Archive for June 2020

The marginal rate of substitution is the

13:19

The marginal rate of substitution is the



A. rate at which the consumer increases utility
B. absolute value of the indifference curve
C. tradeoff rate between the two goods under consideration at any particular point
D. total utility derived at any point


Answer: C. tradeoff rate between two goods under consideration at any particular point

Say a consumer always consumed peanut butter and jelly in fixed proportions (for a perfect peanut and jelly sandwich). Then the indifference curves for peanut butter and jelly for this consumer would be

13:19

Say a consumer always consumed peanut butter and jelly in fixed proportions (for a perfect peanut and jelly sandwich). Then the indifference curves for peanut butter and jelly for this consumer would be



A. a straight line with positive slope
B. L-shaped
C. a straight line with negative slope
D. convex


Answer: B. L-shaped

Excluding corner solutions, in consumer equilibrium, which of the following is true?

13:18

Excluding corner solutions, in consumer equilibrium, which of the following is true?



A. The consumer is minimizing utility given the constraints
B. The marginal rate of substitution equals the slope of the budget constraint
C. The consumer can improve his/her situation by consuming more of both goods
D. The indifference curve is steeper than the budget constraint


Answer: B. The marginal rate of substitution equals the slope of the budget constraint

Say Anna chooses between partying and studying. Supposed her indifference curves satisfied all the assumptions about consumer theory, but she also like studying a lot more than partying. If the price of studying increased, then Anna would consume

13:18

Say Anna chooses between partying and studying. Supposed her indifference curves satisfied all the assumptions about consumer theory, but she also like studying a lot more than partying. If the price of studying increased, then Anna would consume



A. the same as before
B. less studying and more partying
C. no partying at all, in order to consume more studying
E. more studying and less partying


Answer: B. less studying and more partying

If the price of a good shown on the vertical axis of a budget graph is cut in half and the price of good on the horizontal axis is cut by 75%, then the budget constraint shifts

13:18

If the price of a good shown on the vertical axis of a budget graph is cut in half and the price of good on the horizontal axis is cut by 75%, then the budget constraint shifts



A. left and becomes steeper
B. left and becomes flatter
C. right and becomes steeper
D. right and becomes flatter


Answer: A. left and becomes steeper

An increase in the price of one good will cause

13:17

An increase in the price of one good will cause



A. an outward rotation of the budget curve
B. a parallel shift in the budget curve
C. an inside shift of the budget curve
D. an inward rotation of the budget curve


Answer: D. an inward rotation of the budget curve

Say a consumer considered soy milk and skim milk perfect substitutes of each other as a ratio of 1:1. If the skim milk is cheaper than soy milk this consumer would buy

13:17

Say a consumer considered soy milk and skim milk perfect substitutes of each other as a ratio of 1:1. If the skim milk is cheaper than soy milk this consumer would buy




A. we can't really say with the information given
B. just skim milk
C. some of both goods but more soy milk
D. some of both goods, but more skim milk


Answer: B. just skim milk

According to the text, gift giving in kind

13:17

According to the text, gift giving in kind



A. should happen more often if people were rational
B. happens only because people expect to get gifts in return
C. cannot be easily explained by the rational choice model
D. always increase consumer welfare


Answer: C. cannot be easily explained by the rational choice model

A new discovery makes ink jet computer printers less expensive to produce. At the same time another type of computer printer, the laser printer, also becomes less expensive. What would you expect to happen to the equilibrium price and quantity of ink jet printers?

13:16

A new discovery makes ink jet computer printers less expensive to produce. At the same time another type of computer printer, the laser printer, also becomes less expensive. What would you expect to happen to the equilibrium price and quantity of ink jet printers?



A. Equilibrium price will rise, but the effect on quantity is uncertain
B. Equilibrium price will fall, but the effect on quantity is uncertain
C. Equilibrium quantity will rise, but the effect on price is uncertain
D. The answer cannot be determined from the information given above


Answer: B. Equilibrium price will fall, but the effect on quantity is uncertain

If climate change were to reduce the output per acre of wheat but not the output of other crops, what effect this would have on the soybean market?

13:16

If climate change were to reduce the output per acre of wheat but not the output of other crops, what effect this would have on the soybean market?



A. The demand for soybeans would shift right and the price and quantity would rise
B. The quantity demanded of soybeans will rise and price will increase
C. The supply of soybeans will shift left and price will rise
D. The quantity demanded will increase and the demand will shift right


Answer: A. The demand for soybeans would shift right and the price and quantity would rise

Which of the following statements would most economists agree with?

13:14

Which of the following statements would most economists agree with?



A. Rent controls hurt poor people and help the rich
B. Rent controls decrease overall societal welfare
C. Rent controls hurt everyone
D. Rent controls allow for a more equitable distribution of resources


Answer: B. Rent controls decrease overall societal welfare

A new technology is announced which allows manufacturers to produce widgets for less. Widgets are a key input in the production of whatchamacallits. What would we expect to happen to the market for whatchamacallits?

13:13

A new technology is announced which allows manufacturers to produce widgets for less. Widgets are a key input in the production of whatchamacallits. What would we expect to happen to the market for whatchamacallits?



A. The demand curve would shift left
B. The demand curve would shift right
C. The supply curve would shift right
D. The supply curve would shift left


Answer: C. The supply curve would shift right

Say the market for cereal is initially in equilibrium when all the major newspaper published the findings from study that say that eating 2 cups of cereal each day significantly reduces the risk for a heart attack. Other things equal, the publication of these findings will:

13:12

Say the market for cereal is initially in equilibrium when all the major newspaper published the findings from study that say that eating 2 cups of cereal each day significantly reduces the risk for a heart attack. Other things equal, the publication of these findings will:



A. decrease the market quantity of cereal
B. decrease the market price of cereal
C. increase the quantity supplied of cereal
D. increase the supply of cereal


Answer: C. increase the quantity supplied of cereal

Two factors are affecting the domestic auto industry: (1) an increase in cheap Korean imports (2) an increase int he cost of materials. What can we say about equilibrium price and quantity of domestic autos?

13:12

Two factors are affecting the domestic auto industry: (1) an increase in cheap Korean imports (2) an increase int he cost of materials. What can we say about equilibrium price and quantity of domestic autos?



A. Equilibrium quantity will fall
B. Equilibrium price will rise
C. Equilibrium price will fall
D. The answer cannot be determined from the information given above


Answer: A. Equilibrium quantity will fall

A good that is not scarce

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A good that is not scarce



A. would have a vertical supply curve over the relevant range
B. would have an infinite price
C. is not in demand
D. would have a zero price


Answer: D. would have a zero price

Suppose that the supply curve for a good is vertical. In this case we would expect

13:12

Suppose that the supply curve for a good is vertical. In this case we would expect



A. the tax to be shared equally by both buyer and seller
B. a tax placed on the buyer to be borne entirely by the seller
C. nothing to be sold so no tax is collected
D. a tax placed no the buyer to be burned entirely by the buyer


Answer: B. a tax placed on the buyer to be borne entirely by the seller

Suppose the football team at your university wins 10 games in a row. The following will be a possible outcome of this event in the market for football tickets

13:11

Suppose the football team at your university wins 10 games in a row. The following will be a possible outcome of this event in the market for football tickets



A. The equilibrium price will decrease and the equilibrium quantity will increase
B. The equilibrium price will increase and the equilibrium quantity will decrease
C. The equilibrium price and equilibrium quantity will decrease
D. The equilibrium price and the equilibrium quantity will increase


Answer: D. The equilibrium price and the equilibrium quantity will increase

If the government decides to set the price of widgets below the equilibrium price

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If the government decides to set the price of widgets below the equilibrium price



A. people who buy the widgets are now worse off
B. the market quantity of widgets will increase
C. producers of widgets are not better off
D. most economists would argue that one could reallocate resources and improve total welfare in the system


Answer: D. most economists would argue that one could reallocate resources and improve total welfare in the system

The equilibrium price is the price

13:10

The equilibrium price is the price



A. where there are surpluses and shortages
B. at which quantity supplied equals quantity demanded
C. suppliers agree to charge
D. from which there is always a tendency to move away


Answer: B. at which quantity supplied equals quantity demanded

Which of the following will decrease the market demand for labor?

13:09

Which of the following will decrease the market demand for labor?



A. An decrease in immigration
B.A decrease in the price of the product produced by labor
C.An increase in labor productivity
D. A decrease in wage rate


Answer: C.An increase in labor productivity

Which of the following represents a change in the quantity demanded?

13:08

Which of the following represents a change in the quantity demanded?



A.People buy more computers as prices fall
B.People buy more computers due to a change in income
C.People buy more computers due to a change in tastes


Answer: C.People buy more computers due to a change in tastes

A perfectly competitive firm:

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A perfectly competitive firm:



A.can sell more output only if it reduces its price
B. Can sell some output at a price above the market price
C.Can sell all of its output at the prevailing market price


Answer: C.Can sell all of its output at the prevailing market price

A firm can be identified as profitable if the:

13:07

A firm can be identified as profitable if the:



A. Sum of total revenue and costs is high
B.Difference between its total revenue and total costs is negative
c. total costs and marginal costs are low
d. difference between its total revenue and total costs is positive


Answer: d. difference between its total revenue and total costs is positive

Suppose a perfectly competitive firm increases its output. In order to sell this additional output, the firm:

13:06

Suppose a perfectly competitive firm increases its output. In order to sell this additional output, the firm:



A.Must lower its price to see the additional output
B.Should price it at the market price
C.Will not be able to sell the additional output at any price because of the many competitive firms


Answer: C.Will not be able to sell the additional output at any price because of the many competitive firms

Competitive firms cannot individually affect market price because

13:06

Competitive firms cannot individually affect market price because



A. There is an infinite demand for their goods
B.The market demand curve is flat or horizontal
C.The gov excercises control over the market power of competitive firms


Answer: B.The market demand curve is flat or horizontal

If the first, second, third, and forth worker employed by the firm add 15, 21, 12, and 8 units of total product respectively, we can conclude that:

13:05

If the first, second, third, and forth worker employed by the firm add 15, 21, 12, and 8 units of total product respectively, we can conclude that:



A. THe marginal product of all four workers is 14
B. THat after the second worker marginal product declines
c.the total of two product workers is 42


Answer: B. THat after the second worker marginal product declines

The equilibrium level of employment is determined by:

13:04

The equilibrium level of employment is determined by:



A.The market demand for labor and the market supply of labor
B.Gov regulations
C. The intersection of MPP and MRP


Answer: A.The market demand for labor and the market supply of labor

Which of the following is equivalent to average total cost?

13:04

Which of the following is equivalent to average total cost?



A..Fixed cost plus variable cost
B.The change in total cost is divided by the change in output
C.Fixed cost and variable cost put together and then divided by output


Answer: C.Fixed cost and variable cost put together and then divided by output

In the minimum wage debate described in Question 25 above, some argue that the unemployment rate will rise even if no one is laid off from work due to the increased minimum wage. This argument assumes that

13:02

In the minimum wage debate described in Question 25 above, some argue that the unemployment rate will rise even if no one is laid off from work due to the increased minimum wage. This argument assumes that



a. some wage earners will voluntarily quit working if their spouse earns more due to the wage increase.
b. the labor supply curve is positively sloped but not vertical.
c. the labor demand is elastic.
d. all of the above are true.


Answer: b. the labor supply curve is positively sloped but not vertical.

Many people are concerned that the minimum wage is too low. They claim that a higher wage would reduce the number below the poverty level and not cause many existing workers to lose their jobs. This argument assumes that

13:01

Many people are concerned that the minimum wage is too low. They claim that a higher wage would reduce the number below the poverty level and not cause many existing workers to lose their jobs. This argument assumes that



a. the labor demand curve is very inelastic at low wage rates.
b. the labor supply curve is inelastic at all wage rates.
c. the labor supply curve is elastic at low wage rates.
d. the labor demand curve is elastic at low wage rates.


Answer: a. the labor demand curve is very inelastic at low wage rates.

Firms often have a flattened pay schedule where those in the high productivity group get paid a salary below their marginal product while those at the bottom of the pay scale get more than their marginal productivity. According to your text, this is possible because

13:01

Firms often have a flattened pay schedule where those in the high productivity group get paid a salary below their marginal product while those at the bottom of the pay scale get more than their marginal productivity. According to your text, this is possible because



a. high paid workers sympathize with the lower paid group and willing accept this adjustment.
b. the marginal productivity of highly paid workers is harder to calculate with precision.
c. lower paid workers will not work at wages comparable to their marginal product.
d. higher paid worker get non monetary compensation like supervisory responsibility that leads to increased status.


Answer: b. the marginal productivity of highly paid workers is harder to calculate with precision.

The high wages of superstars compared with the wages of those almost as good

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The high wages of superstars compared with the wages of those almost as good



a. have little to do with supply and demand and much to do with negotiating power and ego-maniac.
b. are out of line with any economic theory and will likely not occur for very long.
c. are the result of the public's high demand for the best and low demand for the average performance.
d. are possible only in sports or other highly visible occupations.


Answer: c. are the result of the public's high demand for the best and low demand for the average performance.

A minimum wage law would make workers better off as a group if it were put into effect where

13:01

A minimum wage law would make workers better off as a group if it were put into effect where



a. monopsony power was exploiting workers.
b. the demand curve for the affected labor was vertical.
c. both a and b were present.
d. neither a or b were present, because a minimum wage law does not improve overall well-being in an economy.


Answer: c. both a and b were present.

According to traditional theory, labor union activity tends to

13:00

According to traditional theory, labor union activity tends to



a. raise all wages for both unionized and nonunionized labor.
b. raise union workers' pay but lower nonunion pay by an offsetting amount. Therefore, labor has only a redistributive effect rather than a net loss or net gain effect.
c. redistribute income from nonunion to union labor but also cause a net loss in income in the economy.
d. precipitate recessions and lower everyone's pay in the long run.


Answer: c. redistribute income from nonunion to union labor but also cause a net loss in income in the economy.

Which of the following is not statistical discrimination?

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Which of the following is not statistical discrimination?



a. I get paid what my real productivity warrants, but my pay is lower than the average of my peer group.
b. I get paid lower than my productivity warrants because my peer group has a lower productivity average than my productivity level.
c. I get paid higher than my productivity warrants because my peer group has a higher productivity average than my productivity level.
d. All of the above are examples of statistical discrimination.


Answer: a. I get paid what my real productivity warrants, but my pay is lower than the average of my peer group.

A job applicant scored a 70 on a skills test where the average is 50. However, the test is correct only 1 time in 10. In 9 times out of 10 it measures nothing. Given this information and knowing that you pay a daily wage equal to the skill level of your workers, what daily wage will you give this applicant?

13:00

A job applicant scored a 70 on a skills test where the average is 50. However, the test is correct only 1 time in 10. In 9 times out of 10 it measures nothing. Given this information and knowing that you pay a daily wage equal to the skill level of your workers, what daily wage will you give this applicant?



a. $60
b. $50
c. $51
d. $59
e. $52


Answer: e. $52

Statistical discrimination requires that a person be evaluated and paid

13:00

Statistical discrimination requires that a person be evaluated and paid



a. on her own merits only.
b. at the mean of a normal distribution of a group.
c. at the low end of a normal distribution of a group.
d. at the high end of a normal distribution of a group.


Answer: b. at the mean of a normal distribution of a group.

If all economists are equally skilled and trained, they all either consult for business or teach in academic institutions, and business firms pay an average of $110,000 per year to economists, then we would expect

12:59

If all economists are equally skilled and trained, they all either consult for business or teach in academic institutions, and business firms pay an average of $110,000 per year to economists, then we would expect



a. academic economists to make $110,000 a year also if the jobs are equally desirable and have similar perks.
b. academic economists to make less than $110,000 because business can afford to pay more than can colleges and universities.
c. academic economists to make more than $110,000 because business and economics courses are in far greater demand than many other courses.
d. no particular pattern of compensation between the two groups because the pay would depend on the supply and demand in each market.


Answer: a. academic economists to make $110,000 a year also if the jobs are equally desirable and have similar perks.

It is unlikely that many clear-cut examples of monopsonistic exploitation exist in the real world because

12:59

It is unlikely that many clear-cut examples of monopsonistic exploitation exist in the real world because



a. labor is mobile and will not be exploited forever.
b. new firms will enter a market in which wages are below normal to take advantage of the low-cost labor. This erodes the monopsony.
c. evidence shows that high profits do not correlate with low wage payments. Therefore, low wage rates may be due more to low productivity than to monopsonistic exploitation.
d. all the above are true.


Answer: d. all the above are true.

A profit-maximizing monopsonist will pay his labor

12:59

A profit-maximizing monopsonist will pay his labor



a. the value of its marginal product.
b. a wage lower than the marginal factor cost of labor.
c. more than a perfectly competitive employer would pay labor if faced with identical supply and demand curves for labor.
d. a wage that will make all the above true.


Answer: b. a wage lower than the marginal factor cost of labor.

If you hire me at $10 an hour, but have to pay $12 an hour to attract a second laborer to work with me, I will feel unfairly treated and will quit working for you. You then will have only one worker anyway, so you might as well have kept me at $10 an hour. To prevent this problem, you hire us both at $12 each. This means that your marginal factor cost (MFC) for a second worker is

12:59

If you hire me at $10 an hour, but have to pay $12 an hour to attract a second laborer to work with me, I will feel unfairly treated and will quit working for you. You then will have only one worker anyway, so you might as well have kept me at $10 an hour. To prevent this problem, you hire us both at $12 each. This means that your marginal factor cost (MFC) for a second worker is



a. $12.
b. $24.
c. $10.
d. $14.


Answer: d. $14.

The labor supply curve for an individual category of labor

12:58

The labor supply curve for an individual category of labor



a. will more likely be negatively sloped than will the supply curve for labor as a whole.
b. will more likely be negatively sloped than will the labor supply curve of an individual.
c. will almost certainly be positively sloped.
d. will be either negatively or positively sloped depending on the income effects of wage increases on the workers in that category.


Answer: c. will almost certainly be positively sloped.

If the marginal product of the fifth person employed is 5 making the total product 45 and the product demand curve is P = 100 - Q, then the amount you would be willing to pay for this fifth worker is

12:58

If the marginal product of the fifth person employed is 5 making the total product 45 and the product demand curve is P = 100 - Q, then the amount you would be willing to pay for this fifth worker is



a. 55.
b. 45.
c. 75.
d. none of the above.


Answer: c. 75.

If an individual firm sells its product in a perfectly competitive market and hires labor in a perfectly competitive labor market, then the firm's

12:57

If an individual firm sells its product in a perfectly competitive market and hires labor in a perfectly competitive labor market, then the firm's



a. demand for labor will be horizontal.
b. supply of labor will be horizontal at the going wage.
c. supply and demand for labor will be horizontal at the same wage rate and the amount of labor employed will be indeterminate.
d. supply-of-labor curve will be backward bending.


Answer: b. supply of labor will be horizontal at the going wage.

The demand for labor curve will be more elastic for the firm than for the industry because

12:57

The demand for labor curve will be more elastic for the firm than for the industry because



a. if all firms hire more labor, the product price will rise.
b. if all firms hire more labor, diminishing returns will not set in as quickly.
c. if all firms hire more labor, increased output will lower product price and therefore make the marginal revenue product curve more inelastic.
d. of none of the above reasons.


Answer: c. if all firms hire more labor, increased output will lower product price and therefore make the marginal revenue product curve more inelastic.

In a typical labor market, the MRPL will be equal to the VMPL if

12:57

In a typical labor market, the MRPL will be equal to the VMPL if



a. the product market is monopolistic.
b. the firm is a monopsonist.
c. the production function has diminishing returns.
d. labor values leisure much more than income.
e. the product market is perfectly competitive.


Answer: e. the product market is perfectly competitive.

If each product had only one quality or characteristic that mattered to consumers, the monopolistic competition models would

12:56

If each product had only one quality or characteristic that mattered to consumers, the monopolistic competition models would



a. be more like the monopoly models of an earlier chapter.
b. be more like the competitive models of an earlier chapter.
c. predict that average production costs would be higher than they are with multi-characteristic products.
d. not be modified in any of the above ways.


Answer: b. be more like the competitive models of an earlier chapter.

Which of the following does not act as a doomsday device?

12:56

Which of the following does not act as a doomsday device?



a. The practice of programming into a computer the price above which an alternative supplier will be used
b. A bank robber demanding the money in five minutes and then lighting a five minute fuse on a bomb
c. Promising to marry someone and giving a $5000 engagement ring
d. A student promising not to cheat on a take-home test


Answer: d. A student promising not to cheat on a take-home test

Which is not a criticism of the Chamberlin model?

12:56

Which is not a criticism of the Chamberlin model?



a. The concept of an industry group is hard to define.
b. It attempts to be more realistic than perfect competition, but it does not predict behavior in the marketplace with any more accuracy than perfect competition.
c. The model presumes that any firm can attract buyers from other firms so that the products of each firm in the industry are perfect substitutes.
d. It assumes that entry is easy but exit is difficult for the firms.


Answer: d. It assumes that entry is easy but exit is difficult for the firms.

In the Chamberlin model

12:55

In the Chamberlin model



a. the firms maximize sales rather than profits since market share is important for survival.
b. new firms do not enter the market in the long run because they fear price wars.
c. existing firms perceive their demand curve to be less elastic than the market demand.
d. products in an industry under consideration are considered to be close substitutes by consumers.
e. none of the above are true.


Answer: d. products in an industry under consideration are considered to be close substitutes by consumers.

Which of the following is most likely to be both a fixed and a sunk cost of your auto repair business?

12:55

Which of the following is most likely to be both a fixed and a sunk cost of your auto repair business?



a. The air compressor for your garage
b. The prescription safety glasses you wear while welding
c. The computer that does your inventory and billing
d. The tow truck that brings in much of your business


Answer: b. The prescription safety glasses you wear while welding

Referring to the information in Question 28 above, now suppose that Carlos will be paid on a per game basis rather than an annual contract because the club cannot be sure he will be healthy the entire season. As his agent, you know what the team expects they will get from him, and so you recommend that he ask for how many dollars per game, and you tell him that the team will have him pitch how many games in the year?

12:55

Referring to the information in Question 28 above, now suppose that Carlos will be paid on a per game basis rather than an annual contract because the club cannot be sure he will be healthy the entire season. As his agent, you know what the team expects they will get from him, and so you recommend that he ask for how many dollars per game, and you tell him that the team will have him pitch how many games in the year?



a. $520,000; 13
b. $520,000; 26
c. $640,000; 10
d. $1,000,000; 1


Answer: a. $520,000; 13

Carlos is being recruited by a professional baseball team because he has developed a secret new pitch that is virtually unhittable by even the best hitters. However, the effectiveness of the pitch declines with each game pitched, so his expected value to the club for one season will be P = $1,040,000 - $40,000 (games pitched). Carlos has no alternative jobs or activities that will be of any value to him and he finds free time neither beneficial nor costly. Carlos has hired you as an agent to get him the best deal possible. How much money do you recommend that he require for a one-year contract?

12:55

Carlos is being recruited by a professional baseball team because he has developed a secret new pitch that is virtually unhittable by even the best hitters. However, the effectiveness of the pitch declines with each game pitched, so his expected value to the club for one season will be P = $1,040,000 - $40,000 (games pitched). Carlos has no alternative jobs or activities that will be of any value to him and he finds free time neither beneficial nor costly. Carlos has hired you as an agent to get him the best deal possible. How much money do you recommend that he require for a one-year contract?



a. $520,000
b. $10,139,999
c. $3,380,000
d. $1,040,000
e. $13,519,999


Answer: e. $13,519,999

Which is not true of state owned and managed natural monopolies?

12:54

Which is not true of state owned and managed natural monopolies?



a. The state is better able to price at MC because it can use its taxing power to cover the losses that result from marginal cost pricing.
b. X-inefficiency is common because the incentives for profit are miss¬ing.
c. Bureaucrats frequently maximize the operating budgets of their departments rather than function with a profit-maximization objective.
d. The wise state government will set price equal to average total cost so that losses will not have to be borne by the taxpayer.


Answer: d. The wise state government will set price equal to average total cost so that losses will not have to be borne by the taxpayer.

Natural monopoly is characterized typically by

12:54

Natural monopoly is characterized typically by



a. increasing average costs, which makes it hard for new entrants to enter the industry.
b. low fixed costs but very high variable costs.
c. highly elastic product demand curves.
d. marginal costs that are lower than average cost for large quantities of output.
e. none of the above.


Answer: d. marginal costs that are lower than average cost for large quantities of output.

A single-price, profit-maximizing monopoly that has constant MC imposes a deadweight loss on society by

12:54

A single-price, profit-maximizing monopoly that has constant MC imposes a deadweight loss on society by



a. under-producing and forcing potential consumer surplus to be wasted.
b. overproducing and having the costs of the last units produced exceed their benefit to society.
c. redistributing money from the consumer to the producer.
d. pushing marginal revenue all the way to 0 to maximize revenue for itself, an act that costs society welfare.


Answer: a. under-producing and forcing potential consumer surplus to be wasted.

Which would not be an example of the hurdle model of price discriminating?

12:51

Which would not be an example of the hurdle model of price discriminating?



a. An airline giving cheaper rates to those who stay over Saturday night
b. A college giving lower tuition to a minority applicant
c. A price reduction only if you have a coupon
d. Lower-priced circus seats in the upper deck


Answer: b. A college giving lower tuition to a minority applicant

A perfect price-discriminating monopolist will

12:50

A perfect price-discriminating monopolist will



a. leave no consumer surplus for his customer.
b. produce where MC = MR.
c. produce the amount that is larger than a non-price discriminator.
d. do all the above.


Answer: d. do all the above.

A third-degree price discriminator will

12:50

A third-degree price discriminator will



a. receive the same marginal revenue from each market.
b. still maximize profit by equating marginal cost with marginal revenue.
c. make more profits than an identical non-price discriminator.
d. do all the above.


Answer: d. do all the above.

Which statement is not true of monopolists?

12:50

Which statement is not true of monopolists?



a. Compared to perfect competitive firms, monopolists reduce consumer surplus.
b. Compared to perfect competitive firms, monopolists restrict output.
c. When monopolists perfectly price discriminate they restrict output more than when they single price their product.
d. Natural monopolies are characterized by falling ATC over a large range of output.


Answer: c. When monopolists perfectly price discriminate they restrict output more than when they single price their product.

Monopolists that vigorously seek to innovate

12:50

Monopolists that vigorously seek to innovate



a. are irrational since they are competing with themselves.
b. could be profit maximizing because they expect to lower costs by innovation.
c. do so out of a fear of future competition or they would not innovate.
d. do not exist because they have the entire market to themselves already.


Answer: b. could be profit maximizing because they expect to lower costs by innovation.

If the LMC curve is less than the MR curve at the point of output for a monopolist that is making profit, then the firm has

12:50

If the LMC curve is less than the MR curve at the point of output for a monopolist that is making profit, then the firm has



a. too large a plant size.
b. too small a plant size.
c. insufficient knowledge about plant size until he knows his short-run marginal cost.
d. insufficient knowledge about plant size until he knows his demand curve.


Answer: b. too small a plant size.

A monopolist does not have a typical supply curve because

12:49

A monopolist does not have a typical supply curve because



a. numerous demand curves could have identical marginal revenue at a given point on a monopolist's marginal cost curve.
b. a monopolist is not a price taker.
c. there is no unique correspondence between price and revenue when the market demand curve shifts.
d.of all the above.

Answer: d.of all the above.

Which statement is true for the single-price monopoly that is operating on the demand curve P = 75 - 5Q at the point where price is $37.50?

12:49

Which statement is true for the single-price monopoly that is operating on the demand curve P = 75 - 5Q at the point where price is $37.50?



a. The firm should definitely not lower its price.
b. The firm should definitely lower its price.
c. If the marginal cost is 0, the firm should definitely raise its price.
d. None of the above can be stated with assurance.


Answer: a. The firm should definitely not lower its price.

A single-price monopolist has a demand curve with a constant slope of -5 and an intercept of 50. If it drops its price by 5 units, we can be sure that

12:49

A single-price monopolist has a demand curve with a constant slope of -5 and an intercept of 50. If it drops its price by 5 units, we can be sure that



a. sales will increase by 5 units.
b. marginal revenue will decrease by 5 units.
c. marginal revenue will be less than it was before.
d. none of the above are true.


Answer: c. marginal revenue will be less than it was before.

Marginal revenue for a single-priced monopolist will

12:48

Marginal revenue for a single-priced monopolist will



A. have the same slope as the demand curve
B. be 0 when price is 0
C. be negative if the firm is incurring economic losses
D. always be positive if the firm is profit maximizing


Answer: D. always be positive if the firm is profit maximizing

A monopolist will maximize profit

12:47

A monopolist will maximize profit



A. where total revenue is maximized
B. where the slope of the total revenue function equals the slope of the total cost function
C. where average cost is at a minimum
D. where all the above are true
E. somewhere other than the solutions listed because none of them are true


Answer: B. where the slope of the total revenue function equals the slope of the total cost function

With respect to price elasticity, it is true that

12:47

With respect to price elasticity, it is true that



A. monopoly market demand need not to be less elastic than market demand in a competitive industry
B. monopoly firms face less elastic demand than do competitive firms
C. a monopolist should not produce where demand is inelastic
D. all of the above are correct statements


Answer: D. all of the above are correct statements

The law of one price for a monopolist implies that

12:47

The law of one price for a monopolist implies that



A. when price is lowered, the marginal revenue will be less than the price
B. the monopolist is not acting wisely in the market
C. every seller must charge the same price as all other sellers of the same product
D. all of the above are ture


Answer: A. when price is lowered, the marginal revenue will be less than the price

Cell phones, AOL Software, and email accounts are frequently given away in some fashion. This is because

12:47

Cell phones, AOL Software, and email accounts are frequently given away in some fashion. This is because



A. they all have low marginal costs and high fixed costs
B. they all represent part of the networked economy
C. each item given away is linked together in some way with all the other items like it and are given away
D. all of the above are true


Answer: D. all of the above are true

A monopolist in the United States can legally gain monopoly control of a market by all but which of the following methods?

12:46

A monopolist in the United States can legally gain monopoly control of a market by all but which of the following methods?



A. By gaining control over an important raw material of production
B. By agreeing with competitors to charge monopoly prices
C. By having fixed costs and economies of scale
D. By acquiring a paten


Answer: B. By agreeing with competitors to charge monopoly prices

What is the most likely reason that theater operators charge students and senior citizens less than everyone else for tickets, but charge everyone the same price for popcorn?

12:46

What is the most likely reason that theater operators charge students and senior citizens less than everyone else for tickets, but charge everyone the same price for popcorn?



A. They have compassion for lower-income people
B. They believe movies are more of a necessity than popcorn
C. They can more easily detect age than hunger, and the elasticity for movies varies more among the groups than does the elasticity for popcorn
D. They are required by antitrust law to give seniors lower prices


Answer: C. They can more easily detect age than hunger, and the elasticity for movies varies more among the groups than does the elasticity for popcorn

In a difference‐in‐difference framework, the parallel trends assumption means that

Naim 10:30

In a difference‐in‐difference framework, the parallel trends assumption means that



A. The treatment and control groups look similar in the pre‐treatment period.
B. The treatment and control groups look similar in the post‐treatment period.
C. The treatment and control groups look similar in both periods.
D. The difference between the treatment and control groups in the post‐period would have been the same as in the pre‐period if not for the treatment.


Answer: D. The difference between the treatment and control groups in the post-period would have been the same as in the pre-period if not for the treatment.

To estimate the impact of state income taxes on labor supply, a researcher runs a regression of labor force participation rates on tax rates, controlling for state and year fixed effects. She concludes that higher taxes lower labor supply. What might be a valid objection to her conclusion, given her empirical approach?

Naim 10:30

To estimate the impact of state income taxes on labor supply, a researcher runs a regression of labor force participation rates on tax rates, controlling for state and year fixed effects. She concludes that higher taxes lower labor supply. What might be a valid objection to her conclusion, given her empirical approach?



A. States that raise taxes have more liberal voters than states that do not raise taxes.
B. States often raise taxes at the same time as each other.
C. States raise taxes more when their local labor force participation is low, making it harder to balance their budgets.
D. States raise taxes more when their local labor force participation is high, when voters are well‐employed and thus more willing to support public projects.


Answer: D. States raise taxes more when their local economies are doing well, when voters are well-employed and thus more willing to support public projects.

To estimate the impact of attending pre‐school on the probability of attending college, a researcher proposes to use a sibling fixed effects approach. Which of the following sources of omitted variable does this eliminate?

Naim 10:30

To estimate the impact of attending pre‐school on the probability of attending college, a researcher proposes to use a sibling fixed effects approach. Which of the following sources of omitted variable does this eliminate?



A. Children who attend pre‐school are from more educated families than children who do not.
B. Families send children to pre‐school only if those children are healthy.
C. Families send children to pre‐school when the economy is doing well.
D. None of the above.


Answer: A. Children who attend pre-school are from more educated families than children who do not.

In an instrumental variables study, the first stage regression tests whether

Naim 10:30

In an instrumental variables study, the first stage regression tests whether



A. The instrument (Z) is related to the treatment variable (X).
B. The instrument (Z) is related to the outcome (Y).
C. The treatment variable (X) is related to the outcome (Y).
D. The instrument is exogenous.


Answer: A. The instrument (Z) is related to the treatment variable (X).

To evaluate the impact of family income on child outcomes, a researcher proposes to use maternal (mother's) education as an instrumental variable for family income. A critic argues that this instrumental variable isn't exogenous, claiming that

Naim 10:29

To evaluate the impact of family income on child outcomes, a researcher proposes to use maternal (mother's) education as an instrumental variable for family income. A critic argues that this instrumental variable isn't exogenous, claiming that



A. Maternal education is not strongly related to family income.
B. Maternal education is not strongly related to child outcomes.
C. Family income may affect child outcomes for many reasons.
D. Maternal education may affect child outcomes through channels other than family income.


Answer: D. Maternal education may affect child outcomes through channels other than family income.

A randomized trial finds that treatment and control group patients taking a new drug had similar cholesterol levels after one year. The drug was thus deemed ineffective. Patients who died during the trial could not have their cholesterol measured. A critic argues that the drug is successful but that this form of attrition has biased the results. Which of these facts would best support his argument?

Naim 10:29

A randomized trial finds that treatment and control group patients taking a new drug had similar cholesterol levels after one year. The drug was thus deemed ineffective. Patients who died during the trial could not have their cholesterol measured. A critic argues that the drug is successful but that this form of attrition has biased the results. Which of these facts would best support his argument?



A. Many patients in the treatment and control groups died during the trial.
B. Many patients with particularly high cholesterol in the treatment and control groups died during the trial.
C. More patients with high cholesterol died in the treatment group than in the control group.
D. More patients with high cholesterol died in the control group than in the treatment group.


Answer: D. More patients with high cholesterol died in the control group than in the treatment group.

We randomly select half of econometrics students to attend extra office hours with a faculty member. At the end of the semester, we find no evidence that this affects the final exam scores. The Dean argues that this means faculty members are ineffective teachers. I argue that spillover effects led to these small estimates because.

Naim 10:29

We randomly select half of econometrics students to attend extra office hours with a faculty member. At the end of the semester, we find no evidence that this affects the final exam scores. The Dean argues that this means faculty members are ineffective teachers. I argue that spillover effects led to these small estimates because.



A. Students who attended the extra office hours passed their knowledge onto others.
B. Not everyone who was selected to attend the extra office hours did so.
C. Some people who were not selected nonetheless demanded and received extra office hours.
D. We screwed up the randomization and were more likely to give extra office hours to students with lower midterm grades.


Answer: A. Students who attended the extra office hours passed their knowledge onto others.

A researcher wants to know if the association between education and life expectancy varies by gender. Which is the simplest regression that can help answer this question?

Naim 10:29

A researcher wants to know if the association between education and life expectancy varies by gender. Which is the simplest regression that can help answer this question?



A. LifeExpectancy = B0 + B1*female + E
B. LifeExpectancy = B0 + B1*educ+ E
C. LifeExpectancy = B0 + B1female + B2Educ + E
D. LifeExpectancy = B0 + B1female + B2Educ + B3femaleeduc + E


Answer: D. LifeExpectancy = B0 + B1female + B2Educ + B3femaleeduc + E

You estimate the following relationship between a house's price and its number of bedrooms: log price_hat = 12 + .3*bedrooms How would interpret the coefficient on bedrooms?

Naim 10:28

You estimate the following relationship between a house's price and its number of bedrooms:
log price_hat = 12 + .3*bedrooms
How would interpret the coefficient on bedrooms?



A. Each additional bedroom is associated with a 0.3 percent increase in price.
B. Each additional bedroom is associated with a 30 percent increase in price.
C. Each additional bedroom is associated with a 30 percentage point increase in price.
D.Need more information on the units of the price variable.


Answer: B. Each additional bedroom is associated with a 30 percent increase in price.

A researcher estimates the following quadratic relationship between daily earnings (in dollars) and years of education: earnings_hat = 36 + 8education + 2education^2 What is the estimated increase in earnings associated with moving from 9 to 10 years of education?

Naim 10:28

A researcher estimates the following quadratic relationship between daily earnings (in dollars) and years of education:
earnings_hat = 36 + 8education + 2education^2
What is the estimated increase in earnings associated with moving from 9 to 10 years of education?



A. $8 per day
B. $10 per day
C. $46 per day
D. Need more information.


Answer: C. $46 per day

You regress a dummy for being unemployed on a dummy for being male. The constant (β0) from that regression is 0.2. This means that.

Naim 10:28

You regress a dummy for being unemployed on a dummy for being male. The constant (β0) from that regression is 0.2. This means that.



A. Men are 0.2 percent more likely to be unemployed than women.
B. Men are 20 percent more likely to be unemployed than women.
C. Men are 20 percentage points more likely to be unemployed than women.
D. 20 percent of women are unemployed.


Answer: D. 20 percent of women are unemployed.

Suppose you have repeated observations for participants in an experiment on the relationship between exercise and weight. What technique would help you address serial correlation in their measurements?

Naim 10:27

Suppose you have repeated observations for participants in an experiment on the relationship between exercise and weight. What technique would help you address serial correlation in their measurements?



A. Heteroskedastic robust standard errors
B. Probit regressions
C. Clustering the standard error by observation
D. Clustering the standard error by person


Answer: D. Clustering the standard error by person

A sibling fixed effects model shows the Head Start pre-school program improves children's high school graduation rates. Which of these is a valid argument that this might be an underestimate of the program's impacts on the population studied?

Naim 10:27

A sibling fixed effects model shows the Head Start pre-school program improves children's high school graduation rates. Which of these is a valid argument that this might be an underestimate of the program's impacts on the population studied?



A. Families who use Head Start care more about education than families who do not.
B. Families who use Head Start are lower income than families who do not.
C. Parents are more likely to use Head Start for a child with academic challenges.
D. Parents are more likely to use Head Start for a child with academic strengths.


Answer: C. Parents are more likely to use Head Start for a child with academic challenges.

In a randomized control trial, spillover effects between the treatment and control groups imply that the estimated impact of the treatment is.

Naim 10:26

In a randomized control trial, spillover effects between the treatment and control groups imply that the estimated impact of the treatment is.



A. ... underestimated.
B. ... overestimated.
C. ... correctly estimated.
D. Impossible to choose A, B or C with certainty.


Answer: D. Impossible to choose A, B or C with certainty.

You have a dataset of blood pressure and chocolate consumption for a sample of dogs and cats. Which model allows you to determine whether the association between chocolate consumption and blood pressure is different for dogs and for cats?

Naim 10:26

You have a dataset of blood pressure and chocolate consumption for a sample of dogs and cats. Which model allows you to determine whether the association between chocolate consumption and blood pressure is different for dogs and for cats?



A. bloodpressure_hat= B0_hat + B1_hatcat + B2_hatchocolate + B3_hatdogchocolate
B. bloodpressure_hat= B0_hat + B1_hatdog + B2_hatchocolate + B3_hatdogchocolate
C. Both A and B
D. Neither A and B


Answer: C. Both A and B

You estimate the following quadratic sample regression function: Daily Earnings_hat = 450 + 50Education - 2Education^2 Assuming this relationship is causal, what do these estimates suggest about the marginal return to a year of education?

Naim 10:25

You estimate the following quadratic sample regression function:
Daily Earnings_hat = 450 + 50Education - 2Education^2
Assuming this relationship is causal, what do these estimates suggest about the marginal
return to a year of education?



A. It is increasing with education.
B. It is decreasing with education.
C. It is constant.
D. None of the above.


Answer: B. It is decreasing with education.

You regress the log of house prices on pollution and obtain the following results: ln(house prices_hat) = 5 + 0.03*Pollution This means that a one unit increase in pollution is associated with a.

Naim 10:25

You regress the log of house prices on pollution and obtain the following results:
ln(house prices_hat) = 5 + 0.03*Pollution
This means that a one unit increase in pollution is associated with a.





A. ... 3 percentage point increase in house prices.
B. ... 0.30 percentage point increase in house prices.
C. ... 30 percent increase in house prices.
D. ... 3 percent increase in house prices.


Answer: D. ... 3 percent increase in house prices.

Which of these is an advantage of probits over linear probability models?

Naim 10:25

Which of these is an advantage of probits over linear probability models?



A. The coefficients are easier to interpret.
B. You can only get predictions between 0 and 1.
C. They give you causal evidence, not just associations.
D. None of the above.


Answer: B. You can only get predictions between 0 and 1.

Using wage data for North Americans, you regress wages on a Canadian dummy, a Mexican dummy, and a constant. What does the Canadian dummy represent?

Naim 10:24

Using wage data for North Americans, you regress wages on a Canadian dummy, a Mexican dummy, and a constant. What does the Canadian dummy represent?



A. The average wages of Canadians.
B. The difference in average wages between Mexicans and Canadians.
C. The difference in average wages between Mexicans and U.S. Americans.
D. None of the above.


Answer: D. None of the above.

Where voted is a dummy variable that equals 1 if the individual voted, and black and Hispanic are dummy variables for census demographic categories (the omitted category is white). He wants to interpret the magnitude of the coefficient on the male dummy. What do you suggest he does?

Naim 10:23
Your analyst runs the following probit regression model:
Voted_hat = 0.35 + 0.21Male + 0.18Black + 0.05*Hispanic

Where voted is a dummy variable that equals 1 if the individual voted, and black and Hispanic are dummy variables for census demographic categories (the omitted category is white). He wants to interpret the magnitude of the coefficient on the male dummy. What do you suggest he does?



A. Re-run the model using two-stage least squares
B. Re-run the model without including black or Hispanic
C. Calculate the correlation coefficient
D. Calculate the marginal effects


Answer: D. Calculate the marginal effects

An analyst proposes using how far a person lives from the nearest hospital (distance) as an instrument for the amount of time between first signs of a stroke and being treated (time). He shows you his first stage regression and the coefficient on the distance variable is not significant. Which IV assumption has the instrument failed?

Naim 10:23

An analyst proposes using how far a person lives from the nearest hospital (distance) as an instrument for the amount of time between first signs of a stroke and being treated (time). He shows you his first stage regression and the coefficient on the distance variable is not significant. Which IV assumption has the instrument failed?



A. Endogeneity
B. Exogeneity
C. Relevance
D. Magnitude


Answer: C. Relevance

You evaluate the effect of a micro-finance program on income by comparing areas that chose to receive the program to those that did not, both before and after the program was introduced. What do you need to determine to ensure that your comparison is valid:

Naim 10:22

You evaluate the effect of a micro-finance program on income by comparing areas that chose to receive the program to those that did not, both before and after the program was introduced. What do you need to determine to ensure that your comparison is valid:



A. Income levels looked similar in the program and non-program areas in the pre-treatment period.
B. Income levels looked similar in the program and non-program areas in the post-treatment period.
C. The pre-period trend in income between the program and non-program is constant over time
D. The post-period trend in income between the program and non-program areas is constant over time


Answer: C. The pre-period trend in income between the program and non-program is constant over time

The government has a new jobs training program. They want to evaluate it using an RCT and ask you to help with the design. They choose 200 US counties and randomly assign 100 counties to receive the program to minimize the risks of spillovers. Under what circumstance would spillovers still be a problem?

Naim 10:22

The government has a new jobs training program. They want to evaluate it using an RCT and ask you to help with the design. They choose 200 US counties and randomly assign 100 counties to receive the program to minimize the risks of spillovers. Under what circumstance would spillovers still be a problem?



A. If some people in the control counties moved to the treatment counties to take the training.
B. If some people in the treatment countries decided not to take the training program
C. If more companies open up in the treatment area
D. If some people in the control areas set up their own training program


Answer: A. If some people in the control counties moved to the treatment counties to take the training.

You run a regression of child test scores on their parent's income level and find a positive effect. You believe that due to an omitted variable, you have an underestimate of this effect. If you have a relevant and exogenous instrument for parental income, what would you expect to happen to the coefficient on parent's income when you instrument for it?

Naim 10:18

You run a regression of child test scores on their parent's income level and find a positive effect. You believe that due to an omitted variable, you have an underestimate of this effect. If you have a relevant and exogenous instrument for parental income, what would you expect to happen to the coefficient on parent's income when you instrument for it?



A. It should get bigger
B. It should stay the same
C. It should get smaller
D. It should flip sign


Answer: A. It should get bigger

Some people claim that instrumental variable models may lack external validity. This would be the case when:

Naim 10:17

Some people claim that instrumental variable models may lack external validity. This would be the case when:



A. The instrument is exogenous for only certain types of people
B. The instrument is relevant for only certain types of people
C. The instrument is relevant for everyone
D. None of the above


Answer: B. The instrument is relevant for only certain types of people

A researcher wants to know if the association between phone usage and price per minute varies by gender. Which is the simplest regression that can help answer this question?

Naim 10:17

A researcher wants to know if the association between phone usage and price per minute varies by gender. Which is the simplest regression that can help answer this question?



A. Phone Usage = B0 + B1*female + E
B. Phone Usage = B0 + B1*price+ E
C. Phone Usage = B0 + B1female + B2price + E
D. Phone Usage = B0 + B1female + B2price + B3pricefemale + E


Answer: Phone Usage = B0 + B1female + B2price + B3pricefemale + E

You regress a dummy variable for employment on a dummy variable for high school graduation or higher, a dummy variable for male, and your father's log(earnings). To estimate the model, you use ordinary least squares. Which of the following statements is correct:

Naim 10:16

You regress a dummy variable for employment on a dummy variable for high school graduation or higher, a dummy variable for male, and your father's log(earnings). To estimate the model, you use ordinary least squares. Which of the following statements is correct:


A. You should have used a probit since you included your father's log(earnings)
B. You should have used log(employment) as the dependant variable since you included your father's log(earnings).
C. Both are correct
D. Neither are correct


Answer: D. Neither are correct

You estimate the following relationship between household income and time spent working (in hours):

Naim 10:16

You estimate the following relationship between household income and time spent working (in hours):


log(income_hat) = 30,000 + 2*timespent

How would interpret the coefficient on timespent?


A. Each additional hour is associated with a 0.2 percent increase in income.
B. Each additional hour is associated with a 20 percent increase in income.
C. Each additional hour is associated with a 20 percentage point increase in income.
D. Need more information on the units of the timespent variable.


Answer: B. Each additional hour is associated with a 20 percent increase in income.

You present results from a regression of weight on a dummy variable for a new weight loss drug. Someone criticizes the internal validity of the regression, claiming that gender is associated with both weight and taking the drug. What should you do to improve internal validity?

Naim 10:16

You present results from a regression of weight on a dummy variable for a new weight loss drug. Someone criticizes the internal validity of the regression, claiming that gender is associated with both weight and taking the drug. What should you do to improve internal validity?



A. Control for gender in a multiple regression model
B. Interact the gender with a dummy for taking the drug
C. Restrict the sample only to men
D. None of the above


Answer: A. Control for gender in a multiple regression model

A researcher estimates the following quadratic relationship between daily earnings (in dollars) and years of education:

Naim 10:15

A researcher estimates the following quadratic relationship between daily earnings (in dollars) and years of education:


earnings_hat = 10 + 5education + 1education^2

What is the estimated change in earnings associated with moving from 6 to 8 years of education?


A. $6 per day
B. $12 per day
C. $38 per day
D. Need more information.


Answer: C. $38 per day

What is the change in predicted GDP per capita associated with an increase of $26 per capita in foreign aid? Assume the current foreign aid is $70 per capita, the current value of exports is 90, and the current percent of individuals with higher education is 33 percent.

Naim 10:15
You obtain the following sample regression function:

GDP_hat = 5367 - 32ForeignAid +76ExportValue + 8*PercentHigherEducation

What is the change in predicted GDP per capita associated with an increase of $26 per capita in foreign aid? Assume the current foreign aid is $70 per capita, the current value of exports is 90, and the current percent of individuals with higher education is 33 percent.


A. 1820
B. -832
C. 10,231
D. -1976
E. None of the above.


Answer: B. -832

You would like to know how having health insurance affects how many years one lives after having a heart attack (the variable "Survival"). You obtain the following SRF (Sample Regression Function):

Naim 10:15

You would like to know how having health insurance affects how many years one lives after having a heart attack (the variable "Survival"). You obtain the following SRF (Sample Regression Function):


Survival_hat = 60.7 + 5.5Insured - 3.8Uninsured + 4.3*Income

What can you conclude?

A. Holding all else constant, being insured results in longer survival after a heart attack.
B. Holding all else constant, being uninsured is associated with shorter survival after a heart attack.
C. Nothing, the income variable must have an error.
D. Nothing, the insurance variables must have an error.
E. None of the above.


Answer: D. Nothing, the insurance variables must have an error.

A new study is released in which the authors state that individuals who have a lot of debt start fewer new businesses. The authors did not, however, control for the education levels of individuals in the study. Individuals with higher education levels have more debt due to student loans and are more likely to start new businesses. Omitting education thus creates a:

Naim 10:14

A new study is released in which the authors state that individuals who have a lot of debt start fewer new businesses. The authors did not, however, control for the education levels of individuals in the study. Individuals with higher education levels have more debt due to student loans and are more likely to start new businesses. Omitting education thus creates a:



A. Positive bias, so the study is understating the true impact of debt on entrepreneurship.
B. Positive bias, so the study is overstating the true impact of debt on entrepreneurship.
C. Negative bias, so the study is understating the true impact of debt on entrepreneurship.
D. Negative bias, so the study is overstating the true impact of debt on entrepreneurship.
E. None of the above.


Answer: A. Positive bias, so the study is understating the true impact of debt on entrepreneurship.

The correlation of Y and X and the coefficient from the bivariate regression of Y on X:

Naim 10:14

The correlation of Y and X and the coefficient from the bivariate regression of Y on X:



A. Have the same signs but different magnitudes.
B. Have the same signs and same magnitudes.
C. Have different signs but the same magnitudes.
D. Have different signs and different magnitudes.
E. None of the above.


Answer: A. Have the same signs but different magnitudes.

You are asked to evaluate four studies that look at the relationship between participation in a jobs training program and wages earned after the program. Which regression has the highest level of internal validity?

Naim 10:14

You are asked to evaluate four studies that look at the relationship between participation in a jobs training program and wages earned after the program. Which regression has the highest level of internal validity?



A. The researchers took a random sample of households in the state and regressed wages on whether the individual participated in the jobs training program.
B. The researchers took a random sample of households in the state and regressed wages on whether the individual participated in the jobs training program, as well as gender, race, and previous job experience.
C. The researchers took a sample of men between the ages of 18 to 22. They randomly assigned half of the men to the job trainings program, and then regressed wages on whether the individual participated in the jobs training program.
D. The researchers took a sample of men and women between the ages of 18 to 22. They assigned the men to participate in the job trainings program, and then regressed wages on whether the individual participated in the jobs training program.


Answer: C. The researchers took a sample of men between the ages of 18 to 22. They randomly assigned half of the men to the job trainings program, and then regressed wages on whether the individual participated in the jobs training program.

You have been asked to determine whether playing violent video games makes teenagers more likely to commit crimes. What is the theoretically correct counterfactual comparison to make?

Naim 10:14

You have been asked to determine whether playing violent video games makes teenagers more likely to commit crimes. What is the theoretically correct counterfactual comparison to make?



A. Compare the crime rates of teenagers who play video games with the crime rate of teenagers who do not play video games.
B. Compare the video game playing habits of teenagers who commit crimes with teenagers who do not commit crimes.
C. Compare the crime rate of teenagers who play video games with their own crime rate had they not played video games.
D. Compare the video game playing habits of teenagers who commit crimes with their own video playing habits had they not committed crimes.
E. None of the above.


Answer: C. Compare the crime rate of teenagers who play video games with their own crime rate had they not played video games.

Data reveal the following relationship between life expectancy (years) and gender, the number of days per week a person exercises, and the interaction of gender and exercise:

Naim 10:14

Data reveal the following relationship between life expectancy (years) and gender, the number of days per week a person exercises, and the interaction of gender and exercise:


LifeExpectancy = 75 - 5male + 2ExerciseDays + 3*MaleExerciseDays

Each additional day of exercise per week is associated with life expectancy


A. Increasing by 2 years for women and increasing 3 years for men.
B. Increasing by 2 years for women and increasing 5 years for men.
C. Increasing by 3 years for women and decreasing 5 years for men.
D. Increasing by 3 years for women and increasing 3 years for men.


Answer: B. Increasing by 2 years for women and increasing 5 years for men.

You run a linear probability model on a sample of Americans, regressing an indicator for gun ownership on income (measured in tens of thousands of dollars). You find a coefficient of 0.06 on income, with a standard error of 0.04. You can conclude that:

Naim 10:13

You run a linear probability model on a sample of Americans, regressing an indicator for gun ownership on income (measured in tens of thousands of dollars). You find a coefficient of 0.06 on income, with a standard error of 0.04. You can conclude that:



A.An additional $10,000 of income is associated with a 0.06 percentage point increase in the probability of owning a gun, a relationship that is statistically significant.
B. An additional $10,000 of income is associated with a 0.06 percentage point increase in the probability of owning a gun, a relationship that is statistically insignificant.
C. An additional $10,000 of income is associated with a 6 percentage point increase in the probability of owning a gun, a relationship that is statistically significant.
D. An additional $10,000 of income is associated with a 6 percentage point increase in the probability of owning a gun, a relationship that is statistically insignificant.


Answer: D. An additional $10,000 of income is associated with a 6 percentage point increase in the probability of owning a gun, a relationship that is statistically insignificant.

Assume all people have black, brown, blond or red hair. Which of the following regressions immediately tells you whether redheads are smarter than the average non-redhead?

Naim 10:13

Assume all people have black, brown, blond or red hair. Which of the following regressions immediately tells you whether redheads are smarter than the average non-redhead?



A. B0_hat + B1_hat*Red + u_hat
B. B0_hat + B1_hatRed + B2_hatBlond + u_hat
C. B0_hat + B1_hatRed + B2_hatBlack+ B3_hat*Brown +u_hat
D. B0_hat + B1_hatRed + B2_hatBlond+ B3_hatBlack + B4_hatBrown +u_hat


Answer: A. B0_hat + B1_hat*Red + u_hat

We observe this relationship in adults: Weight = -20 + 30 height + 2 height^2 Which statement is true?

Naim 10:13

We observe this relationship in adults:
Weight = -20 + 30 height + 2 height^2
Which statement is true?



A. Each additional foot of height is associated with 30 pounds more of weight.
B. Each additional foot of height is associated with 34 pounds more of weight.
C. On average, 6-foot tall people weigh 32 pounds more than 5-foot tall people.
D. On average, 6-foot tall people weigh 52 pounds more than 5-foot tall people.


Answer: D. On average, 6-foot tall people weigh 52 pounds more than 5-foot tall people.

Which is false for a probit model?

Naim 10:13

Which is false for a probit model?



A. The dependent variable Y must be a dummy variable.
B. Predicted values from the model fall between 0 and 1.
C. Estimates from the model convey statistical significance clearly.
D. The magnitudes of coefficients from the model can be easily interpreted.


Answer: D. The magnitudes of coefficients from the model can be easily interpreted.

In the Michelle Rhee IMPACT case, which control variable was the most important for minimizing the bias in estimates of teachers' impacts on students' test scores?

Naim 10:12

In the Michelle Rhee IMPACT case, which control variable was the most important for minimizing the bias in estimates of teachers' impacts on students' test scores?



A. Students' prior year test scores.
B. Students' current year test scores.
C. Students' poverty status.
D. Students' parental education levels.


Answer: A. Students' prior year test scores.

In the handedness research that you read, I estimated this: ln(Earnings) = 10.2 - 0.1*LeftHanded. Which of these statements about this regression is correct?

Naim 10:12

In the handedness research that you read, I estimated this: ln(Earnings) = 10.2 - 0.1*LeftHanded. Which of these statements about this regression is correct?



A. Lefties earn 0.1 percent less than righties.
B. Lefties earn 10 percent less than righties.
C. Lefties earn 0.1 percentage points less than righties.
D. Lefties earn 10 percentage points less than righties.


Answer: B. Lefties earn 10 percent less than righties.

Prof. Shoag regresses your Metrics midterm score on your Stats score. Your positive residual means:

Naim 10:12

Prof. Shoag regresses your Metrics midterm score on your Stats score. Your positive residual means:



A. Your Metrics score is the average score of the whole class.
B. Stats scores are poor predictors of Metrics scores.
C. You scored lower on this test than last semester's score would have predicted.
D. You scored higher on this test than last semester's score would have predicted.


Answer: D. You scored higher on this test than last semester's score would have predicted.

Randomized experiments can be analyzed with bivariate regressions (of Y on the treatment X) because.

Naim 10:12

Randomized experiments can be analyzed with bivariate regressions (of Y on the treatment X) because.




A. Outcomes are not correlated with potential omitted variables.
B. Assignment to treatment is not correlated with outcomes.
C. Assignment to treatment is not correlated with potential omitted variables.
D. The sample is representative of the population.


Answer: C. Assignment to treatment is not correlated with potential omitted variables.

You are very certain that providing families with subsidized housing improves children's outcomes. Which study should most change the mean and variance of your beliefs?

Naim 10:10

You are very certain that providing families with subsidized housing improves children's outcomes. Which study should most change the mean and variance of your beliefs?



A. A randomized trial showing that subsidized housing no impact on children.
B. A randomized trial showing that subsidized housing improves children's outcomes.
C. A randomized trial showing that subsidized housing hurts children's outcomes.
D. An observational study showing that subsidized housing hurts children's outcomes.


Answer: C. A randomized trial showing that subsidized housing hurts children's outcomes.

You want to know whether a new juice diet introduced this year helps people sleep well. You have observational data on sleep and eating habits and other personal characteristics. What regression has the greatest internal validity?

Naim 10:10

You want to know whether a new juice diet introduced this year helps people sleep well. You have observational data on sleep and eating habits and other personal characteristics. What regression has the greatest internal validity?


A. Sleep = B0_hat + B1_hat*juicediet + u_hat
B. Sleep = B0_hat + B1_hatjuicediet + B2_hatsleeplastyear + u_hat
C. Sleep = B0_hat + B1_hatjuicediet + B2_hatlastdigitofphonenumber+ u_hat
D. Juice Diet= B0_hat + B1_hat*sleeplastyear+ u_hat


Answer: B. Sleep = B0_hat + B1_hatjuicediet + B2_hatsleeplastyear + u_hat

Which of the following is NOT true for a probity model?

Naim 10:10

Which of the following is NOT true for a probity model?



A. The outcome variable Y must be a dummy variable.
B. The independent variable X must be a dummy variable.
C. The probit results tell you whether the relationship between Y and X is statistically significant.
D. The probit results tell you the sign of the relationship between Y and X


Answer: B. The independent variable X must be a dummy variable.

You run a linear probability model of admission to college on SAT scores. You find a coefficient of 0.004 on SAT score, with a p-value of 0.02. You can conclude that:

Naim 10:09

You run a linear probability model of admission to college on SAT scores. You find a coefficient of 0.004 on SAT score, with a p-value of 0.02. You can conclude that:



A. Taking the SATs is associated with a 0.4% increase in admission that is significant at the 5% level.
B. There is an increase in the probability of admission that is significant, but you cannot interpret the magnitude.
C. A one point increase in SAT scores raises the predicted probability of admission by 0.4%.
D. A one point increase in SAT scores raises the predicted probability of admission by 0.4 percentage points.


Answer: D. A one point increase in SAT scores raises the predicted probability of admission by 0.4 percentage points.

A researcher, using a sample of lottery players, regresses life expectancy on a dummy variable for randomly winning a jackpot in the lottery. The researcher considers adding education as another explanatory variable. What is likely to be true?

Naim 10:09

A researcher, using a sample of lottery players, regresses life expectancy on a dummy variable for randomly winning a jackpot in the lottery. The researcher considers adding education as another explanatory variable. What is likely to be true?



A. The coefficient on winning a jackpot will change because education affects life expectancy.
B. The coefficient on winning a jackpot will not change because education does not affect life expectancy.
C. The coefficient on winning a jackpot will not change because education and winning a jackpot are not correlated.
D. The coefficient on winning a jackpot will not change because education and life expectancy are not correlated.


Answer: C. The coefficient on winning a jackpot will not change because education and winning a jackpot are not correlated.

Steve is exploring the relationship between the price of a house, its number of rooms, and its distance from the subway. When Steve regresses house prices on the number of rooms, he finds a positive coefficient. Steve then regresses house prices on both the number of rooms and the distance to the subway. He gets a positive coefficient on both variables, though the coefficient on rooms is smaller than before. What does he know about the correlation of rooms and distance?

Naim 10:09

Steve is exploring the relationship between the price of a house, its number of rooms, and its distance from the subway. When Steve regresses house prices on the number of rooms, he finds a positive coefficient. Steve then regresses house prices on both the number of rooms and the distance to the subway. He gets a positive coefficient on both variables, though the coefficient on rooms is smaller than before. What does he know about the correlation of rooms and distance?



A. They are positively correlated
B. They are negatively correlated
C. We cannot infer the direction of their correlation
D. They are not correlated


Answer: A. They are positively correlated

Assume all coffee comes from Dunkin Donuts, Starbucks, or Peets. Which of the following regressions most easily allows you to test whether Starbucks coffee has significantly more caffeine than all other coffees?

Naim 10:09

Assume all coffee comes from Dunkin Donuts, Starbucks, or Peets. Which of the following regressions most easily allows you to test whether Starbucks coffee has significantly more caffeine than all other coffees?


A. Caffeine = B0_hat + B1_hat*Starbucks + u_hat
B. Caffeine = B0_hat + B1_hatStarbucks + B2_hat Peets + u_hat
C. Caffeine = B0_hat + B1_hatStarbucks + B2_hat Dunkin+ u_hat
D. Caffeine = B0_hat + B1_hatStarbucks + B2_hat Peets + B3_hat*Dunkin + u_hat


Answer: A. Caffeine = B0_hat + B1_hat*Starbucks + u_hat

You would like to understand how political leanings affect whether or not people vote. You decide to specify a linear probability model. What criticism may people raise:

Naim 10:08

You would like to understand how political leanings affect whether or not people vote. You decide to specify a linear probability model. What criticism may people raise:



A. You may get predicted probabilities that are greater than 0.
B. You may get predicted probabilities that are greater than 1.
C. It is hard to assess the magnitude of the relationship with a linear probability model.
D. It is hard to assess the significance of the relationship with a linear probability model.


Answer: B. You may get predicted probabilities that are greater than 1.

Random sampling improves a study's:

Naim 10:08

Random sampling improves a study's:



A. External validity
B. Internal validity
C. Precision
D. Omitted Variable Bias


Answer: A. External validity

You collect data on the number of children a person has, whether or not they have graduate degrees (dummy) and their income (in thousands). You estimate the following SRF:

Naim 10:08

You collect data on the number of children a person has, whether or not they have graduate degrees (dummy) and their income (in thousands). You estimate the following SRF:


Children_hat = 3.5 - 0.01Income - 1.1Grad_Degree

What is the predicted number of children for someone with a graduate degree earning $60,000?


A. 1.8
B. 2
C. -598
D. 2.9


Answer: A. 1.8

In a regression of quantity_sold on number_of_tv_ads, the coefficient on number_of_tv_adsis 1.3 and statistically insignificant. What can one learn from this information?

Naim 10:08

In a regression of quantity_sold on number_of_tv_ads, the coefficient on number_of_tv_adsis 1.3 and statistically insignificant. What can one learn from this information?



A. It is unlikely that the true effect of the number_of_tv_ads is greater than zero.
B. It is likely that the true effect of the number_of_tv_ads is greater than zero.
C. It is likely that we'd see an effect this large, even if the true coefficient on the number_of_tv_ads is zero.
D. An increase in predicted sales of 1.3 is not a large number when it comes to quantity_sold.


Answer: C. It is likely that we'd see an effect this large, even if the true coefficient on the number_of_tv_ads is zero.

You want to know if listening to music makes you solve puzzles quickly. What is the theoretically correct counterfactual comparison to make?

Naim 10:07

You want to know if listening to music makes you solve puzzles quickly. What is the theoretically correct counterfactual comparison to make?


A. Compare the music listening habits of people who solve puzzles quickly with those who do not
B. Compare the puzzle solving ability of those who listen to music with those who do not.
C. Compare the listening habits of the same people while they solve and do not solve puzzles
D. Compare the puzzle solving ability of the same people while they listen and do not listen to music


Answer: D. Compare the puzzle solving ability of the same people while they listen and do not listen to music
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