Skip to content
Exam Guides

Microeconomics: An Intuitive Approach with Calculus 2nd Edition Test Bank

Microeconomics: An Intuitive Approach with Calculus 2nd Edition Test Bank is a comprehensive exam guide designed to help you master key topics with detailed explanations and practice questions.

Preview 16 of 468 pages

See the first 16 pages exactly as they appear in the document.

  1. Page 1
    Read page 1 as text

    1. One of the aims of positive economics is to rank policies under consideration from most desirable to least desirable. a. True b. False ANSWER: False RATIONALE: Positive economics aims to predict the consequences of policies, not to evaluate them as more or less desirable. POINTS: 1 DIFFICULTY: A & B - Section Material QUESTION TYPE : True / False HAS VARIABLES: False DATE CREATED: 2/11/2015 10:52 PM DATE MODIFIED : 2/11/2015 10:52 PM 2. Positive economics can tell us which policies are efficient and which are not. a. True b. False ANSW ER: True RATIO NALE: Efficiency is an objectively defined concept: A situation is efficient if there is no way to make some people better off without making others worse off. To say that one situation is more efficient than another is not a normative statement --- even if often people think it is the same as saying that one situation is better than another. POINT S: 1 DIFFI CULT Y: A & B - Section Material QUES TION TYPE: True / False HAS V ARIAB LES: False DATE CREA TED: 2/11/2015 10:52 PM DATE MODI FIED: 2/11/2015 10:52 PM

  2. Page 2
  3. Page 3
    Read page 3 as text

    3. When economists say that policy A is more efficient than policy B, they mean policy A is better than policy B. a. True b. False ANSWE R: False RATION ALE: To say that policy A is more efficient than policy B is only to say that, at least in principle, it is possible to make everyone better off (or at least as well off) under policy A than policy B. This is not the same as making a normative judgment about which policy is better. POINTS : 1 DIFFIC ULTY: A & B - Section Material QUESTI ON TYP E: True / False HAS VA RIABLE S: False DATE C REATE D: 2/11/2015 10:52 PM DATE M ODIFIE D: 2/11/2015 10:52 PM 4. Economists talk about trade - offs a lot because they have come to understand that whenever there is a winner from a policy or transaction, there must also be a loser. a. True b. False ANSWER: False RATIONA LE: One of the fundamental lessons of economics is that there are many situations when everyone can win. In a willing trade (i.e., I pay $2 for a cappuccino to the coffee shop owner), no one is hurt, and both of us are better off. POINTS: 1 DIFFICU LTY: A & B - Section Material QUESTIO N TYPE: True / False HAS VARI ABLES: False DATE CR EATED: 2/11/2015 10:52 PM DATE M ODIFIED : 9/4/2015 2:12 PM

  4. Page 4
    Read page 4 as text

    5. A spontaneous order emerges from individual decisions that cause something to “work” without anyone planning for it to “work”. a. True b. False ANSW ER: True RATI ONAL E: A spontaneous order is an order that is unplanned but simply arises from individuals doing the best they can given their circumstances. One example of this is the provision of complex goods and services in the market where thousands of individuals participate in the creation of something without most of them being aware that this is what they are doing. POIN TS: 1 DIFFI CULT Y: A & B - Section Material QUES TION TYPE: True / False HAS V ARIA BLES: False DATE CREA TED: 2/11/2015 10:52 PM DATE MODI FIED: 2/11/2015 10:52 PM

  5. Page 5
    Read page 5 as text

    6. When economists assume that people are rational , they are assuming that people generally agree what is good for human beings. a. True b. False ANSW ER: False RATI ONAL E: When economists assume people are rational, they are assuming that people are goal - oriented --- that they have in mind something they are trying to achieve and then do the best they can to achieve it. This is not the same as saying that people agree what is good for human beings --- only that individuals think they know what is good for themselves and then act accordingly. POIN TS: 1 DIFFI CULT Y: A & B - Section Material QUES TION TYPE: True / False HAS V ARIA BLES: False DATE CRE ATED : 2/11/2015 10:52 PM DATE MOD IFIED : 2/11/2015 10:52 PM 7. If medical patients are rational (in the way economists think of the term), they will do what medical experts believe is best for them. a. True b. False ANSWER: False RATIONALE: A rational patient’s view of what is “best” may differ from a medical expert’s view --- and thus the patient may rationally violate the expert’s advice. POINTS: 1 DIFFICULTY: A & B - Section Material QUESTION TY PE: True / False HAS VARIABL ES: False DATE CREAT ED: 2/11/2015 10:52 PM DATE MODIF IED: 9/25/2015 3:31 PM

  6. Page 6
    Read page 6 as text

    8. Suppose two economic models give the same predictions --- but one is simplistic and unrealistic in its assumptions while the other is rich in detail and resembles the real world more closely. If the sole goal of the economist is to predict , then the economist should use the simple and unrealistic model. a. True b. False ANSWER: True RATIONALE: If two models predict equally well, then it makes more sense to use the simple model that’s easy to use, even if the assumptions are unrealistic. POINTS: 1 DIFFICULTY: A & B - Section Material QUESTION TY PE: True / False HAS VARIABL ES: False DATE CREAT ED: 2/11/2015 10:52 PM DATE MODIF IED: 9/6/2015 1:05 PM 9. To say that one policy is better than another because it is more efficient is a normative , not a positive, statement. a. True b. False ANSWER: True RATIONAL E: It is a positive statement to say that one policy is more efficient than another --- but judging the policy as “better” involves value judgments that make the statement a normative one. POINTS: 1 DIFFICULT Y: A & B - Section Material QUESTION TYPE: True / False HAS VARIA BLES: False DATE CRE ATED: 2/11/2015 10:52 PM DATE MOD IFIED: 2/11/2015 10:52 PM

  7. Page 7
    Read page 7 as text

    10. If two individuals voluntarily agree to a transaction that only affects them (and no one else), it must be that the transaction is efficient. a. True b. False ANSWE R: True RATIO NALE: If the two individuals agree voluntarily, then they must both believe the transaction makes them better off (or at least no worse off). If the transaction furthermore affects no one else, it means that the transaction has improved some people’s (perceived) welfare without making anyone worse off. POINT S: 1 DIFFIC ULTY: A & B - Section Material QUEST ION TY PE: True / False HAS V ARIAB LES: False DATE CREAT ED: 2/11/2015 10:52 PM DATE MODIF IED: 2/11/2015 10:52 PM 11. In order to predict behavior, economic models must be realistic. a. True b. False ANSWER: False RATIONALE: Economic models do not have to be realistic. Models that make certain assumptions may help us to predict behavior. POINTS: 1 DIFFICULTY: A & B - Section Material QUESTION TYPE : True / False HAS VARIABLES: False DATE CREATED: 9/25/2015 3:34 PM DATE MODIFIE D: 9/25/2015 3:41 PM

  8. Page 8
    Read page 8 as text

    12. Each economic model can be applied to many different real - world problems. a. True b. False ANSWER: True RATIONALE : Once you become really comfortable with the way economists model behavior, it all really boils down to one single model, or at least one single conceptual approach. POINTS: 1 DIFFICULT Y: A & B - Section Material QUESTION TYPE: True / False HAS VARIAB LES: False DATE CREA TED: 9/25/2015 3:39 PM DATE MODI FIED: 9/25/2015 3:42 PM

  9. Page 9
    Read page 9 as text

    True / False 1. If all consumers are price - takers facing the same prices, then their budget lines will all have the same slope. a. True b. False ANSWER: True RATIONALE : The slope of the budget constraint is - p1/p2 --- i.e. it is made up solely of prices. If those are the same for all consumers, then the slope is the same for all consumers. POINTS: 1 DIFFICULT Y: A section material QUESTION TYPE: True / False HAS VARIAB LES: False DATE CREA TED: 9/1/2015 1:26 PM DATE MODI FIED: 9/1/2015 1:26 PM 2. If all consumers are price - takers facing the same prices, then all choice sets are the same. a. True b. False ANSWER: False RATIONALE: While the slopes of the budget constraints will be the same for all consumers, the choice sets will differ depending on each consumer’s income. POINTS: 1 DIFFICULTY: A section material QUESTION TY PE: True / False HAS VARIABL ES: False DATE CREAT ED: 9/1/2015 1:26 PM DATE MODIFI ED: 9/1/2015 1:26 PM

  10. Page 10
    Read page 10 as text

    3. Regardless of which consumption bundle in her choice set a consumer chooses, she will spend all of her available income. a. True b. False ANSWER: False RATIONALE: All available income is spent only on the portion of the choice set that is equal to the budget line (or budget constraint). POINTS: 1 DIFFICULTY: A section material QUESTION TYPE : True / False HAS VARIABLES : False DATE CREATED : 9/1/2015 1:26 PM DATE MODIFIE D: 9/1/2015 1:26 PM 4. In a graph of choice sets, a price change causes the slope of budget lines to change. a. True b. False ANSWER: True RATIONALE: As the price of a good is reduced, the budget line swings outward. POINTS: 1 DIFFICULTY: A section material QUESTION TYPE: True / False HAS VARIABLES: False DATE CREATED: 9/1/2015 1:26 PM DATE MODIFIED: 10/7/2015 11:46 AM 5. If a consumer's fixed income increases, his opportunity cost also increases. a. True b. False ANSWER: False RATIONALE : Although a consumer's choices may change, his opportunity cost does not, since the opportunity cost is determined by the price of the good, not by his increased income. POINTS: 1 DIFFICULT Y: A section material QUESTION TYPE: True / False HAS VARIA BLES: False DATE CREA TED: 9/1/2015 1:26 PM DATE MODI FIED: 10/7/2015 11:33 AM

  11. Page 11
    Read page 11 as text

    6. When the good on the vertical axis is a composite good, the slope of the budget line is equal to minus the price of the good on the horizontal axis. a. True b. False ANSWER: True RATIONALE: The price of composite goods is 1 --- which means that the usual slope - p1/p2 becomes - p1. POINTS: 1 DIFFICULTY: A section material QUESTION TYPE: True / False HAS VARIABLES: False DATE CREATED: 9/1/2015 1:26 PM DATE MODIFIED: 9/1/2015 1:26 PM 7. When the good on the horizontal axis is a composite good, the slope of the budget constraint is minus the price of the good on the vertical axis. a. True b. False ANSWER: False RATIONALE: The slope is usually - p1/p2 --- and when p1=1 (as it is when good 1 is a composite good), then the slope of the budget line is - 1/p2; i.e. minus the inverse of p2. POINTS: 1 DIFFICULTY : A section material QUESTION T YPE: True / False HAS VARIAB LES: False DATE CREA TED: 9/1/2015 1:26 PM DATE MODI FIED: 9/1/2015 1:26 PM 8. While the endowment bundle must lie on the original budget line, it need not lie on the budget line when prices change. a. True b. False ANSWER: False RATIONAL E: Consumers always have the option of consuming their endowment bundle --- which means the endowment bundle always lies on the budget line regardless of what happens to prices. POINTS: 1 DIFFICUL TY: A section material QUESTION TYPE: True / False HAS VARIA BLES: False DATE CRE ATED: 9/1/2015 1:26 PM DATE MOD IFIED: 9/1/2015 1:26 PM

  12. Page 12
    Read page 12 as text

    9. For choice sets emerging from “exogenous” income, the budget line will shift parallel whenever both prices change by the same percentage. a. True b. False ANSWER: False RATIONA LE: Since the slope of the budget constraint is the negative price ratio, the slope will remain the same if both prices increase by the same factor --- which means the new budget line will be parallel to the original. POINTS: 1 DIFFICUL TY: A section material QUESTIO N TYPE: True / False HAS VARI ABLES: False DATE CR EATED: 9/1/2015 1:26 PM DATE MO DIFIED: 9/1/2015 1:26 PM 10. For choice sets generated from endowment bundles, the budget line will shift parallel if both prices change by the same proportion. a. True b. False ANSWE R: False RATION ALE: The slope of the budget remains unchanged --- as does the endowment bundle. Since the budget line always has to pass through the endowment bundle, an simultaneous and proportionate increase in both prices will cause no change in the budget constraint. POINTS : 1 DIFFIC ULTY: A section material QUESTI ON TYP E: True / False HAS VA RIABLE S: False DATE C REATE D: 9/1/2015 1:26 PM DATE M ODIFIE D: 9/1/2015 1:26 PM

  13. Page 13
    Read page 13 as text

    11. The budget line on a graph represents choices which exhaust all resources. a. True b. False ANSWER: True RATIONALE: The budget line represents all combinations of goods that, if chosen by a particular consumer would leave no money in his or her budget. POINTS: 1 DIFFICULTY: A Section material QUESTION TY PE: True / False HAS VARIABL ES: False DATE CREATE D: 10/7/2015 11:29 AM DATE MODIFI ED: 10/7/2015 11:34 AM 12. In a graph of choice sets, a price change affects the ratio but does not affect the budget line. a. True b. False ANSWER: False RATIONALE: A price change will cause the slope of a budget line to change. POINTS: 1 DIFFICULTY: A section material QUESTION TYPE: True / False HAS VARIABLES: False DATE CREATED: 10/7/2015 11:39 AM DATE MODIFIED: 10/7/2015 11:44 AM Multiple Choice

  14. Page 14
    Read page 14 as text

    13. The following changes in a consumer’s economic circumstances result in a steeper budget line with the vertical intercept unchanged. (Denote the good on the horizontal as good 1 and the good on the vertical as good 2.) a. A k percent decrease in the price of good 2 combined with a k percent decrease in income b. A k percent increase in the price of good 2 combined with a k percent decrease in income c. A k percent decrease in the price of good 2 combined with a k percent increase in income d. A k percent increase in the price of good 2 combined with a k percent increase in income. e. None of the above ANSWE R: a RATION ALE: A decrease in the price of good 2 causes the slope to become steeper, and a decrease in income shifts the budget line inward. Together, these imply that the budget line rotates inward with the vertical intercept fixed --- just as it would if the price of good 1 increases by itself. POINTS : 1 DIFFIC ULTY: A section material QUESTI ON TYP E: Multiple Choice HAS VA RIABLE S: False DATE C REATE D: 9/1/2015 1:26 PM DATE MODIF IED: 9/1/2015 1:26 PM 14. Suppose inflation comes in the form of an across - the board increase in all prices by some percentage k . For a consumer with exogenous income operating in a 2 - good world, this will cause the budget constraint to a. rotate inward b. rotate outward c. shift out in a parallel way d. shift inward in a parallel way e. none of the above ANSWER: d RATIONAL E: Since the slope of the budget is the price ratio, and since both prices increased by the same proportion, the slope is unchanged --- but the same level of exogenous income now buys less. POINTS: 1 DIFFICUL TY: A section material QUESTION TYPE: Multiple Choice HAS VARIA BLES: False DATE CRE ATED: 9/1/2015 1:26 PM DATE MO DIFIED: 9/1/2015 1:26 PM

  15. Page 15
    Read page 15 as text

    15. Suppose you are given a coupon for pizza. This coupon lowers the price for each additional pizza you buy by 5% for each addition pizza you buy. What happens to your budget constraint, with pizza on the horizontal axis and a composite good on the vertical? a. The vertical intercept remains the same but the slope becomes steeper as more pizzas are bought. b. The vertical intercept increases and the slope becomes steeper as more pizzas are bought. c. The vertical intercept remains the same but the slope becomes shallower as more pizzas are bought. d. The vertical intercept increases but the slope becomes shallower as more pizzas are bought. e. None of the above. ANSWER: c RATIONAL E: If no pizzas are bought, then nothing changes --- implying that the vertical intercept remains the same. But as more pizzas are bought, the price falls, implying an increasingly shallower budget line. POINTS: 1 DIFFICUL TY: A - Section material QUESTIO N TYPE: Multiple Choice HAS VARI ABLES: False DATE CRE ATED: 9/1/2015 1:26 PM DATE MO DIFIED: 9/1/2015 1:26 PM 16. Suppose the government wants to discourage excessive consumption of alcohol. It therefore imposes a per - unit tax on alcohol that increases as more alcohol is bought by a consumer at a store. What happens to a consumer’s budget at a liquor store (with liters of alcohol on the horizontal axis and a composite good on the vertical) --- assuming the consumer takes only one trip to the store. a. The vertical intercept decreases and the slope becomes shallower as more alcohol is bought. b. The vertical intercept remains constant but the slope becomes shallower as more alcohol is bought. c. The vertical intercept decreases and the slope becomes steeper as more alcohol is bought. d. The vertical intercept remains constant but the slope becomes steeper as more alcohol is bought. e. None of the above. ANSWER: d RATIONA LE: If no alcohol is bought, nothing changes as a result of the tax --- implying the vertical intercept remains unchanged. But the price of alcohol increases as more is bought --- implying a steepening of the slope. POINTS: 1 DIFFICUL TY: A - Section material QUESTIO N TYPE: Multiple Choice HAS VARI ABLES: False DATE CR EATED: 9/1/2015 1:26 PM DATE MO DIFIED: 9/1/2015 1:26 PM Subjective Short Answer

  16. Page 16
    Read page 16 as text

    17. Consider a consumer with a choice set that emerges from an exogenous income I . Suppose that, as a result of changes in a consumer’s economic circumstances, the budget line rotates outward, with the vertical intercept remaining unchanged but the horizontal intercept shifting to the right. How could this have happened if the price of the good on the horizontal axis did not change? ANSW ER: If the price of the good on the vertical axis increases by the same proportion as income does. (The increase in income along causes a parallel shift outward, and the increase in the price of good 2 causes the slope to become shallower. If the two increase by the same percentage, the amount of good 2 that is affordable remains unchanged while the amount of good 1 that is affordable increases.) POIN TS: 1 DIFFI CULT Y: A section material QUES TION TYPE: Subjective Short Answer HAS V ARIA BLES: False DATE CRE ATED : 9/1/2015 1:26 PM DATE MOD IFIED : 9/1/2015 1:26 PM

452 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Mathematics study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.