1

1Chapter 1 What Do Schoolteachers and Sumo Wrestlers Have in Common?

I. Multiple-Choice Questions

1. Which of the following statements best captures the essence of economic analysis?

a) b) c) d)

No pain, no gain. Everything has a price. Incentives matter. Scarcity is only relative.

Correct Answer: C
2. Which of the following is not an example of an economic incentive?

a) A factory is required to pay a fine for each unit of pollution it produces in excess of the legal limit. b) A tax is imposed on each bottle of French wine imported into the country. c) A jewelry salesman is paid on commission. d) Posting the pictures of convicted prostitutes on the Internet. Correct Answer: D
3. According to the example in the text, when a monetary fine was imposed for picking up ones child late at a day care center, the number of late pickups actually rose. Which of the following correctly explains this behavior?

a) The monetary fine was less than the moral cost the tardy parent incurred when there was no fine. b) The monetary cost of the fine was greater than the opportunity cost of being on time. c) The marginal benefit from being on time exceeded the marginal cost. d) The marginal cost of being late was zero. Correct Answer: A
4. In which of the following situations would a moral incentive more likely be effective than a modest economic incentive?

a) Someone is considering letting the time on a parking meter expire. b) A politician is considering having an illicit affair. c) An employee is considering embezzling a small amount of money from the place where she works. d) Someone is considering driving while under the influence of alcohol. Correct Answer: B

2
5. Which of the following explains why people are willing to give more blood when there is only a moral incentive than when they are offered a small amount of cash (an economic incentive)?

a) The value of the moral incentive (praise for their kind-hearted act) is greater than the value of the economic incentive. b) The value of the moral incentive (praise for their kind-hearted act) is equal to the value of the economic incentive. c) The value of the moral incentive (praise for their kind-hearted act) is less than the value of the economic incentive. d) None of the above. Correct Answer: A
6. From an economic perspective, the incentive to cheat will be greatest when:

a) b) c) d)

the total benefits are as large as possible. the expected benefits exceed the expected costs by the greatest amount. the marginal expected costs of cheating are zero. the cheater thinks he is unlikely to get caught.

Correct Answer: B
7. Some school teachers cheat because:

a) b) c) d)

high-stakes testing encourages them to cheat. they believe that the No Child Left Behind law is an unfair law. incentives are set up to reward teachers for improving their students test scores. all of the above.

Correct Answer: D
8. Which of the following incentives associated with high-stakes testing would contribute most to a students learning?

a) b) c) d)

The incentive for the teacher to alter student responses on exams. The incentive for teachers to focus on students who dont test well. The incentive for teachers to teach to the exam. The incentive students have to study harder.

Correct Answer: D
9. From a teachers perspective, the knowledge that teacher cheating is rarely looked for and hardly ever punished has the effect of:

a) b) c) d)

reducing the expected cost of cheating. increasing the economic benefits of cheating. increasing the moral benefits of cheating. reducing the net benefits of cheating.

Correct Answer: A

10.

Assume 50 students take the same multiple-choice exam. Which of the following would be least likely to suggest some form of cheating took place?

a) b) c)

Every student gets the last seven questions correct. The good students all get the same set of six hard questions correct. The poor students get the same five hard questions correct and four other easy questions wrong. The poor students get an average of four of the first five questions, which are easy, correct.

d)

Correct Answer: D

11.

Which of the following is not a distinguishing characteristic of the typical teacher who was caught cheating in the Chicago school system?

a) b) c) d)

The person was teaching in one of the lowest scoring classrooms. Someone who began teaching in the system before 1996. The teacher was a male. The teacher was young and less qualified than average.

Correct Answer: C
12. Its difficult to document cheating among sumo wrestlers in Japan because:

a) b) c) d)

sumo wrestling is a Japanese sport associated with the civility and honor of Japan. there is very little cheating among sumo wrestlers. it is difficult to find quantitative methods to analyze sumo wrestling. there are no data retained for sumo wrestling matches after the event is completed.

Correct Answer: A
13. A sumo wrestler has the greatest incentive to cheat during a tournament when:

a) b) c) d)

he has eight consecutive losses. his opponent has more wins than he does. he is on the bubble, i.e., when he has 7 wins and 7 losses. his losses exceed his wins.

Correct Answer: C
14. In which of the following scenarios would cheating in a sumo match be most likely to occur?

a) b) c) d)

Wrestler A has a 6-8 record and wrestler B has an 8-6 record. Wrestler A has a 7-7 record and wrestler B has a 10-4 record. Wrestler A has an 8-6 record and wrestler B has a 7-7 record. Wrestler A has a 7-7 record and wrestler B has a 7-7 record.

Correct Answer: C
15. Referring to the previous question, cheating most likely occurs in the scenario you selected because:

a) b) c) d)

the gains to the winner outweigh the losses to the loser by the greatest amount. the marginal gains and losses are equal. the combined total benefits are greatest. the combined total losses are lowest.

Correct Answer: A
16. What incentive would a sumo wrestler with a winning record in a tournament have to help an opponent who is on the bubble?

a) b) c) d)

The good feeling he gets from helping his fellow man, i.e., a moral incentive. The knowledge that the opponent would do the same thing for him in the next tournament, which translates into one less win he has worry about the next time around. By losing an occasional match, the wrestler with the winning record can lull future opponents into believing that he is not that good. A sumo wrestler with a winning record in a tournament has no incentive to help an opponent who is on the bubble.

Correct Answer: B
17. Which of the following characteristics distinguishes white-collar crime from street crime?

a) b) c) d)

There are no good data on white collar crime. Only a very small fraction of white-collar criminals are caught. There is frequently no obvious victim in the case of white-collar crime. All of the above.

Correct Answer: D
18. Using economic principles, how can we explain why a particular individual would be more likely to steal from someone they dont know than they would be to steal from someone they know and like?

a) b) c) d)

The cost the thief incurs stealing from the friend is greater than the cost he incurs stealing from the stranger. The marginal cost the thief incurs stealing from the friend is less than the marginal cost he incurs stealing from the stranger. The benefit the thief incurs stealing from the friend is greater than the benefit he incurs stealing from the stranger. There is no difference. Someone who steals is just likely to steal from one person as another, regardless of whether they know and like the person.

5
Correct Answer: A
19. In the course of analyzing the data from his bagel business, Paul Feldman discovered that executives at one business were more likely than the lower level administrators to cheat. This suggests that:

a) b) c) d)

the argument that as income increases so does willingness to pay is wrong. executives are more likely to be criminals, all else constant. willingness to pay is determined by more than simply ones income level. executives get promoted to their current position precisely because they are willing to cheat to get what they want.

Correct Answer: C
20. Based on Paul Feldmans honor-system bagel business, what can we reasonably conclude about the honesty of people?

a) b) c) d)

Most people are honest most of the time. Almost all people are honest all of the time. Most people are dishonest most of the time. Almost all people are dishonest some of the time.

Correct Answer: A
21. How a real estate agent, an automobile mechanic or any other subject matter expert treats his or her clients depends primarily on:

a) b) c) d)

how much the expert is paid for his or her services. how the experts incentives are aligned. whether the profession is regulated by the government. the degree to which a personal relationship has evolved between the expert and the client.

Correct Answer: B II. Short Answer/Essay Questions

1. Briefly describe what we mean by the word incentive as it is used in economic analysis. Give examples to illustrate your answer.

Suggested Answer: An incentive is a device designed to try to get people to do more of a good thing or less of a bad thing. For example, bonuses are sometimes paid to employees as a means to encourage them to be more productive (a good thing). In other cases, we use fines to discourage such behaviors as illegal parking (a bad thing).
2. How does a moral incentive differ from an economic incentive?

6
Suggested Answer: A moral incentive appeals to ones conscience while an economic incentive appeals to ones financial or economic well being.
3. Referring to the example in the book regarding the day-care center and the problem of parents picking up their children late, why did charging a fee to parents for picking up children late cause parental tardiness to increase?

Suggested Answer: Charging a fee for tardiness had the effect of replacing a moral incentive, i.e., its not polite to be late, with a small economic incentive, i.e., a fine. In effect, the fee (fine) placed a price on being late. Because the fee was relatively low, and obviously lower than the cost incurred when the parent was considered impolite, more parents were willing to pay it.
4. According to Freakonomics, economics is the study of incentives. Explain this statement.

Suggested Answer: Economists study, among other things, the choices people, e.g., consumers and firms, make. They make these choices based on the incentives they face. Therefore, to understand incentives is to better understand an individuals choices.
5. Does a string of correct answers on a test, duplicated by several students in the same class, prove the teacher is cheating? Why or why not?

Suggested Answer: No. A string of the same answers may be evidence of a cheating teacher, but not proof. There are other possible explanations for this. For example, it could simply be coincidence. Alternatively, it could be that all of the questions involved are easy and the students are all exceptionally bright.
6. Why did some Chicago public school teachers cheat to increase their students test scores?

Suggested Answer: Teachers are rewarded or punished depending on how their students perform on standardized tests. This reward/punishment structure in turn created incentives for teachers to cheat. Some teachers responded to those incentives by cheating. Others did not.
7. Briefly, how did Levitt arrive at the conclusion that some sumo wrestlers were cheating?

Suggested Answer: Given an individual wrestlers records, he predicted whether the wrestler would win the next match. He did this for wrestlers who were on the bubble. He concluded that cheating was likely when a wrestler won with significantly greater frequency than his record would indicate.
8. Explain, using economic principles, why Levitt expected cheating to be more likely when a wrestler on the bubble, i.e., with a 7-7 record, was competing against a wrestler with an 8-6 record than when the same wrestler was competing with someone with a 10-4 record.

7
Suggested Answer: To answer this, we need to consider benefits and costs. The benefits to the wrestler on the bubble are obvious. An eighth win would ensure that he would not drop in the standings. For the 8-6 wrestler, the cost of losing would be minimal because his ranking would not drop, while winning probably would not move him up. However, the cost of not winning is much higher for the 10-4 wrestler because he has a good chance of winning the tournament with an 11-4 record or at least getting a substantial bonus. Thus, in the first case, the combined benefits of cheating outweigh the combined costs, while in the second case just the reverse is true.
9. Referring to Paul Feldmans bagel business, use economic principles to explain why cheating would be more likely in an office with a few hundred employees than it would be in an office with a few dozen employees.

Suggested Answer: In this case, the benefits from cheating are the same in both cases, i.e., a free bagel, so we need to focus on the expected costs of cheating. Consider first the likelihood that someone who cheats will get caught. With so many hands reaching for bagels and dropping money in the box, it is harder to detect an individual who does the former, but not the latter, than it would be when there are only a few employees present. Hence, the probability of getting caught is likely lower in the large office than it is in the small office. Second, the cost of getting caught is greater the fewer the number of employees because of the social costs that come with getting caught, i.e., the shame factor. Fellow employees are more likely to know the thief in the small office than in the large office. These two factors combine to reduce the costs of cheating in the large office compared to the small office, with the result that the net benefits from cheating in the large office are greater.

Chapter 2 How Is the Ku Klux Klan Like a Group of Real-Estate Agents?

I. Multiple-Choice Questions

1. The Ku Klux Klans goals were largely achieved by:

a) b) c) d)

intimidation and violence. the movement of blacks to northern industrial cities. the use of secretive methods. Jim Crow laws passed in southern states.

Correct Answer: A
2 In which of the following cases did the U.S. Supreme Court essentially approve racial segregation?

a) Brown v. Board of Education. b) Roe v. Wade.

8
c) Plessy v. Ferguson. d) Gore v. Florida. Correct Answer: C
3. All of the following are reasonable economic interpretations of the Ku Klux Klans efforts to oppress black citizens except:

a) Terrorist actions directed at liberal whites were intended to increase the costs liberal whites incurred relative to the benefits they derived from assisting blacks. b) Terrorist actions directed at blacks and whites were intended to ensure that blacks acquired additional rights only so long as the benefits of doing so exceeded the costs incurred. c) Terrorist actions directed at blacks were intended to increase the costs they incurred relative to the benefits they derived from acquiring such rights as the vote and the ability to acquire land. d) Terrorist actions directed at blacks and liberal whites substantially increased the costs blacks incurred in their efforts to secure basic rights. Correct Answer: B
4. Which of the following pieces of information had its greatest value to the Ku Klux Klan by being made public?

a) b) c) d)

Its secret passwords. Its special language. Its secret handshake. The fact that the Klan and law enforcement in Georgia were brothers in arms.

Correct Answer: D
5. Stetson Kennedy exposed secrets of the Ku Klux Klan by:

a) b) c) d)

publishing its secrets in the newspaper. writing the book: The Fiery Cross. exposing its secrets on a nation-wide radio show. telling children in Atlanta, Georgia how to make a game of it.

Correct Answer: C

6. So long as the Ku Klux Klan possessed an informational advantage regarding its terrorist activities, it was able to effectively limit the extent to which blacks exercised their basic rights because:

a) b) c) d)

the perceived costs of doing so frequently exceeded the benefits. the actual costs of doing so exceeded the expected benefits. the expected benefits of doing so were always zero. the benefits of doing so were always zero.

9
Correct Answer: A
7. Which of the following statements best explains how Stetson Kennedys efforts contributed to the Klans demise?

a) By revealing many of its closely guarded secrets, Kennedy was able to eliminate the Klans informational advantage. b) By infiltrating the Klan, Kennedy was able help the police identify and arrest the Klans leaders. c) By infiltrating the Klan, Kennedy was then able to embezzle almost all of the Klans operating funds. d) Kennedy singled-handedly arrested all of the Klans top officers. Correct Answer: A
8. As the data clearly show, lynchings of blacks were much less common than usually thought. What then explains the Ku Klux Klans continuing ability to influence the behavior of blacks, and those who tried to help them, for so long?

a) The fact that the Klan was everywhere. b) The Klans informational advantage. It knew when and where it might strike. The average citizen did not. c) The Klans continuing ability to evade the efforts of law enforcement officials through the use of secret codes. d) The Klan possessed superior fire power. Correct Answer: B
9. Which of the following best explains how Stetson Kennedys ability to reveal the Ku Klux Klans secret information led to its demise?

a) The costs the Klan would incur to create new secret codes exceeded the benefits of doing so. b) For individual members, the marginal benefits of membership exceeded the marginal costs. c) From the organizations perspective, the benefits of terrorizing blacks and others fell to zero. d) For individual members, the costs of being identified as a member exceeded the benefits derived from membership. Correct Answer: D
10. Which of the following statements is correct?

a) Because the reproduction of information is essentially costless, its marginal value is zero. b) Information only has value if everyone possesses it. c) Simply put, the possession of specific information gives the party who has it a competitive advantage. d) There is no well-established relationship between information and market power. Correct Answer: C

10

11. The major similarity between the Ku Klux Klan and real estate agents is that:

a) b) c) d)

both groups best achieve their goals by possessing crucial information other parties do not. both groups use encrypted phrases they share only with the media. while both groups exhibit the image of high pay, they work for low wages. they have both organized groups in order to avoid getting an education.

Correct Answer: A
12. According to Freakonomics, a big part of a real estate agents job is:

a) b) c) d)

persuading the homeowner to sell for less than the house is worth. selling a house for the most money possible. persuading buyers and sellers to get the highest price possible as quickly as they can. being sensitive to the needs of his or her clients.

Correct Answer: A
13. Simply put, a real estate agent does not have an incentive to help someone selling his/her home get the highest price possible because, from the agents perspective:

a) b) c) d)

the marginal costs of doing so exceed the marginal benefits. the marginal benefits of doing so are zero. the marginal costs of doing so are infinite. the marginal benefits of doing so exceed the marginal costs.

Correct Answer: A
14. All else constant, as the commission a real estate agent receives for selling a house (measured as a percentage of the selling price) increases, the incentive to get the highest price possible will:

a) b) c) d)

increase. stay the same. decrease. cannot be determined with the information given.

Correct Answer: A

15. The Internet has caused the marginal cost of obtaining information to:

a) b) c) d)

increase. stay the same. decrease. cannot be determined with the information given.

Correct Answer: C

11

16. A new car loses so much of its value when it is sold because a potential buyer of the now used car cannot answer which of the following questions?

a) b) c) d)

What is the current market value of the car? Why is the owner selling it so soon? What did the current owner pay for the car when it was new? What is the cars likely value five years from now?

Correct Answer: B
17. Information asymmetry refers to the situation in which one party to a transaction:

a) b) c) d)

is smarter than the other party. knows everything and the other party knows nothing. has better information than the other party. knows only the benefits of the exchange while the other party knows only the costs.

Correct Answer: C
18. Subject matter experts abuse information by:

a) b) c) d)

publishing deceitful information in order to create conventional wisdom. withholding true information or editing the information they choose to put forth. telling outright lies since people without proper information cant tell anyway. telling potential competitors about your personal information.

Correct Answer: B
19. While subject matter experts are known to sometimes distort information, ordinary people:

a) b) c) d)

are more inclined to disclose the truth. have little incentive in their ordinary lives to alter the truth. are only slightly less informed than subject matter experts. are just as likely to abuse information in their personal lives.

Correct Answer: D
20. A real estate agent is willing to take a longer period of time to sell his/her own house than he/she would take to sell a clients house because the:

a) b) c) d)

marginal costs of waiting longer are less. marginal benefits of waiting longer are greater. total costs of waiting longer are less. net benefits of waiting longer are zero.

Correct Answer: B

12
21. Considering the relationship between the terminology used by real estate agents and the type of information about the value of a house that is actually being conveyed, which of the following terms would most likely be signaling a potential buyer to bid low?

a) b) c) d)

Stainless steel. Quaint styling. Hardwood floors. Solid oak.

Correct Answer: B
22. The situation in which one person discriminates against another simply because he prefers not to interact with that type of person is referred to as:

a) b) c) d)

taste-based discrimination. quasi-racial discrimination. information-based discrimination. ignorance-based discrimination.

Correct Answer: A
23. As the analysis of voting behavior of contestants on The Weakest Link demonstrates, discrimination by one party against another, either deliberately or subconsciously,

a) b) c) d)

can leave the discriminator worse off. can leave the discriminatee worse off. can leave society worse off. all of the above.

Correct Answer: D
24. The most certain way to fail on an Internet dating site is by:

a) b) c) d)

describing your self truthfully. being a low-income, poorly educated, unemployed, bald man. not posting a picture of your self. implying through your description that you are uneducated.

Correct Answer: C
25. Which of the following is the most reasonable summary of the information in this chapter?

a) Innovations such as the Internet have, to a large degree, eliminated significant information asymmetries. b) Anyone who possesses asymmetrical information is bound to exploit that information in immoral ways. c) Information asymmetries can convey considerable advantages to those who with information. The incentive to further distort such information to ones advantage is also often quite compelling.

13
d) Information relevant to a transaction is only valuable if one party to the transaction has it and the other party does not. Correct Answer: C II. Short Answer/Essay Questions
1. How did the exposure of the Ku Klux Klans secrets significantly diminish the Klans presence and influence in society?

Suggested Answer: The Klan had been powerful prior to the exposure of its secrets because it controlled information on when and where it would strike next. Not knowing who the next victim would be severely constrained the actions of most blacks and people who tried to help them who feared they could be the Klans next target. In addition, the Klan has been able to keep its illegal actions from having legal consequences. It was able to do this because the membership was loyal to the organization and had secret means of communicating. Without these secret means it was more likely that someone would expose the Klans illegal activities and individual members would have to bear the legal consequences of those activities.
2. Briefly evaluate the following statement indicating whether you agree or disagree with the statement and why. How a seller (or real estate agent) describes a house that is on the market is unimportant. Once the prospective buyers sees the house, they will make up their minds, regardless of what was written or said.

Suggested Answer: In determining the sales price or interest in a house, how it is described is very important. For the majority of prospective buyers this initial information is critical to their decision whether looking over a house is worth their time.
3. What does the exposure of secret or hard-to-find information do to the institution that had maintained that informational advantage? Give an example of where this has occurred in the past few years.

Suggested Answer: Once that information is made public, i.e., once the information asymmetry disappears, the advantage the institution had previously maintained is weakened or eliminated. This in turn makes the institution less powerful and less able to take advantage of the uninformed. The text cites the example of what happened to the price of term life insurance once pricing policies and prices offered by different companies were made available in one common location, i.e., the Internet. Almost immediately, the advantage individual firms had previously possessed relative to potential customers disappeared, causing prices to fall by a considerable amount.

4. Short of outright lying, how can an ordinary person abuse information? Give an example.

14
Suggested Answer: By withholding important information or by combining information in such a way that it tells a distorted tale. For example, the analysis of the Internet dating scene tell us that people tend to exaggerate their qualities to make themselves sound better than they really are.
5. In constructing the model of supply and demand and the model of perfect competition, it is assumed that buyers and sellers have perfect information. What happens to the outcome in a market, compared to the competitively determined outcome, when this assumption no longer holds?

Suggested Answer: When constructing the basic model of supply and demand, we assume perfect information on the part of both buyers and sellers. As such the demand curve represents the buyers true willingness and ability to pay. However, imperfect information limits the ability of buyers to determine their true willingness to pay. It also inhibits sellers, e.g., people selling a home, who fear they are not receiving the maximum possible price. The result is that, in certain situations, the item in question may not in fact go to the party who values it most. A less-thanefficient outcome results.

15

Chapter 3 Why Do Drug Dealers Still Live with Their Moms?

I. Multiple-Choice Questions

1. Freakonomics is based on all of the ideas below, except:

a) b) c) d)

economists often have a difficult time sorting out cause and effect relationships. incentives are the cornerstone of modern life. knowing what to measure and how to measure it makes a complicated world less so. the conventional wisdom is often wrong.

Correct Answer: A
2. According to Freakonomics, the conventional wisdom regarding the cause of or solution to a sticky social problem is often wrong because:

a) b) c) d)

political pundits and TV journalists are several steps away from real life. experts use information available to them to serve their own agenda. conventional wisdom is usually the first explanation for something and it tends to stick. people seldom use quantitative techniques to analyze social problems.

Correct Answer: B
3. According to John Kenneth Galbraith, conventional wisdom comes into existence because:

a) b) c) d)

its usually a good explanation of the way conditions really are. its derived from a close examination of the data. its simple, comfortable, and comforting. its created by people who have an interest in the explanations.

Correct Answer: C
4. All of the following are examples of conventional wisdom which is in fact wrong except:

a) b) c) d)

Dealing crack is highly profitable for everyone involved in the business. Forty-five homeless people die each second in the United States. Listerine can effectively fight bad breath. One in three women will be a victim of rape or attempted rape during their lifetime.

Correct Answer: C
5. A crack dealer has the image of one who has state of the art weapons and a bottomless supply of cash because:

a) on average, its a realistic description. b) self-interested police departments wanted to provide the public with an explanation of why the crack epidemic was so out of hand.

16
c) it began with a story in the New York Times written by a journalist who used fictitious sources. d) this is how a crack dealer is viewed by residences of the projects. Correct Answer: B

6. Viewed from the economists perspective, how would we explain J.T.s willingness to allow Vankatesh to embed himself in the branch of the Black Gangster Disciple Nation run by J.T.?

a) J.T. believed the benefits that might come from Vankateshs presence exceeded the costs that might be incurred. b) J.T. believed the costs of Vankateshs presence were zero. c) J.T. was grooming Vankatesh to take his place as leader of the gang. d) There is no way to explain J.T.s behavior in economic terms. Correct Answer: A
7. Analysis of its financial data revealed that the organizational structure of the Black Disciples was most similar to:

a) b) c) d)

a pharmacy. a McDonalds. an upside down pyramid. a well-run Protestant church.

Correct Answer: B
8. Based on the gangs financial records, which of the following statements is correct regarding the income earned by the Black Disciples?

a) b) c) d)

Income was fairly evenly distributed among the various employees. The top 25 percent of employees received slightly less than half of all employee income. The top 2.2 percent of employees received slightly more than half of all employee income. The top 2 percent of employees received slightly more than 90 percent of all employee income.

Correct Answer: C
9. Based on the gangs financial records, which of the following statements regarding the income earned by the Black Disciples is false?

a) b) c) d)

The average foot soldier earned about $3.30 per hour. The average officer earned about $7 per hour. The average rank-and-file member was paid nothing. None of the above.

17

Correct Answer: D
10. Most drug dealers live with their mothers because:

a) most of their mothers are poor and need help with expenses. b) regardless of the high incomes, the only emotional connection a dealer has is with his mother. c) drug dealers are afraid to show off their money for fear they will be investigated by the I.R.S. d) street dealers are willing to earn very little pay in exchange for the possibility of moving up in the organization. Correct Answer: D
11. Based on the available data, which of the following is the most dangerous job in the United States?

a) b) c) d)

Serving in the military. Working as a timber cutter. Working as a crack dealer in Chicago. Working as a police office in Detroit.

Correct Answer: C
12. What do crack dealers, aspiring actors, and college football players all have in common?

a) b) c) d)

So long as they work hard, they are all assured of making a great deal of money. Even among the lowest paid workers in each group, average wages are relatively high. The supply of workers is relatively low, while the demand for them is quite high. The potential financial rewards can be quite large, but the probability of success is rather small.

Correct Answer: D
13. Which of the following is not identified by Levitt and Dubner as one of the four meaningful factors that determine the wage rate for a particular job?

a) b) c) d)

The number of people willing and able to do the job. The prices paid to other factors of production. The specialized skills the job requires. The unpleasantness of the job.

Correct Answer: B
14. All else constant, as the number of people who are willing and able to do a particular job decreases, the wage workers receive for that job will:

a) increase. b) stay the same. c) decrease.

18
d) cannot be determined with the information given. Correct Answer: A
15. All else constant, which of the following would cause the wage paid for a particular job to increase?

a) b) c) d)

An increase in the number of people willing and able to do the job. A decrease in demand for the good the worker who does the job produces. An increase in the level of skill the job requires. A significant improvement in working conditions.

Correct Answer: C

16. As J.T.s experience with his foot soldiers when a turf war broke out demonstrates:

a) as the risk associated with a job increases, so does the wage workers must be paid. b) as the risk associated with a job increases, the wage workers must be paid goes down because the risk represents a side benefit to workers who love adventure. c) as the risk associated with a job increases, the wage workers must be paid depends on whether the wage is initially high or low. d) there is no connection between the of risk associated with a job and the wage workers must be paid. Correct Answer: A
17. Which of the following best describes the relationship between a drug gang leader and a street dealer?

a) There is no contact between the two so as to protect the leader from arrest. b) Just like a legal business; the leader and the street dealer work together to maximize the gangs profit. c) The incentives of the leader and the dealer are at odds with one another. d) All of the members of the gang are one big happy family. Correct Answer: C
18. Many people growing up on Chicagos South Side opted for a career in crack dealing in the 1990s because:

a) b) c) d)

it was the best job they had access to. anyone involved in the business was guaranteed to earn far more than the minimum wage. it was less risky than many other jobs that were available. there were considerable opportunities for advancement up through the ranks of the organization.

Correct Answer: A

19

19. From an economic perspective, what did crack cocaine have in common with nylon stockings?

a) b) c) d)

Both were made available to consumers at relatively low cost. They each had broad appeal among their target consumer group. Both were easy to produce in large scale quantities. All of the above.

Correct Answer: D
20. Which of the following most facilitated the expansion of the market for crack cocaine in the United States?

a) An increase in the demand for alternatives to cocaine, such as heroin and marijuana, which in turn caused the price of cocaine to fall. b) A dramatic increase in the supply of cocaine which drove down its price. c) The decriminalization of drugs in the United States. d) A large decrease in the supply of cocaine. Correct Answer: B

21. Crime, and especially gang-related crime, flourished in the 1970s largely because:

a) b) c) d)

legal jobs paid much less than drug dealing. the supply of potential criminals was very low. everyone involved in gang-related crime was becoming rich. the cost of committing crime, measured by the probability of capture and punishment, was so low.

Correct Answer: D
22. Which of the following best explains why crack dealers were able to sell so much crack for so long?

a) Because it was so cheap and addictive, viewed from the customers perspective there were few if any viable substitutes. b) The incomes of drug users, and hence demand for drugs, increased dramatically in the 1970s. c) Police departments avoided going after crack dealers and users for fear of being labeled as racists. d) The C.I.A was covertly supporting the dealers efforts. Correct Answer: A
23. Which of the following costs is attributable to the rise in the popularity and availability of crack cocaine?

20
a) b) c) d) A dramatic increase in black infant mortality in the 1980s. A widening of the performance gap between black and white schoolchildren. A tripling of the number of blacks who were sent to prison. All of the above.

Correct Answer: D
24. As the market for crack cocaine expanded, the number of dealers expanded dramatically as well. Assuming the quality of crack is relatively uniform across suppliers, as the number of suppliers increased relative to demand, we would predict that the profits of individual dealers would:

a) b) c) d)

increase. increase or stay the same. stay the same. decrease.

Correct Answer: D

II. Short Answer/Essay Questions

1. Define the term conventional wisdom. Use examples to illustrate your answer.

Suggested Answer: Conventional wisdom refers to the unquestioned belief most people use to explain a social or economic phenomenon. Alternatively, conventional wisdom can be used to refer to some set of facts about a particular situation that people conveniently assume are true. For example, it is commonly believed that people get involved in dealing drugs because it is highly profitable for everyone involved in dealing. As another example, many people believe that because the typical college professor only teaches 2-3 courses per week, he only works 6-9 hours per week.

2. According to Levitt and Dubner, the organizational structure of the Black Gangster Disciple Nation is extremely similar to that of McDonalds. Describe the relevant similarities between the two organizations and explain how the organizational structure affects the incentives workers at the lower levels face.

Suggested Answer: In each organization, relatively few employees have high-level jobs, but those who do are richly compensated. The vast majority of employees in both organizations are located at the bottom of the pyramid and make relatively low wages. However, the high wages paid to upper management in both organizations act as an incentive to make lower level employees work harder in hopes that they will be able to ascend the corporate ladder. That being said, relatively few employees are successful in the tournament and most never rise above their initial level of employment.

21
3. Briefly describe a tournament form of labor market.

Suggested Answer: A tournament form of labor market is a labor market in which there are many capable workers and only a few highly desirable jobs, i.e., the supply of workers exceeds demand. The few jobs pay very well. Therefore, it is like a tournament because only the winner gets the prize, though many compete.
4. List the four factors which, according to Levitt and Dubner, determine a wage. In addition, explain the effect each factor has the wage paid to a particular type of labor.

Suggested Answer: The four factors include (1) the number of people willing and able to do the job, (2) the specialized skills the job requires, (3) the unpleasantness of the job, and (4) the demand for the good or service the worker produces. All else constant, an increase in the number of people who are willing to do the job causes the wage rate to fall. In contrast, an increase in the specialized skills the job requires, the unpleasantness of the job, and the demand for the good or service the worker produces all cause the wage rate to increase.
5. Assume there is an increase in the demand for a service produced by a particular group of workers. All else constant, how should we expect this to affect the wage earned by those workers? Why?

Suggested Answer: An increase in demand for the service produced by a particular group of workers would cause the price paid for the service to increase (the increase in demand causes excess demand at the initial price, which in turn causes market price to increase). As the price of the service produced increases, so does the value of the workers output to the firm. This in turn makes the worker more valuable and the demand for workers increases, causing the wage to rise as well.
6. Graphically illustrate the effect the introduction of crack cocaine had on the market for the type of high offered by cocaine and similar drugs.

Suggested Answer: Assuming the demand and supply curves have the usual shape, the introduction of crack cocaine into the market would cause the supply curve to shift right, both because of an increase in the number of sellers of this type of high and because of the lower production costs associated with crack. The resulting excess supply at the initial equilibrium price causes market price to fall until equilibrium is reestablished in the market.

22

Chapter 4 Where Have All the Criminals Gone?

I. Multiple-Choice Questions

1. Which of the following was not part of Communist dictator Ceausescus strategy to modernize the Romanian economy?

a) b) c) d)

He favored manufacturing over agriculture. He set an example of self sacrifice for the rest of the population. He made abortion illegal. He used economic incentives (taxes) to encourage fertility among women.

Correct Answer: B
2. Economically, Ceausescus ban on abortion was intended to:

a) free up medical resources to provide alternative forms of health care. b) facilitate increased production in the agricultural sector of the economy. c) provide a source of increased demand for goods and services and hence, stimulate economic growth. d) increase the population and, consequently, the supply of labor. Correct Answer: D
3. One of the major consequences on Ceausescus ban on abortion and emphasis on increased fertility among women was:

a) a dramatic increase in the population and corresponding decrease in the standard of living for most Romanian citizens. b) a dramatic decrease in the population and corresponding increase in the standard of living for most Romanian citizens. c) a dramatic increase in the population and corresponding increase in the standard of living for most Romanian citizens. d) a dramatic decrease in the population and corresponding decrease in the standard of living for most Romanian citizens. Correct Answer: A
4. What do the overthrow of the Ceausescu regime and the decrease in crime in the United States in the 1990s have in common?

a) They were both the result of a dramatic increase in the level of unemployment in each country. b) They can both be explained, in large part, by abortion policies enacted in each country several years earlier. c) They both precipitated recessions in the respective countries. d) There is no reasonable explanation for either event. Correct Answer: B

23

5. Which of the following is not a possible economic explanation of how increased reliance on prisons leads to a decrease in crime?

a) As more criminals are put in jail, the supply of criminals, and therefore crime, decreases. b) As more criminals are put in jail, it causes the benefits from crime available to the criminals who remain on the street to increase. c) As the sentence a person receives for committing a crime increases, so does the cost of committing the crime. All else constant, this causes the efficient amount of crime to go down. d) Seeing other people put in jail reduces the incentive for would-be criminals to actually engage in crime. Correct Answer: B
6. Which of the following is not one of the frequently cited explanations for the decline in crime that occurred in the 1990s?

a) b) c) d)

The use of innovative policing strategies. Tougher gun control laws. Increased reliance on more lenient sentencing practices (i.e., less reliance on prisons). Changes in crack and other drug markets.

Correct Answer: C
7. Which of the following explanations for the drop in crime that occurred in the 1990s is not supported by the data?

a) b) c) d)

A strong economy. Increased reliance on prisons. An increase in the number of police. Changes in illegal drug markets.

Correct Answer: A
8. Which of the following explanations for the drop in crime that occurred in the 1990s is supported by the data?

a) b) c) d)

A strong economy. Increased reliance on prisons. The increased use of capital punishment. The use of innovative policing strategies.

24

Correct Answer: B
9. The observation that crime rates tend to be high when imprisonment rates are high led some criminologists to conclude that crime rates would fall if imprisonment rates were lowered. This is an example of:

a) b) c) d)

confusing correlation with causation. positive economic analysis. normative theory. the argument that incentives matter.

Correct Answer: A

10. The increased use of prisons accounted for approximately _____________ of the drop in crime experienced in the 1990s.

a) b) c) d)

one tenth one quarter one third one half

Correct Answer: C
11. Which of the following best explains why the increased use of capital punishment has not contributed to the decrease in crime?

a) Individuals who commit capital crimes believe life is not worth living. Therefore, they view capital punishment as a benefit rather than a cost. b) Only two percent of all criminals on death row are actually executed in a given year. As such, from the criminals perspective the expected cost of the death penalty is quite low. c) From the criminals perspective, the benefits of a capital crime always outweigh the costs. d) The supply of capital crimes is perfectly inelastic. Therefore, the cost of committing the crime is irrelevant. Correct Answer: B
12. There is strong evidence supporting the argument that increasing the number of police reduces crime. From the economists perspective, additional police should be hired up to the point at which:

a) b) c) d)

the additional benefits from hiring one more police officer equal the additional cost incurred. the total benefits from hiring police are maximized. the crime rate is reduced to zero. the marginal cost of hiring one more police officer is zero.

Correct Answer: A

25
13. Which of the following is evidence that innovative policing strategies were not, in fact, responsible for the decrease in crime in New York in the 1990s?

a) Crime in New York had started to fall in 1990, four years before such strategies were implemented. b) Between 1991 and 2001, the NYPD grew by 45 percent. c) Crime fell everywhere in the 1990s. Many cities didnt employ any innovative strategies. d) All of the above. Correct Answer: D
14. Which of the following statements is false?

a) Research shows that the high homicide rate in the United States is due, in part, to ready availability of guns. b) Depending on who possesses a gun when an altercation takes place, the existence of the gun may lead to either more or less violence. c) There are more guns than there are adults in the United States. d) Gun control laws contributed significantly to the drop in crime that occurred in the 1990s. Correct Answer: D

15. Which of the following best explains why gun control laws such as the Brady Act have had little or no effect on crime rates?

a) Guns are not a significant factor in crime. b) Criminals view the black market for guns (which is unaffected by such laws) as a near perfect substitute for the legal gun market. c) Such laws have caused the price in the black market for guns to dramatically increase. d) Police routinely refuse to enforce such laws. Correct Answer: B
16. All of the following are explanations why gun buyback programs fail to reduce crime except:

a) the price offered is less than the benefits the criminal receives from using a gun when committing a crime. b) there is virtually no effect on the supply of guns that remain available to potential criminals. c) the guns turned in during such programs are generally not the types of guns used by criminals. d) criminals use the money they get from participating in such programs to buy better guns. Correct Answer: D
17. Which of the following statements regarding economist John Lott Jr.s hypothesis that rightto-carry laws have reduced crime in areas governed by such laws is correct?

26
a) There is strong evidence in support of his hypothesis. b) While Lott produced strong evidence in support of his hypothesis, other scholars have been unable to reproduce his results, which casts doubt on his findings. c) Lott failed to produce any empirical evidence in support of his hypothesis. d) While Lott produced evidence supporting his hypothesis, he nonetheless argues that gun ownership should be severely restricted. Correct Answer: B
18. For many individuals growing up on the South Side of Chicago, a career in crack dealing:

a) b) c) d)

was the best job they had access to. was not nearly as difficult as passing an economics class. was only available to an extremely small number of people. was a relatively easy means to earn a considerable amount of income in a short amount of time.

Correct Answer: A
19. Which of the following is the primary explanation for the decline in crime among crack dealers in the 1990s?

a) b) c) d)

The huge decline in the profits from selling crack. The innovative policing strategies employed by police departments around the country. A dramatic decrease in the number of crack dealers. A large decrease in the demand for crack.

Correct Answer: A
20. The profits crack dealers were able to earn declined in the 1990s primarily as a result of:

a) b) c) d)

a decrease in demand for crack. the use of innovative policing strategies by police departments around the country. an increase in competition among crack dealers. a general improvement in the economy.

Correct Answer: C
21. Based on available data, the majority of the crime that occurs in the United States is committed by males between the ages of 16 and 24. Moreover, a relatively small subset of males of a given age is responsible for the majority of crime committed by males of that age. These data suggest that, all else constant:

a) efforts to reduce crime should be focused primarily on young males. b) a decrease in the percentage of young males in the population should result in a decrease in crime rates. c) Locking up older criminals for long periods of time is probably not a very effective way to deter crime. d) all of the above.

27

Correct Answer: D
22. According to a study by Donahue and Levitt, the precipitous decline in the homicide rate in the 1990s was largely a result of:

a) b) c) d)

a change in the demographics of Americans, resulting in a higher average age. abortions performed during the 1970s. a significant uptick in economic activity. innovative police strategies, beginning in New York.

Correct Answer: B
23. The argument that the legalization of abortion is a primary factor in the explanation of the decrease in crime in the 1990s is an example of:

a) b) c) d)

normative economic analysis. counterfactual economic analysis. positive economic analysis. immoral economic analysis.

Correct Answer: C
24. Which of the following statements best describes the logic supporting the hypothesis that the legalization of abortion led to a decrease in crime roughly 18 years later?

a) The increase in abortion caused a decrease in the population and, consequently, the number criminals. b) The increase in abortion caused a reduction in the percentage of the population accounted for by young males (the segment of the population most likely to commit crime), as well as the number males born into dysfunctional families. c) Because abortion had been illegal, legalizing it naturally caused crime to decrease. d) The type of woman who gets an abortion invariably gives birth to children who turn to crime as they get older. Correct Answer: B II. Short Answer/Essay Questions
1. Use basic economic principles to explain how each of the following would result in a decrease in crime.

a. An increase in the number of police in a city. b. Increased reliance on prisons to punish criminals. Suggested Answer: An increase in the number of police officers increases the likelihood that a criminal will be caught and punished. This in turn increases the likely cost the person who commits a crime will incur. Holding the benefit from the crime constant, it is then reasonable for the rational person to engage in less crime. An increased reliance on prisons to punish criminals

28
has a similar effect. In this case, the expected cost to the criminal is increasing because the cost associated with punishment is greater. The same conclusion applies.
2. Explain, using basic economic concepts, why capital punishment has not had a measurable effect on the amount of crime in the United States.

Suggested Answer: The purpose of punishment for a crime is to increase the cost to the person who commits the crime. Obviously, being put to death constitutes a rather severe cost to most people. However, when we consider that only 2 percent of persons on death row are actually executed each year, the perceived, or expected, cost of committing a capital crime is much less, especially when compared to the benefits the person expects to gain from committing the crime. So long as the expected benefits exceed the expected costs, it is rational for the person to continue to commit the crime.
3. Explain how gun control laws, e.g., the Brady Act, affect the equilibrium in the black market for guns.

Suggested Answer: Gun control laws make it more costly for certain individualsboth buyers and sellersto compete in the legal market for guns. As such, both demand for and supply of guns in black market could be expected to increase. All else constant, this would have the effect of causing the equilibrium quantity of guns exchanged to increase, while the effect on equilibrium price would be uncertain without more specific information on the magnitude of the shift in each curve.
4. Explain how competition among crack dealers contributed to the decrease in crime that occurred in the 1990s.

Suggested Answer: As competition increased, individual dealers reduced the price they charged for their product. This in turn led to a decrease in total revenues, but costs did not change. As such, profits fell. This left dealers less inclined to engage in criminal acts such as retaliation against competitors because the costs of such acts were now higher relative to the potential benefits.
5. Describe the study by Donahue and Levitt which examines the link between the legalization of abortion and the decline in crime rates that began to appear roughly 18 years later. In particular, does their study provide a viable explanation for the decline in crime rates that occurred in the 1990s? If so, what is it?

Suggested Answer: Approximately one half of the reduction in crime rates that occurred in the 1990s is accounted for by the legalization of abortion in 1973.

29

Chapter 5 What Makes a Perfect Parent?

I. Multiple-Choice Questions

1. Which parenting author believed that an infants brain is growing so much that overstimulation might cause a great deal of harm, and cautioned parents that their child is not a plaything?

a) b) c) d)

L. Emmett Holt Ann Hulbert Gary Ezzo T. Berry Brazelton

Correct Answer: D
2. Which of the following would be considered part of the conventional wisdom regarding proper parenting that has withstood the test of time?

a) b) c) d)

Babies should always sleep on their backs. Babies should sleep with parents. Bottle feeding is preferred to breast feeding. None of the above. Considering the range of opinions on virtually every aspect of parenting, there is no commonly agreed upon conventional wisdom.

Correct Answer: D
3. According to Levitt and Dubner, what is the enemy of rational argument?

a) b) c) d)

Emotion. Thought. Argument. Analysis.

Correct Answer: A
4. How does the typical parenting expert best argue his point in order to make others agree with him?

a) b) c) d)

Plant his flag firmly on one side of the argument and engage the publics emotions. Carefully consider all sides of the issue before taking a specific position. Take out an expensive ad. All of the above.

Correct Answer: A
5. Which emotion is more potent than the rest when someone is attempting to sway public opinion?

a) Fear. b) Love.

30
c) Joy. d) Anger. Correct Answer: A
6. According to Freakonomics, parents are often scared of the wrong things. Why is that?

a) b) c) d)

Separating facts from rumors is frequently hard work. White noise generated by experts is overwhelming. Facts are often varnished or taken out of context to serve specific agendas. All of the above.

Correct Answer: D
7. According to Levitt and Dubner, in which of the following ways is a child in the United States most likely to die?

a) b) c) d)

Drowning. Being shot by a gun. Dog attack. Struck by lightning.

Correct Answer: A
8. According to the data, which activity is more risky: driving or flying?

a) b) c) d)

Driving. Flying. The per hour death rates are equal, i.e., they are equally risky. There are no per hour death rate statistics for either activity.

Correct Answer: C
9. Assume one hunter dies from an accidental gunshot for every 100,000 days spent hunting and 1 million days are spent hunting each year. At the same time, 3 boaters die as a result of being struck by lightning for every 100,000 days spent boating and 2 million days are spent boating each year. Which of the following statements is correct?

a) The probability of dying as a result of a hunting accident is greater than probability of dying as a result of being struck by lightning while boating. b) The probability of dying as a result of being struck by lightning while boating is greater than the probability of dying as a result of a hunting accident. c) The probability of dying as a result of a hunting accident and the probability of dying as a result of being struck by lightning while boating are the same. d) None of the above Correct Answer: B

31
10. Peter Sandman, a self-described risk communications consultant, was once quoted as saying, The basic reality is that the risks that scare people and the risks that kill people are very different? What did Sandman mean by this statement?

a) People are usually incapable of assessing risks of any type. b) People are much more frightened by risks they cant control than those they can, even though the risks they can control may be much greater. c) People are afraid of the risk of dying but they are not afraid of death itself. d) The only thing people have to fear is fear itself. Correct Answer: B
11. What is Peter Sandmans equation for assessing risk?

a) b) c) d)

Risk = Hazard + Outrage. Risk = Emotion + Hazard. Risk = Emotion + Outrage. Risk = Hazard/(Hazard + Outrage).

Correct Answer: A
12. In the interest of economic efficiency, when deciding between two options we have for reducing the risk of someone dying which option should we choose?

a) b) c) d)

The one which results in the greatest number of lives saved. The one which costs the least amount of money. The one for which the amount of money spent per lives saved is the lowest. None of the above. The amount of money spent should never be a consideration when we are talking about saving lives.

Correct Answer: C
13. The Colorado Adoption Project, which followed the lives of 245 babies put up for adoption, found what kind of correlation between the childs personality traits and those of his/her adopted parents?

a) b) c) d)

Positive correlation. Negative correlation. No correlation. Perfect correlation.

Correct Answer: C
14. How can we reconcile Levitt and Dubners assertion that bad parenting matters a great deal, while good parenting does not?

a) The marginal cost of bad parenting is greater than the marginal cost of good parenting. b) It is possible that bad parenting and good parenting are related to some other variable which in fact influences the way a child turns out. c) The total benefits of good parenting are less than the total benefits of bad parenting.

32
d) We cant. They cant have it both ways. Correct Answer: B

15. In the U.S. Supreme Courts 1954 ruling in Brown v. Board of Education of Topeka, what did the Supreme Court rule?

a) b) c) d)

Schools did not need to be desegregated. Schools needed to be desegregated. The decision whether to desegregate schools should be left to each individual state. None of the above.

Correct Answer: B
16. What did a careful analysis of the data from the Chicago School District lottery reveal regarding the relationship between a students probability of graduating and attending the right school?

a) Adjusting for a students abilities, attending a better school increased the probability the student would graduate. b) Adjusting for a students abilities, attending a better school decreased the probability the student would graduate. c) Adjusting for a students abilities, attending a better school had no effect on the probability the student would graduate. d) None of the above. Correct Answer: C
17. According to academic studies, which of the following accounts most for the income gap between black and white adults?

a) b) c) d)

The black-white education gap that occurs in the first few years of schooling. Continuing discrimination against blacks in the labor force. The problem of reverse discrimination. The fact that blacks are less likely than whites to complete a four-year college degree.

Correct Answer: A
18. Assume we discover that education and income are positively correlated? Based on this information, what can we say, with certainty, about the relationship between these two variables?

a) b) c) d)

An increase in income causes an increase in education. An increase in education causes an increase in income. When one variable increases, so does the other variable. When one variable increases, the other variable decreases.

Correct Answer: C

33

19. The term regression analysis is used to refer to:

a) b) c) d)

a type of psychiatric treatment. the study of regressive genes. the study of ones ancestors. a statistical technique used to identify systematic relationships among two or more variables.

Correct Answer: D
20. Based on analysis of the data collected in the Early Childhood Longitudinal Study (ECLS), which of the following statements is correct?

a) White children in a bad school perform just as poorly as black students attending the same school. b) Black students in good schools do as well as their white counterparts in the same school. c) Blacks in good schools outperform whites in bad schools. d) All of the above. Correct Answer: D
21. Based on the ECLS data, which of the following four factors is not correlated, positively or negatively, with childrens test scores?

a) b) c) d)

Parents education. Parents socioeconomic status. Low birth weight. Having an intact family.

Correct Answer: D
22. Based on the ECLS data, which of the following four factors is positively correlated with childrens test scores?

a) b) c) d)

Attending Head Start. Being adopted. Speaking English in the home. The childs parents read to him nearly every day.

Correct Answer: C
23. How can we reconcile the finding that there is a positive correlation between having books in the home and a childs test scores but there is no correlation between the fact that a childs parents read to him almost every day and the childs test scores?

a) The analysis obviously did not control for the type of books that are present in the home and this is the problem. b) The analysis obviously did not control for the type of books parents read to their children and this is the problem.

34
c) The fact there is a positive correlation between books in the home and a childs test scores is picking up the influence of what those childrens parents are, i.e., well educated. d) We cant. Its further evidence that regression analysis is unreliable. Correct Answer: C
24. Overall, analysis of the ECLS data suggests that what is most important in a childs development is:

a) b) c) d)

what parents do and who they are. neither what parents do nor who they are but rather something else altogether. what parents do but not who they are. what parents are but not what they do.

Correct Answer: D II. Short Answer/Essay Questions

1. Why do parenting experts tend not to give objective, multi-sided advice to parents?

Suggested Answer: Because there are many parenting experts attempting to get the attention of parents. Those who tend to get more noticed are those who market the surety or certain success of their methods.
2. Briefly explain the meaning of Sandmans equation: Risk = hazard + outrage. What does it say about the relationship between the perceived risk and the actual risk of many events?

Suggested Answer: Hazard represents the objectively determined risk, i.e., the probability of a particular undesirable event. Outrage is the degree of emotional response by people to the events occurrence. Together, they form the subjective or perceived risk people associate with a particular event. As such depending on how large the outrage factor is, people may perceive event A as more risky than event B, even though the objective probability of event As occurrence is lower.
3. Briefly describe how the scientific analysis of a biologist or a physicist differs, generally speaking, from the scientific approach of an economist.

Suggested Answer: A biologist or a physicist can often conduct a controlled experiment in the lab or in the field where one or two variables are allowed to change and the results observed and recorded. The economist seldom has this luxury in studying economic phenomenon and must rely on other means to tease out results from whatever data are available.

4. Explain the difference between correlation and causation.

35
Suggested Answer: If two variables are correlated, they move in a systematic fashion, i.e., they move together or in opposite directions. Causation implies that a change in one variable causes the value of another variable to change in some predictable way. As such, causation implies correlation, but the reverse is not true, i.e., correlation does not imply causation.
5. According to the ECLS data discussed by Levitt and Dubner, which is a more important indicator of a childs success on standardized tests; having lots of books at home or having a parent who reads those books every day to his or her child? What does this suggest about the marginal benefit of reading to ones child in so far as success on standardized tests is concerned?

Suggested Answer: According to the data, so far as academic success goes, having lots of books in a childs home matters; having a parent who reads every night to his or her child doesnt matter. This would suggest that the marginal benefit of reading to ones child, in so far as performance on tests is concerned, is zero (or close to it).
6. Considering only the measurement of a childs performance on standardized tests, which is statistically more important: what a parent does for a child or what the parent is?

Suggested Answer: According to the ECLS data, what the parent is, measured in terms of socio-economic standing, is more important than what the parent does for the child.

36

Chapter 6 Perfect Parenting, Part II; or: Would a Roshanda by Any Other Name Smell as Sweet?
I. Multiple-Choice Questions

1. The example in this chapter about Winner Lane and Loser Lane:

a) is used to illustrate the bizarre trend of renaming in the court system. b) shows that Winners and Losers chances for success were not affected by their names. c) supports the conventional wisdom belief about the effect a childs name has on his/her success in life. d) is used to illustrate how a name can strongly affect how a child views himself/herself. Correct Answer: B
2. Which of the following statements is correct?

a) The name a parent gives a child has a significant effect on the childs success in later life. b) The more unique a childs name is, the more likely he/she is to be successful in later life. c) A childs name tends to reflect the parents life, and the latter is the more important determinant of a childs success in later life. d) There is no identifiable relationship between a childs name and his/her prospects for success in later life. Correct Answer: C
3. Someone who argues, on the basis of the California birth certificate data, that a childs name has a direct influence on the childs success in later life:

a) b) c) d)

has failed to fully consider the implications of the data. is failing to consider the relationship between a parents success and that of his/her child. is confusing correlation with causation. all of the above.

Correct Answer: D
4. Roland Fryers analysis of the California names data strongly suggests that:

a) distinctive black culture is a cause of the economic disparity between whites and blacks. b) distinctive black culture is a reflection of the economic disparity between whites and blacks. c) distinctive black culture has substantially reduced the economic disparity between whites and blacks. d) distinctive black culture has substantially increased the economic disparity between whites and blacks. Correct Answer: B

37
5. According to the California names data, the dissimilarity between names is greatest when comparing:

a) b) c) d)

white and Asian-American children. Asian-American and Hispanic children. white and black children. Hispanic and white children.

Correct Answer: C
6. The significant distinction between black names and white names:

a) b) c) d)

is a relatively recent phenomenon. is stronger among boys names than girls names. is declining as segregation declines. is due to each races distaste for the other.

Correct Answer: A
7. Usually a boy with a white name will tend to earn more money in his life than a boy with a black name. This is because:

a) b) c) d)

the world is still overcoming race issues. most people with white names get into better schools. his name is an indicator, not a cause, of his outcome. the boy with the black name will not grow up as confident as the boy with the white name.

Correct Answer: C
8. On average, a person with a distinctively black name:

a) will have a worse life outcome than a person with a distinctively white name. b) will enjoy greater economic success when compared to a distinctively white named individual. c) will be doomed to failure because of his/her name. d) will have the same amount of opportunities to succeed as does anyone else. Correct Answer: A
9. Assuming Jake Williams and DeShawn Williams are born in the same neighborhood and into the same familial and economic circumstances, it is likely that:

a) Jake and DeShawn will live extremely different lives based solely on their different names. b) Jake and DeShawn will have similar life outcomes. c) because of their different race-related names Jake and DeShawn will end up living in different neighborhoods when they grow up. d) we have no idea what will happen. Correct Answer: B

38
10. Anyone who bothers to change his/her name in the pursuit of economic success is likely to succeed because:

a) b) c) d)

he/she is motivated to succeed, not because of the name change. the new name can give him/her more opportunities. he/she will feel better about himself/herself. a persons name is the primary determinant of his/her success or failure.

Correct Answer: A
11. Which of the following girls is most likely to be successful when they grow up?

a) b) c) d)

A white girl named Molly whose mother was single and poorly educated. A black girl named Ebony whose mother was highly educated and successful. A white girl named Misty whose mother had a high school education. A black girl named Claire whose mother had a high school education.

Correct Answer: B
12. Levitt and Dubners discussion of where does a name come from shows us that:

a) b) c) d)

high-income families often give their children unique names. there is no correlation between a childs name and the parents socioeconomic status. movie stars and other icons have a large influence on name trends. lower-income families will adopt names that catch on among high-income families over a short period of time.

Correct Answer: A
13. In Levitt and Dubners discussion of where does a name come from it is noted that celebrities:

a) have a strong effect on the naming trends of lower-income families. b) have a strong effect on naming trends, but the names are usually spelled slightly different, someone named after Britney Spears may be named Brittni instead. c) have a strong effect on the naming trends of girls, but not boys. d) are usually a result of a naming trend and not a cause. Correct Answer: D
14. Names that are initially popular among higher-income parents gradually move down the socioeconomic ladder and eventually fall out of favor all together. An economic explanation for this phenomenon is that:

a) as a name becomes more popular its relative scarcity, and therefore its relative value, declines. b) a name associated with lower income families is necessarily an economic bad. c) the demand for anything is a function of income; the higher the income, the higher is demand. d) the more a name is used, the more the supply of the name decreases.

39

Correct Answer: A
15. According to the data, lower-income parents do most of their name shopping among:

a) b) c) d)

celebrities. high-profile professions (e.g., doctor, lawyer). popular brand names. higher-income families.

Correct Answer: D
16. The girls name Annika is currently popular among higher-income, better-educated parents. Based on recent trends described in the text, which of the following is the most likely description of what will happen to the use of this name over time.

a) It will remain popular among higher-income parents, but eventually slip into obscurity. b) Lower-income parents will increasingly choose it for their baby girls, but it will then slip into obscurity. c) Lower-income parents will increasingly choose it for their baby girls, and it remain popular among that group for several decades. d) It will quickly slip into obscurity. What parent in his/her right mind would name his/her daughter Annika? Correct Answer: B
17. Referring to the previous question, how would we describe the names fate in economic terms?

a) As the name is adopted more frequently, its relative scarcity, and hence it value, declines, leading less parents to choose it over time. b) Because the name is so uncommon, demand for it, and hence its value are relatively low. c) As more people choose it for their children, the price of using it, measured in terms of the recognition it creates, declines, causing even more parents to choose it. d) None of the above. There is no way to explain the phenomenon in economic terms. Correct Answer: A
18. All of the following are examples of correlation but not causation except:

a) Children whose parents are better educated and earn higher incomes tend to experience greater economic success than children whose parents are poorly educated and earn less income. b) Boys with white names tend to earn more money than boys with black names. c) The misdeeds of Loser Lane, Temptress, and Amcher landed them all in court. d) Ice cream sales and death by drowning tend to increase during the hot summer months. Correct Answer: A

40
19. Levitt and Dubner are of the opinion that Shithead, Orangejello, and Lemonjello:

a) b) c) d)

will be popular names in the future. are dumb names. will not catch on as popular names. have mean parents.

Correct Answer: C
20. The California names data suggests that most parents, when naming their child, use a name to:

a) b) c) d)

signal their own expectations of how successful the child will be. influence how the outside world will view their child. distinguish their child from their future peers. remind the child of the character of the person they were named after.

Correct Answer: A II. Short Answer/Essay Questions

1. Is a persons name likely to be an indicator of that persons success in later life?

Suggested Answer: No. There is a correlation between some names and higher income, but this is a correlation, it doesnt not establish cause and effect. In fact, the observed correlation is picking up the influence of the parents background, e.g., education and income, on the childs potential for success.
2. What are parents signaling when they choose a name for their child?

Suggested Answer: Parents are attempting to signal their hopes and expectations regarding their child.
3. Evaluate this statement; The name a parent gives his or her child will have a significant effect on the childs success. After all, the data show that certain names are associated with increased income.

Suggested Answer: The data show that economically successful parents tend to select from a limited group of names when naming their children. These children tend to be economically successful like their parents. The data merely show a correlation between certain names and the income of the named individual. They do not show cause and effect.
4. According to the data in Freakonomics, what happens over time to the names of children who grow up to be successful?

Suggested Answer: Economically successful parents tend to have economically successful children. Seeing this, other parents tend to use the names of successful people in naming their

41
children. When a name comes into common use, economically successful parents tend to avoid it. Eventually, even low income parents dont use the name and it falls out of the rotation of names completely.