Economic Questions

1. Which of the following is an example of an externality?

		cigarette smoke that permeates an entire restaurant
		a flu shot that prevents a student from transmitting the virus
		the beautiful fountain and flowers outside of Old Main
		All of the above are correct.

1,000 points

Question 2

1. Which of the following is an example of adverse selection?

		a jobless student gets a high interest rate loan to purchase a car to get to school
		the student texts while driving her newly purchased and insured car
		because the car is old, it pollutes the air more than a new car would
		the student gets a job to pay back the loan

1,000 points

Question 3

1. Which of the following would be an example of a nongovernmental solution to a problem associated with externalities?

		society's preference to drive large cars and SUVs
		new stricter anti-pollution laws
		a general moral commitment to develop and use green technologies
		tax credits for the purchase of hybrid autos

1,000 points

Question 4

1. A tax equal to the external cost of used paper that multiplication firms impose on paper airplane firms would:

		provide multiplication firms with the incentive to increase their use of paper.
		provide multiplication firms with the incentive to decrease their use of paper.
		provide multiplication firms with little incentive to search for alternative production methods that decrease paper use.
		both b and c.

1,000 points

Question 5

1. Which of the following represents a tragedy of the commons?

		the branches of the orange tree that hang over my fence near the sidewalk never have any oranges on them
		the book you want to check out of the library has already been checked out by someone else
		you can’t find a parking spot in one of the university’s pay-to-park garages
		all of the above

1,000 points

Question 6

1. A special interest group may be successful in getting a project approved even when the potential costs far outweigh the potential benefits because:

		they are informed voters on their special interest and will reward politicians who support their interest.
		most other voters remain rationally ignorant of the issue; thus, their opinion of the politician remains unchanged.
		the cost a single, average taxpayer must pay is less than the cost they would incur if they were to protest the project.
		all of the above.

1,000 points

Question 7

1. The reason why national defense is commonly provided by the government, while food is not, is that food…

		is too essential to survival to be provided by a bureaucratic organization.
		manufacturers have successfully lobbied the government to stay out of the food industry.
		can easily be withheld from those who refuse to pay for it.
		provision is subject to a free-rider problem.

1,000 points

Question 8

1. Which of the following is an example of moral hazard?

		There are likely more cars of low quality than of high quality offered for sale without warranties in the used car market.
		An individual who eats well and exercises regularly chooses not to purchase health insurance.
		An individual drives less cautiously after obtaining automobile insurance.
		A car salesman offers a full warranty on a used car for 90 days.

1,000 points

Question 9

1. Which of the following activities represents a positive externality?

		The benefit to a consumer from watching a film on DVD.
		An increase in quantity demanded for your product when you put it on sale.
		The increase in the value of property belonging to your neighbors when you hire a landscaper to maintain your front yard.
		All of the above.

1,000 points

Question 10

1. Which of the following best illustrates the free-rider problem?

		A tollbooth is constructed at the entrance of a privately funded highway.
		Individuals contribute toward a national defense program by paying taxes to the government.
		Some homeowners in a mountain resort area refuse to contribute toward paving the area's only access road.
		You erect a locked gate around your swimming pool to keep out unsupervised children.

1,000 points

Question 11

1. A warranty offered by a seller is one way to overcome:

		a positive externality problem.
		a negative externality problem.
		an adverse selection problem.
		a free-rider problem.

1,000 points

Question 12

1. An example of a negative externality is:

		the reduction in profits for your company that occurs when there is a decrease in consumer demand for the product you manufacture.
		the sleep you lose when your neighbor throws a loud party next door that keeps you awake.
		the additional friends you make when you move into a dorm with a shared bathroom.
		all of the above

1,000 points

Question 13

1. Even with the best of intentions, a government agent may not be able to devise a socially optimal policy due to:

		the ever-changing nature of information relevant to the policy
		their lack of personal charisma
		rationally ignorant voters
		insufficient administrative help

1,000 points

Question 14

1. Which of the following provides an example of an externality?

		The air pollution generated when you drive your car.
		The view that passersby and neighbors enjoy when observing your Halloween decorations.
		The free concerts neighbors hear when an accomplished musician practices at home.
		All of the above.

1,000 points

Question 15

1. Consumers will willingly make less-informed decisions:

		if information costs are less than the perceived benefits of gathering information.
		if information costs are greater than the perceived benefits of gathering information.
		since ignorance always leads to bliss.
		whenever acquiring more information requires sacrifice.

1,000 points

Question 16

1. Which of the following is an example of a common resource?

		a city dog park
		a dog-walking service
		the county’s spay and neuter program for stray animals
		all of the above

1,000 points

Question 17

1. Which of the following is the best example of a public good?

		a national system of healthcare
		an amusement park
		city street lights
		telephone service

1,000 points

Question 18

1. Public choice theory assumes that voters, politicians, and other political participants are largely motivated by:

		personal self-interest.
		altruism.
		a desire to promote the general welfare.
		a desire to promote economic efficiency.

1,000 points

Question 19

1. If Don paints the outside of his house in large stripes and polka dots:

		he probably has lowered the value of his home, but not that of his neighbors' homes.
		he probably has lowered the value of his home and the value of his neighbors' homes.
		he probably has lowered the value of his neighbors' homes but not the value of his own home.
		none of the above

1,000 points

Question 20

1. Which of the following is true?

		Consumption of a public good by one individual reduces the availability of the good for others.
		It is extremely difficult to limit the benefits of a public good to the people who pay for it.
		Public goods are free whenever the government produces them.
		From an efficiency standpoint, a market economy will generally supply too much of a public good.

1,000 points

Question 21

1. A special interest issue is one that:

		provides large private benefits and large social benefits.
		provides small private benefits and large social benefits.
		provides large benefits to each of a small number of people and small costs to each of a large number of people.
		provides small benefits to each of a small number of people and large costs to each of a large number of people.

1,000 points

Question 22

1. Nancy loves to landscape her yard, but her neighbor Tom places a low value on his landscaping. When Tom's grass is neglected and gets long, Nancy will mow for Tom. This is an example of:

		the fallacy of composition.
		a pollution tax.
		a private solution to a negative externality problem.
		how lazy Tom is.

1,000 points

Question 23

1. Sellers may choose not to sell in certain markets because:

		it is possible to practice price discrimination against customers.
		buyers are unable to perceive the high quality of their goods and are, therefore, less willing to pay for them.
		they are able to impose negative externalities on third parties.
		an above-average profit potential is projected.

1,000 points

Question 24

1. Voters will gather information on voting alternatives:

		when the cost of acquiring such information is exorbitantly high.
		as long as the marginal benefit to them of acquiring additional information exceeds the marginal cost to them.
		as long as the marginal benefit to them of the information is less than the marginal cost to them of gathering the information.
		because the welfare of the community is always perceived to be more important than the welfare of the individual.

1,000 points

Question 25

1. If productivity of an economy increases then:

		the amount of goods and services produced by a worker per hour increases.
		the labor force increases.
		the real GDP per capita decreases.
		the labor force decreases.

1,000 points

Question 26

1. A country will roughly double its GDP in twenty years if its annual growth rate is:

		2.5 percent.
		3.5 percent.
		7.5 percent.
		12 percent.

1,000 points

Question 27

1. In the long run, the most important source of increase in a nation's standard of living is a:

		zero rate of population growth.
		high rate of economic growth.
		high rate of consumption.
		high rate of labor force growth.

1,000 points

Question 28

1. Changes in the growth rate of real GDP per capita do not reflect which of the following?

		changes in the total production of final goods in the economy
		changes in the production of final services in the economy
		changes in the distribution of income
		changes in the size of the population

1,000 points

Question 29

1. Which of the following is not considered a factor contributing to economic growth?

		Growth in the quantity and quality of labor resources used
		Growth in physical capital inputs (machines, tools, buildings, and inventories)
		Growth in the money supply relative to the growth of final goods and services
		Government protection of property rights

1,000 points

Question 30

1. Which of the following is true?

		The Rule of 70 says that the number of years necessary for a nation to double its output is approximately equal to the nation's growth rate divided by 70.
		Economic growth is usually measured by the annual percent change in the nominal output of goods and services per capita.
		An increase in labor input necessarily increases output per capita.
		Neither the initial development process nor the sustained growth of an economy is dependent on a large natural resource base.

1,000 points

Question 31

1. What are some externalities associated with cell phone use in cars?

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4,000 points

Question 32

1. You know you would be the ideal candidate for a new job that opened up, but your potential employer doesn’t know any more about you than the other applicants. Furthermore, she has no reason to believe that you are or are not telling the truth during the interview. How might you solve this asymmetric information problem and get the job offer?

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4,000 points

Question 33

1. Imagine you live with a group of people, and one of them has a habit of hanging out in the common room and talking about topics that make everyone else feel very uncomfortable.

What are two ways you may try to solve this negative externality problem?

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4,000 points

Question 34

1. What are two ways a country could promote economic growth? Explain.

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4,000 points

Question 35

1. A student chooses to sign up for a Pass/Fail grade instead of a letter grade in a given course.

Is this an example of adverse selection or moral hazard? Explain.

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4,000 points

Question 36

1. In what ways is choosing which political candidate to vote for different than going shopping?

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