BSNS 113 Midterm Exam New Latest Version Best Studying
Material with All Questions from Actual Past Exam and
Correct Answer
Which of the following is NOT an example of an externality?
a) The noise from the pub over the road keeps you awake at night
b) Your neighbour plants some flowers in their garden improving the view from your flat.
c) Your neighbour plants a tree which reduces the amount of sunlight you get in your bedroom
d) The price of petrol increases, so you drive your car less ----------- Correct Answer ----------- d)
The price of petrol increases, so you drive your car less
If you want to incentivize people to not consume petrol, would it be better if petrol had an
inelastic or elastic demand curve ----------- Correct Answer ----------- Elastic Demand curve
If you want to incentivize people to not consume petrol, would it be better if petrol had high or
low PEOD? ----------- Correct Answer ----------- High PEOD :)
What is the Horizontal interpretation of the Supply curve? ----------- Correct Answer -----------
The number of units that suppliers in the market would sell at any given price
What is the Vertical Interpretation of the Supply curve? ----------- Correct Answer ----------- The
supply curve plots in increasing order; the minimum someone among the suppliers is willing to
accept (or willingness to sell) for each unit of the good
What is the formula for calculating producer and consumer surplus? ----------- Correct Answer --
--------- Area of a triangle: 1/2 x base x height
Why is Total Surplus maximised at equilibrium? ----------- Correct Answer ----------- At a
quantity (Q) greater than equilibrium, marginal cost (MC) is greater than marginal benefit
(MB)/marginal value (MV), so society as a whole (sellers and buyers combined) would be better
off with a lower Q.
AND
At a quantity (Q) traded less than equilibrium, MB(MV) is greater than MC, so society as a
whole (sellers and buyers combined) would be better off with a higher Q
What is 3 things a competitive market does at equilibrium? ----------- Correct Answer -----------
1) Allocates product to those consumers with the highest willingness to pay
2) Supplied by those sellers with the lowest opportunity cost of production
3) Is at the surplus-maximising output level
In the example of the Israeli day care, why did the fine not create an incentive to pick your kids
up on time? ----------- Correct Answer ----------- This is because for the parents, the fine
removed the guilt. Parents felt justified to pick their kids up later.
Why do we need a control group when conducting research? ----------- Correct Answer -----------
,This is because in some instances there might be a shift in results for other reasons
In Uri Gneezy's research, after the fines at daycares were taken away, what did he find happened
at those daycares where there were fines? ----------- Correct Answer ----------- The time that
parents were picking up their children from daycare continued to be the same level of lateness as
when the fines were imposed.
Define Extrinsic motivation ----------- Correct Answer ----------- Doing something for external
reward or to avoid negative consequences
Define Intrinsic Motivation ----------- Correct Answer ----------- Doing something because you
want to (or think it the right thing to do)
Why might paying people to donate blood decrease the amount of people who actually donate
blood? (answer with reference to intrinsic and extrinsic motivations) ----------- Correct Answer --
--------- This is because people donate blood for intrinsic reasons (they feel good about it), so
donating blood for money makes them feel as if they aren't doing as great of a service anymore
(becomes an extrinsic motivation).
What is the idea behind 'Status-Quo bias'? ----------- Correct Answer ----------- People often stick
with the default option (i.e. the status quo), even when the transactions cost involved in changing
is minimal
What is the use of status-quo bias for governments? ----------- Correct Answer ----------- The
existence of status quo bias can mean governments can "nudge" people towards doing things the
governments thinks are good
Imagine the government wants to encourage people to save for their retirement, but does not
want to make this compulsory. How might they achieve this? ----------- Correct Answer -----------
The government does this by automatically enrolling people in Kiwisaver, but it is not
compulsory because you can phone and opt out, but because of status quo bias people never get
around to opting out
Imagine SKY TV want to encourage existing customers to subscribe to additional channels, what
could they do? ----------- Correct Answer ----------- They could offer you the new channel for the
1st month, but after that you pay $10 a month; and if you don't want the channel after 1 month
you have to ring up and cancel.
Procrastination definition ----------- Correct Answer ----------- putting off unpleasant tasks, in a
time inconsistent manner
What do Commitment Devices? ----------- Correct Answer ----------- Something to force them to
behave now as their future self would want them to
What is total revenue? ----------- Correct Answer ----------- the amount a firm receives for it's
sale of output.
,What is total costs? ----------- Correct Answer ----------- the amount a firm pays for inputs into
production.
What is the equation for profit? ----------- Correct Answer ----------- TR - TC
What types of cost does Economic profit take into account? ----------- Correct Answer -----------
Both explicit and implicit (opportunity costs)
Define explicit costs ----------- Correct Answer ----------- Input costs that require a direct outlay
of money by the firm (resources you use and pay for with money).
Define implicit costs ----------- Correct Answer ----------- Input costs that do not require an
outlay of money by the firm (resources you use but do not pay for with money)
Is interest on a bank loan an implicit or explicit cost ----------- Correct Answer ----------- Explicit
When you purchase a machine, is interest foregone on savings an explicit or implicit cost? -------
---- Correct Answer ----------- Implicit, it the interest you could have earned if you had chosen to
save the money
Is the wage an entrepreneur could have earned as a cleaner an implicit or explicit cost? -----------
Correct Answer ----------- Implicit
What are the 4 production factors? ----------- Correct Answer ----------- K: produced inputs, such
as a factory, equipment, etc.
L: labour
N: natural resources or raw materials
f: 'function of' represents the state of technology
What are the 3 production inputs? ----------- Correct Answer ----------- K: produced inputs, such
as a factory, equipment, etc.
L: labour
N: natural resources or raw materials
What does a production function show? ----------- Correct Answer ----------- It shows the
relationship between the quantity of inputs used to make a good and the quantity of output of that
good.
Define the short run ----------- Correct Answer ----------- Sufficiently short so that at least one
input cannot be varied
Define the Long run ----------- Correct Answer ----------- Sufficiently long so that all inputs can
be varied
Define the Very long run ----------- Correct Answer ----------- Sufficiently long that the technical
, relationship/state of technology (f)changes.
Define Marginal Product ----------- Correct Answer ----------- The marginal product of any input
in the production process is the increase in output that arises from an additional unit of that input.
Define Diminishing marginal return ----------- Correct Answer ----------- The marginal product
of an input declines as the quantity of the input increases
Why might we not see diminishing marginal return/product immediately? ----------- Correct
Answer ----------- gains from specialisation for small output, and
diminishing marginal product is usually for large outputs
What is the law of diminishing marginal return/product? ----------- Correct Answer -----------
The marginal product of an input declines as the quantity of the input increases.
What does the Total cost curve show? ----------- Correct Answer ----------- The relationship
between the quantity a firm can produce and its total costs.
Why does a Total cost curve and a Variable cost curve get steeper? ----------- Correct Answer ----
------- The reason that the cost curve gets steeper is because each extra unit of production costs
more to get.
Define Fixed Costs ----------- Correct Answer ----------- Cost that does not vary with the quantity
of output produced.
Define Variable costs ----------- Correct Answer ----------- Costs that change depending on the
quantity produced.
Total Cost Formula? ----------- Correct Answer ----------- TC = FC + VC
Economics Definition ----------- Correct Answer ----------- Economics is the study of the systems
societies use to allocate scarce resources to the production of goods and services and to distribute
them to consumers.
The 3 Economic Questions ----------- Correct Answer ----------- 1) WHAT: what goods and
services should be produced (and in what quantity)?
2) HOW: How should they be produced (including who does what)?
3) WHO: Who gets to consume these goods?
Scarcity definition ----------- Correct Answer ----------- Scarcity is where there is not enough of
it to satisfy everyone at zero price
Microeconomics Definition ----------- Correct Answer ----------- The study of how households
and firms make decisions and how they interact on individual markets
Macroeconomics Definition ----------- Correct Answer ----------- The study of economy-wide
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