Test 1 – Ch 1-4 (Browning, Zupan: Microeconomics: Theory and Applications, 10th Edition)

A theory typically simplifies and abstracts from reality. (T/F)

The term price as used in microeconomics refers to the nominal price of a good. (T/F)

Economists assume market participants engage in goal-oriented behavior, which is the same thing as selfish behavior. (T/F)

Suppose you purchase a non-refundable ticket to see a movie at the theater. Five minutes into the movie you realize that the movie is awful and that your time would be better spent doing something else. Given this information, however, the best choice is to stay and watch the remainder of the movie because you've already purchased the ticket.
(T/F)

Microeconomics
A. is the study of aggregate economics factors such as the total amount of goods and services produced in a given society.
B. is sometimes called wage theory.
C. does not include the study of individual industries.
D. is the study of "small" economic units such as workers, firms, consumers, and managers.

good theory is one that

O A.
has assumptions that mirror reality.
O B.
describes the real world as closely as possible.
O C.
incorporates as many facts as possible.
O D.
explains or predicts what it is designed to explain or predict.

Suppose an economic study concluded that a new law requiring all firms to have dental insurance for all employees would reduce employment by 2 percent. This is an example of

O A.
normative analysis because the effect is relatively small.
O B.
positive analysis because it assesses the expected outcome of the new law.
O C.
market analysis because it deals with more than one market.
O D.
normative analysis because the result would not be desirable for firms.

Which of the following is an example of a positive, as opposed to normative, question?

O A.
Should the government raise the tax on cigarettes to reduce smoking?
O B.
By how much will smoking be reduced overall if the government raises the tax on cigarettes by $1.00 per pack?
O C.
Should the government grant immunity to tobacco firms to eliminate their liability from lung cancer lawsuits?
O D.
Should the government pass a law to make it illegal to smoke in public places to reduce the harmful effects of second-hand smoke?

If the price of a gallon of gasoline was $2.65 in 2007 and $3.35 in 2008, then the

O A.
nominal price increased but we can't tell the real price unless we know what happened to the prices of other goods.
O B.
nominal price increased but the real price decreased.
O C.
absolute price increased but the real price decreased.
O D.
absolute and relative price increased.

The real price of a good

O A.
is also known as the absolute price of a good.
O B.
reflects the nominal price adjusted for inflation.
O C.
is rarely used in microeconomics when studying markets since only the nominal price reveals the absolute price of a good.
O D.
gives the price level unadjusted for the changing value of money.

Which of the following is not an example of goal-oriented behavior?

O A.
A family gives ten percent of its income to its place of worship.
O B.
A physician leaves her practice in New York City to practice medicine in Rwanda.
O C.
A student turns down a free ticket to the opera in order to study for his math test.
O D.
All of these are examples of goal-oriented behavior.

If businesses randomly decided where to locate new factories, that would violate which assumption economists make about market participants?

O A.
Behavior is goal-oriented.
O B.
Resources are scarce.
O C.
Behavior is rational.
O D.
Businesses have unlimited desire for profit.

Which of the following is an example of a resource that is not scarce?

O A.
Clean water.
O B.
Air.
O C.
Unskilled labor.
O D.
Friends.

Explicit costs differ from implicit costs in that explicit costs

O A.
are greater than implicit costs.
O B.
involve actual expenditures and implicit costs don't.
O C.
are opportunity costs and implicit costs are not.
O D.
involve materials and equipment and implicit costs involve labor.

Suppose the explicit cost of buying a new car is $20,000 and the implicit cost of buying a new car is $3,000. The opportunity cost of buying a new car is then equal to
O A.
$3,000
O B.
$17,000
O C.
$20,000
O D.
$23,000

The economic cost of a resource equals

O A.
explicit costs minus implicit costs.
O B.
implicit costs minus explicit costs.
O C.
explicit costs plus implicit costs.
O D.
explicit costs.

Given the difference between accounting costs and economic costs, it is generally true that

O A.
accounting profits understate the real profitability of a firm.
O B.
accounting costs are greater than economic costs.
O C.
accounting profits overstate the real profitability of a firm.
O D.
better decision making is achieved by ignoring implicit costs.

Sunk costs

O A.
are as relevant as opportunity costs to economic decisions.
O B.
are costs that have been incurred already and can sometimes be recovered.
O C.
should be ignored when making economic decisions.
O D.
None of the above is true.

Which of the three assumptions about market actors determines the best position on the PPF?

O A.
Individuals are goal-oriented.
O B.
Individuals are rational.
O C.
Market actors are confronted by scarcity.
O D.
None of these since the three assumptions only place an actor on the PPF boundary.

Consider a PPF that has a typical curved shape. The curvature of the PPF indicates that
O A.
some of the resources are better suited for one activity compared to the other.
O B.
people are not rational.
O C.
opportunity costs are constant.
O D.
resources are scarce.

When the production possibility frontier (PPF) is a straight line

O A.
producing one more unit of one good will always require giving up the production of exactly one unit of another good at all points on the PPF.
O B.
the opportunity cost per unit of output is constant over the entire PPF.
O C.
the opportunity cost per unit of output is decreasing while moving down the PPF.
O D.
the opportunity cost per unit of output is increasing while moving down the PPF.