Question 1

Susan Chen is a stock analyst.She values two goods: money (income)and her integrity.Her bonus is based on the number of investments she recommends to the company.Generally speaking,the higher the bonus she receives,

Accepted Answer

The higher the bonus Susan receives for recommending investments, the more she might be tempted to compromise her integrity for financial gain, as the financial incentive increases.

Question 2

The ______ model suggests that that the productivity of employees in a firm will increase if the firm offers lifetime employment and a high salary.

Accepted Answer

The "happy-is-productive" model suggests that employees are more productive when they are happy and satisfied with their job, which includes factors such as job security and compensation. This aligns with the suggestion that offering lifetime employment and a high salary would increase productivity.

Question 3

The demand for normal goods follows the law of demand because of

Accepted Answer

The demand for normal goods follows the law of demand because both the substitution effect (where consumers switch to a cheaper substitute when the price of a good increases) and the income effect (where the change in price affects the purchasing power of consumers' income) occur simultaneously.

Question 4

Assume MACROSOFT is planning to develop and sell a new word processor.It estimates that R&D expenses will amount to $300,000 for this new software,and it will have to invest an additional $150,000 to advertise and distribute the new product.If MACROSOFT's managers are risk-neutral,they will undertake this project if the expected revenues from the sales of the new software are

Accepted Answer

To determine the expected revenues needed to undertake the project, MACROSOFT needs to consider the total cost of the project and add a desired profit margin. The total cost of the project is $300,000 (R&D expenses) + $150,000 (advertising and distribution expenses) = $450,000. Assuming MACROSOFT wants to earn a profit equal to the project cost, it would need to generate revenues of $450,000 to break even. Therefore, the answer is D, which states that the expected revenues should be at least $450,000.

Question 5

A budget line

Accepted Answer

A budget line shows all the combinations of goods that require the same total expenditure. It illustrates the different combinations of two goods that a consumer can afford given a certain income and the prices of the goods. The budget line is a straight line, and its slope depends on the relative prices of the two goods.

Question 6

The substitution effect

Accepted Answer

The substitution effect refers to the change in quantity demanded of a good due to a change in its price relative to the prices of other goods. Specifically, when the price of a good increases, consumers will tend to substitute it with cheaper alternatives, which reduces the quantity demanded of the higher-priced good. Therefore, (A) is the correct choice. The income effect, on the other hand, refers to the change in quantity demanded of a good due to a change in consumers' purchasing power resulting from a change in their income. (B) is incorrect because the income effect and substitution effect are different concepts that can work in opposite directions. (C) and (D) are incorrect because the relative size of the substitution and income effects depends on the specific circumstances and cannot be generalized.

Question 7

ABC Corp.has a bonus plan in place for its CEO,linking her pay to annual earnings.ABC will pay her $180,000 if earnings are high,$90,000 if they are normal,and $0 if they are low.Each event is estimated to have equal probability.Assume the CEO is indifferent between this bonus plan and receiving $75,000 with certainty.Which of the following is true?

Accepted Answer

The expected bonus is calculated as (1/3 * $180,000) + (1/3 * $90,000) + (1/3 * $0) = $90,000.

Question 8

Assume that the quantity of apples is measured on the horizontal axis and the quantity of oranges is measured on the vertical axis.If Andy likes both apples and oranges,then his Marginal Rate of Substitution along the indifference curve indicates

Accepted Answer

The Marginal Rate of Substitution (MRS) measures the rate at which a consumer is willing to substitute one good for another while remaining indifferent. Hence, if Andy's MRS along the indifference curve is -2, then he is willing to give up two oranges to obtain one more apple. Therefore, the correct choice is A.

Question 9

Smith is given a voucher that can be spent only on textbooks.Smith has a budget constraint with textbooks measured along the horizontal axis and everything else on the vertical axis.Suppose everything else is comprised only of normal goods.Then

Accepted Answer

The voucher effectively increases Smith's income for textbooks, freeing up some of his original budget to be spent on other normal goods, leading to an increase in spending on everything else.

Question 10

Which of the following is a primary role of a manager according to the good-citizen model?

Accepted Answer

According to the good-citizen model, one of the primary roles of a manager is to communicate the goals and objectives of the organization to employees, in order to align their work and efforts towards achieving these common goals. This helps to create a sense of purpose and shared vision among employees, which can lead to increased motivation, engagement, and performance. Options B, C, and D are not consistent with the good-citizen model, as they either discourage innovation and independence, or focus on control and obedience rather than empowerment and engagement.

Question 11

A risk-averse agent

Accepted Answer

A risk-averse agent cares about not only the expected payoff but also the variability of that payoff. This is because they want to avoid losses and therefore prefer outcomes with less variability.

Question 12

Johnny consumes only bread and milk.Suppose the quantity of milk is measured along the horizontal axis.If the price of milk rises,his budget constraint will

Accepted Answer

When the price of milk rises, the amount of milk Johnny can afford decreases if he spends all his money on milk, leading to a rotation of the budget constraint inward along the horizontal axis, which represents the quantity of milk.

Question 13

Assume Joseph spends his entire income on X and Y,and his indifference curves have the usual convex shape.If Joseph maximizes his utility,then

Accepted Answer

When Joseph maximizes his utility given his budget constraint, he will spend his entire available income on the combination of goods X and Y that provides him the highest level of satisfaction. This is a fundamental principle of consumer behavior in microeconomics, where individuals allocate their limited resources in a way that maximizes their utility, leading to the consumption of all available income on the optimal bundle of goods.

Question 14

Suppose a family's budget line is such that the horizontal axis shows the amount of food consumed,while the vertical axis measures the consumption of all other goods.Suppose this family receives food stamps.This will cause the budget line to

Accepted Answer

Receiving food stamps effectively increases the amount of food the family can purchase without affecting their ability to buy other goods. This is represented by a rightward shift along the horizontal axis, indicating an increase in the quantity of food that can be consumed for the same amount of spending on other goods.

Question 15

If employees' activities follow the economists' view of behavior,managers will be most effective if they can

Accepted Answer

According to the economists' view of behavior, individuals make decisions based on weighing the costs and benefits of their actions. Therefore, managers can be most effective if they can influence the costs and benefits of employee actions. By altering the incentives and consequences of certain actions, managers can encourage employees to behave in ways that align with organizational goals. For example, offering rewards for exceptional performance or implementing consequences for poor performance can motivate employees to work harder and more effectively.

Question 16

Assume that Janet is risk-averse.Which of the following bets is she more likely to accept,depending on the degree of risk aversion?

Accepted Answer

Janet's risk aversion means she prefers less risk and is willing to sacrifice potential gains for a more certain outcome. Option C offers the smallest range of possible outcomes, with a max gain of $20 and a max loss of $20, making it the safest option. Option A has a higher potential gain but also a higher potential loss, which may be too risky for Janet. Option B has a similar risk profile to A, with a potential gain but also potential loss, while option D has a lower potential gain and loss, but still more risky than option C. Therefore, Janet is most likely to choose option C.

Question 17

Which of the following is a feature of a behavioral economic model?

Accepted Answer

Behavioral economic models take into account the cognitive, emotional, and social factors that affect individual decisions, which distinguishes them from traditional economic models that assume rational decision making based solely on maximizing individual utility. Therefore, option A is the correct answer. The other options are incorrect because they don't fit with the features of a behavioral economic model.

Question 18

The ______ of an uncertain payoff is defined as the weighted average of all possible outcomes,where the probability of each outcome is used as the weights.

Accepted Answer

The expected value represents the average outcome that one can expect based on the probabilities of each possible outcome. It is calculated as the weighted average of all possible outcomes, where the probability of each outcome is used as the weight. The other options (B, C, and D) are measures of dispersion or asymmetry of a probability distribution and are not relevant for calculating the expected value.

Question 19

Assume that the quantity of apples is measured on the horizontal axis and the quantity of oranges is measured on the vertical axis.If the budget line rotates upward while keeping the same horizontal intercept, it implies that

Accepted Answer

The upward rotation of the budget line with the same horizontal intercept indicates that the price of oranges has decreased, allowing more oranges to be purchased for the same amount of income.

Question 20

Which of the following is a possible criticism of the happy-is-productive model?

Accepted Answer

The roles attributed to managers under this model represented a new brand of elitism.

Quiz 2: Economists View of Behavior

Susan Chen is a stock analyst.She values two goods: money (income) and her integrity.Her bonus is based on the number of investments she recommends to the company.Generally speaking,the higher the bonus she receives,