Econ midterm 1

**Net benefits of an alternative equal: A) benefits minus costs. B) benefits divided by costs. C) the sum of benefits and costs. D) the product of benefits and costs.

A

**Which of the following is an example of free riding? A) An individual who sneaks inside a music concert B) A consumer who buys his groceries from a nearby store C) A tax payer who exercises in the public park near his house D) A club member who makes voluntary contributions to the club

A

**Which of the following statements is true of the scientific method? A) The scientific method may not reveal a true model of the world. B) The scientific method does not require the models to be tested with data. C) The scientific method used by economists and scientists is independent of empiricism. D) The scientific method can help develop accurate models even when data are unavailable.

A

A cost-benefit calculation that focuses on the difference between a feasible alternative andthe next feasible alternative is called: A) marginal analysis. B) cardinal analysis. C) Pareto analysis. D) ordinal analysis.

A

Empiricism is analysis that uses−−−−−−−−to test theories. A) data B) illustrations C) philosophy D) value judgments

A

If an individuals opportunity cost of commute is $300 per month and his monthly com-muting time is 60 hours, his opportunity cost of time is: A) $5 per hour. B) $10 per hour. C) $30 per hour. D) $60 per hour.

A

**Which of the following claims is most likely to suffer from reverse causality? A) Higher income increases consumption. B) Relatively wealthy people tend to be relatively healthy. C) More hours of study is likely to lead to better results. D) Crime rate is seen to be lower in countries having a higher level of poverty.

B

**Which of the following is true of equilibrium? A) Equilibrium refers to a situation where the government allocates resources among economic agents. B) Equilibrium refers to a situation where all economic agents simultaneously optimize afterconsidering each others actions. C) Equilibrium refers to a situation where all economic agents are making sub-optimal choicesand have an incentive to change behavior. D) Equilibrium refers to a situation where an economic agent can be made better off withoutmaking anyone else worse off.

B

**Which of the following statements is true of marginal analysis? A) Marginal analysis is a tool used in optimization in levels. B) Marginal analysis compares the consequences of doing one more step of something. C) Marginal analysis of alternatives will mostly give an outcome different from optimization in levels. D) Marginal analysis involves the calculation of total net benefits of all the available alternatives.

B

**Which of the following statements is true? A) A rational economic agent is not likely to optimize. B) Cost-benefit analysis can also be used for normative economic analysis. C) Cost-benefit analysis does not yield the same result as optimization analysis. D) The net benefit of an option that costs $50 and provides a benefit of $100 is equal to $150.

B

A consumer has $20 that he wants to spend on two goods: pens priced at $2 each, and pencils priced at $1 each. Which of the following correctly represents his budget constraint? A) $20 = ($2/Quantity of pens) + ($1/Quantity of pencils) B) $20 = ($2 Quantity of pens) + ($1 Quantity of pencils) C) $20 = ($3/Quantity of pens + Quantity of pencils) D) $20 = $3 (Quantity of pens - Quantity of pencils)

B

An individual rents an apartment for $200 per month. His monthly opportunity cost of commuting to work from this apartment is $50. After a year, he moves to an apartment closer to his place of work, but pays $250 as rent. Compared to the initial situation, after a year: A) his direct cost of renting the apartment increases, while the indirect cost of renting the apart-ment remains unchanged. B) his direct cost of renting the apartment increases, while the indirect cost of renting the apart-ment decreases. C) his direct cost of renting the apartment remains the same, while the indirect cost of rentingthe apartment decreases. D) his direct cost of renting the apartment remains the same, while the indirect cost of rentingthe apartment increases.

B

Economic models are often based on assumptions because they: A) help explain the past. B) help simplify complex real-world phenomena. C) help predict the future with higher accuracy. D) help test models even when relevant data are unavailable.

B

If the total cost incurred in hiring ten workers by a firm is $45, and the total cost incurredwhen the eleventh worker is hired is $60, the marginal cost of hiring the eleventh worker is: A) $1.33. B) $15. C) $20. D) $105.

B

In a marketplace, the rental price of apartments is determined by: A) negotiations between renters and regulators. B) negotiations between renters and landlords. C) negotiations between landlords and regulators. D) negotiations between politicians and regulators.

B

Spending more time commuting in exchange for a lower monthly rent refers to a(n): A) barter. B) tradeoff. C) externality. D) monetary exchange.

B

The mean of a data set is the: A) product of all values divided by the number of values. B) sum of all different values divided by the number of values. C) sum of all different values multiplied by the number of values. D) difference between the highest value and the lowest value.

B

Which of the following is NOT a scarce resource? A) Gold B) Pollution C) Petroleum D) iPhones

B

Which of the following statements identifies a difference between correlation and causa-tion? A) Correlation occurs when one thing directly affects another, whereas causation implies a mu-tual relationship between two things. B) Correlation implies a mutual relationship between two things, whereas causation occurswhen one thing directly affects another. C) A causal relationship exists between two variables when they are correlated, but correlationdoes not necessarily exist if theres a causal relationship between two variables. D) Causation cannot arise when correlation is present, and correlation cannot arise when causa-tion is present.

B

Which of the following statements is true? A) It is easier for a person to optimize when he has less information. B) Optimization implies choosing the best option from a set of alternatives. C) People always successfully optimize given the limited information they have. D) Optimization is an easy process, and all economic agents are perfect optimizers.

B

−−−−−−−−is the study of how individuals, households, governments, and firms makechoices and how those choices affect prices, the allocation of resources, and the well-being ofother agents. A) Growth theory B) Microeconomics C) Macroeconomics D) Monetary economics

B

**If the marginal rent cost of moving from Apartment 1 to Apartment 2 is -$60 and marginalcommuting cost of moving from Apartment 1 to Apartment 2 is $40: A) moving from Apartment 1 to 2 will cost the renter $60 more in rent and $40 more in commut-ing. B) moving from Apartment 1 to 2 will save the renter $60 more in rent and $40 more in commut-ing. C) moving from Apartment 1 to 2 will save the renter $60 in rent but cost $40 more in commut-ing. D) moving from Apartment 1 to 2 will cost the renter $60 more in rent but save $40 in commut-ing.

C

**The principal of optimization at the margin states that: A) an optimal alternative has the lowest indirect costs in comparison to other feasible alterna-tives. B) an optimal alternative has the highest net benefits in comparison to other feasible alternatives. C) moving toward the optimal alternative makes the decision maker better off, and moving awayfrom it makes him worse off. D) moving toward the optimal alternative makes the decision maker worse off, and movingaway from it, makes the decision maker better off.

C

**Which of the following statements is true? A) Correlation can only arise when causation is not present. B) Causation can only arise when correlation is not present. C) Correlation arises when there is causation and can also arise even when there is no causation. D) Causation arises when there is correlation between two variables, and can also arise evenwhen there is no correlation.

C

**Which of the following statements is true? A) Optimizers with the highest opportunity cost of time push up the rental price of apartmentswith the highest commute time. B) Optimizers with the lowest opportunity cost of time push up the rental price of apartmentswith the lowest commute time. C) As the rental prices of downtown apartments rise, only workers with the highest opportunitycost of time will be willing to rent them. D) As the rental prices of downtown apartments rise, only workers with the lowest opportunitycost of time will be willing to rent them.

C

Causation occurs when: A) two variables tend to move in the same direction. B) two variables tend to move in opposite directions. C) change in one variable is the reason for the change in another variable. D) change in one variable does not cause any change in another variable.

C

Data show that in 2012, the college enrollment in Lithasia increased. In the same year, thesale of hotdogs in Lithasia also increased. The relationship between college enrollment and thesale of hotdogs exhibits: A) a zero correlation. B) a causal relationship. C) a positive correlation. D) a negative correlation.

C

Which of the following is an example of a natural experiment? A) A laboratory research on the effectiveness of solar power as an alternative source of fuel B) A research on the effectiveness of a new medicine among some voluntary participants C) A research on the effect of air pollution on lung disorders by observing the health conditionsof people who stay close to industrial areas and those who stay away from industries D) A study on the benefits of regular exercise by paying for the membership fees at fitness clubsfor one-half of the participants

C

Which of the following is an example of a positive economic statement? A) The pricing policies of monopolies should be strictly supervised. B) Unemployment is more harmful than inflation. C) Higher interest rates will encourage more savings. D) Pollution is one of the most serious economic problems.

C

Which of the following statements correctly highlights the difference between microeconomics and macroeconomics? A) Microeconomics is descriptive, whereas macroeconomics is advisory. B) Microeconomics primarily deals with positive analysis, whereas macroeconomics primarilydeals with normative analysis. C) Microeconomics deals with a small part of the economy, whereas macroeconomics deals withaggregate economic performance. D) Microeconomics describes what economic agents actually do, whereas macroeconomics de-scribes what economic agents ought to do.

C

Which of the following statements identifies a difference between optimization in levels and optimization in differences? A) Optimization in levels compares only the costs of different alternatives, whereas optimizationin differences compares only the benefits of different alternatives. B) Optimization in levels compares only the benefits from different alternatives, whereas opti-mization in differences compares only the costs of different alternatives. C) Optimization in levels calculates the net benefits of different alternatives, whereas optimiza-tion in differences calculates the change in net benefits when switching from one alternative to another. D) Optimization in levels calculates the change in net benefits when switching from one alter-native to another, whereas optimization in differences calculates the net benefits of differentalternatives.

C

Which of the following statements is true? A) All economic agents are necessarily individuals. B) A worker who shirks work is not an economic agent. C) A government is an example of an economic agent. D) A street gang is not an economic agent.

C

**Empirical evidence refers to: A) a simplified representation of reality. B) a proposed explanation for a phenomenon. C) the process of developing and testing models. D) a set of facts established by observation and measurement.

D

**Which of the following correctly identifies the tradeoff that a budget constraint represents? A) The amount of income that must be given up to obtain an additional unit of a good B) The maximum amount of two goods that a consumer can purchase given his income C) The optimum combination of goods that a consumer with a given income should purchase D) The amount of one good that has to be given up to purchase an additional unit of the other good

D

**Which of the following is an example of a normative economic statement? A) A cut in the tax rate will lead to an increase in consumption. B) A relaxation in import duties will encourage imports. C) An increase in subsidies to farmers will boost agricultural production. D) An increase in social security benefits will increase the welfare of all economic agents.

D

A student has two options: she can either surf the web, or work part-time. Working part-time pays her $20 per hour. What is the students opportunity cost of surfing the web for 5 hours? A) $4 B) $20 C) $50 D) $100

D

To carry out an optimization analysis: A) different types of costs are measured in different units. B) only direct costs incurred in a project are to be estimated. C) only indirect costs incurred in a project are to be estimated. D) all costs are required to be converted to a same unit of measurement.

D

Which of the following statements correctly indicates a property of good economic ques-tions? A) A good economic question should always be easy to answer. B) A good economic question should always be positive and not normative. C) A good economic question must always include arithmetic calculations and graphical solu-tions. D) A good economic question addresses topics that are important to economic agents and/or tothe society.

D

Which of the following statements is true of models? A) The predictions of a model are referred to as data. B) A model is formulated after developing a hypothesis. C) Models are always based on assumptions that are known to be true. D) It is more important for a model to be simple and useful than to be precisely accurate.

D

Which of the following statements is true of optimization? A) Optimization analysis only relates to the financial budget of an economic agent. B) Individuals who optimize do not consider costs when choosing the most feasible alternative. C) Economic agents can optimize only when they are able to perfectly estimate all future costsand benefits. D) Economic agents who optimize attempt to choose the best feasible option, given the informa-tion that they have.

D