Environmental Economics
Final Exam
Course Introduction
Environmental Economics explores the interrelationship between economic systems and the environment, focusing on how economic principles and tools can be applied to address environmental challenges. The course covers topics such as market failures, externalities, and the valuation of natural resources, and examines policy instruments like taxes, subsidies, and tradable permits for managing pollution and promoting sustainable resource use. Students will analyze real-world case studies to understand the trade-offs between economic development and environmental protection, and critically evaluate the effectiveness of various environmental policies at the local, national, and global levels.
Recommended Textbook
Intermediate Microeconomics A Modern Approach 9th Edition by Hal R. Varian
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Page 2
Chapter 1: Budget Constraint-Part A
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Sample Questions
Q1) There are two goods.You know how much of good 1 a consumer can afford if she spends all of her income on good 1.If you knew the ratio of the prices of the two goods, then you could draw the consumer's budget line without any more information.
A)True
B)False
Answer: True
Q2) Ads in a slick business magazine are read by 300 lawyers and 1,000 M.B.A.s.Ads in a consumer publication are read by 250 lawyers and 300 M.B.A.s.If Harry had $3,750 to spend on advertising, the price of ads in the business magazine were $500, and the price of ads in the consumer magazine were $250, then the combinations of M.B.A.s and lawyers whom he could reach with his advertising budget would be represented by the integer values along a line segment that runs between the two points
A)(4, 500, 0)and (0, 9, 000).
B)(3, 750, 4, 500)and (2, 250, 7, 500).
C)(0, 4, 500)and (2, 250, 0).
D)(4, 500, 5, 250)and (2, 250, 9, 000).
E)(3, 000, 0)and (0, 7, 500).
Answer: B
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Page 3
Chapter 1: Budget Constraint-Part B
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Sample Questions
Q1) if in the same amount of time that it takes her to read 40 pages of economics and 30 pages of sociology, Martha could read 20 pages of economics and 110 pages of sociology, then which of these equations describes combinations of pages of economics, E, and sociology, S, that she could read in the time it takes to read 40 pages of economics and 30 pages of sociology?
A)E + S = 130.
B)E/2 + S = 50.
C)E + S = 70.
D)4E + S = 190.
E)All of the above.
Answer: D
Q2) if you could exactly afford either 4 units of x and 8 units of y, or 6 units of x and 2 units of y, then if you spent all of your income on y, how many units of y could you buy?
A)20
B)26
C)10
D)14
E)None of the above.
Answer: A
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Page 4
Chapter 2: Preferences-Part A
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Sample Questions
Q1) If there are two goods, if a consumer prefers more of each good to less, and if she has a diminishing marginal rate of substitution, then her preferences are convex.
A)True
B)False
Answer: True
Q2) If preferences are convex, then for any commodity bundle x, the set of commodity bundles that are worse than x is a convex set.
A)True
B)False
Answer: False
Q3) Nick's indifference curves are circles, all of which are centered at (12, 12).Of any two indifference circles, he would rather be on the inner one than the outer one.
A)Nick's preferences are not complete.
B)Nick prefers (16, 17)to (10, 10).
C)Nick prefers (10, 17)to (10, 10).
D)Nick prefers (8, 8)to (17, 21).
E)More than one of the above statements are true.
Answer: D
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Chapter 2: Preferences-Part B
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Sample Questions
Q1) Charlie's indifference curves have the equation x<sub>B</sub> = constant/x<sub>A</sub>, where larger constants correspond to better indifference curves.Charlie strictly prefers the bundle (9, 17)to the bundle A)(17, 9).
B)(14, 14).
C)(10, 16).
D)All of the above.
E)None of the above.
Q2) Charlie's indifference curves have the equation x<sub>B</sub> =constant/x<sub>A</sub>, where larger constants correspond to better indifference curves.Charlie strictly prefers the bundle (9, 18)to the bundle A)(10, 17).
B)(18, 9).
C)(11, 12).
D)More than one of these options are correct.
E)None of the above are correct.
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Chapter 3: Utility-Part A
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Q1) Mr.Surly consumes only two goods and hates them both.His utility function is U(x, y)=2max{x, y}.Mr.Surly has (weakly)convex preferences.
A)True
B)False
Q2) Oswald Odd consumes only goods 1 and 2.His utility function is U(x<sub>1</sub>, x<sub>2</sub>)=x<sub>1</sub> + x<sub>2</sub> + min{x<sub>1</sub>, x<sub>2</sub>}.Each of Oswald's indifference curves is A)L-shaped.
B)made up of three line segments with slopes -2, -1, and -1/2.
C)made up of two line segments with slopes -2 and -1/2.
D)is smooth and has no kinks.
E)is a diamond-shaped figure consisting of four line segments.
Q3) If one utility function is a monotonic transformation of another, then the former must assign a higher utility number to every bundle than the latter.
A)True
B)False
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Page 7
Chapter 3: Utility-Part B
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Q1) Phil Rupp, has a sister Ethel who has the utility function U(x, y)=min{x +y, 6y}.Where x is measured on the horizontal axis and y on the vertical axis, her indifference curves consist of a
A)vertical line segment and a horizontal line segment that meet in a kink along the line y = 5x.
B)positively sloped line segment and a negatively sloped line segment that meet along the line x = y.
C)horizontal line segment and a negatively sloped line segment that meet in a kink along the line x = y.
D)vertical line segment and a horizontal line segment that meet in a kink along the line x = 5y.
E)horizontal line segment and a positively sloped line segment that meet in a kink along the line x = 5y.
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8
Chapter 4: Choice-Part A
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Sample Questions
Q1) If his wage rate increases, then a utility maximizing consumer will necessarily
A)increase (or leave constant)his labor supply.
B)increase (or leave constant)his labor supply if leisure is a normal good but otherwise might reduce his labor supply.
C)increase (or leave constant)his labor supply if leisure is an inferior good but otherwise might reduce his labor supply.
D)decrease (or leave constant)his labor supply.
E)none of the above.
Q2) Elmer's utility function is U(x, y)=min{x, y<sup>2</sup>}.If the price of x is $10 and the price of y is $15 and if Elmer chooses to consume 4 units of y, what must his income be?
A)$220
B)$100
C)$320
D)$440
E)There is not enough information to determine his income.
Q3) Les has the utility function U(x, y)= (x + 1)(y + 4).The price of y is $1.Les spends all of his income to buy 6 units of y and no x.What must the price of x be? Explain your answer and draw a diagram to illustrate it.
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Chapter 4: Choice-Part B
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Sample Questions
Q1) Charlie has a utility function U(x<sub>A</sub>, x<sub>B</sub>)=x<sub>A</sub>x<sub>B</sub>, the price of apples is $1, and the price of bananas is $2.If Charlie's income were $320, how many units of bananas would he consume if he chose the bundle that maximized his utility subject to his budget constraint?
A)80
B)40
C)160
D)16
E)240
Q2) Ambrose's utility is U(x<sub>1</sub>, x<sub>2</sub>)= = 4x<sup>1/2</sup><sub>1</sub> + x<sub>2</sub>.If the price of nuts (good 1)is $1, the price of berries (good 2)is $4, and his income is $108, how many units of nuts will Ambrose choose?
A)128
B)64
C)67
D)11
E)32
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Page 10
Chapter 5: Demand-Part A
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Sample Questions
Q1) Define each of the following:
a.Inverse demand function
b.Engel curve
Q2) If consumers spend all of their income, it is impossible for all goods to be inferior goods.
A)True
B)False
Q3) Darlene's utility function is U(x, y, z)= x <sup>4</sup>y <sup>8</sup>z.If her income doubles and prices remain unchanged, her demand for good y will more than double.
A)True
B)False
Q4) Miss Muffet insists on consuming 2 units of whey per 1 unit of curds.If the price of curds is $5 and the price of whey is $3, then if Miss Muffet's income is m, her demand for curds will be
A)m/5.
B)3m/5.
C)5c + 3w = m.
D)5m.
E)m/11.
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Chapter 5: Demand-Part B
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Sample Questions
Q1) suppose that it takes 2 square feet to grow a cockleshell and 5 square feet to grow a silver bell in Mary's garden.If her space had initially been 90 square feet and were increased to 120 square feet,
A)she would only increase her planting of silver bells.
B)she would plant more silver bells and more cockleshells.
C)she would only increase her planting of cockleshells.
D)cockleshells would be an inferior good.
E)she would increase her planting of cockleshells and decrease her planting of silver bells.
Q2) where x is whips and y is leather jackets, if Kinko's utility function were U(x, y)= min{5x, 3x + 6y}, then if the price of whips were $20 and the price of leather jackets were $20, Kinko would demand
A)3 times as many whips as leather jackets.
B)4 times as many leather jackets as whips.
C)2 times as many leather jackets as whips.
D)5 times as many whips as leather jackets.
E)only leather jackets.
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Page 12
Chapter 6: Revealed Preference-Part A
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Sample Questions
Q1) On the planet Hyperion, every consumer who has ever lived has a utility function U(x, y)= min{x, 2y}.The currency of Hyperion is the doggerel.In 1850 the price of x was 1 doggerel per unit and the price of y was 2 doggerels per unit.In 2000 the price of x was 8 doggerels per unit and the price of y was 4 doggerels per unit.The Paasche price index of prices in 2000 relative to prices in 1850 is A)4.
B)3.
C)2.
D)5.
E) It is not possible to determine the Paasche price index without further information.
Q2) There are two goods, bananas and potatoes.The price of bananas increases and the price of potatoes decreases.If after the price change a consumer (whose preferences satisfy WARP)can still exactly afford her old consumption bundle, then she will consume at least as many potatoes as before, even if potatoes are a Giffen good.
A)True
B)False
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Chapter 6: Revealed Preference-Part B
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Sample Questions
Q1) Pierre's friend Jacques lives in a town where he has to pay 3 francs per glass of wine and 3 francs per loaf of bread.Jacques consumes 8 glasses of wine and 4 loaves of bread per day.Recall that Bob has an income of $15 per day and pays $.50 per loaf of bread and $2 per glass of wine.If Bob has the same tastes as Jacques and if the only thing that either of them cares about is the consumption of bread and wine, A)there is not enough information to determine whether one is better off than the other. B)both of them violate the weak axiom of revealed preferences.
C)Jacques is better off than Bob.
D)Bob is better off than Jacques.
E)Bob and Jacques are equally well off.
Q2) if situation D is p = (3, 1)and x = (5, 10),
A)Ronald's behavior is consistent with both the Weak and the Strong Axioms of Revealed Preference.
B)Ronald's behavior is consistent with the Weak but not the Strong Axiom of Revealed Preference.
C)Ronald's behavior violates both the Weak and the Strong Axioms of Revealed Preference.
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Page 14
Chapter 7: Slutsky Equation-Part A
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Sample Questions
Q1) If the Engel curve slopes up, then the demand curve slopes down.
A)True
B)False
Q2) Goods 1 and 2 are perfect complements and a consumer always consumes them in the ratio of 2 units of good 2 to 1 unit of good 1.If a consumer has an income of $120 and if the price of good 2 changes from $3 to $4, while the price of good 1 stays at $1, then the income effect of the price change
A)is 4 times as strong as the substitution effect.
B)does not change the demand for good 1.
C)is exactly twice as strong as the substitution effect.
D)accounts for the entire change in demand.
E)is 3 times as strong as the substitution effect.
Q3) Jimmy's utility function is U(a, b)= ab, where a is his consumption of apples and b is his consumption of bananas.If prices and income change in such a way that Jimmy's old consumption lies on his new budget line, then Jimmy will not change his consumption bundle.
A)True
B)False
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Page 15
Chapter 7: Slutsky Equation-Part B
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Sample Questions
Q1) Goods 1 and 2 are perfect complements, and a consumer always consumes them in the ratio of 2 units of good 2 per unit of good 1.If a consumer has an income of $420 and if the price of good 2 changes from $6 to $7, while the price of good 1 stays at $1, then the income effect of the price change
A)does not change demand for good 1.
B)accounts for the entire change in demand.
C)is exactly twice as strong as the substitution effect.
D)is 7 times as strong as the substitution effect.
E)is 6 times as strong as the substitution effect.
Q2) refer to scenario above, Charlie's utility function is x<sub>A</sub>x<sub>B</sub>.The price of apples used to be $1, the price of bananas used to be $2, and his income used to be $40.If the price of apples increased to $5 and the price of bananas stayed constant, the substitution effect on Charlie's apple consumption would reduce his consumption by A)8 apples.
B)16 apples.
C)13 apples.
D)4 apples.
E)None of the above.
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Page 16
Chapter 8: Buying and Selling-Part A
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Q1) If a utility maximizer is a net seller of something and the price of that good rises while other prices stay constant, her situation might improve so much that she becomes a net buyer.
A)True
B)False
Q2) If a consumer is a buyer of some goods and a seller of others, then a change in prices will generate an extra income effect in the Slutsky equation due to the revaluation of the consumer's endowment.
A)True
B)False
Q3) Lucetta changes light bulbs.She is paid $10 an hour.She can work as many hours as she wishes.Lucetta works only 6 hours a day.But she says she loves her job and is happier working at this job than she would be if she made the same income without working at all.Though this may sound strange, Lucetta is perfectly rational.Draw a graph showing leisure on the horizontal axis and income on the vertical axis.Draw a budget line and some indifference curves for Lucetta that are consistent with Lucetta's words and actions.Explain in words what happens.
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Page 17
Chapter 8: Buying and Selling-Part B
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Sample Questions
Q1) Mr.Cog has 18 hours per day to divide between labor and leisure.If he has a nonlabor income of 38 dollars per day and a wage rate of 9 dollars per hour, he will choose a combination of labor and leisure that allows him to spend
A)90 dollars per day on consumption.
B)200 dollars per day on consumption.
C)100 dollars per day on consumption.
D)119 dollars per day on consumption.
E)150 dollars per day on consumption.
Q2) Dudley, has a utility function U(C, R)=C - (12 - R)<sup>2</sup>, where R is leisure and C is consumption per day.He has 16 hours per day to divide between work and leisure.If Dudley has a nonlabor income of $15 per day and is paid a wage of $8 per hour, how many hours of leisure will he choose per day?
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Page 18
Chapter 9: Intertemporal Choice-Part A
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Sample Questions
Q1) Harvey Habit has a utility function U(c<sub>1</sub>, c<sub>2</sub>)=min{c<sub>1</sub>, c<sub>2</sub>}, where c<sub>1</sub> and c<sub>2</sub> are his consumption in periods 1 and 2 respectively.Harvey earns $189 in period 1 and he will earn $63 in period 2.Harvey can borrow or lend at an interest rate of 10%.There is no inflation.
A)Harvey will save $60.
B)Harvey will borrow $60.
C)Harvey will neither borrow nor lend.
D)Harvey will save $124.
E)None of the above.
Q2) Harvey Habit has a utility function U(c1, c2)=min{c<sub>1</sub>, c<sub>2</sub>}.If he had an income of $880 in period 1 and $1,320 in period 2 and if the interest rate were 0.20, how much would Harvey choose to spend on bread in period 1?
A)$1,620
B)$360
C)$540
D)$2,160
E)$1,080
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Chapter 9: Intertemporal Choice-Part B
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Q1) If Peregrine consumes (900, 805)and earns (600, 1, 150)and if the interest rate is 15%, the present value of his endowment is
A)$1,600.
B)$3,440.
C)$1,705.
D)$1,750.
E)$4,040.
Q2) If Peregrine consumes (1, 500, 880)and earns (1, 300, 1, 100)and if the interest rate is 10%, the present value of his endowment is
A)$4,830.
B)$2,400.
C)$2,300.
D)$2,380.
E)$6,130.
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Chapter 10: Asset Markets-Part A
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Q1) Suppose that the cost of personal computers falls by 20% per year.To make this problem relatively easy, we will assume that their quality does not change and that computers never wear out.You plan to get one sometime.What is the rational way to decide when to buy one?
Q2) The interest rate is 10% and will remain 10% forever.Suppose that you do not drink wine but are interested in buying it for investment purposes.How much would you be willing to pay for each of the following?
a.A bottle of wine that will be worth $22 a year from now and will then go bad and be worthless.
b.A bottle of wine that will be worth $22 a year from now and will rise in value by $1 a year forever? Explain your answer.
Q3) The interest rate is 10% and there is no inflation.A bond is available that can be redeemed either after one year or after two years.If it is redeemed after one year, the investor gets $110.If it is redeemed after two years, the investor gets $117.70.The investor gets no other payments than what she receives when she redeems the bond.In equilibrium, investors will be willing to pay more than $100 for this bond.
A)True
B)False
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21
Chapter 10: Asset Markets-Part B
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Q1) The sum of the terms of the infinite geometric series 1, 0.78, 0.78<sup>2</sup>, 0.78<sup>3</sup>, ...is closest to A)0.56. B)infinity.
C)4.55.
D)1.78.
E)128.21.
Q2) If the interest rate is 15% and will remain 15% forever, how much would a rational investor be willing to pay for an asset that will pay him 3,450 dollars 1 year from now, 1,322 dollars 2 years from now, and nothing at any other time?
A)4,000 dollars
B)26,666.67 dollars
C)64,000 dollars
D)3,000 dollars
E)5,000 dollars
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Chapter 11: Uncertainty-Part A
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Q1) Harley's current wealth is $600, but there is a .25 probability that he will lose $100.Harley is risk neutral.He has an opportunity to buy insurance that would restore his $100 if he lost it.
A)Harley would be willing to pay a bit more than $25 for this insurance.
B)Harley would be willing to pay up to $25 for this insurance.
C)Since Harley is risk neutral, he wouldn't be willing to pay anything for this insurance.
D)Since Harley's utility function is not specified, we can't tell how much he would be willing to pay for this insurance.
E)Harley would not be willing to pay more than $16.66 for this insurance.
Q2) Wilma is not risk averse.She is offered a chance to pay $10 for a lottery ticket that will give her a prize of $100 with probability .06, a prize of $50 with probability .1, and no prize with probability .85.If she understands the odds and makes no mistakes in calculation, she will buy the lottery ticket.
A)True
B)False
Q3) If the price of insurance goes up, people will become less risk averse.
A)True
B)False
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Chapter 11: Uncertainty-Part B
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Q1) Jonas's expected utility function is pc<sup>1/2</sup><sub>1</sub> + (1p)c<sup>1/2</sup><sub>2</sub>, where p is the probability that he consumes c<sub>1</sub> and 1 - p is the probability that he consumes c<sub>2</sub>.Jonas is offered a choice between getting a sure payment of $Z or a lottery in which he receives $3,600 with probability .10 or $6,400 with probability .90.Jonas will choose the sure payment if
A)Z > 6,084 and the lottery if Z < 6,084.
B)Z > 4,842 and the lottery if Z < 4,842.
C)Z > 6,400 and the lottery if Z < 6,400.
D)Z > 6,242 and the lottery if Z < 6,242.
E)Z > 6,120 and the lottery if Z < 6,120.
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Chapter 12: Risky Assets-Part A
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Q1) Marvin is an expected utility maximizer.He chooses his portfolio so as to maximize the expected value of 2,000,000x - x<sup>2</sup>.If m is the mean of Marvin's income and s is the standard deviation, Marvin's income as a function of the mean and standard deviation is
A)U = 2,000,000m -s<sup>2</sup>.
B)U = 2,000,000m - s.
C)U= m - s/2,000,000.
D)U = 2,000,000 + s.
E)None of the above.
Q2) Suppose that Ms.Lynch in Workouts can make up her portfolio using a risk-free asset that offers a surefire rate of return of 5% and a risky asset with an expected rate of return of 10%, with standard deviation 5.If she chooses a portfolio with an expected rate of return of 6.25%, then the standard deviation of her return on this portfolio will be A)0.63%.
B)2.50%.
C)1.25%.
D)4.25%.
E)None of the above.
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25
Chapter 12: Risky Assets-Part B
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Q1) Suppose that Ms.Lynch can make up her portfolio using a risk-free asset that offers a surefire rate of return of 10% and a risky asset with an expected rate of return of 15%, with standard deviation 5.If she chooses a portfolio with an expected rate of return of 15%, then the standard deviation of her return on this portfolio will be
A)2.50%.
B)8%.
C)5%.
D)10%.
E)None of the above.
Q2) Suppose that Ms.Lynch can make up her portfolio using a risk-free asset that offers a surefire rate of return of 15% and a risky asset with an expected rate of return of 25%, with standard deviation 5.If she chooses a portfolio with an expected rate of return of 20%, then the standard deviation of her return on this portfolio will be A)2.50%.
B)5%.
C)5.50%.
D)1.25%.
E)None of the above.
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Chapter 13: Consumers Surplus-Part A
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Q1) Consumer's surplus is another name for excess demand.
A)True
B)False
Q2) Lolita, the Holstein cow, has a utility function is U(x, y)= x -x<sup>2</sup>/2 + y, where x is her consumption of cow feed and y is her consumption of hay.If the price of cow feed is $.10, the price of hay is $1, and her income is $2, and if Lolita chooses the combination of hay and cow feed that she likes best from among those combinations she can afford, her utility will be
A)1.90.
B)3.40.
C)2.40.
D)0.40.
E)1.40.
Q3) If there is a price increase for a good that Marilyn consumes, her compensating variation is the change in her income that allows her to purchase her new optimal bundle at the original prices.
A)True
B)False
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Chapter 13: Consumers Surplus-Part B
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Q1) Kitty's utility function for BMWs and money is given by 16,000x + y, where x is the number of BMWs she has and y is the amount of money she has.Her income is $23,000.Her reservation price for one BMW is
A)$16,000 - y.
B)$16,000 - p.
C)$16,000.
D)$7,000.
E)$39,000.
Q2) Ms.Quasimodo has the utility function U(x, m)= 100x - x<sup>2</sup>/2 + m, where x is her consumption of earplugs and m is money left over to spend on other stuff.If she has $10,000 to spend on earplugs and other stuff and if the price of earplugs rises from $50 to $85, then her net consumer's surplus
A)falls by 1,137.50.
B)falls by 3,137.50.
C)falls by 525.
D)increases by 568.75.
E)increases by 2,275.
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Page 28
Chapter 14: Market Demand-Part A
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Q1) Demand for Barbara Streisand CDs is equal to Q<sub>s</sub> = P<sup>2.50</sup><sub>s</sub>I<sup>1.80</sup>P<sup>0.60</sup><sub>c</sub>, where Q<sub>s</sub> is the number of CDs, P<sub>s</sub> is the price of a Streisand CD, I is per capita income, and P<sub>c</sub> is the price of a Karen Carpenter CD.Streisand and Carpenter CDs
A)are inferior goods.
B)are substitutes.
C)are complements.
D)have diminishing returns to scale.
E)are not as good as the original 8-track tapes.
Q2) If the demand function for tickets to a play is q = 7,500 - 75p, at what price will total revenue be maximized?
A)$100
B)$200
C)$50
D)$25
E)none of the above.
Q3) The Laffer effect occurs only if there is a backward-bending labor supply curve.
A)True
B)False
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Chapter 14: Market Demand-Part B
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Q1) the demand for tickets is given by D(p)= 200,000 - 10,000p, where p is the price of tickets.If the price of tickets is $8, then the price elasticity of demand for tickets is A)-1.33.
B)-2.
C)-0.33.
D)-1.
E)-0.67.
Q2) the only quantities of good 1 that Barbie can buy are 1 unit or zero units.For x<sub>1</sub> equal to zero or 1 and for all positive values of x<sub>2</sub>, suppose that Barbie's preferences were represented by the utility function (x<sub>1</sub> + 12)(x<sub>2</sub> + 8).Then if her income were $36, her reservation price for good 1 would be
A)$3.38.
B)$6.77.
C)$1.50.
D)$4.50. E)$.57.
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Page 30
Chapter 15: Equilibrium-Part A
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Q1) The inverse demand function for apples is defined by the equation p = 214 - 5q, where q is the number of units sold.The inverse supply function is defined by p = 7 + 4q.A tax of $36 is imposed on suppliers for each unit of apples that they sell.When the tax is imposed, the quantity of apples sold falls to
A)23
B)14
C)17
D)19
E)21.
Q2) The inverse demand function for cases of whiskey defined by p = 160 - 6q, and the inverse supply function is defined by p = 61 + 3q.Originally there was no tax on whiskey.Then the government began to tax suppliers of whiskey $27 for every case they sold.How much did the price paid by consumers rise when the new equilibrium was reached?
A)It rose by $27.
B)It rose by $29.
C)It rose by $18.
D)It rose by $16.
E)None of the above.
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Page 31
Chapter 15: Equilibrium-Part B
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Q1) The inverse demand function for grapefruit is defined by the equation p = 136 - 4q, where q is the number of units sold.The inverse supply function is defined by p = 16 + 4q.A tax of $16 is imposed on suppliers for each unit of grapefruit that they sell.When the tax is imposed, the quantity of grapefruit sold falls to
A)13
B)11
C)11.
D)15
E)14.
Q2) the demand function for Schrecklichs is 200 - 4P<sub>S</sub> - 2P<sub>L</sub> and the demand function for LaMerdes is 200 - 3P<sub>L</sub> - P<sub>S</sub>, where P<sub>S</sub> and P<sub>L</sub> are respectively the price of Schrecklichs and LaMerdes.If the world supply of Schrecklichs is 110 and the world supply of LaMerdes is 110, then the equilibrium price of Schrecklichs is
A)$27.
B)$22.50.
C)$9.
D)$36.
E)$18.
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Page 32
Chapter 16: Auctions-Part A
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Q1) The optimal strategy for a bidder in a private-values Vickrey auction is to bid his true valuation.
A)True
B)False
Q2) In a common-value auction, the bids of other bidders can influence the maximum amount that one is willing to pay for an object, while in a private-value auction this is not the case.
A)True
B)False
Q3) It is never a profit-maximizing strategy for a seller in an English auction to set a reserve price for the good he is selling so high that he might not be able to sell it at all.
A)True
B)False
Q4) In a Dutch auction with rational bidders, it sometimes happens that the object being sold goes to someone whose value for the object is not as high as that of some other bidder(s).
A)True
B)False
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Chapter 16: Auctions-Part B
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Q1) An antique cabinet is being sold by means of an English auction.There are four bidders, Kitty, Gloria, Judy, and Cindy.These bidders are unacquainted with each other and do not collude.Kitty values the cabinet at $800, Gloria values it at $500, Judy values it at $1,700, and Cindy values it at $700.If the bidders bid in their rational self-interest, the cabinet will be sold to
A)Judy for about $1,700.
B)Kitty for about $800.
C)either Judy or Kitty for about $800.Which of these two buyers gets it is randomly determined.
D)Judy for slightly more than $800.
E)either Judy or Kitty for about $500.Which of these two buyers gets it is randomly determined.
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Chapter 17: Technology-Part A
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Sample Questions
Q1) A firm has the production function f(x<sub>1</sub>, x<sub>2</sub>)= x<sup>0.60</sup><sub>1</sub>x<sup>0.30</sup><sub>2</sub>.The isoquant on which output is 80<sup>3/10</sup> has the equation A)x<sub>2</sub> = 80x<sup>-2</sup><sub>1</sub>.
B)x<sub>2</sub> = 80x<sup>3.33</sup><sub>1</sub>.
C)x<sub>1</sub>/x<sub>2</sub> = 2.
D)x<sub>2</sub> = 80x<sup>-0.30</sup><sub>1</sub>.
E)x<sub>1</sub> = 0.30x<sup>-0.70</sup><sub>2</sub>.
Q2) A firm's production function is f(x<sub>1</sub>, x<sub>2</sub>)= x<sub>1</sub> + 2x<sub>2</sub>.This means that x<sub>2</sub> is twice as expensive as x<sub>1</sub>.
A)True
B)False
Q3) The production function Q = 50K<sup>0.25</sup>L<sup>0.25</sup> exhibits
A)increasing returns to scale.
B)constant returns to scale.
C)decreasing returns to scale.
D)increasing, then diminishing returns to scale.
E)negative returns to scale.
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Chapter 17: Technology-Part B
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Q1) A firm uses 3 factors of production.Its production function is f(x, y, z)= min{x<sup>5</sup>/y, y<sup>4</sup>,(z<sup>6</sup> -x<sup>6</sup>)/y<sup>2</sup>}.If the amount of each input is multiplied by 3, its output will be multiplied by A)81.
B)27.
C)243.
D)0.04.
E)The answer depends on the original choice of x, y, and z.
Q2) A firm uses 3 factors of production.Its production function is f(x, y, z)=min{x<sup>3</sup>/y, y<sup>2</sup>, (z<sup>4</sup>x<sup>4</sup>)/y<sup>2</sup>}.If the amount of each input is multiplied by 6, its output will be multiplied by A)6.
B)36.
C)0.16.
D)216.
E)The answer depends on the original choice of x, y, and z.
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Chapter 18: Profit Maximization-Part A
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Q1) A fixed factor is a factor of production that is used in fixed proportion to the level of output.
A)True
B)False
Q2) A profit-maximizing competitive firm uses just one input, x.Its production function is q = 4x<sup>1/2</sup>.The price of output is $28 and the factor price is $7.The amount of the factor that the firm demands is A)8.
B)16.
C)64.
D)60.
E)None of the above.
Q3) The weak axiom of profit-maximizing behavior states that in a modern mixed economy, firms have only a weak incentive to maximize profits.
A)True
B)False
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Chapter 18: Profit Maximization-Part B
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Q1) the production function is given by f(x)= 4x<sup>1/2</sup>.If the price of the commodity produced is $50 per unit and the cost of the input is $40 per unit, how much profit will the firm make if it maximize profits?
A)$235
B)$123
C)$250
D)$504
E)$128
Q2) the production function is given by f(x)=4x<sup>1/2</sup>.If the price of the commodity produced is $90 per unit and the cost of the input is $45 per unit, how much profit will the firm make if it maximize profits?
A)$720
B)$1,444
C)$705
D)$358
E)$363
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Chapter 19: Cost Minimization-Part A
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Sample Questions
Q1) A firm with the production function f (x1, x2, x3, x4)= min{x1, x2, x3, x4} faces input prices w1 = $1, w2 = $2,w3 = $2, w4= $5 for factors 1, 2, 3, and 4.The firm must use at least 17 units of factor 2.The lowest cost at which it can produce 100 units of output is
A)$1,000.
B)$400.
C)$317.
D)$615.
E)$300.
Q2) If there are increasing returns to scale, then costs per unit of output decrease as you move downward and to the right along an isocost line.
A)True
B)False
Q3) The total cost function c(w1, w2, y)expresses the cost per unit of output as a function of input prices and output.
A)True
B)False
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Chapter 19: Cost Minimization-Part B
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Q1) Suppose that in the short run, the firm which has production function F(L, M)= 4L<sup>1/2</sup>M<sup>1/2</sup> must use 4 machines.If the cost of labor is $10 per unit and the cost of machines is $6 per unit, the short-run total cost of producing 64 units of output is
A)$512.
B)$384.
C)$640.
D)$1,328.
E)$664.
Q2) Suppose that in the short run, the firm which has production function F(L, M)= 4L<sup>1/2</sup>M<sup>1/2</sup> must use 9 machines.If the cost of labor is $10 per unit and the cost of machines is $4 per unit, the short-run total cost of producing 60 units of output is
A)$420.
B)$600.
C)$240.
D)$572.
E)$286.
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Chapter 20: Cost Curves-Part A
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Q1) A firm has the long-run cost function C(Q)= 4Q2 + 196.In the long run, it will supply a positive amount of output, so long as the price is greater than A)$120.
B)$112.
C)$56.
D)$28.
E)$61.
Q2) Mr.Dent Carr's total costs are 2s<sup>2</sup> + 45s + 30.If he repairs 15 cars, his average variable costs will be
A)$77.
B)$75.
C)$150.
D)$105.
E)$52.50.
Q3) Average fixed cost curves will be U-shaped if the marginal cost curve is upward sloping.
A)True
B)False
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Chapter 20: Cost Curves-Part B
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Q1) if Mr.Dent Carr's total costs were 5s<sup>2</sup> + 50s + 20, then if he repairs 10 cars, his average variable costs will be
A)$100.
B)$102.
C)$150.
D)$200.
E)$75.
Q2) if Mr.Dent Carr's total costs were 4s<sup>2</sup> + 40s + 20, then if he repairs 10 cars, his average variable costs will be
A)$120.
B)$82.
C)$160.
D)$80.
E)$60.
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Page 42
Chapter 21: Firm Supply-Part A
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Q1) Suppose that Dent Carr's long-run total cost of repairing s cars per week is c(s)= 3s2 +12.If the price he receives for repairing a car is $24, then in the long run, how many cars will he fix per week if he maximizes profits?
A)6
B)4
C)0
D)8
E)12
Q2) A firm produces one output, using one input, with the production function f(x)= 2x<sub>1/3</sub>, where x is the amount of input.The cost function for this firm is proportional to the price of the input times the cube of the amount of output.
A)True
B)False
Q3) Average fixed costs never increase with output. A)True
B)False
Q4) Price equals marginal cost is a sufficient condition for profit maximization. A)True
B)False
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Chapter 21: Firm Supply-Part B
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Q1) Suppose that Dent Carr's long-run total cost of repairing s cars per week is c(s)= 3s<sup>2</sup> + 75.If the price he receives for repairing a car is $36, then in the long run, how many cars will he fix per week if he maximize profits?
A)0
B)12
C)9
D)6
E)18
Q2) A firm has a long-run cost function, C(q)= 3q<sup>2</sup> + 108.In the long run, this firm will supply a positive amount of output, as long as the price is greater than A)$72.
B)$80.
C)$36.
D)$18.
E)$41.
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Chapter 22: Industry Supply-Part A
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Q1) The cheese business in Lake Fon-du-lac, Wisconsin, is a competitive industry.All cheese manufacturers have the cost function C = Q<sup>2</sup> + 4, while demand for cheese in the town is given by Q<sub>d</sub> = 120 - P.The long-run equilibrium number of firms in this industry is
A)29.
B)58.
C)56.
D)120.
E)59.
Q2) A firm uses a single input to produce its output, which is sold in a competitive market.It gets quantity discounts on purchases of its input.If it buys x units of the input, the price it must pay per unit of input is 289/x + 3.If it buys no inputs, it doesn't have to pay anything.The firm's production function is f(x)= 45x - x<sup>2</sup>.If the price of the firm's output is 1, the profit-maximizing amount of input to buy is A)21.
B)0.
C)42.
D)31.50.
E)None of the above.
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Page 45
Chapter 22: Industry Supply-Part B
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Q1) Suppose that the garden gnome industry was in long-run equilibrium given the circumstances described Suppose, that it was discovered to everyone's surprise on January 1, 1993, after it was too late to change orders for gnome molds, that the cost of the plaster and labor needed to make a gnome had changed to $6.If the demand curve does not change, what will happen to the equilibrium price of gnomes?
A)Rises by $6.
B)Rises by $1.
C)Stays constant.
D)Falls by $1.
E)Falls by $3.
Q2) in the absence of government interference, there is a constant marginal cost of $5 per ounce for growing marijuana and delivering it to buyers.If the probability that any shipment of marijuana seized is .30 and the fine if a shipper caught is $50 per ounce, then the equilibrium price of marijuana per ounce is
A)$28.57.
B)$20.
C)$55.
D)$3.50.
E)$6.50.
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Page 46
Chapter 23: Monopoly-Part A
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Q1) A monopolist faces a downward-sloping demand curve and has fixed costs so large that when she maximizes profits with a positive amount of output, she earns exactly zero profits.At this positive, profit-maximizing output,
A)there are decreasing returns to scale.
B)demand is price inelastic.
C)marginal revenue is greater than marginal cost.
D)price equals marginal cost.
E)average total cost is greater than marginal cost.
Q2) A monopolist faces the inverse demand function described by p = 23 - 5q, where q is output.The monopolist has no fixed cost and his marginal cost is $6 at all levels of output.Which of the following expresses the monopolist's profits as a function of his output?
A)23 - 5q - 6
B)17q - 5q<sup>2</sup>
C)23 - 10q
D)23q - 5q<sup>2</sup> - 6
E)None of the above.
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Chapter 23: Monopoly-Part B
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Q1) The demand for Professor Bongmore's new book is given by the function Q = 8,000100p.If the cost of having the book edited and typeset is $17,000, if the marginal cost of printing an extra copy is $4, and if he has no other costs, then he would maximize his profits by
A)having it edited and typeset and selling 3,800 copies.
B)having it edited and typeset and selling 4,000 copies.
C)not having it edited and typeset and not selling any copies.
D)having it edited and typeset and selling 7,600 copies.
E)having it typeset and selling 1,900 copies.
Q2) if the demand schedule for Bong's book is Q = 3,000 - 100p, the cost of having the book typeset is $9,000, and the marginal cost of printing an extra book is $4, then he would maximize his profits by
A)having it typeset and selling 1,300 copies.
B)having it typeset and selling 2,600 copies.
C)having it typeset and selling 1,500 copies.
D)not having it typeset and not selling any copies.
E)having it typeset and selling 650 copies.
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Page 48
Chapter 24: Monopoly Behavior-Part A
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Sample Questions
Q1) A monopolist has a constant marginal cost of $2 per unit and no fixed costs.He faces separate markets in the United States and England.He can set one price p<sub>1</sub> for the U.S.market and another price p<sub>2</sub> for the English market.If demand in the United States is given by Q<sub>1</sub> = 6,000 - 600p<sub>1</sub> and demand in England is given by Q<sub>2</sub> = 2,400 - 400p<sub>2</sub>, then the price in the United States will
A)be larger than the price in England by $2.
B)be smaller than the price in England by $2.
C)equal the price in England.
D)be larger than the price in England by $4.
E)be smaller than the price in England by $4.
Q2) A monopolist is able to practice third-degree price discrimination between two markets.The demand function in the first market is q = 500 - 2p and the demand function in the second market is q = 1,500 - 6p.To maximize his profits, he should
A)charge a higher price in the second market than in the first.
B)charge a higher price in the first market than in the second.
C)charge the same price in both markets.
D)sell only in one of the two markets.
E)None of the above.
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Chapter 24: Monopoly Behavior-Part B
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Q1) Suppose that 3,500 people are interested in attending ElvisLand.Once a person arrives at ElvisLand, his or her demand for rides is given by x = max{2 - p, 0} , where p is the price per ride.There is a constant marginal cost of $1 for providing a ride at ElvisLand.ElvisLand charges a profit-maximizing two-part tariff, with one price for admission to ElvisLand and another price per ride for those who get in.How much should it charge per ride and how much for admission?
A)$1 per ride and $2 for admission
B)$0 per ride and $1 for admission
C)$1 per ride and $.50 for admission
D)$0 per ride and $1.50 for admission
E)$2 per ride and $2 for admission
Q2) If a monopolist faces an inverse demand curve, p(y)= 100 - 2y and has constant marginal costs of $32 and zero fixed costs and if this monopolist is able to practice perfect price discrimination, its total profits will be
A)$1,156.
B)$17.
C)$578.
D)$1,734.
E)$289.
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Page 50
Chapter 25: Factor Markets-Part A
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Sample Questions
Q1) The labor supply curve faced by a large firm in a small city is given by w = 160 + 0.02L, where L is the number of units of labor per week hired by the large firm and w is the weekly wage rate that it pays.If the firm is currently hiring 1,000 units of labor per week, then the marginal cost of a unit of labor to the firm
A)equals the wage rate plus $40.
B)equals the wage rate plus $20.
C)equals the wage rate.
D)is twice the wage rate.
E)equals the wage rate plus $60.
Q2) If a monopsonist pays the wage rate w, then the amount of labor that he can hire is L(w)= Aw, where A is a positive constant.The marginal cost of labor to the monopsonist is A)equal to the wage rate.
B)twice the wage rate.
C)half the wage rate.
D)greater than the wage rate but less than twice as great.
E)less than the wage rate but more than half as great.
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Chapter 25: Factor Markets-Part B
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Sample Questions
Q1) Suppose that the labor supply curve for a large university in a small town is given by w = 140 + 0.02L, where L is number of units of labor per week and w is the weekly wage paid per unit of labor.If the university is currently hiring 1,000 units of labor per week, the marginal cost of an additional unit of labor
A)equals the wage rate plus $40.
B)is twice the wage rate.
C)equals the wage rate plus $20.
D)equals the wage rate.
E)equals the wage rate plus $60.
Q2) suppose that the demand curve for antimacassars is p = 53 - Q/1,000.The firm's profit-maximizing output is closest to
A)6,500 antimacassars.
B)13,000 antimacassars.
C)19,500 antimacassars.
D)4,290 antimacassars.
E)3,250 antimacassars.
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Chapter 26: Oligopoly-Part A
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Q1) A duopoly faces the inverse demand curve p = 160 - 2q.Both firms in the industry have constant costs of $10 per unit of output.In a Cournot equilibrium how much output will each duopolist sell?
A)75
B)54
C)25
D)35
E)48
Q2) Suppose that Grinch and Grubb go into the wine business in a small country where wine is difficult to grow.The demand for wine is given by p = $300 - .2Q, where p is the price and Q is the total quantity sold.The industry consists of just the two Cournot duopolists, Grinch and Grubb.Imports are prohibited.Grinch has constant marginal costs of $45 and Grubb has marginal costs of $30.How much is Grinch's output in equilibrium?
A)400
B)800
C)200
D)600
E)1,200
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Chapter 26: Oligopoly-Part B
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Q1) If the inverse demand for bean sprouts were given by P(Y)= 550 - 3Y and the total cost of producing Y units for any firm were TC(Y)= 10Y and if the industry consisted of two Cournot duopolists, then in equilibrium each firm's production would be A)90 units.
B)30 units.
C)60 units.
D)45 units.
E)45.83 units.
Q2) suppose that two Cournot duopolists serve the Peoria-Dubuque route, and the demand curve for tickets per day is Q = 160 - 2p (so p = 80 - Q/2).Total costs of running a flight on this route are 400 + 20q, where q is the number of passengers on the flight.Each flight has a capacity of 80 passengers.In Cournot equilibrium, each duopolist will run one flight per day and will make a daily profit of
A)$800.
B)$400.
C)$200.
D)$160.
E)$1,600.
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Chapter 27: Game Theory-Part A
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Source URL: https://quizplus.com/quiz/68725
Sample Questions
Q1) A game has two players and each has two strategies.The strategies are Be Nice and Be Mean.If both players play Be Nice, both get a payoff of 5.If both players play Be Mean, both get a payoff of 23.If one player plays Be Nice and the other plays Be Mean, the player who played Be Nice gets 0 and the player who played Be Mean gets 10.Playing Be Mean is a dominant strategy for both players.
A)True
B)False
Q2) In Nash equilibrium, each player is making an optimal choice for herself, given the choices of the other players.
A)True
B)False
Q3) While game theory predicts noncooperative behavior for a single play of the prisoner's dilemma, it would predict cooperative tit-for-tat behavior if the same people play prisoner's dilemma together for, say, 20 rounds.
A)True
B)False
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Chapter 27: Game Theory-Part B
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Q1) If the number of persons who attend the club meeting this week is X, then the number of people who will attend next week is 80 + 0.20X.What is a long-run equilibrium attendance for this club?
A)400
B)80
C)100
D)160
E)20
Q2) Alice and Betsy are playing a game in which each can play either of two strategies, leave or stay.If both play the strategy leave, then each gets a payoff of $200.If both play the strategy stay, then each gets a payoff of $800.If one plays stay and the other plays leave, then the one who plays stay gets a payoff of $C and the one who plays leave gets a payoff of $D.When is the outcome where both play leave a Nash equilibrium?
A)When D > C and C > $200.
B)Never, since $800 > $200.
C)Whenever D < $800.
D)When $200 > C and D > $800 but not when $800 > D.
E)Whenever $200 > C.
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Page 56
Chapter 28: Game Applications-Part A
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Q1) In the classic 1960s macabre comedy Dr.Strangelove, the Soviet Union constructed a Doomsday Machine which would end all life on earth if ever the Soviet Union were attacked.In the movie, the existence of the Doomsday Machine was kept secret.This would enhance the effectiveness of such a machine.
A)True
B)False
Q2) In the classic 1960s macabre comedy Dr.Strangelove, the Soviet Union constructed a Doomsday Machine which would end all life on earth if ever the Soviet Union were attacked.When playing against a rational opponent, the existence of such a machine would be of great benefit to the Soviets.
A)True
B)False
Q3) An equilibrium in a sequential game is always a Nash equilibrium in a simultaneous game with equivalent payoffs.
A)True
B)False
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Chapter 28: Game Applications-Part B
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Sample Questions
Q1) Two players are engaged in a game of "chicken." There are two possible strategies, Swerve and Drive Straight.A player who chooses to Swerve is called "chicken" and gets a payoff of zero, regardless of what the other player does.A player who chooses to Drive Straight gets a payoff of 15.43 if the other player Swerves and a payoff of -36 if the other player also chooses to Drive Straight.This game has two pure strategy equilibria and A)two mixed strategies in which players alternate between swerving and driving straight.
B)a mixed strategy in which each player swerves with probability 0.35 and drives straight with probability 0.65.
C)a mixed strategy equilibrium in which one player swerves with probability 0.70 and the other swerves with probability 0.30.
D)a mixed strategy equilibrium in which each player swerves with probability 0.70 and drives straight with probability 0.30.
E)no mixed strategies.
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Chapter 29: Behavioral Economics
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Sample Questions
Q1) Using lessons learned from behavioral economists, which of the following would be most likely to increase retirement savings?
A)Specifying that all retirement contributions are to be made by personal check only
B)Allowing customers to make contributions of any amount whenever they desire
C)Enabling automatic deductions from paychecks, but allow customers to make as many changes to the amount as they like without cost or obligation
D)Allowing customers to commit to an increasing portion of their paycheck being automatically deposited in retirement savings in future years
E)Charging service fees for contributions under $100
Q2) The following statement is a defense of conventional models of consumer behavior against the objections of behavioral economists: Even if many participants in a market do not behave rationally, those who consistently maximize utility will have the greatest effect on market prices and outcomes.
A)True
B)False
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Chapter 30: Exchange-Part A
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Sample Questions
Q1) Astrids utility function is U(H A, C A)= H A C A.Birgers utility function is min{H B, C B}.If Astrids initial endowment is no cheese and 5 units of herring and if Birgers initial endowments are 6 units of cheese and no herring, then where p is a competitive equilibrium price of herring and cheese is the numeraire, it must be that demand equals supply in the herring market.This implies that
A)6/(p + 1)+ 2.50 = 5.
B)5/6 = p.
C)6/p + 5/2p= 5.
D)6/5 = p.
E)min{5, 6} = p.
Q2) An economy has 2,000 people.1,000 of them have utility functions U(x, y)= x + y and 1,000 of them have utility functions U(x, y)= min{2x, y}.Everybody has an initial allocation of 1 unit of x and 1 unit of y.Find the competitive equilibrium prices and consumptions for each type of person.
Q3) In general equilibrium analysis, an allocation is a feasible allocation if every consumer is consuming a bundle that costs no more than his or her income.
A)True
B)False
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Chapter 30: Exchange-Part B
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Q1) suppose that Morris has the utility function U(b, w)= 5b + 15w and Philip has the utility function U(b, w)= bw.If we draw an Edgeworth box with books on the horizontal axis and wine on the vertical axis and if we measure Morris's consumptions from the lower left corner of the box, then the contract curve contains
A)a straight line with slope 1/3 passing through the lower left corner of the box.
B)a straight line with slope 1/3 passing through the upper right corner of the box.
C)a straight line running from the upper right corner of the box to the lower left.
D)a curve that gets steeper as you move from left to right.
E)a curve that gets flatter as you move from left to right.
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Chapter 31: Production-Part A
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Sample Questions
Q1) When there is production, a competitive equilibrium is not Pareto optimal unless there are increasing returns to scale.
A)True
B)False
Q2) Robinson Crusoe spends 4 hours a day catching fish and picking coconuts.He can always catch 2 fish per hour and he can always gather 3 coconuts per hour.His utility function is CF, where C is the number of coconuts he eats per day and F is the number of fish he eats per day.How many fish will he choose to eat per day?
A)8
B)6
C)4
D)2
E)1
Q3) If there are constant returns to scale in an industry, then in competitive equilibrium, profits in that industry must necessarily be zero.
A)True
B)False
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Chapter 31: Production-Part B
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Sample Questions
Q1) Robinson Crusoe has exactly 12 hours per day to spend gathering coconuts or catching fish.He can catch 3 fish per hour or he can pick 12 coconuts per hour.His utility function is U(F, C)= FC, where F is his consumption of fish and C is his consumption of coconuts.If he allocates his time in the best possible way between catching fish and picking coconuts, his consumption will be the same as it would be if he could buy fish and coconuts in a competitive market where the price of coconuts is $1, his income is
A)$144 and the price of fish is $4.
B)$144 and the price of fish is $.33.
C)$36 and the price of fish is $3.
D)$180 and the price of fish is $3.
E)$90 and the price of fish is $.33.
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63
Chapter 32: Welfare-Part A
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Sample Questions
Q1) In a pure exchange economy, if an allocation is Pareto efficient, it is impossible to have two people who prefer each other's consumption bundles to their own.
A)True
B)False
Q2) A parent has two children living in cities with different costs of living.The cost of living in city B is 4 times the cost of living in city A.The child in city A has an income of $3,000 and the child in city B has an income of $12,000.The parent wants to give a total of $1,000 to her two children.Her utility function is U(C A, C B)= C A C B, where C A and C B are the consumptions of the children living in cities A and B respectively.She will choose to give A)each child $500, even though this will buy less goods for the child in city B
B)the child in city B 4 times as much money as the child in city A.
C)the child in city A 4 times as much money as the child in city B.
D)the child in city B 2 times as much money as the child in city A.
E)the child in city A 2 times as much money as the child in city B.
Q3) The utility possibilities frontier is the boundary of the production possibilities set.
A)True
B)False
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Page 64
Chapter 32: Welfare-Part B
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Sample Questions
Q1) A Borda count is used to decide an election between three candidates, x, y, and z, where a score of 1 is awarded to a first choice, 2 to a second choice, and 3 to a third choice.There are 25 voters.10 voters rank the candidates x first, y second, and z third; 7 voters rank the candidates x first, z second, and y third; 5 rank the candidates z first, y second, and x third; and 3 voters rank the candidates y first, z second, and x third.Which candidate wins?
A)Candidate x.
B)Candidate y.
C)Candidate z.
D)There is a tie between x and y, with z coming in third.
E)There is a tie between y and z, with x coming in third.
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65
Chapter 33: Externalities-Part A
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Sample Questions
Q1) Mike's utility function is U(c, d, h)= 8c + 12d - d<sup>2</sup> - 6h, where d is the number of hours per day that he spends driving around, h is the average number of hours per day spent driving around by other citizens of his town, and c is the amount of money he has to spend on other things than gasoline and auto repairs.There are 1,001 identical citizens in Mike's home town.Mike's expenses for gasoline and auto repairs amount to $.50 per hour for the time he spends driving.If Mike believes that his amount of driving won't affect the amount that others drive, how many hours per day will he choose to drive?
A)4
B)6
C)8
D)2
E)1
Q2) Mobil Oil Corporation recently bought the right to emit an additional 900 pounds of noxious gas vapors per day at its Torrance, California, refinery.This suggests that allowing pollution rights to be marketed is likely to lead to more pollution than there would be if there were no restrictions on polluting.
A)True
B)False
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Page 66
Chapter 33: Externalities-Part B
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Sample Questions
Q1) Suppose that in Horsehead, Massachusetts, the cost of operating a lobster boat is $6,000 per month.Suppose that if x lobster boats operate in the bay, the total monthly revenue from lobster boats in the bay is $1,000(18x - x<sup>2</sup>).If there are no restrictions on entry and new boats come into the bay until there is no profit to be made by a new entrant, then the number of boats who enter will be X<sub>1</sub>.If the number of boats that operate in the bay is regulated to maximize total profits, the number of boats in the bay will be X<sub>2</sub>.
A)X<sub>1</sub> = 6 and X<sub>2</sub> = 4.
B)X<sub>1</sub> = 12 and X<sub>2</sub> = 6.
C)X<sub>1</sub> = 16 and X<sub>2</sub> = 10.
D)X<sub>1</sub> = 12 and X<sub>2</sub> = 12.
E)None of the above.
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Chapter 34: Information Technology-Part A
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Sample Questions
Q1) Video marketers and publishers are more likely to profit from allowing rentals of their products, the higher the ratio of cost of production of originals to the transaction cost of rentals.
A)True
B)False
Q2) For a good with network externalities, the number of people who are willing to buy a unit of the good is uniquely determined by the price.
A)True
B)False
Q3) If the demand curve for the DoorKnobs operating system is related to perceived market share s and actual market share t by the equation p = 147s(1 - x), then in the long run, the highest price at which DoorKnobs would maintain a market share of 4/7 would be
A)$36.
B)$46.80.
C)$54.
D)$32.40.
E)$43.20.
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Chapter 34: Information Technology-Part B
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Q1) If the demand function for the DoorKnobs operating system is related to perceived market share s and actual market share x by the equation p = 512s(1 - x), then in the long run, the highest price at which DoorKnobs could sustain a market share of 4/5 is A)$96.
B)$256.
C)$113.78.
D)$128.
E)$81.92.
Q2) If the demand function for the DoorKnobs operating system is related to perceived market share s and actual market share x by the equation p = 512s(1 - x), then in the long run, the highest price at which DoorKnobs could sustain a market share of 3/4 is A)$96.
B)$128.
C)$256.
D)$113.78.
E)$81.92.
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Chapter 35: Public Goods-Part A
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Sample Questions
Q1) Bob and Ray are thinking of buying a sofa.Bob's utility function is U<sub>B</sub><sub> </sub>(S, M<sub>B</sub>)= (1 + S )M<sub>B</sub> and Ray's utility function is U<sub>R</sub><sub> </sub>(S, M<sub>R</sub>)= (3 + S )M<sub>R</sub>, where S = 0 if they don't get the sofa and S = 1 if they do and where M<sub>B</sub> and M<sub>R</sub> are the amounts of money they have respectively to spend on their private consumptions.Bob has a total of $1,200 to spend on the sofa and other stuff.Ray has a total of $1,600 to spend on the sofa and other stuff.The maximum amount that they could pay for the sofa and still arrange to both be better off than without it is
A)$1,500.
B)$533.33.
C)$550.
D)$1,000.
E)$2,000.
Q2) To say that preferences are single peaked means that everybody either prefers more public goods to less or everybody prefers less public goods to more.
A)True
B)False
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Chapter 35: Public Goods-Part B
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Q1) They are thinking of buying a sofa.Bob's utility function is U<sub>B</sub>(S, M<sub>B</sub>)= (1 + S)M<sub>B</sub> and Ray's utility function is U<sub>R</sub>(S, M<sub>R</sub>)= (3 + S)M<sub>R</sub>, where S = 0 if they don't get the sofa and S = 1 if they do and where M<sub>B</sub> and M<sub>R</sub> are the amounts of money they have respectively to spend on their private consumptions.Bob has a total of $2,000 to spend on the sofa and other stuff.Ray has a total of $1,600 to spend on the sofa and other stuff.The maximum amount that they could pay for the sofa and still arrange to both be better off than without it is
A)$2,100.
B)$533.33.
C)$750.
D)$1,400.
E)$2,800.
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Chapter 36: Asymmetric Information-Part A
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Q1) A life insurance company must be concerned about the possibility that the people who buy life insurance may tend to be less healthy than those who do not.This is an example of adverse selection.
A)True
B)False
Q2) Which of the following is the best example of adverse selection?
A)People who face the highest risks are the people most likely to buy insurance against these risks.
B)The residual claimant will have to bear the consequences of the most adverse outcomes.
C)An individual can influence the probability that she has an accident.
D)Items in the most popular styles sell out the quickest.
E)People sometimes mistakenly choose low-quality products.
Q3) An insurance company must be concerned about the possibility that someone will buy fire insurance on a building and then set fire to it.This is an example of moral hazard.
A)True
B)False
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72
Chapter 36: Asymmetric Information-Part B
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Q1) Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $5,000 per month.You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity.Kandos, however, have more patience than klutzes.Listening to an hour of dull lectures is as bad as losing $150 for a klutz and $50 for a kando.There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $5,000 per month and anybody who does not is paid $1,000 per month
A)if 26.67 < H < 80.
B)if 26.67 < H < 160.
C)only in the limit as H approaches infinity.
D)for all positive values of H.
E)if 23.33 < H < 70.
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73