ECN-601 EXAM 1 UPDATED ACTUAL QUESTIONS AND CORRECT ANSWERS

ECN-601 EXAM 1 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS

Question:
1. The one thing that unites all economists is their use of:
Answer:
The rational actor paradigm

Question:
2. A well-designed organization is one in which employee incentives are aligned with:
Answer:
Organizational goals

Question:
3. If people behave rationally, optimally, and self-interestedly, a bad decision occurs for which of these
reason(s)?
Answer:
Both a. and c.
a. the decision maker did not have enough information to make a good decision
c. the decision-maker did not have the incentive to make a good decision

Question:
4. There are three levers one can push to correct bad decision-making. Which of the following is NOT such
a lever?
Answer:
Let someone else who has no relationship to the problem make the decision

Question:
5. The rational-actor paradigm is:
Answer:
A tool for analyzing behavior

Question:
6. A buyer willingly buys if the price of a good is:
Answer:
Below his value

Question:
7. The zero sum fallacy is:
Answer:
Both b. and c.
b. Often used to justify limits on profitability
c. Means that if one person is making money, someone else is losing money

,Question:
8. The absence of property rights contributes to:
Answer:
Poverty

Question:
9. Money-making opportunities result from:
Answer:
Assets in lower-valued uses

Question:
10. Determining whether a policy is good or bad requires that we look:
Answer:
Both a. and b.
a. At those who benefit from the policy
b. Those who lose because of the policy

Question:
11. An individual's value for a good or service is
Answer:
The amount of money he or she is willing to pay for it

Question:
12. The biggest advantage of capitalism is that
Answer:
d. All of the above.
a. It allows the market to self-regulate.
b. It allows a person to follow his self interest.
c. It allows voluntary transactions, which create wealth.

Question:
13. Wealth-creating transactions are more likely to occur
Answer:
d. All of the above.
a. With private property rights.
b. With strong contract enforcement.
c. With black markets.

Question:
14. Which of these actions creates value?
Answer:
d. All of the above
a. Buying a struggling firm and selling off its assets for more than the purchase price
b. Baseball slugger drawing paying fans into the ballpark
c. Student increasing his decision making ability with an MBA

, Question:
15. Which of the following are examples of a price floor?
Answer:
Minimum wages

Question:
16. A price ceiling
Answer:
Is an implicit tax on producers and an implicit subsidy to consumers

Question:
17. Taxes
Answer:
d. All of the above
a. Impede the movement of assets to higher-valued uses.
b. Reduce incentives to work.
c. Decrease the number of wealth-creating transactions.

Question:
18. A consumer values a car at $20,000 and it costs a producer $15,000 to make the same car. If the
transaction is completed at $18,000, the transaction will generate
Answer:
$2,000 worth of buyer surplus and $3,000 of seller surplus

Question:
19. A consumer values a car at $525,000 and a producer values the same car at $485,000. If sales tax is 8%
and is levied on the seller, then the seller's bottom-line price is (rounded to the nearest thousand)
Answer:
$527,000

Question:
20. Wealth generating activities always:
Answer:
Increase total surplus

Question:
21. To compute price, we need:
Answer:
d. a. and b.
a. MR
b. MC

Question:
22. Which of the following make demand more elastic?
Answer:
Products with many complements have less elastic demand