Explore topic-wise MCQs in Master of Arts in Economics (M.A. Economics).

This section includes 113 Mcqs, each offering curated multiple-choice questions to sharpen your Master of Arts in Economics (M.A. Economics) knowledge and support exam preparation. Choose a topic below to get started.

51.

An outcome is Pareto efficient if

A. no person can be made better off without making someone worse off
B. everybody can be made better off
C. at least one person can be made better off
D. every person maximizes payoff given the payoff of others.
Answer» B. everybody can be made better off
Discussion
52.

What is a Nash equilibrium

A. a strategy for each player such that total payoffs are maximized
B. a strategy for a person such that the person maximizes payoff given the strategies of others
C. a strategy that maximizes payoff
D. a strategy for each person such that everyone maximizes payoff given the strategies of others
Answer» B. a strategy for a person such that the person maximizes payoff given the strategies of others
Discussion
53.

In volatile markets, “speculators” would be expected to provide some stability because

A. they will be required to do so by the government.
B. they will use current price moves to predict future moves.
C. they will buy when price is below equilibrium and sell when it is above equilibrium.
D. they will buy when price is above equilibrium and sell when it is below equilibrium.
Answer» D. they will buy when price is above equilibrium and sell when it is below equilibrium.
Discussion
54.

An example of adverse selection is

A. purchasing a new car sight unseen based on the recommendation of a neighbour.
B. high health insurance premiums resulting from the poor health of people who buy policies.
C. suppliers who charge more for better quality clothing than for lower quality clothing.
D. being talked into buying a low-quality item because the price is lower.
Answer» C. suppliers who charge more for better quality clothing than for lower quality clothing.
Discussion
55.

If markets are perfect, a rational actor may reasonably conclude from the high price of a good that the good

A. is produced by a monopoly.
B. is of better quality.
C. has a greater demand for it.
D. is not known about by other consumers.
Answer» C. has a greater demand for it.
Discussion
56.

What is the methodology of positive economics

A. models should say what it is optimal for a person to do
B. models should be as realistic as possible
C. models should be judged on their assumptions
D. models should be judged on their ability to predict
Answer» E.
Discussion
57.

The standard economic model assumes people are

A. rational
B. boundedly rational
C. altruistic
D. emotional
Answer» B. boundedly rational
Discussion
58.

One way the “lemons problem” in the used-car industry can be mitigated is by

A. raising the price of used cars.
B. hiring auto experts to sell used cars.
C. requiring sellers to guarantee trouble-free cars.
D. allowing owners to trade in their own cars when they purchase a used car.
Answer» D. allowing owners to trade in their own cars when they purchase a used car.
Discussion
59.

Adverse selection in competitive insurance markets harms

A. high risk individuals.
B. low risk individuals.
C. owners of insurance companies.
D. everyone.
Answer» C. owners of insurance companies.
Discussion
60.

An individual will not choose to acquire all available information because

A. that would maximize utility given his or her budget constraint.
B. that would violate the assumption of risk aversion.
C. there are increasing returns to additional information.
D. there are decreasing marginal costs to acquiring information.
Answer» B. that would violate the assumption of risk aversion.
Discussion
61.

Adverse selection arises because

A. insurance buyers have more information than insurance sellers.
B. insurance sellers have more information than insurance buyers.
C. individuals can select which insurance company to patronize.
D. insurance companies can exercise too much control over who they insure.
Answer» B. insurance sellers have more information than insurance buyers.
Discussion
62.

An individual is willing to pay something for information because

A. information is costly.
B. it is always better to know than not to know.
C. this allows him or her to increase utility.
D. information is a public good.
Answer» D. information is a public good.
Discussion
63.

If reckless drivers are more likely to buy automobile insurance than safe drivers are,

A. a moral hazard has occurred.
B. adverse selection has occurred.
C. the market for insurance is efficient.
D. then automobile insurance will be fairly priced.
Answer» C. the market for insurance is efficient.
Discussion
64.

Adverse selection occurs when there is

A. full information.
B. an unobserved behaviour.
C. an unobserved characteristic.
D. a worker who shirks because his boss does not watch him.
Answer» D. a worker who shirks because his boss does not watch him.
Discussion
65.

If the government subsidizes the health insurance costs of individuals because individuals do not sufficiently realize the importance of having health insurance, which of the following justifications for government intervention is being used?

A. high administrative costs
B. redistribution
C. ignorance
D. externalities
Answer» D. externalities
Discussion
66.

Adverse selection occurs when

A. a person takes more risks that are not known to the life insurance company because he has life insurance.
B. a person buys life insurance because he has a risky lifestyle that is not known to the life insurance company.
C. a person is a risk lover.
D. pregnant women with health insurance make more doctor visits than uninsured pregnant women.
Answer» C. a person is a risk lover.
Discussion
67.

Which of the following is a reason why employers are the predominant source of insurance?

A. insuring at the firm level reduces the extent to which insurance has moral hazard effects.
B. insuring at the firm level allows insurers to create large insurance pools with a predictable distribution of medical risk.
C. employee compensation in the form of medical expenditures is not taxed.
D. both b and c are correct.
Answer» E.
Discussion
68.

Suppose that you have complete health insurance that covers all expenses. You will use medical care up to the point where your:

A. total benefits equal the costs of providing the medical care.
B. marginal benefit is zero.
C. marginal benefit is equal to the marginal cost of the medical care.
D. marginal benefit is equal to the total costs of providing the medical care. as
Answer» C. marginal benefit is equal to the marginal cost of the medical care.
Discussion
69.

Which of the following is not an assumption used in class for reaching the conclusion, using utilitarian reasoning, that income should be divided equally:

A. everybody has the same utility function
B. there is a fixed amount of income to be divided
C. marginal utility is a diminishing function of income
D. some people are more productive than others
Answer» E.
Discussion
70.

When people behave in ways that involve increased risk because they have insurance, this is known as

A. adverse selection.
B. moral hazard.
C. asymmetric information.
D. a hmo.
Answer» C. asymmetric information.
Discussion
71.

Health care markets may be inefficient because of

A. poor information (‘ignorance’).
B. adverse selection.
C. moral hazard.
D. all of the above.
Answer» E.
Discussion
72.

When the average buyer of an insurance policy is likely to have higher risk than others in his class, this is known as

A. adverse selection.
B. moral hazard.
C. asymmetric information.
D. an hmo.
Answer» B. moral hazard.
Discussion
73.

An insurance company can protect itself from moral hazard by:

A. monitoring.
B. imposing an ‘excess’.
C. holding liquid assets
D. diversification
Answer» C. holding liquid assets
Discussion
74.

A situation where people who have taken out insurance behave more recklessly as a result is known as:

A. asymmetric information.
B. bad luck.
C. adverse selection.
D. moral hazard.
Answer» E.
Discussion
75.

Asymmetric information occurs when:

A. information is free
B. buyers and sellers have access to different information
C. community surplus is maximized
D. community surplus is minimized
Answer» C. community surplus is maximized
Discussion
76.

A public good will probably:

A. be expensive in a free market
B. be overprovided in the free market
C. not be provided in the free market
D. has no opportunity cost
Answer» D. has no opportunity cost
Discussion
77.

A demerit good:

A. is a public good
B. involves a positive externality
C. is overprovided in the free market
D. is under provided in the free market
Answer» D. is under provided in the free market
Discussion
78.

A merit good:

A. is a public good
B. involves a negative externality
C. is overprovided in the free market
D. is under provided in the free market
Answer» E.
Discussion
79.

A positive consumption externality occurs when:

A. the social marginal cost is greater than the private marginal cost
B. the social marginal benefit is greater than the private marginal benefit
C. the social marginal cost is greater than the private marginal benefit
D. the social marginal cost is less than the private marginal cost
Answer» C. the social marginal cost is greater than the private marginal benefit
Discussion
80.

Which best describes consumer surplus?

A. the price consumers are willing to pay for a unit
B. the cost of providing a unit
C. the profits made by a firm
D. the difference between the price a consumer pays for an item and the price he/she is willing to pay for it
Answer» E.
Discussion
81.

Community surplus equals:

A. producer surplus minus consumer surplus
B. profits plus utility
C. total utility minus plus profit
D. consumer surplus plus producer surplus
Answer» E.
Discussion
82.

Common property

A. is owned by specific people.
B. is inexhaustible.
C. refers strictly to land resource.
D. refers to goods “owned” by society at large and freely usable by anyone.
Answer» E.
Discussion
83.

Bargaining costs are generally high in cases involving environmental externalities because

A. there are strong incentives to be a free rider.
B. many individuals may be affected by the externalities.
C. it is difficult to measure the costs of the externalities.
D. all of the above.
Answer» E.
Discussion
84.

In drilling a new oil well in an existing oil field, the fact that output on existing wells is reduced means that

A. existing wells have negatively sloped marginal cost curves.
B. existing wells and new wells are owned by different people.
C. existing wells and new wells are owned by the same people.
D. there is a discrepancy between private and social marginal costs.
Answer» E.
Discussion
85.

In perfect competition, environmental externalities need not distort the allocation of resources providing

A. transactions costs are zero.
B. average costs are constant for all output levels.
C. firms install pollution control equipment.
D. the government sets realistic pollution standards.
Answer» B. average costs are constant for all output levels.
Discussion
86.

To reach an economically efficient output level, the size of an excise tax imposed on a firm generating a negative externality should be

A. the firm’s marginal cost.
B. the social marginal cost.
C. the difference between the social marginal cost and the firm’s marginal cost.
D. the sum of the social marginal cost and the firm’s marginal cost.
Answer» D. the sum of the social marginal cost and the firm’s marginal cost.
Discussion
87.

Each of the following provides incentives to reduce a negative externality except:

A. a merger with affected firms.
B. subsidizing consumption of the good being produced.
C. bargaining among firms.
D. taxation of the externality.
Answer» C. bargaining among firms.
Discussion
88.

A perfectly competitive steel mill that produces large amounts of pollution (a negative externality) will, from a social point of view

A. produce too little steel
B. produce the socially optimal quantity of steel.
C. produce too much steel.
D. produce too much steel only if it installs pollution control equipment.
Answer» D. produce too much steel only if it installs pollution control equipment.
Discussion
89.

The assigned Washington Post Op-Ed by Daniel Chirot can be interpreted as asserting that

A. inadequate education and lack of knowledge of history in the population is why saddam hussein’s government succeeded in ruling iraq for so long
B. the right way to think about saddam hussein’s government is basically as if he were the head of a mafia organization
C. saddam hussein’s government could be described as adhering to an organic philosophy
D. the biggest problem in iraq under saddam hussein was a lack of rule of law
Answer» D. the biggest problem in iraq under saddam hussein was a lack of rule of law
Discussion
90.

The accelerator principle states:

A. if an increase in the growth of output is expected, investment will increase.
B. if an increase in investment is expected, output will increase.
C. if an increase in the growth of investment is expected, output will increase.
D. small swings in investment are associated with large swings of output.
Answer» B. if an increase in investment is expected, output will increase.
Discussion
91.

According to a required reading by P.J. O’Rourke, which of the following statements is false?

A. in most of the world, food production has well outpaced the growth of population
B. democracy may be able to help prevent famines from occurring
C. in countries experiencing famine, security and order must be established before the famine can be contained
D. famines are mainly caused by natural disasters or pestilence
Answer» E.
Discussion
92.

According to a required reading from the 2003 Economist, the biggest problem facing Indonesia’s economy is

A. terrorism
B. an organic approach to public policy questions
C. inadequate rule of law
D. geographical (e) hobbits
Answer» D. geographical (e) hobbits
Discussion
93.

According to the required reading from the 2003 Washington Post, a recent study by the U.S. Office of Management and Budget found that

A. the benefits of tough new clean-air regulations in the past decade were five to seven times greater than their costs
B. the most efficient way to control pollution is through pigouvian taxes
C. the 1990 clean air act has not affected the problem of acid rain
D. environmentalists are generally supportive of cost-benefit calculations in assessing
Answer» B. the most efficient way to control pollution is through pigouvian taxes
Discussion
94.

impossibility theorem was propounded by

A. hicks
B. arrow
C. kaldor
D. scitovsky
Answer» C. kaldor
Discussion
95.

In a public goods context, it is difficult to measure impact on real income because

A. public goods are generally free to the public.
B. they make up a small percentage of total gdp.
C. it is hard to measure how people value the public good.
D. inflation decreases the value of the good.
Answer» D. inflation decreases the value of the good.
Discussion
96.

A Pigouvian subsidy

A. cannot exist with externalities.
B. is the same thing as a pigouvian tax.
C. is measured in terms of pigouvian dollars.
D. moves production to the socially optimal level of output
Answer» E.
Discussion
97.

Marginal damages

A. must always be considered in social marginal costs.
B. must not be considered in social marginal costs.
C. must sometimes be considered in social marginal costs.
D. have nothing to do with social marginal costs.
Answer» B. must not be considered in social marginal costs.
Discussion
98.

Which method can help in obtaining a welfare improvement if externalites exist?

A. pigouvian taxes
B. regulation
C. assigning property rights and permitting bargaining
D. all of the above
Answer» E.
Discussion
99.

Public goods can be

A. provided privately.
B. provided publicly.
C. subject to free rider problems.
D. all of the above.
Answer» E.
Discussion
100.

Market mechanisms are unlikely to provide

A. prices.
B. nonrival goods efficiently.
C. supply and demand.
D. none of the above.
Answer» C. supply and demand.
Discussion