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Microeconomics and Behaviour 5th Edition Test Bank

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    1 Student: ___________________________________________________________________________ 1. Microeconomics is primarily A. the study of how the stock market works. B. the study of how people choose under conditions of scarcity. C. the study of how businesses can increase profitability. D. the study of how the economy functions as a whole. 2. If everyone had unlimited wealth but limited time, then A. scarcity would not exist. B. scarcity would still exist. C. economics would be irrelevant. D. one would need to study macroeconomics only. 3. Under self - interest rationality, if the benefits to you of doing X exceed the costs of doing X, then A. do X. B. don't do X. C. whether or not you do X has no effect on your well - being. D. not enough information has been given. 4. The reservation price of activity X is A. the price one must pay for a reservation to take part in activity X. B. the price one must pay to be sure one prefers X. C. the price at which one would be indifferent between doing X and not doing X. D. the price at which one gets the greatest satisfaction from doing X. 5. Under self - interest rationality, if the benefit to you of doing X is $60 and the cost of doing X is $100, then A. do X. B. don't do X. C. whether or not one does X has no effect on well - being. D. do X only if the benefit to others from doing X exceeds $40.

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    6. Your bank account pays interest at a rate of 3% per year. You loan a friend $100, interest - free, for one year. Assuming the loan is paid back on time, the opportunity cost of the loan is A. $0. B. $3. C. $100. D. $103. 7. You decide to go skiing this weekend. It costs $40 for transportation, $60 for lodging and $30 for ski lift tickets, and you could have earned $100 as a waiter. You would quit your waiter's job if they paid one penny less. What is the total cost of the ski weekend? A. $30 B. $90 C. $130 D. $230 8. You decide to go skiing this weekend. It costs $40 for transportation, $60 for lodging and $30 for ski lift tickets. You are unemployed. What is the total cost of the ski weekend? A. $30 B. $90 C. $130 D. $230 9. You decide to go skiing this weekend. It costs $40 for transportation, $60 for lodging, $30 for ski lift tickets and you could have earned $100 as a waiter at a job you love so much you would do it as a volunteer. What is the total cost of the ski weekend? A. $30 B. $90 C. $130 D. $230 The costs of going to college are: tuition $4000; books $1000; accommodation $5000; food $2000; lost income from work $18,000. You must pay for your food whether you live at school or at home.

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    10. Suppose that you could have free accommodation at home at no cost to you if you worked, but must live on campus if you go to school. What is the total cost of going to school? A. $10,000 B. $12,000 C. $23,000 D. $28,000 E. $30,000 11. Suppose you must live on your own whether working or in school. What is the total cost of going to school? A. $10,000 B. $12,000 C. $23,000 D. $28,000 E. $30,000 12. Suppose that at school you can work part time and make $5,000 at a job you would do for free. You could get free accommodation at home, but must live on campus if you go to school. What is the total cost of going to school? A. $10,000 B. $12,000 C. $23,000 D. $28,000 E. $30,000 13. You decide to lend $100 to a friend, interest - free, for one year. You calculate that over that period you could have earned 10% in interest on the $100. What is the opportunity cost of the loan, if it is repaid on time? A. $0 B. $10 C. $100 D. $110 You are considering renting a car for the weekend. It costs $200 for the car plus $0.20 per kilometre (including gas).

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    14. If you decide to go on a 300 - kilometre journey, what is the total cost of the rental? A. $40 B. $60 C. $200 D. $260 15. Suppose that you have already rented the car. Now what is the cost of the journey? A. $60 B. $100 C. $200 D. $260 16. If you now decide to take a detour which is an additional 50 kilometres, what is the cost of the detour? A. $10 B. $70 C. $210 D. $270 17. You already have a ticket to see the Rolling Stones' "Twelfth Annual Absolutely Final Farewell Tour" show. The ticket cost $20, but scalpers are selling the ticket for $100. You must give up your income as a waiter on a Saturday night in order to see the concert. You would have made $50 by working, and apart from the wages you are indifferent between working and not working. What is the cost of the Rolling Stones concert? A. $70 B. $130 C. $150 D. $170 18. Adam Smith in The Wealth of Nations argued that A. appeals to self - interest will likely be more successful than appeals to benevolence. B. individuals' pursuit of selfish objectives can unintentionally increase overall social welfare. C. people are incapable of generosity. D. A and B. E. A, B, and C.

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    19. The self - interest standard of rationality assumes that A. rational people act efficiently in pursuit of whatever objects they hold at the moment of choice. B. acts of charity are always in one's rational self - interest. C. rational people consider only benefits that accrue directly to themselves. D. A and B 20. The present aim standard of rationality assumes that A. people's behaviour enables us to determine what their self - interest is, no matter how strange their behaviour may seem. B. rational people act efficiently in pursuit of whatever objects they hold at the moment of choice. C. people are rational if and only if their goals are consistent with the goals of most people. D. rational people consider only benefits that accrue directly to themselves. 21. Assuming that the self - interest standard of rationality holds, we would predict that A. people are more likely to vote in federal elections than in local elections. B. election behaviour will be independent of the number of registered voters likely to vote in an election. C. older workers are more likely to vote than younger workers. D. people with high paying jobs will vote more regularly than those who are retired. E. people are prepared to cheat if the net gains from cheating exceed the costs of being caught weighted by the probability of being caught. 22. Positive economics is concerned with A. the way the world works. B. which economic policies should be adopted. C. defending the positive features of the market economy against its critics. D. A and B E. B and C 23. Scarcity means any of the following except that A. people have wants that exceed their limited resources. B. people who are very wealthy do not experience scarcity. C. not all people are satisfied with what they have. D. people cannot have all they want at a zero price.

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    24. If scarcity didn't exist A. we wouldn't have to choose. B. we wouldn't need to study economics. C. prices of all goods would be zero. D. A and B. E. A and C. 25. You can drive to campus, take a bus, or walk. Driving costs you $2/kilometre in gas and maintenance, the bus costs $1 for unlimited distance, and walking is free but involves a disutility equivalent to $1/kilometre. If you live 2 kilometres from campus, and are a rational decision maker, what is the maximum amount you would be willing to pay for a bus ticket? A. $0 B. $1 C. $2 D. $4 26. Unbridled self - interest fails to coordinate resource flows most effectively in which of the following cases? A. the production of bread B. the building of a tornado warning siren C. the production of cars D. the production of haircuts Suppose you receive $17.50 worth of pleasure from the first hole of golf played and your additional pleasure from succeeding holes drops by $1 for each hole played. 27. How many holes of golf would you play if you had to pay $2 per hole? A. 8 B. 9 C. 15 D. 16 E. 17

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    28. If the situation is the same except that the cost per hole is now zero, how many holes of golf will you play? A. 12 B. 15 C. 16 D. 17 E. 18 29. If the situation is the same except that you must pay $25 up front (and zero per hole) for the unlimited right to play for a day, how many holes of golf will you play? A. 0 B. 9 C. 17 D. 18 E. as many holes as can be played from dawn until dusk. 30. The marginal benefit of a good x is given by the equation MB = 40 - 2x, and its marginal cost MC = 10, with x in kilograms and MB and MC in $/kilogram. The optimal level of x (in kilograms) is A. 0 B. 10 C. 15 D. 20 E. 30. 31. The marginal benefit of a good x is given by the equation MB = 40 - 2x, and its marginal cost MC = 10 + x, with x in kilograms and MB and MC in $/kilogram. The optimal level of x (in kilograms) is A. 0 B. 10 C. 15 D. 20 E. 30.

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    32. The marginal benefit of a good x is given by the equation MB = 10 - x, and its marginal cost MC = 30 + x, with x in kilograms and MB and MC in $/kilogram. The optimal level of x (in kilograms) is A. 0 B. 10 C. 15 D. 20 E. 30. 33. Many students feel that economic theory is not "practical" enough. Others feel that theory is the best guide to practice. In other words, what "practical" people do is really only the working out of theories that they must somehow intuitively understand. Take the following story and answer the questions that relate to it. Joe is a plumber who claims he neither knows nor cares about theory. He arrives on the job where a pipe is totally rusted together and the coupling is difficult to turn loose. He goes to the truck to get his tools to solve the problem. The questions to analyze here concern the size of the wrenches t hat he has in his truck. His wrench collection has 6 wrenches ranging in size from 15 centimetres long to 1 metre long. a. Why are there different - sized wrenches in the truck and what theory of physics makes wrench size of any interest at all? b. How, most likely, did the plumber learn the theories of physics? c. Assume for the moment that all rusty couplings are easily accessible with any size of wrench. What would the laws of physics suggest the plumber do when buying wrenches? d. What economic theory co mes into play that limits the logic of the law of physics? e. What is the moral of this story?

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    34. Academic institutions frequently talk about academic excellence and how they have superior programs in everything. "If it is not top quality it will not be offered here" seems to be the theme of many college catalogues. Explain, on the basis of material in this chapter, why this public relations noise is not believable. 35. Give an example, different from those in the text, where you erroneously took sunk costs into account where it was inappropriate to do so. 36. Give an example, different from those in the text, where you made a decision based on your private costs only, and would have made a different decision if all costs had been considered.

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    37. Governments commonly tax such "evils" as cigarettes and alcohol at a higher rate than they tax other goods like books and clothing. Based on the potential presence of external costs or benefits (positive or negative externalities), explain why such uneven taxation could have desirable results for society. 38. Provide separate examples of a positive externality (an external benefit) and a negative externality (an external cost). Discuss why neither leads to socially optimal decision making by agents selfishly maximizing their own individual well - being.

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    1 Key 1. (p. 22) Microeconomics is primarily A. the study of how the stock market works. B. the study of how people choose under conditions of scarcity. C. the study of how businesses can increase profitability. D. the study of how the economy functions as a whole. FrankParker - Chapter 01 #1 2. (p. 2) If everyone had unlimited wealth but limited time, then A. scarcity would not exist. B. scarcity would still exist. C. economics would be irrelevant. D. one would need to study macroeconomics only. FrankParker - Chapter 01 #2 3. (p. 3) Under self - interest rationality, if the benefits to you of doing X exceed the costs of doing X, then A. do X. B. don't do X. C. whether or not you do X has no effect on your well - being. D. not enough information has been given. FrankParker - Chapter 01 #3 4. (p. 4) The reservation price of activity X is A. the price one must pay for a reservation to take part in activity X. B. the price one must pay to be sure one prefers X. C. the price at which one would be indifferent between doing X and not doing X. D. the price at which one gets the greatest satisfaction from doing X. FrankParker - Chapter 01 #4

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    5. (p. 3) Under self - interest rationality, if the benefit to you of doing X is $60 and the cost of doing X is $100, then A. do X. B. don't do X. C. whether or not one does X has no effect on well - being. D. do X only if the benefit to others from doing X exceeds $40. FrankParker - Chapter 01 #5 6. (p. 5) Your bank account pays interest at a rate of 3% per year. You loan a friend $100, interest - free, for one year. Assuming the loan is paid back on time, the opportunity cost of the loan is A. $0. B. $3. C. $100. D. $103. FrankParker - Chapter 01 #6 7. (p. 6) You decide to go skiing this weekend. It costs $40 for transportation, $60 for lodging and $30 for ski lift tickets, and you could have earned $100 as a waiter. You would quit your waiter's job if they paid one penny less. What is the total cost of the ski weekend? A. $30 B. $90 C. $130 D. $230 FrankParker - Chapter 01 #7 8. (p. 6) You decide to go skiing this weekend. It costs $40 for transportation, $60 for lodging and $30 for ski lift tickets. You are unemployed. What is the total cost of the ski weekend? A. $30 B. $90 C. $130 D. $230 FrankParker - Chapter 01 #8

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    9. (p. 6) You decide to go skiing this weekend. It costs $40 for transportation, $60 for lodging, $30 for ski lift tickets and you could have earned $100 as a waiter at a job you love so much you would do it as a volunteer. What is the total cost of the ski weekend? A. $30 B. $90 C. $130 D. $230 FrankParker - Chapter 01 #9 The costs of going to college are: tuition $4000; books $1000; accommodation $5000; food $2000; lost income from work $18,000. You must pay for your food whether you live at school or at home. FrankParker - Chapter 01 10. (p. 7) Suppose that you could have free accommodation at home at no cost to you if you worked, but must live on campus if you go to school. What is the total cost of going to school? A. $10,000 B. $12,000 C. $23,000 D. $28,000 E. $30,000 FrankParker - Chapter 01 #10 11. (p. 7) Suppose you must live on your own whether working or in school. What is the total cost of going to school? A. $10,000 B. $12,000 C. $23,000 D. $28,000 E. $30,000 FrankParker - Chapter 01 #11

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    12. (p. 7) Suppose that at school you can work part time and make $5,000 at a job you would do for free. You could get free accommodation at home, but must live on campus if you go to school. What is the total cost of going to school? A. $10,000 B. $12,000 C. $23,000 D. $28,000 E. $30,000 FrankParker - Chapter 01 #12 13. (p. 5) You decide to lend $100 to a friend, interest - free, for one year. You calculate that over that period you could have earned 10% in interest on the $100. What is the opportunity cost of the loan, if it is repaid on time? A. $0 B. $10 C. $100 D. $110 FrankParker - Chapter 01 #13 You are considering renting a car for the weekend. It costs $200 for the car plus $0.20 per kilometre (including gas). FrankParker - Chapter 01 14. (p. 8) If you decide to go on a 300 - kilometre journey, what is the total cost of the rental? A. $40 B. $60 C. $200 D. $260 FrankParker - Chapter 01 #14 15. (p. 8) Suppose that you have already rented the car. Now what is the cost of the journey? A. $60 B. $100 C. $200 D. $260 FrankParker - Chapter 01 #15

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    16. (p. 8) If you now decide to take a detour which is an additional 50 kilometres, what is the cost of the detour? A. $10 B. $70 C. $210 D. $270 FrankParker - Chapter 01 #16 17. (p. 5) You already have a ticket to see the Rolling Stones' "Twelfth Annual Absolutely Final Farewell Tour" show. The ticket cost $20, but scalpers are selling the ticket for $100. You must give up your income as a waiter on a Saturday night in order to see the concert. You would have made $50 by working, and apart from the wages you are indifferent between working and not working. What is the cost of the Rolling Stones concert? A. $70 B. $130 C. $150 D. $170 FrankParker - Chapter 01 #17 18. (p. 14) Adam Smith in The Wealth of Nations argued that A. appeals to self - interest will likely be more successful than appeals to benevolence. B. individuals' pursuit of selfish objectives can unintentionally increase overall social welfare. C. people are incapable of generosity. D. A and B. E. A, B, and C. FrankParker - Chapter 01 #18 19. (p. 16) The self - interest standard of rationality assumes that A. rational people act efficiently in pursuit of whatever objects they hold at the moment of choice. B. acts of charity are always in one's rational self - interest. C. rational people consider only benefits that accrue directly to themselves. D. A and B FrankParker - Chapter 01 #19

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