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CGE Homework #2

CGE Homework #2

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Published by Katherine Sauer

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Published by: Katherine Sauer on Feb 12, 2012
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02/12/2012

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 Name: ____________________________________________ Economics ± Dr. Sauer 
Homework #2 (40 points)
 F 
or questions 1 ± 30 (30 points), please indicate your answers on a scantron sheet. It is okay to work on your homework in groups, but each person must submit answers individually.
 F 
or questions 31-33 (10 points), you may tear off that sheet tohand in.
 1. True or False. Government inefficiency cannot be explained by using the theory of incentives.2. Under what situations should the government be involved in providing goods or services that society values?a. When the good or service is otherwise provided by foreign firms. b. When the good or service is cheap to provide.c. When there is a compelling reason to believe the private sector will fail at providing the good or service.d. When the private sector can¶t figure out how to produce the good or service.3. The private sector allocates resources according to ______ while the government sector allocates resources according to ______.a. scarcity and prices; political considerations. b. political considerations; scarcity and prices.c. scarcity and prices; supply and demand.d. political considerations; supply and demand.4. True or False. All regulations, even good ones, have costs.5. True or False. On the question of the optimal size of a government, economics has a clear answer.6. Which of the following is NOT true with respect to taxes?a. exert a fiscal drag on the economy. b. often cause deadweight loss for society.c. often cause the economy to grow.d. often cause people and firms to change their behaviors.7. Many people mistakenly believe that cutting taxes will result in more income for the government. This is called thea. Laffer Curve Paradox. b. Tax-cuts-increase-revenues Fallacy.c. Taxing-Spending Enigma.d. Puzzle of the Budget.8. Which of the following are ³costs´ or problems associated with government regulations?a. They can create perverse incentives or unintended consequences. b. They can end up limiting competition (e.g. requiring higher standards for new firms).c. They can be pushed for by people who aren¶t directly involved in the situation (e.g. people in the US who want to³save the rainforest´ in other nations).d. Either all of the above or none of the above.9. True or False. Economists would agree that all regulations are bad.10. Which of the following is NOT part of the economic framework for thinking about government and the economy?a. Government has the potential to enhance the productive capacity of the economy, which makes us better off. b. Some government activity ³shrinks the size of the pie´ but still may be socially desirable.c. Sometimes government involvement in the economy is purely destructive.d. There is an optimal size for the government.11. True or False. Information asymmetry is a common problem in today¶s society.12. Asymmetric information is a situation wherea. all parties have the same access to the relevant information. b. parties have different access to the relevant information.c. private parties have the same access to government information.d. the government releases the information.
 
13. What does ³branding´ have to do with information asymmetry?a. Branding is a way for the firm to reveal information to a customer. b. Branding is a way for the firm to engage in price discrimination.c. Branding is a way for the firm to reduce adverse selection.d. Branding is a way for the firm to increase productivity.14. True or False. The reason your insurance company offers you a choice in deductible is to get you to reveal someinformation about the probability you¶ll be making an insurance claim.15. True or False. The market for health care doesn¶t suffer from information asymmetry any more than any other marketdoes.16. Which of the following situations suffers the LEAST from adverse selection?a. the Hope Scholarship program. b. the market for big screen televisions.c. the market for used cars.d. the market for health care.17. True or False. In many cases, consumers and firms create their own mechanisms for solving information problems.18. Which of the following is NOT a part of the information problem at the heart of health care?a. doctors seek to maximize income and minimize lawsuits. b. insurance companies seek to maximize profits by pay as little as possible for claims.c. the ³right´ medical course of action is very clearly defined.d. Either all of the above or none of the above.19. True or False. The reason McDonald¶s is so successful is that they¶ve created the highest quality product.20. True or False. It is fairly simple to reform healthcare in way that will both increase access and increase affordability.21. Which of the following is NOT encompassed in the concept of human capital?a. your new i-pad b. the skills you learned in collegec. the experience you learned ³on the job´d. your natural ability to put people at ease22. True or False. The sole benefit of human capital is a higher paycheck.23. Which of the following is a factor that could be the cause of the rising income inequality in the US?a. lack of union bargaining power  b. rich workers choosing to work fewer hoursc. a gap in the level of human capitald. bureaucratic pay scales24. The problem that fundamentally underlies poverty is a lack of a. natural resources b. physical capitalc. human capitald. population25. True or False. If productivity grows at 1% per year, it will take 72 years for the standard of living to double.26. True or False. Human capital is important for productivity but not for society¶s standard of living.27. The Lump of Labor fallacy impliesa. there are more workers than jobs. b. a new job can be created without destroying an existing one.c. there is a fixed amount of work to be done in an economy.d. there are more jobs than workers.28. True or False. The wage rate for a particular occupation reflects the value to society of that occupation.

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