Question 1

Liberal and conservative economists agree more often on policy prescriptions than most noneconomists think they do.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) it does not take market failures or failures of market outcome into account when 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 when 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 3

One reason economists have many different views on social policy is that:

Accepted Answer

A) economic policy is an exact science. 
B) policy proposals must be based on precise evidence. 
C) policy proposals are based on various models that focus on different aspects of a problem. 
D) economic policy cannot involve value judgments. 
A) economic policy is an exact science. 
B) policy proposals must be based on precise evidence. 
C) policy proposals are based on various models that focus on different aspects of a problem. 
D) economic policy cannot involve value judgments.

Question 4

Government intervention may create more problems than it is designed to solve.

Accepted Answer

A) True 
 B)False

Question 5

Usually policy makers ask advice from economists whose values are very different from their own.

Accepted Answer

A) True 
 B)False

Question 6

When a purely competitive market is in equilibrium:

Accepted Answer

A) marginal cost equals marginal benefit. 
B) total cost equals total benefit. 
C) average cost equals average benefit. 
D) the sum of marginal cost and marginal benefit is maximized. 
A) marginal cost equals marginal benefit. 
B) total cost equals total benefit. 
C) average cost equals average benefit. 
D) the sum of marginal cost and marginal benefit is maximized.

Question 7

Which of the following best exemplifies a failure of market outcome?

Accepted Answer

A) Secondhand smoke can put the health of children at risk. 
B) Consumers often don't know as much about the car they are buying than the person selling the car does. 
C) Adults with emphysema find it difficult to quit smoking even though they know that smoking worsens their health and they want a long life. 
D) Some people can enjoy the use of a public park without paying for it. 
A) Secondhand smoke can put the health of children at risk. 
B) Consumers often don't know as much about the car they are buying than the person selling the car does. 
C) Adults with emphysema find it difficult to quit smoking even though they know that smoking worsens their health and they want a long life. 
D) Some people can enjoy the use of a public park without paying for it.

Question 8

When does the government contribute positively to economic policy? When does it contribute negatively?

Accepted Answer

Government's contribution to economic po

Question 9

Suppose a person can play the lottery for $1.00. His chance of winning $25 million is 1 in 50 million. If there are no other costs or benefits involved, the logic of cost/benefit analysis says:

Accepted Answer

A) he should play the lottery. 
B) he should not play the lottery. 
C) he should play only if he does not have a self-control problem with gambling. 
D) there is not enough information to decide whether he should play. 
A) he should play the lottery. 
B) he should not play the lottery. 
C) he should play only if he does not have a self-control problem with gambling. 
D) there is not enough information to decide whether he should play.

Question 10

Robert needs to raise $100,000 to pay for an operation that will save his wife's life. The only way he can raise the money is to sell one of his kidneys to a wealthy man in need of a kidney transplant. 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 body parts 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 body parts is morally wrong. 
D) should be permitted as long as each party enters into the agreement voluntarily.

Question 11

One issue with using lifetime earnings as a proxy for human life is that it treats upper-income jobs and hence individuals in those jobs as more valuable than lower-income individuals.

Accepted Answer

A) True 
 B)False

Question 12

How do the concepts of market failure and failure of market outcome relate to the concept of economic efficiency?

Accepted Answer

A) Market failure means the economy is not economically efficient; failure of market outcome could happen even if the economy is economically efficient. 
B) Failure of market outcome means the economy is not economically efficient; market failure could happen even if the economy is economically efficient. 
C) Both market failure and failure of market outcome mean that the economy is not economically efficient. 
D) Both market failure and failure of market outcome could happen even if the economy is economically efficient. 
A) Market failure means the economy is not economically efficient; failure of market outcome could happen even if the economy is economically efficient. 
B) Failure of market outcome means the economy is not economically efficient; market failure could happen even if the economy is economically efficient. 
C) Both market failure and failure of market outcome mean that the economy is not economically efficient. 
D) Both market failure and failure of market outcome could happen even if the economy is economically efficient.

Question 13

Pareto optimal policies are almost nonexistent in the real world.

Accepted Answer

A) True 
 B)False

Question 14

When economists with different political views do cost/benefit comparisons,they often reach different conclusions.If their analysis were based on objective costs and valid techniques,why wouldn't they reach similar conclusions,even if those conclusions conflicted with their political beliefs? Explain.

Accepted Answer

While economists use standard techniques

Question 15

Economic models generally:

Accepted Answer

A) focus on all important aspects of economic reality. 
B) reflect certain value judgments, since they must focus on certain aspects of economic reality and not on others. 
C) do not involve value judgments because they are purely mathematical. 
D) are close representations of real-world economic reality. 
A) focus on all important aspects of economic reality. 
B) reflect certain value judgments, since they must focus on certain aspects of economic reality and not on others. 
C) do not involve value judgments because they are purely mathematical. 
D) are close representations of real-world economic reality.

Question 16

A proposal to build a dam on a wild river may look like a good idea from the cost/benefit study done by the Army Corps of Engineers, but an analysis done by the Sierra Club might suggest that the dam would be a complete waste of money. Differences in cost/benefit studies such as this are expected because:

Accepted Answer

A) at least one side is definitely making mistakes in the analysis. 
B) at least one side is trying to deceive the public. 
C) cost/benefit studies describe what people want to happen, not what will actually happen. 
D) items that do not have market prices, such as the environment, are very difficult to value objectively. 
A) at least one side is definitely making mistakes in the analysis. 
B) at least one side is trying to deceive the public. 
C) cost/benefit studies describe what people want to happen, not what will actually happen. 
D) items that do not have market prices, such as the environment, are very difficult to value objectively.

Question 17

Three reasons why economists have different views on social policy issues are: (1)their views on social policy are influenced by their subjective value judgments, (2)policy must be based on imprecise empirical evidence,and (3)policy proposals can be derived from different economic models.Discuss each of these reasons.

Accepted Answer

(1)In practice,social goals are vaguely

Question 18

The most likely reason politicians don't appear to economists to look at policy issues in a cost/benefit framework is that:

Accepted Answer

A) politicians are not economists. 
B) politicians don't make rational decisions. 
C) the marginal costs and marginal benefits facing the politician are not necessarily the ones facing society. 
D) politicians are focusing on the long-run effects of policies rather than the short-run effects. 
A) politicians are not economists. 
B) politicians don't make rational decisions. 
C) the marginal costs and marginal benefits facing the politician are not necessarily the ones facing society. 
D) politicians are focusing on the long-run effects of policies rather than the short-run effects.

Question 19

Which of the following is not an example of a failure of market outcome?

Accepted Answer

A) Income is not distributed in a way society wants. 
B) Emission of pollutants is producing acid rain and killing wildlife. 
C) Addicts continue to use heroin even though they would be better off without it. 
D) A person with a gun offers you your life for your money. 
A) Income is not distributed in a way society wants. 
B) Emission of pollutants is producing acid rain and killing wildlife. 
C) Addicts continue to use heroin even though they would be better off without it. 
D) A person with a gun offers you your life for your money.

Question 20

Governments that impose sin taxes on goods they believe are harmful to the consumer may not take into account deadweight loss because:

Accepted Answer

A) producer surplus increases when sin taxes are instituted. 
B) the demand curve reflects individuals' desire but not their ability to purchase. 
C) the consumer surplus that is lost may not reflect the consumer's welfare. 
D) individuals are self-interest-seeking rational beings. 
A) producer surplus increases when sin taxes are instituted. 
B) the demand curve reflects individuals' desire but not their ability to purchase. 
C) the consumer surplus that is lost may not reflect the consumer's welfare. 
D) individuals are self-interest-seeking rational beings.

Exam 23: Microeconomic Policy, Economic Reasoning, and Beyond

Liberal and conservative economists agree more often on policy prescriptions than most noneconomists think they do.

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

One reason economists have many different views on social policy is that:

Government intervention may create more problems than it is designed to solve.

Usually policy makers ask advice from economists whose values are very different from their own.

When a purely competitive market is in equilibrium:

Which of the following best exemplifies a failure of market outcome?

When does the government contribute positively to economic policy? When does it contribute negatively?

Suppose a person can play the lottery for $1.00. His chance of winning $25 million is 1 in 50 million. If there are no other costs or benefits involved, the logic of cost/benefit analysis says:

Robert needs to raise $100,000 to pay for an operation that will save his wife's life. The only way he can raise the money is to sell one of his kidneys to a wealthy man in need of a kidney transplant. This is an example of a trade that:

One issue with using lifetime earnings as a proxy for human life is that it treats upper-income jobs and hence individuals in those jobs as more valuable than lower-income individuals.

How do the concepts of market failure and failure of market outcome relate to the concept of economic efficiency?

Pareto optimal policies are almost nonexistent in the real world.

Economic models generally:

The most likely reason politicians don't appear to economists to look at policy issues in a cost/benefit framework is that:

Which of the following is not an example of a failure of market outcome?

Governments that impose sin taxes on goods they believe are harmful to the consumer may not take into account deadweight loss because:

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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