Economic Policy Analysis
Exam Questions
Course Introduction
Economic Policy Analysis examines the tools and frameworks used to evaluate, design, and implement public policy from an economic perspective. The course covers fundamental concepts such as market efficiency, market failure, cost-benefit analysis, and the impact of government interventions on economic outcomes. Students will learn quantitative and qualitative techniques to assess policy effectiveness, considering factors such as income distribution, efficiency, and equity. Real-world case studies and empirical data guide the analysis of current issues in taxation, public expenditure, regulation, and social policy, equipping students with the skills to critically evaluate economic policies in both domestic and global contexts.
Recommended Textbook
Microeconomics 5th Edition by David Besanko
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Chapter 1: Analyzing Economic Problems
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Sample Questions
Q1) An example of constrained optimization would be
A) a firm trying to maximize its profits subject to its budget constraint.
B) a ball coming to rest at the bottom of a cup.
C) an analysis of how market prices change when supply conditions change.
D) An analysis of the effect of facilitating internet trading on market price.
Answer: A
Q2) An endogenous variable is
A) a variable that an economic agent chooses.
B) consumption, investment or government spending.
C) a variable determined within the economic system being studied.
D) a variable pertaining to the home country economy.
Answer: C
Q3) Which of the following is the best example of a consumer's objective function?
A) profits.
B) consumption.
C) satisfaction
D) budget constraint.
Answer: C
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Chapter 2: Demand and Supply Analysis
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Sample Questions
Q1) Consider the demand curve Q<sup>d</sup> = 500P<sup> </sup><sup>-</sup><sup>2</sup>. If the price is 1, the elasticity of demand is
A) -0.50
B) -2
C) 500
D) -500
Answer: B
Q2) All else equal, an increase in the price of bicycle helmets, would tend to
A) reduce the demand for cars
B) increase the demand for bicycles
C) reduce the demand for bicycles
D) cause more riders to walk to work.
Answer: C
Q3) A simultaneous shift to the right of both supply and demand will
A) increase the equilibrium price
B) decrease the equilibrium price
C) increase the equilibrium quantity
D) decrease the equilibrium quantity
Answer: C
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Page 4
Chapter 3: Consumer Preferences and the Concept of Utility
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Sample Questions
Q1) Jacob's estimated utility from pizza is given by 3Z, where Z is the number of pizzas he consumes per month. We can say that:
A) Jacob likes pizza better than steak.
B) Jacob is a vegetarian.
C) Jacob's preferences are transitive.
D) Jacob's marginal utility from pizza is constant.
Answer: D
Q2) Consider the utility function U = 5x +3y<sup>2</sup>, which has MU<sub>x</sub> = 5 and MU<sub>y</sub> = 6y. The indifference curves for this utility function
A) will be straight lines.
B) will have the same \( M R S_{x, y} \) as y increases holding x constant.
C) will have the same \( M R S_{x, y} \) as x increases holding y constant.
D) will have a diminishing marginal rate of substitution as the consumer substitutes x for y .
Answer: C
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Page 5
Chapter 4: Consumer Choice
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Sample Questions
Q1) When analyzing how borrowing and lending affect the consumer's budget constraint, we measure spending in the current time period on the horizontal axis and spending in the future time period on the vertical axis. Assume that the interest rate at which the consumer can lend and borrow is 10% and income in period 1 is $1000 while income in period 2 is $1200. The point of maximum future consumption can be expressed as
A) 1000 + 1200/1.1.
B) 1000(1.1) + 1200.
C) 1000+1200+.1.
D) 1000/1.1 + 1200/1.1 + 1.
Q2) The theory of consumer choice
A) describes how a consumer chooses between different budget constraints.
B) describes how a consumer chooses between different income levels.
C) describes how a consumer allocates her limited income among available goods and services.
D) describes how a consumer allocates her limited preferences among available income levels.
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Chapter 5: The Theory of Demand
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Sample Questions
Q1) Leisure can be
A) either a normal good or an inferior good.
B) only a normal good.
C) considered to be an inferior good when a parallel outward shift of the budget line leads to an increase in leisure .
D) considered to be a normal good when a parallel outward shift of the budget line leads to a decrease in leisure.
Q2) Identify the truthfulness of the following statements.
I. It is possible for an Engel curve to be positively sloped for a certain region of income and negatively sloped for another region.
II) The income elasticity of demand for a normal good is negative.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.
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Chapter 6: Inputs and Production Functions
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Sample Questions
Q1) The slope of the isoquant can be expressed as
A) the ratio of the input prices.
B) the ratio of the inputs.
C) the ratio of the marginal productivities of the inputs.
D) the sum of the marginal productivities of the inputs.
Q2) Identify the truthfulness of the following statements. I. When the marginal product of labor is falling, the average product of labor is falling.
II) When the marginal product curve lies above the average product curve, then average product is rising.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.
Q3) When a production function has the form Q = aL + bK, we can say that
A) the production function is linear and the inputs are perfect substitutes.
B) the production function is linear and the inputs are perfect complements.
C) the production function is linear and the inputs are used in fixed factor proportions only.
D) the production function is non-linear and the inputs are perfect substitutes.
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Page 8
Chapter 7: Costs and Cost Minimization
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Sample Questions
Q1) Identify the truthfulness of the following statements.
I. All fixed costs are sunk costs.
II. All sunk costs are fixed costs.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.
Q2) You decide to purchase a new car for $12,000. Upon driving the car off of the lot, the resale value of the car falls to $9,000. The opportunity cost of purchasing the car is __________ and the opportunity cost of using the car is __________
A) $12,000 and $9,000.
B) $12,000 and $3,000.
C) Unknown and $9,000.
D) Unknown and $3,000.
Q3) The cost-minimization problem of the firm is to
A) maximize output subject to a given cost constraint.
B) minimize total cost.
C) minimize average cost.
D) minimize total cost of producing a particular level of output.
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Page 9
Chapter 8: Cost Curves
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Sample Questions
Q1) Suppose a firm's short run total cost curve can be expressed as S \(T C ( Q ) = 50 Q + 10\) . This firm's short-run marginal cost can be expressed as
A) \(50 + 10 / Q\) .
B) \(50 Q\) .
C) 50.
D) 10.
Q2) The short-run total cost curve is the sum of two components
A) Short-run and long-run
B) Total variable cost curve and total fixed cost curve
C) Average cost curve and marginal cost curve
D) Economies of scale and economies of scope
Q3) A firm notices that when it increases output beyond an initial level \(Q _ { 1 }\) , average total cost decreases. For this firm, the region of output beyond \(Q _ { 1 }\) is characterized by
A) economies of scale.
B) diseconomies of scale.
C) constant economies of scale.
D) the minimum efficient scale.
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Chapter 9: Perfectly Competitive Markets
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Sample Questions
Q1) Explain the truthfulness of the following statements
I. A characteristic of a perfectly competitive market is that products are undifferentiated. That is, consumers perceive products to be identical.
II. Equal access to resources is a condition in which all firms, including prospective entrants, have access to the same technology and inputs.
A) Both I and II are true
B) Both I and II are false
C) I is true; II is false.
D) I is false; II is true.
Q2) Producer surplus for an entire market is
A) the difference between quantity supplied and quantity demanded.
B) the area below the market demand curve and above the market supply curve.
C) the area below price and above the market supply curve.
D) the area above price and below the market demand curve.
Q3) For an individual firm operating in the long run, producer surplus equals
A) the difference between total revenues and total opportunity costs.
B) the difference between total revenues and total sunk costs.
C) economic rent.
D) The difference between market demand and market supply.
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Page 11
Chapter 10: Competitive Markets: Applications
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Sample Questions
Q1) Identify the truthfulness of the following statements.
I. The profit in a perfectly competitive market is the one that maximizes the economic benefits (the sum of consumer and producer surplus).
II. In a way, statement I represents the "invisible hand" of the marketplace that Adam Smith was discussing in his 1776 classic treatise sometimes referred to as "The Wealth of Nations."
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.
Q2) Suppose the government sets a price ceiling of $50 in this market. What is the minimum level of deadweight loss with the price ceiling?
A) 7,500
B) 3,750
C) 1,875
D) 937.50
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Chapter 11: Monopoly and Monopsony
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Sample Questions
Q1) A monopoly market is one with A) one buyer and one seller.
B) one buyer and many sellers.
C) many buyers and one seller.
D) many buyers and many sellers.
Q2) Suppose that the perfectly competitive soybean industry in the United States is monopolized. Under perfect competition, the equilibrium price was $2 and quantity was 100,000. The monopolist raises price to $5 and restricts quantity to 70,000. Assume that the monopolist is maximizing profits and that the monopolist faces a linear, upward-sloping marginal cost curve that begins at the origin. Also assume that this marginal cost curve is the industry supply curve under perfect competition. What is the loss in consumer surplus that corresponds to dead-weight loss?
A) $210,000
B) $200,000
C) $90,000
D) $45,000
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13
Chapter 12: Capturing Surplus
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Sample Questions
Q1) The conditions for capturing more surplus from price discrimination include
A) an ability to determine which groups of people have the greatest wealth.
B) an ability to differentiate different market segments meaning that some groups of people are willing to pay more for a product than others.
C) an ability to prevent presales of products.
D) A perfectly competitive industry structure.
Q2) An example of second-degree price discrimination is
A) when you get an "early bird" discount by eating at a restaurant before 6:00 pm.
B) when you sell something illegally to an individual through the mail.
C) when you segment the market and charge individuals of different ages different prices for the same product or service.
D) when you order 12 of something online and you pay less per unit than if you had bought only one.
Q3) Bundling is a form of
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) tying.
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Chapter 13: Market Structure and Competition
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Sample Questions
Q1) A differentiated products oligopoly market consists of
A) only a few firms producing similar, but differentiated products.
B) only a few firms producing the same products.
C) many firms producing differentiated products.
D) a single, large firm producing differentiated products.
Q2) In equilibrium, what will consumer surplus be?
A) $8,100
B) $9112.5
C) $9,600
D) $1,250
Q3) If the modeling agents industry were characterized by only a few firms that represented models and handled their bookings, the industry could be characterized as
A) an oligopoly with homogeneous products.
B) an oligopoly with differentiated products.
C) a dominant firm industry.
D) monopolistic competition.
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15
Chapter 14: Game Theory and Strategic Behavior
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Sample Questions
Q1) Player A has a dominated strategy
A) when Player A has a dominant strategy.
B) in a game of chicken
C) when Player A has another strategy that gives a higher payoff regardless of what Player B does.
D) when there are less than three players per game.
Q2) Which of the following statements is not true?
A) Nash games cannot have more than one equilibrium.
B) A game can be both Cournot and Nash.
C) A game can be both Bertrand and Nash.
D) Whenever both players have a dominant strategy in a Nash game, that strategy will determine the outcome.
Q3) In Game 6 above,
A) Player A choosing A1 and Player B choosing B1 is a Nash equilibrium.
B) Player A choosing A2 and Player B choosing B2 is a Nash equilibrium.
C) there is no Nash equilibrium.
D) there are multiple Nash equilibria in pure strategies.
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Page 16
Chapter 15: Risk and Information
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Sample Questions
Q1) At node A, which decision has the higher expected value?
A) Decision A
B) Decision B
C) Either decision; they both have the same expected value.
D) Neither decision; more information is needed.
Q2) In general, with a first-price sealed-bid auction with private values, the Nash equilibrium bids will
A) increase as the number of bidders goes up.
B) decrease as the number of bidders goes up.
C) not be affected by the number of bidders in the auction.
D) decrease at a rate of 1/N where N is the number of bidders in the auction.
Q3) What is the expected value at node B?
A) 18.60
B) 16.04
C) 13.76
D) 12.50
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Chapter 16: General Equilibrium Theory
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Sample Questions
Q1) Partial equilibrium analysis differs from general equilibrium analysis in that A) a partial equilibrium analysis studies the determination of price and output determination, whereas general equilibrium includes a greater number of variables. B) prices are not held constant in all other markets in partial equilibrium, but in general equilibrium they are.
C) a partial equilibrium analysis studies the determination of price and output in a single market, whereas general equilibrium looks at more than one market simultaneously. D) a general equilibrium holds prices constant in multiple markets, whereas partial equilibrium does not.
Q2) If we consider two spices, cumin and paprika, to be substitutes, a drop in the supply of paprika, will probably cause an increase in the price of A) both
B) neither C) cumin
D) paprika
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Chapter 17: Externalities and Public Goods
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Sample Questions
Q1) An example of a good that is nonexclusive but rival is
A) hunting in a public game area.
B) national defense.
C) public radio.
D) a pay-TV channel.
Q2) ________________ states that regardless of how property rights are assigned with an externality, the allocation of resources will be will be efficient when the parties can costlessly bargain with each other.
A) Bargaining power
B) Opportunity cost
C) The Coase Theorem
D) Common Property
Q3) A nonexclusive good
A) is also non-rival.
B) is also rival.
C) must be free.
D) is one where once the good is produced, no one can be prohibited from consuming the good.
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