Deck 1: Reasoning With Economics: Models and Information

Question 1

The assumption of rationality in economics implies that:

A)people perfectly understand their own preferences.
B)people can overcome economic obstacles in the best possible way.
C)people can make accurate calculations and they have a perfect foresight.
D)people make choices with an eye toward attaining objectives they have chosen.

Answer 1

D

Question 2

The human mind's abilities to reason and imagine are facilitated by the information it can collect from trustworthy sources, rather than by facts and experiences it can recall from memory.

Answer 2

False

Question 3

Heuristics economize on the mental capabilities of people.

Answer 3

True

Question 4

A highly technical product is more likely to be sold by mass advertising as it signals to the consumers that the product is of dependable quality.

Question 5

The math and graphics used in economics help us better understand the logic of:

A)verbal reasoning.
B)rational choice.
C)hypothesis testing.
D)business forecasting.

Question 6

Economic models simplify reality and help us to better understand important aspects of it.

Question 7

Rationality is a normative concept.

Question 8

Which of the following is a positive statement?

A)Heavy snowfall drives up the demand for heaters.
B)Fiscal expenditures should be increased to combat recession.
C)Government should encourage foreign direct investments to generate employment.
D)Organs trade should be banned across nations.

Question 9

Economists use the phrase, "dollar bills left on the sidewalk" for describing systematically missed opportunities.

Question 10

When an economy's limited resources are moved into the production of one commodity, the production of a valuable alternative has to be foregone.This most valuable alternative lost is referred to as:

A)the marginal cost.
B)the opportunity cost.
C)the sunk cost.
D)the fixed cost.

Question 11

When the method used to collect a sample biases any conclusions that might be drawn from it, the sample is said to have a selection bias.

Question 12

The different rights and responsibilities which owners, workers, and managers have in different forms of business are referred to as contractual constraints.

Question 13

Almost all event markets forecast accurately.

Question 14

In order to simplify a complex situation, economic models often treat constraints as unalterable.

Question 15

An elimination heuristic makes the choice on the basis of all the categories in which the events differ.

Question 16

Measuring important concepts in economics is difficult and some important economic phenomena are still beyond the understanding of economists.Thus economics is called a(n):

A)complex science.
B)social science.
C)inexact science.
D)hard science.

Question 17

Researchers who make judgements in their experiments based on what is salient rather than on actual probabilities err by using a representativeness heuristic.

Question 18

When an individual is unable to alter or undo a past decision he/she incurs an opportunity cost.

Question 19

When people use a recognition heuristic, they often get answers right because the correct answer is usually the one they are familiar with while the incorrect answer is the one which is unfamiliar to them.

Question 20

Advertising reduces the cost of obtaining a commodity by saving the time spent searching for price quotes and other information related to this commodity.

Question 21

The law which prohibits embezzlement of funds by employees or income tax evasion acts as a(n):

A)psychological constraint
B)ethical constraint.
C)organizational constraint.
D)contractual constraint.

Question 22

A model of choice in economics starts by assuming that:

A)people try to minimize their losses.
B)people try to maximize their consumption.
C)people try to minimize their costs.
D)people try to maximize their utility.

Question 23

Which of the following financial market developments has helped to remove financial constraints faced by people?

A)Online stock trading
B)Bank credit cards
C)Derivatives trading
D)ATM/Debit cards

Question 24

Economists often take their first shot at a business problem by assuming that relevant information is available:

A)along with a model to help them produce a valid conclusion.
B)using which a model has to be created.
C)but a sample test has to be performed to detect its quality.
D)but the consequences of using them in a model is uncertain.

Question 25

Which of the following individuals will undertake extensive research before making their choice?

A)A person planning to buy a new house
B)A homemaker purchasing daily groceries
C)A person searching for a present before attending a birthday party
D)A student buying academic books as recommended by the faculty

Question 26

Which of the following is an example of a physical constraint?

A)The work you can perform on 1,500 calories a day.
B)The wages you can earn against each hour of work.
C)The bank balance of an individual at any point of time.
D)The contract price at which you agree to sell your house.

Question 27

The costs which can be avoided if we alter our decisions or choices are referred to as:

A)average costs.
B)opportunity costs.
C)marginal costs.
D)sunk costs.

Question 28

Which of the following can act as a substitute for information?

A)Social networking
B)Knowledge gathered through past experience
C)Ability to postpone a choice
D)Forecasts and predictions

Question 29

Which of the following is a root cause behind competition inherent in every society?

A)Unlimited wants of the people
B)People's desire to acquire goods and services for free
C)Scarcity of goods and services
D)Genetic makeup of people

Question 30

According to the text, college students give higher evaluations to professors who are:

A)young and attractive.
B)experienced and highly qualified.
C)interactive and easily approachable.
D)strict and disciplined.

Question 31

_____ constraints refer to your limited ability to process valuable information.

A)Ethical
B)Informational
C)Physical
D)Psychological

Question 32

Since people's incomes are limited and their abilities to borrow differ they face _____ constraints.

A)psychological
B)financial
C)societal
D)contractual

Question 33

Which of the following exempliflies altruism?

A)A teacher conducting night classes for working professionals.
B)A lawyer defending a juvenile client who is accused of murder.
C)A person on his way to work stopping to help accident victims on the road.
D)Government imposing a high sales tax on liquor.

Question 34

Assume that a cargo ship carrying the merchandise of a cloth merchant has been wrecked.Such a setback will be accounted as the merchant's:

A)sunk cost.
B)deadweight loss.
C)marginal cost.
D)opportunity cost.

Question 35

Jane regularly sends funds to organizations seeking to save endangered animal species.This is an example of:

A)fairness.
B)altruism.
C)selfishness.
D)self-interest.

Question 36

Which of the following is considered to be a cost of information?

A)The price of the commodity for which information is collected.
B)The time spent to collect the information.
C)The difference in price charged by different sellers for the same commodity.
D)The difference in price paid by different buyers for the same commodity.

Question 37

A basic model of a business firm in economics assumes that its management cannot improve on the technology that transforms inputs like labor and energy into output.This assumption helps them to understand the choice of:

A)input levels that minimize cost.
B)output levels that minimize cost.
C)output levels that maximize profits.
D)input levels that maximize profits.

Question 38

A car owner who has agreed to sell his old car to a buyer at a contracted price will be unable to accept the price offered by other prospective buyers due to the _____ constraint.

A)financial
B)informational
C)societal
D)contractual

Question 39

Utility is a(n) _____ measure of well being of a person.

A)objective
B)subjective
C)ordinal
D)cardinal

Question 40

_____ have the ability to recognize constraints and may choose to incur the costs of altering them.

A)Economists
B)Rational people
C)Entrepreneurs
D)Research groups

Question 41

Which of the following products should be sold face-to-face rather than by mass advertising?

A)Breakfast cereals
B)Health drinks
C)A pharmaceutical which can only be understood by doctors
D)A new brand of herbal cosmetics

Question 42

Suppose a social activist collecting information on the level of air pollutants in sparsely populated regions concludes that pollution levels are positively related to population.Since her sample set is restricted only to sparsely populated regions her outcome would be erroneous due to:

A)recognition heuristic.
B)availability heuristic.
C)representative heuristic.
D)selection bias.

Question 43

A simple model of information acquisition for shopping predicts that, the larger the percentage of dealers in an area seen by the typical shopper, the _____ will be the dispersion of the prices _____ relative to their average.

A)larger; the buyers pay
B)larger; the dealers quote
C)smaller; the buyers pay
D)smaller; the dealers quote

Question 44

While purchasing _____ an individual whose cost of time is low will visit a larger number of dealers compared to the individual whose cost of time is high.

A)a rare piece of jewelry
B)a refrigerator
C)a pair of jogging shoes
D)a cabinet for keeping books

Question 45

The different methods by which the sellers inform their potential buyers about the product is called:

A)knowledge transfer.
B)advertising.
C)product offering.
D)information dissemination.

Question 46

Which of the following is true of a human mind?

A)A human mind seldom makes consistent error-free calculations.
B)A human mind can attend to more than a handful of concepts at one time.
C)A human mind can fully analyze the interrelationships between different concepts.
D)A human mind can navigate through complex logic to correct conclusions.

Question 47

Which of the following products can be sold through mass advertising?

A)A new electrocardiogram machine to be used by medical examiners
B)A mainframe computer installation
C)A new health insurance policy
D)A new brand of baby diapers

Question 48

Publicly available data on production costs and box office revenues reflect that:

A)R-rated movies on an average collect higher revenues than G-rated movies.
B)revenue collected by PG-rated movies donot cover the production and distribution costs.
C)G-rates movies help investors to make artistic or polictical statements.
D)family-rated movies are on average profitable.

Question 49

Assume that an analyst at a leading business daily observes an increase in productivity across industries which announced healthy annual bonus for their employees.This leads him to conclude that productivity is directly related to the incentive scheme followed by companies.The analyst however ignored the increase in capital per worker ratio and other technological developments in these companies which also affected productivity.This error in reasoning is related to:

A)bounded rationality.
B)selection bias.
C)representative heuristics.
D)availability heuristics.

Question 50

Carla had received very low annual return from her investment portfolio comprising of stocks of five companies for two years.Her decision to continue holding the same portfolio of assets will be an example of:

A)bounded rationality.
B)selfishness.
C)altruism.
D)systematically missed opportunities.

Question 51

The logical (and sometimes illogical) shortcuts that people derive from experience which economize on their mental capabilities are called:

A)irrationalities.
B)heuristics.
C)statistical errors.
D)probabilities.

Question 52

Decision makers who try their best for rationality but are constrained by limited information and processing abilities are referred to as:

A)irrational.
B)partially rational.
C)boundedly rational.
D)perfectly rational.

Question 53

It has been observed that people surveyed shortly after major air crashes estimate higher probabilities that a given flight will crash than people surveyed during intervals without any.The error in reasoning observed in this experiment results from:

A)availability heuristics.
B)representative heuristics.
C)population heuristics.
D)selection bias.

Question 54

Unlike developed countries, people in under-developed countries usually haggle over the prices of everyday items because:

A)the cost of production is low.
B)the products are in general of poor quality.
C)of the differences in the opportunity cost of time.
D)adequate substitutes are available.

Question 55

When a researcher evaluates the probability of an event by looking at how representative the sample is of the population of interest instead of the entire population, he is using:

A)an elimination heuristic.
B)an availability heuristic.
C)a representative heuristic.
D)a recognition heuristic.

Question 56

Which of the following is an example of money left on the sidewalk?

A)Overconfident small investors making poor stock-trading choices and failing to learn from experience.
B)A guitarist buying a high end model of a Fender Stratocaster when a low end version is available in the market.
C)A librarian purchasing the latest editions of several social science books.
D)A cancer patient insisting on getting treated at an expensive clinic instead of a general hospital.

Question 57

The ____ heuristic observes that when facts are at issue the correct answer is often the one people recognize, and the incorrect answer is the one they do not.

A)representative
B)availability
C)recognition
D)elimination

Question 58

When multiple facts about a sample set are known, a(n) _____ heuristic makes the choice on the basis of the first category of facts in which the samples differ.

A)elimination
B)representative
C)recognition
D)availability

Question 59

Which of the following statements about advertising is true?

A)Advertising lowers the price of a product.
B)Advertising lowers the total cost of obtaining a good.
C)Advertising has no economic value.
D)Advertising increases the opportunity cost of time.

Question 60

Which of the following abilities should an economic model possess?

A)It should lower the time cost of information collection.
B)It should help individuals to discern the information that matters for a problem.
C)It should be able to process both untrue or impossible to verify information as well as correct information in the data set.
D)It should suggest accurate solutions for a problem.

Question 61

What is selection bias? Describe with a few examples.

Question 62

Why is information sometimes considered as a good?

Question 63

What do economists mean by rationality?

Question 64

_____ is an online venue where businesses and individuals can hedge their uncertainty about whether legislation that affects them will be enacted.

A)The American Civics Exchange
B)Tradesports
C)The Iowa Electronic Markets
D)The Gallup and Roper surveys

Question 65

How do constraints affect our choices?

Question 66

Identify and define the different types of constraints individuals face while making different choices.

Question 67

How is positive economics different from normative economics?

Question 68

Why are math and graphics used in economic models?

Question 69

Even when racetrack bettors know very little about the characteristics of horses, why are their aggregate bets often good estimates of the true probabilities of winning, placing, and showing?

Question 70

Which of the following is NOT an underlying characteristic of a smart group?

A)Aggregation
B)Diversity of opinion
C)Interdependence
D)Decentralization

Question 71

What is the difference between sunk costs and marginal costs?

Question 72

How is economic research similar to the research in other branches of science?

Question 73

What is the basic assumption underlying the model of choice?

Question 74

How does fairness differ from equality?

Question 75

Why do economists sometimes treat decision makers as boundedly rational?