Econ Test 2

Use the following information to answer the next 3 questions.
Suppose there are two goods produced in a society: magazines and books. Below are five
different production mixes society may choose.
ChoiceMAGAZINES BOOKS
A 16 0
B 12 20
C 8 32
D 4 40
E 0 44

1) Applying the Indifference Principle which statements are true. Give the best answer.
A) The U..S. Presidency is the best job in the world.
B) People do not care about benefits, they only care about costs.
C) Additional tax revenue is better spent on education than on police.
D) People do not consider benefits and costs when making a decision.
E) none of the above.

Use the following problem to answer the next question.
Pat has six hours a week to allocatebetween cross country skiing and jogging. Each activity
takes one hour and the number of utils he receives from each appears below.
Hour Skiing Jogging
1 80 60
2 65 50
3 50 40
4 35 30
5 20 20
6 5 10

2) How many hours will Pat spend skiing?
A) 1
B) 3
C) 2
D) 5
E) 4

Suppose you place a $300 value on being able to obtain your medical records. Also, suppose your doctor has a $200 value on being able to keep your records. he wants your records so that his work will not be second guessed and so that you are less likely to switch to another doctor.

Suppose doctors are allowed to keep your medical records and do not have to turn them over to you if you ask for them. What outcome could occur that would be consistent with the Coase theorem?
A. You pay your doctor $120 for your records
B. You pay your doctor $220 for your records
C. The doctor keeps your records, no payment is made
D. You obtain your records and no payment is made
E. the doctor keeps your records you pay him $120 for your records

Trip Number-Marginal Cost-Marginal Benefit

1-$20-$230
2-$40-$200
3-$60-$170
4-$80-$140
5-$100-$110
6-$120-$80
7-$140-$50
8-$180-$20

How Many times will Bob go to the doctor if he has to pay the full cost of each visit himsel?
A. 5
B. 7
C. 0
D. 8
E. 6

3) How many hours will Pat spend jogging?
A) 2
B) 3
C) 1
D) 4
E) 5

4) Consider a graph containing a typical marginal benefit and marginal cost curve. Which of the
following options is the best answer.
A) A person should stop doing something when the marginal cost curve touches the y axis.
B) A person should stop an activity when the sum of the marginal benefits equal the sum of the
marginal costs.
C) a person should do something until the marginal benefit curve reached the x axis.
D) a person should do something as long as the marginal benefit is greater than the marginal cost.
E) all of the above.

5) Applying the Indifference Principle which statement is true. Give the best answer.
A) People do not care about costs, theyonly care about benefits.
B) Additional tax revenue is better spent on education than on roads.
C) additional applications of an input result in smaller and smaller gains in output.
D) an education degree is just asattractive as a degree in pre-Med
E) None of the above.

6) Suppose Tracyis at the grocery store. What does the indifference principle suggest about
which line she should get in?
A) It does not matter which line she gets in.
B) She should get in the line furthest from the door
C) She should get in the middle line
D) She should get in the line near the door

7) Suppose a new restaurant opens to rave reviews. What does the indifference principle
suggest.
A) You should go to this restaurant
B) This restaurant is not a better option than other restaurants.
C) You should get there early
D) You should go to another restaurant

8) How manyhours will Pat spend jogging?
A) 4
B) 1
C) 5
D) 2
E) 3
Use the following problem to answer the next question.
Pat has 9 hours a week to allocate between cross country skiing and jogging. Each activity takes
one hour and the number of utils he receives fromeach appears below.
Hour Skiing Jogging
1 40 80
2 35 70
3 30 60
4 25 50
5 20 40
6 15 30
7 10 20 8 5 10

9) How many hours will Pat spend skiing?
A) 3
B) 5
C) 2
D) 4
E) 1

10) How many hours will Pat spend jogging?
A) 5
B) 6
C) 7
D) 8
E) none of the above

11) Consider marginal benefit and marginal cost curves of police protection. The cost is
measured in education. Consider the effect the 9-11 terrorist attacks on these graphs. Which of
the following is true?
A) there will be less police
B) there will be less education
C) the level of police and education will remain the same because people are indifferent between
the two.
D) there will be more terrorist attacks.
E) None of the above.

1) Fred owns a tree that shades his house and allows him to save $200 a year in electricity bills.
Leaves from Fred=s tree fall into his next door neighbor Joe=s yard. If it costs Joe $150 to clean
up the leaves in his yard, what is the best market solution if Joe is responsible for raking any
leaves that fall into his yard.
A) Fred pays Joe $300 for his trouble.
B) Fred pays Joe $100 for his trouble.
C) Joe plants a tree so leaves fall of Fred=s yard.
D) Fred=s leaves continue to fall on Joe=s yard.
E) Joe pays Fred $220 a year to chop his tree down.

2) When a market is left to itself, a negative externality will cause
A) more than the socially optimal amount ofproduction.
B) additional applications of an input result in smaller and smaller gains in output.
C) the socially optimal amount of production.
D) less than the socially optimal amount of production.

3) When a market is left to itself, a positive externality will cause
A) less than the socially optimal amount ofproduction.
B) the socially optimal amount of production.
C) more than the socially optimal amount of production.
D) additional applications of an input result in smaller and smaller gains in output.

4) Suppose a poacher can kill a young tiger without fear of getting caught and sell the skin for
$5,000. Suppose the cost to all tiger hunters from this kill is $50,000, which captures the cost of
the tiger not being available later as a fully grown animal. If the poacher has a 1 in a 500 chance
that another poacher will not kill the animal and that he will later, will the poacher kill the tiger?
A) the poacher will not kill the tiger because the total costs to society are greater than the total
benefits to society.
B) the poacher will kill the tiger because his benefits are greater than his costs.
C) the poacher will not kill the tiger because his benefits are greater than his cost
D) the poacher will kill the tiger because society=s benefits are greater than society=s costs.

5) Which of the following principles explains why spouses are not as nice after they get married as
they were when they were just dating?
A) the indifference principle
B) Positive Externality
C) MoralHazzard
D) the law of increasing costs
E) Negative Externality

6) Fred owns a tree that shades his house and allows him to save $200 a year in electricity bills.
Leaves from Fred=s tree fall into his next door neighbor Joe=s yard. If it costs Joe $300 to clean
up the leaves in his yard, what is the best market solution if Joe is responsible for raking any
leaves that fall into his yard.
A) Joe pays Fred $220 a yearto chop his tree down.
B) Fred pays Joe $100 for his trouble.
C) Fred pays Joe $300 for his trouble.
D) Fred=s leaves continue to fall on Joe=s yard.
E) Joe plants a tree so leaves fall of Fred=s yard.

7) Suppose Lee owns a factory that produces tires and some harmful waste byproducts. Lee can
save $2,000 by dumping these wastes in the river instead of paying to have the pollution hauled
away. If the cost to the town is $10,000, which is split evenly among all 1,000 residents
(including Lee). Which of the following is true.
A) Lee will not dump the waste because the total costs to societyare greater than the total
benefits to society.
B) Lee will not dump the waste because the total benefits to society are greater than the total
costs to society.
C)Lee will dump the waste because his cost is greater than is benefit.
D) Lee will dump because his benefits are greater than his costs.
E) Lee is indifferent as to whether or not to dump the waste.

8) Suppose Amy places a $200 value on being able to fill her contact lens prescriptions anywhere
she wishes. At the same time, her eye doctor places a $40 value on being able to withhold her
contact lens prescriptions so he can fill them himself. According to the Coase theorem, which of
the following options is true when the doctor is allowed to keep Amy=s medical records to himself
so she can not fill the prescription elsewhere.
A) the doctor will prevent Amy from taking her prescription anywhere else to be filled if he is not
required by law to give Amy the prescription.
B) The doctor will give Amy a prescription but will charge her $30 for it.
C) The doctor will give Amy a prescription but will charge her $50 for it.
D) the doctor will give Amy the prescription without charging her for it.

Suppose there are two goods produced in a society: magazines and books. Below are five
different production mixes society may choose.
ChoiceMAGAZINES BOOKS
A 16 0
B 12 20
C 8 32
D 4 40
E 0 44
1) Which of the following is true about the opportunitycost ofone more magazine?
A) 1/5 of a book at choice A and 1/4 of a book at choice B.
B) 5 books at choice E and 2 books at choice C.
C) 1 book at choice D and 1/4 book at choice C
D) 2 books at choice D and 5 books at choice B
E) None of the above.

2) If society is willing to produce one more magazine if it givers up 4 or less books,
what choice will society choose.
A) D
B) B
C) A
D) E
E) C

3) If society is willing to produce one more book if it gives up 1/6 or less magazines, what choice
will society choose?
A) E
B) C
C) B
D) A
E) D

4) Which is an example of opportunity cost explaining something.
A) Ancient Greek soldiers wanted to have a decisive battle so they could get back to the farms
they owned.
B) Ancient Persian soldiers were often slaves who were made to serve in the Army. They did not
want to engage in a decisive battle, but sought to avoid quick bloody battles.
C) Spain=s almost constant war during the 1500's, kept them from developing industries that
would promote continued economic growth.
D)The Hope Scholarships in Georgia, which allowed all college students to attend astate school
for free, as long as they keep a B average, reduces the funding for K-12 school years.
E) All of the above.

5) Early mankind could obtain food from hunting and gathering or from farming. If a climatic
change reduced the amount of game available, what would people do?
A) Not change the amount they hunt because of the indifference principle.
B) Hunt more because they had to spend additional time finding animals to kill.
C) Farm more because their opportunity cost of farming dropped.
D) Hunt more because the opportunity cost of hunting increased.

6) Which of the following usually has no opportunity cost?
A) putting a man on Mars
B) going to graduate school
C) breathing
D) getting married
E) giving scholarships to poor children

7) Which of the following economic principles describes why a newspaper dispenser trusts a
person to take only one newspaper when they open up the dispenser box.
A) the law of diminishing marginal returns
B) the law of diminishing marginal utility
C) the law of increasing costs
D) opportunitycost

Use the following information to answer the next 2 questions.
Suppose there are two goods produced in a society: magazines and books. Below are five
different production mixes society may choose.
ChoiceMAGAZINES BOOKS
A 64 0
B 60 2
C 50 4
D 30 6
E 0 8
8) What is the opportunity cost of one more book at choice C?
A) 1
B) 20
C) 5
D) 10
E) 32

9) If society is willing to produce one more books if it gives up 3 or less magazines,
what choice will society choose?
A) E
B) B
C) D
D) C
E) A

Suppose there are two goods produced in a society: magazines and books. Below are five
different production mixessocietymay choose.
ChoiceMAGAZINES BOOKS
A 30 0
B 27 3
C 21 6
D 12 9
E 0 12
10) Which of the following is true about the opportunity cost of one more magazine?
A) 15/6 book at everypoint
B) 1/4 book at choice Dand 1/3 book at choice C.
C) 1/4 book at choice E and 1/2 book at choice C.
D) 1/4 book at choice E and 1/3 book at choice C.
E) 4 books at choice E and 1 book at choice B

11) If society is willing to produce one more magazine if it givers up 4 or less books,
what choice will society choose.
A) B
B) A
C) C
D) E
E) D

12) If society is willing to produce one more magazine if it givers up 2 or less books,
what choice will society choose.
A) B
B) E
C) D
D) C
E) A

13) Which of the following is true about the opportunity cost of one more book?
A) 1/4 magazine at point D and 2magazine at point B
B) 1/4 magazine at D and 2magazine at point C
C) 2 magazines at point C and one magazine at point B
D) 2 magazines at point B and 4 magazines at point D
E) none of the above

14) If society is willing to produce one more book if it gives up 1/3 of a magazine or less,
what choice will society choose.
A) C
B) D
C) A
D) B
E) E

15) If society is willing to produce one more book if it gives up 2 of a magazine or less,
what choice will society choose.
A) D
B) B
C) A
D) C
E) E

Suppose there are two goods produced in a society: magazines and books. Below are five
different production mixes society may choose.
ChoiceMAGAZINES BOOKS
A 39 0
B 36 3
C 27 6
D 15 9
E 0 12
16) Which of the following is true about the opportunity cost of one more magazine?
A) 1/5 of a book at choice E and 1 book at choice B.
B) 1/3 of a book at choice B and 1/4 of a book at choice C.
C)1/5 of a book at choice E and 1 book at choice A
D) 1/4 of a book at choice B and 1/3 of a book at choice B
E) 12/39 of a book at all amounts of magazines.

17) If society is willing to produce one more magazine if it givers up 2or less books,
what choice will society choose.
A) B
B) A
C) E
D) D
E) C

18) Which option below is not consistent with the idea of opportunity cost?
A) Retired people are more likely to clip coupons than working people.
B) To raise an army, a draft is less efficient than a voluntary service.
C) A working student should go on a trip for Spring Break if they expect their enjoyment for the
trip to be $500 and they will only have to spend $470 in expenses on thetrip.
D) Movie stars are more likely to have marital problems than white collar workers. .

Consider a typical city that spends its money as if it were a rational decision maker.
Which statement is most likely to be true?
A. the city will reduce crime more if it spends an additional $1 to hire more police instead of to build additional prisons (or expanding existing prisons
B. the city will reduce crime by about the same amount regardless of whether the city spends an additional $1 on hiring more police or building more prisons (or expanding existing prisons)
C. the city will reduce crime more if it spends an additional $1 on building more prisons instead of on hiring additional police (" ")

Consider the positive or negative externalities associated with the traffic congestion from driving. If driving were a purely voluntary decision (Which it is). people would
A. drive less than the socially optimal amount
B. drive the socially optimal amount
C. Not drive at all
D. drive more than the socially optimal amount

Bargaining between people to solve a negative externality problem is more likely to solve the externality problem if:
A. bargaining is easy
B. Property right are clearly defined
C. the externality affects 1 person, rather than 1,000 people
D. all of the above
E. none of the above