Question 1

A stock market bubble is a rise in stock prices that is notreflective of the underlying fundamentals of the company.

Accepted Answer

A) True 
 B)False

Question 2

(Figure: Water vs. Soda) Refer to the figure. The figurerepresents the marginal utility Janet receives when sheconsumes bottled water and soda. The prices of bottled waterand sodas are both $1 each. Janet has $2 to spend andconsumes two bottles of water and no soda.

Accepted Answer

A) She would be better off if she consumed one bottle of water and one soda. 
B) She would be better off if she consumed two sodas instead of two bottles of water. 
C) She is maximizing her utility. 
D) The marginal utility of soda will be higher than the marginal utility of bottled water. 
A) She would be better off if she consumed one bottle of water and one soda. 
B) She would be better off if she consumed two sodas instead of two bottles of water. 
C) She is maximizing her utility. 
D) The marginal utility of soda will be higher than the marginal utility of bottled water.

Question 3

A diversified portfolio reduces risk.

Accepted Answer

A) True 
 B)False

Question 4

The only way someone can take advantage of information thatother people don't have is to start buying or selling largenumbers of shares.

Accepted Answer

A) True 
 B)False

Question 5

Careful design of an incentive scheme can narrow thegap between "what you want" and "what you pay for."

Accepted Answer

A) True 
 B)False

Question 6

Investing in antique guitars:

Accepted Answer

A) is likely to bring high returns because many people enjoy playing guitar. 
B) will not bring high returns because fun activities yield lower financial returns. 
C) is a good idea because they "ain't making any more." 
D) None of the answers is correct. 
A) is likely to bring high returns because many people enjoy playing guitar. 
B) will not bring high returns because fun activities yield lower financial returns. 
C) is a good idea because they "ain't making any more." 
D) None of the answers is correct.

Question 7

Consider the market for ABC Company's stock. What shouldhappen to the stock for ABC Company after a merger with ahighly successful supply firm is announced?

Accepted Answer

A) The demand for the stock would shift to the left. 
B) The demand for the stock would shift to the right.(True Answer )Correct 
C) The supply of the stock would shift to the left. 
D) The supply of the stock would shift to the right. 
A) The demand for the stock would shift to the left. 
B) The demand for the stock would shift to the right.(True Answer )Correct 
C) The supply of the stock would shift to the left. 
D) The supply of the stock would shift to the right.

Question 8

Barry's wage increased and he responded by working morehours. Which of the following must be true?

Accepted Answer

A) Leisure is an inferior good. 
B) The substitution effect of the wage increase dominated the income effect. 
C) The income effect of the wage increase dominated the substitution effect. 
D) The substitution and income effect both increased hours of work. 
A) Leisure is an inferior good. 
B) The substitution effect of the wage increase dominated the income effect. 
C) The income effect of the wage increase dominated the substitution effect. 
D) The substitution and income effect both increased hours of work.

Question 9

Monetary rewards are most effective when they aresupported by:
I. intrinsic motivation
II.social status
III. promotions.

Accepted Answer

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

Question 10

John Stossel's dart-throwing experiment showed that:

Accepted Answer

A) picking stocks at random can outperform the stock picks of major Wall Street experts. 
B) Wall Street experts have inside information, which makes beating their stock picks difficult. 
C) Companies with longer names are likely to outperform market averages. 
D) Economic theory regarding the stock market is flawed. 
A) picking stocks at random can outperform the stock picks of major Wall Street experts. 
B) Wall Street experts have inside information, which makes beating their stock picks difficult. 
C) Companies with longer names are likely to outperform market averages. 
D) Economic theory regarding the stock market is flawed.

Question 11

Mutual funds primarily offer the service of diversification ofinvestments.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is TRUE of mutual funds?
I. Active funds generally give higher returns than passive funds
II.Most mutual funds generally give higher returns than broadstock indexes.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 13

Consumption Bundle A contains six donuts and 2 cups ofcoffee, and consumption Bundle B contains four donuts and 1.5cups of coffee. Bundle A and Bundle B could lie on the sameindifference curve.

Accepted Answer

A) True 
 B)False

Question 14

Premed students (who compete for a limited number ofslots in medical schools) sometimes sabotage theexperiments of other premed students. This is anexample of:

Accepted Answer

A) system risk. 
B) ability risk. 
C) tournaments discouraging cooperation.(True Answer )Correct 
D) environmental risk. 
A) system risk. 
B) ability risk. 
C) tournaments discouraging cooperation.(True Answer )Correct 
D) environmental risk.

Question 15

Consider the market for ABC Company's stock. What shouldhappen in this market after an announcement that the companyis having financial difficulties?

Accepted Answer

A) The demand for the stock would shift to the left.(True Answer )Correct 
B) The demand for the stock would shift to the right. 
C) The supply of the stock would shift to the left. 
D) The supply of the stock would shift to the right. 
A) The demand for the stock would shift to the left.(True Answer )Correct 
B) The demand for the stock would shift to the right. 
C) The supply of the stock would shift to the left. 
D) The supply of the stock would shift to the right.

Question 16

famous economist ________ studied teachercheating in ________ public schools.

Accepted Answer

A) Steven Levitt; Chicago 
B) Carl Menger; Detroit 
C) Robert Barro; Boston 
D) Joseph Schumpeter; Philadelphia 
A) Steven Levitt; Chicago 
B) Carl Menger; Detroit 
C) Robert Barro; Boston 
D) Joseph Schumpeter; Philadelphia

Question 17

A speculative bubble:

Accepted Answer

A) explains the rise of Microsoft's stock price over the last 30 years. 
B) can help the macroeconomy. 
C) can be easily identified, leading to higher than normal returns. 
D) arises when stock prices rise more rapidly than they should. 
A) explains the rise of Microsoft's stock price over the last 30 years. 
B) can help the macroeconomy. 
C) can be easily identified, leading to higher than normal returns. 
D) arises when stock prices rise more rapidly than they should.

Question 18

(Figure: Mutual Funds) Refer to the figure. From this MutualFunds figure, John Stossel dart-throwing experiment we cansay that:

Accepted Answer

A) mutual funds typically outperform the S&P 500. 
B) mutual fund managers are no smarter than monkeys. 
C) knowledge of stock market behavior does not guarantee its predictability. 
D) mutual funds can never outperform the stock market. 
A) mutual funds typically outperform the S&P 500. 
B) mutual fund managers are no smarter than monkeys. 
C) knowledge of stock market behavior does not guarantee its predictability. 
D) mutual funds can never outperform the stock market.

Question 19

The risk-return trade-off refers to the fact that:

Accepted Answer

A) low risk means high potential returns. 
B) high risk means low potential returns. 
C) high risk means high potential returns.(True Answer )Correct 
D) low risk can be eliminated by high returns. 
A) low risk means high potential returns. 
B) high risk means low potential returns. 
C) high risk means high potential returns.(True Answer )Correct 
D) low risk can be eliminated by high returns.

Question 20

Diversification means buying a stock at a low price and thenselling it later at a higher price.

Accepted Answer

A) True 
 B)False

Exam 21: Consumer Utility and Optimization

A stock market bubble is a rise in stock prices that is notreflective of the underlying fundamentals of the company.

(Figure: Water vs. Soda) Refer to the figure. The figurerepresents the marginal utility Janet receives when sheconsumes bottled water and soda. The prices of bottled waterand sodas are both $1 each. Janet has $2 to spend andconsumes two bottles of water and no soda.

A diversified portfolio reduces risk.

The only way someone can take advantage of information thatother people don't have is to start buying or selling largenumbers of shares.

Careful design of an incentive scheme can narrow thegap between "what you want" and "what you pay for."

Investing in antique guitars:

Consider the market for ABC Company's stock. What shouldhappen to the stock for ABC Company after a merger with ahighly successful supply firm is announced?

Barry's wage increased and he responded by working morehours. Which of the following must be true?

Monetary rewards are most effective when they aresupported by: I. intrinsic motivation II.social status III. promotions.

John Stossel's dart-throwing experiment showed that:

Mutual funds primarily offer the service of diversification ofinvestments.

Which of the following is TRUE of mutual funds? I. Active funds generally give higher returns than passive funds II.Most mutual funds generally give higher returns than broadstock indexes.

Consumption Bundle A contains six donuts and 2 cups ofcoffee, and consumption Bundle B contains four donuts and 1.5cups of coffee. Bundle A and Bundle B could lie on the sameindifference curve.

Premed students (who compete for a limited number ofslots in medical schools) sometimes sabotage theexperiments of other premed students. This is anexample of:

Consider the market for ABC Company's stock. What shouldhappen in this market after an announcement that the companyis having financial difficulties?

famous economist ________ studied teachercheating in ________ public schools.

A speculative bubble:

(Figure: Mutual Funds) Refer to the figure. From this MutualFunds figure, John Stossel dart-throwing experiment we cansay that:

The risk-return trade-off refers to the fact that:

Diversification means buying a stock at a low price and thenselling it later at a higher price.

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

International Trade

Globalization and Protectionism

Filters

famous economist studied teachercheating in public schools.