POSI 2320: Study Guide 1

Incentives always involve:

Rewards / Penalties

Which of the following is NOT an example of incentives at work?

After an increase in shoplifting, a store installs hidden cameras

Which of the following is most likely to incentivize better driving?

Lowering insurance rates for drivers with strong records of safe driving

Economics is the study of —

Choices under scarcity

Which of the following is true about opportunity costs?

An individual’s opportunity cost increases when the next alternative becomes more valuable

Which of the following most accurately identifies the opportunity cost of a cafe manager considering opening a new cafe location?

The value of the next best alternative to their time and money spent on the new location

Which of the best describes the trade-offs involved in increasing animal welfare requirements for egg buying chickens?

Increasing animal welfare requirements will increase the cost of eggs

I purchase non-refundable tickets for $200. What is the minimum amount you can get to cancel or chabge plans?

$201

I am looking to buy a home. Which of the following choices is the best example for a marginal decision?

Increase your budget to $10,000

Coffee costs $3.00 per cup. If the marginal benefit of your next cup of coffee is $2.50, should you buy it?

NO

Four dinner portions of a meal you value at negative $5.00 (nasty food). You spent $20 on ingredients. How many portions of the meal should you eat in the next few days?

Zero portions

Demand Curve

Price goes up—?

quantity demand decreases

Demand Curve

When will people search harder for substitution for oil?

When the price of oil is high

Supply Curve

Price of oil falls, the quantity of oil supplied—?

Decreases

If the price of cars falls, the car makers are likely to make—?

Fewer cars

Market price is higher than equilibrium price, this creates—?

Surplus

Above equilibrium price, self interest tends to—?

Push the price down

Bidding for something, who are you bidding against?

Other bidders

Wage translators are very low. Who is the competition that is pushing the wage down

other translators

Suppose that the quantity demanded and quantity supplied in the market for milk is as follows: What is the equalibrium of the milk

price: $3; quantity: 2500

If the gov places a price ceiling of $2 on milk, how large with the shortage be?

2100 gallons

If a gov decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health insurance?

Fewer people will be covered b/c health insurance companies will supply less

If the gov forced all bread manufactures to sell their products at a “fair price” that was half the current, free-market price, what would happen to the quantity supplied of bread?

a quantity supplied decreases

With these price controls on bread, would you expect bread quality to rise or fall?

Quality falls

A — is a product or service that can be used in a place of another

substitute

— is the rate at which prices for goods and services increase overtime

inflation

Milton Friednman argued the major cause of the Great Depression in the 1930s was

a contraction the money supplied by one-third

Price is the intersection of — and —

supply; demand

The tendency of any resource that is unowned and hence non-excludable to be overused and undetermined

Tragedy of the commons

Moneterism is a school of economy which is associated with

Milton Friedman

Is the process by which regulatory agenda as may come to be dominated by the interest they regulate

regulatory capture

Which of the following is an example of creative destruction

All of them

Does any one person know all of the processes it takes to make a pencil

False

Adam Smith’s example of the pin factory is primarily an example of

the division of labor

Texas is a right-to-work state

True

The Texas legislature meets regular session every year

False

Taxes that takes a. higher percentage of income from low income persons

Regressive taxes

“Darwin, not Newton” ; wants government to model Darwin

Woodrow Wilson

Items subject to tax (sales tax)

tax base

Money dedicated to a specific expenditure by constitutional provisions by law

dedicated revenues

According to George Stigler “The state has one basic resource which in pure principle is not shared with even the mightiest of its citizens…” What resource is this?

the power of coerce

According to George Stigler, powerful corporations will campaign against high levels of regulation

False

According to George Stigler, the decision process is the same as the market

False

When the government spends more money than it recieves in tax revenues, the government runs a —. Choose best answers

budget deficit

According to Reason magazine, the laws and regulations Hawaii’s governer Josh Green suspended to tackle the “housing crisis” were

all other answers

In “Too Much of a Good Thing,” Peter Orzag argues that due to polarization we need to

remove the ability of Congress to vote on certain issues

Which President spoke about governers being eminently democratic

Woodrow Wilson

How do unregulated markets cure a “labor shortage” when there are no immigrants to boost the labor supply?

Let the price of labor increase.

Which town will likely attract shoppers with higher incomes?

Meterville

One town will tend to attract shoppers who hate driving around looking for parking. Which one?

Meterville

How does a free market eliminate a shortage

By letting the price rise.

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). Where will it be easier to find parking: in Freedonia or Meterville?

Meterville

If you instead think of the “market for clothing” as the “market for clothing, whether it’s new or used,” does this shift the demand or supply of clothing, and in which direction?

The supply of clothing shifts right: a rise in supply.

If a nation’s government made it impossible for inefficient firms to fail by giving them loans, cash grants, and other bailouts to stay in business, is that nation likely to be poorer or richer as a result of this strategy?

Poorer

Suppose a new device about the size of a washing machine can bleach, re-weave, and re-dye cotton fabric to closely imitate any cotton item you see in a fashion magazine. If you think of the “market for clothing” as the “market for new clothing,” does this shift the demand or the supply of clothing, and in which direction

The demand for clothing shifts left: a fall in demand.

After this invention, will society’s scarce productive resources (machines, workers, retail space) flow toward the “new clothing” sector or away from it?

Resources will flow away from the new clothing sector.

What happens to the price of new, unrecycled clothing?

The price of new clothing decreases.

If the world collectively decided to tax the population to invest in asteroid defense, who would be the free riders?

Future generations