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1) Which of the following is true of equilibrium?

A)Equilibrium refers to a situation where the government allocates resources among economic agents.

B) Equilibrium refers to a situation where an economic agent can be made better off without making anyone

else worse off.

C)Equilibrium refers to a situation where all econom

ic agents simultaneously optimize after considering

each other’s actions.

D)Equilibrium refers to a situation where all economic agents are making sub-optimal choices and have an

incentive to change behavior.

2. Which of the following is an example of

comparative statics?

A)The estimation of the quantity demanded of a good when its price is $5.

B)The estimation of the demand for a particular good when consumer income is $10.

C)The estimation of the ideal number of workers a firm should hire, when wage rate is $20 per hour.

D)The estimation of the supply of a good when the wage rate of labor changes from $30 to $10 per hour.

3.Which of the following is an example of a natural experiment?

A) A research on the effectiveness of a new medicine among some voluntary participants.

B) A laboratory research on the effectiveness of solar power as an alternative source of fuel.

C) A study on the benefits of regular exercise by paying for the membership fe

es at fitness clubs for one-half of the participants.

D) A research on the effect of air pollution on lung disorders by observing the health conditions of people

who stay close to industrial areas and those who stay away from industries.

4.Which of the following is NOT a step involved in optimization in levels?

A)Calculating the total net benefit of each alternative.

B) Choosing the alternative with the highest net benefit.

C) Calculating the marginal consequences of moving between alternatives.

D) Converting all

costs and benefits into a common value of measurement.

5. Assume that an individual has to decide between a 2-day vacation and a 3-day vacation to the same place.If he uses optimization using marginal analysis, he will ________.

A)only think about the net

benefits of the extra day

B)compare the total net benefits of both alternatives

C)spend more time to make a decision than he would had he used optimization using total value

D)choose the 3-day vacation only if the costs incurred on the third day exceed the benefits he receives

6.Which of the following is an example of marginal analysis?

A)To determine the optimal number of workers, a firm calculates the net benefits of hiring an

extra worker.

B) To determine the optimal amount of fertilizer to be used, a farmer calculates the total benefits of using a

given amount of fertilizer.

C) To choose the optimal apartment to rent, an individual estimates the net benefits of renting an apartmentclose to his place of work.

D)To determine the optimal output that a firm should sell, the manager calculates the total revenue earned

by selling different levels of output

Answer 1

Answer 1:Option C.

Equilibrium refers to a situation where all economic agents simultaneously optimize after considering each other's action. In equilibrium , government does not interfere, it is equilibrium achieved through free markets.Also, in equilibrium no body can be made better off without reducing welfare of another person. Economic agents make optimal choices and have no incentive to change their behavior.

Answer 2: Option D.

Comparative statistics in economics refers to the comparison of two different situations before and after change in the exogenous variable. In the above examples. Option D is correct because it compares the supply of the good with two different wage rates.

Answer 3: Option D.

Natural experiment refers to the study or observation where there are control and treatment variables. In option D, the experiment is carried out on two groups- One staying close to industries and other staying far from industries and thus this is an example of natural experiment.

Answer 4:Option C.

Calculating marginal consequences of moving between experiments is not a step involved in optimization in levels.