Microeconomics-Definitions

2. Rational ignorance occurs when people are not knowledgeable of something because: A) those people have no incentives to learn anything. B) the benefits of being informed are less than the cost of becoming informed. C) they are simply irrational. D) they are self-centered and lack the ability to learn.

3. Which of the following statements seems to be that of a rationally ignorant person? A) I am not sure which of the soups are more nutritious and I'm in a hurry, so I will opt for the one with more vegetables in it. B) I always compare prices and buy the good at the store where it has been priced the cheapest. C) I don't know much about the candidates' views on defense, but he has better charisma than she does and so I will vote for him. D) The male candidate has a much softer defense strategy than the female candidate so I have decided to vote for her.

4. If there are only two goods in the economy, chocolate and peanut butter, and the price of chocolate falls, the new utility-maximizing bundle for a typical consumer would entail consuming ______ peanut butter and ______ chocolate. A) less; more B) more; less C) more; more D) less; less

5. When production of a good can be expanded without significantly increasing the overall demand for its inputs: A) supply for this good will tend to be more inelastic. B) supply for this good will tend to be more elastic. C) price for the good will be constant. D) the elasticity of supply of the product will equal the elasticity of supply of the inputs.

6. Private solutions to externalities are MOST likely to occur when there are: A) well-defined property rights and low transaction costs. B) communal property rights and large numbers of sellers. C) private property rights and high transactioncosts. D) communal property rights and large numbers of buyers and sellers with equal bargaining power.

7. Which is an example of an external cost? A) secondhand smoke B) increased gas prices for drivers of SUVs C) the cost you pay your plumber to install a new hot water heater D) your high electric bill that results from leaving your lights on all night

8. By assuming diminishing marginal utility, we mean that: A) consumers get less overall value from goods as their income rises. B) consumers value some goods more than others. C) the cost of producing goods declines as output increases. D) consumers value additional units of a good less than the previous unit.

13. Preferences are characterized generally by: A) budget constraints. B) consumption bundles. C) indifference curves. D) income.

14. Which of the following best explains why special interest groups maintain so much power in the United States political process? A) Special interest groups typically represent the largest United States companies, so get a lot of media attention. B) Special interest groups stand to gain millions if particular laws are passed and lobby very hard for them; whereas voters stand to lose only a little and don't find opposing them worth their effort. C) Both special interest groups as well as voters lobby politicians hard regarding certain legislation, however special interest groups typically win out because they have more money. D) Special interest groups have been powerful in the past because of their ties to wealth; however, their power has been dwindling in recent years.

15. If the income elasticity of demand of a good is negative, we can conclude that the good is: A) a normal good. B) an inferior good. C) a substitute. D) a complement.

16. Special interest groups have an incentive to be: A) rationally ignorant. B) rationally informed. C) free riders. D) forced riders.

17. The theory of the median voter may not work if: I. voters do not vote.II. voters do not vote for the policy closest to their own positions.III. there is only a single dimension over which the voting occurs. A) I only B) II only C) I and II only D) I, II, and III

18. The difference between private goods and common resources is that common resources are: A) more valuable than private goods. B) excludable, and private goods are nonexcludable. C) nonexcludable, and private goods are excludable. D) nonrival.

19. A private cost is: A) a cost paid by the consumer or the producer trading in the market. B) a cost paid by people other than the consumer or the producer trading in the market .C) thecost to everyone trading in all markets. D) the cost of reaching an agreement.

20. The elasticity of demand measures: A) how responsive quantity demanded is to a change in price. B) the percent change in quantity demanded. C) the percent change in price. D) the percent change in quantity supplied divided by the percent change in price.

21. Tonya consumes 40 steaks a year when her yearly income is $40,000. After her income falls to $35,000 a year, she consumes only 35 steaks a year. Calculate herincome elasticity of demand for steaks. A) -1 B) 1 C) -12.5 D) 12.5

22. A Pigouvian tax: A) is levied on a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight loss. B) subsidizes a good that creates a negative externality and should be set equal to the external cost to eliminate the deadweight loss. C) is levied on a good that creates a positive externality and should be set equal to the external benefit to eliminate the deadweight loss. D) is levied on a good that creates a positive externality and should be set equal to the social benefit to eliminate the deadweight loss.

23. Public goods are those goods that are: A) nonrival and nonexcludable. B) rival and nonexcludable. C) produced by the government. D) highly valued for the purpose of national security.

24. An increase in the price of a good leads to a(n) ______ in the marginal utility per dollar of that good, and thus a(n) ______ in the quantity purchased.A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

25. Many people who own dogs do not pick up after them in public places. This is an example of: A) free riders. B) the tragedy of the commons. C) a public good. D) forced riders.

26. Because there are external benefits from higher education: A) private markets will oversupply college classes. B) government intervention cannot improve the market for college classes. C) the government should impose a tax on college students. D) private markets will undersupply college classes.

27. Which is an example involving an external benefit? A) the pollution of a stream B) a person littering a public highway C) air pollution D) a nice garden in front of someone's house

30. Which good below might be expected to have the most inelastic demand curve?A) salt B) women's blouses from Walmart C) potato chips D) Tylenol

31. A free rider shares the benefit of a ______ without paying a share of the costs. A) private good B) public good C) common resource D) nonrival private good

32. The supply curve for manufactured goods is usually more elastic than raw materials because production of manufactured goods can often be: A) increased at higher cost per unit by building more factories. B)increased at lower cost per unit by building more factories. C) decreased at the same cost per unit by building more factories. D) increased at the same cost per unit by building more factories