West Los Angeles College » Economics » Econ 001 - Principles of Microeconomics » Summer 2019

Econ 001 - Principles of Microeconomics » Summer 2019 » Quiz 2

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Question #1

A restaurant chain sponsors a charity that provides for children with cancer to be treated with their parents present. How would the use of company funds for this purpose be justified by a business whose goal is to maximize profit?

A. The money spent is worth the boost it gives to corporate image.

B. The money will be spent efficiently to cure cancer.

C. The funds dedicated to this purpose represent a very small share of profits.

Question #2

The theory of rational behavior,,

A. is an assumption that economists make to have a useful model for how decisions are made.

B. implies that people will always know exactly what they are buying

C. assumes that people will always attempt to act in their own self-interest.

Question #3

Making an economically rational decision requires

A. always considering the long-run.

B. considering all other people.

C. weighing prospective marginal benefits and marginal costs to oneself.

Question #4

Self-interest can include more than a concern for oneself. To the extent that the happiness of others contributes significantly to the our own happiness, actions taken in our own self-interest may have benefits for

A. close friends and family.

B. strangers.

C. humankind as a whole.

Question #5

Down at the water plant, there is a proposal for a new filtration system to serve the entire city’s needs. The cost of the new system will double water rates. A rational city council should deliberate which following question on behalf of the city’s residents?

A. Are the total benefits of having a city water supply greater than the total cost?

B. Are the benefits of cleaner water greater than the additional costs of the new filtration system?

C. Is it worth paying twice as much for the same amount of water?

Question #6

After cost overruns of the electric project, $20 million was already spent and unrecoverable. It was going to cost $12 million more in order to complete the project, and now society somehow needs to make the rational choice to,,

A. continue with the project provided that the additional electricity is worth more than $12 million.

B. continue with the project provided that the additional electricity is worth more than $20 million.

C. continue with the project provided that the additional electricity is worth more than $32 million.

Question #7

A positive statement is

A. can be shown to be correct or incorrect.

B. a value judgement.

C. based upon what can be demonstrated to be true.

Question #8

Which of the following statements are positive?

A. I am absolutely positive that there is a better way.

B. There is a limit to the income each year to which the FICA tax applies, but that is fair, since there is a limit to social security benefits.

C. Social security benefits are not taxed.

Question #9

Which of the following statements are positive?,,

A. Investing in electricity with photovoltaic cells is a growing trend.

B. Installing solar will provide a rate of return on investment of 5%.

C. Installing solar will be worth the investment.

Question #10

The house that Jeanne inherited from her mother can rent for $1500/month, but Jeanne decides to allow her brother to stay there for only $500 per month. This decision carried with it a

A. $1000 per month monetary and opportunity cost.

B. zero monetary cost but a $1000 per month opportunity cost.

C. $500 per month monetary cost but a $1500 per month opportunity cost.

Question #11

Budget constraints impose scarcity , and are based upon,,

A. the limitation of the budget.

B. how much utility one more unit of a good will provide.

C. the prices of the items purchased.

Question #12

Rational decision-making ignores any consideration of:

A. sunk costs.

B. opportunity costs.

C. monetary costs.

Question #13

A profit-maximizing decision must be made about whether to keep a bed & breakfast operating. Until the place sells, the mortgage of $3000/month must be paid, since it is a sunk cost. If the restaurant operates, costs rise by $4000 per month, but revenue will be only $6000 per month. Until the building can be sold,

A. it is best to shut down the bed & breakfast since it is taking a loss.

B. it is best to keep the bed & breakfast operating because it is profitable.

C. it is best to ignore sunk cost and keep the bed & breakfast operating.

Question #14

The slope of a budget constraint line is influenced by

A. the size of the budget.

B. the tastes and preferences of the decision-maker.

C. the relative prices of the two goods competing to satisfy wants.

Question #15

A budget constraint model differs from production possibilities model in that, typically

A. the production possibilities model demonstrates diminishing returns.

B. the budget constraint demonstrates diminishing returns.

C. the budget constraint depicts an inverse relationship, or a trade-off.

Question #16

The production possibilities model shows an inverse relationship between the amount of one thing that can be produced and the amount of something else because

A. the opportunity cost of producing more of something will fall.

B. production of different types will compete for limited resources.

C. of diminishing returns.

Question #17

In order to satisfy as many wants as possible, it is necessary to achieve PRODUCTIVE efficiency,,

A. since otherwise resources are idle.

B. since it would be impossible to produce more of one thing without producing less of another.

C. since otherwise output may go to where it is less valued.

Question #18

A non-linear production possibilities model assumes that,,

A. some resources are specialized to (more productive in) one use than another.

B. technology can advance.

C. with rational resource allocation decisions, the opportunity cost of producing more will rise.

Question #19

A non-linear (“bending”) production possibilities model assumes that

A. some land or labor is more productive in one use than another.

B. the opportunity cost of producing more of something will remain constant.

C. technology can advance.

Question #20

Assuming there are only two types of outputs in Cuba: consumer goods and nuclear missiles. All else constant, as the nation produces more missiles,,

A. the greater is the opportunity cost of consumer wants satisfied.

B. every additional missile will reduce consumer goods production by more and more.

C. the opportunity cost of consumer wants satisfied is diminishing.

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