Microeconomics: Theory and Applications with Calculus, 3e (Perloff)
Chapter 1 Introduction
1.1 Microeconomics: The Allocation of Scarce Resources
1) Microeconomics studies the allocation of
A) decision makers.
B) scarce resources.
C) models.
D) unlimited resources.
2) Microeconomics is often called
A) price theory.
B) decision science.
C) scarcity.
D) resource theory.
3) Most microeconomic models assume that decision makers wish to
A) make themselves as well off as possible.
B) act selfishly.
C) make others as well off as possible.
D) None of the above.
4) Society faces trade-offs because of
A) government regulations.
B) greedy corporations.
C) faceless bureaucrats.
D) scarcity.
5) A market
A) always involves the personal exchange of goods for money.
B) allows interactions between consumers and firms.
C) always takes place at a physical location.
D) has no influence on prices.
6) What links the decisions of consumers and firms in a market?
A) the government
B) prices
C) coordination officials
D) microeconomics
7) The price of a good is
A) always equal to the cost of producing the good.
B) never affected by the number of buyers and sellers.
C) usually determined in a market.
D) None of the above
8) The flu vaccination example in Section 1.1 of the textbook is an example of how policy makers may
cope with
A) scarcity of medical treatment.
B) scarcity of patients.
C) scarcity of policy makers.
D) answering the question of how to produce.
9) Who or what is responsible for the allocation of scarce resources into the production of most goods in
the U.S.?
A) the American government
B) the UN
C) the Federal Reserve Bank
D) markets and prices
10) Which one of the following is NOT a key trade-off a society faces?
A) Who gets the goods and services
B) Who produces the goods and services
C) Which goods and services to produce
D) How to produce
11) An automobile manufacturer is trying to make decisions about using more workers or more
equipment. This belongs to the trade-off
A) Which goods and services to produce
B) How to produce
C) Who gets the goods and services
D) Who produces the goods and services
12) Income tax on the wealthy to finance the welfare for the poor causes income redistribution. This is an
example for the trade-off
A) Which goods and services to produce
B) How to produce
C) Who gets the goods and services
D) Who produces the goods and services
13) In year 2008, 1334 million lbs milk was produced and sold in U.S. This is
A) the decision of the U.S. department of agriculture.
B) quantity determined by the interactions in the market.
C) the maximum amount the producers could produce.
D) what consumers needed.
For the following, please answer “True” or “False” and explain why.
14) Under most circumstances, the application of taxes on goods will only affect who gets the goods.
15) Most modern financial centers use computers to match buyers and sellers. This absence of personal
contact contradicts the definition of a market.
16) Explain how a market helps determine which goods and services will be produced, how to produce
them, and who gets them.
1.2 Models
1) The purpose of making assumptions in economic model building is to
A) force the model to yield the correct answer.
B) minimize the amount of work an economist must do.
C) simplify the model while keeping important details.
D) express the relationship mathematically.
2) Einstein was quoted saying “Everything should be made as simple as possible, but not simpler.” When
it comes to economic models this means that
A) models shouldn’t be too complex.
B) models shouldn’t be too simple.
C) models should have a level of abstraction appropriate to the topic investigated.
D) All of the above
3) If a model’s predictions are correct, then
A) its assumptions must have been correct.
B) it is proven to be correct.
C) Both A and B above.
D) None of the above.
4) Economists tend to judge a model based upon
A) the reality of its assumptions.
B) the accuracy of its predictions.
C) its simplicity.
D) its complexity.
5) Which of the following is an example of a normative statement?
A) A higher price for a good causes people to want to buy less of that good.
B) A lower price for a good causes people to want to buy more of that good.
C) To make the good available to more people, a lower price should be set.
D) If you consume this good, you will be better off.
6) Every economic model should include money as a variable. This statement is
A) true, because every transaction in the economy uses money.
B) true, because the federal reserve is very important.
C) false, because some transactions in the economy are transacted without money.
D) false, because a model can get unnecessarily complex if it includes money.
7) Which of the following is an example of a normative statement?
A) Since this good is bad for you, you should not consume it.
B) This good has bad health effects.
C) If you consume this good, you will get sick.
D) People usually get sick after consuming this good.
8) Which of the following is an example of a positive statement?
A) Since this good is bad for you, you should not consume it.
B) If this good is bad for you, you should not consume it.
C) If you consume this good, you will get sick.
D) None of the above
9) A theory stating that individuals make purchasing decisions based on tastes which change randomly at
random intervals is not useful because
A) it is not possible to test the predictions of the model.
B) tastes are not the only factor influencing behavior.
C) the model is too simplistic.
D) the predictions of such a model would be incorrect.
10) “If fines for speeding when driving increase, fewer accidents will occur” is an example of a(n)
A) positive statement.
B) normative statement.
C) negative statement.
D) inverse statement.
11) “Government should impose stricter regulations on oil drilling” is an example of a
A) normative statement.
B) positive statement.
C) negative statement.
D) normal statement.
12) In the supply-demand models to analyze the wheat market, we assume that wheat sold by different
sellers is largely the same. We make this assumption
A) to test the model.
B) to easily predict the market price.
C) to simplify the model while keeping important details.
D) to avoid the complexities in the real world.
13) Consumers choose their cellphone plans according to their needs and package features. This is an
example of
A) importance of information to consumers’ choices.
B) importance of making personal budget.
C) maximizing an objective that is subject to a constraint.
D) minimize the cost of cellphone usage.
14) Which of the following statements is a normative statement?
A) Minimum wage reduces employment.
B) Minimum wages causes surplus in labor market.
C) Minimum wage will improve the living of junior works more than senior workers.
D) Minimum wage should be welcomed by the low income class.
15) Increase in price of a good will increase consumers’ demand. This is a(n)
A) positive statement.
B) true statement.
C) inverse statement.
D) normative statement.
16) Trade barriers should be removed to promote the welfare of the country. This is a(n)
A) positive statement.
B) negative statement.
C) inverse statement.
D) normative statement.
17) Normative analysis offers decision makers the most valuable information when choosing among
alternatives.
18) If a model fits reality but doesn’t generate testable predictions, it is of little value to economists.
19) If actual experience supports two competing theories, then both theories are proven to be true.
20) Legislators argue that a minimum wage law is instituted to help poor people. Economists can attack
the minimum wage law on two fronts. First, some argue that government should not help the poor.
Second, some argue that minimum wage laws actually hurt the poor because it creates unemployment.
Which argument is normative and which is positive?
1.3 Uses of Microeconomic Models
1) Economic Policy of the government is often based on
A) microeconomic models.
B) educated guessing.
C) intuitive reasoning.
D) hints.
2) Microeconomic Models are used to
A) make predictions.
B) explain real-life phenomena.
C) evaluate policy alternatives.
D) All of the above.
3) A microeconomic model CANNOT be used to
A) evaluate the impact of a price change on a firm’s revenue.
B) predict the impact on a rise of the minimum wage on unemployment.
C) evaluate the fairness of the proposal to nationalize health insurance.
D) evaluate the effect of an increase in stadium size on the price of a sport team’s tickets.
4) The analysis of the competition between Apple and Samsung in the smartphone market is based on
A) microeconomic model.
B) educated guessing.
C) intuitive reasoning.
D) consumer surveys.
For the following, please answer “True” or “False” and explain why.
5) Microeconomics can be used by governments to predict the impacts of a policy and suggest solutions
to problems.
6) One model in economics is the permanent income hypothesis, which basically states that a household’s
expenditures will not react to a change in income unless that change in income is viewed as being
permanent. How would you use this model to predict the expenditure patterns over the course of a year
of a real estate agent who only sells homes during the months of April through July?
7) One million automobiles have a defect that could cause the car to explode; however, only one of those
cars will actually explode. Nobody knows which one car it is. When the car does explode, the victim‘s
family will sue the automaker for $1 million and win. The defect costs $2 per car to repair. What does
economics predict about the automaker’s decision to repair the defect?