Question 1

A Pareto optimal policy improves:

Accepted Answer

A) the welfare of Pareto. 
B) the welfare of more people than it hurts. 
C) the welfare of at least 50 percent of the population. 
D) everyone's welfare. 
A) the welfare of Pareto. 
B) the welfare of more people than it hurts. 
C) the welfare of at least 50 percent of the population. 
D) everyone's welfare.

Question 2

Public choice economists use models that focus on economic incentives as applied to politicians.

Accepted Answer

A) True 
 B)False

Question 3

Suppose two economists disagree about whether a particular tax cut is a good policy. The economist supporting the cut believes that it will increase economic growth. The other economist opposes it because he thinks it will have no effect on growth. The source of their disagreement in this case is most likely due to different:

Accepted Answer

A) value judgments. 
B) interpretations of empirical evidence. 
C) interpretation of Pareto optimality. 
D) levels of coldheartedness. 
A) value judgments. 
B) interpretations of empirical evidence. 
C) interpretation of Pareto optimality. 
D) levels of coldheartedness.

Question 4

"I believe that consumer sovereignty is a good thing." This person believes that:

Accepted Answer

A) people are often manipulated by advertisers. 
B) businesses should produce for people's needs, not for profits. 
C) people often have self-control problems. 
D) businesses should produce what people want. 
A) people are often manipulated by advertisers. 
B) businesses should produce for people's needs, not for profits. 
C) people often have self-control problems. 
D) businesses should produce what people want.

Question 5

Which of the following statements is true?

Accepted Answer

A) People regard human life as priceless when making choices involving risk. 
B) Only economists behave as if life has a finite value. 
C) Economists calculate the value of life on the basis of the cost of dying. 
D) People make decisions every day that reflect the valuations they place on their own lives. 
A) People regard human life as priceless when making choices involving risk. 
B) Only economists behave as if life has a finite value. 
C) Economists calculate the value of life on the basis of the cost of dying. 
D) People make decisions every day that reflect the valuations they place on their own lives.

Question 6

If the demand for cigarettes is inelastic, a per-unit tax on cigarettes will cause the quantity demanded to:

Accepted Answer

A) fall proportionally more than the increase in price caused by the tax. 
B) fall proportionally less than the increase in price caused by the tax. 
C) rise proportionally more than the increase in price caused by the tax. 
D) rise proportionally less than the increase in price caused by the tax. 
A) fall proportionally more than the increase in price caused by the tax. 
B) fall proportionally less than the increase in price caused by the tax. 
C) rise proportionally more than the increase in price caused by the tax. 
D) rise proportionally less than the increase in price caused by the tax.

Question 7

U.S. government laws limit the importation of sugar into the United States. As a result, the U.S. price of sugar is about three times as high as the world price of sugar. U.S. sugar producers strongly support these rules. How would most economists explain this policy?

Accepted Answer

A) It is an example of a form of sin tax intended to help people with a self-control problem involving sweets. 
B) It illustrates the public choice view that small gains concentrated to a few producers can be more important politically than large losses spread over many consumers. 
C) The policy is a way of solving an income distribution problem; it redistributes from the rich to the poor. 
D) It is an example of the government using cost/benefit analysis to correct a market failure. 
A) It is an example of a form of sin tax intended to help people with a self-control problem involving sweets. 
B) It illustrates the public choice view that small gains concentrated to a few producers can be more important politically than large losses spread over many consumers. 
C) The policy is a way of solving an income distribution problem; it redistributes from the rich to the poor. 
D) It is an example of the government using cost/benefit analysis to correct a market failure.

Question 8

People who believe that consumer sovereignty is a reasonable ideal are likely to agree that:

Accepted Answer

A) people sometimes need to be protected from themselves. 
B) people's wants are plastic and easily manipulated by advertising. 
C) people often have self-control problems that make it difficult to figure out exactly what they do want and what is best for themselves. 
D) people should be allowed to do whatever they want as long as no one else is hurt. 
A) people sometimes need to be protected from themselves. 
B) people's wants are plastic and easily manipulated by advertising. 
C) people often have self-control problems that make it difficult to figure out exactly what they do want and what is best for themselves. 
D) people should be allowed to do whatever they want as long as no one else is hurt.

Question 9

Most economists agree that the best way to evaluate policy is to:

Accepted Answer

A) learn if the policy can be determined through a democratic political process, not simply imposed by a bureaucracy. 
B) determine whether the public thought that the government had done all it could do to solve the problem. 
C) know whether the intentions behind the policy were good intentions. 
D) compare the actual benefits of the policy with the actual costs. 
A) learn if the policy can be determined through a democratic political process, not simply imposed by a bureaucracy. 
B) determine whether the public thought that the government had done all it could do to solve the problem. 
C) know whether the intentions behind the policy were good intentions. 
D) compare the actual benefits of the policy with the actual costs.

Question 10

The primary problem with estimating elasticity of demand is that:

Accepted Answer

A) data on the prices firms charge are unavailable. 
B) data on the quantities firms sell are unavailable. 
C) real-world changes in quantity demanded are the result of changes in price only. 
D) real-world changes in quantity demanded are the result of changes in many variables other than price alone. 
A) data on the prices firms charge are unavailable. 
B) data on the quantities firms sell are unavailable. 
C) real-world changes in quantity demanded are the result of changes in price only. 
D) real-world changes in quantity demanded are the result of changes in many variables other than price alone.

Question 11

A government airline safety regulation reduces the probability of a fatal airline crash by 0.005. If the costs associated with each airplane crash are equal to $600 million and the costs of performing more frequent safety inspections equal $4 million, the regulation is:

Accepted Answer

A) cost-effective because the marginal cost is $4 million and the marginal benefit is $600 million. 
B) not cost-effective because the marginal cost is $4 million and the marginal benefit is $1 million. 
C) cost-effective because the marginal cost is $3 million and the marginal benefit is $4 million. 
D) not cost-effective because the marginal cost is $4 million and the marginal benefit is $3 million. 
A) cost-effective because the marginal cost is $4 million and the marginal benefit is $600 million. 
B) not cost-effective because the marginal cost is $4 million and the marginal benefit is $1 million. 
C) cost-effective because the marginal cost is $3 million and the marginal benefit is $4 million. 
D) not cost-effective because the marginal cost is $4 million and the marginal benefit is $3 million.

Question 12

Public choice economists focus on:

Accepted Answer

A) how the invisible hand achieves harmony and equilibrium through the market. 
B) the tensions among social classes. 
C) economic incentives faced by politicians. 
D) cultural and historical aspects of the market. 
A) how the invisible hand achieves harmony and equilibrium through the market. 
B) the tensions among social classes. 
C) economic incentives faced by politicians. 
D) cultural and historical aspects of the market.

Question 13

Performing cost/benefit analysis involves:

Accepted Answer

A) quantifying the costs and benefits associated with a given activity and deeming the activity worthwhile only if the costs exceed the benefits. 
B) quantifying the costs and benefits associated with a given activity and deeming the activity worthwhile only if the benefits exceed the costs. 
C) only those activities that provide an explicit monetary loss and gain. 
D) only those activities that provide an implicit monetary loss and gain. 
A) quantifying the costs and benefits associated with a given activity and deeming the activity worthwhile only if the costs exceed the benefits. 
B) quantifying the costs and benefits associated with a given activity and deeming the activity worthwhile only if the benefits exceed the costs. 
C) only those activities that provide an explicit monetary loss and gain. 
D) only those activities that provide an implicit monetary loss and gain.

Question 14

Give two reasons why economists have different views on social policy issues.

Accepted Answer

Any two of the following are acceptable.

Exam 23: Microeconomic Policy, Economic Reasoning, and Beyond

A Pareto optimal policy improves:

Public choice economists use models that focus on economic incentives as applied to politicians.

"I believe that consumer sovereignty is a good thing." This person believes that:

Which of the following statements is true?

If the demand for cigarettes is inelastic, a per-unit tax on cigarettes will cause the quantity demanded to:

U.S. government laws limit the importation of sugar into the United States. As a result, the U.S. price of sugar is about three times as high as the world price of sugar. U.S. sugar producers strongly support these rules. How would most economists explain this policy?

People who believe that consumer sovereignty is a reasonable ideal are likely to agree that:

Most economists agree that the best way to evaluate policy is to:

The primary problem with estimating elasticity of demand is that:

A government airline safety regulation reduces the probability of a fatal airline crash by 0.005. If the costs associated with each airplane crash are equal to $600 million and the costs of performing more frequent safety inspections equal $4 million, the regulation is:

Public choice economists focus on:

Performing cost/benefit analysis involves:

Give two reasons why economists have different views on social policy issues.

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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