Public Policy Analysis Practice Exam
Course Introduction
Public Policy Analysis introduces students to the systematic study of policy-making processes, tools, and techniques for evaluating public policies. The course covers fundamental concepts such as the policy cycle, problem definition, policy design, implementation, and evaluation. Students learn to apply analytical frameworks and methodologies to assess policy alternatives, understand the roles of stakeholders, and examine the impact of social, economic, and political factors on policy decisions. Through case studies and practical exercises, the course develops critical thinking and quantitative skills necessary for effective policy analysis and evidence-based decision-making.
Recommended Textbook
Microeconomics 8th Edition by Jeffrey
M. Perloff
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) Under most circumstances,the application of taxes on goods will only affect who gets the goods.
A)True
B)False
Answer: False
Q2) If a model fits reality but doesn't generate testable predictions,it is of little value to economists.
A)True
B)False
Answer: True
Q3) Individuals use microeconomic models to determine
A) their optimal consumption of beer given an increase in inflation.
B) their optimal amount of leisure.
C) whether or not to go to college given current student loan interest rates.
D) All of the above.
Answer: D
Q4) Governments do not respond to prices.
A)True
B)False
Answer: False
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Chapter 2: Supply and Demand
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Sample Questions
Q1) The expression "increase in quantity supplied" is illustrated graphically as a
A) leftward shift in the supply curve.
B) rightward shift in the supply curve.
C) movement up along the supply curve.
D) movement down along the supply curve.
Answer: C
Q2) The above figure shows three different supply-and-demand graphs.Which graph best represents the market for the air we are currently breathing?
A) Graph A
B) Graph B
C) Graph C
D) None of the above.
Answer: B
Q3) Suppose a market is currently at equilibrium.A leftward shift of the demand curve would cause
A) an increase in price but a decrease in quantity.
B) a decrease in price but an increase in quantity.
C) an increase in both price and quantity.
D) a decrease in both price and quantity.
Answer: D
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Chapter 3: Applying the Supply-And-Demand Model
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Sample Questions
Q1) Suppose the demand curve is perfectly inelastic and the supply curve is upward sloping.The price sellers receive after a specific tax is imposed on sellers
A) is less than before the tax.
B) is higher than before the tax.
C) is unchanged.
D) depends on the supply elasticity.
Answer: C
Q2) If the demand curve for comic books is expressed as Q = 10,000/p,then demand has a unitary elasticity
A) only when p = 10,000.
B) only when p = 100.
C) always.
D) never.
Answer: C
Q3) For all goods,the long run demand curve is always more elastic than the short run demand curve.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Consumer Choice
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Sample Questions
Q1) Quotas,such as limiting the amount of residential water use during a drought,restricts an individual's preference set and
A) reduces utility because an individual cannot consume as much as they would without the quota.
B) increases utility because quotas restrict output and raise profits for the water company.
C) reduces utility because an individual is forced to substitute to other goods.
D) does not affect overall utility.
Q2) In behavioral economics,the term salience refers to A) relevance to the problem being investigated.
B) people only consider information when it is conveyed in a subtle manner.
C) how an experiment is designed.
D) people consider information when it is presented in an "eye grabbing" manner.
Q3) The indifference curves for left shoes and right shoes would most likely be A) upward sloping and concave to the origin.
B) downward sloping and convex to the origin. C) downward sloping and straight lines.
D) L-shaped.
Q4) What is the difference between ordinal and cardinal measurement?
Q5) Explain why most indifference curves are convex.
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Chapter 5: Applying Consumer Theory
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Sample Questions
Q1) The Fisher index
A) uses the arithmetic mean of the Paasche index and the Laspeyres index.
B) uses the standard deviation of the Paasche index and the Laspeyres index.
C) uses the geometric mean of the Paasche index and the Laspeyres index.
D) uses the harmonic mean of the Paasche index and the Laspeyres index.
Q2) Suppose that the interest rate paid to savers increases.As a result,Tom wishes to save more.This suggests that,for Tom,
A) the substitution effect is greater than the income effect.
B) the income effect is greater than the substitution effect.
C) utility maximization is not occurring.
D) future consumption is a luxury.
Q3) The real wage in Fantasyland has been constant since 1950.The nominal wage in 2015 was $100,and the Consumer Price Index (CPI)was 200 in 2015.What was the nominal wage in 2002 if the CPI was 50 in 2002?
A) Nominal wage = $25
B) Nominal wage = $400
C) Nominal wage = $100
D) Nominal wage = $250
Q4) Why can't all goods be inferior?
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Chapter 6: Firms and Production
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Sample Questions
Q1) If a technological change occurs such that the production function shifts from q = 10K<sup>0.5</sup> L<sup>0.5</sup> to q = 10.5K<sup>0.</sup><sup>3</sup> L<sup>0.5</sup>,then the technological change is
A) both neutral and non-neutral.
B) neutral.
C) non-neutral.
D) Not enough information given.
Q2) If the average productivity of labor equals the marginal productivity of labor,then
A) the average productivity of labor is at a maximum.
B) the marginal productivity of labor is at a maximum.
C) Both A and B above.
D) Neither A nor B above.
Q3) With respect to production,the short run is best defined as a time period
A) lasting about six months.
B) lasting about two years.
C) in which all inputs are fixed.
D) in which at least one input is fixed.
Q4) Explain why labor might not always be a variable input.
Q5) What do we mean by efficient production?
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Chapter 7: Costs
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Sample Questions
Q1) Economies of scope exist between book publishing and magazine publishing if
A) the cost of publishing a magazine is lower for book publishers than for other firms.
B) the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine.
C) the cost of publishing a book falls over time as the publisher acquires more experience.
D) the cost of a publishing a book is not subject to diminishing marginal returns.
Q2) The production of cigarettes is highly automated; however,a worker is required to monitor each machine.Machines and workers do not interact with one another.Given this information,there are most likely
A) economies of scale.
B) economies of scope.
C) constant returns to scale.
D) increasing returns to scale.
Q3) Explain how a firm can have constant returns to scale in production and economies of scale in cost.
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Chapter 8: Competitive Firms and Markets
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Sample Questions
Q1) Long-run market supply curves are downward sloping if
A) firms are identical.
B) the number of firms is restricted in the long run.
C) input prices fall as the industry expands.
D) All of the above.
Q2) If firms in a competitive market are not identical,then the long-run market supply curve will be
A) horizontal.
B) upward sloping.
C) downward sloping.
D) undetermined.
Q3) If the long-run supply curve in a perfectly competitive industry is upward sloping,this is because
A) firms are different.
B) firms are identical.
C) input prices rise as the industry expands.
D) Either A or C.
Q4) Suppose all firms in a competitive market are currently in both short-run and long-run equilibrium.What impact will a lump sum tax have on each firm in the short run? in the long run?
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Chapter 9: Applying the Competitive Model
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Sample Questions
Q1) Sarah's demand curve for shoes has the same slope as Pete's; however,it lies to the right of Pete's.An increase in the price of shoes will cause
A) Sarah to incur a greater loss of consumer surplus than Pete will.
B) Pete to incur a greater loss of consumer surplus than Sarah will.
C) Sarah and Pete to incur the same loss of consumer surplus.
D) Sarah's demand curve to shift closer to Pete's.
Q2) The change in total welfare from a 10% increase in price will depend only on the elasticity of demand.
A)True
B)False
Q3) Sarah and David both have linear demand curves for lemonade.Sarah's demand curve for lemonade intersects David's demand curve at a price of 50 cents per glass.Sarah's demand curve is more inelastic than David's.A change in the price of lemonade from 50 cents to 25 cents per glass will
A) decrease Sarah's consumer surplus more than David's.
B) decrease David's consumer surplus more than Sarah's.
C) increase Sarah's consumer surplus more than David's.
D) increase David's consumer surplus more than Sarah's.
Q4) Explain why the competitive output maximizes welfare.
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Chapter 10: General Equilibrium and Economic Welfare
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Sample Questions
Q1) The above figure depicts the Edgeworth box for two individuals,Al and Bruce.Point a is NOT Pareto efficient because
A) Al's MRS exceeds Bruce's MRS.
B) the point is not near the center of the box.
C) Al's indifference curve is not far enough away from the origin.
D) All of the above.
Q2) If two or more markets are closely related,
A) a partial equilibrium analysis will tend to overstate the price impact of a supply shock.
B) a partial equilibrium analysis will tend to accurately predict the price impact of a supply shock.
C) a partial equilibrium analysis will tend to understate the price impact of a supply shock.
D) they should be analyzed concurrently but using partial equilibrium analysis alone.
Q3) At a given point in time,the Rawlsian welfare function gives equal weight to each individual's utility.
A)True
B)False
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Chapter 11: Monopoly
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Sample Questions
Q1) Why is the monopoly total welfare lower than the competitive total welfare?
Q2) If the government regulates a natural monopoly by forcing the firm to set price equal to marginal cost,
A) the firm will earn a negative economic profit.
B) the firm will earn zero economic profit.
C) the firm will earn a fair economic profit.
D) the firm will earn a positive and large economic profit.
Q3) The ability of a monopoly to charge a price that exceeds marginal cost depends on A) the price elasticity of supply.
B) price elasticity of demand.
C) slope of the demand curve.
D) shape of the marginal cost curve.
Q4) At the current level of output,a firm's marginal cost equals 16 and marginal revenue equals 10.The firm
A) is producing the profit-maximizing amount.
B) should produce more.
C) should produce less.
D) Not enough information.
Q5) Explain Microsoft Windows' monopoly positions in terms of network externalities.
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Chapter 12: Pricing and Advertising
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Sample Questions
Q1) Bob is the only carpet installer in a small isolated town.The above figure shows the demand curves of two distinct groups of customers-residential and business.Bob is likely to price discriminate because
A) elasticities differ across markets.
B) the installation of carpets cannot be resold.
C) Bob can probably identify which consumers belong to which segment.
D) All of the above.
Q2) A monopoly faces the following demand function: Q = 100 - p + sqrt(A),where A equals the dollar amount spent on advertising.If the cost function is A + 10 + 2Q,what are the profit-maximizing levels of price,output,and advertising? Compare this outcome to the case where the firm does not advertise at all.
Q3) What is a primary difference between rebates and coupons?
A) Coupons allow individuals to sort themselves into the high-elasticity group after the sale.
B) Neither coupons nor rebates are redeemed in high numbers.
C) Rebates allow individuals to sort themselves into the high-elasticity group after the sale.
D) Coupons are legal and rebates are illegal.
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Chapter 13: Oligopoly and Monopolistic Competition
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Sample Questions
Q1) In the long run,a monopolistic competitor
A) sets MR = MC.
B) produces where P = AC.
C) sets P > MC.
D) All of the above.
Q2) Because firms selling a homogeneous product set price in response to the (perceived)pricing decision of other firms in the Bertrand Model of oligopoly in equilibrium price exceeds marginal cost.
A)True
B)False
Q3) Suppose that market demand can be represented as p = 100 - 2Q.There are 10 identical firms producing an undifferentiated product,each with the total cost function TC = 50 + q<sup>2</sup>.Compare the competitive outcome with the cartel outcome.What is the individual firm's incentive to cheat on the cartel?
Q4) The Cournot model assumes that firm A maximizes its profit,holding firm B's output constant.
A)True
B)False
Q5) What happens in a duopoly if both firms try to act as the Stackelberg leader?
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Chapter 14: Game Theory
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Sample Questions
Q1) The ability to deter entry requires
A) a credible threat that if entry occurs the firm is willing to produce more than they would otherwise.
B) a credible threat that if entry occurs the firm will not produce more than they would otherwise.
C) a good lawyer.
D) a clever accounting department.
Q2) The term prisoners' dilemma refers to a game in which
A) there are no Nash equilibria.
B) there are no dominant strategies.
C) the payoff from playing the dominant strategy is the same for each player.
D) the payoff from playing the dominant strategy is not the highest payoff possible.
Q3) If a Cournot duopolist announced that it will double its output, A) it becomes the leader.
B) the other firm does not view the announcement as credible.
C) the other firm will shut down.
D) the other firm will double output also.
Q4) Explain why it is unwise to bid more than your valuation of the good in a sealed bid second-price auction.
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Chapter 15: Factor Markets
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Sample Questions
Q1) A union's success in raising the wage depends on
A) the elasticity of demand it faces.
B) members' ability to act collectively.
C) the share of the labor market that is unionized.
D) All of the above.
Q2) If the supply of labor to a monopsonist is everywhere unit elastic,and the marginal expenditure equals $1,then the wage will equal
A) $0.50.
B) $0.75.
C) $1.00.
D) $2.00.
Q3) If a firm is a price taker in both the labor market and the output market,it will
A) earn zero economic profit in the short run.
B) hire labor until the marginal product of labor equals zero.
C) hire labor until the marginal revenue product equals the output price.
D) hire labor until the marginal revenue product equals the wage rate.
Q4) How does a competitive firm's demand for labor react to a specific tax on each unit of output it sells?
Q5) Why is the short-run demand curve for labor downward sloping?
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Chapter 16: Interest Rates, Investments, and Capital Markets
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Sample Questions
Q1) A firm has to decide between two projects that cost $10,000 each.Project A will provide a revenue $10,700 one year from now,while Project B will provide a revenue of $12,200 two years from now.The interest rate is 10% per year.This firm
A) chooses project A.
B) chooses project B.
C) rejects both projects.
D) is indifferent between projects A and B.
Q2) An individual who wants to stop smoking but chooses not to A) reflects future bias.
B) reflects present bias.
C) reflects irrationality.
D) reflects uncontrollable addiction.
Q3) A government policy that lets individuals put away money for retirement tax-free will
A) shift the demand curve for loanable funds rightward.
B) crowd out private investment.
C) shift the supply curve of loanable funds to the right.
D) induce people to save less at any interest rate.
Q4) In an economy with no inflation,explain why interest rates are positive.
Page 18
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Chapter 17: Uncertainty
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Sample Questions
Q1) Which of the following is a fair bet based on the toss of an unbiased coin?
A) head: receive $5, tail: lose $5
B) head: receive $2, tail: lose $3
C) head: receive $0.5, tail: lose $1
D) head: lose $3, tail: lose $3
Q2) You purchased two stocks that are perfectly negatively correlated.
A) Your portfolio is well diversified, so you should face no risk whatsoever.
B) Even though you diversified the idiosyncratic risk away, your portfolio is still affected by systemic risks like a stock market crash.
C) Even though you diversified the systemic risk away, your portfolio is still affected by idiosyncratic risks like a stock market crash.
D) Your portfolio is not diversified; thus you face no systemic risk.
Q3) Which of the following losses to an individual would an insurance company NOT cover?
A) The person's automobile is stolen.
B) Fire destroys the person's home.
C) The person's father dies.
D) The person's country is invaded.
Q4) Explain why insurance companies usually do not offer earthquake insurance.
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Chapter 18: Externalities, Open-Access, and Public Goods
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Q1) Suppose twenty neighbors share a park.One of the neighbors,Al,leaves trash in the park.This bothers the other neighbors.According to Coase's Theorem,assigning the property rights to the park to Al
A) will achieve the socially optimal quantity of trash.
B) will result in zero trash being dumped in the park.
C) might still not achieve the social optimum since coordinating the other nineteen neighbors can be costly.
D) is unfair.
Q2) Explain why the social demand curve for a public good is the vertical sum of the demand curves of each individual.
Q3) The above figure shows the market for steel ingots.If the market is competitive,then
A) the socially optimal quantity of steel is zero.
B) the socially optimal quantity of steel of 50 units is produced.
C) the socially optimal quantity of steel of 100 units is produced.
D) more than the socially optimal quantity of 50 units of steel is produced.
Q4) Suppose that the market for steel is shown in the above figure.Is social welfare greater under monopoly or under competition?
Q5) Explain why the optimal amount of pollution is often not zero.
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Chapter 19: Asymmetric Information
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Sample Questions
Q1) The above figure shows the payoff to two firms in an industry deciding to make an investment in worker safety.Neither firm will make the investment because
A) each can benefit from the other firm incurring the costs.
B) there is no benefit to making the investment.
C) each firm pays for the other firm's investment.
D) society does not care about worker safety.
Q2) Opportunism may occur when
A) both parties have limited information.
B) both parties have full information.
C) one party has information the other does not.
D) All of the above.
Q3) The Internet has made it possible to compare lots of prices without incurring a lot of cost.If Internet access is unequally distributed throughout the population one would expect
A) consumers with Internet access to pay a higher price.
B) consumers without Internet access to pay a lower price.
C) price discrimination against consumers without Internet access.
D) firms to charge the same price to all consumers.
Q4) Explain how product liability laws can reduce adverse selection.
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Chapter 20: Contracts and Moral Hazards
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Q1) Wage reduction policies are less common than layoffs because A) workers never prefer wage reduction policies.
B) workers always trust the firm to tell the truth.
C) of asymmetric information.
D) of adverse selection problems.
Q2) If the principal has full information,production efficiency without supervision can occur with
A) a fixed fee rental contract.
B) a profit-sharing contract.
C) an incentive-compatible contract.
D) All of the above.
Q3) The type of contract selected depends on the information available to the parties.
A)True
B)False
Q4) Suppose the probability of an employee being caught shirking,q,is a function of the employer's monitoring,M,such that q = M/100.If workers must put up a $1,000 bond and the gain to each worker from shirking is $100,what is the employer's optimal level of monitoring that is just sufficient to discourage shirking?
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