Economics for Math Majors Exam
Bank
Course Introduction
This course introduces fundamental concepts in economics tailored specifically for students with a mathematical background. Emphasizing quantitative reasoning, the curriculum covers microeconomic and macroeconomic principles, including consumer and producer theory, market structures, optimization, game theory, and economic modeling. Analytical tools such as calculus and linear algebra are applied to solve and interpret economic problems, facilitating a deeper understanding of real-world economic scenarios. By the end of the course, students will be equipped to approach economic questions rigorously and will possess a strong foundation to pursue advanced studies in economics or related fields.
Recommended Textbook
Microeconomics An Intuitive Approach with Calculus 1st Edition by Thomas Nechyba
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Chapter 1: Introduction
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Q1) If two individuals voluntarily agree to a transaction that only affects them (and no one else),it must be that the transaction is efficient.
A)True
B)False
Answer: True
Q2) A spontaneous order emerges from individual decisions that cause something to "work" without anyone planning for it to "work".
A)True
B)False
Answer: True
Q3) If medical patients are rational (in the way economists think of the term),they will do what medical experts believe is best for them.
A)True
B)False
Answer: False
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Chapter 2: A Consumers Economic Circumstances
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Q1) When the good on the vertical axis is a composite good,the slope of the budget line is equal to minus the price of the good on the horizontal axis.
A)True
B)False
Answer: True
Q2) A consumer has $1,000 a week to spend on renting square feet of housing (at a price of $5 per square foot)and eating out (at a price of $20 per meal).With square feet of housing on the horizontal and meals on the vertical axis,what is the vertical intercept and what is the slope of this consumer's budget constraint?
Answer: The most meals that can be consumed with $1,000 is 50 per week --- implying a vertical intercept of 50.The most square feet that can be rented with $1,000 per week is 200,implying a horizontal intercept of 200.The slope is then -50/200=-1/4.
Q3) The only way for a consumer choice set to be non-convex is for the budget line to be kinked.
A)True
B)False
Answer: False
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Chapter 3: Economic Circumstances in Labor and Financial Markets
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Sample Questions
Q1) A bond that promises to pay $X in 10 years must be worth less than $X now.
A)True
B)False
Answer: True
Q2) Since interest rates for borrowing are usually higher than interest rates for savings,the intertemporal budget constraint has an inward kink for individuals that earn income now and in the future.
A)True
B)False
Answer: False
Q3) A decrease in a wage taxes causes the opportunity cost of leisure to increase.
A)True
B)False
Answer: True
Q4) Write down the budget constraint equation as well as the choice set for a worker who has 100 possible hours of leisure per week and can earn a wage of $25 per hour. Answer: Equation: \(c = 2500 - 25 \ell\) Choice Set: \(C = \left\{ ( c , \ell ) \in R _ { + } ^ { 2 } \mid c = 2500 - 25 \ell \right\}\)
Page 5
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Chapter 4: Tastes and Indifference Curves
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Sample Questions
Q1) You like bundle A better than bundle B,and bundle C is an average of bundles A and B.Which of the following is correct if your tastes satisfy our usual assumptions?
a.
Bundle C is at least as good as bundle B.
b.
Bundle A is at least as good as bundle C.
c.
Both (a)and (b).
d.
None of the above.
e.
There is not enough information to tell.
Q2) Suppose bundle A is better than bundle B for a consumer,and bundle C is an average of bundles A and B.
a.Use the continuity,convexity and monotonicity assumptions to formally prove that this implies that bundle C is better than bundle B.
b.Did you also -- implicitly or explicitly -- use the rationality axioms?
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Chapter 5: Different Types of Tastes
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Q1) Consider the utility function \(u \left( x _ { 1 } , x _ { 2 } \right) = x _ { 1 } ^ { \alpha } x _ { 2 } ^ { \beta }\) .Which of the following are true statements about the indifference maps represented by this function.
a.
MRS=-1 along the 45 degree line if and only if \(\alpha = \beta\) .
b.
MRS=-1 along a ray steeper than the 45 degree line if and only if \(\alpha > \beta\) .
c.
MRS=-1 along a ray shallower than the 45 degree line if and only if \(\alpha < \beta\) .
d.
All of the above.
e.
None of the above.
Q2) There are no quasilinear tastes that have constant elasticity of substitution. A)True
B)False
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Chapter 6: Doing the Best We Can
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Q1) Explain how we can estimate the shape of a person's indifference map by observing choices under different economic circumstances.Explain also why we will not be able to identify any non-convexities in tastes from our observations.
Q2) Which of the following is correct about a consumer's optimization problem: a.
In order for a consumer to not be optimizing at a corner solution,it is necessary for us to assume that all goods are essential.
b.
In order for a consumer to not be optimizing at a corner solution,it is sufficient for us to assume that all goods are essential.
c.
In order for a consumer to not be optimizing at a corner solution,it is necessary and sufficient for us to assume that all goods are essential. d.
None of the above.
Q3) If all goods are essential,a consumer will optimize at an interior solution.
A)True
B)False
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Chapter 7: Income and Substitution Effects in Consumer
Goods Markets
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Q1) Except for the case of Giffen goods,the substitution effect always tells us that a consumer will consume less (or at least no more)of a good whose price has increased.
A)True
B)False
Q2) A change in the price of one good cannot leave utility unchanged unless the price change is accompanies by a change in income.
A)True
B)False
Q3) The price of peaches goes up and I observe you buying fewer strawberries.This implies strawberries must be a normal good.
A)True
B)False
Q4) All quasilinear goods are necessities.
A)True
B)False
Q5) Every Giffen good is a necessity but not every interior good is a necessity. A)True
B)False
9
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Chapter 8: Wealth and Substitution Effects in Labor and Capital Markets
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Sample Questions
Q1) Suppose you know I are only about consumption this year and consumption next year.Suppose also that I have an income this year but do not expect to have an income next year.Explain your answers.
a.You notice that I save more after the interest rate falls.Can you tell whether "consumption now" is a normal,inferior or Giffen good?
b.Suppose I also received an unexpected raise at work and you overhear me say: "Cool,I am even Steven.Now that I have my raise,I am just as happy as I was before the interest rate fell and I did not yet have a raise." Without knowing anything more,can you tell whether I consume more or less next year than I would have consumed had neither of the two changes happened?
Q2) In a model of consumption and leisure,a drop in the wage will cause workers to work more if tastes are quasilinear in consumption.
A)True
B)False
Q3) If leisure is an inferior good,then an increase in wages will cause workers to work more.
A)True
B)False
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Chapter 9: Demand for Goods and Supply of Labor and Capital
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Sample Questions
Q1) The empirically observed backward-bending labor supply curve cannot arise from homothetic tastes.
A)True
B)False
Q2) Assuming the same sized substitution effect,normal goods have steeper cross-price demand curves than inferior goods.
A)True
B)False
Q3) Suppose your utility function is given by \(u \left( x _ { 1 } , x _ { 2 } \right) = \min \left\{ 3 x _ { 1 } , 5 x _ { 2 } \right\}\) .What is your demand function for \(x _ { 2 }\) ?
Q4) Suppose your tastes can be represented by the utility function \(u \left( x _ { 1 } , x _ { 2 } \right) = x _ { 1 } ^ { 1 / 2 } + x _ { 2 } ^ { 1 / 2 }\) .Your demand function for \(x _ { 1 }\) is a. \(\frac { I } { 2 p _ { 1 } }\).
c. \(\frac { I } { p _ { 1 } + p _ { 2 } }\).
b. \(\frac { p _ { 2 } I } { p _ { 1 } \left( p _ { 1 } + p _ { 2 } \right) }\)
d. \(\frac { I } { p _ { 1 } }\) if \(p _ { 1 } < p _ { 2 }\) and 0 if \(p _ { 2 } < p _ { 1 }\).
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Chapter 10: Consumer Surplus and Deadweight Loss
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Sample Questions
Q1) As we move to higher indifference curves,compensated demand (or MWTP)curves shift to the right.
A)True
B)False
Q2) Suppose x is an inferior good.Then we will overestimate the deadweight loss from taxes on consumption good x if we use the uncompensated demand curve rather than the marginal willingness to pay (or compensated demand)curve.
A)True
B)False
Q3) If tastes are homothetic,there exists a utility function that represents those tastes and that gives rise to an expenditure function which is homogeneous of degree 1 in utility.
A)True B)False
Q4) When tastes are not quasilinear,the positive economist will introduce error into the analysis if he uses the uncompensated (rather than the compensated)demand curve to predict behavior.
A)True
B)False
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Chapter 11: One Input and One Output: a Short-Run
Producer Model
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Q1) When single-input producer choice sets are non-convex,the first order condition of the profit maximization problem is neither necessary nor sufficient for identifying the profit maximizing production plan.
A)True
B)False
Q2) For price-taking producers,isoprofit curves are always parallel to one another.
A)True
B)False
Q3) Output supply curves always slope up in the one-input model.
A)True
B)False
Q4) Since the marginal product of labor can increase initially as I hire more workers,demand for labor is also upward sloping for the initial workers I hire.
A)True
B)False
Q5) In the one-input model of production,increasing marginal product implies non-convexity of the producer choice set.
A)True B)False
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Chapter 12: Production With Multiple Inputs
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Q1) Production technologies A and B can have the same-shaped isoquant map,with technology A having decreasing returns to scale and technology B having increasing returns to scale.
A)True
B)False
Q2) Just as indifference maps represent consumer tastes,so isoquant maps represent a producer tastes.
A)True
B)False
Q3) Quasiconcave production functions give rise to convex producer choice sets. A)True
B)False
Q4) Cost functions must be homogeneous of degree 1 in (input and output)prices. A)True
B)False
Q5) If production technologies are homothetic,all cost-minimizing production plans lie on the same ray from the origin for a given set of input prices. A)True B)False
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Chapter 13: Production Decisions in the Short and Long Run
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Q1) (Long run)average cost curves are U-shaped when the production technology has increasing returns to scale and the firm faces recurring fixed costs.
A)True
B)False
Q2) If a firm's labor input response to a decrease in the wage differs between the short and the long run,we know that more workers will be hired after the initial short run adjustment.
A)True
B)False
Q3) Long run marginal cost curves are increasing for decreasing returns to scale production technologies.
A)True
B)False
Q4) If the wage falls,we know for sure that the firm will produce more in the long run but we cannot be sure whether it will use more or less capital.
A)True
B)False
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15
Chapter 14: Competitive Market Equilibrium
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Q1) The long run market supply curve is formed by adding up individual firm supply curves in the industry.
A)True
B)False
Q2) Short run market supply curves are formed by adding up individual firm supply curves in the industry.
A)True
B)False
Q3) If firms differ in terms of their technologies,a drop in demand will cause a long run decrease in output price.
A)True
B)False
Q4) The reason long run market supply curves are shallower than short run market supply curves is because individual firm supply curves are shallower in the long run than in the short run.
A)True
B)False
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Chapter 15: The Invisible Hand and the First Welfare
Theorem
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Q1) If consumers within an industry cannot be represented by as single representative consumer,then the industry equilibrium does not occur where market demand intersects market supply.
A)True
B)False
Q2) If the individuals in a group of consumers all have homothetic tastes,then we can treat the group as a single representative consumer.
A)True
B)False
Q3) Suppose all individuals in a group have homothetic tastes.Then we can be sure that the group can be treated as a single representative consumer is if the group members also have identical tastes.
A)True
B)False
Q4) Aggregate producer surplus in an industry can be measured along the market supply curve in the short run but not in the long run.
A)True
B)False
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Chapter 16: General Equilibrium
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Sample Questions
Q1) If the two goods in an Edgeworth Box are perfect complements for one person -- and if the other person has the typical tastes that satisfy our usual assumptions (without being extreme in any way),any efficient allocation will be such that the first person has equal amounts of good 1 and good 2.
Q2) Suppose we live in an exchange economy with two goods.Together,we own 300 of good 1 and 300 of good 2.My tastes are captured by the utility function \(u \left( x _ { 1 } , x _ { 2 } \right) = x _ { 2 } + 50 \ln x _ { 1 }\) and yours are captured by the utility function \(u \left( x _ { 1 } , x _ { 2 } \right) = x _ { 2 } + 100 \ln x _ { 1 }\) .
a.Calculate the portion of the contract curve that lies in the interior of the Edgeworth Box.
b.Can you make intuitive sense of your answer?
Q3) If all goods are essential for everyone,efficiency requires that everyone get at least some of each good.
A)True
B)False
Q4) If good 1 is essential for one person but not for the other,the first person will end up with all of good 1 in a competitive equilibrium within the Edgeworth Box.
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Chapter 17: Choice and Markets in the Presence of Risk
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Q1) Suppose,after undergoing genetic testing,you discover that you have a health condition that could result in the emergence of a disability which would make it impossible for you to continue to work.The probability of this happening is 50%.Currently your expected lifetime earnings are $5,000,000,but if the disability hits,your expected lifetime earnings will consist primarily of income earned from government support programs -- and will not add up to more than $1 million.
a.Suppose that you are risk averse and your tastes are state-independent.Illustrate your expected utility in a graph with lifetime consumption on the horizontal and utility on the vertical axis.
b.Illustrate how much you would be willing to pay for full insurance.
c.Illustrate what you showed in (b)in a different graph that has consumption in the "good" state on the horizontal and consumption in the "bad" state on the vertical.
d.What would a full menu of actuarily fair insurance contracts look like in your graph from part (c)? Where would you optimize in that graph?
e.Now suppose that you believe consumption will be more meaningful if the health condition does not materialize.What changes in your graph from part (d)?
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Chapter
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Q1) Price ceilings have to be set above the undistorted market equilibrium price in order to have any impact.
A)True
B)False
Q2) Suppose that the market demand curve is \(p = 30 - 2 x\) and the market supply curve is \(p = X\) .
a.Calculate the equilibrium price and output level.
b.Suppose a price floor of 16 is imposed in this market.What is the new equilibrium quantity transacted in the market?
c.How does the price that firms receive -- net any additional marginal effort costs they incur -- compare to the price consumers pay?
d.What is the total cost of the additional effort firms have to exert in equilibrium?
Q3) When leisure is an inferior good,the wage elasticity of labor supply is always positive.
A)True
B)False
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Chapter 19: Distortionary Taxes and Subsidies
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Q1) Regardless of the size of wealth and substitution effects for workers,the benefit of a wage subsidy will accrue disproportionately to workers if the labor supply curve is relatively more wage-inelastic than the labor demand curve.
A)True
B)False
Q2) Suppose demand has price elasticity of 1 everywhere and the industry is perfectly competitive with identical firms.In the long run,tax revenue increases as tax rates increase.
A)True
B)False
Q3) Suppose tastes for consumption now and consumption in the future have constant elasticity of substitution.It may then be the case that a tax on interest income is efficient even if savings (defined as current income not consumed)fall in response to the tax.
A)True
B)False
Q4) In most cases,the fact that one of the market curves is perfectly inelastic is not sufficient to conclude that a per-unit tax in that market is efficient.A tax on land rents is an exception.Can you explain why?
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Chapter 20: Prices and Distortions Across Markets
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Q1) In a world of certainty about future demand and supply,speculators cause price fluctuations across time to decrease.
A)True
B)False
Q2) If country A is importing good x from country B where x is produced along a perfectly inelastic supply curve,then country B will suffer the entire deadweight loss from any tariff imposed on imports to country A.
A)True
B)False
Q3) When speculators buy gasoline during the low demand spring in order to sell it during the high demand summer,they cause an increase in dead weight loss in the spring that is more than made up for by an increase in social surplus in the summer.
A)True
B)False
Q4) Explain the impact of speculators on markets is similar and how it may be different from the impact of exporters and importers.
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Chapter 21: Externalities in Competitive Markets
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Q1) In order for a Pigouvian tax to be efficient,the amount of revenue raised plus the economic value of the reduction in pollution must together be larger than the loss in consumer and producer surplus.
A)True
B)False
Q2) In order for a Pigouvian subsidy to be efficient,the amount it costs the government to implement the subsidy must be less than the economic value of the additional externality benefits created by the subsidy.
A)True
B)False
Q3) According to the Coase Theorem,so long as property rights are established and transactions costs are low,plaintiffs in court cases involving externalities will not care which way a judge decides.
A)True
B)False
Q4) One condition for the first welfare theorem to hold is that there are no externalities.Can this condition be re-phrased as "all property rights have been established"? And how does this justify a wide range of what we see government doing?
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Chapter 22: Asymmetric Information in Competitive Markets
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Q1) In equilibrium,consumers will incur costs to signal their type (in markets with adverse selection)only if this results in a price that is lower than the pooling equilibrium price.
A)True
B)False
Q2) Suppose a competitive market with adverse selection has settled into a pooling equilibrium where everyone is offered the same price.If firms then screen consumers,the outcome may and may not be more efficient.
A)True
B)False
Q3) Suppose a competitive market with adverse selection has settled into a pooling equilibrium where everyone is offered the same price.If full markets are re-established through signals,the new equilibrium will be more efficient than the original pooling equilibrium.
A)True B)False
Q4) Whenever there is adverse selection,there will be missing market.
A)True
B)False
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Chapter 23: Monopoly
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Q1) Depending on the shape of the marginal cost curve,a monopolist might produce an output level on the elastic or the inelastic part of demand.
A)True
B)False
Q2) If a monopolist has no marginal costs and only recurring fixed costs,then,if he produces,any quantity that he produces is profit maximizing if the price elasticity of market demand is -1.
A)True
B)False
Q3) For any constant-elasticity market demand curve,a monopolist is profit maximizing regardless of what quantity he produces so long as marginal costs are zero.
A)True
B)False
Q4) If a monopolist were allowed (and able)to first degree price discrimination,there would be no efficiency/equity tradeoff so long as the government can tax the profits of the firm and redistribute the tax revenues in a lump sum way.
A)True
B)False
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Chapter 24: Strategic Thinking and Game Theory
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Q1) If a separating equilibrium is played in a signaling game,the receiver will "update" his beliefs during the game.
A)True
B)False
Q2) Suppose a player in a sequential game has 5 potential decision nodes,with 2 possible actions at each node.Then he has 25 possible pure strategies.
A)True
B)False
Q3) If everyone has a dominant strategy,there can be no mixed strategy equilibrium.
A)True
B)False
Q4) If a pooling equilibrium is played in a signaling game,beliefs about the sender type can take on any form along the branch of the game tree that is not played in equilibrium,but on the branch that is played,beliefs are identical to the probability distribution with which "nature" assigned types to the sender.
A)True
B)False
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Chapter 25: Oligopoly
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Q1) Suppose that a market is currently served by a single firm protected by high entry costs from any potential competition.Then imagine fixed entry costs gradually falling in a model where any competition will be with quantity as the strategic variable.Describe how you would expect output price to evolve as entry costs fall.
Q2) In a 2-firm oligopoly,if you can choose to either be a simultaneous move Cournot competitor or a Stackelberg leader,you will always choose to be a Stackelberg leader.
A)True B)False
Q3) Explain why firms in a cartel might lobby for government regulation.
Q4) Suppose two Bertrand price competitors have different constant marginal costs.In any simultaneous move Nash equilibrium,only the lower cost firm will produce. A)True B)False
Q5) Two firms in an oligopoly can always do better if one firm buys the other. A)True B)False
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Chapter 26: Product Differentiation and Innovation in Markets
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Q1) Under monopolistic competition,the number of firms increases as fixed entry costs fall and as demand for the type of good produced in the market increases.
A)True
B)False
Q2) Since firms within a monopolistically competitive industry set output where marginal revenue is equal to marginal cost,the size of the fixed entry cost does not impact the equilibrium price.
A)True
B)False
Q3) In a monopolistically competitive equilibrium,firms outside the industry could make at most zero profit by entering the industry.
A)True
B)False
Q4) Since firms outside an industry cannot have an incentive to enter the industry in equilibrium,firms inside a monopolistically competitive equilibrium must be making zero profit.
A)True
B)False
28
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Chapter 27: Public Goods
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Q1) If the formation of Lindahl prices to support an efficient level of public goods is derived from individuals' reporting their marginal willingness to pay,people will under-report their true willingness to pay.
A)True
B)False
Q2) Public goods arise because of externalities.
A)True
B)False
Q3) Our free-rider model of voluntary giving suggests that,when the government subsidizes private giving to charity,it's contribution will simply "crowd out" the private contributions so long as no one is at a corner solution.
A)True
B)False
Q4) Tiebout local public good provision is more easily implemented than a Lindahl equilibrium -- because people know each other's tastes locally and can more easily come up with the right way to divide the cost for public goods.
A)True
B)False
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Chapter 28: Governments and Politics
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Q1) Suppose there are 3 voters in a legislature,and two projects are up for consideration.Project A creates benefits of 3 for district 1 but benefit of -1 in district 2 and -3 in district 3.Project B creates benefits of 3 in district 2,-1 in district 1 and -3 in district 3.
a.Would either of these projects be implemented under simple majority rule voting (where each project is approved or not approved on its own)?
b.How would your answer to (a)change if the projects can be bundled?
c.Is it efficient to fund these projects?
d.Suppose the Coase Theorem applies to legislatures -- i.e.suppose legislators can create alternatives with cash side-payments.What might voter 3 do to prevent the outcome in (b)?
e.True or False: If transactions costs are low and side-payments are allowed,only efficient projects will pass under vote trading.
Q2) Median voters in settings where the policy space is single dimensional and everyone has single peaked preferences are Arrow Dictators.
A)True
B)False
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Chapter 29: What Is Good Challenges From Psychology and Philosophy
Available Study Resources on Quizplus for this Chatper
20 Verified Questions
20 Flashcards
Source URL: https://quizplus.com/quiz/62741
Sample Questions
Q1) If social indifference curves are straight lines with slope of -1,the ethical standard for judging outcomes places all weight on the sum of outcomes and no weight on the distribution of outcomes.
A)True
B)False
Q2) Comment on the following: "Present-biased people are impatient,but impatient people don't necessarily have to be present-biased."
Q3) What's the Easterlin Paradox -- and in what sense does it suggest reference-dependent preferences?
Q4) Positive neoclassical economists are different from positive behavioral economists in that positive behavioral economists place more value on having models accurately represent people's true happiness.
A)True
B)False
Q5) What do you think of the following statement: To the extent to which individuals are aware of their self-control problems,markets can address the issue successfully.
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