Assume that an analyst at a leading business daily observes an increase in productivity across industries which announced healthy annual bonus for their employees. This leads him to conclude that productivity is directly related to the incentive scheme followed by companies. The analyst however ignored the increase in capital per worker ratio and other technological developments in these companies which also affected productivity. This error in reasoning is related to:
a. bounded rationality.
b. selection bias.
c. representative heuristics.
d. availability heuristics.
QUESTION 2If a consumer purchases only two goods, X and Y, and if (MUx / Px) = (MUy / Py), then the consumer cannot reallocate her expenditures on X and Y to increase her utility unless she has more money to spend.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 3How long does it take a firm to get to the long run?
a. one week
b. one month
c. one year
d. it depends on the firm--some firms may be less than a year, some more.
QUESTION 4Bonds and stocks act as complementary goods such that a rise in the price of one raises the demand for the other.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 5Suppose a social activist collecting information on the level of air pollutants in sparsely populated regions concludes that pollution levels are positively related to population. Since her sample set is restricted only to sparsely populated regions her outcome would be erroneous due to:
a. recognition heuristic.
b. availability heuristic.
c. representative heuristic.
d. selection bias.
QUESTION 6Suppose that apples and bananas both cost the same, but the marginal utility of bananas is twice as high as that for apples. The consumer should purchase more bananas and fewer apples in order to maximize utility.
a. True
b. False
Indicate whether the statement is true or false
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