Question 1

If wages are below the wage level that causes supply to equal demand,then there is
A) excess supply for labor.
B) excess demand for labor.
C) a market equilibrium.
D) unemployment.
E) inflation.

Accepted Answer

If wages are below the wage level that causes supply to equal demand, it means that employers demand more labor than the number of workers willing to work at that wage level. This creates excess demand for labor, which could lead to labor shortages and a potential increase in wages if employers are willing to pay more to attract workers.

Question 2

Which of the following is not true about New Institutional Economics?
A) It is made up of agents who use rational choice.
B) It examines how individuals within the household behave.
C) It considers how workers who are already employed make their decisions regarding how much or how hard to work.
D) It is a combination of law,economics,and organization.
E) It assumes agents have a limited ability to calculate the consequences of their actions.

Accepted Answer

New Institutional Economics acknowledges that agents have bounded rationality, meaning they have a limited ability to calculate the consequences of their actions, rather than assuming agents use purely rational choice.

Question 3

The marginal concept is important in economics because
A) it provides a convenient means of locating an optimal choice.
B) it assumes individuals operate using limited rationality.
C) it allows for economists to predict how an agent will respond to a change in their environment.
D) A and C only
E) all of the above

Accepted Answer

The marginal concept helps identify the optimal choice since it analyzes the additional benefit and cost of each unit or increment. It also aids in predicting how individuals or agents will react to a change in their environment, which is useful in understanding market behavior and making policy decisions. It does not assume limited rationality, however, as individuals are assumed to make rational decisions based on their preferences and available information.

Question 4

Which is not a pillar of the neoclassical approach?
A) Pareto efficiency
B) positive economics
C) methodological individualism
D) equilibrium
E) rational choice

Accepted Answer

Positive economics is a core pillar of neoclassical economics, as it emphasizes a scientific and empirical approach to analyzing economic phenomena. The other choices, including Pareto efficiency, methodological individualism, equilibrium, and rational choice, are all key pillars of the neoclassical approach.

Question 5

Workers in an industry are probably overpaid if
A) firms want to hire more workers but cannot ?0??7?nd people willing to work.
B) firms need to layoff workers because it cannot afford to cover costs.
C) firms are hiring the optimal amount of workers and there is no excess supply of labor in the market.
D) firms are unable to keep their most skilled workers.
E) no new workers are interested in working in that industry.

Accepted Answer

If firms need to layoff workers because they cannot afford to cover costs, it suggests that the wages being paid to the workers are too high for the industry. This indicates that workers are overpaid.

Question 6

If an economy has reached the general equilibrium then
A) the actions leading to it are not grounded in rational behavior.
B) one group is operating in isolation of all other groups.
C) all interconnected groups are included and their decision process is modeled.
D) the outcome is not necessarily feasible.
E) there is a transaction possible that would be a Pareto improvement.

Accepted Answer

General equilibrium means that all interconnected groups in the economy are included and their decision-making processes are modeled, leading to a state of balance where supply equals demand in all markets simultaneously. This requires rational behavior by all participants and assumes that all externalities have been accounted for. Therefore, C is the correct choice. A, B, and D are incorrect because they are contradictory to the assumptions of general equilibrium. E is also incorrect because Pareto improvements do not necessarily lead to general equilibrium, and the existence of such an improvement would not necessarily indicate that the economy is in equilibrium.

Question 7

Pareto efficiency implies
A) everyone in the economy is equally well off.
B) there are no trades that would make someone be?0??0?er off without making someone else worse off.
C) there are still trades that would make one party be?0??0?er off without making someone else worse off.
D) transactions are still taking place in the economy.
E) there is always only one outcome that is efficient.

Accepted Answer

Pareto efficiency means that no further changes can be made to make one person better off without making someone else worse off. Thus, no trades can be made that make someone better off without hurting someone else. Therefore, choice B is correct.

Question 8

Suppose an agent values the future but cannot accurately predict it.What is this called?
A) rational choice
B) Pareto efficiency
C) marginal revenue
D) bounded rationality
E) new institutional economics

Accepted Answer

This is called bounded rationality, which refers to the limitations agents face in their ability to gather and process information to make decisions. In this case, the agent values the future but cannot accurately predict it, which is a common example of bounded rationality.

Question 9

When a rational choice model is applied,the individual
A) is never selfish,spiteful,or altruistic.
B) has behavior that is not consistent over time.
C) is always selfish,spiteful,or altruistic.
D) maximizes his wellbeing subject to a constraint.
E) maximizes his utility but is not constrained.

Accepted Answer

The rational choice model assumes that the individual is rational and seeks to maximize their wellbeing or utility subject to constraints. This does not assume that the individual is always selfish, spiteful, or altruistic, but rather focuses on their rational decision making given their preferences and constraints. Option A and C are incorrect as the model does not assume any specific motivation for behavior. Option B and E are incorrect as the model assumes consistent and rational decision making.

Question 10

Which of the following is consistent with a Pareto improvement?
A) a federal restriction on the hours an individual can work
B) there is an increase in the sales tax levied on particular goods
C) a trade that would make one party be?0??0?er off,and the other equally well off
D) a trade that would make one party be?0??0?er off,and the other party worse off
E) one party having incomplete information about the market

Accepted Answer

A Pareto improvement is a change that makes at least one person better off and no one worse off. A trade that would make one party better off and the other equally well off satisfies this condition. Choices A, B, D, and E do not involve a Pareto improvement as they make someone worse off.

Question 11

If the price of capital increases and the substitution effect dominates,then labor and capital are and demand for labor will.
A) gross substitutes,increase
B) gross substitutes,decrease
C) gross substitutes,increase or decrease
D) gross complements,increase
E) gross complements,decrease

Accepted Answer

If the price of capital increases and the substitution effect dominates, it implies that firms will substitute labor for capital because they are gross substitutes. As a result, the demand for labor will increase as firms seek to replace the now more expensive capital with labor.

Question 12

If one party can gain from a transaction,without harming any other party,
A) then the transaction must be a Pareto improvement.
B) then the transaction is not a Pareto improvement.
C) the government must intervene to make the transaction occur.
D) the transaction will be forced on one of the parties.
E) then the current economy is at the Pareto efficient outcome.

Accepted Answer

A Pareto improvement occurs when at least one party can be made better off without harming any other party. Therefore, if one party can gain from a transaction without harming any other party, it meets the definition of a Pareto improvement.

Quiz 1: Introduction

If wages are below the wage level that causes supply to equal demand,then there is

Which of the following is not true about New Institutional Economics?

The marginal concept is important in economics because

Which is not a pillar of the neoclassical approach?

Workers in an industry are probably overpaid if

If an economy has reached the general equilibrium then

Pareto efficiency implies

Suppose an agent values the future but cannot accurately predict it.What is this called?

When a rational choice model is applied,the individual

Which of the following is consistent with a Pareto improvement?

If the price of capital increases and the substitution effect dominates,then labor and capital are and demand for labor will.

If one party can gain from a transaction,without harming any other party,