Deck 1: Introduction

Question 1

What is profit?

Answer 1

Profit is the difference between a firm's revenue or income and its costs or expenses.

Question 2

All private firms seek to

A) maximize revenue.
B) maximize profit.
C) minimize headcount.
D) maximize employee salaries.

Answer 2

B

Question 3

Managers have to understand the decision making of others.

Answer 3

True
Other entities such as governments and rivals may undertake actions that constrain a firm.Consumers and workers make decisions on how to spend their scarce resources,such as budgets and time.To maximize profits,the manager must understand how these other entities will behave.

Question 4

Microeconomics studies the allocation of

A) decision makers.
B) scarce resources.
C) models.
D) unlimited resources.

Question 5

Which of the following would NOT be considered part of a firm's strategy?

A) production levels
B) which inputs to use
C) sales strategy
D) None of the above - all are part of a firm's strategy.

Question 6

Behavioral economics

A) studies why people choose not to maximize.
B) studies why people maximize.
C) studies why people sometimes don't maximize.
D) studies why people behave badly when buying and selling.

Question 7

What is the purpose of having a strategy?

Question 8

Firms face tradeoffs because

A) managers don't know which inputs to use.
B) inputs are scarce.
C) markets set prices of goods they sell.
D) marginal reasoning leads to uncertainty.

Question 9

A firm's managers are constrained by

A) consumers.
B) workers.
C) government.
D) All of the above.

Question 10

CEOs should focus on

A) beating their competitors.
B) maximizing firm profits.
C) getting the best pay package for the senior management team.
D) minimizing costs.

Question 11

Society faces trade-offs because of

A) government regulations.
B) profit motive.
C) price setting by firms.
D) scarcity.

Question 12

Why might raising the price of a good by a dollar lead to higher profits?

Question 13

Why might raising the price of a good by a dollar lead to lower profits?

Question 14

Profit is

A) maximized when the marketing department coordinates with the production department.
B) maximized when revenue is maximized.
C) used to beat a company's rivals.
D) the difference between a firm's revenues and its costs.

Question 15

In a market

A) the primary participants are consumers and firms.
B) government policies play a very small part.
C) decision makers always maximize.
D) the goods sold are always closely related.

Question 16

Raising the price of a good by one dollar

A) increases profits.
B) decreases profits.
C) leaves profits unchanged.
D) leads to an indeterminant change in profits.

Question 17

Explain what the statement "We can't have everything we want" means.

Question 18

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.

Question 19

Give an example of a tradeoff a pizza restaurant might face.

Question 20

Managerial economics

A) describes how pay for managers is set.
B) ensures managers always make good decisions.
C) helps managers make decisions in the face of scarcity.
D) explains which products consumers will buy.

Question 21

Economic models are most useful in

A) explaining outcomes resulting from management decisions.
B) predicting the direction of the stock market.
C) explaining the future with the past.
D) generating untestable hypotheses.

Question 22

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.

Question 23

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.

Question 24

Economic models are most often tested

A) using computer simulations.
B) using data from the distant past.
C) using data from the real world.
D) using logic alone.

Question 25

Economic models are only useful in analyzing government policy.

A) True, individuals are irrational and therefore economic models are useless.
B) False, economic models can be used to predict individual and firm behavior.
C) True, economists only model those questions for which they are hired.
D) False, economic models are not even useful in analyzing government policy.

Question 26

If a model fits reality but doesn't generate testable predictions,it is of little value to economists.

Question 27

If a theory's predictions are incorrect

A) then economists always reject it.
B) then the data used was clearly faulty.
C) then economists will likely reduce their confidence in the theory.
D) then the model must be too simple.

Question 28

Explain why a model that delivers good enough approximations is a good model.

Question 29

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?

Question 30

Normative analysis offers decision makers the most valuable information when choosing among alternatives.

Question 31

Explain why economists might disagree on the content of a model.

Question 32

Which of the following is an example of a positive statement?

A) Since this food is bad for you, you should not consume it.
B) If this food is bad for you, you should not consume it.
C) If you consume this food, you will get sick.
D) None of the above.

Question 33

A microeconomic model CANNOT be used to

A) evaluate the impact of a price change on a firm's revenue.
B) predict the impact of an increase in the minimum wage on unemployment.
C) evaluate the fairness of a proposal to nationalize health insurance.
D) evaluate the effect of an increase in stadium size on the price of a sport team's tickets.

Question 34

Economic models are most useful in

A) predicting changes in one variable due to a change in one or more other variables.
B) predicting the direction of the stock market.
C) explaining the future with the past.
D) generating untestable hypotheses.

Question 35

Microeconomic models are used to

A) make predictions.
B) explain real-life phenomena.
C) evaluate production alternatives.
D) All of the above.

Question 36

Which of the following is an example of a normative statement?

A) Since this food is bad for you, you should not consume it.
B) This food has negative health effects.
C) If you consume this food, you will get sick.
D) People usually get sick after consuming this food.

Question 37

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.

Question 38

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.

Question 39

If an important assumption is omitted from an economic model

A) the model's predictions will be accurate 50% of the time.
B) the model's predictions will be inaccurate.
C) the model will not predict anything.
D) the model will be rejected by other economists.

Question 40

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.

Question 41

If actual experience supports two competing theories,then both theories are proven to be true.