People will consistently sit through terrible movies at the theater instead of leaving early. This behavior makes no sense because it implies people are:
A. not thinking at the margin, which is rational.
B. thinking at the margin, instead of focusing on sunk costs.
C. ignoring sunk costs, which is irrational.
D. focusing on sunk costs, instead of thinking at the margin.
Answer: D
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Explain whether you agree or disagree with the following statement: "The reason that inflation is bad is because it increases the cost of living—the costs of goods and services we buy—without increasing income in general."
What will be an ideal response?
You are the mayor of your home town, and one day you arrive at city hall to find angry voters demonstrating against you. They are mad because your office created a garbage-collection monopoly by awarding only one company a permit to collect garbage in
your town. The voters claim that the company is overcharging and providing poor service. They want you to do something that will lower rates and improve service. You call your staff economist, who presents evidence that there are substantial economies of scale to garbage collection. What are your options if you are interested in efficiency?
An unfavorable balance of trade occurs when
a. value of exports equals the value of imports b. the balance of payments is balanced c. the current and capital accounts in the balance of payments are equal d. the value of exports exceeds the value of imports e. the value of exports is less than the value of imports
The random walk theory implies that stock prices
a. go down, then up, and then down again. b. go up and then down in a predictable pattern. c. follow systematic trends. d. are unpredictable based on past trends.