an economic decision maker. c. the effect that an additional user of a good or participant in an activity has on the value of that good or activity for others. d. an uncompensated effect on someone other than the person who caused it.

c. the effect that an additional user of a good or participant in an activity has on the value of that good or activity for others.

The classic example used to discuss the problem of adverse selection is: Select one: a. fruit and produce markets, such as lemons. b. workers who shirk when their effort isn't closely monitored. c. the imbalance of information that exists between a buyer and seller of a used car. d. drivers with insurance who tend to drive more recklessly.

c. the imbalance of information that exists between a buyer and seller of a used car.

In economics, we assume rational decisions are made when individuals weigh: Select one: a. the sunk costs versus the benefits of an action. b. the sunk costs versus the opportunity costs of an action. c. the opportunity costs versus the benefits of an action. d. the opportunity and sunk costs versus the benefits of an action.

c. the opportunity costs versus the benefits of an action.

Comparing a perfectly competitive market to a single-price monopoly, we see that _____. Select one: a. the monopoly market always is more efficient in the use of resources b. both markets are equally efficient in using resources c. the perfectly competitive market uses resources more efficiently than the monopoly market d. it is not clear whether the perfectly competitive or monopoly market is more efficient in using resources

c. the perfectly competitive market uses resources more efficiently than the monopoly market

If a firm in a monopolistically competitive market has a demand curve shifting to the right, it is likely that: Select one: a. positive economic profits are being earned. b. firms are entering the market. c. the selling price is less than the average total cost of the firm. d. All of these statements are true.

c. the selling price is less than the average total cost of the firm.

Beth really wants to get in shape, but just can't seem to ever get herself to the gym. An example of a commitment device Beth could use would be: Select one: a. to spend time before going to the gym doing something she really enjoys doing, like seeing a movie. b. to allow herself one dessert for each visit to the gym. c. to make arrangements to meet with an exercise buddy every day at the gym to work out together. d. None of these is a commitment device.

c. to make arrangements to meet with an exercise buddy every day at the gym to work out together.

Utility is: Select one: a. useful in comparing the relative satisfaction different consumers get from a particular good. b. useful in predicting when to put an item on sale. c. useful in quantitatively describing a person's preferences for one good over another. d. an interesting concept, but not really useful for anything.

c. useful in quantitatively describing a person's preferences for one good over another.

If a firm in a perfectly competitive market is producing at a level of output where marginal costs exceed marginal revenue, its profits: Select one: a. must be negative. b. are maximized. c. will increase if it produces less. d. cannot be determined.

c. will increase if it produces less.

Imagine Tom's annual salary as an assistant store manager is $30,000, he owns a building that rents for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running the business, and earns revenues of $50,000. What are Tom's economic profits? Select one: a. $35,000 b. $50,000 c. $24,000 d. -$6,000

d. -$6,000

Quinn's income to spend on either bowling or eating out each month is $100. It costs $10 to bowl for the night and it costs $20 for Quinn to eat at a restaurant. A point on Quinn's budget constraint would be: Select one: a. 4 nights of bowling and 3 trips to the restaurant. b. 3 nights of bowling and 4 trips to the restaurant. c. 2 nights of bowling and 5 trips to the restaurant. d. 10 nights of bowling and 5 trips to the restaurant.

d. 10 nights of bowling and 5 trips to the restaurant.

Carlos has been invited to go skiing for the afternoon with his friends. It will cost $40 for a lift ticket. It is likely Carlos will: Select one: a. overvalue the benefit of skiing. b. undervalue the opportunity cost of his afternoon. c. find it difficult to place a value on what he might do instead of skiing. d. All of these are true.

d. All of these are true.

A typical behavior that violates the assumption of rational behavior is: Select one: a. saying you want to lose weight, but ordering dessert. b. being willing to pay more for something if you use a credit card than if you use cash. c. stubbornly watching to the end of a movie you've decided you're not enjoying at all. d. All of these demonstrate irrational behavior.

d. All of these demonstrate irrational behavior.

Which of the following entities can diversify risk? Select one: a. Individuals b. Corporations c. Insurance companies d. All of these entities can diversify risk.

d. All of these entities can diversify risk.

Backward induction involves: Select one: a. a process of analyzing a problem in reverse. b. thinking forward and working backward. c. starting with the last choice and working backward to determine an optimal strategy. d. All of these statements are true.

d. All of these statements are true.

If those who consumed common resources were subject to a tax that was equal to the external costs that they imposed due to the negative externality created: Select one: a. an efficient level would be reached. b. total surplus would be maximized for the whole society. c. individuals would consume less. d. All of these statements are true.

d. All of these statements are true.

Perfect price discrimination: Select one: a. eliminates all consumer surplus. b. maximizes producer surplus. c. creates no deadweight loss. d. All of these statements are true.

d. All of these statements are true.

Using the illustration, which of the curves represents average fixed costs? Select one: a. A b. B c. C d. D

d. D

This figure displays the choices and payoffs (company profits) of two music shops-MiiTunes and The Rock Shop. MiiTunes is an established business in the area deciding whether to charge its usual high prices or to charge very low prices, in the hopes that a new business will not be able to make a profit at such low prices. The Rock Shop is trying to decide whether or not it should enter the market and compete with MiiTunes. The game between music stores in the figure shows us that: Select one: a. only The Rock Shop has a dominant strategy, and so the outcome cannot be predicted. b. only MiiTunes has a dominant strategy, and so the outcome cannot be predicted. c. neither store has a dominant strategy, and so the outcome cannot be predicted. d. None of these statements is true.

d. None of these statements is true.

Which of following is not an important category of bias in human decision making? Select one: a. Temptation. b. Limited processing power. c. Reluctance to change. d. Single-mindedness.

d. Single-mindedness.

A college student is thinking about running an ice-cream truck over the summer. What would economists say is the student's main objective? Select one: a. To spend as little on inputs as possible b. To maximize hourly earnings c. To sell as many ice cream cones as possible d. To maximize his profit

d. To maximize his profit

The program Save More Tomorrow (SMarT) is: Select one: a. an experimental "forced savings" program. b. the "forced savings" program in Italy. c. a voluntary savings program that involves people learning how to find high-interest accounts so their savings is worth more tomorrow. d. a voluntary savings program that commits a fraction of future raises to be put directly into savings.

d. a voluntary savings program that commits a fraction of future raises to be put directly into savings.

A good that is both rival and nonexcludable is a _____ and presents a _____ problem. Select one: a. public good; free-riding b. public good; tragedy of the commons c. common pool resource; free-riding d. common pool resource; tragedy of the commons

d. common pool resource; tragedy of the commons

If people took external costs like pollution into consideration, they would on net: Select one: a. consume a socially non-optimal amount of the goods causing the externalities. b. not change their behavior to consume more or less of the goods causing externalities. c. consume more of the goods causing these externalities. d. consume less of the goods causing these externalities.

d. consume less of the goods causing these externalities.

Protecting intellectual property rights: Select one: a. always benefits society. b. never benefits society. c. rarely affects society overall. d. is hotly debated as to whether it benefits or costs society overall.

d. is hotly debated as to whether it benefits or costs society overall.