Practice Questions Exam 3 PDF

Exam 2 You may use a simple calculator on this exam, but no outside notes. Points will not be given for simply writing an answer without providing a logical train of thought, so make sure you explain the reasons for your answers. You must clearly label your graphs. These practice questions only...

Exam 2 You may use a simple calculator on this exam, but no outside notes. Points will not be given for simply writing an answer without providing a logical train of thought, so make sure you explain the reasons for your answers. You must clearly label your graphs. These practice questions only cover Chapter 16 and behavioral economics. Name: 1 1. The costs of a market activity paid for by an individual NOT engaged in the market activity are costs. a. internal b. social c. external d. common e. free-rider 2. Which of the following is true of a negative externality? a. The government can use subsidies to encourage firms to internalize the externality. b. The government must take over the production of this good so that the externality can be internalized. c. Some costs are borne by a third party. d. Some benefits accrue to a third party. e. Its existence always requires corrective measures by the government. 3. The Coase theorem suggests that private parties a. will never be able to negotiate to correct a negative externality. b. can never negotiate to correct a negative externality if there are more than two parties involved. c. can negotiate to correct a negative externality if there are no barriers to negotiation. d. can negotiate to correct a negative externality if the government passes a law allowing them to do so. e. can always negotiate to correct a negative externality. 4. Implicit costs are a. not measured in terms of dollars. b. always paid out of pocket. c. never greater than explicit costs. d. always greater than explicit costs. e. the opportunity cost of the means of production. 2 5. In an experiment, children were given a marshmallow and were promised a second marshmallow if they could wait 15 minutes to eat the first one. Only about one-third of the children earned the second marshmallow. What does this experiment illustrate about children’s rationality? a. difficulty with intertemporal decision-making b. bias in favor of the status quo c. the role of framing effects d. the role of priming effects 6. If 12 consecutive tosses of a fair coin have all been tails, some individuals tend to think that the next one “must be heads.” This is an example of the fallacy. a. gambler’s b. masked-man c. dealer’s d. hot-hand e. casino’s 7. A risk-neutral consumer a. will always accept a fair gamble. b. will always refuse a fair gamble. c. is indifferent between acceptance and refusal of a fair gamble. d. avoids all risk. e. ensures that any higher risk is offset by lower risk. 8. Write an example of a common-resource good. 3 Page intentionally blank 4