Chapter 1. Economics and Institutions: A Shift of Emphasis
TRUE/FALSE
1. Because other societies faced with the same problems have found different solutions,
clearly some institutional arrangements are arbitrary.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: Institutional Arrangements: Preordained or Arbitrary?
2. Microeconomics asks how individuals create a set of economic institutions to maximize
their self-interest.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: Microeconomics: A Tool for Understanding Institutions
3. A statement that we should increase the minimum wage is an example of positive
economics.
ANS: F PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: The study of economics, and definitions of economics
TOP: The Problem of Allocating Resources
4. The optimal way for Santa Claus to allocate presents to children depends on the incremental
happiness that each dollar allocated to a child brings.
ANS: T PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: Marginal costs & benefits TOP: Allocation Strategies
,5. The positive question of modern institutional economics is why we have the current set of
institutions.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Effect of Institutions on the Allocation Process
6. Conventions developed by a society to help it resolve recurrent economic problems are
called economic models.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: Economic Institutions Defined
7. Economic models are abstract representations of reality that economists use to study
economic and social phenomena.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: Understanding and applying economic models TOP: Economic Models
8. The study of games of strategy and the strategic interactions that such games reveal is
known as game theory.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: Understanding and applying economic models TOP: Analogies as Models
9. Laura Ramos developed an economic theory and tested it in a lab experiment. The lab data
did not match the behavior predicted by her theory. Laura should rethink the validity of her
theory.
ANS: T PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: Understanding and applying economic models
, TOP: Testing Theories--Economics as an Experimental Science
10. Property rights enhance the efficiency of economic activities by giving people the
appropriate incentives to manage what would otherwise be common resources.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The role of incentives TOP: Property Rights
MULTIPLE CHOICE
1. Which of the following is not an example of an institution that shapes the life of an
executive?
a. expressways
b. happiness
c. insurance companies
ANS: B PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: Microeconomics and Institutions
2. Which of the following questions is an example of institutional arrangements?
a. Why does the government allow only one utility company to deliver electricity in an
area?
b. Why do most committees make their decisions by a simple majority vote?
c. Why can’t consumers in Washington state buy locally grown apples?
d. All of the answers is correct
e. None of the answers is correct
ANS: D PTS: 1 DIF: Easy NAT: Analytic
, LOC: The study of economics, and definitions of economics
TOP: Institutional Arrangements: Preordained or Arbitrary?
3. Though different, Japanese and U.S. compensation systems serve the same purpose, which is
a. to pay the highest salaries possible
b. to motivate employees at work
c. to pay the lowest bonuses possible
ANS: B PTS: 1 DIF: Moderate NAT: Analytic
LOC: The role of incentives
TOP: Institutional Arrangements: Preordained or Arbitrary?
4. How do individuals, in an attempt to maximize their own self-interest, create a set of
economic institutions that structure their daily lives is a question for
a. macroeconomics
b. fiscal policy economics
c. microeconomics
ANS: C PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: Microeconomics: A Tool for Understanding Institutions
5. One type of institution is
a. perfectly competitive markets
b. perfectly and imperfectly competitive markets
c. imperfectly competitive markets
ANS: B PTS: 1 DIF: Moderate NAT: Analytic
TRUE/FALSE
1. Because other societies faced with the same problems have found different solutions,
clearly some institutional arrangements are arbitrary.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: Institutional Arrangements: Preordained or Arbitrary?
2. Microeconomics asks how individuals create a set of economic institutions to maximize
their self-interest.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: Microeconomics: A Tool for Understanding Institutions
3. A statement that we should increase the minimum wage is an example of positive
economics.
ANS: F PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: The study of economics, and definitions of economics
TOP: The Problem of Allocating Resources
4. The optimal way for Santa Claus to allocate presents to children depends on the incremental
happiness that each dollar allocated to a child brings.
ANS: T PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: Marginal costs & benefits TOP: Allocation Strategies
,5. The positive question of modern institutional economics is why we have the current set of
institutions.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: The Effect of Institutions on the Allocation Process
6. Conventions developed by a society to help it resolve recurrent economic problems are
called economic models.
ANS: F PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: Economic Institutions Defined
7. Economic models are abstract representations of reality that economists use to study
economic and social phenomena.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: Understanding and applying economic models TOP: Economic Models
8. The study of games of strategy and the strategic interactions that such games reveal is
known as game theory.
ANS: T PTS: 1 DIF: Easy NAT: Analytic
LOC: Understanding and applying economic models TOP: Analogies as Models
9. Laura Ramos developed an economic theory and tested it in a lab experiment. The lab data
did not match the behavior predicted by her theory. Laura should rethink the validity of her
theory.
ANS: T PTS: 1 DIF: Moderate NAT: Reflective Thinking
LOC: Understanding and applying economic models
, TOP: Testing Theories--Economics as an Experimental Science
10. Property rights enhance the efficiency of economic activities by giving people the
appropriate incentives to manage what would otherwise be common resources.
ANS: T PTS: 1 DIF: Moderate NAT: Analytic
LOC: The role of incentives TOP: Property Rights
MULTIPLE CHOICE
1. Which of the following is not an example of an institution that shapes the life of an
executive?
a. expressways
b. happiness
c. insurance companies
ANS: B PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: Microeconomics and Institutions
2. Which of the following questions is an example of institutional arrangements?
a. Why does the government allow only one utility company to deliver electricity in an
area?
b. Why do most committees make their decisions by a simple majority vote?
c. Why can’t consumers in Washington state buy locally grown apples?
d. All of the answers is correct
e. None of the answers is correct
ANS: D PTS: 1 DIF: Easy NAT: Analytic
, LOC: The study of economics, and definitions of economics
TOP: Institutional Arrangements: Preordained or Arbitrary?
3. Though different, Japanese and U.S. compensation systems serve the same purpose, which is
a. to pay the highest salaries possible
b. to motivate employees at work
c. to pay the lowest bonuses possible
ANS: B PTS: 1 DIF: Moderate NAT: Analytic
LOC: The role of incentives
TOP: Institutional Arrangements: Preordained or Arbitrary?
4. How do individuals, in an attempt to maximize their own self-interest, create a set of
economic institutions that structure their daily lives is a question for
a. macroeconomics
b. fiscal policy economics
c. microeconomics
ANS: C PTS: 1 DIF: Moderate NAT: Analytic
LOC: The study of economics, and definitions of economics
TOP: Microeconomics: A Tool for Understanding Institutions
5. One type of institution is
a. perfectly competitive markets
b. perfectly and imperfectly competitive markets
c. imperfectly competitive markets
ANS: B PTS: 1 DIF: Moderate NAT: Analytic
