Exam 1 Questions Flashcards
Assuming the demand and supply have non-zero and non-infinite elasticities, all per-unit subsidies affect:
* the price paid by the buyer
* the price received by the seller
* both of the above
* neither of the above
both of the above
* the price paid by the buyer
* the price received by the seller
Which of the following is true? You may assume that supply slopes upward.
* a per unit tax always results in a reduction in output of the product being taxed.
* a per unit subsidy always results in an increase in the output of the product subsidized
* a per unit subsidy always costs society less because it results in lower prices to the buyer
* a and b of the above
a and b of the above
* a per unit tax always results in a reduction in output of the product being taxed.
* a per unit subsidy always results in an increase in the output of the product subsidized
Raising the level of the minimum wage (if well enforced) will have which of the following effects?
* it will increase the level of employment
* it will increase the level of unemployment
* it will destroy low paying jobs
* all of the above
* b and c of the above
- b and c of the above
- it will increase the level of unemployment
- it will destroy low paying jobs
Which of the following is likely? The decriminalization of the addictive drug trade causes:
* an increase in demand for and increase in supply for them
* an decrease in demand for and increase in supply for them
* an increase in demand for and decrease in supply for them
* an decrease in demand for and decrease in supply for them
* no change in the demand and supply for them
- an increase in demand for and increase in supply for them
A shortage of water in California is the result of
* global warming
* greedy city dwellers irresponsibly using too much water
* the political power of farmers to obtain water subsidies
* globalization
- the political power of farmers to obtain water subsidies
Assuming the supply curve has a positive and the demand curve a zero price elasticity over the relevant price range, the imposition of an excise tax will affect
* the price paid by the buyer
* the price received by the seller
* both of the above
* neither of the above
- the price paid by the buyer
In which of the following did regulation cause exactly the consequence it wished to avoid by the regulation?
* mandating additional airline safety checks
* mandating additional airline security measures
* requiring all cars to have passenger airbags installed
* allowing the FDA to fast track the approval of some drugs
- requiring all cars to have passenger airbags installed
Halving the level of the minimum wage will have which of the following effects? (You may assume the minimum wage is above the market wage).
* it will increase the level of employment
* it will increase the degree of poverty in the economy
* both of the above
* none of the above
- it will increase the level of employment
Assuming the supply curve has a positive and the demand curve a zero price elasticity over the relevant price range, the imposition of an subsidy will affect
* the price paid by the buyer
* the price received by the seller
* both of the above
* neither of the above
- the price paid by the buyer
Decriminalizing the purchase and sale of healthy kidneys would benefit
* the seller but not the buyer
* the buyer but not the seller
* both the buyer and the seller
* all of the above
- both the buyer and the seller
Consider the following statement: “Regulatory outcomes are strongly influenced by the personal costs and benefits facing the regulators.” This statement is consistent with which of the following approaches to regulation theory?
* the public choice approach
* the public interest approach
* the public goods approach
* all of the above
* none of the above
- the public choice approach
Price fixing is a form of
* price rationing
* non-price rationing
* political rhetoric
* price flexibility
- non-price rationing
Which of the following is most likely true? At current levels of expenditure, the marginal benefits of airline safety
* are rising sharply
* are falling
* are constant
* are rising sharply
- are falling
Which of the following are examples of price fixing?
* rent control
* minimum wages
* mandatory maximum prices for gasoline
* all of the above
- all of the above
- rent control
- minimum wages
- mandatory maximum prices for gasoline
Which of the following is not an example of non-price rationing
* a minimum wage law
* a maximum wage law
* rent control
* a tax on gas
* the sale of tickets to a movie that will be sold out
- a tax on gas
Which of the following is an accurate statement?
* economic freedom is necessary for political freedom
* political freedom is necessary for economic freedom
* both of the above
* none of the above
- economic freedom is necessary for political freedom
Which of the following policies will have the strongest disturbing effect?
* the setting of a minimum wage below the market wage
* the setting of a maximum rent below the market rent
* the setting of a maximum rent above the market rent
* they are all equal
- the setting of a maximum rent below the market rent
Relaxing the standards by which the FDA decides whether a drug is safe or not will result in which of the following?
* a decrease in Type I errors
* an increase in Type I errors
* an increase in Type II errors
* a and b of the above
* b and c of the above
- an increase in Type I errors
Which of the following is an accurate statement?
* prosperity, property rights and the rule of law go together
* prosperity without democracy is impossible
* prosperity depends on large amounts of committed government planning
* free speech has nothing to do with property rights
- prosperity, property rights and the rule of law go together
A very high minimum wage that is successfully enforced would ____ legal immigration.
* encourage
* discourage
* have no effect on
* a and b of the above
- discourage
Which of the following is a progressive tax.
* the social security tax
* the income tax
* the sales tax
* all of the above
- the income tax
Which of the following is not true? The criminalization of the addictive drug trade
* has attracted those with a comparative advantage in the use of violence, as suppliers
* has exerted a corrupting influence on crime enforcement
* has demanded a decreasing amount of enforcement over time as the war on drugs has progressed
* all of the above
* a and b of the above
- has demanded a decreasing amount of enforcement over time as the war on drugs has progressed
A shortage of water means that
* there is not enough water in the world
* people are using too much of the limited supply of water
* the price of water is too low
* the price of water is too high
- the price of water is too low
The opportunity cost of any action is
* the expense incurred in doing it
* the value of the best alternative sacrificed
* the historical cost
* the time and effort it requires
* b and c of the above
- the value of the best alternative sacrificed
Which of the following is NOT true? You may assume that supply slopes upward.
* a per unit tax always results in a reduction in output of the product being taxed.
* a per unit subsidy always results in an increase in the output of the product subsidized
* a per unit subsidy always costs society less because it results in lower prices to the buyer
* a subsidy must always be paid for
- a per unit subsidy always costs society less because it results in lower prices to the buyer
In our current system of criminal justice, which of the following errors do we most want to avoid?
* acquitting a guilty person
* convicting a guilty person
* acquitting an innocent person
* convicting an innocent person
- convicting an innocent person
Which of the following groups are the most likely supporters of minimum wage laws?
* employers
* trade unions
* investors
* owners of capital
- trade unions
Every regulatory policy must deal with which of the following problems?
* the knowledge problem
* the incentive problem
* unintended consequences
* all of the above
- all of the above
- the knowledge problem
- the incentive problem
- unintended consequences
Which of the following are possible consequences of rent control?
* corruption
* rent controlled apartments that are in short supply and effectively very expensive
* abandoned housing
* all of the above
* a and b of the above
- all of the above
- corruption
- rent controlled apartments that are in short supply and effectively very expensive
- abandoned housing
The benefits of a subsidy always
* exceed the costs
* fall short of the costs
* are shared between the buyers and the sellers
* go to neither the buyers or the sellers
* b and c of the above
* c and d of the above
- b and c of the above
- fall short of the costs
- are shared between the buyers and the sellers
Decriminalizing prostitution would most likely result in
* an decrease in the demand for prostitution services
* an increase in supply of prostitution services
* a fall in the price of prostitution services
* a and b of the above
- an increase in supply of prostitution services
Strengthening (making more strict) the standards by which the FDA decides whether a drug is safe or not will result in which of the following?
* a decrease in Type I errors
* b an increase in Type I errors
* c an increase in Type II errors
* d a and b of the above
* e a and c of the above
- e a and c of the above
- a decrease in Type I errors
- c an increase in Type II errors
In our current system of criminal justice, which of the following is a Type II error?
* acquitting an innocent person
* convicting a guilty person
* convicting an innocent person
* acquitting a guilty person
- acquitting a guilty person
Under which of the following is the incentive problem the prime focus?
* a the Public Welfare approach
* b the Public Interest approach
* c the Public Choice approach
* d the Private Knowledge approach
- c the Public Choice approach
Which of the following is most crucial to the achievement of prosperity?
* an understanding and acceptance of property rights
* b democracy
* c abundant resources
* d b and c of the above
- an understanding and acceptance of property rights
Which of the following is an inaccurate statement?
* a economic freedom is necessary for political freedom
* b political freedom is necessary for economic freedom
* c the rule of law is necessary for prosperity
* d none of the above
- b political freedom is necessary for economic freedom
Which of the following is an inaccurate statement?
* a prosperity depends on democracy
* b prosperity depends on free trade
* c free trade depends on private property
* d none of the above
- a prosperity depends on democracy
To assume that all regulators try their best to serve the public interest even when it conflicts with their own private interest is consistent with which of the following approaches to regulation theory?
* the public choice approach
* b the public welfare approach
* c both of the above
* d none of the above
- b the public welfare approach
Which of the following is most likely true?
* a the marginal costs of airline safety improvements are rising
* b the marginal benefits of airline safety expenditures are falling
* c the marginal costs in a probably exceed the marginal benefits in b under current circumstances
* d all of the above are true
- d all of the above are true
- a the marginal costs of airline safety improvements are rising
- b the marginal benefits of airline safety expenditures are falling
- c the marginal costs in a probably exceed the marginal benefits in b under current circumstances
The real cost of a tax is always
* a paid by the buyers
* b paid by the sellers
* c paid in a manner shared between the buyers and the sellers
* d none of the above is true
- c paid in a manner shared between the buyers and the sellers
Which of the following policies always achieve the opposite of their stated intentions
* a taxes
* b subsidies
* c price-fixing
* d advertising
- c price-fixing
Assuming the demand and supply have non-zero and non-infinite elasticities, all per-unit subsidies affect
* a the price paid by the buyer
* b the price received by the seller
* c both of the above
* d neither of the above
- c both of the above
- a the price paid by the buyer
- b the price received by the seller
Raising the level of the minimum wage (if well enforced) will have which of the following effects?
* a it will increase the level of employment
* b it will increase the level of unemployment
* c it will destroy low paying jobs
* d all of the above
* e b and c of the above
- e b and c of the above
- b it will increase the level of unemployment
- c it will destroy low paying jobs
Which of the following is true? You may assume that supply slopes upward.
* a a per unit tax always results in a reduction in output of the product being taxed.
* b a per unit subsidy always results in an increase in the output of the product subsidized
* c a per unit subsidy always costs society less because it results in lower prices to the buyer
* d a and b of the above
- d a and b of the above
- a a per unit tax always results in a reduction in output of the product being taxed.
- b a per unit subsidy always results in an increase in the output of the product subsidized
- c a per unit subsidy always costs society less because it results in lower prices to the buyer
Which of the following policies will have no effect?
* a the setting of a maximum rent above the market rent
* b the setting of a minimum wage above the market price
* c the taxation of cigarettes.
* d the subsidization of cigarettes.
- a the setting of a maximum rent above the market rent
Mandating the installation of airbags is a perfect example of the provoking of ___ in regulatory policy
* a unexpected innovation
* b unintended consequence
* c desired behavioral outcomes
* d excess revenue
- b unintended consequence
Which of the following is an accurate statement?
* prosperity depends on democracy
* prosperity depends on free trade
* both of the above
* none of the above
- prosperity depends on free trade
In our current system of criminal justice, which of the following is a Type I error?
* acquitting a guilty person
* convicting a guilty person
* acquitting an innocent person
* convicting an innocent person
- convicting an innocent person
Which of the following is most likely true? At current levels of expenditure, the marginal costs ___ the marginal benefits of airline safety.
* exceeds
* fall short of
* is equal to
* cannot be compared to
- exceeds
Which of the following policies will have no effect?
* the setting of a minimum wage below the market wage
* the setting of a maximum rent above the market rent
* both of the above
* none of the above – both will have effects.
- both of the above
- the setting of a minimum wage below the market wage
- the setting of a maximum rent above the market rent
Every regulatory policy must deal with which of the following problems?
* the knowledge problem
* the incentive problem
* both of the above
* none of the above.
- both of the above
- the knowledge problem
- the incentive problem
Doubling the level of the minimum wage will have which of the following effects?
* it will increase the level of employment
* it will increase the degree of poverty in the economy
* both of the above
* none of the above
- it will increase the degree of poverty in the economy
Which of the following are possible consequences of rent control?
* abandoned houses
* rent controlled apartments that are in short supply and effectively very expensive
* both of the above
* none of the above
- both of the above
- abandoned houses
- rent controlled apartments that are in short supply and effectively very expensive
Price fixing, if it has any effects, always has effects that are ___ what is intended.
* an exaggeration of
* equal to
* the opposite of
* less than
- the opposite of
Considering the terrorist attacks of 9/11, which of the following were the largest category of losses sustained?
* physical capital
* human capital
* commercial capital
* transportation capital
- human capital
Which of the following is a correct statement?
* one benefit of the 9/11 attacks was the jobs that it created for clean up and construction
* an important cost of the 9/11 attacks was the opportunity cost of those doing the clean up and construction associated with them
* both a and b above are correct in part
* none of the above is correct
- an important cost of the 9/11 attacks was the opportunity cost of those doing the clean up and construction associated with them
Which of the following is “the single most powerful proposition in all of economics?”
* the lower the price of a good, the greater the quantity of that good demanded by purchasers
* the higher the price of a good, the greater will be the quantity of that good supplied
* the more apples one eats the less each apple adds to ones benefits
* an apple a day keeps the doctor away
- the lower the price of a good, the greater the quantity of that good demanded by purchasers
Criminalizing the production and sale of drugs, provides those with skills as criminals
* an absolute advantage
* a suggestive advantage
* a comparative advantage
* a chance to do good
- a comparative advantage
Addictive drugs are likely to have a demand curve that indicates
* a high degree of price sensitivity
* a low degree of price sensitivity
* no sensitivity to price whatsoever
* it is impossible to say
- a low degree of price sensitivity
To derive the maximum net benefit from any action which of the following conditions must apply?
* marginal costs must be zero
* marginal benefits musts be zero
* both must be zero
* marginal benefit minus marginal cost must be zero
* costs must be minimized
- marginal benefit minus marginal cost must be zero
As we engage in more of any activity the marginal __ of that activity eventually ___. In contrast, the marginal ___ of an activity eventually ___ as we engage in more of it.
* benefits, fall, costs, fall
* benefits, fall, costs, rise
* costs, fall, benefits, rise.
* costs, rise, benefits, rise
* none of the above
- benefits, fall, costs, rise
The cost of any action is
* the value of the best alternative sacrificed
* the value of the worst alternative sacrificed
* the expense incurred in doing it
* the time and effort it requires
* c and d above
- the value of the best alternative sacrificed
Decriminalizing the production and sale of illegal drugs would most likely result in
* an increase in demand for and increase in supply for them
* an decrease in demand for and increase in supply for them
* an increase in demand for and decrease in supply for them
* an decrease in demand for and decrease in supply for them
* no change in the demand and supply for them
- an increase in demand for and increase in supply for them
Which of the following is not an example of a victimless crime?
* extortion (pressuring people to part with their money under threat of violence)
* a drug deal
* the sale of prostitution services
* illegal gambling
* legal gambling
- extortion (pressuring people to part with their money under threat of violence)
When it comes to airline safety the really difficult problem is to decide
* whether we think safety is important or not
* how much and what kind of safety we want
* whose side we are on
* why we shouldn’t make air travel absolutely safe, since life is priceless
- how much and what kind of safety we want
Which of the following episodes is associated with Type II errors?
* the thalidomide episode
* the benzene episode
* the AIDS epidemic
* a and b of the above
* none of the above
- the AIDS epidemic
Assuming the supply curve has a positive and the demand curve a zero price elasticity over the relevant price range, the imposition of an excise tax will affect
* the price paid by the buyer
* b. the price received by the seller
* c. both of the above
* d. neither of the above
- the price paid by the buyer
Tightening (making more difficult) the standards by which the FDA decides whether a drug is safe or not will result in which of the following?
- an increase in type 1 and type 2 errors
- a decrease in type 1 errors and type 2 errors
- an increase in type 1 errors and a decrease in type 2 errors
- a decrease in type 1 errors and an increase in type 2 errors
- a decrease in type 1 errors and an increase in type 2 errors
When will price fixing not have any effect?
- Price fixing ALWAYS has an opposite effect.
Which of the following is true? You may assume that supply slopes upward.
* a a per unit tax always results in a reduction in output of the product being taxed
* b a per unit subsidy always results in an increase in the output of the product subsidized
* c a per unit subsidy always costs society less because it results in lower prices to the buyer
* d a and b of the above
- d a and b of the above
- a a per unit tax always results in a reduction in output of the product being taxed
- b a per unit subsidy always results in an increase in the output of the product subsidized
Assuming the demand and supply have non-zero and non-infinite elasticities, all per-unit subsidies affect
* a the price paid by the buyer
* b the price received by the seller
* c both of the above
* d neither of the above
- c both of the above
- a the price paid by the buyer
- b the price received by the seller
An expenditure tax is usually collected from the
* buyer, because it is the buyer who really pays the tax
* seller, because it is the seller who really pays the tax
* seller, because there are fewer seller than buyers and it is cheaper to collect it
- seller, because there are fewer seller than buyers and it is cheaper to collect it
Cars that are equipped with airbags tend to be driven
* by more responsible people
* more aggressively
* less aggressively
* by teenagers
- more aggressively
A Type II error occurs
* when the FDA approves an unsafe or ineffective drug
* when the FDA delays the introduction of a safe drug
* when the FDA approves a drug that is too expensive
* when people make bad choices
- when the FDA delays the introduction of a safe drug
Which of the following episodes is associated with Type II errors by the FDA?
* the AIDS epidemic
* benzene consumption
* the thalidomide scare
* cocaine use
* b and c of the above
- the AIDS epidemic
The problem involved in implementing any kind of regulation is
* the difficulty of knowing how much additional benefit is achieved from the regulation
* the difficulty of knowing how much additional regulation costs
* the difficulty of knowing how much consumers value each additional increment of regulation
* all of the above
- all of the above
- the difficulty of knowing how much additional benefit is achieved from the regulation
- the difficulty of knowing how much additional regulation costs
- the difficulty of knowing how much consumers value each additional increment of regulation
Decriminalizing prostitution would most likely result in ___ in the spread of sexually transmitted diseases
* an increase
* a decrease
* no change
* first a decrease then an increase
- a decrease
Increasing the minimum wage would most likely
* decrease unemployment
* increase unemployment
* increase everyone’s living standards
* b and c of the above
* a and c of the above
- increase unemployment
Decriminalizing prostitution would most likely result in ____ in the price of the service
* an increase
* a decrease
* no effect
* a then b
* it is impossible to tell
- it is impossible to tell
Which of the following is most likely to support the raising of minimum wages?
* organized labor
* teenagers
* generous employers
* all of the above
* a and c of the above
- organized labor
Successive decreases in expenditure on airline safety would decrease the degree of safety at
* an increasing rate
* a decreasing rate
* a constant rate
* a variable rate
- an increasing rate
The elasticity of demand for water in the U. S. is
* zero
* infinite
* quite high
* non-existent
- quite high
Disagreements between those who believe in the right to life and those who believe in the right of a woman to choose to have an abortion, rest basically, and most importantly, on
* differences in logical understanding
* differences in social understanding
* differences in fundamental moral beliefs
* differences in intelligence.
- differences in fundamental moral beliefs
The chapter on the tragedy of slavery in Sudan suggests that the effort to redeem slaves
* is likely to succeed in eliminating slavery
* is likely to succeed in reducing slavery
* is likely to have no effect
* may well increase the supply of slaves
- may well increase the supply of slaves
Which of the following is not an example of non-price rationing
* a minimum wage law
* a maximum wage law
* rent control
* a tax on gas
* the sale of tickets to a movie that will be sold out
- a tax on gas
Which of the following is true? The criminalization of the addictive drug trade
* has attracted those with a comparative advantage in the use of violence as suppliers
* has exerted a corrupting influence on crime enforcement
* has demanded a decreasing amount of enforcement over time as the war on drugs has progressed
* all of the above
* a and b of the above
- a and b of the above
- has attracted those with a comparative advantage in the use of violence as suppliers
- has exerted a corrupting influence on crime enforcement
In the chapter on discrimination in Friedman’s Capitalism and Freedom, which of the following arguments is made
* discrimination according to race or gender is endemic and needs to be countered by state action
* discrimination can best be tackled by prosecuting the discriminators
* affirmative action policies are justified
* the market system tends to punish discriminators who deny themselves the use of the productive labor of minorities
* a, b and c of the above
- the market system tends to punish discriminators who deny themselves the use of the productive labor of minorities
All environmental “problems” are essentially about
* differences of opinion as to how resources ought to be used
* good and evil
* whether one likes the environment or not
* religion
- differences of opinion as to how resources ought to be used
The most likely explanation for the recent imposition of a tariff on the importation of steel
* many small domestic steel producers can be expected to become more efficient as a result
* it is politically expedient to protect the domestic steel producers from foreign competition
* foreign steel producers compete unfairly
* a and c of the above
- it is politically expedient to protect the domestic steel producers from foreign competition
The problem of deciding how much air safety is enough or how much air safety is optimal is complicated by
* incentive problems
* knowledge problems
* both of the above
* none of the above
- both of the above
- incentive problems
- knowledge problems
The imposition of a minimum wage below the (free) market wage will
* increase unemployment
* decrease unemployment
* have no effect
* first increase then decrease unemployment
- have no effect
Some inequality
* is always the result of economic progress
* is not necessarily the result of economic progress
* is only sometimes the result of economic progress
* is never the result of economic progress
- is always the result of economic progress
If the Food and Drug Administration slowed down the drug approval process for pharmaceutical drugs it would risk the occurrence of more
* type I errors
* type II errors
* both of the above
* none of the above
- type II errors
A universal economic law of action is that maximum benefits are obtained where
* marginal benefit minus marginal cost equals zero
* marginal cost equals marginal benefit
* marginal cost is at a minimum
* average cost is at a minimum
* a and b of the above
- a and b of the above
- marginal benefit minus marginal cost equals zero
- marginal cost equals marginal benefit
The most obvious effect of rent control is
* a lower average price of housing
* lower mortgage rates for housing
* higher mortgage rates for housing
* a lower rate of return for landlords
- a lower rate of return for landlords
Landlords can increase the return on rent controlled buildings by
* reducing the level of maintenance
* increasing the level of maintenance
* postponing interest payments
* none of the above
- reducing the level of maintenance
The problem of deciding how much air safety is enough or how much air safety is optimal is complicated by
* incentive problems
* knowledge problems
* both of the above
* none of the above
- both of the above
- incentive problems
- knowledge problems
The price of health care in the United States will not decrease unless somehow there is a
* a decrease the demand
* an increase the supply
* either of both of the above
* none or the above will work
- either of both of the above
- a decrease the demand
- an increase the supply
Economic reasoning suggests that privatizing national parks is likely to ___ the chances of survival of endangered species found in the parks when the survival of the species is valued by a large number of wealthy people
* decrease
* increase
* make no difference to
* none of the above
- increase
Which of the following is likely to be the most stable monopoly?
* Microsoft
* The U.S. government
* General Electric
* IBM
- The U.S. government
Free markets work because they
* economize on information
* provide incentives to people to do their best
* encourage a division of labor
* all of the above
- all of the above
- economize on information
- provide incentives to people to do their best
- encourage a division of labor
Trade unions and professional associations have which of the following in common?
* they both directly control the price of the services they sell
* they both directly control the quantity of the services they sell
* they both engage in practices that result in an increase in the price of the services they sell
* b and c of the above
* a and c of the above
- they both engage in practices that result in an increase in the price of the services they sell
Which of the following phenomena is responsible for both the rising cost of health care and the impending crises in social security funding?
* the aging American population
* the rising rate of immigration
* the price fixing activities of professional associations
* the Iraq war
- the price fixing activities of professional associations
Which of the following policies always has consequence that are the opposite of what is intended?
* safety regulation
* the abolition of tariffs
* price fixing
* income subsidies
- price fixing
According to the public choice way of thinking
* wealthy individuals are likely to form alliances with government to subvert competition
* wealthy individuals can never form alliances with government to subvert competition
* poor individuals are likely to form alliances with government to subvert competition
* poor individuals can never form alliances with government to subvert competition
- wealthy individuals are likely to form alliances with government to subvert competition
Consider the previous question. Because of this Thomas Jefferson was led to say which of the following?
* the price of democracy is seldom paid
* the price of liberty is eternal vigilance
* the British are coming
* democracy is sorely overrated
- the price of liberty is eternal vigilance
