Question 1

Marginal costs

Accepted Answer

A)  are the incremental costs associated with making a decision.
B)  are the expenditures already made that can't be recovered.
C)  are not relevant when making an economic decision.
D)  are costs that are usually classified under "miscellaneous." A

Question 2

Assume Joseph spends his entire income on X and Y,and his indifference curves have the usual convex shape.If Joseph maximizes his utility,then

Accepted Answer

A)  he spends his entire available income.
B)  there are other bundles that are preferred at the current price ratio.
C)  the slope of his indifference curve is greater than the slope of his budget line.
D)  the slope of his indifference curve is smaller than the slope of his budget line. A

Question 3

Stella Ann Freeman is having a difficult time deciding whether or not to purchase a new car.How would understanding the concept of opportunity cost help her make a decision?

Accepted Answer

Opportunity cost is the value of the best forgone alternative.The opportunity cost of purchasing a new car is the value of what is given up to purchase the car.

Question 4

What does the tangency between an indifference curve and the budget line determine?

Accepted Answer

The answer of What does the tangency between an indifference...

Question 5

Assume that the quantity of CDs is measured on the horizontal axis,while the quantity of movie tickets is measured on the vertical axis.If available income decreases,then

Accepted Answer

A)  the horizontal intercept of the budget line decreases,while the vertical intercept remains unchanged.
B)  the vertical intercept of the budget line decreases,while the horizontal intercept remains unchanged.
C)  the budget line will shift inward.
D)  the budget line will shift outward.

Question 6

Ali inherits $10,000 from his great-great aunt in 2008.His great-great aunt's will requires that Ali spend the money before December 31,2009.He has two spending options: He can either spend the amount in 2008 or in 2009.Suppose this is Ali's only source of income and the interest rate on loans or savings is 10 percent.
(a)How much could Ali spend in 2008 if he only consumes in 2008? How much could Ali spend in 2009 if he only consumes in 2009?
(b)What is the opportunity cost of consuming $1.00 in 2008 in terms of forgone consumption in 2009? Draw Ali's budget constraint and optimal consumption bundle,considering that the spending in 2008 is measured along the horizontal axis.
(c)Ali decides to spend $6,000 in 2008 and $4,400 in 2009.Show this optimal consumption bundle using a budget constraint and indifference curve diagram.

Accepted Answer

The answer of Ali inherits $10,000 from his great-great aunt...

Question 7

Wanda Weeks has decided to stay in a lower-paying position with a local electric company rather than accept a much higher-paying job with a new information technology company.Use a risk model to explain her decision.

Accepted Answer

The answer of Wanda Weeks has decided to stay in...

Question 8

The demand for normal goods follows the law of demand because of

Accepted Answer

A)  the substitution effect only.
B)  the income effect only.
C)  risk-aversion by consumers.
D)  both the substitution and income effects.

Question 9

Assume that the quantity of apples is measured on the horizontal axis and the quantity of oranges is measured on the vertical axis.If the budget line rotates upward while keeping the same horizontal intercept, it implies that

Accepted Answer

A)  the price of apples has decreased.
B)  the price of oranges has decreased.
C)  the available income has increased.
D)  the price of oranges has increased.

Question 10

Marginal utility is the

Accepted Answer

A)  total happiness obtained from a consumption bundle.
B)  additional utility obtained by a fall in the price of a good.
C)  additional utility obtained by consuming one additional unit of a good.
D)  total amount spent to purchase one additional unit of a good.

Question 11

Which of the following is a primary role of a manager according to the good-citizen model?

Accepted Answer

A)  to communicate the goals and objectives of the organization to employees
B)  to discourage innovation at work
C)  to allow the employees to work independently,without any help from the managers
D)  to recognize and reward an employee who is honest,punctual,and obedient

Question 12

You have $64 to spend on fish (F)and chips (C).Suppose the price per unit of fish (P_f)is $8 and the price of chips (P_c)is $2.Your utility function for fish and chips is given as such that and are the marginal utilities of F and C.How many units of C and F should you buy to exhaust all income and to maximize utility?

Accepted Answer

The answer of You have $64 to spend on fish...

Question 13

The ______ of an uncertain payoff is defined as the weighted average of all possible outcomes,where the probability of each outcome is used as the weights.

Accepted Answer

A)  expected value
B)  standard deviation
C)  variance
D)  skewness

Question 14

Contrast the good-citizen model with the economic model to explain the reason why people engage in charitable behavior.

Accepted Answer

The answer of Contrast the good-citizen model with the economic...

Question 15

A risk-averse agent

Accepted Answer

A)  only cares about expected payoff.
B)  cares about expected payoff as well as the variability of a payoff.
C)  only cares about the variability of a payoff.
D)  does not care about expected payoff.

Question 16

Marginal analysis refers to the

Accepted Answer

A)  relationship between the cause and effect of an economic event.
B)  study of trade relations based on absolute cost differences.
C)  comparison of benefits and costs of choosing a little more or a little less of a good.
D)  calculation of opportunity costs of an economic activity.

Question 17

It is commonly believed that the best ways to motivate an employee are (1)to improve the quality of the workplace and (2)to make the employee feel like he/she is part of the company.How would an economist analyze these statements?

Accepted Answer

The answer of It is commonly believed that the best...

Question 18

Suppose canned soup is an inferior good.This means that

Accepted Answer

A)  when income rises,more cans of soup will be bought.
B)  when income rises,fewer cans of soup will be bought.
C)  when income falls,fewer cans of soup will be bought.
D)  you will never consume canned soup because of its low quality.

Question 19

Assume that Janet is risk-averse.Which of the following bets is she more likely to accept,depending on the degree of risk aversion?

Accepted Answer

A)  Win $40 one-fourth of the time,win $10 one-half of the time,and lose $40 one-fourth of the time
B)  Win $40 one-fourth of the time,break even one-half of the time,and lose $40 one-fourth of the time
C)  Win $20 one-fourth of the time,win $10 one-half of the time,and lose $20 one-fourth of the time
D)  Win $20 one-fourth of the time,win $10 one-fourth of the time,and lose $20 one-fourth of the time

Question 20

George likes skiing and needs one pair of bindings for each pair of skis he owns.George's indifference curves for skies and bindings

Accepted Answer

A)  are approximately L-shaped.
B)  are straight lines.
C)  slope downward.
D)  slope upward.

Exam 2: Economists View of Behavior