ECON7100-M50 Spring 2015


  1. If luck plays an important part in who ends up on top,
    1. anyone can win a piano competition.
    2. it is still important to be competent enough to qualify for the finalist pool.
    3. there is no point to work hard.
    4. we should pray more for luck and work less.
  2. Big donors are more likely to donate to capital projects than to operating expenses because
    1. donations to operating expenses are not tax deductable.
    2. recipients of donations usually have no problem funding operating expenses.
    3. their names can be attached to a building.
    4. capital projects require no on-going maintenance.
  3. If people are more concerned about relative wealth and absolute leisure, which of the following would make more people happier?
    1. Increase the average income while decreasing the median income and reduce weekly working hours.
    2. Even out income distribution and reduce weekly working hours.
    3. Reduce income tax of the high income earners and reduce weekly working hours.
    4. All of the above.
  4. Which of the following announcements is likely to be made by government press secretary in an unpopular war?
    1. Two soldiers in a group of ten die in the battle.
    2. Eight soldiers out of ten survived unscathed with 50% of the insurgents killed.
    3. Eight soldiers survived unscathed in a fierce counter-offensive.
    4. Eight soldiers survived unscathed with 1 insurgent killed.
  5. Health care insurance is expensive because
    1. patients prefer non-treatment to futile treatment.
    2. of moral hazard on the part of the insured.
    3. there are more inexpensive medical cures available.
    4. medical treatment could be easily denied.
  6. People are bad at evaluating odds because they
    1. usually think that all outcomes are equally probable.
    2. rely on what readily comes to their minds.
    3. are overwhelmed by too much organized information.
    4. are easily persuaded by full information.
  7. Capping health coverage or excluding coverage of specific expensive-to-treat genetic disorders could
    1. increase the actuarial risk of insurers because of moral hazard.
    2. lead to higher premiums for everybody in the health insurance risk pool.
    3. increase the actuarial risk of insurers because of adverse selection.
    4. reduce actuarial risk of the insurer while still covering other health risks of the genetically challenged.
  8. Basic liability auto insurance is mandatory to prevent
    1. Adverse selection.
    2. Better drivers from skipping auto insurance.
    3. The collapse of the insurance pool.
    4. Both B and C.
    5. All of the above.
  9. Which of the following payment methods would encourage the highest attendance of an event according to the behavioral theory of sunk cost?
    1. Pre-paid tickets sold before the event with a partial rebate for actual attendance.
    2. Phone reservation of tickets to be paid at the door.
    3. Pre-paid tickets sold before the event.
    4. Sell tickets at the door.
  10. If a donation is matched by a material reward of equal money market value, the donation
    1. would still confer equal non-material value to the donor.
    2. becomes a market exchange.
    3. is still tax deductible.
    4. would still polish the image of the donor.
  11. If a restaurant wants to sell more of its most expensive drink on its current menu, it could
    1. add more less expensive drinks to its menu.
    2. add an even more expensive drink to its menu.
    3. give away the less expensive drinks.
    4. use the psychology of shifting comparisons.
    5. Both B and D.
  12. Societal customs
    1. are default positions that are difficult to opt out.
    2. must be collectively optimal since they are results of coordination games.
    3. could be looked at as behaviors freely chosen by people at the margin to suit current needs.
    4. could be changed easily.
  13. Expected value
    1. is compared to expected loss to assess individual risk preference
    2. must exceed a sure thing by a big margin for a risk-averse person to take a bet in the face of potential loss.
    3. is compared to a sure thing to assess individual risk preference
    4. is easy to compute because accurate odds of gain and loss are readily available.
  14. Which of the following is true in a low-trust society?
    1. People would prefer dealing with strangers.
    2. No collateral would be required for loans.
    3. People would prefer dealing with people they already know very well.
    4. People would prefer dealing with people than computers.
  15. The wage premium for lookers is an economic rent because
    1. it is needed to increase its supply.
    2. good looks are plentiful.
    3. good looks are scarce.
    4. people prefer non-lookers who are equally competent as lookers.
  16. Human behavior is predictable because
    1. Human agents are irrational.
    2. Agents follow behavioral rules that restrict their choice flexibility to deal with uncertainty.
    3. Agents continuously optimize their choices at the margin.
    4. Human agents are rational.
  17. The present-bias effect leads to procrastination
    1. When choice involves immediate costs and distant rewards.
    2. When current abstinence will not lead to greater future rewards.
    3. When immediate rewards exceeds distant costs.
    4. When choice involves immediate rewards and distant cost.
  18. The proportionality effect theory would predict which of the following is likely to raise more individual donations from the general public?
    1. Genetic screening to eugenic purposes.
    2. Research to find a cure for a disease.
    3. Immediate treatment of sympathetic patients suffering from the disease.
    4. Education campaign to reduce the incidence of the disease.
  19. Homer's Odysseus had himself tied to the ship's mast knowing that he would not be able to resist the temptation of being seduced by the sirens' song to wreck his ship. This is an example of
    1. an irrational response.
    2. present-bias effect.
    3. a sophisticated response to the present-bias effect.
    4. a time-inconsistent response.
  20. Which of the following is an example of moral hazard?
    1. Buying life insurance after contracting a terminal disease.
    2. Spending recklessly on a company carte blanche expense account.
    3. Buying flood insurance in a desert.
    4. Gorging at an all-you-can-eat buffet.
    5. Both B and D.