microeconomics final
Which of the following statements about asset prices are correct?
-A bubble occurs when beliefs about future prices amplify a price rise. -When beliefs dampen price rises, the market equilibrium is stable.
In which of the following cases is there an adverse selection problem?
-A health insurance market, in which the insurers do not know whether or not the applicants for insurance are habitual smokers. -Online sales of nutritional supplements, when consumers cannot tell whether their contents are as claimed by sellers.
Which of the following are examples of a negative externality?
-A student playing loud music late at night. -A commuter choosing to drive into work instead of taking public transport.
Which of the following are remedies for the principal-agent problem in the credit market?
-Collateral provided by the borrower. -Equity provided by the borrower.
Which of the following are stationary rents?
-Employment rent where the wage is set high to induce workers to work hard. -Monopoly rent where firms make excess profits due to limited competition.
In Guadeloupe and Martinique, the use of pesticide chlordecone on banana plantations led to devastation of fishing communities downstream. Which of the following are possible solutions?
-Force the pesticide users to bear the costs incurred by the fishing communities. -Ban the use of the pesticide. -Let the banana producers also own the fisheries. -Regulate the use of the pesticide.
In which of the following cases is there a moral hazard problem?
-Leaving a bike unlocked when it is insured. -An investment in a friends new venture, where you cannot observe how hard he is trying.
Which of the following describes the problem in the private health insurance market?
-Missing market. -Adverse selection
Which of the following are remedies for the public goods problem?
-Patent protection. -Public provision through taxation.
Figure 11.2 shows the hat market before and after a demand shift. Based on this information, which of the following statements are correct?
-The adjustment to the new equilibrium is driven by the rent-seeking behaviour of the buyers and the sellers. -While the market adjusts, some buyers may pay more for a hat than others.
Figure 11.22 illustrates the rental housing market. Initially, the market clears at 500 with 8,000 tenancies. Then, there is an outward shift in the demand curve, as shown in the diagram. In response, the city authority imposes a rent ceiling of 500 and prohibits subletting. Based on this information, which of the following statements are correct?
-There are 4,000 potential tenants who are left unhoused. -Excess demand could be eliminated in the long run by building more houses.
Which of the following are correct ways of completing this sentence? The market failure associated with credit rationing
-Would not arise if there was no conflict of interest between the borrower and lender. -Would not occur if the borrower could be forced to repay even if the project failed, e.g. out of future earnings or other assets. -Means that good projects proposed by the less wealthy will not be funded while inferior ones of the wealthy will be funded.
Figure 11.6 shows the market for bread in the short run, with 50 bakeries, and in the long run when more bakeries can enter. All bakeries are identical. Which of the following statements is correct?
A and B cannot be long-run equilibria, as the bakeries are making a positive economic rent.
The figure shows the marginal private cost and marginal social cost of producing bananas while using pesticides. The per-tonne price of bananas is constant at $400. Based on the figure, which of the following statements regarding point A is correct?
A is the banana producers profit-maximising outcome.
The UK introduced a national minimum wage in 1998. Which of the following statements regarding minimum wages is correct?
A minimum wage would not always lead to increased unemployment.
The following diagram depicts the competitive market for hats before and after a demand shift. Based on this information, which of the following statements is correct?
After the demand shift, the market initially moves from A to E, before settling to the new equilibrium at F.
A factory is situated next to a dormitory for nurses who work night shifts. The factory produces 120 units of humanoid robots a day. The production process is rather noisy, and the nurses often complain that their sleep is disturbed. The following graph depicts the MPC and MSC of the robot factory production. The robot market is competitive and the market price is £340. Based on this information, which of the following statements is correct?
At Q = 120, both the factory and the nurses would benefit from the nurses paying a fee less than 120 to the factory to reduce output.
Consider a market in which bakeries supply bread to the restaurant trade. A new technology becomes available to the bakeries, shifting the supply curve down as shown in the figure. Which of the following statements is correct?
Bakeries initially earn disequilibrium economic rents even if they keep the price and the output unchanged.
The figure shows the marginal private cost and marginal social cost of producing bananas while using pesticides. The price of bananas is constant at $400. The government has different options in order to reduce the output level down to the Pareto-efficient level of 38,000. At this point, the difference between the MSC and the MPC curves is $105. In which of the following options do the banana producers make the highest profit?
Coasean bargaining when the producers have the right to produce.
Which of the following statements is correct?
Emergency healthcare is a merit good.
Which of the following is a non-excludable public good?
Free WiFi.
Which of the following statements is correct?
If a good is non-rival, then the cost of an additional person consuming it is zero.
Which of the following statements regarding the use of antibiotics is correct?
If each doctor acts in the best interest of his or her patients, the result will be an overuse of antibiotics.
The graph depicts the prices in the Kerala wholesale fish markets on 14 January 1997. Based on the graph, which of the following statements is correct?
In markets with excess demand, there is a positive correlation between excess demand and price.
The figure depicts the short-run effect of a positive demand shock in the crude oil market. Ceteris paribus, in which of the following cases would the price and quantity move in the same direction?
In the long run, when the consumers find substitutes for oil.
Which of the following statements is correct?
It is easier for rich people to get loans because they are able to provide equity or collateral.
The figure depicts the short-run demand and supply curves in the global market for crude oil. S_OPEC denotes the supply curve of OPEC while S_WORLD is the total market supply curve. Based on the figure, which of the following statements is correct?
OPEC countries profit is (P_0 c) × Q_OPEC.
Which of the following statements about short selling (shorting) is correct?
Shorting is used to benefit from a price fall.
Which of the following statements is correct? According to Friedrich Hayek:
The advantage of capitalism is that it provides the right information to the right people.
Bridgman is a candy maker who uses machines that generate noise and vibration. Sturges is a doctor next door whose consulting room is on the boundary of Bridgmans property and so is affected by the noise and vibration. The court has granted the doctor an injunction that prevents Bridgman from using his machinery. Assume that the transaction costs required for Bridgman and Sturges to get together and bargain are negligible. Based on this information, which of the following statements is correct?
The courts role was to establish the initial property rights of the two parties.
Figure 11.1 shows how bargaining power affected prices in Kerala beach markets on 14 January 1997. Based on this information, what can we conclude?
The data demonstrate that buyers have bargaining power when there is excess supply.
Which of the following statements regarding economic rents is correct?
The employment rent received by workers is an equilibrium rent.
The figure shows the hat market before and after a demand shift. Based on the figure, which of the following statements is correct regarding the initial disequilibrium when the demand shifts?
The firms become price-makers and maximize their profits.
Consider a beekeeper who produces honey and sells it at a constant price per kilogram. Assume that the marginal private cost of producing honey increases with output, and that there is a neighbouring farmer whose crops the bees can help pollinate. Which of the following statements is correct?
The marginal social benefit (MSB) curve will be above the MPB curve.
Consider the situation where the noise of a factorys production affects nurses in the dormitory next door. If there are no transaction costs to impede Coasean bargaining, which of the following statements is correct?
The nurses would be better off in the bargained allocation if they initially had a right to undisturbed sleep than they would if the factory has the right to make noise.
Figure 11.21 is a stylized representation of the market for an event at the 2012 London Olympic Games. 40,000 tickets were allocated by lottery, at £100 each. Assume that buyers could resell their tickets in the secondary market. Which of the following statements is correct?
The probability of obtaining a ticket was 4/7.
The figures show the market for bread in the short-run and in the long-run. The horizontal axis is the number of loaves and the vertical axis is the price and cost in Euros (). All bakeries are identical. Which of the following statements regarding the short-run equilibrium is correct?
The short-run equilibrium is defined as the equilibrium where the number of bakeries is exogenous.
The figure shows the world oil price in constant prices for years 1865-2014 and the global oil consumption for 1965-2014. Based on this information, which of the following statements is correct?
The sudden fall in the oil price in 2008 was caused by a leftward shift in the demand curve
The figures show the market for bread in the short-run and in the long-run. The horizontal axis is the number of loaves and the vertical axis is the price and cost in Euros (). All bakeries are identical. Which of the following statements regarding the short-run equilibrium is correct?
The supply curve is more elastic in the long-run.
The figure is a stylized representation of the market for an event at the 2012 London Olympic Games. 40,000 tickets were allocated by lottery, at £100 each. Which of the following statements is correct?
The supply of the tickets was totally inelastic.
A factory is situated next to a dormitory for nurses who work night shifts. The factory produces 120 humanoid robots a day. The production process is rather noisy, and the nurses often complain that their sleep is disturbed. Based on this information, which of the following statements is correct?
The total external cost is the total costs per day imposed on the nurses by the factorys production.
Which of the following statements regarding markets are correct?
There are some cases where centralised systems (such as firms or the government) produce better outcomes than the market.
A factory producing humanoid robots is situated next to a dormitory for nurses who work night shifts. The production process is rather noisy, and the nurses often complain that their sleep is disturbed. The graph depicts the MPC and MSC of the robot factory production. The robot market is competitive and the market price is £340. Based on this information, which of the following statements is correct?
There is a unique socially optimal level of output.
The graph depicts the MPC and MSC of the robot factory production in Question 12.1.The robot market is competitive and the market price is $340. Currently the factory is producing an output of 120, but 80 would be Pareto efficient. Which of the following statements is correct?
To reduce output to 80, the factorys minimum acceptable payment would be $1,600.
The graph shows the MPC and MSC of robot production for the factory situated next to a dormitory for nurses who work nightshifts. The market for robots is competitive and the market price is $340. The initial output is 120 but the government uses a Pigouvian tax to reduce this to the efficient level of 80. Which of the following statements is correct?
Under the Pigouvian tax, the factorys surplus will be $6,400.