Final Exam Review: Microeconomics

The measured inequality of annual income ________ the actual inequality of lifetime income because ________.

• understates; people have different levels of education

• overstates; different households are at different stages in the life cycle

• overstates; different households have different amounts of wealth

• understates; people live in different geographic areas

• overstates; the Lorenz curves differ for income and wealth

Moral hazard is

• an action taken outside a market that conveys information that can be used by that market.
  

• the tendency for people to enter into agreements in which they can use their private
  information to their own advantage and to the disadvantage of the less informed party.

• when one of the parties to an agreement has an incentive after the agreement is made to act
  in a manner that brings additional benefits to himself or herself at the expense of the other
  party.

• a situation in which only bad quality items are bought and sold.

• absent after a person who dislikes risk buys insurance against the risk.

An item that is purchased to increase businesses' productive factors is

• an export.

• a government good.

• a consumption good.

• a productive good.

• a capital good.

A demand schedule shows

• the quantities that people plan to buy at each different price when all other influences on
  buying plans remain the same.

• the quantities that people would plan to buy if they could afford them at each different price
  when all other influences on buying plans remain the same

• the quantities that people plan to buy in all possible circumstances.

• the quantities that people plan to buy at each different income when all other influences on
  buying plans remain the same.

• the quantities that people plan to buy at each different price as long as producers are willing
  to supply that quantity

The American Dairy Association starts a highly successful advertising campaign that makes most people want to drink more milk. As
a result,

• the price of milk falls to encourage people to drink more milk

• the quantity demanded of milk increases.

• the demand for milk is not affected.

• the demand for milk increases.

• the demand for milk decreases because the price of milk rises.

Although Jack and Vanessa were equally qualified, Jack was promoted to manager instead of Vanessa because the president of the
company thought that the other employees would not respect a female manager. The resource, the management position, was allocated
in what manner?

• Personal characteristics

• Contest

• Lottery

• Sharing equally

• Command

In an insurance market, moral hazard exists chiefly because of

• adverse selection.

• private information.

• public information

• economies of scale.

• diseconomies of scale

Suppose Mongo runs a glue factory in Knuckle, North Dakota. Mongo wants to fire his cousin Beevo for not working very hard at making
glue. If firing Beevo would save Mongo $6.11 per hour in wages and the value of Beevo's marginal product equals $7.29 per hour, to
maximize his profit, Mongo should

• keep Beevo employed.

• fire Beevo.

• add another worker, Teevo, Beevo's sister, whose value of the marginal product would
  be $4.83 per hour and whose wage would be $6.11 per hour.

• increase the wage he pays Beevo to $7.29 per hour.

• There is not enough information given to determine what Mongo should do.

The demand for insulin is quite inelastic. The demand for Pepsi is quite elastic. Suppose the elasticity of supply for insulin is the same as
the elasticity of supply for Pepsi. If a $0.20 tax was imposed on each of these goods (holding everything else constant), which consumers
would pay more of the tax?

• the Pepsi consumers

• the insulin consumers

• There would be no difference in the amount of tax paid by the consumers.

• More information is needed to determine which consumers pay more of the tax.

• The premise of the question is wrong because the elasticity of demand and the incidence of a
  tax are not related

What would be an example of capital good?

• The local driver's license office purchases a new digital camera and printer.

• Apple sells computers to Japan.

• Rhianna gets a haircut

• Jeanette buys a new dress.

• Antonio, the manager of the local Taco Hut, purchases a new deep fryer.