ECON1006 THE ECONOMICS OF EVERYTHING 2018
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INSTRUCTIONS FOR MIDTERM EXAM & PRACTICE QUESTIONS
ECON1006
THE ECONOMICS OF EVERYTHING
2018
Section A: Multiple Choice: 24 Points
There are 24 Questions. Each question is worth 1 point. Choose the best response.
5 Practice Multiple Choice Questions
1) The difference between a Positive Statement and a Normative Statement can best be described
as:
a) A normative statement makes a prediction regarding how a change in one variable affects another variable, while a positive statement also examines the potential effects on many other variables
b) A positive statement makes a prediction regarding how a change in one variable affects another variable, while a normative statement also examines the potential effects on many other variables
c) A positive statement makes a prediction regarding how a change in one variable affects another variable, while a normative statement makes a judgement about whether that change is good or bad for society
d) A normative statement makes a prediction regarding how a change in one variable affects another variable, while a positive statement makes a judgement about whether that change is good or bad for society
2) Suzie spends her Thursday afternoon sleeping. If she had not slept, she would have read a book. Her third preferred choice would have been to chat with her housemate. Which statement is true?
a) The opportunity cost of sleeping is not reading the book and not chatting to her housemate.
b) The opportunity cost of sleeping is not reading the book, minus the benefit of chatting to her housemate.
c) The opportunity cost of sleeping is not chatting to her housemate.
d) The opportunity cost of sleeping is not reading the book.
3) Using the supply and demand analysis, possible reason(s) why there is a rising skill differentials in earning among industrial economies is:
a) A supply shift in which employment of less skilled increased relative to highly skilled.
b) A demand-side story in which there was a growing employment share of highly skilled. This suggests that both demand and supply of university educated has been shifting to the right, with the demand for skill growing faster than supply.
c) A possible decrease in demand for unskilled labour.
d) Both b and c.
4) Which of the following would be included in the social cost of someone having a party at a private residence?
a) The cost of the food and drinks for guests at the party.
b) The noise that is created at the party, which impacts neighbours in a negative way.
c) The clean-up costs that are incurred by the host of the party.
d) None of the above.
5) If Altruism is only pure then, according to Andreoni:
a) A donor is willing to act in the consideration of the interest of other persons, without the need of ulterior motives.
b) All else equal, you prefer others to give than you.
c) Government provision of charity would reduce private giving.
d) All of the above.
Section B: Short Answer: 28 Points
Answers should be brief (1-4 sentences) and no longer than the space provided
2 Practice Short-Answer
1) (5 points): Studies find that someone who has spent time in prison is much more likely to be re- incarcerated than someone who has not, even after controlling for age, gender and years of schooling. Briefly discuss whether this evidence suggests that time spent in prison increases the likelihood of future criminal activity using economic analyses.
ANSWER: The evidence suggests that spending time in prison could increase the likelihood of future criminal activity. This is possible if while in prison inmates learn from other prisoners more about how to commit crime, or because while in prison they are not learning any skills they could be useful outside of prison. This is the Human Capital Formation Effect. It is also possible that time spent in prison, no matter what is done in prison, would result in scarring prisoners from getting a job because employers would think they will be less able or more risky to hire. This is the Scarring Effect. However, time spent in prison might have no effect whatsoever, and it could simply be that people who spend time in prison have different characteristics than others (e.g., like risks, do not mind prison, etc.) and thus time in prison has no causal effect of future criminal activity.
2) (4 Points) Richard Titmuss (1970), as discussed in our class lecture, argued that blood donations should be voluntary since paying people for blood donations would lead to fewer donations. Briefly explain his rationale for coming to this conclusion.
ANSWER: Titmuss believed that the main motive for donating blood was altruism (and being good moral citizens). With a payment system, donating blood would no longer be seen as altruistic, and, without the altruism motive, donations would not be done as much since there would be less reason to help. In addition, paying people for blood donations would corrupt moral values and attract risky donors.
2022-09-07