Question 1

Economic policy in the real world reflects:

Accepted Answer

A) special interest desires only. 
B) cost/benefit analysis only. 
C) a balancing of cost/benefit analysis and special interest desires. 
D) a complete lack of understanding of the principles of economics. 
A) special interest desires only. 
B) cost/benefit analysis only. 
C) a balancing of cost/benefit analysis and special interest desires. 
D) a complete lack of understanding of the principles of economics. C

Question 2

Consider the following supply and demand diagrams.   (a)Compute the amount of consumer plus producer surplus in each case.
(b)Which outcome would the majority of society prefer? Explain.

Accepted Answer

(a)The calculations of consumer and producer surplus:
Surplus in Diagram A:
Consumer surplus = 0.5 × 5 × 10 = 25
Producer surplus = 0.5 × 5 × 10 = 25
Total surplus = 50
Surplus in Diagram B:
Consumer surplus = 0.5 × 2 × 10 = 10
Producer surplus = 0.5 × 8 × 10 = 40
Total surplus = 50
(b)If there are more consumers than producers,the majority of the society might prefer the outcome from Diagram A for distributional reasons (since obviously consumers get more surplus in Diagram A).

Question 3

Suppose a radar-activated braking system that can help prevent crashes is an option on a new car. It costs $600 and reduces the chance of dying in an auto accident by 1/700. The implicit value placed on life by a person who does not have the system installed is therefore:

Accepted Answer

A) exactly $600. 
B) less than $420,000. 
C) at least $420,000. 
D) at least $432,000. 
A) exactly $600. 
B) less than $420,000. 
C) at least $420,000. 
D) at least $432,000. B

Question 4

The Safety Commissioner for the state of North Dakota is contemplating requiring anyone who applies for a hunting license to take a gun safety class.The state's insurance commissioner has determined that taking this course will reduce the likelihood of a self-inflicted mortality by 1/1,000,000.Recent work by an economist at the University of North Dakota indicates that hunters in North Dakota value their lives at $5,000,000.Since the Safety Commissioner is up for re-election soon,he wants to make sure the cost to hunters of the program is not too high.What price should he charge hunters for this safety class? Why might N.D.offer the course for less than the expected benefit to hunters? Explain.

Accepted Answer

Using cost/benefit analysis,the insuranc

Question 5

Which of the following ultimately must decide what externalities should be addressed?

Accepted Answer

A) Consumers 
B) The market 
C) Government 
D) Firms 
A) Consumers 
B) The market 
C) Government 
D) Firms

Question 6

The government is contemplating legalizing,and then taxing crack cocaine.Would the government prefer that the demand for crack cocaine be elastic or inelastic? Explain,using supply and demand diagrams.

Accepted Answer

The answer is: it depends.It depends upo

Question 7

To use cost/benefit analysis to decide whether to attend college, a prospective student must take into account all of the following except the:

Accepted Answer

A) income which will have to be forgone during the years when the student is attending classes rather than working. 
B) difference between expected lifetime earnings with a college degree and expected lifetime earnings without a college degree. 
C) basic entertainment expenses during the time spent in college that the student would have spent even if not attending college. 
D) additional expenses incurred while attending college, such as tuition and books. 
A) income which will have to be forgone during the years when the student is attending classes rather than working. 
B) difference between expected lifetime earnings with a college degree and expected lifetime earnings without a college degree. 
C) basic entertainment expenses during the time spent in college that the student would have spent even if not attending college. 
D) additional expenses incurred while attending college, such as tuition and books.

Question 8

Cannibalism is illegal. What issue in the text does this law best illustrate?

Accepted Answer

A) The distribution of income issues that cause failure of market outcome 
B) The self-control problems that cause failure of market outcome 
C) Violations of inalienable rights that cause failure of market outcome 
D) Information problems that can lead to market failure 
A) The distribution of income issues that cause failure of market outcome 
B) The self-control problems that cause failure of market outcome 
C) Violations of inalienable rights that cause failure of market outcome 
D) Information problems that can lead to market failure

Question 9

Which of the following is one of the reasons economists sometimes differ in their views on social policy?

Accepted Answer

A) Economists' subjective value judgments tend to be very similar. 
B) Most so-called economists have received no formal training. 
C) Different models focus on different aspects of a problem. 
D) Empirical evidence is so precise that there is little room for different interpretations. 
A) Economists' subjective value judgments tend to be very similar. 
B) Most so-called economists have received no formal training. 
C) Different models focus on different aspects of a problem. 
D) Empirical evidence is so precise that there is little room for different interpretations.

Question 10

Why should we be very careful about any cost/benefit analysis?

Accepted Answer

The cost/benefit approach is often used

Question 11

In Europe, government regulations discourage consumer credit. "It's to protect the consumer from himself," says Jacques Zeegers, secretary general to the Belgian Banking Association. As far as Mr. Zeegers is concerned, the government should worry that there is a failure caused by:

Accepted Answer

A) distributional issues. 
B) rationality problems of individuals. 
C) violations of inalienable rights. 
D) economic efficiency. 
A) distributional issues. 
B) rationality problems of individuals. 
C) violations of inalienable rights. 
D) economic efficiency.

Question 12

Politics enters into the determination of economic policy in a negative way because:

Accepted Answer

A) it does not take market failures or failures of market outcome into account in formulating policy. 
B) political decisions always reflect the will of society. 
C) it takes market failures and failures of market outcome into account in formulating policy. 
D) political decisions do not always reflect the will of society. 
A) it does not take market failures or failures of market outcome into account in formulating policy. 
B) political decisions always reflect the will of society. 
C) it takes market failures and failures of market outcome into account in formulating policy. 
D) political decisions do not always reflect the will of society.

Question 13

Anna is expecting a child but has decided that she is not ready to be a mother. She chooses to sell her newborn to Bob and Sue, a couple who have been unable to conceive a child of their own but want one desperately. This is an example of a trade that:

Accepted Answer

A) would never be permitted in any society. 
B) may benefit each party but cannot be considered efficient. 
C) may benefit each party but may not be permitted in a society that believes selling babies is morally wrong. 
D) should be permitted as long as each party enters into the agreement voluntarily. 
A) would never be permitted in any society. 
B) may benefit each party but cannot be considered efficient. 
C) may benefit each party but may not be permitted in a society that believes selling babies is morally wrong. 
D) should be permitted as long as each party enters into the agreement voluntarily.

Question 14

Why are the poor given little weight in the measure of consumer surplus?

Accepted Answer

A) The poor don't tend to vote. 
B) Many of the poor receive welfare payments. 
C) The poor don't produce many goods. 
D) The poor have little income. 
A) The poor don't tend to vote. 
B) Many of the poor receive welfare payments. 
C) The poor don't produce many goods. 
D) The poor have little income.

Question 15

"The consumer is sovereign. Businesses produce what people want. The problem today is that because of externalities, often the decisions of firms do not reflect consumer preferences." The speaker is implying:

Accepted Answer

A) both market failure and failure of market outcome. 
B) market failure but not failure of market outcome. 
C) failure of market outcome but not market failure. 
D) neither market failure nor failure of market outcome. 
A) both market failure and failure of market outcome. 
B) market failure but not failure of market outcome. 
C) failure of market outcome but not market failure. 
D) neither market failure nor failure of market outcome.

Question 16

A person will pay $1,000 (and not more)extra for a bigger car that he or she feels is safer. This car will reduce the chance of dying in an automobile accident by 1/550. That means that the buyer is implicitly valuing his or her life at roughly:

Accepted Answer

A) $5,500. 
B) $55,000. 
C) $550,000. 
D) $5,500,000. 
A) $5,500. 
B) $55,000. 
C) $550,000. 
D) $5,500,000.

Question 17

Critics of advertising sometimes argue that the overall effect of advertising is to make people believe that possessing lots of material goods is the only route to happiness. These critics also believe that this is a misleading view of happiness. Hence, these critics:

Accepted Answer

A) worry that consumers' choices have positive externalities. 
B) worry that the resulting increase in consumption increases total utility. 
C) believe that distributional issues are the main problem with any economy. 
D) reject the idea that all is well if the economy produces what people demand. 
A) worry that consumers' choices have positive externalities. 
B) worry that the resulting increase in consumption increases total utility. 
C) believe that distributional issues are the main problem with any economy. 
D) reject the idea that all is well if the economy produces what people demand.

Question 18

What does it mean to say that a market outcome is a failure?

Accepted Answer

Saying a market outcome is a f

Question 19

If individuals' demand in the marketplace does not reflect their true welfare:

Accepted Answer

A) total surplus will be maximized. 
B) consumer surplus will be negative. 
C) the market result will still be efficient. 
D) the market result will be inefficient. 
A) total surplus will be maximized. 
B) consumer surplus will be negative. 
C) the market result will still be efficient. 
D) the market result will be inefficient.

Question 20

In prisoner-of-war camps during World War II, the prisoners received identical packets of food and supplies. Nonetheless, prisoners traded items from those identical packets because their tastes differed. The initial distribution of packets was:

Accepted Answer

A) Pareto optimal because the packets were identical. 
B) Pareto optimal because there was no fairer system. 
C) not Pareto optimal because improvements were possible. 
D) not Pareto optimal because improvement was not possible. 
A) Pareto optimal because the packets were identical. 
B) Pareto optimal because there was no fairer system. 
C) not Pareto optimal because improvements were possible. 
D) not Pareto optimal because improvement was not possible.

Exam 23: Microeconomic Policy, Economic Reasoning, and Beyond

Economic policy in the real world reflects:

Consider the following supply and demand diagrams. (a)Compute the amount of consumer plus producer surplus in each case. (b)Which outcome would the majority of society prefer? Explain.

Suppose a radar-activated braking system that can help prevent crashes is an option on a new car. It costs $600 and reduces the chance of dying in an auto accident by 1/700. The implicit value placed on life by a person who does not have the system installed is therefore:

Which of the following ultimately must decide what externalities should be addressed?

The government is contemplating legalizing,and then taxing crack cocaine.Would the government prefer that the demand for crack cocaine be elastic or inelastic? Explain,using supply and demand diagrams.

To use cost/benefit analysis to decide whether to attend college, a prospective student must take into account all of the following except the:

Cannibalism is illegal. What issue in the text does this law best illustrate?

Which of the following is one of the reasons economists sometimes differ in their views on social policy?

Why should we be very careful about any cost/benefit analysis?

In Europe, government regulations discourage consumer credit. "It's to protect the consumer from himself," says Jacques Zeegers, secretary general to the Belgian Banking Association. As far as Mr. Zeegers is concerned, the government should worry that there is a failure caused by:

Politics enters into the determination of economic policy in a negative way because:

Anna is expecting a child but has decided that she is not ready to be a mother. She chooses to sell her newborn to Bob and Sue, a couple who have been unable to conceive a child of their own but want one desperately. This is an example of a trade that:

Why are the poor given little weight in the measure of consumer surplus?

"The consumer is sovereign. Businesses produce what people want. The problem today is that because of externalities, often the decisions of firms do not reflect consumer preferences." The speaker is implying:

A person will pay $1,000 (and not more)extra for a bigger car that he or she feels is safer. This car will reduce the chance of dying in an automobile accident by 1/550. That means that the buyer is implicitly valuing his or her life at roughly:

Critics of advertising sometimes argue that the overall effect of advertising is to make people believe that possessing lots of material goods is the only route to happiness. These critics also believe that this is a misleading view of happiness. Hence, these critics:

What does it mean to say that a market outcome is a failure?

If individuals' demand in the marketplace does not reflect their true welfare:

In prisoner-of-war camps during World War II, the prisoners received identical packets of food and supplies. Nonetheless, prisoners traded items from those identical packets because their tastes differed. The initial distribution of packets was:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

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