Suppose a binding price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia?
A) Consumer surplus will increase.
B) Producer surplus will increase.
C) Deadweight loss will increase.
D) Market efficiency will increase.
Answer: C
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In a competitive market, a negative externality creates a deadweight loss because
A) the cost of the externality is double counted. B) a harm is generated. C) price equals social marginal cost. D) price equals private marginal cost.
Which of the following is a drawback of including proxy variables in a regression model?
A. It leads to misspecification analysis. B. It reduces the error variance. C. It increases the error variance. D. It exacerbates multicollinearity.
The life insurance industry is an example of an industry with imperfect information.
Answer the following statement true (T) or false (F)
Bank of the Gulf has a required reserve ratio of 10 percent. It receives $180,000 in new deposits and then loans the excess reserves from this deposit to Kayla, who is building a new greenhouse. Kayla deposits the money into her checking account at Vulcan Bank until she needs it. How much money has Bank of the Gulf created?
a. $162,000 b. $18,000 c. $324,000 d. $180,000