Deck 1: Introduction

Question 1

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

Answer 1

If the extra profit margin made on the units sold covers the profit lost from selling fewer units, then profits will increase if the price is raised.

Question 2

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

Answer 2

Because resources are scarce, we face tradeoffs. For example, a baker cannot use a piece of dough she has for both pizza and a croissant, so she has to decide which to make.

Question 3

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.

Answer 3

allows interactions between consumers and firms.

Question 4

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

Question 5

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 6

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 not closely related.

Question 7

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

Question 8

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 9

Most private firms seek to

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

Question 10

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 11

Managers have to understand the decision making of others.

Question 12

A firm's managers are constrained by

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

Question 13

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 14

What is profit?

Question 15

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 16

Microeconomics studies the allocation of

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

Question 17

Society faces trade-offs because of

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

Question 18

What is the purpose of having a strategy?

Question 19

Firms face trade-offs 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 20

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 21

Behavioral economics is the study of why people

A)choose not to optimize.
B)optimize.
C)sometimes don't optimize.
D)behave badly when buying and selling.

Question 22

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 23

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 24

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 25

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 26

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

Question 27

If an important assumption is omitted from an economic model,

A)the model's predictions will only be accurate 50% of the time.
B)the model's predictions may be inaccurate.
C)the model will not predict anything.
D)the model is not simple enough.

Question 28

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 decrease the amount of sugar in soda drinks, sales to children will decrease.

Question 29

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 30

Microeconomic models are used to

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

Question 31

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 32

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 33

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

Question 34

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 35

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

Question 36

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 37

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

Question 38

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 39

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

Question 40

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.