Deck 1: Introduction

Question 1

If all parties gain from a transaction,

A) the government must mandate that transaction.
B) the transaction must be a Pareto improvement.
C) the transaction will not be voluntary for some parties.
D) the transaction will be redistributional.

Answer 1

B

Question 2

Cross-sectional data concerns

A) one behavioral unit at many points in time.
B) many behavioral units at many points in time.
C) many behavioral units at a single point in time.
D) one behavioral unit at one point in time.

Answer 2

C

Question 3

Improvements in equity

A) involve comparing the welfare lost by some against the welfare gained by others.
B) are impossible if the initial distribution is Pareto Optimal.
C) generally increase efficiency.
D) can be scientifically evaluated.

Answer 3

A

Question 4

Economists generally assume that

A) people both pursue their objectives in a consistent fashion and are forced to make choices due to scarcity.
B) people pursue their objectives in a consistent fashion.
C) people are forced to make choices due to scarcity.
D) habit-bound people are irrational.

Question 5

The most widely used method of estimating a regression line for a data set involves selecting the line

A) on which all data points will fall.
B) which minimizes the sum of the vertical distances between the line and the individual data points.
C) which minimizes the sum of the squared vertical distances between the line and the individual data points.
D) which minimizes the sum of the absolute value of the vertical distances between the line and the individual data points.

Question 6

Which of the following could NOT be a public good?

A) national defense
B) an apple
C) music broadcast by a radio station
D) information about worker safety when using asbestos

Question 7

A regression shows how the ________ is affected by the ________.

A) dependent variable; independent variable
B) independent variable; cross-section
C) independent variable; dependent variable
D) independent variable; error term

Question 8

Economists generally assume that workers maximize

A) their income.
B) their leisure time.
C) their utility.
D) their nonpecuniary benefits.

Question 9

If the slope of a regression line is negative, then an increase in the independent variable will cause

A) an increase in the dependent variable.
B) an increase in the error term.
C) a decrease in the dependent variable.
D) a decrease in the error term.

Question 10

Redistributional transactions

A) are never voluntary.
B) should not occur.
C) are usually facilitated by the government.
D) are not Pareto efficient.

Question 11

A regression of W = a + bX where W is wages and X is hours worked per week yielded a t-statistic of 0.75 for b. Statistically speaking, this result suggests that

A) hours worked are probably positively related to wages.
B) hours worked are probably negatively related to wages.
C) we cannot reject the hypothesis that hours worked are unrelated to wages.
D) hours worked are probably related to wages in a minor way.

Question 12

Nonpecuniary factors do NOT include

A) a worker's hourly wage rate.
B) eyestrain caused by having to stare continually at a computer terminal.
C) an inflexible work schedule that requires commuting during the worst rush-hour traffic.
D) annoyance caused by a rude co-worker.

Question 13

If there are costs associated with employee turnover, and to reduce these costs, a firm increases the wage it pays its employees, then

A) the firm's profits must decrease.
B) the firm's profits must increase if turnover costs fall.
C) the firm's profits must increase if the turnover rate falls by three percent or more.
D) the firm's profits could increase or decrease, depending on the amount in the wage increase and the change in the turnover rate.

Question 14

Public goods are

A) goods donated by their owner for public use.
B) goods that are available to an additional consumer at no cost.
C) goods that are not scarce.
D) goods that can only be produced by the government.

Question 15

Pareto efficiency implies that

A) all legal transactions have taken place.
B) the distribution of income is equitable.
C) all mutually beneficial transactions have taken place.
D) only people facing price distortions still wish to undertake transactions.

Question 16

Which of these is an example of the FAILURE of the market to achieve economic efficiency?

A) Firms and employees successfully achieving all mutually beneficial transactions.
B) Alpha Industries is willing to pay $55,000 per year to hire a computer programmer. Dean, a qualified computer programmer, would gladly give up his job as a waiter for a computer programming job paying at least $45,000, but is unaware of Alpha's opening.
C) Laura refuses to quit smoking even though Marlene offers her $1 per hour to stop.
D) Ace Engineering is willing to pay Diane $11 per hour, but Diane is willing to work for $10 per hour, so Ace hires her for only $10 per hour.

Question 17

Economic rationality

A) implies that people have an objective and pursue it in a consistent fashion.
B) implies that people's behavior does not adapt when incentives change.
C) implies that there is no such thing as a free lunch.
D) can be directly proven.

Question 18

Which of the following will NOT prevent a mutually beneficial transaction from occurring?

A) the fact that one party's utility will be decreased by the transaction
B) ignorance about availability of a service or product
C) a law against overtime work
D) a tax on labor services

Question 19

It has been said that "Paul will rarely complain about a plan that takes money from Peter to pay Paul." This suggests that redistributional transactions are usually

A) mutually beneficial transactions.
B) the result of government mandates.
C) voluntary transactions.
D) illegal transactions.

Question 20

Labor markets differ from most other markets because

A) contracts exist between buyers and sellers.
B) price and quantity information must be exchanged.
C) resources are allocated.
D) labor services must be rented, not bought or sold.

Question 21

A regression estimates that Q = 35 - 0.1 * X, where Q is the quit rate, X is the number of employees at the firm, and the firm sizes in the data set range from 50 to 100. If the firm has 350 employees then

A) its quit rate is predicted to be 70%.
B) its quit rate is predicted to be 35%.
C) its quit rate is predicted to be 0%.
D) we cannot predict the quit rate using this linear model.

Question 22

In a world without scarcity

A) there would be no costs.
B) there would be no benefits.
C) goods would have no value.
D) there would be no wants.

Question 23

A buyer values a good at $60 while the good costs a seller $50 to make and sell. The good is sold for a price of $55. Making the good results in pollution that harms people not directly involved in the transaction. When will this transaction result in a market failure?

A) Only when the cost of the pollution exceeds $10.
B) When the pollution has any cost.
C) Only when the cost of pollution exceeds $5.
D) Only when the cost of pollution exceeds $60.

Question 24

In Job X, the employer gets a gross benefit of $600 a week from employing a worker (this is the highest wage the employer will pay). The worker is willing to work for the employer if paid $400 a week or more. Which of the following is Pareto efficient?

A) a law mandating a minimum wage of $650 a week
B) a law mandating a maximum wage of $300 a week
C) a law allowing the employer to pay whatever wage they want
D) a law mandating a chauffeured car, costing $250 a week and valued by the worker at $10, be provided by the employer

Question 25

Either Worker A or Worker B will produce $20,000 of output for Employer X (who only needs one worker). Worker A could produce $12,000 worth of goods elsewhere (this is Worker A's best alternative); Worker B could produce $15,000 worth of goods elsewhere (this is Worker B's best alternative). Which of the following (if they occur) is not Pareto Efficient in the sense that gainers cannot compensate losers for their losses?

A) Employer X hires Worker B for $18,000.
B) Employer X hires Worker A for $18,000.
C) Employer X hires Worker A for $14,000.
D) Employer X hires Worker A for $5,000.

Question 26

Which of the following policies is based upon the type of Pareto efficiency where the gainers gain more than losers lose?

A) a law mandating that employers favor hiring workers with big families
B) a law mandating that students can rent for half price
C) a law restricting women from working more than 40 hours a week
D) a law mandating unions cut wages, resulting in more workers getting jobs

Question 27

An economist creates an economic model describing how wages will respond when the government imposes higher taxes on workers. According to positive economics, this model is a good model if the model

A) has sufficiently realistic assumptions about workers and employers.
B) is flexible enough to explain the outcome if wages go up or down.
C) is theoretically correct even if its predictions are wrong.
D) accurately predicts how wages in the aggregate adjust to higher taxes.

Question 28

Multiple regression analysis uses

A) several dependent variables.
B) several independent variables.
C) data from several time periods.
D) several error terms.

Question 29

A government contractor hires a worker to help build a road for an annual wage of $50,000. The worker's annual output is worth $60,000. If the worker did not have this job, the worker would have produced $40,000 a year in an alternative job and would have been paid $30,000 a year. The real cost of using this worker to build the road is

A) $30,000.
B) $40,000.
C) $50,000.
D) $60,000.

Question 30

Which of the following is a positive statement?

A) mutually beneficial trade is good
B) minimum wage laws are not Pareto efficient
C) all workers should earn, at a minimum, a living wage
D) all persons who cannot produce enough to earn a living wage should not be allowed to work

Question 31

A regression estimates that a worker's hourly productivity (P), measured in units of output, is related to hourly wage (W) as follows: Pi = 4.5 + 0.2Wi. This indicates that

A) a firm raising their wage by $10 will reduce their productivity by 2 units.
B) a firm raising their wage by $10 will raise their quit rate by 2 units.
C) a worker will produce 2 units when the firm pays a wage of $10.
D) a worker will produce 4.5 units.

Question 32

Omitted variable bias exists if the omitted variable is

A) unrelated to the dependent variable or the independent variable.
B) related to the dependent variable, but unrelated to the independent variable.
C) related to the independent variable, but unrelated to the dependent variable.
D) related to both the independent variable and the dependent variable.

Question 33

Which of the following best illustrates an externality?

A) A worker agrees to work in a dangerous job because it is the best job the worker can get .
B) A job is so dangerous that the employer cannot attract workers, resulting in a good not being produced despite the fact that it is valued by consumers.
C) Parents, weighing the costs and benefits to their child of going to school versus working, choose to make the child work in a local factory.
D) An employer and worker agree to produce a good with a production method that emits pollutions on the nearby community

Question 34

A regression estimates that Q = 35 - 0.1 * X, where Q is the quit rate, X is the number of employees at the firm. Both t-statistics are greater than two, and the firm sizes range from 50 to 100. This indicates that doubling the number of employees from 50 to 100 will reduce the quit rate by

A) 50% points.
B) 5% points.
C) 35% points.
D) 10% points.

Question 35

Which of the following is NOT a characteristic of a typical positive economic model?

A) realistic assumptions
B) makes predictions that can be proven false
C) the assumption that people weigh the costs and benefits of their various alternatives
D) makes assumptions that ignore the complexity of behavior

Question 36

A regression of Y = a + bX yields values of a = 4.0 and b = -2.7. This indicates that the slope of the regression line is

A) 4.0.
B) -4.0.
C) 2.7.
D) -2.7.