Question

1. In the decision of how many workers to hire, economic models assume firms are trying to…

Select one:

a. Do what is best for their community

b. Maximize the number of jobs they can create

c. Minimize the number of workers and maximize the amount of capital

d. Maximize their profits

2. An example of a public good would be:

Select one:

a. Automobiles

b. Housing

c. Military protection

d. College

3. An externality occurs when:

Select one:

a. There is some spillover benefit or cost that affects someone other than the buyer or seller

b. There is a price ceiling placed in a market

c. There is a tax placed on the seller in a market

d. There a good that is produced by the government

4. According to the work of Nobel Prize winner Elinor Ostrom:

Select one:

a. Government intervention in the form of regulation (command and control) is the only way to overcome the tragedy of the commons

b. There is no way to prevent a tragedy of the commons as both voluntary cooperation and government regulation will ultimately fail

c. All goods need to be privatized (sold in private markets) for them to be efficiently produced.

d. In the right setting, social norms can maintain private voluntary cooperation and prevent issues like the tragedy of the commons and free rider problem

Answer 1

1. Option A is correct. An economic model makes predictions about economic behavior under the assumption that agents maximize specific objectives subject to constraints that are well defined in the model.

2. Option C is correct. A public good is a commodity or service that is provided without profit to all members of a society, either by the government or by a private individual or organization.

3. Option A is correct.  An externality is a cost or benefit that affects the third party who did not choose to incur that cost or benefit in the economy.

4. Option C is correct. Elinor Ostrom by conducting field studies on how people in small, local communities manage shared natural resources, such as pastures, fishing waters, and forests. She showed that when natural resources are jointly managed by their users, in time, rules are established for how these are to be used and cared in a way that is both economically and ecologically sustainable.