Question 1

If the wage rate increases and the income effect exactly offsetsthe substitution effect, the labor supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 2

Piece rates do not work well when:

Accepted Answer

A) quality is important but quality control is expensive. 
B) quality is important and quality control is not costly. 
C) quality is not important and quality control is not costly. 
D) quality is not important but quality control is expensive. 
A) quality is important but quality control is expensive. 
B) quality is important and quality control is not costly. 
C) quality is not important and quality control is not costly. 
D) quality is not important but quality control is expensive.

Question 3

Economists call a compensation scheme in which pay isbased on relative performance a tournament.

Accepted Answer

A) True 
 B)False

Question 4

The expected returns of different assets, adjusted for risk,should be:

Accepted Answer

A) equal. 
B) different. 
C) sometimes equal but often different. 
D) unknown in most cases. 
A) equal. 
B) different. 
C) sometimes equal but often different. 
D) unknown in most cases.

Question 5

A partner at a major law firm spent $90 for a ticket to theRockstar Energy Mayhem Festival, featuring Disturbed,Godsmack, and Megadeth and then lost it. Should he buyanother $90 ticket?

Accepted Answer

A) Yes, there is no substitution effect and the income effect is trivial given his wealth. 
B) Yes, there is a positive substitution effect and the income effect is large given his wealth. 
C) No, there is some substitution effect and the income effect is trivial given his wealth. 
D) No, there is a positive substitution effect and the income effect is large given his wealth. 
A) Yes, there is no substitution effect and the income effect is trivial given his wealth. 
B) Yes, there is a positive substitution effect and the income effect is large given his wealth. 
C) No, there is some substitution effect and the income effect is trivial given his wealth. 
D) No, there is a positive substitution effect and the income effect is large given his wealth.

Question 6

The risk-return trade-off is an example of:

Accepted Answer

A) the sunk cost principle. 
B) the no free lunch principle. 
C) the capitalist principle. 
D) the inelastic principle. 
A) the sunk cost principle. 
B) the no free lunch principle. 
C) the capitalist principle. 
D) the inelastic principle.

Question 7

tournament removes risks from outside factors butadds another type of risk called:

Accepted Answer

A) internal risk. 
B) ability risk. 
C) personal risk. 
D) competition risk. 
A) internal risk. 
B) ability risk. 
C) personal risk. 
D) competition risk.

Question 8

According to the efficient markets hypothesis, investors whotrade stocks actively earn higher than average returns.

Accepted Answer

A) True 
 B)False

Question 9

American Idol, the winner of the competition gets arecording contract. An average person is randomlypicked as a surprise entrant in the final round. Which ofthe following risks is most likely to occur in thistournament?

Accepted Answer

A) environment risk 
B) sales risk 
C) risk of recession 
D) ability risk 
A) environment risk 
B) sales risk 
C) risk of recession 
D) ability risk

Question 10

Which of the following refers to the ability of an asset togenerate returns, which are then reinvested in order to generatetheir own returns?

Accepted Answer

A) buy and hold 
B) compounding 
C) simple returns 
D) extrapolation 
A) buy and hold 
B) compounding 
C) simple returns 
D) extrapolation

Question 11

Suppose you invest $1,000 in a mutual fund. If the annualreturn of that fund is 5 percent, how many years will it takebefore your fund is worth $2,000?

Accepted Answer

A) 10 years 
B) 14 years 
C) 20 years 
D) never 
A) 10 years 
B) 14 years 
C) 20 years 
D) never

Question 12

Today, a large fraction of executives' pay is tied to:

Accepted Answer

A) the level of sales of their firm. 
B) bonuses of other executives. 
C) the effort and work ethic of the executive. 
D) the stock price of their firm. 
A) the level of sales of their firm. 
B) bonuses of other executives. 
C) the effort and work ethic of the executive. 
D) the stock price of their firm.

Question 13

X pays a yearly salary of $52,000, regardless of thestate of the economy. Job Y pays a yearly salary of$10,000 in a bad economy and $70,000 in a goodeconomy. The probability of a bad economy is 0.30.Which job would most people prefer?

Accepted Answer

A) Job Y because the expected payoff is $70,000 seventy percent of the time. 
B) Job X because it is more certain than the $52,000 expected payoff of Job Y. 
C) Job X because $52,000 exceeds the expected payoff of Job Y by $3,000. 
D) Job Y because the expected payoff of $70,000 is greater than $55,000. 
A) Job Y because the expected payoff is $70,000 seventy percent of the time. 
B) Job X because it is more certain than the $52,000 expected payoff of Job Y. 
C) Job X because $52,000 exceeds the expected payoff of Job Y by $3,000. 
D) Job Y because the expected payoff of $70,000 is greater than $55,000.

Question 14

Which of the following is NOT a typical index used to practice abuy-and-hold strategy?

Accepted Answer

A) The Dow Jones Industrial Average 
B) The Moody Index Scorecard 
C) The Standard and Poor's 500 
D) The NASDAQ Composite Index 
A) The Dow Jones Industrial Average 
B) The Moody Index Scorecard 
C) The Standard and Poor's 500 
D) The NASDAQ Composite Index

Question 15

Popular U.S. stock indexes include:
i. FDICII. Dow Jones Industrial AverageIII. NASDAQ

Accepted Answer

A) I and II only 
B) I and III only 
C) II and III only 
D) I, II, and III 
A) I and II only 
B) I and III only 
C) II and III only 
D) I, II, and III

Question 16

(Figure: Labor Supply) Refer to the figure. The figurerepresents the budget constraint and indifference curves for the

Accepted Answer

A) the income effect will dominate and the consumer will work more. 
B) the substitution effect will dominate and the consumer will work more. 
C) the income effect will dominate and the consumer will work less. 
D) the substitution effect will dominate and the consumer will work less. 
A) the income effect will dominate and the consumer will work more. 
B) the substitution effect will dominate and the consumer will work more. 
C) the income effect will dominate and the consumer will work less. 
D) the substitution effect will dominate and the consumer will work less.

Question 17

very motivated and skilled salesperson may not havegood sales if which of the following factors occurs?
I. The product is of a low quality
II.The economy is in a recession
III. The price of the product is too high compared tocompeting products.

Accepted Answer

A) II only 
B) I and II only 
C) I and III only 
D) I, II, and III 
A) II only 
B) I and II only 
C) I and III only 
D) I, II, and III

Question 18

If another unit of Good X gives a consumer 15 additional unitsof satisfaction, and another unit of Good Y gives 45 additionalunits of satisfaction, the MRS is equal to 1/3.

Accepted Answer

A) True 
 B)False

Question 19

Paying sales staff bonuses based on the agents with thehighest, second- and third-highest sales is called a:

Accepted Answer

A) strict ranking game. 
B) players event. 
C) tournament. 
D) horse race scheme. 
A) strict ranking game. 
B) players event. 
C) tournament. 
D) horse race scheme.

Question 20

Figure: Labor Supply and Welfare   (Figure: Labor Supply and Welfare) Refer to the figure. Thebudget constraint is:

Accepted Answer

A) ABC. 
B) BD. 
C) ABDC. 
D) ABD. 
A) ABC. 
B) BD. 
C) ABDC. 
D) ABD.

Exam 21: Consumer Utility and Optimization

If the wage rate increases and the income effect exactly offsetsthe substitution effect, the labor supply curve is vertical.

Piece rates do not work well when:

Economists call a compensation scheme in which pay isbased on relative performance a tournament.

The expected returns of different assets, adjusted for risk,should be:

A partner at a major law firm spent $90 for a ticket to theRockstar Energy Mayhem Festival, featuring Disturbed,Godsmack, and Megadeth and then lost it. Should he buyanother $90 ticket?

The risk-return trade-off is an example of:

tournament removes risks from outside factors butadds another type of risk called:

According to the efficient markets hypothesis, investors whotrade stocks actively earn higher than average returns.

American Idol, the winner of the competition gets arecording contract. An average person is randomlypicked as a surprise entrant in the final round. Which ofthe following risks is most likely to occur in thistournament?

Which of the following refers to the ability of an asset togenerate returns, which are then reinvested in order to generatetheir own returns?

Suppose you invest $1,000 in a mutual fund. If the annualreturn of that fund is 5 percent, how many years will it takebefore your fund is worth $2,000?

Today, a large fraction of executives' pay is tied to:

X pays a yearly salary of $52,000, regardless of thestate of the economy. Job Y pays a yearly salary of$10,000 in a bad economy and $70,000 in a goodeconomy. The probability of a bad economy is 0.30.Which job would most people prefer?

Which of the following is NOT a typical index used to practice abuy-and-hold strategy?

Popular U.S. stock indexes include: i. FDICII. Dow Jones Industrial AverageIII. NASDAQ

(Figure: Labor Supply) Refer to the figure. The figurerepresents the budget constraint and indifference curves for the

very motivated and skilled salesperson may not havegood sales if which of the following factors occurs? I. The product is of a low quality II.The economy is in a recession III. The price of the product is too high compared tocompeting products.

If another unit of Good X gives a consumer 15 additional unitsof satisfaction, and another unit of Good Y gives 45 additionalunits of satisfaction, the MRS is equal to 1/3.

Paying sales staff bonuses based on the agents with thehighest, second- and third-highest sales is called a:

Figure: Labor Supply and Welfare (Figure: Labor Supply and Welfare) Refer to the figure. Thebudget constraint is:

Welcome to Economics

Choice in a World of Scarcity

Demand and Supply

Labor and Financial Markets

Elasticity

Consumer Choices

Production, Costs, and Industry Structure

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Monopoly and Antitrust Policy

Environmental Protection and Negative Externalities

Positive Externalities and Public Goods

Labor Markets and Income

Poverty and Economic Inequality

Information, Risk, and Insurance

Financial Markets

Public Economy

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