If a market produces a correct amount of goods and services from society's point of view then the market is said to be:

	A.	allocatively efficient
	B.	productively efficient
	C.	dynamically effiicent
	D.	all of the above

Consider the following two-person society. Bob has two healthy kidneys. He values this second (back-up) kidney at $100,000. Barbara has two unhealthy kidneys and values a new kidney (which will save her life) at $500,000. Barbara agrees to buy the kidney from Bob for a price of $300,000. From an economist's perspective:

	A.	Barbara is worse off by$300,000
	B.	producer surplus is$300,000
	C.	the size of the economic pie (total surplus)increases by$400,000
	D.	Both B and C

"Every night before a test, John eats a pizza. Every test John gets an A. Therefore, John must be getting an A because he eats pizza." The preceding quote is an example of:

	A.	A Normative Economic Statement
	B.	The Fallacy that Association is Causation
	C.	Both A and B
	D.	Neither A nor B

In the movie Forrest Gump, Forrest attends a banquet at the White House because he has been named to the All American Football team. Forrest is not charged anything to attend the banquet, nor is he charged for any food or drink once he gets there. Under these conditions, Forrest Gump chooses to drink 15 Dr. Peppers.

Use economic theory to predict what would have happened had the White House charged people $50 a flat fee to attend the banquet, but did not charge a fee for each drink consumed. (Assume Forrest Gump is a rational individual. Further assume that he pays the $50 dollars and does attend the banquet.)

	A.	Forrest Gump would have drank more Dr. Peppers
	B.	Forrest Gump would have stopped drinking Dr. Peppers.
	C.	Forrest Gump would have drank less Dr. Peppers
	D.	Forrest Gump would have drank the same amount of Dr. Peppers.

In the movie Forrest Gump, Forrest attends a banquet at the White House because he has been named to the All American Football team. Forrest is not charged anything to attend the banquet, nor is he charged for any food or drink once he gets there. Under these conditions, Forrest Gump chooses to drink 15 Dr. Peppers.

Which of the following describes Forrest's satisfaction as he increases his consumption of Dr. Peppers from 1 to 15?

	A.	His marginal utility falls, his total utility rises
	B.	His marginal utility falls, his total utility falls
	C.	His marginal utility rises, his total utility falls.
	D.	His marginal utility rises, his total utility rises

In the movie Forrest Gump, Forrest attends a banquet at the White House because he has been named to the All American Football team. Forrest is not charged anything to attend the banquet, nor is he charged for any food or drink once he gets there. Under these conditions, Forrest Gump chooses to drink 15 Dr. Peppers.

Use economic theory to predict what would likely have happened if the White House did not charge people a flat fee to attend the dinner, but now charged people a $1 fee for each drink they consumed. (Assume Forrest Gump is a rational individual.)

	A.	ForrestGumpwould have drank the same amount of Dr. Peppers
	B.	ForrestGumpwould have stopped drinking Dr.Peppers entirely
	C.	ForrestGumpwould have drank more Dr.Peppers
	D.	ForrestGumpwould have drank less Dr.Peppers

Chris is thinking of buying a car. He does not love taking risks; he does not hate taking risks. (He is risk neutral.) There is 80% chance that he will get low quality car. There is a 20% chance he will get a high quality car. He is willing to pay $0 for a low quality car and $10,000 for a high quality car. Lemons R US, owns many cars, is willing to sell a low quality car for $1000, and a high quality car for $6000.

What is the efficient outcome from society's point of view?

	A.	only the low quality car is bought and sold
	B.	only the high quality car is bought and sold
	C.	both cars are bought and sold
	D.	neither car is bought and sold.

Chris is thinking of buying a car. He does not love taking risks; he does not hate taking risks. (He is risk neutral.) There is 80% chance that he will get low quality car. There is a 20% chance he will get a high quality car. He is willing to pay $0 for a low quality car and $10,000 for a high quality car. Lemons R US, owns many cars, is willing to sell a low quality car for $1000, and a high quality car for $6000.

What is the maximum price Chris will offer for the car?

	A.	$0
	B.	$2000
	C.	$5000
	D.	$10,000

Chris is thinking of buying a car. He does not love taking risks; he does not hate taking risks. (He is risk neutral.) There is 80% chance that he will get low quality car. There is a 20% chance he will get a high quality car. He is willing to pay $0 for a low quality car and $10,000 for a high quality car. Lemons R US, owns many cars, is willing to sell a low quality car for $1000, and a high quality car for $6000.

According to the "lemons model"(adverse selection) what will happen?

	A.	Chris will buy a low quality car from Lemons R US because he has only offered enough to get a low quality car buthe has not offered enough to get a high quality car.
	B.	Lemons R Us will sell Chris thehigh quality car because the surplusfrom the high quality car ($10,000-$6000)will be higher than that from the low quality car ($0-$1000).
	C.	Neither car will be sold because Chris has not offered enough money to make any trade worthwhile to Lemons R US.
	D.	Both Cars will be sold because the Seller makes a surplus from both trades. ($10,000-$6000) of surplus from the high quality sale. ($1000-$0) from the low quality sale.

The computer market is currently competitive. Computers sellers currently sell 2 computers are week. 1 of these computers is sold to a customer who values the computer at $800. 1 of these computers is sold to a customer who values the computer at $500. The marginal cost of making a computer is $400, so the absolute lowest price computer sellers are willing to sell a computer for is $400. The competitive market price is $400.

What is the total social gain (surplus) from the sale of computers in this competitivemarket this week?

	A.	$400
	B.	$500
	C.	$800
	D.	$1300

he computer market is currently competitive. Computers sellers currently sell 2 computers are week. 1 of these computers is sold to customers who value computers at $800. 1 of these computers is sold to customers who value the computers at $500. The marginal cost of making a computer is $400, so the absolute lowest price computer sellers are willing to sell a computer for is $400. The competitive market price is $400.

If Computers R' Us (a computer sellers) monopolizes the market for computers then which of the events is more likely to happen. (Assume that they can only charge one price for computers i.e. they can't price discriminate.)

	A.	Computers R' US will decrease the price and sell more computers
	B.	Computers R' US will increase the price and sell more computers
	C.	Computers R' US will keep the price the same and sell the same number of computers
	D.	Computers R' US will increase the price and sell less computers

The computer market is currently competitive. Computers sellers currently sell 2 computers are week. 1 of these computers is sold to customers who value computers at $800. 1 of these computers is sold to customers who value the computers at $500. The marginal cost of making a computer is $400, so the absolute lowest price computer sellers are willing to sell a computer for is $400. The competitive market price is $400.

What will be thedeadweight loss in this market if the computer market becomes monopolized?

	A.	$100
	B.	$400
	C.	$500
	D.	$100

According to economic theory, a law which increases the punishment for abduction so that it is equivalent to the punishment for murder will:

	A.	Raise the marginal cost of committing anabduction
	B.	Lower an abductors' marginal cost of committing amurder
	C.	Both A and B.
	D.	Neither A nor B

Mickey Mouse Corporation is thinking about building an amusement park on their property. The cost of a big amusement park, (to be called the Magic Kingdom) is $1000. The cost of a smaller amusement park (to be called Advenureland) is $500. The revenues generated by a bigger amusement park are $900. The revenues generated by the smaller park are $550. In additional the hotel adjacent to the park would make an additional $800 of profit if the big amusement park is built because more people will stay over night to visit the larger amusement park. However, they will not make any additional profit if the smaller park is built because no one will stay. (Assume there are no holdout costs).

The above problem is an example of a:

	A.	Positive Externality
	B.	Public Good
	C.	Poor information
	D.	Negative Externality

Mickey Mouse Corporation is thinking about building an amusement park on their property. The cost of a big amusement park, (to be called the Magic Kingdom) is $1000. The cost of a smaller amusement park (to be called Advenureland) is $500. The revenues generated by a bigger amusement park are $900. The revenues generated by the smaller park are $550. In addition, the hotel adjacent to the park would make an additional $800 of profit if the big amusement park is built because more people will stay over night to visit the larger amusement park. However, they will not make any additional profit if the smaller park is built because no one will stay. (Assume there are no holdout costs).

What is the efficient outcome from society's point of view?

	A.	The larger amusement park is built
	B.	The smaller amusement park is built
	C.	Neither park is built.
	D.	Not enough information to determine the efficient outcome.

Mickey Mouse Corporation is thinking about building an amusement park on their property. The cost of a big amusement park, (to be called the Magic Kingdom) is $1000. The cost of a smaller amusement park (to be called Advenureland) is $500. The revenues generated by a bigger amusement park are $900. The revenues generated by the smaller park are $550. In additional the hotel adjacent to the park would make an additional $800 of profit if the big amusement park is built because more people will stay over night to visit the larger amusement park. However, they will not make any additional profit if the smaller park is built because no one will stay. (Assume there are no holdout costs).

According to the CoaseTheorem, what is most likely to happen in the above situation?

	A.	The Small Amusement Park will be built because the self-interested executives at Mickey Mouse Corp. will not consider the interests of the hotel or society at large.
	B.	The Small Amusement will be built because Mickey Mouse makes a larger profit from the smaller park than the larger park
	C.	The Big Amusement park will be built because larger parks are always more efficient.
	D.	The Big Amusement Park will be built because the hotel will pay Mickey Mouse Corp. to invest in a larger park

The use of private property rights as opposed to communal property rights

	A.	increase the productivity of individuals
	B.	encourage individuals to efficiently conserve resources
	C.	Both A and B
	D.	Neither A nor B

Voters are generally:

	A.	Less informed than ordinary consumers because politicians are less likely to take advantage of poor information than the sellers of goods and services
	B.	Less informed than ordinary consumers because the probability that a voter's vote will decide an election is very small.
	C.	More informed than ordinary consumers because voting is more important than the purchase of goods and services
	D.	Less informed than ordinary consumers because voting is less important than the purchase of goods and services