Question 1

In an efficient market,the current price reflects all available information.

Accepted Answer

In an efficient market, all available information is quickly reflected in the current price of an asset, making it impossible to consistently achieve returns above the market average. This theory is supported by the fact that professional stock pickers, who spend their careers analyzing the market, typically do not outperform the overall market over the long term.

Question 2

The Fabian socialists argued that there would be no social cost associated with
A) a proportional income tax.
B) the sharp price declines caused when a speculative bubble bursts.
C) limits on employer monitoring imposed to protect employees' privacy.
D) the appropriation of rents by the government.

Accepted Answer

The Fabian socialists believed that the appropriation of rents by the government would not have a social cost because they viewed it as a way to redistribute wealth more equitably without harming economic efficiency.

Question 3

When a factor of production is in fixed supply,the revenue it earns
A) consists entirely of rent.
B) is an efficiency wage.
C) is independent of how the resource is used.
D) consists entirely of deadweight loss.

Accepted Answer

When a factor of production is in fixed supply, its earning is known as rent. Rent refers to the payment made for the use of a fixed factor of production. This payment is usually made to the owner of the factor of production as long as the factor is used. Therefore, the revenue earned by a fixed factor of production is entirely rent.

Question 4

Resource Supply/Demand The following questions refer to the accompanying graph, which shows the supply and demand for a resource. The owner of the resource is receiving the price PS1U1B10S1U1B0 and is providing the quantity QS1U1B10S1U1B0. -Refer to Resource Supply/Demand.What does area D represent? A) The value that Q₀ units of the resource gives to demanders. B) The revenue generated from selling Q₀ units of the resource. C) The rent that resource owner earns from providing Q₀ units. D) The minimum payment needed for the resource owner to supply Q₀ units.

Accepted Answer

Area D represents the minimum payment needed for the resource owner to supply Q₀ units. This is the point where the supply curve intersects with the y-axis, indicating the minimum price at which the resource owner is willing to supply the given quantity of the resource.

Question 5

Efficient financial markets are called so because they produce an amount of financial products that maximizes total surplus in the financial industry.

Accepted Answer

Efficient financial markets are those that allocate resources and allocate risk in a way that maximizes societal welfare or total economic surplus, not just the surplus in the financial industry. The focus is on maximizing overall efficiency, not just the production of financial products.

Question 6

Resource Supply/Demand

The following questions refer to the accompanying graph, which shows the supply and demand for a resource. The owner of the resource is receiving the price PS1U1B10S1U1B0 and is providing the quantity QS1U1B10S1U1B0.

-Refer to Resource Supply/Demand.The social gain from this resource being sold is
A) area A
B) area A + B
C) area A + B + C
D) area A + B + C + D

Accepted Answer

The social gain from a resource being sold is represented by the total surplus, which includes both consumer surplus (area above the price and below the demand curve) and producer surplus (area below the price and above the supply curve). Therefore, it includes areas A (consumer surplus), B (producer surplus), and C (additional producer surplus not captured at the lower price), making the correct answer area A + B + C.

Question 7

To make the most accurate predictions about a stock's future price,one must look at both the past pattern of prices and the current price of the stock.

Accepted Answer

The answer of To make the most accurate predictions about...

Question 8

According to Hayek,a social planner has no hope of matching the efficiency of a competitive pricing system because
A) no social planner can be completely benevolent in his actions.
B) a social planner cannot have access to the specialized knowledge of individuals.
C) the social planner will be unable to fully monitor the activities of his agents.
D) people are selfish and will not be actively altruistic to the social planner.

Accepted Answer

Hayek argues that a social planner cannot have access to the specialized knowledge of individuals, which is necessary for efficient allocation of resources. In a competitive market, prices serve as signals, and individuals make decisions based on their unique knowledge and circumstances. A social planner cannot replicate this individual knowledge, and therefore cannot allocate resources as efficiently.

Question 9

When will consumers' surplus overstate the actual gains received by consumers?
A) When allocation decisions are not made on the basis of price.
B) When the commodity is not equally divided among consumers.
C) When all consumers place the same marginal value on the good.
D) When the distribution of goods is Pareto optimal.

Accepted Answer

Consumers' surplus overstates the actual gains received by consumers when allocation decisions are not made on the basis of price. This is because consumers' surplus is calculated by assuming that all consumers are paying the same price for the good, even though this may not be the case in reality. Therefore, if allocation decisions are not based on price, consumers' surplus will overstate the actual gains received by consumers.

Question 10

A Military Draft

The following questions refer to the accompanying graph, which shows the supply and demand for military service where Q0 represents the quantity provided by a volunteer army and Qd the quantity provided by a draft.

-Refer to Supply and Demand.Deadweight loss
A) is eliminated by a limited draft.
B) occurs only with a volunteer army.
C) occurs only with a draft.
D) Occurs with both a volunteer army and with a draft.

Accepted Answer

The answer of A Military Draft

The following questions refer to...

Question 11

A speculative bubble is characterized by systematic undervaluing of stocks.

Accepted Answer

A speculative bubble is actually characterized by systematic overvaluing of stocks, often driven by emotion and hype rather than true market fundamentals. This ultimately leads to a rapid, unsustainable increase in prices before the bubble bursts, causing a crash in the market.

Question 12

Under competition,the price of a resource reveals
A) information about the past,but not future,uses of a resource.
B) the most valuable way to use the resource.
C) how much the resource is worth in the most valuable of its alternative uses.
D) the value of the labor needed to fully exploit the resource.

Accepted Answer

Under competition, the price of a resource reveals how much the resource is worth in the most valuable of its alternative uses. This means that the market determines the most productive and efficient use of the resource through the price mechanism. The price reflects the supply and demand for the resource and the willingness of consumers to pay for it. This information is valuable for producers who need to allocate their resources efficiently to maximize profits. Therefore, option C is the correct choice. Options A, B, and D are incorrect because they do not fully capture the role of prices in resource allocation under competition.

Question 13

A Military Draft

The following questions refer to the accompanying graph, which shows the supply and demand for military service where Q0 represents the quantity provided by a volunteer army and Qd the quantity provided by a draft.

-Refer to Supply and Demand.The social gain from a draft is represented by
A) areas A + B + F.
B) areas A + B + F - E.
C) areas B + F.
D) Areas A + B + C + D.

Accepted Answer

The social gain from a draft is represented by the area above the equilibrium price (P*) and below the demand curve, up to the quantity Q* that would be supplied in the absence of a draft. This area is represented by areas A + B + F. However, there is also a deadweight loss from the draft, represented by the triangle E, which represents the loss in consumer and producer surplus from the reduction in voluntary trade. Therefore, the net social gain is the area A + B + F minus the area E, which is represented by choice B.

Question 14

Resource Supply/Demand

The following questions refer to the accompanying graph, which shows the supply and demand for a resource. The owner of the resource is receiving the price P0 and is providing the quantity Q0.

-Refer to Resource Supply/Demand.The rent earned by the owner of the resource is measured by
A) area A + B + C.
B) area B + C + D.
C) area B + C.
D) area C + D.

Accepted Answer

The rent earned by the owner of the resource is measured by the area B + C, which represents the amount of surplus created by the difference between the equilibrium price and the minimum price the owner is willing to accept for supplying the resource. Areas A and D represent consumer surplus and producer surplus, respectively, but they do not directly contribute to the rent earned by the resource owner. Therefore, the best choice is C.

Question 15

The past performance of a stock is the best guide to future performance.

Accepted Answer

The past performance of a stock is not a guarantee of future performance. There are many factors that can affect the value of a stock, including changes in the market, government regulations, and company management decisions. Investors should conduct thorough research and analysis before making any investment decisions.

Question 16

For a fixed resource like land to be allocated to its highest valued use
A) a good social plan is needed.
B) it should be allocated to those who will pay the most.
C) it should be taxed at 100 percent of its rental value.
D) it should be offered to those who promise to put it to its best use.

Accepted Answer

Allocating the land to those who are willing to pay the most ensures that it goes to its highest valued use, as the market demand will determine the price. This also encourages efficient use of the resource, as those who do not value it highly will not be willing to pay as much and will use it for a less valuable purpose. However, it is important to ensure that the process is fair and not monopolized by a few wealthy individuals or businesses.

Question 17

A limited military draft is likely to be inefficient because
A) it transfers wealth from those who are drafted to those who benefit from the army's services.
B) the wage rate paid to army personnel is set by the government,not by the market.
C) more people will be drafted than would have joined a volunteer army.
D) there is no guarantee that young adults with the lowest opportunity costs will be drafted.

Accepted Answer

A limited military draft may not necessarily attract the individuals with the lowest opportunity costs, as they may find alternative opportunities more attractive. This means that the military could end up drafting individuals who are not as well-suited for the job, leading to inefficiencies in the army's operations.

Question 18

Resource Supply/Demand The following questions refer to the accompanying graph, which shows the supply and demand for a resource. The owner of the resource is receiving the price PS1U1B10S1U1B0 and is providing the quantity QS1U1B10S1U1B0. -Refer to Resource Supply/Demand.If the government confiscates the rent and pays the owner area D to supply Q₀ units of the resource at a zero price,then A) area B + C is transferred from the resource owner to the government with no loss in social gain. B) area A + B + C overestimates the social gain that will be created. C) demanders will continue to receive area A + B + C + D in value from the resource. D) a deadweight loss equal to area B + C will be created.

Accepted Answer

The answer of Resource Supply/Demand

The following questions refer to the...

Question 19

Payments to a factor of production in excess of the minimum payments necessary to call it into existence constitute
A) consumers' surplus
B) rent
C) a golden parachute
D) an efficiency wage

Accepted Answer

Payments to a factor of production in excess of the minimum necessary to call it into existence constitute rent. Rent is the surplus earned by a factor of production due to its scarcity. The excess payment is not required to bring the factor of production into existence, but rather to induce the owner of the factor to use it in a particular industry or position.

Question 20

Who wrote the book Progress and Poverty,in which the author argued that the payment of rent to landlords serves no economic purpose?
A) George Akerlof.
B) Robert Dorfman.
C) Henry George.
D) Friedrich A.Hayek.

Accepted Answer

Henry George wrote the book Progress and Poverty, in which he argued that the payment of rent to landlords serves no economic purpose. George believed that land should be considered a common asset and that the value of land should be shared by all members of society rather than benefiting only landlords.

Quiz 9: Knowledge and Information

In an efficient market,the current price reflects all available information.

The Fabian socialists argued that there would be no social cost associated with

When a factor of production is in fixed supply,the revenue it earns

Resource Supply/Demand The following questions refer to the accompanying graph, which shows the supply and demand for a resource. The owner of the resource is receiving the price P₀ and is providing the quantity Q₀. -Refer to Resource Supply/Demand.What does area D represent?

Efficient financial markets are called so because they produce an amount of financial products that maximizes total surplus in the financial industry.

To make the most accurate predictions about a stock's future price,one must look at both the past pattern of prices and the current price of the stock.

According to Hayek,a social planner has no hope of matching the efficiency of a competitive pricing system because

When will consumers' surplus overstate the actual gains received by consumers?

A Military Draft The following questions refer to the accompanying graph, which shows the supply and demand for military service where Q0 represents the quantity provided by a volunteer army and Qd the quantity provided by a draft. -Refer to Supply and Demand.Deadweight loss

A speculative bubble is characterized by systematic undervaluing of stocks.

Under competition,the price of a resource reveals

The past performance of a stock is the best guide to future performance.

For a fixed resource like land to be allocated to its highest valued use

A limited military draft is likely to be inefficient because

Payments to a factor of production in excess of the minimum payments necessary to call it into existence constitute

Who wrote the book Progress and Poverty,in which the author argued that the payment of rent to landlords serves no economic purpose?

Quiz 9: Knowledge and Information

In an efficient market,the current price reflects all available information.

The Fabian socialists argued that there would be no social cost associated with

When a factor of production is in fixed supply,the revenue it earns

Resource Supply/Demand The following questions refer to the accompanying graph, which shows the supply and demand for a resource. The owner of the resource is receiving the price P0 and is providing the quantity Q0. -Refer to Resource Supply/Demand.What does area D represent?

Efficient financial markets are called so because they produce an amount of financial products that maximizes total surplus in the financial industry.

Resource Supply/Demand The following questions refer to the accompanying graph, which shows the supply and demand for a resource. The owner of the resource is receiving the price P0 and is providing the quantity Q0. -Refer to Resource Supply/Demand.The social gain from this resource being sold is

To make the most accurate predictions about a stock's future price,one must look at both the past pattern of prices and the current price of the stock.

According to Hayek,a social planner has no hope of matching the efficiency of a competitive pricing system because

When will consumers' surplus overstate the actual gains received by consumers?

A Military Draft The following questions refer to the accompanying graph, which shows the supply and demand for military service where Q0 represents the quantity provided by a volunteer army and Qd the quantity provided by a draft. -Refer to Supply and Demand.Deadweight loss

A speculative bubble is characterized by systematic undervaluing of stocks.

Under competition,the price of a resource reveals

The past performance of a stock is the best guide to future performance.

For a fixed resource like land to be allocated to its highest valued use

A limited military draft is likely to be inefficient because

Payments to a factor of production in excess of the minimum payments necessary to call it into existence constitute

Who wrote the book Progress and Poverty,in which the author argued that the payment of rent to landlords serves no economic purpose?

Resource Supply/Demand The following questions refer to the accompanying graph, which shows the supply and demand for a resource. The owner of the resource is receiving the price P₀ and is providing the quantity Q₀. -Refer to Resource Supply/Demand.What does area D represent?