Test 2 Ch 4-7

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Question #1

Self-regarding preferences usually are concerned with the material well-being of others.

A False

B True

Question #2

Ockham’s razor stresses simple over the complex, if either will work.

A True

B False

Question #3

What is the definition of Ockham’s razor?

A Simple theories are better than complex ones.

B Simple theories are incompatible with complex theories.

C Complex theories and simple theories explain different objectives.

D Complex theories are better than simple ones.

Question #4

Efficient market performance implies that people trade, but that these trades are not always mutually beneficial.

A True

B False

Question #5

Bounded rationality means that people don’t always intend to make choices that best serve their objectives.

A True

B False

Question #6

Perfectly-competitive firms are price takers because

A All of these.

B Firms have equal access to information.

C Many small firms offer a homogenous product.

D There are no barriers to entry.

Question #7

Public goods lead to efficient market performance because of free riders.

A False

B True

Question #8

Pure economic profit

A Is equal to total revenue less implicit and explicit costs.

B None of these

C Is equal to total revenue less implicit costs.

D Is equal to total revenue less explicit costs.

Question #9

The income effect arises from

A The increase in marginal utility resulting from an increase in real income.

B Neither

C The decrease in real income caused by an increase in the price of a good.

D The substitution of one good for another when the prices of goods change.

Question #10

Costs that, once incurred, cannot be recovered are known as

A variable costs

B sunk costs

C normal costs

D fixed costs

Question #11

A situation in which there is only one buyer is known as a monopoly

A False

B True

Question #12

The demand and supply curves for a product illustrate externalities.

A False

B True

Question #13

A public good is a good that, when provided to one person, can be provided to others at zero additional cost.

A True

B False

Question #14

A Giffen good

A has an upward sloping demand curve.

B must be an inferior good.

C Has large income effects compared with substitution effects.

D All of these.

Question #15

The difference between what a consumer is willing to pay and the amount actually paid is

A the income effect

B the substitution effect

C consumer surplus

D a durable good

Question #16

Costs of goods sold, salaries expense, and utilities expense are known as

A Profits

B Explicit costs

C Survivorship costs

D Implicit costs

Question #17

Externalities lead to efficient market performance because they always have beneficial third-party effects.

A False

B True

Question #18

A theory is anything that people want to achieve.

A True

B False

Question #19

All economic theories have objectives, constraints, and choices.

A False

B True

Question #20

Which of the following is an example of a fixed cost in the manufacture of automobiles?

A All of these.

B The cost of constructing the factory building.

C The cost of sheet metal used in the automobile’s construction.

D The cost of hiring workers to run the assembly line.

Question #21

Economic theory assumes that it is the goal of all firms to achieve the highest possible

A All of these

B Costs

C Production

D Profit

Question #22

Government failure occurs when government action results in a less efficient allocation of resources.

A True

B False

Question #23

Rising price levels reduce the buying power of one’s nominal income.

A True

B False

Question #24

Bounded rationality is based upon which of the following?

A All available information

B Governmental actions

C Elastic demand

D Limited ability to acquire information

Question #25

Full rationality assumes that the choices are made to best meet the individual’s objective, with all information available. Information is obtained and research is conducted to help maximize the consumer’s selection.

A False

B True

Question #26

The excess burden of a tax refers to

A the difference between the tax paid by the consumers and the producers.

B the portion of the tax paid by only the consumers.

C the portion of consumer and producer surplus lost because of the reduction in the quantity sold.

D the portion of the tax paid by the only producers.

Question #27

An objective is anything that people want to achieve.

A True

B False

Question #28

Accounting profit

A is equal to pure economic profit plus implicit costs.

B Is equal to total revenue less implicit and explicit costs.

C Is equal to total revenue less implicit costs.

D None of these

Question #29

In perfect competition,

A All of these.

B Firms earn no profit in the long run because price is equal to average cost.

C There are no surpluses or shortages.

D The market equilibrium is efficient.

Question #30

What term describes the key traits of a market including the number and size of firms, the extent to which the products of various firms are different or similar, the ease of entry and exit, and the availability of information?

A Perfect Competition

B Market Structure

C All of these

D Subjective Traits

Question #31

Utility measures the constraints facing consumers

A True

B False

Question #32

An industry with a single seller of a good is called a monopoly.

A False

B True

Question #33

Suppose that Thomas, who formerly worked for someone else, gives up $15,000 in annual salary to open his own bookstore. After one year, his bookstore has explicit costs equal to $65,000 and total revenue equal to $75,000. According to these figures, which of the following is true?

A None of these

B Accounting profit is $25,000.

C Normal profit is $15,250.

D Pure economic profit is ($5,000 loss).

Question #34

Leader choice theory describes how people use the institution of government for their own interest.

A False

B True

Question #35

Full rationality means that people make use of all available information in determining how to best meet their objectives.

A True

B False

Question #36

Opportunity costs of using resources contributed by the firm’s owners that are not obtained under contracts calling for payments are known as

A Profits

B Explicit costs

C Implicit costs

D Survivorship costs

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