Besanko & Braeutigam Microeconomics, 3

rd
edition Test Bank
Multiple Choice
1. The analytical tools underlying nearly all microeconomic studies
are:
a) nconstrained optimi!ation and comparati"e statics.
#) Comparati"e statics and game theory.
c) $pportunity cost and e%uili#rium analysis.
d) Constrained optimi!ation, e%uili#rium analysis, and
comparati"e statics.
&. 'conomics is o(ten descri#ed as
a) The science o( choice
#) The science o( constrained choice
c) The science o( supply and demand
d) The science o( market (orces
3. Microeconomics e)amines
a) the economic #eha"ior o( an entire nation.
#) the economic #eha"ior o( indi"idual economic decision units.
c) topics such as national income and in(lation.
d) monetary policy.
*. +n general, economics is the study o(
a) the allocation o( scarce ,ants to unlimited resources.
#) the allocation scarce resources to unlimited ,ants.
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c) the allocation o( resources #et,een the go"ernment and the
pri"ate sector.
d) the allocation o( ,orkers #et,een (irms.
4. '"ery society must ans,er
a) 1hich "aria#les are e)ogenous and ,hich are endogenous5
#) 1ho ,ill recei"e the goods and ser"ices5
c) 1hat goods and ser"ices ,ill #e produced, ho, much ,ill #e
produced, ,ho ,ill produce them and ,ho ,ill recei"e
them5
d) 6o, centrali!ed should go"ernment #ureaucracy #e5
7. +denti(ying the appropriate ,ay to allocate an economy8s resources
is an e)ample o(
a) a constrained optimi!ation pro#lem.
#) a comparati"e statics pro#lem.
c) an e%uili#rium analysis.
d) marginal analysis.
9. 1hich o( the (ollo,ing statements regarding e)ogenous and
endogenous "aria#les is correct5
a) The set o( e)ogenous "aria#les in any economic model
should take into account the rich detail o( the ,orld and so
should #e limitless.
#) 'ndogenous "aria#les ,ill al,ays #e determined ,ithin the
model.
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edition Test Bank
c) ')ogenous "aria#les change as a result o( changes in
endogenous "aria#les.
d) The only "aria#les that are rele"ant to the market e%uili#rium
are the endogenous "aria#les, as they are determined ,ithin
the model.
/. :n e)ample o( constrained optimi!ation ,ould #e
a) a (irm trying to ma)imi!e its pro(its su#;ect to its #udget
constraint.
#) a #all coming to rest at the #ottom o( a cup.
c) an analysis o( ho, market prices change ,hen supply
conditions change.
d) :n analysis o( the e((ect o( (acilitating internet trading on
market price.
<. : manager cares a#out the num#er o( ,orkers under her command.
2he can choose #et,een t,o pro;ects: =ro;ect : allo,s her to hire
,orkers ,ho must #e paid 1
:
each, =ro;ect B allo,s her to hire
,orkers ,ho must #e paid 1
B
each. 2he is allocated a #udget o(
>1.. that she can allocate to either pro;ect. 1hich o( the (ollo,ing
accurately represents the manager8s pro#lem5
a) The o#;ecti"e (unction is Ma) ?@
:
A@
B
), ,here @
i
is the
num#er o( ,orkers on pro;ect i ?i B :, B)C the constraint is
1
:
@
:
A 1
B
@
B
D >1.., ,here 1
i
is the ,age on pro;ect i ?i B
:, B).
#) The o#;ecti"e (unction is Ma) ?@), ,here @ is the num#er o(
,orkers under the manager8s controlC the constraint is 1
:
A
1
B
D >1.., ,here 1
i
is the ,age on pro;ect i ?i B :, B).
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c) The o#;ecti"e (unction is Ma) ?1
:
@ A 1
B
@), ,here @ is the
num#er o( ,orkers and 1
i
is the ,age o( the ,orker on
pro;ect i ?i B :, B)C the constraint is 1
:
A 1
B
D >1...
d) Ma) ?BE@), ,here B is the manager8s #udget and @ is the
num#er o( ,orkers under the manager8s commandC the
constraint is 1
:
@ A 1
B
@ D >1...
1.. 1hich o( the (ollo,ing is not typically (ound in a constrained
optimi!ation pro#lem5
a) Fesource constraint
#) 'ndogenous "aria#le
c) Comparati"e statics analysis
d) $#;ecti"e (unction
11. 1hich o( the (ollo,ing is an e)ample o( a constraint5
a) L+W
#) Ma) LW
c)
min AB
d) L + W 5
1&. 1hich o( the (ollo,ing is the #est e)ample o( a consumer8s
o#;ecti"e (unction5
a) pro(its.
#) consumption.
c) satis(action
d) #udget constraint.
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13. 2uppose the price o(
A
is >3, the price o(
B
is >4, the consumer8s
income is >3., and the consumer8s le"el o( satis(action is measured
#y
A B +
. The consumer8s income constraint is
a)
ma) 3 4 A B +
#)
ma) A B +
c)
3. A B +
d)
3 4 3. A B +
1*. :n e)ogenous "aria#le in a consumer8s choice pro#lem ,ould
typically #e:
a) satis(action le"el.
#) consumption le"el.
c) price le"el.
d) %uantity consumed.
14. 2uppose the price o( X is >14 per unit, the price o( Y is >1& per
unit, the consumer8s income is >1.., and the consumer8s le"el o(
satis(action is measured #y XY + Y. The consumer8s constraint is
a) X + Y 100
#) ma) XY
c) 15X + 12Y 100
d) Ma) XY + Y
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17. : good e)ample o( marginal reasoning ,ould #e
a) the addition to total sales (rom spending an additional dollar
on ad"ertising.
#) the sales resulting (rom total spending on ad"ertising.
c) the decision to shut do,n production.
d) the decision to ma)imi!e pro(its rather than sales.
19. 1hat term in microeconomics tells us ho, a dependent "aria#le
changes as a result o( adding one unit o( an independent "aria#le
a) '%uili#rium impact.
#) Comparati"e statics.
c) +ndependent impact.
d) Marginal impact.
1/. :n e%uili#rium
a) is a condition that is reached e"entually in any market.
#) is a state that ,ill continue inde(initely as long as e)ogenous
(actors remain unchanged.
c) is a concept that is o(ten meaningless #ecause most markets
ne"er reach e%uili#rium.
d) is a temporary state.
1<. +denti(y the truth(ulness o( the (ollo,ing statements:
+. Marginal analysis can e)plain ,hy you ,ould al,ays choose
to eat Chinese (ood rather than pi!!a.
++. Marginal analysis can e)plain the incremental impact o( an
increase in total cost ,hen one more unit o( output is produced.
a) Both + and ++ are true.
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edition Test Bank
#) Both + and ++ are (alse.
c) + is trueC ++ is (alse.
d) + is (alseC ++ is true.
&.. +denti(y the truth(ulness o( the (ollo,ing statements:
+. '%uili#rium analysis helps economists determine the market3
clearing price.
++. Comparati"e statics help economists analy!e ho, a change in
an e)ogenous "aria#le a((ects the le"el o( a related endogenous
"aria#le in an economic model.
a) Both + and ++ are (alse.
#) Both + and ++ are true.
c) + is trueC ++ is (alse.
d) + is (alseC ++ is true.
&1. :nother term (or e%uili#rium ,ould #e
a) a point o( in(inite supply.
#) a point o( insatia#le ,ants.
c) a point o( sta#ility.
d) a point o( scarcity.
&&. Comparati"e statics
a) e)amines ho, e)ogenous "aria#les change as endogenous
(actors change.
#) e)amines ho, endogenous "aria#les change as e)ogenous
(actors change.
c) presents a comparison o( t,o separate markets at a single
point in time.
d) is o(ten rendered useless #ecause e)ogenous "aria#les can
ne"er #e e)pected to remain constant (or long.
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&3. 2uppose that market demand (or a good slopes do,n,ard and
market supply slopes up,ard. '%uili#rium price is no, >1. and
4..,... units o( the good are traded at this price. 2uppose no,
that the cost at ,hich each unit o( the good is produced (alls. 1hat
is the likely e((ect o( this change on the market e%uili#rium5
a) ')cess supply.
#) : (all in price.
c) : shi(t in demand to the right.
d) :n increase in price.
&*. 2uppose the e%uili#rium price in a market is >4, and the
go"ernment imposes a >*.4. price (loor on the market. This ,ill
a) create e)cess supply.
#) create e)cess demand.
c) shi(t the demand cur"e to the right.
d) ha"e no e((ect on the market.
&4. Currently, 1..,... units o( a good are traded on a market. The
go"ernment imposes a limit o( a ma)imum o( 4.,... units that
may #e traded on the market. This ,ill:
a) create e)cess supply.
#) create e)cess demand.
c) raise price
d) ha"e no e((ect on the market.
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Besanko & Braeutigam Microeconomics, 3
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&7. Currently, 1..,... units o( a good are traded on the market. The
go"ernment imposes a ta) on producers that raises the unit cost o(
production o( the good. This ,ill:
a) shi(t the supply cur"e to the le(t.
#) shi(t the supply cur"e to the right.
c) shi(t the demand cur"e to the le(t.
d) increase the %uantity traded.
&9. +( ,e ,ere to #uild a model measuring the supply o( corn, ,hich o(
the (ollo,ing could #e an e)ample o( an e)ogenous "aria#le in the
model5
a) The price o( corn.
#) The %uantity supplied o( corn.
c) The %uantity o( rain.
d) The demand (or corn.
&/. 2uppose that ,e illustrate demand and supply ,ith %uantity on the
hori!ontal a)is and price on the "ertical a)is. 1hich o( the
(ollo,ing statements is false5
a) Changes in e)ogenous "aria#les are represented #y shi(ts in
the demand andEor supply cur"es.
#) Changes in endogenous "aria#les are represented #y
mo"ements along the supply andEor demand cur"es.
c) =rice and %uantity are the e)ogenous "aria#les in this
representation.
d) The e%uili#rium is represented as the intersection o( supply
and demand cur"es.
&<. 2uppose that ,e illustrate demand and supply ,ith %uantity on the
hori!ontal a)is and price on the "ertical a)is. 1hich o( the
(ollo,ing statements is false5
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Besanko & Braeutigam Microeconomics, 3
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edition Test Bank
a) The e%uili#rium remains unchanged unless an e)ogenous
"aria#le changes.
#) The e%uili#rium is represented as the intersection o( supply
and demand cur"es.
c) 1hen a shi(t in demand or supply occurs, a comparati"e
statics analysis compares the old and the ne, e%uili#rium
points.
d) : change in price ,ill cause a shi(t in the demand cur"e.
3.. 2uppose that ,e illustrate demand and supply ,ith %uantity on the
hori!ontal a)is and price on the "ertical a)is. Get demand #e a
(unction o( price and income, Q
d
(P, I). 1hich o( the (ollo,ing
statements is true5
a) : change in income ,ill cause a shi(t in the supply cur"e.
#) : change in income le"el is represented #y a mo"ement
along the demand cur"e.
c) +ncome is not represented on one o( the a)es, and so is
treated as an e)ogenous "aria#le in the graphical analysis.
d) =rice and income together must change in order to create a
shi(t in the demand cur"e.
31. 2uppose that ,e illustrate demand and supply ,ith %uantity on the
hori!ontal a)is and ic!"e on the "ertical a)is. Get demand #e a
(unction o( price and income, Q
d
(P, I). 1hich o( the (ollo,ing
statements is true5
a) : change in income ,ill cause a shi(t in the demand cur"e.
#) : change in income le"el is represented #y a mo"ement
along the demand cur"e.
c) +ncome is treated as an e)ogenous "aria#le in the graphical
analysis.
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Besanko & Braeutigam Microeconomics, 3
rd
edition Test Bank
d) =rice and income together must change in order to create a
shi(t in the demand cur"e.
3&. 1hich o( the (ollo,ing statements a#out positi"e analysis is
correct5
a) =ositi"e analysis prescri#es the #est solution to an economic
pro#lem.
#) =ositi"e analysis predicts ho, an economic system ,ill
change o"er time.
c) 1hile normati"e analysis can #e ,rong, since it is o(ten
#ased on someone8s opinion, positi"e analysis is al,ays
accurate.
d) 2ince positi"e analysis is #ased on a model, and not the real
,orld, it is mostly irrele"ant.
33. 1hich o( the (ollo,ing statements a#out normati"e analysis is
correct5
a) @ormati"e analysis, #ecause it is #ased on opinion, rarely
employs any positi"e analysis ,hen prescri#ing a solution to
a gi"en pro#lem.
#) @ormati"e analysis typically cannot #e trusted #ecause it is
only someone8s opinion.
c) @ormati"e analysis ignores e)ogenous "aria#les ,hen
making predictions.
d) @ormati"e analysis typically (ocuses on issues o( social
,el(are.
3*. 1hich o( the (ollo,ing represents an e)ample o( positi"e analysis5
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Besanko & Braeutigam Microeconomics, 3
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a) 6o, ,ill the e%uili#rium price o( corn #e a((ected #y a
go"ernment su#sidy5
#) 1hat is the #est ,ay to assist lo,3income (amilies ,ith
a((orda#le housing5
c) 1ould ta)es on emissions #e the #est ,ay to reduce
pollution5
d) 6o, can the go"ernment #est design a ta) cut5
34. 1hich o( the (ollo,ing represents an e)ample o( normati"e
analysis5
a) 6o, ,ill the e%uili#rium price o( co((ee #e a((ected #y
drought5
#) 6o, ,ill a go"ernment su#sidy a((ect the %uantity demanded
o( pu#lic housing5
c) 1hat is the #est method (or allocating ta) re"enues5
d) 6o, ,ill a ta) cut a((ect a typical consumer8s disposa#le
income5
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