Question 1

A perfectly competitive market has all of the following characteristics except:

Accepted Answer

A perfectly competitive market is characterized by a large number of buyers and sellers, and each buyer and seller only represents a small fraction of the total market. Therefore, there cannot be few buyers in a perfectly competitive market.

Question 2

In economics, a resource endowment is:

Accepted Answer

A resource endowment refers to the available resources that an economy has at its disposal, such as natural resources, labor force, and capital goods. It is not something inherited, entitled to, or a reward for efficient production.

Question 3

A market is characterized by the demand and supply curves: X_D= 40 - 4p and X_S= 2 + p, respectively. Under a buy- and- store program with a support price of $9, the government will end up buying:

Accepted Answer

To find out how much the government will buy, we need to find the intersection of the supply and demand curves with the support price of $9. Demand curve: X_D= 40 - 4p 40 - 4p = 9 4p = 31 p = $7.75 Supply curve: X_S= 2 + p 2 + $7.75 = $9.75 Since the support price is higher than the equilibrium price ($9), the government will buy the difference between the quantity demanded and the quantity supplied at the support price: Quantity demanded: X_D= 40 - 4p 40 - 4($7.75) = 11 Quantity supplied: X_S= 2 + p 2 + $7.75 = $9.75 11 - 9.75 = 1.25 units Therefore, the government will buy 1.25 units. Since you cannot buy a fraction of a unit, the answer is 5 units (the closest whole number to 1.25).

Question 4

The clustering model implies that several gas stations sometimes locate at the same intersection:

Accepted Answer

Clustering of gas stations at the same intersection is often a result of profit maximization strategies. By situating close to competitors, stations can attract customers who are comparing prices or seeking convenience, thus potentially increasing their own customer base despite the competition. This spatial arrangement is dictated by the desire to maximize profits rather than by land costs, convenience, or demand alone.

Question 5

The preferences of individuals are key to economic analysis because:

Accepted Answer

Preferences, or individual motivations and desires, are essential in explaining economic choices made by both firms and consumers. Self-interest, or the pursuit of personal satisfaction, is a key factor in economic decision making and is one aspect of individual preferences. Therefore, option B is the best answer as it acknowledges the importance of motivation in economic analysis.

Question 6

Pareto optimality is equivalent to:

Accepted Answer

Pareto optimality is also known as Pareto efficiency, which means that no one can be made better off without making someone else worse off. This concept is often used in economics to define an optimal allocation of resources that maximizes overall economic efficiency.

Question 7

The link between the assumption and the predictions of an economic model is:

Accepted Answer

The link between the assumption and the predictions of an economic model is obtained using the rules of logic. An economic model is based on a set of assumptions that the economist believes are relevant to the problem being studied. These assumptions are used to develop predictions about the behavior of economic agents in the model. The predictions are then tested against empirical evidence, and if they are found to be inaccurate, the assumptions may need to be revised. However, the link between the assumptions and the predictions is based on logical reasoning, rather than subjective beliefs or experience.

Question 8

Suppose that you found a trade that made you better off but no one else would be made worse off. From this information, we can tell that::

Accepted Answer

If you found a trade that made you better off without making anyone else worse off, it indicates that the previous social state was not Pareto optimal. A Pareto improvement (such as the trade you found) is possible only if the initial state is not Pareto optimal, meaning there are still opportunities to make at least one individual better off without making anyone else worse off.

Question 9

The building blocks of the economy are the following except:

Accepted Answer

While international trade is an important aspect of many economies, it is not a fundamental building block. The other choices listed are all key factors in determining an economy's production and distribution of goods and services.

Question 10

The Cost- Benefit criterion assumes all of the following except:

Accepted Answer

The Cost-Benefit criterion does not assume that gains and losses from changes in social state are equal. It primarily focuses on whether the total benefits outweigh the total costs, without necessarily equating the magnitude of individual gains and losses.

Question 11

Assumptions characterising an economic model need to be:

Accepted Answer

Economic models need to be simple and make simplifying assumptions in order to be tractable and facilitate analysis. If a model is too complex, it can become difficult to understand and work with. While it is important for assumptions to be realistic, it is also accepted that no model can fully capture the complexity and nuance of the real world. Therefore, assumptions can be implicit rather than numerous, as long as they are transparent to users of the model.

Question 12

In economics, institutions:

Accepted Answer

Institutions in economics refer to the established laws, practices, organizations, and social norms that guide, control, and direct private and public behavior in a society, rather than conducting research or providing grants.

Question 13

Which of the following statements is true when a common property problem exists?

Accepted Answer

When a common property problem exists, resources are commonly owned or accessed by multiple individuals or groups, leading to overuse or exploitation because no one entity has a strong incentive to conserve or manage the resource sustainably. This leads to resources being used too intensely, risking depletion or degradation.

Question 14

An individual demand curve tells us how many units:

Accepted Answer

An individual demand curve represents the quantity of a good or service that an individual is willing and able to buy at various prices, making choice C the correct answer. Answer A refers to a firm's supply curve, while Answer B refers to the market supply curve. Answer D suggests a collective demand curve, which is not a commonly used concept in economics.

Question 15

If a is 1/4 and b is 5/6 in Hotelling's Main Street model, the second firm's market segment is:

Accepted Answer

The answer of If a is 1/4 and b is...

Question 16

Oil extraction arrangements need to deal with common property issues:

Accepted Answer

The rule of capture is the legal concept that allows a landowner to extract underground resources, such as oil, without liability for any drainage of resources from neighboring properties. This creates a common property issue as neighboring landowners may be affected by the oil extraction activities of one landowner. Therefore, oil extraction arrangements need to address this issue. The other options (A, B, and D) are not directly relevant to the common property issue.

Question 17

The only way to eliminate all competition from social life would be through:

Accepted Answer

Competition arises due to scarcity. If there is an abundance of resources, there would be no need for competition. Therefore, eliminating all scarcity would eliminate competition. Abolishing money or giving government complete control are not viable options as they can lead to other economic and political issues. Eliminating all selfishness is also not possible as it is a natural human trait.

Question 18

The Cost- Benefit criterion selects a social state by finding whether:

Accepted Answer

The Cost-Benefit criterion selects a social state by comparing the gains to winners with the losses to losers. If the gains to winners are greater than the losses to losers, then the social state is chosen. Therefore, choice C is the best choice.

Question 19

Economic theory assumes that people want:

Accepted Answer

Economic theory assumes that individuals act in their own self-interest and make decisions based on maximizing their own utility. This does not necessarily mean that people only want material goods or money, but rather that they want to achieve their own goals and preferences, which may include a combination of material goods, experiences, relationships, and more.

Question 20

Institutions are considered important for economic analysis:

Accepted Answer

Institutions, in the form of laws, norms, and regulations, shape economic behavior and interactions between economic actors. Understanding institutions is important for economic analysis because they determine the rules of the game in markets and economies, which in turn influence economic outcomes. While institutionalism is a field within economics, it is not the only reason institutions are considered important for economic analysis.

Quiz 1: Microeconomics: a Working Methodology