Question 1

According to F.A.Hayek,knowledge is lost as statistics are used to convey information.

Accepted Answer

A) True 
 B)False  True

Question 2

A drafted army can be unnecessarily costly in two ways: it can be the wrong size or it can consist of the wrong people.

Accepted Answer

A) True 
 B)False  True

Question 3

The use of signals in a market economy

Accepted Answer

A)  makes everyone better off,even those people who choose not to obtain the signal. 
B)  prevents the economy from reaching an equilibrium. 
C)  lowers efficiency because the signals waste resources. 
D)  is one way that the principal-agent problem can be avoided. 
A)  makes everyone better off,even those people who choose not to obtain the signal. 
B)  prevents the economy from reaching an equilibrium. 
C)  lowers efficiency because the signals waste resources. 
D)  is one way that the principal-agent problem can be avoided. C

Question 4

A golden parachute is a mechanism that stockholders employ to encourage executives to be more risky than they would be without the parachute.

Accepted Answer

A) True 
 B)False

Question 5

Resource Supply/Demand

The following questions refer to the accompanying graph, which shows the supply and demand for a resource. The owner of the resource is receiving the price PS1U1B10S1U1B0 and is providing the quantity QS1U1B10S1U1B0.

-Refer to Resource Supply/Demand.If the government confiscates the rent and pays the owner area D to supply Q0 units of the resource at a zero price,then

Accepted Answer

A)  area B + C is transferred from the resource owner to the government with no loss in social gain. 
B)  area A + B + C overestimates the social gain that will be created. 
C)  demanders will continue to receive area A + B + C + D in value from the resource. 
D)  a deadweight loss equal to area B + C will be created. 
A)  area B + C is transferred from the resource owner to the government with no loss in social gain. 
B)  area A + B + C overestimates the social gain that will be created. 
C)  demanders will continue to receive area A + B + C + D in value from the resource. 
D)  a deadweight loss equal to area B + C will be created.

Question 6

Insurance companies are not permitted to require AIDS tests as a precondition for coverage,so they do not know whether or not the people they insure have already contracted HIV (the virus that causes AIDS).This situation is an example of

Accepted Answer

A)  signaling. 
B)  adverse selection. 
C)  the principal-agent problem. 
D)  moral hazard. 
A)  signaling. 
B)  adverse selection. 
C)  the principal-agent problem. 
D)  moral hazard.

Question 7

When a factor of production is in fixed supply,the revenue it earns

Accepted Answer

A)  consists entirely of rent. 
B)  is an efficiency wage. 
C)  is independent of how the resource is used. 
D)  consists entirely of deadweight loss. 
A)  consists entirely of rent. 
B)  is an efficiency wage. 
C)  is independent of how the resource is used. 
D)  consists entirely of deadweight loss.

Question 8

An unexpected increase in inflation,by diluting the informational content of prices,will lead to an increase in unemployment.

Accepted Answer

A) True 
 B)False

Question 9

Resource Supply/Demand

The following questions refer to the accompanying graph, which shows the supply and demand for a resource. The owner of the resource is receiving the price P0 and is providing the quantity Q0.

-Refer to Resource Supply/Demand.The rent earned by the owner of the resource is measured by

Accepted Answer

A)  area A + B + C. 
B)  area B + C + D. 
C)  area B + C. 
D)  area C + D. 
A)  area A + B + C. 
B)  area B + C + D. 
C)  area B + C. 
D)  area C + D.

Question 10

Stock options create the wrong incentive in that they create a principal-agent problem.

Accepted Answer

A) True 
 B)False

Question 11

Whether a good is distributed by a social planner or a market system,the area beneath the demand curve out to the quantity available accurately measures the value consumers receive.

Accepted Answer

A) True 
 B)False

Question 12

Firms rarely offer unlimited warranties on their products,because then their customers would be less careful with upkeep and maintenance.This situation is an example of

Accepted Answer

A)  confiscation of rents. 
B)  a speculative bubble. 
C)  moral hazard. 
D)  the principal-agent problem. 
A)  confiscation of rents. 
B)  a speculative bubble. 
C)  moral hazard. 
D)  the principal-agent problem.

Question 13

If employers had to pay higher than equilibrium wages to their workers,then workers would be better off but employers would be worse off.

Accepted Answer

A) True 
 B)False

Question 14

Stockholders can use high levels of compensation and substantial severance payments to get their corporate executives to take on higher levels of risk.

Accepted Answer

A) True 
 B)False

Question 15

When will consumers' surplus overstate the actual gains received by consumers?

Accepted Answer

A)  When allocation decisions are not made on the basis of price. 
B)  When the commodity is not equally divided among consumers. 
C)  When all consumers place the same marginal value on the good. 
D)  When the distribution of goods is Pareto optimal. 
A)  When allocation decisions are not made on the basis of price. 
B)  When the commodity is not equally divided among consumers. 
C)  When all consumers place the same marginal value on the good. 
D)  When the distribution of goods is Pareto optimal.

Question 16

Assume that the supply curve is horizontal because marginal cost is constant at $10.John,Robert,and Jimmy each value one compact disc at $20 but only Jimmy and John value a second compact disc (Jimmy at $5 and John at $15).It follows that the optimal number of compact discs sold in this market is

Accepted Answer

A)  two. 
B)  three. 
C)  four. 
D)  five. 
A)  two. 
B)  three. 
C)  four. 
D)  five.

Question 17

Recent evidence supports the belief that new information is incorporated into the value of most stocks within

Accepted Answer

A)  one trading day. 
B)  one week. 
C)  one month. 
D)  about 30 seconds. 
A)  one trading day. 
B)  one week. 
C)  one month. 
D)  about 30 seconds.

Question 18

Under competition,the price of a resource reveals

Accepted Answer

A)  information about the past,but not future,uses of a resource. 
B)  the most valuable way to use the resource. 
C)  how much the resource is worth in the most valuable of its alternative uses. 
D)  the value of the labor needed to fully exploit the resource. 
A)  information about the past,but not future,uses of a resource. 
B)  the most valuable way to use the resource. 
C)  how much the resource is worth in the most valuable of its alternative uses. 
D)  the value of the labor needed to fully exploit the resource.

Question 19

When allocation decision are not made on the basis of price traditional methods of social gain understate the actual gain to society.

Accepted Answer

A) True 
 B)False

Question 20

The Fabian socialists argued that there would be no social cost associated with

Accepted Answer

A)  a proportional income tax. 
B)  the sharp price declines caused when a speculative bubble bursts. 
C)  limits on employer monitoring imposed to protect employees' privacy. 
D)  the appropriation of rents by the government. 
A)  a proportional income tax. 
B)  the sharp price declines caused when a speculative bubble bursts. 
C)  limits on employer monitoring imposed to protect employees' privacy. 
D)  the appropriation of rents by the government.

According to F.A.Hayek,knowledge is lost as statistics are used to convey information.

A drafted army can be unnecessarily costly in two ways: it can be the wrong size or it can consist of the wrong people.

The use of signals in a market economy

A golden parachute is a mechanism that stockholders employ to encourage executives to be more risky than they would be without the parachute.

Insurance companies are not permitted to require AIDS tests as a precondition for coverage,so they do not know whether or not the people they insure have already contracted HIV (the virus that causes AIDS).This situation is an example of

When a factor of production is in fixed supply,the revenue it earns

An unexpected increase in inflation,by diluting the informational content of prices,will lead to an increase in unemployment.

Stock options create the wrong incentive in that they create a principal-agent problem.

Whether a good is distributed by a social planner or a market system,the area beneath the demand curve out to the quantity available accurately measures the value consumers receive.

Firms rarely offer unlimited warranties on their products,because then their customers would be less careful with upkeep and maintenance.This situation is an example of

If employers had to pay higher than equilibrium wages to their workers,then workers would be better off but employers would be worse off.

Stockholders can use high levels of compensation and substantial severance payments to get their corporate executives to take on higher levels of risk.

When will consumers' surplus overstate the actual gains received by consumers?

Assume that the supply curve is horizontal because marginal cost is constant at $10.John,Robert,and Jimmy each value one compact disc at $20 but only Jimmy and John value a second compact disc (Jimmy at $5 and John at $15).It follows that the optimal number of compact discs sold in this market is

Recent evidence supports the belief that new information is incorporated into the value of most stocks within

Under competition,the price of a resource reveals

When allocation decision are not made on the basis of price traditional methods of social gain understate the actual gain to society.

The Fabian socialists argued that there would be no social cost associated with

Supply,demand,and Equilibrium

Prices,costs and Gains From Trade

The Behavior of Consumers

Consumers in the Marketplace

The Behavior of Firms

Production and Costs

Competition

Welfare Economics and the Gains From Trade

Monopoly

Market Power,collusion,and Oligopoly

The Theory of Games

External Costs and Benefits

Common Property and Public Goods

The Demand for Factors of Production

The Market for Labor

Allocating Goods Over Time

Risk and Uncertainty

What Is Economics

Filters

Exam 9: Knowledge and Information

According to F.A.Hayek,knowledge is lost as statistics are used to convey information.

A drafted army can be unnecessarily costly in two ways: it can be the wrong size or it can consist of the wrong people.

The use of signals in a market economy

A golden parachute is a mechanism that stockholders employ to encourage executives to be more risky than they would be without the parachute.

Insurance companies are not permitted to require AIDS tests as a precondition for coverage,so they do not know whether or not the people they insure have already contracted HIV (the virus that causes AIDS).This situation is an example of

When a factor of production is in fixed supply,the revenue it earns

An unexpected increase in inflation,by diluting the informational content of prices,will lead to an increase in unemployment.

Stock options create the wrong incentive in that they create a principal-agent problem.

Whether a good is distributed by a social planner or a market system,the area beneath the demand curve out to the quantity available accurately measures the value consumers receive.

Firms rarely offer unlimited warranties on their products,because then their customers would be less careful with upkeep and maintenance.This situation is an example of

If employers had to pay higher than equilibrium wages to their workers,then workers would be better off but employers would be worse off.

Stockholders can use high levels of compensation and substantial severance payments to get their corporate executives to take on higher levels of risk.

When will consumers' surplus overstate the actual gains received by consumers?

Assume that the supply curve is horizontal because marginal cost is constant at $10.John,Robert,and Jimmy each value one compact disc at $20 but only Jimmy and John value a second compact disc (Jimmy at $5 and John at $15).It follows that the optimal number of compact discs sold in this market is

Recent evidence supports the belief that new information is incorporated into the value of most stocks within

Under competition,the price of a resource reveals

When allocation decision are not made on the basis of price traditional methods of social gain understate the actual gain to society.

The Fabian socialists argued that there would be no social cost associated with

Supply,demand,and Equilibrium

Prices,costs and Gains From Trade

The Behavior of Consumers

Consumers in the Marketplace

The Behavior of Firms

Production and Costs

Competition

Welfare Economics and the Gains From Trade

Monopoly

Market Power,collusion,and Oligopoly

The Theory of Games

External Costs and Benefits

Common Property and Public Goods

The Demand for Factors of Production

The Market for Labor

Allocating Goods Over Time

Risk and Uncertainty

What Is Economics

Filters