ECON 2150 Final Exam Questions with Verified
100% Correct Answers
In an unhampered market, differences in returns to labour reflect differences in:
a. marginal product of labour.
b. natural ability.
c. acquired relevant skills, knowledge, and experience.
d. all of the above.
e. none of the above. - ✔✔D
Positive externality - ✔✔A positive externality occurs when a benefit spills over to a
third-party, someone other than the producer or the consumer.
Originary (natural) interest rate - ✔✔An indiviudal's time preference, specifically, the
ratio of value assigned to want satisfaction in the immediate future and the value
assigned to want satisfaction in remote periods of the future. Originary interest is the
outgrowth of millions of individual evaluations in the market and is therefore constantly
changing. The amount that people save rises with decreasing originary interest and falls
with increasing originary interest.
Price ceiling - ✔✔Price ceiling - The mandated maximum amount a seller is allowed
to charge for a product or service. creates a shortage
Path dependency - ✔✔Path dependency - A concept that describes a situation where
past events or decisions constrain later events or decisions. The outcome is the
continued, institutionalized use of a product or practice—despite the availability of
seemingly more efficient options
,Why does Callahan praise "bugs" in computer operating systems? Would his reasoning
also apply to inputs in agriculture and agri-food? Explain. - ✔✔Callahan asks if
achieving bug-free software is in the customer's best interest. The answer is no, and
economics is the reason. Resources are scarce meaning that trade-offs must be made
between timing, cost, and quality. "...where resources are scarce, consumption involves
choosing A while foregoing B. Software can be made more reliable only by leaving out
features, or increasing the cost of developing it, or both. Consumers' preferences in
regard to this trade-off are embodied in their actual purchases." In other words, bug-
free is too costly. Where issues remain are the focal points of entrepreneurial
opportunity to resolve them, profitably - ultimately making final products better from
the vantage point of consumers. This reasoning applies with equal validity in agricultural
and agrifood markets. There is always room for improvement in our world of scarcity.
An outworking of scarcity are the less-than-perfect goods that we less-than-perfect
beings actually can produce. The opportunity cost of perfection often is immesurable
and boundless.
What are the effects of price supports for agricultural products? How might they lead to
results that even its proponents would consider worse than the initial state of affairs? -
✔✔Price supports are government imposed price limit on how low a price can be
charged for a product, good, commodity, or service. When set above that which would
occur in an unhampered market, it creates an effective price floor where the quantity
supplied will exceeds the quantity demanded --- draw the picture. Three negative
effects: 1/ Quantity demanded falls as the price support rises. 2/ Discovering themselves
unable to sell all of the output they are willing to sell at the price floor, producers
reduce their production. They produce no greater amount than consumers are willing to
buy at the high price floor. (So while price ceilings always create shortages, price floors
don't always create physical surpluses.) 3/ Creates incentive for further intervention for
surplus to be withheld from the market through storage or destruction, or given away as
aid. Each alternative is costly and had cascading effects. Each of these negative effects,
from the point of view of the proponents are even worse than the previous state of
affairs which they government wanted to alter. If the government, to eliminate these
inevitable but unwelcome consequences, pursues its course further and further, it
finally transforms the market process based system of private ownership and freedom
of exchange into a thoroughly choreographed, centrally planned one.
, How does an artificially lower interest rate produce a business cycle? -
✔✔Suppressing interest rates below natural market levels fuel an unsustainable
economic boom. It disconnect the cost of credit from genuine consumer time
preferences and real resource availability. Artificially low rates incentivize increased
investment spending and highly speculative borrowing fueled by easy access to cheap
debt. Businesses are thus induced to embark on new projects that would normally be
entirely unprofitable under higher authentic financing costs. This surge of
malinvestment driven by inflationary credit creation leads to overexpansion in various
sectors, driving up asset prices and further feeding the frenzy of the boom mentality.
When the inflationary credit expansion inevitably slows, the façade of illusory prosperity
unravels. Widespread mal-investments and errors made during the boom are exposed.
The subsequent bust phase is an unavoidable period of painful but necessary
realignment with the genuine wishes of final consumers.
Economics does NOT focus on:
a. Individuals.
b. plant and animal behaviour.
c. business.
d. government. - ✔✔b
The price of salmon is often higher than the price of water because:
a. the total benefit of water is relatively low
b. the total benefit of salmon is relatively high.
c. the marginal benefit of water is relatively high.
d. the marginal benefit of salmon is relatively high. - ✔✔d
If all workers and equipment are equally productive in all activities, the opportunity cost
of increasing output is:
a. increasing
b. decreasing
100% Correct Answers
In an unhampered market, differences in returns to labour reflect differences in:
a. marginal product of labour.
b. natural ability.
c. acquired relevant skills, knowledge, and experience.
d. all of the above.
e. none of the above. - ✔✔D
Positive externality - ✔✔A positive externality occurs when a benefit spills over to a
third-party, someone other than the producer or the consumer.
Originary (natural) interest rate - ✔✔An indiviudal's time preference, specifically, the
ratio of value assigned to want satisfaction in the immediate future and the value
assigned to want satisfaction in remote periods of the future. Originary interest is the
outgrowth of millions of individual evaluations in the market and is therefore constantly
changing. The amount that people save rises with decreasing originary interest and falls
with increasing originary interest.
Price ceiling - ✔✔Price ceiling - The mandated maximum amount a seller is allowed
to charge for a product or service. creates a shortage
Path dependency - ✔✔Path dependency - A concept that describes a situation where
past events or decisions constrain later events or decisions. The outcome is the
continued, institutionalized use of a product or practice—despite the availability of
seemingly more efficient options
,Why does Callahan praise "bugs" in computer operating systems? Would his reasoning
also apply to inputs in agriculture and agri-food? Explain. - ✔✔Callahan asks if
achieving bug-free software is in the customer's best interest. The answer is no, and
economics is the reason. Resources are scarce meaning that trade-offs must be made
between timing, cost, and quality. "...where resources are scarce, consumption involves
choosing A while foregoing B. Software can be made more reliable only by leaving out
features, or increasing the cost of developing it, or both. Consumers' preferences in
regard to this trade-off are embodied in their actual purchases." In other words, bug-
free is too costly. Where issues remain are the focal points of entrepreneurial
opportunity to resolve them, profitably - ultimately making final products better from
the vantage point of consumers. This reasoning applies with equal validity in agricultural
and agrifood markets. There is always room for improvement in our world of scarcity.
An outworking of scarcity are the less-than-perfect goods that we less-than-perfect
beings actually can produce. The opportunity cost of perfection often is immesurable
and boundless.
What are the effects of price supports for agricultural products? How might they lead to
results that even its proponents would consider worse than the initial state of affairs? -
✔✔Price supports are government imposed price limit on how low a price can be
charged for a product, good, commodity, or service. When set above that which would
occur in an unhampered market, it creates an effective price floor where the quantity
supplied will exceeds the quantity demanded --- draw the picture. Three negative
effects: 1/ Quantity demanded falls as the price support rises. 2/ Discovering themselves
unable to sell all of the output they are willing to sell at the price floor, producers
reduce their production. They produce no greater amount than consumers are willing to
buy at the high price floor. (So while price ceilings always create shortages, price floors
don't always create physical surpluses.) 3/ Creates incentive for further intervention for
surplus to be withheld from the market through storage or destruction, or given away as
aid. Each alternative is costly and had cascading effects. Each of these negative effects,
from the point of view of the proponents are even worse than the previous state of
affairs which they government wanted to alter. If the government, to eliminate these
inevitable but unwelcome consequences, pursues its course further and further, it
finally transforms the market process based system of private ownership and freedom
of exchange into a thoroughly choreographed, centrally planned one.
, How does an artificially lower interest rate produce a business cycle? -
✔✔Suppressing interest rates below natural market levels fuel an unsustainable
economic boom. It disconnect the cost of credit from genuine consumer time
preferences and real resource availability. Artificially low rates incentivize increased
investment spending and highly speculative borrowing fueled by easy access to cheap
debt. Businesses are thus induced to embark on new projects that would normally be
entirely unprofitable under higher authentic financing costs. This surge of
malinvestment driven by inflationary credit creation leads to overexpansion in various
sectors, driving up asset prices and further feeding the frenzy of the boom mentality.
When the inflationary credit expansion inevitably slows, the façade of illusory prosperity
unravels. Widespread mal-investments and errors made during the boom are exposed.
The subsequent bust phase is an unavoidable period of painful but necessary
realignment with the genuine wishes of final consumers.
Economics does NOT focus on:
a. Individuals.
b. plant and animal behaviour.
c. business.
d. government. - ✔✔b
The price of salmon is often higher than the price of water because:
a. the total benefit of water is relatively low
b. the total benefit of salmon is relatively high.
c. the marginal benefit of water is relatively high.
d. the marginal benefit of salmon is relatively high. - ✔✔d
If all workers and equipment are equally productive in all activities, the opportunity cost
of increasing output is:
a. increasing
b. decreasing
