Deck 19: What Is Economics

Question 1

An economist uses a consumer's demand curve to express the solutions to a family of optimization problems.

Answer 1

True

Question 2

Most economic explanations can be reduced to the idea that human behavior is primarily a matter of taste.

Answer 2

False

Question 3

Efficiency is one common criterion that economists use to judge whether or not an outcome is desirable.

Answer 3

True

Question 4

A world in which most people are irrational would have to function much differently than a world in which most people are rational.

Question 5

An economic model is robust if it provides results that are testable and verifiable.

Question 6

Since economists assume that people act in their own self-interest,economic analysis does not apply to situations where people behave altruistically.

Question 7

A model that is said to be robust is one that has many details and closely mimics reality.

Question 8

An easy,but not very insightful,possible explanation for apparently irrational behavior is that it is rational for a people with a taste for the behavior.

Question 9

When formulating an economic model,one must explicitly identify both an agent's objectives and his constraints.

Question 10

Even if an economic model is not detailed enough to give numerical predictions,it might still be useful if it can indicate the direction of change in economic variables.

Question 11

The first step in economic analysis is to choose an appropriate equilibrium condition.

Question 12

Equilibrium conditions are used to analyze the desirability of economic outcomes.

Question 13

An economic problem can be defined as any problem involving money.

Question 14

Costs are forgone opportunities.

Question 15

Optimization typically requires use of the equimarginal principle.

Question 16

Unlike a consumer,a competitive profit-maximizing firm faces no constraints.

Question 17

If a model is based on unrealistic assumptions,then it cannot be robust.

Question 18

Economists focus only on real world consumer choices.

Question 19

Economic models of markets generally treat prices as exogenous variables.

Question 20

A Nash equilibrium is one in which each individual optimizes taking market prices as given.

Question 21

While the model of supply and demand has been around for a long time,it has survived more because it mimics reality than because it actually predicts something.

Question 22

If an activity is worth pursuing at all,then it should be pursued up to the point where

A) the total benefit received is as large as possible.
B) the marginal benefit and the marginal cost both equal zero.
C) the average net benefit is at a maximum.
D) the net benefit received from the last unit of the activity is zero.

Question 23

Efficiency is the only criterion by which economists judge policies.

Question 24

According to the equimarginal principle,if the marginal cost of an activity outweighs the marginal benefit,then

A) the activity should not be pursued at all.
B) less of the activity should be undertaken.
C) the net total benefit received from the activity is negative.
D) people should expand their pursuit of the activity.

Question 25

The fact that grocery stores and convenience stores sell physically identical products for different prices is a violation of the "law of one price."

Question 26

The second stage of economic analysis includes asking

A) if the process an individual uses to make decisions is rational or not.
B) what may cause preferences to change.
C) how the optimal solution would change if constraints change.
D) what other criteria might be used to evaluate an outcome.

Question 27

The problem that economists consider is how an individual

A) actor's preferences are formed.
B) actor decides to allocate scarce resources among competing ends.
C) firm decides on means for influencing its buyers preferences.
D) firm grows.

Question 28

The economic model of supply and demand is one that can be tested using data.

Question 29

The most basic concepts on which the social science of economics rests are

A) consumers and producers.
B) money,interest rates,and exchange rates.
C) supply and demand.
D) scarcity and choice.

Question 30

An economic model,even if unrealistic,is useful as long as it makes predictions that are realistic.

Question 31

Economic models start with the assumption of

A) exogenous prices.
B) the laws of supply and demand.
C) equilibrium.
D) rational behavior.

Question 32

Which of the three stages of economic analysis would include consideration of how each individual's actions affect the options available to others?

A) The first.
B) The second.
C) The third.
D) None,this is not part of economic analysis.

Question 33

The embarrassment theory suggests why shopping carts should be smaller.

Question 34

In the supply/demand model,prices and quantities are exogenous variables.

Question 35

The first step in economic analysis is to

A) explore how the equilibrium changes if the constraints change.
B) make explicit assumptions about the desirability and the cost of various alternatives.
C) apply the equimarginal principle to the problem being considered.
D) determine how agents' constraints are interrelated.

Question 36

An equilibrium is an outcome in which

A) all individuals are simultaneously optimizing.
B) constraints are no longer binding.
C) social gain is as large as possible.
D) the wants of all agents are fully satisfied.

Question 37

The economist assumes that people act in accordance with the equimarginal principle,because the economist assumes that people are

A) altruistic.
B) selfish.
C) rational.
D) price takers.

Question 38

In the consumer-choice model,the economist examines how the consumer's purchases change when there is a change in prices or income.Which stage of economic analysis is this procedure a part of?

A) Formulation.
B) Optimization.
C) Equilibrium.
D) Economic dynamics.

Question 39

When an economist talks about equilibrium he is specifically discussing a situation where the quantity supplied equals the quantity demanded.

Question 40

In a model that analyzes the effects of a tax change,the tax serves as an endogenous variable.

Question 41

In an analysis of an excise tax on soda,which of the following is an exogenous variable?

A) The price received by sellers.
B) The price paid by buyers.
C) The quantity exchanged in the market.
D) The tax.

Question 42

In the theory of monopoly,which of the following is an exogenous variable?

A) The technology available to the monopoly.
B) The price charged by the monopoly.
C) The level of output produced by the monopoly.
D) The profit earned by the monopoly.

Question 43

Which of the following is a problem of economic dynamics?

A) Determining how an equilibrium changes when an exogenous variable changes.
B) Finding the Nash equilibrium in the Prisoners' Dilemma.
C) Solving a simple monopoly's profit-maximization problem.
D) Modeling the process by which an equilibrium is achieved.

Question 44

When observing people making choices that do not at first appear to be rational,an economist will ask,

A) "How might a psychologist explain this behavior?"
B) "Why do we economists keep believing that people behave rationally?"
C) "How might such behavior be serving someone's purposes?"
D) "What is wrong with these people?"

Question 45

An economic explanation for why rock concert tickets sell at prices below the market equilibrium is that musicians

A) are not greedy.
B) want to reward their loyal fans.
C) expect that younger people,who will spend more on merchandise at the concert,are more willing to wait in long lines to buy tickets than adults.
D) expect that those who are more willing to wait in long lines to buy tickets will make a more receptive audience than those who are willing to pay a higher price.

Question 46

An equilibrium in which each individual optimizes,taking market prices as given,is called

A) a Nash equilibrium.
B) a Walrasian equilibrium.
C) an Edgeworth equilibrium.
D) a robust equilibrium.

Question 47

Comparative statics involves

A) the application of principles of physics to economic analysis.
B) the process of studying how equilibria change in response to changes in exogenous variables.
C) the process of studying how exogenous variables change.
D) comparing two uncertain states of the world.

Question 48

In laboratory experiments,how do animals respond to economic stimuli?

A) The animals' behaviors are consistent with economic theory.
B) The animals' responses are random and unpredictable.
C) The results indicate that the animals' tastes must be constantly changing.
D) The animals do not respond at all to subtle variations in "prices" and "incomes."

Question 49

In the Black-Scholes option pricing model,investors are assumed to be not only rational but also able to do Ito calculus.This model,with its unrealistic assumptions,

A) is valuable only as an abstract curiosity.
B) cannot be robust.
C) still leads to accurate predictions.
D) is rejected by most economists.

Question 50

In a Nash equilibrium,which of the following constrains an individual when he optimizes?

A) The market prices.
B) His tastes.
C) The actions of other individuals.
D) Nothing-the individual has no constraints in a Nash equilibrium.

Question 51

Which of the following would be an economic explanation of how "99¢ pricing" was developed?

A) It was a sales gimmick that sellers used to try to fool their customers.
B) It was encouraged by a penny newspaper to increase the number of pennies in circulation.
C) It was a scheme to let firms advertise that their prices were under some round dollar figure.
D) It was a way of ensuring that sales were recorded on cash registers,thus reducing employee theft.

Question 52

Which of the following is most likely beyond the scope of economic analysis?

A) Family structure.
B) Why some people contribute to charities.
C) Why some people choose to vote.
D) The actions of people who do what voices in their heads tell them to do.

Question 53

According to the law of one price,

A) there exists only one price that will clear a competitive market.
B) the long-run price of a commodity will equal the marginal cost of production.
C) identical goods will sell for identical prices.
D) the price of a good must equal the value of the labor used to produce it.

Question 54

In a Walrasian equilibrium,which of the following constrains an individual when he optimizes?

A) The market prices.
B) His tastes.
C) The actions of other individuals.
D) Nothing-the individual has no constraints in a Walrasian equilibrium.

Question 55

Suppose the exact statements of the assumptions of a model do not enter in a crucial way,so that slightly different assumptions still lead to the same conclusion.When this occurs,the model is

A) tractable.
B) robust.
C) rational.
D) efficient.

Question 56

Abstract economic models whose assumptions and conclusions are essentially untestable are still useful because they

A) indicate what data should be collected in the future.
B) develop economists' intuition for more complex situations.
C) can be illustrated using simple graphical techniques.
D) capture the detail of realistic situations without any simplifying hypotheses.

Question 57

The primary criterion used to analyze the desirability of outcomes in Economics is

A) sustainability
B) equity.
C) predictability.
D) efficiency.

Question 58

If asked to comment about a new tax on cotton collected from growers who do not grow their plants in the shade of other plants,an economist with no particular expertise in cotton growing might still note that

A) the price received by these cotton producers will fall by the full amount of the tax.
B) the price paid by consumers of this cotton will rise by the full amount of the tax.
C) the legal incidence of the tax does not determine who bears the burden of the tax.
D) the tax was imposed on the wrong party,it should have been placed on buyers.

Question 59

Which of the following economic models is untestable?

A) Demand and supply model of a product market.
B) Monopoly model of market power.
C) Edgeworth box model of exchange.
D) Capital asset pricing model.

Question 60

Economists find that models based on the assumption of rational behavior are robust,because a world in which everyone is rational would function quite similarly to a world in which there are no

A) unexploited profit opportunities.
B) constraints due to scarcity.
C) inefficient markets.
D) barriers to free trade.

Question 61

Consider the following:

Question 62

Many economic models are not sufficiently detailed to make precise numerical predictions.What,then,is the value of such models?

Question 63

In medieval Europe,small farmers held their land in several scattered plots,even though this created obvious inefficiencies.Which of the following is an economic explanation of such behavior?

A) Medieval farmers did not use rational decision making.
B) Medieval farmers were not as clever as their modern counterparts.
C) Medieval farmers were attempting to reduce their risk.
D) Medieval farmers put up with scattering as a natural consequence of marriage and inheritance.

Question 64

All of the following are true of models except:

A) they simplify reality.
B) they are good if they make predictions that align with real world observations.
C) they are used exclusively by economists.
D) supply/demand analysis is an example of a model.

Question 65

All of the following are economic explanations for why shopping carts have gotten bigger over the years.

A) more women in the marketplace have made spending time in the grocery store more costly.
B) grocery stores now have a wider variety of items available.
C) store owners are "tricking" customers in into buying more groceries by making them feel ashamed that their carts are not full.
D) shoppers have become wealthier over the years and are willing to pay for the luxury of wide aisles and the big carts that go along with wider aisles.

Question 66

Someone who is deemed irrational from an economic standpoint is someone who

A) voluntarily partakes in actions contrary to his personal preferences.
B) voluntarily partakes in actions contrary to what society deems acceptable.
C) voluntarily partakes in actions that the majority of consumers would not.
D) sets prices at ninety-nine cents.

Question 67

Pricing an option involves an application of all of the following except:

A) the Black-Scholes Model.
B) the law of one price.
C) the assumption that there are no unexploited profit opportunities.
D) the assumed probability that the stock price will go up.

Question 68

Describe the three stages of economic analysis.

Question 69

According to Gary Becker's "Rotten Kid theorem," a child will be deterred from stealing from his siblings

A) as long as he fears that his parents will punish him.
B) when parents are altruistic and treat their children equally.
C) only if the probability of being caught is sufficiently large.
D) if he inherits the "altruistic gene" from his parents.

Question 70

Economic models

A) may be insufficient to make numerical predictions.
B) may have untestable conclusions.
C) both of these are true.
D) neither of these are true.

Question 71

Why do economists insist on assuming that people behave rationally,when such an assumption is clearly false?

Question 72

Provide economic explanations of the following puzzling behaviors.

Question 73

How does an economic model attempt to explain puzzling behavior? What features would be desirable in an economic model?