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Microeconomics 8th Ed Pindyk Rubinfeld Test Bank Chapter
1 Questions And Correct Answers
Microeconomics is the branch of economics that deals with which of the following topics? A) The behavior of individual consumers B) Unemployment and interest rates C) The behavior of individual firms and investors D) B and C E) A and C Answer: E Answer: E
There's a Rolling Stones song that says, "You can't always get what you want." What that suggests is one of the central ideas in microeconomics. Which of the following statements best illustrates that idea? A) Because consumers have only limited incomes to spend, they must make the best buying choices they can. B) With wage and working conditions given, workers do not have as much leisure as they'd like. C) Laborers in a centrally planned economy, like North Korea, do not have much freedom to choose what jobs to take. D) Businesses in a market economy may only have limited funds. Answer: A
Economics is the study of the allocation of scarce resources. Which of the following is NOT an example of economic scarcity? A) If Steve goes to see a movie on Saturday, he will not have enough money to buy ice
cream. B) If Jenny studies for her economics quiz this evening, she will not have time to walk her dog. C) If General Motors increases its production of SUVs this year, it will have to spend more on advertising. D) If Barnes and Noble bookstore increases the number of titles it carries, it will have to reallocate shelf space to accommodate the new titles. Answer: C
A sound and helpful theory of the gold price: A) facilitates predictions about gold price movements over time. B) can be based on simplifying assumptions. C) does not have to accurately forecast every change in the price of gold. D) all of the above E) none of the above Answer: D
Based on the following two statements, answer this question: I. Economic theories are designed to explain observed phenomena by deducing from a set of basic rules and assumptions. II. Economic theories employ value judgments to decide who ought to pay more taxes. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false. Answer: B
employment. C) Smoki-ng must be curtailed aboard all aircraft trips D) Everyone travelling inside an automobile should have a seatbelt in their cars as a preventive measure for all accidents that are considered minor, thus prevent a life E) none of the above Answer: E
9)Which one of the following statements is a positive statement? A)As price paid by a consumer increases there are decreasing quan-tities bought. B) Price increased with goods offered. C) When the Federal government sells bonds, interest rates rise and private business investment is reduced. D) all of the above E) none of the above Answer: D
- Which of the following is NOT a false statement? An economic analysis of carbon taxes can: A) calculate the increase in costs faced by coal-using industries. B) predict the effect on unemployment in West Virginia coal mining communities. C) compare the likely reductions in medical expenditures on diseases caused by smog. D) present a trade-off of the costs and benefits of different levels of carbon taxes. E) conclude that such taxes should be imposed to benefit future generations. Answer: E
Use the following two statements to answer this question: I. To answer normative questions, value judgments must be made. II. To undertake any positive economic analysis, it is always necessary to use empirical evidence in addition to the economic theories. A) I and II are incorrect. B) I is correct, II is incorrect. C) I is incorrect, II is correct. D) Both I and II are correct. Answer: B
________ questions have to do with explanation and prediction, ________ questions have to do with what ought to be. A) Positive; negative. B) Negative; normative. C) Positive; normative. D) Positive; normative. E) Econometric; theoretical. Answer: D
The basic underlying assumption of the theory of the firm is that: A) firms are assumed to maximize sales revenue. B) managers are assumed to maximize the number of employees in their department. C) firms are assumed to maximize profits. D) none of the above Answer: C
D) none of the above Answer: C
The trade-offs facing workers include all of the following EXCEPT: A) choice of whether to work or stay out of the labor force. B) choice of whether to work or to stay in school. C) choice of whether to work for a large company or a small business. D) choice of how to allocate one's time between work and leisure. E) All of the above are trade-offs facing workers. Answer: E
Firms face trade-offs in production, including choices about: A) what products to make. B) How much of any one product to produce. C) The method of producing any given amount of output. D) all of the above Answer: D
During presidential campaigns, candidates from each party often declare their intentions with respect to maintaining or changing federal taxes on personal and business income. Are these sorts of policy pronouncements are generally positive or normative? A) Positive B) Normative C) Both positive and normative D) Neither positive or normative Answer: B
Which of the following economic values is NOT a price? A) Wage earned per hour B) Annual interest rate paid for borrowed money C) College tuition per semester D) all are examples of prices Answer: D
Which of the following is NOT true? A) If an economic theory is proven to be untrue, then it must be discarded. B) If an economic theory is proved to be false, it is then adjusted or rejected. C) The underlying basis of any prediction comes from economic theory. D) An economic model is a specific representation of an economic theory. Answer: A
Of the following markets, which one has the most restricted geographic boundary? A) The retail market for gasoline B) The market for houses C) The market for gold D) The market for beef Answer: B
An investor can acquire Acme Corporation common stock either by direct purchase
commercial aircraft. This is not a perfectly competitive market because: A) each company has annual sales exceeding $10 billion. B) each firm has the ability to strongly influence prices. C) Airbus receives subsidies from the European Union. D) Airbus is not allowed to sell aircraft to the U.S. government. E) all of the above Answer: B
Which of the following markets are examples of perfectly competitive markets? A) Wheat B) Textiles C) Gold D) The stock market E) all of the above Answer: E
Although the U. S. airline industry has only a relatively small number of sellers, the market is nevertheless highly competitive. The reason is that: A) the number of buyers is very large. B) due to fierce competition, no firm has significant control over prices. C) due to fierce competition, no firm has significant control over the quantity supplied. D) most airline routes are served by relatively many sellers. Answer: B
- Washington D.C.'s metro train system is being extended further out into the surrounding states of Maryland and Virginia, lowering the cost of commuting into the
United States' capitol. Other things held constant, this will: A) decrease the extent of the market for housing around Washington D.C. B) increase the extent of the market for housing around Washington D.C. C) have no impact on the extent of the market for housing around Washington D.C. because actual geography does not change. D) have no impact on the extent of the market for housing around Washington D.C. because the range of houses has not changed. E) have no impact on the extent of the market for housing around Washington D.C. because property taxes have not changed. Answer: B
Why is market definition important for economic decision making? A) A firm is interested in knowing its actual and potential competitors. B) A firm will define its market in order to maximize revenue. C) Government regulators are interested in knowing the effect of mergers and acquisitions on competition and prices in a particular market. D) both A and C E) both A and B Answer: D
Which of the following are relevant in defining the extent of a market? A) Its geographical boundaries. B) Technological changes that would lower the cost of production. C) The products to be included within it. D) both A and B E) both A and C Answer: E
oil company drills for oil there. A) I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) I and II are false. Answer: B
Which of the following statements, if true and proven as such in a court, would benefit Archer-Daniels-Midland, a manufacturer of corn syrup, in its attempt to buy another corn syrup manufacturer, the Clinton Corn Processing Company? A) Archer-Daniels-Midland is a dominant producer of corn syrup. B) There are no good substitutes for corn syrup for any of its major uses. C) Archer-Daniels-Midland and the Clinton Corn Processing Company together hold only a small share of the market for sweeteners including corn syrup and sugar. D) Archer-Daniels-Midland produces many other different agricultural products, in addition to corn syrup. Answer: C
Use the following statements to answer this question: I. The broader the market's extent, the less likely the firms present in the market will influence the market's price. II. In case it is needed to be considered if two diverse commodities fall in one single market or not then their substitutability has to be known to fulfill one another. I.e. A) Both I and II are incorrect. B) I is wrong and II correct. C) I is true, and II is false. D) I and II are both true.
Answer: D
Use the following statements to answer this question: I. If the market is not perfectly competitive, the price for a given product can be different for different sellers. II. There is no one "market price" in imperfectly competitive markets. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false. Answer: B
Say you work for a pharmaceutical company and you are in charge of pricing your company's products and determining their marketing strategy. You will be able to price your product more independently if: A) there are no close substitutes for your product. B) there are lots of other firms selling closely related products in your market. C) your market is perfectly competitive. D) none of the above Answer: A
To arbitrage a price difference between two markets, you should: A) sell in the low-price market and buy in the high-price market. B) buy in the low-price market and sell in the high-price market. C) sell in both markets to capture a lower average "market price." D) none of the above
C) Dealers are small sellers and have little control over bicycle prices. D) A and B are correct E) B and C are correct Answer: D
Prior to their merger, XM and Sirius were competing 23) Prior to their merger, XM and Sirius were competing sellers in the U.S. satellite radio market. The U.S. Department of Justice approved the merger despite the fact that it created a single seller in the market. Why might we expect this merger to have limited impact on U.S. consumers? A) There are many close substitutes for satellite radio service, e.g. free AM-FM radio, internet radio B) The merged firm is likely to act on behalf of its customers and keep its prices and profits low C) U.S. consumers are known to have perfectly inelastic demand for satellite radio, i.e. they are unresponsive to price changes D) all of the above are correct Answer: A
If the price of crude oil is $95 a barrel in New York and is $85 a barrel in Texas and the transaction costs of trading across the two markets are $15 a barrel, which of the following would you do to arbitrage this price difference? A) Buy oil in Texas and sell oil in NY B) Sell oil in Texas and buy oil in NY C) Purchase oil in both markets and then wait for better prices D) Neither buy nor sell oil in either of the two markets Answer: D
A key determinant of the geographic extent of 25) A key determinant of the geographic extent of a housing market is the maximum distance that can be traveled between where a person's home and their workplace are. Which of the following would be LEAST likely to increase the geographical extent of a metropolitan area's housing market?
A) Price of gasoline falls B) State increases gasoline tax C) Public transit fares falls D) none of the above Answer: B
1.3 Real versus Nominal Prices
The "constant dollar" price is: A) the real price of a good. B) the nominal price of a good adjusted for inflation. C) the "current dollar" price adjusted for inflation. D) all of the above E) none of the above Answer: D
What does it mean when the CPI is higher this year than last? A) The rate of inflation has increased. B) There has been inflation since last year. C) Real prices have risen. D) Real prices have fallen. Answer: B
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- The price of a taco was $0.29 in 1970 and $1.09 in 2000. The CPI was 38.8 in 1970 and 172.2 in 2000. The 2000 price of a taco in 1970 dollars is: A) $0.25.
B) multiply by the 2012 CPI and divide by the 1987 CPI. C) not do anything because this is the real price in 2012 dollars. D) none of the above Answer: B
The nominal price of industrial red paint was $12 per gallon in 1993. To discover the real price of paint in 2012 dollars we should use the: A) Consumer Price Index. B) Producer Price Index C) Fed funds rate. D) 30-day T-bill rate. Answer: B
Which one of the following commodities is NOT likely to be included in the Consumer Price Index? A) Hamburger B) 87 octane gasoline C) Structural steel beams D) Movie tickets Answer: C
Which of the following price index published by the US federal government measures wholesale price changes? A) Consumer Price Index B) Producer Price Index C) GDP deflator
D) Dow-Jones Industrial Average Answer: B
- Suppose we have a CPI series with a base year of 1983. In this series, the CPI is 82. in 1980 and 172.2 in 2000. Suppose that we wish to convert this CPI series to a base year of 2000 (that is, CPI2000 = 100). What is the revised CPI for 1980? A) 172. B) 100 C) 47. D) 209. Answer: C
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Use the following statements to answer this question: I. The inflation rate-that is, the rate of change of the general price level-calculated from a price index such as the CPI is independent of the base year that we choose to use in forming the price index. II. Even if the CPI says the general price level rose by 5% last year, for example, some consumer goods may well have seen their prices rise by more, others by less, over the past year. A) I and II are correct. B) I is correct but II is incorrect. C) I is incorrect but II is correct. D) I and II are incorrect. Answer: A
Which of the following price indexes, which is reported by the US federal government, measures retail price changes? A) Consumer Price Index B) Producer Price Index
