Microeconomics and Behaviour 5th Edition Test Bank

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1Student: ___________________________________________________________________________1.Microeconomics is primarilyA.the study of how the stock market works.B.the study of how people choose under conditions of scarcity.C.the study ofhow businesses can increase profitability.D.the study of how the economy functions as a whole.2.If everyone had unlimited wealth but limited time, thenA.scarcity would not exist.B.scarcity would still exist.C.economicswould 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, thenA.do X.B.don't do X.C.whether or not you do X has noeffect on your well-being.D.not enough information has been given.4.The reservation price of activity X isA.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 ofdoing X is$100, thenA.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. Youloan a friend $100, interest-free, forone year. Assuming the loan is paid back on time, the opportunity cost of the loan isA.$0.B.$3.C.$100.D.$103.7.You decide to go skiing this weekend. It costs $40 fortransportation, $60 for lodging and $30 forski lift tickets, and you could have earned $100 as a waiter. You would quit your waiter's job ifthey paid one penny less. What is the total cost of the ski weekend?A.$30B.$90C.$130D.$2308.You decide to go skiing this weekend. It costs $40 for transportation, $60 for lodging and $30 forski lift tickets. You are unemployed. What is the total cost of the ski weekend?A.$30B.$90C.$130D.$2309.Youdecide to go skiing this weekend. It costs $40 for transportation, $60 for lodging, $30 for skilift tickets and you could have earned $100 as a waiter at a job you love so much you would do itas a volunteer. What is the total cost of the ski weekend?A.$30B.$90C.$130D.$230The 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 orat home.

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10.Suppose that you could have free accommodation at home at no cost to you if you worked, butmust live on campus if you go to school. What is the total cost of going to school?A.$10,000B.$12,000C.$23,000D.$28,000E.$30,00011.Suppose you must live on your own whether working or in school. What is the total cost of goingto school?A.$10,000B.$12,000C.$23,000D.$28,000E.$30,00012.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 isthe total cost of going to school?A.$10,000B.$12,000C.$23,000D.$28,000E.$30,00013.Youdecide to lend $100 to a friend, interest-free, for one year. You calculate that over that periodyou could have earned 10% in interest on the $100. What is the opportunity cost of the loan, if itis repaid on time?A.$0B.$10C.$100D.$110You are considering renting a car for the weekend. It costs $200 for the car plus $0.20 perkilometre (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.$40B.$60C.$200D.$26015.Suppose that you have already rented the car. Now what is the cost of the journey?A.$60B.$100C.$200D.$26016.If you now decide to take a detour which is an additional 50 kilometres, what is the cost ofthedetour?A.$10B.$70C.$210D.$27017.You already have a ticket to see the Rolling Stones' "Twelfth Annual Absolutely Final FarewellTour" show. The ticket cost $20, but scalpers are selling the ticket for $100. You must giveup yourincome as a waiter on a Saturday night in order to see the concert. You would have made $50 byworking, and apart from the wages you are indifferent between working and not working. What isthe cost of the Rolling Stones concert?A.$70B.$130C.$150D.$17018.Adam Smith inThe Wealth of Nationsargued thatA.appeals to self-interest will likely be more successful than appeals to benevolence.B.individuals' pursuit of selfish objectives canunintentionally 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 thatA.rational people act efficiently in pursuit ofwhatever 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 B20.The present aim standard ofrationality assumes thatA.people's behaviour enables us to determine what their self-interest is, no matter how strangetheir 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 rationalityholds, we would predict thatA.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 anelection.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 caughtweighted by theprobability of being caught.22.Positive economics is concerned withA.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 BE.B and C23.Scarcity means any of the following except thatA.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 existA.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.Youcan drive to campus, take a bus, or walk. Driving costs you $2/kilometre in gas andmaintenance, the bus costs $1 for unlimited distance, and walking is free but involves a disutilityequivalent to $1/kilometre. If you live 2 kilometres from campus, and are a rational decisionmaker, what is the maximum amount you would be willing to pay for a bus ticket?A.$0B.$1C.$2D.$426.Unbridled self-interest fails to coordinate resource flows most effectively in which of thefollowingcases?A.the production of breadB.the building of a tornado warning sirenC.the production of carsD.the production of haircutsSuppose you receive $17.50 worth of pleasure from the first hole of golf played and youradditional 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.8B.9C.15D.16E.17

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28.If the situation is the same except that thecost per hole is now zero, how many holes of golf willyou play?A.12B.15C.16D.17E.1829.If the situation is the same except that you must pay $25 up front (and zero per hole) for theunlimited right to play for a day,how many holes of golf will you play?A.0B.9C.17D.18E.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 inkilograms and MB and MC in $/kilogram. The optimal level of x (in kilograms) isA.0B.10C.15D.20E.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 inkilograms and MB and MC in $/kilogram. The optimal level of x (in kilograms)isA.0B.10C.15D.20E.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 inkilograms and MB and MC in $/kilogram. The optimal level of x (in kilograms) isA.0B.10C.15D.20E.30.33.Many students feel that economic theory is not "practical" enough. Others feel that theory is thebest guide topractice. In other words, what "practical" people do is really only the working out oftheories that they must somehow intuitively understand. Take the following story and answer thequestions that relate to it.Joe is a plumber who claims he neither knows nor cares about theory. He arrives on the jobwhere a pipe is totally rusted together and the coupling is difficult to turn loose. He goes to thetruck to get his tools to solve the problem. The questions to analyze here concern the size of thewrenches that he has in his truck. His wrench collection has 6 wrenches ranging in size from 15centimetres long to 1 metre long.a. Why are there different-sized wrenches in the truck and what theory of physics makes wrenchsize 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 comes 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 superiorprograms in everything. "If it is not topquality it will not be offered here" seems to be the theme ofmany college catalogues. Explain, on the basis of material in this chapter, why this publicrelations noise is not believable.35.Give an example, different from those in the text, where you erroneously took sunk costs intoaccount where it was inappropriate to do so.36.Give an example, different from those in the text, where you made a decision based on yourprivate costs only, and would have made adifferent 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 taxother goods like books and clothing. Based on the potential presence of externalcosts or benefits(positive or negative externalities), explain why such uneven taxation could have desirable resultsfor society.38.Provide separate examples of a positive externality (an external benefit) and a negativeexternality (an external cost). Discuss why neither leads to socially optimal decision making byagents selfishly maximizing their own individual well-being.

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1Key1.(p.22)Microeconomics is primarilyA.the study of how the stockmarket 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 #12.(p.2)Ifeveryone had unlimited wealth but limited time, thenA.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 #23.(p.3)Under self-interest rationality, if the benefits to you of doing X exceed the costs of doing X,thenA.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 #34.(p.4)The reservation price of activity X isA.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 beindifferent 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 ofdoing X is$100, thenA.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 #56.(p.5)Your bank account paysinterest 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 isA.$0.B.$3.C.$100.D.$103.FrankParker-Chapter 01 #67.(p.6)You decide to go skiing this weekend. It costs $40 for transportation, $60 for lodging and $30for ski lift tickets, and you could have earned $100 as a waiter. You would quit your waiter's jobif they paid one penny less. What is the total cost of the ski weekend?A.$30B.$90C.$130D.$230FrankParker-Chapter 01 #78.(p.6)You decide to go skiing this weekend. It costs $40 for transportation, $60 for lodging and $30for ski lift tickets. You are unemployed. What isthe total cost of the ski weekend?A.$30B.$90C.$130D.$230FrankParker-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 forski lift tickets and youcould have earned $100 as a waiter at a job you love so much youwould do it as a volunteer. What is the total cost of the ski weekend?A.$30B.$90C.$130D.$230FrankParker-Chapter 01 #9The 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 schoolor at home.FrankParker-Chapter 0110.(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.$10,000B.$12,000C.$23,000D.$28,000E.$30,000FrankParker-Chapter 01 #1011.(p.7)Suppose youmust live on your own whether working or in school. What is the total cost ofgoing to school?A.$10,000B.$12,000C.$23,000D.$28,000E.$30,000FrankParker-Chapter 01 #11

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12.(p.7)Suppose that at school you can workpart time and make $5,000 at a job you would do forfree. 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.$10,000B.$12,000C.$23,000D.$28,000E.$30,000FrankParker-Chapter 01 #1213.(p.5)You decide to lend $100 to a friend, interest-free, for one year. You calculate that over thatperiod you could have earned 10% in interest on the $100. What is the opportunity cost of theloan, ifit is repaid on time?A.$0B.$10C.$100D.$110FrankParker-Chapter 01 #13You are considering renting a car for the weekend. It costs $200 for the car plus $0.20 perkilometre (including gas).FrankParker-Chapter 0114.(p.8)If you decide to go on a 300-kilometre journey, what is the total cost of the rental?A.$40B.$60C.$200D.$260FrankParker-Chapter 01 #1415.(p.8)Suppose that you have already rented the car. Now what is thecost of the journey?A.$60B.$100C.$200D.$260FrankParker-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 thedetour?A.$10B.$70C.$210D.$270FrankParker-Chapter 01 #1617.(p.5)You already have a ticket to see the Rolling Stones' "Twelfth Annual Absolutely Final FarewellTour" show. The ticket cost $20, but scalpers are selling the ticket for $100. You must give upyour 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 notworking. What is the cost of the Rolling Stones concert?A.$70B.$130C.$150D.$170FrankParker-Chapter 01 #1718.(p.14)Adam Smith inThe Wealth of Nationsargued thatA.appeals to self-interest will likely be more successful than appeals to benevolence.B.individuals' pursuit ofselfish 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 #1819.(p.16)The self-interest standard of rationality assumes thatA.rational people act efficiently in pursuit of whatever objects they hold at the moment ofchoice.B.acts of charity are always in one's rational self-interest.C.rational people consider only benefits that accrue directly tothemselves.D.A and BFrankParker-Chapter 01 #19

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