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ECO 102 Exam 6

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ECO 102 Exam 6;26 questions worth 4 points each: Perfect Exam = 104%;1) Consider the following game. You roll a six-sided die and each time you roll a 6, you get $30.;For all other outcomes you pay $6. What is the expected value of the game?;A) -$6;B) $0;C) $6;D) $30;2) Refer to Figure 17.1. John has two job offers when he graduates from college. John views the;offers as identical, except for the salary terms. The first offer is at a fixed annual salary of;$50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John;believes that he has a 50-50 chance of earning the bonus. What is the expected value of John's;income for each job offer?;A) $50,000 for the first offer and $80,000 for the second offer;B) $50,000 for the first offer and $50,000 for the second offer;C) $50,000 for the first offer and $30,000 for the second offer;D) $25,000 for the first offer and $50,000 for the second offer;3) Refer to Figure 17.1. John has two job offers when he graduates from college. John views the;offers as identical, except for the salary terms. The first offer is at a fixed annual salary of;$50,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $60,000. John;believes that he has a 50-50 chance of earning the bonus. What is John's expected utility for;each job offer?;A) expected utility of 200 for the first offer and expected utility of 218 for the second offer;B) expected utility of 200 for the first offer and expected utility of 110 for the second offer;C) expected utility of 200 for the first offer and expected utility of 164 for the second offer;D) expected utility of 100 for the first offer and expected utility of 164 for the second offer;2;4) Refer to Figure 17.1. Suppose John's utility from income is given in the figure. From this we;would say that John is ________.;A) risk neutral;B) risk averse;C) risk loving;D) a risk taker;5) Mark has two job offers when he graduates from college. Mark views the offers as identical;except for the salary terms. The first offer is at a fixed annual salary of $40,000. The second;offer is at a fixed salary of $20,000 plus a possible bonus of $40,000. Mark believes that he has;a 50-50 chance of earning the bonus. If Mark takes the offer that maximizes his expected utility;and is risk loving, which job offer will he choose?;A) Mark will take the first offer.;B) Mark will take the second offer.;C) Mark is indifferent between the offers -- both yield the same expected utility.;D) Indeterminate from the given information.;Refer to the information provided in Figure 17.2 below to answer the questions that follow.;Figure 17.2;6) Refer to Figure 17.2. Suppose Sam's utility from income is given in the diagram. From this;we would say that Sam is ________.;A) risk neutral;B) risk loving;C) risk averse;D) a risk taker;7) All of the following statements about asymmetric information are true EXCEPT;A) Asymmetric information occurs when one party to a transaction has relevant information to;the transaction that the other party does not have.;B) Asymmetric information creates market failures because it makes it harder for individuals to;engage in transactions that would take place in the presence of perfect information.;C) Asymmetric information can only be solved through government intervention.;D) Asymmetric information occurs in the market for used cars and in the insurance market.;3;8) You are in the market for a used 2006 Honda Accord. You know that half of the 2006;Accords are lemons and half are peaches. If you could be assured that the Accord you were;buying was a peach, you would be willing to pay up to $10,000. On the other hand, you would;only be willing to pay $2,000 for a lemon. You have no ability to discern whether any particular;Accord is a lemon or a peach. Sellers of Accords, on the other hand, are likely to know whether;their particular car is a lemon or a peach. Suppose sellers of lemons will sell their cars for;$1,500 or more and peach sellers will be willing to sell their cars for $8,500 or more. You are;willing to offer _____ for a car of unknown quality and _______ are willing to sell you their car.;A) $2,000, lemon owners only;B) $5,000, lemon owners only;C) $6,000, lemon owners only;D) $8,500, both lemon and peach owners;9) As a result of adverse selection problems in the health insurance market, it is likely that over;time;A) fewer healthy people will be insured.;B) fewer unhealthy people will be insured.;C) fewer healthy and unhealthy people will be insured.;D) more healthy people will be insured.;10) You cause an automobile liability insurance company to face a moral hazard problem when;you take ________ driving precautions ________ you buy automobile liability insurance from;the company.;A) fewer, after;B) more, after;C) fewer, before;D) the same, before and after;11) A tax whose burden, expressed as a percentage of income, falls as income increases is a;A) regressive tax.;B) progressive tax.;C) proportional tax.;D) benefits-received tax.;12) The excise tax is ________.;A) progressive;B) regressive;C) proportional;D) an ability-to-pay tax;13) A theory of fairness that holds that taxpayers should contribute to the government in;proportion to the benefits they receive from public expenditures is the;A) ability-to-pay principle.;B) equity principle.;C) benefits-received principle.;D) equality-for-all principle.;4;14) The benefits-received principle of taxation is not often used because;A) if tax payments are linked to the benefits received, taxpayers tend to overstate the benefits;that they receive from public goods.;B) it leads to an overproduction of public goods.;C) it is difficult to determine the values individual taxpayers place on goods and services that are;produced using tax revenue.;D) it leads to less equality in the after-tax distribution of income.;15) A theory of taxation that states that citizens should bear tax burdens in line with their ability;to pay taxes is the;A) ability-to-pay principle.;B) equity principle.;C) benefits-received principle.;D) equal payment principle.;16) The progressive income tax is a tax based on the;A) benefits-received principle.;B) tax equity principle.;C) efficiency tax principle.;D) ability-to-pay principle.;17) Tax incidence is the ________.;A) behavior of shifting the tax to another party;B) ultimate distribution of a tax?s burden;C) structure of the tax;D) measure of the impact the tax has on employment and output;18) Firms may react to a payroll tax by;A) substituting labor for capital.;B) increasing their output.;C) shifting to more capital intensive techniques.;D) always increasing worker's wages by the total amount of the tax.;5;Refer to the information provided in Figure 19.1 below to answer the questions that follow.;Figure 19.1;19) Refer to Figure 19.1. Prior to the imposition of a payroll tax, this labor market was in;equilibrium at a wage of ________ and employment of ________ workers.;A) $5.00, 500;B) $7.00, 800;C) $10.00, 700;D) $12.00, 650;20) Refer to Figure 19.1. The payroll tax imposed is ________ per unit of labor.;A) $2;B) $3;C) $5;D) $10;21) Refer to Figure 19.1. After firms can respond to the payroll tax, the per-hour wage paid by;firms equals;A) $12.;B) $10.;C) $7.;D) $5.;22) Refer to Figure 19.1. After firms can respond to the payroll tax, the workers will take home a;wage of;A) $12.;B) $10.;C) $7.;D) $5.;6;23) If labor supply is very elastic, the payroll tax is;A) borne mostly by the employer.;B) borne entirely by the employer.;C) borne mostly by the workers.;D) split evenly between the employer and the workers.;24) The ________ states that all else equal, taxes that are neutral with respect to economic;decisions are generally preferable to taxes that distort economic decisions.;A) the principle of neutrality.;B) the principle of second best.;C) the principle of excess burden.;D) the law of tax incidence.;25) Which of the following taxes would impose the smallest excess burden on an individual?;A) a tax on Diet Pepsi;B) a tax on all diet beverages;C) a tax on all soft drinks;D) a tax on all types of beverages including water;26) What circumstances favor nonneutral taxes?;A) only the presence of externalities;B) only the presence of other distortionary taxes;C) both the presences of externalities and other distorting taxes;D) both inelastic demand and the presence of externalities

 

Paper#35448 | Written in 18-Jul-2015

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