Question 1

The standard economic model assumes people are

Accepted Answer

The standard economic model assumes that people are rational and self-interested, often described as "selfish," meaning they make decisions to maximize their own utility.

Question 2

Which of the following statements is correct about behavioural economics

Accepted Answer

Behavioral economics builds upon the standard economic model by incorporating insights from psychology and other disciplines to better understand human decision-making, rather than rejecting the standard model outright.

Question 3

What is a Nash equilibrium

Accepted Answer

A

Question 4

The permanent increment to future consumption expressed as a fraction of the initial consumption forgone is.....

Accepted Answer

The permanent increment to future consumption expressed as a fraction of the initial consumption forgone is referred to as the perpetual rate of return. This concept is used to evaluate the long-term benefits of an investment relative to the initial sacrifice.

Question 5

Diversifiable risk can be eliminated by

Accepted Answer

Diversifiable risk, also known as unsystematic risk, can be reduced or eliminated by diversifying investments across various projects or holding stocks of many companies, as both strategies spread out the risk.

Question 6

Non diversifiable risk affects I. the opportunity cost of capital II. should enter into the risk premium

Accepted Answer

Non-diversifiable risk, also known as systematic or market risk, affects the entire market and therefore influences the opportunity cost of capital as investors demand a risk premium for bearing it. This risk cannot be eliminated through diversification and directly impacts the risk premium investors require, thus affecting both the opportunity cost of capital and the risk premium.

Question 7

Several combination of commodities x and y that the economy can produce by fully utilizing all of the fixed amounts of labour and capital with the best technology available is depicted by I. production possibility frontier II. transformation curve III. production possibility curve

Accepted Answer

The terms "production possibility frontier," "transformation curve," and "production possibility curve" all refer to the same concept in economics, which is a graphical representation of the maximum output combinations of two goods that an economy can achieve using its available resources and technology efficiently.

Question 8

Who opined that economic growth meant bringing W closer to W*

Accepted Answer

The answer of Who opined that economic growth meant bringing...

Question 9

Who argued that welfare is improved when 'the greatest good (is secured) for the greatest number'

Accepted Answer

Jeremy Bentham is the philosopher and economist most associated with the principle of "the greatest good for the greatest number," a foundational concept in utilitarianism.

Question 10

Which criterion refers to economic efficiency which can be objectively measured

Accepted Answer

The Pareto-optimality criterion refers to economic efficiency and can be objectively measured by ensuring that no one can be made better off without making someone else worse off.

Question 11

The sum of forgone interest and depreciation costs the machine's owner must pay is the

Accepted Answer

The competitive rental rate for a machine includes the sum of forgone interest (the opportunity cost of the funds used to purchase the machine) and depreciation costs. This rate represents the cost to the owner for using the machine instead of renting it out.

Question 12

The marginal conditions must be satisfied for the attainment of a Pareto-efficient situation in an economy :

Accepted Answer

All the conditions mentioned - efficiency in exchange, efficiency of production, and efficiency in the product-mix or composition of output - must be satisfied for the attainment of a Pareto-efficient situation in an economy. This ensures that resources are allocated in the most efficient way possible, where no individual can be made better off without making someone else worse off.

Question 13

Points where the slopes of the isoquants are equal

Accepted Answer

The contract curve represents the set of points in an Edgeworth box where the slopes of the isoquants for two different production processes are equal, indicating the points of tangency between the isoquants. This signifies the efficient allocation of resources between the two production processes.

Question 14

The set of all Pareto efficient allocations in an Edgeworth box diagram is called the

Accepted Answer

The contract curve represents the set of all Pareto efficient allocations in an Edgeworth box diagram, where no individual can be made better off without making someone else worse off.

Question 15

A scientific paper titled "The Tragedy of the Commons" was written by

Accepted Answer

"The Tragedy of the Commons" is a concept and term popularized by Garrett Hardin in his 1968 paper, addressing the problem of individuals acting independently according to their own self-interest behaving contrary to the common good of all users by depleting or spoiling shared resources.

Question 16

A negative externality from consumption occurs if there is a

Accepted Answer

The answer of A negative externality from consumption occurs if...

Question 17

The tragedy of the commons results in

Accepted Answer

The tragedy of the commons describes a situation where individual users, acting independently according to their own self-interest, overuse and deplete a shared resource, leading to overconsumption, underinvestment in the resource's maintenance, and ultimately its depletion.

Question 18

An important mechanism through which sellers and buyers deal with the problem of asymmetric information is

Accepted Answer

Market signaling is a method used by sellers to communicate the quality of their products to buyers, helping to reduce the problem of asymmetric information where one party has more or better information than the other.

Question 19

The concept of market signalling was first developed by

Accepted Answer

Michael Spence developed the concept of market signaling, particularly in the context of job markets where individuals signal their level of ability to employers by acquiring certain levels of education.

Question 20

Non diversifiable risk arises because

Accepted Answer

The answer of Non diversifiable risk arises because
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Quiz 1: Economics Concepts