Question 1

The volatility of stock prices,particularly in the short-run,may,according to Professor S.Grossman,be due to

Accepted Answer

A)  large numbers of stockholders fearful of losing wealth who sell at some predetermined level. 
B)  some traders being better informed than others about real financial conditions. 
C)  either or both of the above. 
D)  the increasing use of stock options as compensation for corporate executives.

Question 2

The option to buy a company's stock at some future time at current prices is often given to CEOs

Accepted Answer

A)  as an incentive to take actions that will raise the share price. 
B)  because CEOs are often friends of those who hire them. 
C)  as a means of discouraging the CEO from taking any risky actions. 
D)  because this has become the custom of the business culture.

Question 3

Who wrote the book Progress and Poverty,in which the author argued that the payment of rent to landlords serves no economic purpose?

Accepted Answer

A)  George Akerlof. 
B)  Robert Dorfman. 
C)  Henry George. 
D)  Friedrich A.Hayek.

Question 4

The fact that employees often take longer lunch breaks than they are supposed to is an example of

Accepted Answer

A)  the principal-agent problem. 
B)  moral hazard. 
C)  adverse selection. 
D)  a golden parachute.

Question 5

What is meant by a speculative bubble?

Accepted Answer

A)  A pattern in past stock prices that,according to technical analysts,indicates higher future prices. 
B)  A circumstance where everyone expects higher prices,which in turn causes higher prices. 
C)  An occasional occurrence in program trading in which many investors simultaneously receive instructions to sell. 
D)  A situation where poorly informed traders exacerbate any upturns or downturns in the market.

Question 6

Efficient financial markets are called so because they produce an amount of financial products that maximizes total surplus in the financial industry.

Accepted Answer

A) True 
 B)False

Question 7

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.What does area D represent?

Accepted Answer

A)  The value that Q0 units of the resource gives to demanders. 
B)  The revenue generated from selling Q0 units of the resource. 
C)  The rent that resource owner earns from providing Q0 units. 
D)  The minimum payment needed for the resource owner to supply Q0 units.

Question 8

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.The social gain from this resource being sold is

Accepted Answer

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

Question 9

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).The maximum possible value achieved in this market is

Accepted Answer

A)  $35. 
B)  $60. 
C)  $75. 
D)  $80.

Question 10

People tend to "dress up" for job interviews,even though their clothes do not make them more productive in their positions.This situation is an example of

Accepted Answer

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

Question 11

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).If a social planner dictates that five compact discs be produced and distributed to John,Robert,and Jimmy,then even if the compact discs are allocated based on demand,this market will lose out on $___ of value.

Accepted Answer

A)  $5. 
B)  $10. 
C)  $15. 
D)  There will be no lost value as five compact discs is the efficient level..

Question 12

Demand in the apricot market can be expressed as P=100-Q.Further,the supply function in the apricot industry is P=10+Q.If a social planner specifies that 30 units be produced,is that level of production efficient? Can you propose a more efficient level of production? Explain why your proposed level is better than that of the social planner.

Accepted Answer

The answer of Demand in the apricot market can be...

Question 13

Why are corporate executives are often guaranteed "golden parachutes" if they should be fired?

Accepted Answer

A)  To give them the incentive to take the higher levels of risk desired by stockholders. 
B)  To ensure that they exercise great caution in spending stockholders' money. 
C)  To encourage the most experienced people to apply for the executive positions. 
D)  To provide a signal to the public that the firm is on solid financial ground.

Question 14

A Military Draft

The following questions refer to the accompanying graph, which shows the supply and demand for military service where Q0 represents the quantity provided by a volunteer army and Qd the quantity provided by a draft.

-Refer to Supply and Demand.The social gain from a draft is represented by

Accepted Answer

A)  areas A + B + F. 
B)  areas A + B + F - E. 
C)  areas B + F. 
D)  Areas A + B + C + D.

Exam 9: Knowledge and Information

The volatility of stock prices,particularly in the short-run,may,according to Professor S.Grossman,be due to

The option to buy a company's stock at some future time at current prices is often given to CEOs

Who wrote the book Progress and Poverty,in which the author argued that the payment of rent to landlords serves no economic purpose?

The fact that employees often take longer lunch breaks than they are supposed to is an example of

What is meant by a speculative bubble?

Efficient financial markets are called so because they produce an amount of financial products that maximizes total surplus in the financial industry.

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.What does area D represent?

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) .The maximum possible value achieved in this market is

People tend to "dress up" for job interviews,even though their clothes do not make them more productive in their positions.This situation is an example of

Why are corporate executives are often guaranteed "golden parachutes" if they should be fired?

Exam 9: Knowledge and Information

The volatility of stock prices,particularly in the short-run,may,according to Professor S.Grossman,be due to

The option to buy a company's stock at some future time at current prices is often given to CEOs

Who wrote the book Progress and Poverty,in which the author argued that the payment of rent to landlords serves no economic purpose?

The fact that employees often take longer lunch breaks than they are supposed to is an example of

What is meant by a speculative bubble?

Efficient financial markets are called so because they produce an amount of financial products that maximizes total surplus in the financial industry.

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.What does area D represent?

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 social gain from this resource being sold is

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) .The maximum possible value achieved in this market is

People tend to "dress up" for job interviews,even though their clothes do not make them more productive in their positions.This situation is an example of

Why are corporate executives are often guaranteed "golden parachutes" if they should be fired?

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.What does area D represent?