Question 1

In the Loewenstein and Sicherman survey specifying different wage streams, what percentage of respondents exhibited present value maximization behavior?

Accepted Answer

A)  77.3% 
B)  50.0% 
C)  7.3% 
A)  77.3% 
B)  50.0% 
C)  7.3%

Question 2

When shopping for the best price on a durable good, we are constantly worried about

Accepted Answer

A)  stopping our search too soon and, as a result, accepting a price that is too high 
B)  searching too long and wasting time and money in the process 
C)  Both answers are correct 
A)  stopping our search too soon and, as a result, accepting a price that is too high 
B)  searching too long and wasting time and money in the process 
C)  Both answers are correct

Question 3

The wage set by a worker searching for a job such that, if that wage or more if offered, it will be rejected, and the worker will continue searching is called the optimal reservation wage.

Accepted Answer

A) True 
 B)False

Question 4

Given a positive discounting factor, the best wage stream for a present value maximizing subject is the

Accepted Answer

A)  flat stream 
B)  declining stream 
C)  increasing stream 
A)  flat stream 
B)  declining stream 
C)  increasing stream

Question 5

The axiom that states that, given two goods separated by a fixed time but both in the future, relative preference between those goods is unaffected by how far in the future they may be is called the

Accepted Answer

A)  stationery axiom 
B)  stationarity axiom 
C)  hyperbolic axiom 
A)  stationery axiom 
B)  stationarity axiom 
C)  hyperbolic axiom

Question 6

Describe a commitment device designed to counteract time-inconsistent behavior.

Accepted Answer

Student answers will vary. The examples

Question 7

Let K = search costs, P₂ = the second possible price for an iPhone, and E(P) = the average iPhone price in the market. If K > P₂ > E(P), then the decision maker's opportunity cost of time is

Accepted Answer

A)  low 
B)  high 
C)  normal 
A)  low 
B)  high 
C)  normal

Question 8

To better understand the workings of the labor market and explain its unemployment statistics, we need to understand how workers

Accepted Answer

A)  search for jobs and accept them 
B)  grant inheritances to successive generations 
C)  weigh their opportunity costs of time when shopping for durable goods 
A)  search for jobs and accept them 
B)  grant inheritances to successive generations 
C)  weigh their opportunity costs of time when shopping for durable goods

Question 9

A decision maker with hyperbolic preferences is very

Accepted Answer

A)  patient 
B)  impatient 
C)  patient or impatient depending on a random distribution 
A)  patient 
B)  impatient 
C)  patient or impatient depending on a random distribution

Question 10

Signing up for an automatic retirement savings plan at work is an example of a commitment device that would help you control your time inconsistency.

Accepted Answer

A) True 
 B)False

Question 11

Describe the stationarity axiom.

Accepted Answer

Given two goods separated by a fixed tim

Question 12

The first step in solving a problem involving searching for the lowest price or intergenerational giving is to use

Accepted Answer

A)  backward induction 
B)  backward discounting 
C)  forward deduction 
A)  backward induction 
B)  backward discounting 
C)  forward deduction

Question 13

The idea that, in a dynamic economic problem, at any point in time the decision maker can choose an optimal action by comparing the value of stopping versus continuing in an optimal fashion is known as

Accepted Answer

A)  the Principle of Hyperbolic Preferences 
B)  Bellman's Principle of Optimality 
C)  Bellman's Exponential Discounting 
A)  the Principle of Hyperbolic Preferences 
B)  Bellman's Principle of Optimality 
C)  Bellman's Exponential Discounting

Question 14

For Alice Hijr the passage of time does not reverse her decisions. She discounts deferred income streams by a constant fraction per unit of time. Alice is patient. How would a person with hyperbolic preferences differ from Alice?

Accepted Answer

People with hyperbolic preferences are t

Question 15

Which of the following is an example of a commitment device?

Accepted Answer

A)  Lu-yin has part of each paycheck deposited in a vacation savings account 
B)  Tassili is indifferent between (a) paying $1 in three years and receiving $2 in four years or (b) paying $1 today and receiving $2 next year 
C)  Frank eats a piece of cake today and saves the rest of the cake for eating later 
A)  Lu-yin has part of each paycheck deposited in a vacation savings account 
B)  Tassili is indifferent between (a) paying $1 in three years and receiving $2 in four years or (b) paying $1 today and receiving $2 next year 
C)  Frank eats a piece of cake today and saves the rest of the cake for eating later

Question 16

For most economic decisions, an economic agent should continue doing any activity as long as the marginal benefits from persisting in that activity are _______________ or equal to the marginal _________.

Accepted Answer

A)  greater than, cost 
B)  less than, cost 
C)  less than, benefits 
A)  greater than, cost 
B)  less than, cost 
C)  less than, benefits

Question 17

Loewenstein and Sicherman suggest that the participants in experiments show a preference for an increasing wages profile, even though this preference is different from what present value maximizing theory predicts.

Accepted Answer

A) True 
 B)False

Question 18

You are a parent living in the 2010s with a child who continues to live in the 2020s after you die and a grandchild who lives in the 2030s and continues to live after your child dies. There are two goods, x and y. The utility function of your child is U₂ = 7x + 5y +

Accepted Answer

A)  U1 
B)  U3 
C)  U2030 
A)  U1 
B)  U3 
C)  U2030

Question 19

Given two goods separated by a fixed time but both in the future, relative preference between those goods is unaffected by how far in the future they may be. This is the stationarity axiom of standard economic theory.

Accepted Answer

A) True 
 B)False

Exam 12: Decision Making Over Time

In the Loewenstein and Sicherman survey specifying different wage streams, what percentage of respondents exhibited present value maximization behavior?

When shopping for the best price on a durable good, we are constantly worried about

The wage set by a worker searching for a job such that, if that wage or more if offered, it will be rejected, and the worker will continue searching is called the optimal reservation wage.

Given a positive discounting factor, the best wage stream for a present value maximizing subject is the

The axiom that states that, given two goods separated by a fixed time but both in the future, relative preference between those goods is unaffected by how far in the future they may be is called the

Describe a commitment device designed to counteract time-inconsistent behavior.

Let K = search costs, P₂ = the second possible price for an iPhone, and E(P) = the average iPhone price in the market. If K > P₂ > E(P), then the decision maker's opportunity cost of time is

To better understand the workings of the labor market and explain its unemployment statistics, we need to understand how workers

A decision maker with hyperbolic preferences is very

Signing up for an automatic retirement savings plan at work is an example of a commitment device that would help you control your time inconsistency.

Describe the stationarity axiom.

The first step in solving a problem involving searching for the lowest price or intergenerational giving is to use

The idea that, in a dynamic economic problem, at any point in time the decision maker can choose an optimal action by comparing the value of stopping versus continuing in an optimal fashion is known as

For Alice Hijr the passage of time does not reverse her decisions. She discounts deferred income streams by a constant fraction per unit of time. Alice is patient. How would a person with hyperbolic preferences differ from Alice?

Which of the following is an example of a commitment device?

For most economic decisions, an economic agent should continue doing any activity as long as the marginal benefits from persisting in that activity are _______________ or equal to the marginal _________.

Loewenstein and Sicherman suggest that the participants in experiments show a preference for an increasing wages profile, even though this preference is different from what present value maximizing theory predicts.

You are a parent living in the 2010s with a child who continues to live in the 2020s after you die and a grandchild who lives in the 2030s and continues to live after your child dies. There are two goods, x and y. The utility function of your child is U₂ = 7x + 5y +

Given two goods separated by a fixed time but both in the future, relative preference between those goods is unaffected by how far in the future they may be. This is the stationarity axiom of standard economic theory.

Economics and Institutions: a Shift of Emphasis

Consumers and Their Preferences

Utilities Indifference Curves

Demand and Behavior in Markets

Some Applications of Consumer Demand, and Welfare Analysis

Uncertainty and the Emergence of Insurance

Uncertainty Applications and Criticisms

The Discovery of Production and Its Technology

Cost and Choice

Cost Curves

Game Theory and the Tools of Strategic Business Analysis

The Internal Organization of the Firm

Perfectly Competitive Markets: Short-Run Analysis

Competitive Markets in the Long Run

Market Institutions and Auctions

The Age of Entrepreneurship: Monopoly

Natural Monopoly and the Economics of Regulation

The World of Oligopoly: Preliminaries to Successful Entry

Market Entry and the Emergence of Perfect Competition

The Problem of Exchange

General Equilibrium and the Origins of the Free Market and Interventionist Ideologies

Moral Hazard and Adverse Selection: Informational Market Failures

Externalities: the Free Market Interventionist Battle Continues

Public Goods, the Consequences of Strategic Voting Behavior, and the Role of Government

Input Markets and the Origins of Class Conflict

Filters

For most economic decisions, an economic agent should continue doing any activity as long as the marginal benefits from persisting in that activity are _______ or equal to the marginal _.