PEPP FINAL COMPREHENSIVE
EXAMINATION TEST COMPLETE
QUESTIONS WITH ACCURATE SOLUTIONS
●● Why might it be bad for hotels to not charge higher prices when
rooms are in higher demand?
A.) Arbitrageurs might establish a black market by reserving rooms and
then selling the reservations to customers.
B.) Rooms may be rationed.
C.) Without the profit from these high demand times, hotels would have
less of an incentive to build or expand, making the long-run scarcity
problem even worse.
D.)All of the above
Answer: D.) All of the above
●● What might happen if a car dealership is awarded a bonus by the
manufac- turer for selling a certain number of its cars monthly, but the
dealership is just short of that quota near the end of the month?
A. It may sell the remaining cars at huge discounts to hit the quota.
B. It creates an incentive to sell cars from different manufacturers.
C. It would ruin the relationship between dealer and manufacturer.
,Answer: A.) It may sell the remaining cars at huge discounts to hit the
quota.
●● Wealth-creating transactions are more likely to occur
A. with private property rights.
B. with strong contract enforcement. C. with black markets
D. All of the above.
Answer: D. )All of the above.
●● Government regulation
A. provides incentives to conduct business in an illegal black market
B. plays no role in generating wealth. C. is the best way to eliminate
poverty.
D. does not enforce property rights.
Answer: A.) provides incentives to conduct business in an illegal black
market
●● Efficiency implies opportunity,
A. always.
B. never.
C. only if accompanied by secure property rights.
D. none of the above.
Answer: B). never.
,●● Christine has purchased five bananas and is considering the purchase
of a sixth. It is likely she will purchase the sixth banana if
A.) the marginal value she gets from the sixth banana is lower than its
price.
B.) the marginal benefit of the sixth banana exceeds the price.
C.) the average value of the sixth banana exceeds the price.
D.) the total personal value of six bananas exceeds the total expenditure
to pur- chase six bananas.
Answer: B.) the marginal benefit of the sixth banana exceeds the price.
●● Which of the following is the reason for the existence of consumer
surplus?
A.) Consumers can purchase goods that they "want" in addition to what
they "need."
B.) Consumers can occasionally purchase products for less than their
production cost.
C.) Some consumers receive temporary discounts that result in below-
market prices.
D.) Some consumers are willing to pay more than the price.
Answer: D.) Some consumers are willing to pay more than the price.
, ●● If the market for a certain product experiences an increase in supply
and a decrease in demand, which of the following results is expected to
occur?
A.) Both the equilibrium price and the equilibrium quantity could rise or
fall.
B.) The equilibrium price would rise, and the equilibrium quantity could
rise or fall.
C.) The equilibrium price would fall, and the equilibrium quantity could
rise or fall.
D.) The equilibrium price would fall, and the equilibrium quantity would
fall.
Answer: C.) The equilibrium price would fall, and the equilibrium
quantity could rise or fall.
●● Recall our discussion of Wells Fargo's fraudulent-account scandal.
Why did the sales associates make bad decisions? (NB: If you don't
remember, Wells Fargo opened millions of accounts for people that
didn't ask for them).
A.) They had bad incentives: they were likely told to open extra
accounts to keep their jobs.
B.) They had bad incentives: they were paid more if customers were
happy with all their new accounts.
C.) They had bad information: they didn't know how to correctly open
an ac- count.
D.) They had bad information: they didn't have access to consumer's
credit scores.
EXAMINATION TEST COMPLETE
QUESTIONS WITH ACCURATE SOLUTIONS
●● Why might it be bad for hotels to not charge higher prices when
rooms are in higher demand?
A.) Arbitrageurs might establish a black market by reserving rooms and
then selling the reservations to customers.
B.) Rooms may be rationed.
C.) Without the profit from these high demand times, hotels would have
less of an incentive to build or expand, making the long-run scarcity
problem even worse.
D.)All of the above
Answer: D.) All of the above
●● What might happen if a car dealership is awarded a bonus by the
manufac- turer for selling a certain number of its cars monthly, but the
dealership is just short of that quota near the end of the month?
A. It may sell the remaining cars at huge discounts to hit the quota.
B. It creates an incentive to sell cars from different manufacturers.
C. It would ruin the relationship between dealer and manufacturer.
,Answer: A.) It may sell the remaining cars at huge discounts to hit the
quota.
●● Wealth-creating transactions are more likely to occur
A. with private property rights.
B. with strong contract enforcement. C. with black markets
D. All of the above.
Answer: D. )All of the above.
●● Government regulation
A. provides incentives to conduct business in an illegal black market
B. plays no role in generating wealth. C. is the best way to eliminate
poverty.
D. does not enforce property rights.
Answer: A.) provides incentives to conduct business in an illegal black
market
●● Efficiency implies opportunity,
A. always.
B. never.
C. only if accompanied by secure property rights.
D. none of the above.
Answer: B). never.
,●● Christine has purchased five bananas and is considering the purchase
of a sixth. It is likely she will purchase the sixth banana if
A.) the marginal value she gets from the sixth banana is lower than its
price.
B.) the marginal benefit of the sixth banana exceeds the price.
C.) the average value of the sixth banana exceeds the price.
D.) the total personal value of six bananas exceeds the total expenditure
to pur- chase six bananas.
Answer: B.) the marginal benefit of the sixth banana exceeds the price.
●● Which of the following is the reason for the existence of consumer
surplus?
A.) Consumers can purchase goods that they "want" in addition to what
they "need."
B.) Consumers can occasionally purchase products for less than their
production cost.
C.) Some consumers receive temporary discounts that result in below-
market prices.
D.) Some consumers are willing to pay more than the price.
Answer: D.) Some consumers are willing to pay more than the price.
, ●● If the market for a certain product experiences an increase in supply
and a decrease in demand, which of the following results is expected to
occur?
A.) Both the equilibrium price and the equilibrium quantity could rise or
fall.
B.) The equilibrium price would rise, and the equilibrium quantity could
rise or fall.
C.) The equilibrium price would fall, and the equilibrium quantity could
rise or fall.
D.) The equilibrium price would fall, and the equilibrium quantity would
fall.
Answer: C.) The equilibrium price would fall, and the equilibrium
quantity could rise or fall.
●● Recall our discussion of Wells Fargo's fraudulent-account scandal.
Why did the sales associates make bad decisions? (NB: If you don't
remember, Wells Fargo opened millions of accounts for people that
didn't ask for them).
A.) They had bad incentives: they were likely told to open extra
accounts to keep their jobs.
B.) They had bad incentives: they were paid more if customers were
happy with all their new accounts.
C.) They had bad information: they didn't know how to correctly open
an ac- count.
D.) They had bad information: they didn't have access to consumer's
credit scores.
