Question 1

If all parties gain from a transaction,
A) the government must mandate that transaction.
B) the transaction must be a Pareto improvement.
C) the transaction will not be voluntary for some parties.
D) the transaction will be redistributional.

Accepted Answer

When all parties gain from a transaction, it is known as a Pareto improvement, meaning that at least one party benefits without any other party being made worse off. This type of transaction is considered efficient and does not require government intervention or redistributional policies. Therefore, option B is the best choice as it accurately describes the situation where all parties gain from a transaction.

Question 2

Which of the following will NOT prevent a mutually beneficial transaction from occurring?
A) a market where buyers and sellers have internalized all benefits and costs of their transactions
B) ignorance about availability of a service or product
C) a law against overtime work
D) a tax on labor services

Accepted Answer

A market where buyers and sellers have internalized all benefits and costs of their transactions facilitates rather than prevents mutually beneficial transactions. This scenario implies that all externalities are accounted for, allowing for efficient and optimal transactions.

Question 3

Pareto efficiency implies that
A) all legal transactions have taken place.
B) the distribution of income is equitable.
C) all mutually beneficial transactions have taken place.
D) only people facing price distortions still wish to undertake transactions.

Accepted Answer

Pareto efficiency means that all mutually beneficial transactions have taken place, which implies that no further exchanges could occur without making at least one person worse off. It does not specifically address the distribution of income or legality of transactions, nor does it necessarily indicate anything about price distortions.

Question 4

If the slope of a regression line is negative,then an increase in the independent variable will cause
A) an increase in the dependent variable.
B) an increase in the error term.
C) a decrease in the dependent variable.
D) a decrease in the error term.

Accepted Answer

If the slope of a regression line is negative, then there is an inverse relationship between the independent and dependent variables. This means that as the independent variable increases, the dependent variable decreases. Therefore, an increase in the independent variable will cause a decrease in the dependent variable (choice C). The error term (choices B and D) is not affected by changes in the independent variable.

Question 5

The most widely used method of estimating a regression line for a data set involves selecting the line
A) on which all data points will fall.
B) which minimizes the sum of the vertical distances between the line and the individual data points.
C) which minimizes the sum of the squared vertical distances between the line and the individual data points.
D) which minimizes the sum of the absolute value of the vertical distances between the line and the individual data points.

Accepted Answer

The most widely used method of estimating a regression line for a data set is through the method of least squares. The line that minimizes the sum of the squared vertical distances between the line and the individual data points is known as the "least squares regression line" or simply the "regression line." This is because it provides the best overall fit to the data and ensures that the errors between the actual and predicted values of the response variable are minimized. Therefore, choice C is the best option.

Question 6

Which of these is an example of the FAILURE of the market to achieve economic efficiency?
A) Firms and employees successfully achieving all mutually beneficial transactions.
B) Alpha Industries is willing to pay $55,000 per year to hire a computer programmer. Dean, a qualified computer programmer, would gladly give up his job as a waiter for a computer programming job paying at least $45,000, but is unaware of Alpha's opening.
C) Laura refuses to quit smoking even though Marlene offers her $1 per hour to stop.
D) Ace Engineering is willing to pay Diane $11 per hour, but Diane is willing to work for $10 per hour, so Ace hires her for only $10 per hour.

Accepted Answer

In this scenario, there is a failure of the market to achieve economic efficiency because Dean, a qualified computer programmer, is not aware of Alpha Industries' job opening. This means that a mutually beneficial transaction between Alpha Industries and Dean is not happening, which would have resulted in a more efficient allocation of resources.

Question 7

Public goods are
A) goods donated by their owner for public use.
B) goods that are available to an additional consumer at no cost.
C) goods that are not scarce.
D) goods that can only be produced by the government.

Accepted Answer

Public goods are goods that are non-excludable, meaning that anyone can consume the good without preventing someone else from consuming it too, and non-rivalrous, meaning that one person's consumption of the good does not reduce the amount available for others to consume. Because these goods are available to an additional consumer at no cost, they are often provided by governments as it is difficult for private companies to profit from them.

Question 8

Labor markets differ from most other markets because
A) contracts exist between buyers and sellers.
B) price and quantity information must be exchanged.
C) resources are allocated.
D) labor services must be rented, not bought or sold.

Accepted Answer

Labor services cannot be owned or sold like a physical good, but instead they are rented or leased from the worker to the employer. This makes the labor market different from most other markets where goods are bought and sold. The other choices are not unique to labor markets and are present in other markets as well.

Question 9

Economists generally assume that
A) people both pursue their objectives in a consistent fashion and are forced to make choices due to scarcity.
B) people pursue their objectives in a consistent fashion.
C) people are forced to make choices due to scarcity.
D) habit-bound people are irrational.

Accepted Answer

Economists assume that people pursue their objectives at a consistent rate and make choices due to scarcity. This suggests that people are rational and make decisions based on the best available choices. This assumption is essential for building economic models that accurately predict behavior and outcomes.

Question 10

A regression of W = a + bX,where W is wages and X is hours worked per week,yielded a t-statistic of 0.75 for b.Statistically speaking,this result suggests that
A) hours worked are probably positively related to wages.
B) hours worked are probably negatively related to wages.
C) we cannot reject the hypothesis that hours worked are unrelated to wages.
D) hours worked are probably related to wages in a minor way.

Accepted Answer

A t-statistic of 0.75 is relatively small and indicates that the coefficient for hours worked (b) is not significantly different from zero. Therefore, we cannot reject the hypothesis that hours worked are unrelated to wages. It is important to note that this does not necessarily mean that there is no relationship between the two variables, but rather that the relationship is not statistically significant in this particular analysis.

Question 11

Economic rationality
A) implies that people have an objective and pursue it in a consistent fashion.
B) implies that people's behavior does not adapt when incentives change.
C) implies that there is no such thing as a free lunch.
D) can be directly proven.

Accepted Answer

Economic rationality assumes that individuals have a clear objective and act in a consistent manner to achieve it, but it does not imply that their behavior cannot be influenced by changes in incentives or circumstances. Economic rationality is a theoretical concept that cannot be directly proven, but it is useful as a tool for understanding and predicting human behavior in economic contexts. The idea that "there is no such thing as a free lunch" is related to the concept of opportunity cost, which is a fundamental principle of economics but is not synonymous with economic rationality.

Question 12

If there are costs associated with employee turnover,and to reduce these costs,a firm increases the wage it pays its employees,then
A) the firm's profits must decrease.
B) the firm's profits must increase if turnover costs fall.
C) the firm's profits must increase if the turnover rate falls by three percent or more.
D) the firm's profits could increase or decrease, depending on the amount in the wage increase and the change in the turnover rate.

Accepted Answer

The increase in wages could potentially reduce turnover costs by retaining more employees, leading to increased profits. However, the offsetting cost of the wage increase could also decrease profits. Therefore, the firm's profits could increase or decrease depending on the specific circumstances.

Question 13

Redistributional transactions
A) are never voluntary.
B) should not occur.
C) are usually facilitated by the government.
D) are not Pareto efficient.

Accepted Answer

Redistributional transactions are usually facilitated by the government through policies such as taxes and transfer payments. These policies aim to redistribute wealth and income from richer individuals or groups to poorer ones to increase equity and reduce poverty.

Question 14

Economists generally assume that workers maximize
A) their income.
B) their leisure time.
C) their utility.
D) their nonpecuniary benefits.

Accepted Answer

Economists assume that workers maximize their utility, which is a subjective measure of satisfaction or happiness. This includes not only income but also nonpecuniary benefits such as job security, good working conditions, and opportunities for advancement, as well as leisure time.

Question 15

Cross-sectional data concerns
A) one behavioral unit at many points in time.
B) many behavioral units at many points in time.
C) many behavioral units at a single point in time.
D) one behavioral unit at one point in time.

Accepted Answer

Cross-sectional data involves collecting information on many behavioral units at a single point in time. This is different from longitudinal data, which involves following one or more units over time.

Question 16

A regression shows how the ________ is affected by the ________.
A) dependent variable; independent variable
B) independent variable; cross-section
C) independent variable; dependent variable
D) independent variable; error term

Accepted Answer

The dependent variable is the outcome variable that is being studied and is affected by changes in the independent variable, which is the variable that is being manipulated or changed in order to observe its effect on the dependent variable. Therefore, option A is the correct answer. Option B mentions cross-section, which does not relate to the question of how variables are affected by each other in a regression analysis. Option C and Option D mix up the roles of the dependent and independent variables.

Question 17

Nonpecuniary factors do NOT include
A) a worker's hourly wage rate.
B) eyestrain caused by having to stare continually at a computer terminal.
C) an inflexible work schedule that requires commuting during the worst rush-hour traffic.
D) annoyance caused by a rude co-worker.

Accepted Answer

Nonpecuniary factors refer to non-monetary aspects of a job, such as job satisfaction, work-life balance, relationships with co-workers, etc. Hourly wage rate is a pecuniary or monetary factor.

Answer: B, C, D 
 These factors relate to non-monetary aspects of a job, such as physical strain or discomfort, commute time, and interpersonal relationships with co-workers. These are all examples of nonpecuniary factors.

Question 18

Improvements in equity
A) involve comparing the welfare lost by some against the welfare gained by others.
B) are impossible if the initial distribution is Pareto Optimal.
C) generally increase efficiency.
D) can be scientifically evaluated.

Accepted Answer

Improvements in equity involve comparing the welfare lost by some (usually the richer members of society) against the welfare gained by others (usually the poorer members of society). It is a subjective issue and there is no Pareto Optimal distribution. Therefore, (B) is incorrect. (C) is also incorrect because improvements in equity may not necessarily increase efficiency. (D) is partly correct, as some scientific evaluation can be done, but it is not a purely scientific issue.

Question 19

Which of the following could NOT be a public good?
A) national defense
B) an apple
C) music broadcast by a radio station
D) information about worker safety when using asbestos

Accepted Answer

A public good is non-excludable and non-rivalrous, meaning it is difficult to exclude individuals from consuming it and consuming by one individual does not diminish the availability of the good to others. An apple is a rivalrous good, meaning if one person eats it, it is no longer available for others to consume. Therefore, it cannot be a public good.

Question 20

It has been said that "Paul will rarely complain about a plan that takes money from Peter to pay Paul." This suggests that redistributional transactions are usually
A) mutually beneficial transactions.
B) the result of government mandates.
C) voluntary transactions.
D) illegal transactions.

Accepted Answer

This statement suggests that redistributional transactions, where resources are taken from one party to benefit another, are often the result of government mandates, as individuals are unlikely to voluntarily give up resources for others' benefit without a regulatory or legal requirement.

Quiz 1: Introduction

If all parties gain from a transaction,

Which of the following will NOT prevent a mutually beneficial transaction from occurring?

Pareto efficiency implies that

If the slope of a regression line is negative,then an increase in the independent variable will cause

The most widely used method of estimating a regression line for a data set involves selecting the line

Which of these is an example of the FAILURE of the market to achieve economic efficiency?

Public goods are

Labor markets differ from most other markets because

Economists generally assume that

A regression of W = a + bX,where W is wages and X is hours worked per week,yielded a t-statistic of 0.75 for b.Statistically speaking,this result suggests that

Economic rationality

If there are costs associated with employee turnover,and to reduce these costs,a firm increases the wage it pays its employees,then

Redistributional transactions

Economists generally assume that workers maximize

Cross-sectional data concerns

A regression shows how the is affected by the .

Nonpecuniary factors do NOT include

Improvements in equity

Which of the following could NOT be a public good?

It has been said that "Paul will rarely complain about a plan that takes money from Peter to pay Paul." This suggests that redistributional transactions are usually