Exam (elaborations) TEST BANK FOR Microeconomics 8th Edition David Col

Exam (elaborations) TEST BANK FOR Microeconomics 8th Edition David Col The answers to an economy's three central economic problems are determined by the interaction of three forces: economic forces, political forces, and social forces. True False 2. Scarcity exists because economies cannot produce enough to meet the perceived desires of all individuals. True False 3. Only marginal costs, not sunk costs, should affect economic decisions if individuals are rational. True False 4. The economic decision rule is to undertake an action only when the marginal benefits of that action are greater than its total costs. True False 5. The opportunity cost of undertaking an activity includes any sunk cost. True False 6. Opportunity cost is the same as marginal cost. True False 7. The "invisible hand" is the price mechanism that guides our actions in the market. True False 1-1 Full file at 8. Social and political forces affect the way in which the invisible hand works. True False 9. Macroeconomics is the study of how individual choices are affected by economic forces. True False 10. Deciding what the distribution of income should be is an example of normative economics. True False Multiple Choice Questions 11. Say a pill existed that made people selfless. After taking it they were only interested in others not themselves. Under the coordination definition of economics: A. no economic problem would exist. B. there would still be an economic problem. C. there would be a political problem but not an economic problem. D. there would be a social problem but not an economic problem. 12. According to the text, economics is the study of how: A. governments allocate resources in the face of constraints. B. government policies can be used to meet individuals' wants and desires. C. human beings coordinate their wants and desires in the face of constraints. D. scarce resources are allocated to their most productive uses. 13. Dorm rooms are not usually allocated by markets. Allocating dorm rooms is: A. not an economic problem. B. an economic problem. C. not affected by economic forces. D. determined by prices. 1-2 Full file at 14. If allocating dorm rooms changes from allocation by lottery to allocation by the market: A. it becomes an economic problem. B. it becomes a political problem but not an economic problem. C. it becomes a social problem but not an economic problem. D. the allocation problem is still an economic problem. 15. Which of the following is not one of the three central coordination problems of the economy given in the book? A. What. B. Whether. C. For whom. D. How. 16. The quantity of goods and services available to society: A. is fixed. B. depends on human action. C. is not of economic importance. D. will always grow to meet individuals' wants and desires. 17. Any economic system: A. can eliminate scarcity. B. addresses the questions what is produced, how it is produced, and for whom it is produced. C. provides all the goods people want and desire. D. provides equal distribution of well-being among its participants. 18. Scarcity exists because: A. individuals can't solve the three central coordination problems. B. governments can't solve the three central coordination problems. C. the supply of goods is always less than the demand. D. new wants continue to develop. 1-3 Full file at 19. People can reasonably expect that an economic system will decide all of the following except: A. what goods to produce. B. how to produce the goods. C. how to assign initial property rights. D. for whom to produce the goods. 20. A method of reasoning in which one deduces a theory based on a set of almost selfevident principles is known as: A. intuition. B. abduction. C. deduction. D. induction. 21. Deduction is a method of reasoning in which one develops a theory based on: A. patterns that suggest general principles. B. a set of almost self-evident principles. C. the application of theorems combined with precepts. D. insights derived from combining equation into a model. 22. An economist develops a model of consumption by assuming that people spend 90 percent of their monthly income and 3 percent of their savings. Their income depends on the number of hours they work. In developing the model, this economist is using: A. induction. B. abduction. C. reduction. D. deduction. 23. A method of reasoning in which one develops general principles by looking for patterns in the data is known as: A. intuition. B. abduction. C. deduction. D. induction. 1-4 Full file at 24. Induction is a method of reasoning in which one develops a theory based on: A. patterns that suggest general principles. B. a set of almost self-evident principles. C. the application of theorems combined with precepts. D. insights derived from combining equations into a model. 25. An economist develops a model of consumption by gathering data about consumption and 100 other variables. After looking at the patterns in the data she develops a model to explain consumption. This economist is using which approach to modeling? A. Induction. B. Abduction. C. Reduction. D. Deduction. 26. To engage in economic reasoning, you must compare: A. total cost and total benefit. B. marginal cost, sunk cost, and total benefit. C. sunk cost and marginal cost. D. marginal cost and marginal benefit. 27. Economist Steven Landsburg claims that with a death penalty, each execution deters about 8 murders, resulting in a benefit to society of approximately $56 million. He argues that computer hackers do far more damage to society with their worms and viruses. He argues that computer hackers should be executed as well. From a purely economic perspective, the death penalty for computer hackers is: A. reasonable based on cost benefit analysis, but society must also take into account social, political, and religious factors. B. never reasonable because it is not possible to place a dollar value on a human life. C. never reasonable because no one has died from computer hacking. D. the least efficient way to deter crime. 1-5 Full file at 28. More than 10,000 people waited in line for more than two hours to see the Titan Arum (a rare flower) at Cambridge's Botanic Garden. An economist would conclude that: A. people felt they got great benefit from seeing the flower. B. people did not know that they should ignore sunk costs in reaching decisions. C. some things do not have a cost because people do not have to pay for them. D. social forces are sometimes more important than market forces. 29. Alexandra has determined that studying an hour for her economics quiz will improve her grade on the quiz from 75 to 100. She also determines that this improvement is worth $20. In order to study for an hour for her economics quiz, however, she will have to work one less hour at her part-time job. Alexandra should: A. study for the quiz as long as her hourly wage rate is less than $20. B. study for the quiz as long as her hourly wage rate is more than $20. C. study for the quiz only if her hourly wage rate is exactly $20. D. not study for the quiz because earning a higher grade cannot have a dollar value. 30. Microsoft filed a law suit against people who sent spam (junk e-mail) and a web site owner who hosted spam services. A spokesman for Microsoft said that Microsoft was "trying to change the economics of spam" by increasing the cost of being a spammer. An economist would most likely agree with which statement about Microsoft's actions? A. A more effective approach would be to educate spammers about the costs they impose on others. B. A more effective approach would be to appeal to the morals of the spammers and tell them to follow the golden rule. C. Microsoft's approach of trying to change the costs of spamming is the most effective way to change behavior. D. Microsoft should not be involved because spamming is just part of the invisible hand at work and should be left alone. 31. The marginal benefit from consuming another unit of a good: A. must equal the marginal cost or the unit will not be consumed. B. must be less than the marginal cost or the unit will not be consumed. C. equals the increase in total benefits from consuming the unit. D. equals the total benefit obtained from the consumption of all prior units. 1-6 Full file at 32. The marginal cost of consuming another unit of a good: A. must equal the marginal benefit or the unit will not be consumed. B. must exceed the marginal benefit or the unit will not be consumed. C. equals the increase in total cost when another unit is consumed. D. equals the total cost of consuming all prior units. 33. Mary buys cell-phone services from a company that charges $30 per month. For that $30 she is allowed 600 minutes of free calls and then pays 25 cents per minute for any calls above 600 minutes. Mary has used 300 minutes this month so far. What is her marginal cost per minute of making 2 more calls lasting 10 minutes each? A. $2.50 B. 25 cents C. 4 cents D. Zero 34. Mary buys cell-phone services from a company that charges $30 per month. For that $30 she is allowed 600 minutes of free calls and then pays 25 cents per minute for any calls above 600 minutes. Mary has used 600 minutes this month so far. What is her marginal cost per minute of making additional calls? A. 25 cents B. 10 cents C. 5 cents D. Zero 35. Sunk costs: A. are essential parts of economic reasoning. B. are irrelevant to economic reasoning. C. should be considered, but only when marginal cost is less than marginal benefit. D. should be considered only when there is no information about marginal cost and marginal benefit. 1-7 Full file at 36. Suppose the marginal cost of dating Perry is $30 while the marginal benefit is worth $40 to you. Following economic reasoning you should: A. date Perry B. not date Perry C. determine what your sunk costs are D. determine what your total benefits and total costs are 37. Refer to the graph above. If the marginal cost of each weekend trip this year is $600 no matter how many trips Rodney takes, then assuming he is rational, Rodney will: A. take 3 trips this year. B. take 2 trips this year. C. take 1 trip this year. D. not take any trips this year. 38. Refer to the graph above. If the marginal cost of each weekend trip this year is $299 no matter how many trips Rodney takes, then assuming he is rational, Rodney will take: A. 4 trips this year. B. 3 trips this year. C. 2 trips this year. D. 1 trip this year. 1-8 Full file at 39. The table below shows how the marginal benefit of video tape rentals varies for Carol with the number rented per month. The price of each tape rental is reduced from $2.99 to $1.99. Assuming that the price of a rental accurately reflects the marginal cost to Carol and that she is rational she will increase the number of tapes rented per month from: A. 1 to 2. B. 2 to 3. C. 3 to 4. D. 4 to 5. 40. The table below shows how the marginal benefit of pizza dinners varies for Luigi with the number consumed per month. Suppose the price per dinner is $4.99 and accurately reflects the marginal cost of the dinners to Luigi. Assuming that Luigi is rational he will: A. not consume any pizza dinners this month. B. consume 1 pizza dinner this month. C. consume 2 pizza dinners this month. D. consume 3 pizza dinners this month. 1-9 Full file at 41. The price of a new model of iPod tends to fall significantly a year after it is first introduced. Suppose Jane bought an iPod as soon as it was introduced (a year ago) and paid a premium price for it. Now she wants to buy a new iPod cover. Which of the following should she consider before buying the new accessory? A. The price she paid for her iPod, the price of the iPod cover, and the benefit she'll receive from using the iPod cover. B. The price of replacing her iPod, the price of the iPod cover, and the benefit she'll receive from using the iPod cover. C. The price of the iPod cover and the benefit she'll receive from using the iPod cover. D. The price of the iPod cover had she bought it with the iPod, the current price of the iPod cover, and the benefit she'll receive from using the iPod cover. 42. You bought one share of McDonald's stock for $10, one share of Coca-Cola for $15, and one share of Pepto-Bismol for $20. Currently, each stock is priced at $15. Assuming no tax issues and you cannot predict the future price of any of the stocks, if you needed $15, which stock would you sell? A. McDonalds. B. Coca-Cola. C. Pepto-Bismol. D. It doesn't matter which one you sell. 43. Which of the following best defines rational behavior? A. Analyzing the total gains from a decision. B. Improving net gain by pursuing decisions as long as the marginal benefits exceed the marginal costs. C. Seeking to gain by choosing to undertake actions as long as the marginal costs exceed the associated marginal benefits. D. Seeking to maximize total gain regardless of cost. 44. Alan is sitting in a bar drinking beers that cost $1 each. According to the economic decision rule, Alan will quit drinking when the marginal: A. benefit to him of an additional beer is less than $1. B. cost to him of an additional beer is less than the marginal benefit. C. cost remains at $1. D. benefit to him of an additional beer is greater than $1. 1-10 Full file at 45. Chuck offers $70,000 for a house. The seller turns down the offer but says she will sell the house for $72,000. However, Chuck refuses to pay the higher price. If Chuck was following the economic decision rule, the marginal benefit of the house to: A. Chuck must be less than $72,000. B. Chuck must be greater than $72,000. C. the seller must be less than $72,000. D. the seller must be less than $70,000. 46. The marginal benefit of another T-shirt this month to Mary is $15. If the $10 price of Tshirts reflects their marginal cost to Mary and Mary uses economic reasoning, then she: A. will sell the T-shirts she has to others who are willing to pay $10. B. cannot gain by buying more T-shirts. C. will buy more T-shirts this month. D. will not buy any T-shirts this month. 47. The marginal benefit of going to a movie during the week is currently $6 for you. Assume that the $4 price of going to the movies measures its marginal cost. Following the economic decision rule, you will: A. continue going to movies until the marginal benefit of doing so falls to zero. B. choose not to go to any movies during the week. C. continue going to movies until the marginal benefit of doing so falls below $4. D. not be able to enjoy a net gain from going to the movies during the week. 48. Marginal analysis suggests that you will engage in more of an activity if the: A. total benefit of the activity is less than the total cost. B. additional benefit from the activity exceeds the additional cost. C. total benefit from the activity exceeds the total