Supply, Demand & Markets
A tax is imposed on a good with perfectly elastic demand. Who bears the entire burden of the tax?
Producers
If marginal social cost exceeds marginal private cost, what type of market failure is present?
Negative production externality.
What type of unemployment occurs when workers are between jobs?
Frictional unemployment.
When people dislike losses more than they value equivalent gains, what behavioral bias is this?
Loss aversion.
What global event in 2020 caused supply chain disruptions.
COVID-19 pandemic.
In a perfectly competitive market, firms are earning supernormal profits in the short run. What happens to the industry supply curve in the long run?
The industry supply curve shifts right (increases) due to entry of new firms.
A Pigouvian tax is set too high relative to the marginal external cost. Compared to the socially optimal level, will output be too high or too low?
Output will be too low (below the socially optimal level).
What coefficient is used to measure income inequality in a country?
Gini coefficient.
When a government automatically enrolls citizens into a pension plan but allows them to opt out, what behavioral concept is being used?
Nudge/default choice
During the 1973 OPEC oil crisis, was the initial shock a demand shock or a supply shock?
Supply shock.
A 10% increase in income leads to a 15% increase in quantity demanded. What is the income elasticity of demand and how is the good classified?
Income elasticity of demand = 1.5. Luxury good.
What problem arises in markets where one party has more information than the other before a transaction takes place?
Adverse selection.
If the nominal GDP increases by 12%, inflation is 7% and interest rates are 4%, what is the approximate growth rate of real GDP?
5%
After watching extensive news coverage of a recent airplane crash, Riya begins to believe that air travel is very dangerous and far more common than before. She decides to avoid flying, even though statistical data shows that air travel remains one of the safest modes of transport.
Which behavioral bias best explains Riya’s judgment?
Availability bias.
In the 2008 financial crisis, the collapse of housing prices primarily reduced which component of aggregate demand?
Consumption.
A price ceiling is imposed where demand is elastic and supply is inelastic. In the long run, what happens to producer surplus?
Producer surplus decreases.
In the presence of full insurance coverage, individuals may engage in riskier behaviour because they do not bear the full cost of their actions. What is this phenomenon called?
Moral hazard.
If the central bank increases interest rates but inflation expectations remain unchanged, what happens to the real interest rate?
The real interest rate increases.
If someone continues a failing project because they have already invested time or money into it, what bias is influencing their decision?
Sunk cost fallacy.
What was the name given to the rapid rise in stock prices in the late 1990s driven by internet companies?
Dot-com bubble.
A government imposes a per-unit tax on a good. Demand is more elastic than supply. Compared to the pre-tax equilibrium, does producer surplus decrease by more or less than consumer surplus?
Producer surplus decreases greater than consumer surplus.
A government intervenes to correct a negative externality but lacks accurate information about the marginal external cost. What specific type of failure may result from this imperfect intervention?
Government failure.
An economy is at full employment. The government increases spending without increasing taxes. In the long run, what output gap will it lead to?
Inflationary gap.
A treatment is shown in two ways:
Version 1:
“This treatment has a 90% survival rate.”
Version 2:
“This treatment has a 10% mortality rate.”
More patients agree to the treatment under Version 1 than Version 2. What is the reason behind this choice?
Framing effect.
Following Russia’s invasion of Ukraine in 2022, many Western countries froze what specific type of Russian asset held abroad?
Foreign exchange reserves / central bank reserves.