ECN-601 EXAM 1 | 127 QUESTIONS AND ANSWERS |
2025/2026 WITH COMPLETE SOLUTIONS
The one thing that unites all economists is their use of: Answer - The rational
actor paradigm
A well-designed organization is one in which employee incentives are aligned
with: Answer - Organizational goals
If people behave rationally, optimally, and self-interestedly, a bad decision
occurs for which of these reason(s)? Answer - Both a. and c.
a. the decision maker did not have enough information to make a good
decision
c. the decision-maker did not have the incentive to make a good decision
There are three levers one can push to correct bad decision-making. Which of
the following is NOT such a lever? Answer - Let someone else who has no
relationship to the problem make the decision
The rational-actor paradigm is: Answer - A tool for analyzing behavior
A buyer willingly buys if the price of a good is: Answer - Below his value
The zero sum fallacy is: Answer - Both b. and c.
b. Often used to justify limits on profitability
,c. Means that if one person is making money, someone else is losing money
The absence of property rights contributes to: Answer - Poverty
Money-making opportunities result from: Answer - Assets in lower-valued uses
Determining whether a policy is good or bad requires that we look: Answer -
Both a. and b.
a. At those who benefit from the policy
b. Those who lose because of the policy
An individual's value for a good or service is Answer - The amount of money he
or she is willing to pay for it
The biggest advantage of capitalism is that Answer - d. All of the above.
a. It allows the market to self-regulate.
b. It allows a person to follow his self interest.
c. It allows voluntary transactions, which create wealth.
Wealth-creating transactions are more likely to occur Answer - d. All of the
above.
a. With private property rights.
b. With strong contract enforcement.
c. With black markets.
, Which of these actions creates value? Answer - d. All of the above
a. Buying a struggling firm and selling off its assets for more than the purchase
price
b. Baseball slugger drawing paying fans into the ballpark
c. Student increasing his decision making ability with an MBA
Which of the following are examples of a price floor? Answer - Minimum
wages
A price ceiling Answer - Is an implicit tax on producers and an implicit subsidy
to consumers
Taxes Answer - d. All of the above
a. Impede the movement of assets to higher-valued uses.
b. Reduce incentives to work.
c. Decrease the number of wealth-creating transactions.
A consumer values a car at $20,000 and it costs a producer $15,000 to make
the same car. If the transaction is completed at $18,000, the transaction will
generate Answer - $2,000 worth of buyer surplus and $3,000 of seller surplus
A consumer values a car at $525,000 and a producer values the same car at
$485,000. If sales tax is 8% and is levied on the seller, then the seller's bottom-
line price is (rounded to the nearest thousand) Answer - $527,000
Wealth generating activities always: Answer - Increase total surplus
2025/2026 WITH COMPLETE SOLUTIONS
The one thing that unites all economists is their use of: Answer - The rational
actor paradigm
A well-designed organization is one in which employee incentives are aligned
with: Answer - Organizational goals
If people behave rationally, optimally, and self-interestedly, a bad decision
occurs for which of these reason(s)? Answer - Both a. and c.
a. the decision maker did not have enough information to make a good
decision
c. the decision-maker did not have the incentive to make a good decision
There are three levers one can push to correct bad decision-making. Which of
the following is NOT such a lever? Answer - Let someone else who has no
relationship to the problem make the decision
The rational-actor paradigm is: Answer - A tool for analyzing behavior
A buyer willingly buys if the price of a good is: Answer - Below his value
The zero sum fallacy is: Answer - Both b. and c.
b. Often used to justify limits on profitability
,c. Means that if one person is making money, someone else is losing money
The absence of property rights contributes to: Answer - Poverty
Money-making opportunities result from: Answer - Assets in lower-valued uses
Determining whether a policy is good or bad requires that we look: Answer -
Both a. and b.
a. At those who benefit from the policy
b. Those who lose because of the policy
An individual's value for a good or service is Answer - The amount of money he
or she is willing to pay for it
The biggest advantage of capitalism is that Answer - d. All of the above.
a. It allows the market to self-regulate.
b. It allows a person to follow his self interest.
c. It allows voluntary transactions, which create wealth.
Wealth-creating transactions are more likely to occur Answer - d. All of the
above.
a. With private property rights.
b. With strong contract enforcement.
c. With black markets.
, Which of these actions creates value? Answer - d. All of the above
a. Buying a struggling firm and selling off its assets for more than the purchase
price
b. Baseball slugger drawing paying fans into the ballpark
c. Student increasing his decision making ability with an MBA
Which of the following are examples of a price floor? Answer - Minimum
wages
A price ceiling Answer - Is an implicit tax on producers and an implicit subsidy
to consumers
Taxes Answer - d. All of the above
a. Impede the movement of assets to higher-valued uses.
b. Reduce incentives to work.
c. Decrease the number of wealth-creating transactions.
A consumer values a car at $20,000 and it costs a producer $15,000 to make
the same car. If the transaction is completed at $18,000, the transaction will
generate Answer - $2,000 worth of buyer surplus and $3,000 of seller surplus
A consumer values a car at $525,000 and a producer values the same car at
$485,000. If sales tax is 8% and is levied on the seller, then the seller's bottom-
line price is (rounded to the nearest thousand) Answer - $527,000
Wealth generating activities always: Answer - Increase total surplus
