Int. Microtheory. 2009. Chapt. 1-8

Front 1

Microeconomics & Macroeconomics is the study of...

Back 1

The economic behavior of individual economic decision units.

Front 2

Which of the following statements about the study of economics is false?

Back 2

It deals with allocation of limited resources to satisfy unlimited human wants.

Front 3

The tool of constrained optimization helps the decision maker to

Back 3

Make the best (optimal) choice taking into account any possible limitations or restrictions on choices

Front 4

In constrained optimization, objective function is

Back 4

A relationship that the decision maker seeks to maximize or minimize

Front 5

Which of the following statements regarding exogenous and endogenous variables is correct?

Back 5

Endogenous variables will always be determined within the model.

Front 6

In constrained optimization, constraints are

Back 6

Restrictions or limitations imposed on a decision maker

Front 7

Equilibrium analysis describes a condition or state that could

Back 7

Continue indefinitely in a system as long as the exogenous variables remain unchanged

Front 8

Comparative statistics

Back 8

Examines how endogenous variables change as exogenous factors change.

Front 9

Which of the following statements about positive analysis is correct?

Back 9

Positive analysis predicts how an economic system will change over time

Front 10

Which of the following statements about normative analysis is correct?

Back 10

Normative analysis focuses on issues of social welfare, examining what will enhance or detract from common goal.

Front 11

A situation of excess demand will result in increase in the market price because

Back 11

There is an inverse relationship between price and quantity demanded

Front 12

A situation of excess supply result in decrease in the market price because

Back 12

Market price and quantity supplied share a positive relationship

Front 13

Consider the following events

- The price of tea goes up by 100%.
- A study is released indicating that caffeine causes cancer.
- A frost kills half of the produce of Columbian coffee.
- Prices of styrofoam coffee cup increases by 300%.

The impact of the above events on the market for coffee would be

Back 13

There would be no significant impact.

Front 14

If the price of soybean goes up and so does the quantity of soybean sold. Using the concept of demand and supply curves, one explanation for this price and quantity variation is

Back 14

Increase in demand + unchanged supply curve = higher equilibrium price and larger equilibrium quantity

Front 15

If a 10% increase in price of automobiles reduces the quantity demanded by 8%, then the price elasticity for demand of automobiles is

Back 15

- 0.8

-0.8/0.10=-8

Front 16

The choke price is

Back 16

the price at which quantity demanded falls to zero.

Front 17

Consider the demand curve. The choke price is

Back 17

20

Front 18

The price elasticity of demand for speedboats is more negative than price elasticity of demand for light bulbs because

Back 18

Demand for speedboats is constant and is not affected by change in prices

Front 19

The price elasticity of demand for air travel for business is more negative than price elasticity of demand for air travel for vacation travelers because

Back 19

Business travelers would pay any amount to travel.

Front 20

The price elasticity of demand for an entire product category such as yoghurt is likely to be less negative than price elasticity of demand for a typical brand such as Dannon within the product category because

Back 20

Consumers would stick to a particular brand and therefore elasticity of demand is very sensitive to the prices

Front 21

Which one of the below are false while determining the factors of a products price elasticity of demand

Back 21

Demand tends to be less price elastic when there are good alternatives for a product

Front 22

Suppose the cross-price elasticity for two goods is negative. The two goods are

Back 22

complements

Front 23

Suppose the cross-price elasticity for two goods is positive. The two goods are

Back 23

substitutes

Front 24

A basket of goods is

Back 24

A. A combination of goods and services that an individual might consume.

C. Also known as a bundle

D. Both a) & c).

Front 25

The assumption that preferences are complete requires the consumer

Back 25

to rank any two baskets

Front 26

If more is better assumption is satisfied, is it possible to say which of the seven baskets is least preferred by the consumer

Back 26

Without further information on consumer preferences, it is difficult to say how the seven baskets would be ranked and therefore the basket least preferred by the consumer

Front 27

An example of preferences that do not satisfy the assumption that preferences are transitive is

Back 27

A consumer prefers basket A to basket B, basket B to basket C but basket C to basket A

Front 28

The assumption that more is better requires the consumer

Back 28

to rank a basket with more units of all goods higher than a basket with fewer units of all goods.

Front 29

The assumption that more is better implies the following about the marginal utility of a good

Back 29

The marginal utility of a good must always be positive

Front 30

Cardinal rankings

Back 30

gives us information about the order in which a consumer ranks baskets and the intensity of those preferences

Front 31

Ordinal rankings

Back 31

only gives us information about the order in which a consumer ranks baskets.

Front 32

Cardinal rankings are different from ordinal rankings because

Back 32

Ordinal rankings rank consumer preferences of a basket of goods without specifying quantitative information on the intensity of preference. Cardinal rankings also indicate the intensity of preference of one basket over the other.

Front 33

Marginal utility is

Back 33

the slope of the total utility function

Front 34

Marginal utility is the slope

Back 34

of the total utility function

Front 35

To determine marginal utility graphically

Back 35

Marginal utility at any point is the slope of the line that is tangent to the utility function at that point.

Front 36

Total and marginal utility curves cannot be plotted on the same graph because

Back 36

The vertical dimension of the two curves is different

Front 37

Adam consumes two goods: Housing and food. Given Adam's marginal utility for housing and food, marginal rate of substitution of housing for food for that basket can be computed by

Back 37

Ratio of marginal utilities for housing and food for a given basket.

Front 38

Adam consumes two goods: Housing and food. Given Adam's marginal utility for substitution of housing for food at the basket he currently consumes, the marginal utility for housing and marginal utility for food can be computed by

Back 38

The marginal utility for substitution of housing for food is the represents the ratio of the marginal utilities. Only the relative values of the two marginal utilities can be computed.

Front 39

Suppose Michael consumes only two goods – Hamburgers (H) and Coke (C). The relationship between MRSH,C and marginal utilities MUH and MUC is

Back 39

MRSH,C = MUH / MUC

Front 40

Suppose Michael consumes only two goods – Hamburgers (H) and Coke (C) and the marginal rate of substitution of hamburgers for cokes is constant

Back 40

Hamburgers and cokes are perfect substitutes.

Front 41

Suppose Michael consumes only two goods – Hamburgers (H) and Coke (C) and he has two hamburgers for every coke

Back 41

Hamburgers and cokes are perfect complements

Front 42

Suppose a consumer is purchasing 47 different goods one of which is housing (H). In order to measure the consumers marginal utility of housing at the current basket

Back 42

The level of other 46 goods consumed would have to remain fixed

Front 43

If two goods are perfect substitutes, then

Back 43

A. the marginal rate of substitution is constant.
B. the indifference curves are straight lines

D. both a) and b) are true.

Front 44

If two goods are perfect complements, then

Back 44

the indifference curves are “L-shaped.”