McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Master of Arts in Economics (MA Economics) .
| 51. |
When the average buyer of an insurance policy is likely to have higher risk than others in his class, this is known as |
| A. | adverse selection. |
| B. | moral hazard. |
| C. | asymmetric information. |
| D. | an hmo. |
| Answer» A. adverse selection. | |
| 52. |
Health care markets may be inefficient because of |
| A. | poor information (‘ignorance’). |
| B. | adverse selection. |
| C. | moral hazard. |
| D. | all of the above. |
| Answer» D. all of the above. | |
| 53. |
The government can address by providing universal health insurance coverage and charging uniform premiums. |
| A. | expected utility |
| B. | asymmetric information |
| C. | commodity egalitarianism |
| D. | adverse selection |
| Answer» D. adverse selection | |
| 54. |
When people behave in ways that involve increased risk because they have insurance, this is known as |
| A. | adverse selection. |
| B. | moral hazard. |
| C. | asymmetric information. |
| D. | a hmo. |
| Answer» B. moral hazard. | |
| 55. |
Which of the following is not an assumption used in class for reaching the conclusion, using utilitarian reasoning, that income should be divided equally: |
| A. | everybody has the same utility function |
| B. | there is a fixed amount of income to be divided |
| C. | marginal utility is a diminishing function of income |
| D. | some people are more productive than others |
| Answer» D. some people are more productive than others | |
| 56. |
In the economic analysis of the market for new drugs, it is critical to take into account |
| A. | inefficiency from monopoly power granted by patents |
| B. | inequity generated by drug makers charging more than a medication costs to make |
| C. | incentives for innovation by inventing new drugs |
| D. | all of the above |
| Answer» D. all of the above | |
| 57. |
Suppose that you have complete health insurance that covers all expenses. You will use medical care up to the point where your: |
| A. | total benefits equal the costs of providing the medical care. |
| B. | marginal benefit is zero. |
| C. | marginal benefit is equal to the marginal cost of the medical care. |
| D. | marginal benefit is equal to the total costs of providing the medical care. as |
| Answer» B. marginal benefit is zero. | |
| 58. |
If the government subsidizes the health insurance costs of individuals because individuals do not sufficiently realize the importance of having health insurance, which of the following justifications for government intervention is being used? |
| A. | high administrative costs |
| B. | redistribution |
| C. | ignorance |
| D. | externalities |
| Answer» C. ignorance | |
| 59. |
Which of the following is a reason why employers are the predominant source of insurance? |
| A. | insuring at the firm level reduces the extent to which insurance has moral hazard effects. |
| B. | insuring at the firm level allows insurers to create large insurance pools with a predictable distribution of medical risk. |
| C. | employee compensation in the form of medical expenditures is not taxed. |
| D. | both b and c are correct. |
| Answer» D. both b and c are correct. | |
| 60. |
Adverse selection can occur when |
| A. | all persons involved in a transaction have full information. |
| B. | one person has information not available to others. |
| C. | post-agreement incentives result in workers shirking. |
| D. | nobody has any information about a particular product. |
| Answer» B. one person has information not available to others. | |
| 61. |
Adverse selection occurs when |
| A. | a person takes more risks that are not known to the life insurance company because he has life insurance. |
| B. | a person buys life insurance because he has a risky lifestyle that is not known to the life insurance company. |
| C. | a person is a risk lover. |
| D. | pregnant women with health insurance make more doctor visits than uninsured pregnant women. |
| Answer» B. a person buys life insurance because he has a risky lifestyle that is not known to the life insurance company. | |
| 62. |
Adverse selection occurs when there is |
| A. | full information. |
| B. | an unobserved behaviour. |
| C. | an unobserved characteristic. |
| D. | a worker who shirks because his boss does not watch him. |
| Answer» C. an unobserved characteristic. | |
| 63. |
If reckless drivers are more likely to buy automobile insurance than safe drivers are, |
| A. | a moral hazard has occurred. |
| B. | adverse selection has occurred. |
| C. | the market for insurance is efficient. |
| D. | then automobile insurance will be fairly priced. |
| Answer» B. adverse selection has occurred. | |
| 64. |
An individual is willing to pay something for information because |
| A. | information is costly. |
| B. | it is always better to know than not to know. |
| C. | this allows him or her to increase utility. |
| D. | information is a public good. |
| Answer» C. this allows him or her to increase utility. | |
| 65. |
An individual will not choose to acquire all available information because |
| A. | that would maximize utility given his or her budget constraint. |
| B. | that would violate the assumption of risk aversion. |
| C. | there are increasing returns to additional information. |
| D. | there are decreasing marginal costs to acquiring information. |
| Answer» A. that would maximize utility given his or her budget constraint. | |
| 66. |
Adverse selection arises because |
| A. | insurance buyers have more information than insurance sellers. |
| B. | insurance sellers have more information than insurance buyers. |
| C. | individuals can select which insurance company to patronize. |
| D. | insurance companies can exercise too much control over who they insure. |
| Answer» A. insurance buyers have more information than insurance sellers. | |
| 67. |
Adverse selection in competitive insurance markets harms |
| A. | high risk individuals. |
| B. | low risk individuals. |
| C. | owners of insurance companies. |
| D. | everyone. |
| Answer» B. low risk individuals. | |
| 68. |
One way the “lemons problem” in the used-car industry can be mitigated is by |
| A. | raising the price of used cars. |
| B. | hiring auto experts to sell used cars. |
| C. | requiring sellers to guarantee trouble-free cars. |
| D. | allowing owners to trade in their own cars when they purchase a used car. |
| Answer» C. requiring sellers to guarantee trouble-free cars. | |
| 69. |
An example of adverse selection is |
| A. | purchasing a new car sight unseen based on the recommendation of a neighbour. |
| B. | high health insurance premiums resulting from the poor health of people who buy policies. |
| C. | suppliers who charge more for better quality clothing than for lower quality clothing. |
| D. | being talked into buying a low-quality item because the price is lower. |
| Answer» B. high health insurance premiums resulting from the poor health of people who buy policies. | |
| 70. |
If markets are perfect, a rational actor may reasonably conclude from the high price of a good that the good |
| A. | is produced by a monopoly. |
| B. | is of better quality. |
| C. | has a greater demand for it. |
| D. | is not known about by other consumers. |
| Answer» B. is of better quality. | |
| 71. |
In volatile markets, “speculators” would be expected to provide some stability because |
| A. | they will be required to do so by the government. |
| B. | they will use current price moves to predict future moves. |
| C. | they will buy when price is below equilibrium and sell when it is above equilibrium. |
| D. | they will buy when price is above equilibrium and sell when it is below equilibrium. |
| Answer» C. they will buy when price is below equilibrium and sell when it is above equilibrium. | |
| 72. |
A market participant who obeys the principles of rational expectations will base his or her expectations of market price on |
| A. | all possible information about supply and demand curves. |
| B. | all possible information about the history of price movements. |
| C. | rational behaviour by other market participants. |
| D. | rational behaviour by government regulators. |
| Answer» A. all possible information about supply and demand curves. | |
| 73. |
The “lemons model” predicts quality deterioration in the used car market because |
| A. | used cars require increasing maintenance. |
| B. | suppliers and demanders have different information about cars’ quality. |
| C. | used cars are generally of a lower quality than new cars. |
| D. | people will usually buy new cars if they are available. |
| Answer» B. suppliers and demanders have different information about cars’ quality. | |
| 74. |
The standard economic model assumes people are |
| A. | rational |
| B. | boundedly rational |
| C. | altruistic |
| D. | emotional |
| Answer» A. rational | |
| 75. |
What is the methodology of positive economics |
| A. | models should say what it is optimal for a person to do |
| B. | models should be as realistic as possible |
| C. | models should be judged on their assumptions |
| D. | models should be judged on their ability to predict |
| Answer» D. models should be judged on their ability to predict | |
| 76. |
The standard economic model assumes people are |
| A. | kind |
| B. | boundedly rational |
| C. | fair |
| D. | selfish |
| Answer» D. selfish | |
| 77. |
Which of the following statements is correct about behavioural economics |
| A. | it builds upon the standard economic model |
| B. | it does not use the methodology of positive economics |
| C. | it rejects the standard economic model |
| D. | it is the same as economic psychology |
| Answer» A. it builds upon the standard economic model | |
| 78. |
What is a Nash equilibrium |
| A. | a strategy for each player such that total payoffs are maximized |
| B. | a strategy for a person such that the person maximizes payoff given the strategies of others |
| C. | a strategy that maximizes payoff |
| D. | a strategy for each person such that everyone maximizes payoff given the strategies of others |
| Answer» A. a strategy for each player such that total payoffs are maximized | |
| 79. |
An outcome is Pareto efficient if |
| A. | no person can be made better off without making someone worse off |
| B. | everybody can be made better off |
| C. | at least one person can be made better off |
| D. | every person maximizes payoff given the payoff of others. |
| Answer» A. no person can be made better off without making someone worse off | |
| 80. |
The permanent increment to future consumption expressed as a fraction of the initial consumption forgone is..... |
| A. | rate of return |
| B. | perpetual rate of return |
| C. | expected return |
| D. | all the above |
| Answer» B. perpetual rate of return | |
| 81. |
Diversifiable risk can be eliminated by |
| A. | investing in many projects. |
| B. | by holding the stocks of many companies. |
| C. | both a and b |
| D. | none of them |
| Answer» C. both a and b | |
| 82. |
Non diversifiable risk affects I. the opportunity cost of capital II. should enter into the risk premium |
| A. | only i |
| B. | only ii |
| C. | both i &ii |
| D. | none of them |
| Answer» C. both i &ii | |
| 83. |
Several combination of commodities x and y that the economy can produce by fully utilizing all of the fixed amounts of labour and capital with the best technology available is depicted by I. production possibility frontier II. transformation curve III. production possibility curve |
| A. | both i & ii |
| B. | both ii & iii |
| C. | both i & iii |
| D. | all the above |
| Answer» D. all the above | |
| 84. |
Who opined that economic growth meant bringing W closer to W* |
| A. | walras |
| B. | adamsmith |
| C. | bentham |
| D. | pareto |
| Answer» B. adamsmith | |
| 85. |
Who argued that welfare is improved when ‘the greatest good (is secured) for the greatest number’ |
| A. | walras |
| B. | adamsmith |
| C. | bentham |
| D. | pareto |
| Answer» C. bentham | |
| 86. |
Which criterion refers to economic efficiency which can be objectively measured |
| A. | ‘cardinalist’ criterion |
| B. | bentham’s criterion |
| C. | the pareto-optimality criterion |
| D. | the kaldor-hicks ‘compensation criterion’ |
| Answer» C. the pareto-optimality criterion | |
| 87. |
The sum of forgone interest and depreciation costs the machine’s owner must pay is the |
| A. | competitive rental rate |
| B. | capital asset pricing |
| C. | risk premium |
| D. | all of the above |
| Answer» A. competitive rental rate | |
| 88. |
The marginal conditions must be satisfied for the attainment of a Pareto-efficient situation in an economy : |
| A. | efficiency in exchange |
| B. | efficiency of production |
| C. | efficiency in the product-mix, or composition of output |
| D. | all the above |
| Answer» D. all the above | |
| 89. |
Points where the slopes of the isoquants are equal |
| A. | indifference curve |
| B. | contract curve |
| C. | production possibility curve |
| D. | edgewoth box |
| Answer» B. contract curve | |
| 90. |
The set of all Pareto efficient allocations in an Edgeworth box diagram is called the |
| A. | indifference curve |
| B. | contract curve |
| C. | production possibility curve |
| D. | edgewoth box |
| Answer» B. contract curve | |
| 91. |
A scientific paper titled “The Tragedy of the Commons” was written by |
| A. | walras |
| B. | kaldor |
| C. | garrett hardin |
| D. | pareto |
| Answer» C. garrett hardin | |
| 92. |
A negative externality from consumption occurs if there is a |
| A. | bandwagon effect |
| B. | snob effect |
| C. | veblen effect |
| D. | all the above z |
| Answer» B. snob effect | |
| 93. |
The tragedy of the commons results in |
| A. | overconsumption |
| B. | under investment |
| C. | depletion of the resource |
| D. | all the above |
| Answer» D. all the above | |
| 94. |
An important mechanism through which sellers and buyers deal with the problem of asymmetric information is |
| A. | market signalling |
| B. | insurance markets |
| C. | moral hazard |
| D. | principal-agent problem |
| Answer» A. market signalling | |
| 95. |
The concept of market signalling was first developed by |
| A. | michael spence |
| B. | kaldor |
| C. | garrett hardin |
| D. | pareto |
| Answer» A. michael spence | |
| 96. |
Non diversifiable risk arises because |
| A. | a firm’s profits tend to depend on the overall economy |
| B. | a firm’s profits tend to depend on that firm only |
| C. | both a & b |
| D. | none of them |
| Answer» C. both a & b | |
| 97. |
The risk premium for a capital investment by comparing the expected return on that investment with the expected return on the entire stock market is measured by |
| A. | diversifiable risk |
| B. | non diversifiable risk |
| C. | capital asset pricing model |
| D. | none of the above |
| Answer» C. capital asset pricing model | |
| 98. |
The quantity of present goods that must be forgone to increase future consumption by 1 unit is called |
| A. | the relative price of future goods |
| B. | indifference curve |
| C. | production possibility curve |
| D. | contract curve |
| Answer» A. the relative price of future goods | |
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