Microeconomics and Behavior Robert H Frank 9e - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Chapter 05 Applications of Rational Choice and Demand Theories Multiple Choice Questions 1. If the government wanted to curb consumption of alcohol by taxing alcohol without hurting …
$19.99
Microeconomics and Behavior Robert H Frank 9e – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Chapter 05
Applications of Rational Choice and Demand Theories
Multiple Choice Questions
| 1. | If the government wanted to curb consumption of alcohol by taxing alcohol without hurting consumer’s welfare it would
|
| 2. | If an educational voucher system were adopted where parents could spend their share of education tax dollars at any school of their choice, then we could expect families to
|
| 3. | If I get 10 units of pleasure from my first ice cream cone and 2 less units than before from each succeeding cone, I will buy ____ cones and gain _____ units of consumer surplus if the price of a cone = to 5 units of pleasure.
|
| 4. | If you buy food which then is put on special at half price just after you paid,
|
| 5. | The consumer price index overestimates inflation because it
|
| 6. | The local golf course has upgraded seven of its 18 holes and raised its rates from 20 to 24 dollars. It would be correct to say that
|
| 7. | If markets for addictive drugs have a more elastic demand curve than is often thought, and if addicts tend to be unstable people with low incomes, we might speculate that the most likely reason for the surprising elasticity estimates is that
|
| 8. | If the opportunity cost of a unit of current consumption is exactly 1 unit of future consumption then you must sacrifice $10 of current consumption to finance
|
| 9. | Suppose a bank will pay you a 10% interest rate on your deposits for 1 period. In this case you must sacrifice $10 of current consumption to finance
|
| 10. | Suppose you receive Y1 of your income this period and Y2 of your income in the next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the future period?
|
| 11. | Suppose you receive Y1 of your income this period and Y2 of your income next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the current period?
|
| 12. | The horizontal intercept of the intertemporal budget constraint is referred to as
|
| 13. | If you wear your favorite clothes first and eat your favorite food before the food you prefer less you most likely have a
|
| 14. | If the marginal rate of substitution between future and current consumption is less than one, then this consumer exhibits
|
| 15. | If $100 today is worth $150 to you in the future, then you exhibit
|
| 16. | A decrease in the interest rate will
|
| 17. | The Permanent Income and Life-Cycle Hypothesis imply that
|
| 18. | Differences in time preferences depend on
|
| 19. | When people choose to wait for a kiss that they have won from a favorite movie star, they are clearly
|
| 20. | In general, most people
|
| 21. | One thousand dollars given to you a year from now is worth __________ to you today if the relevant discount rate is 10%.
|
| 22. | In a diagram, consumer surplus is always represented by the area:
|
| 23. | If the demand function for apples is P = 1 – Q, how much consumer surplus does the consumer gain when the price of the apples equals 5?
|
| 24. | In analyzing the gasoline tax and subsidy policy discussed in the text, the final solution illustrates that
|
| 25. | According to the analysis in your textbook, the school voucher program would
|
| 26. | According to the analysis in your text, the school voucher program would
|
| 27. | Colin’s demand for golf at his local club each season is P = 50 – 2Q. If the golf course charges $26 dollars per round of golf, how much could it charge Colin in a membership fee before he would not play there?
|
| 28. | If you had a windfall of $5,000 in the present time period and you save some of it, your saving behavior would likely be due to the fact that
|
| 29. | When a product depicted on the horizontal axis of a typical indifference curve model of behavior is taxed
|
| 30. | If the demand function for city bus rides is P = 100 – 10Q and the present price of a ride is 50, then
|
| 31. | Suppose your university decides to increase parking fees in order to deal with the shortage of parking spaces. Nevertheless, the president of your student body convinces the university to pay back the amount spent on higher parking fees to students in the form of a rebate at the end of the school year. Therefore, the increase in parking fees will
|
| 32. | Say an individual demand curve was given by P = 50 – 5Q. When the price is $25, consumer surplus is around
|
| 33. | Suppose an individual demand curve is given by P = 100 – 5Q, where P is the price of smoothies and Q is the quantity she consumes. Assuming her income per week is $1,000 and the current price of smoothies is $5 each, by how much will her consumer surplus decline if the price of smoothies increased to $10 each?
|
| 34. | Say the bus authority in your city increased the typical bus fare from $1.00 to $1.50 and that due to this increase total revenue increased by 20%. Based on this we know that the price elasticity of bus rides in your neighborhood is (assume demand curve is linear):
|
| 35. | You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future period is 2 percent. What is the maximum amount you could consume in the future?
|
| 36. | You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future period is 2 percent. When you allocate consumption optimally between the two periods the marginal rate of time preference between the two periods is
|
| 37. | According to the Life-cycle hypothesis, if a person received a payment roughly equals to her current income her consumption would:
|
| 38. | An interest rate increase to 4 percent will cause you to
|
| 39. | Which of the following would be but best item for the local government to tax if its goal was to raise revenue?
|
| 40. | If you get great pleasure from anticipating a fun event which of the following is true?
|
| 41. | Upon what is your current consumption dependent according to Milton Friedman?
|
| 42. | Budget A consists mostly of food, health care and an apartment and Budget B is made up largely of Food, Entertainment, and Travel. If inflation is estimated by the consumer price index which includes all the items listed above and travel and healthcare had the biggest jump in prices, which of the following is true?
|
Essay Questions
| 43. | This graph below shows a consumer facing a choice between a cash gift or merchandise of greater value.
Show, using a sketch graph, why a consumer prefers a cash gift rather than a larger gift of merchandise.
|
| 44. | Describe in words why the consumer price index overestimates inflation.
|
| 45. | The graphs below show an economy of two people with identical incomes in two years. They have different preference patterns as shown.
Why is the market for loanable funds not in equilibrium?
|
| 46. | The graphs below show an economy of two people with identical incomes in two years. They have different preference patterns as shown.
What will happen in the market to bring about equilibrium?
|
Chapter 05 Applications of Rational Choice and Demand Theories Answer Key
Multiple Choice Questions
| 1. | If the government wanted to curb consumption of alcohol by taxing alcohol without hurting consumer’s welfare it would
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Use price elasticity of demand to analyze the effects of changes in prices and taxes. Topic: Using Price Elasticity of Demand |
| 2. | If an educational voucher system were adopted where parents could spend their share of education tax dollars at any school of their choice, then we could expect families to
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Analyze the effect of economic policy proposals by examining how they affect the consumer’s budget constraint. Topic: Using the Rational Choice Model to Answer Policy Questions |
| 3. | If I get 10 units of pleasure from my first ice cream cone and 2 less units than before from each succeeding cone, I will buy ____ cones and gain _____ units of consumer surplus if the price of a cone = to 5 units of pleasure.
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Use measures of consumer surplus to calculate the benefit from participation in specific markets and design optimal two-part pricing schedules. Topic: Consumer Surplus |
| 4. | If you buy food which then is put on special at half price just after you paid,
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Analyze the effect of economic policy proposals by examining how they affect the consumer’s budget constraint. Topic: Using the Rational Choice Model to Answer Policy Questions |
| 5. | The consumer price index overestimates inflation because it
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-03 Use the rational choice model to show how changes in prices and incomes affect consumer well-being and identify one source of bias in the consumer price index. Topic: Overall Welfare Comparisons |
| 6. | The local golf course has upgraded seven of its 18 holes and raised its rates from 20 to 24 dollars. It would be correct to say that
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Use the rational choice model to show how changes in prices and incomes affect consumer well-being and identify one source of bias in the consumer price index. Topic: Overall Welfare Comparisons |
| 7. | If markets for addictive drugs have a more elastic demand curve than is often thought, and if addicts tend to be unstable people with low incomes, we might speculate that the most likely reason for the surprising elasticity estimates is that
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-04 Use price elasticity of demand to analyze the effects of changes in prices and taxes. Topic: Using Price Elasticity of Demand |
| 8. | If the opportunity cost of a unit of current consumption is exactly 1 unit of future consumption then you must sacrifice $10 of current consumption to finance
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 9. | Suppose a bank will pay you a 10% interest rate on your deposits for 1 period. In this case you must sacrifice $10 of current consumption to finance
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 10. | Suppose you receive Y1 of your income this period and Y2 of your income in the next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the future period?
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 11. | Suppose you receive Y1 of your income this period and Y2 of your income next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the current period?
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 12. | The horizontal intercept of the intertemporal budget constraint is referred to as
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 13. | If you wear your favorite clothes first and eat your favorite food before the food you prefer less you most likely have a
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 14. | If the marginal rate of substitution between future and current consumption is less than one, then this consumer exhibits
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 15. | If $100 today is worth $150 to you in the future, then you exhibit
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 16. | A decrease in the interest rate will
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 17. | The Permanent Income and Life-Cycle Hypothesis imply that
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 18. | Differences in time preferences depend on
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 19. | When people choose to wait for a kiss that they have won from a favorite movie star, they are clearly
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 20. | In general, most people
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 21. | One thousand dollars given to you a year from now is worth __________ to you today if the relevant discount rate is 10%.
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 22. | In a diagram, consumer surplus is always represented by the area:
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-02 Use measures of consumer surplus to calculate the benefit from participation in specific markets and design optimal two-part pricing schedules. Topic: Consumer Surplus |
| 23. | If the demand function for apples is P = 1 – Q, how much consumer surplus does the consumer gain when the price of the apples equals 5?
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Use measures of consumer surplus to calculate the benefit from participation in specific markets and design optimal two-part pricing schedules. Topic: Consumer Surplus |
| 24. | In analyzing the gasoline tax and subsidy policy discussed in the text, the final solution illustrates that
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Analyze the effect of economic policy proposals by examining how they affect the consumer’s budget constraint. Topic: Using the Rational Choice Model to Answer Policy Questions |
| 25. | According to the analysis in your textbook, the school voucher program would
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Analyze the effect of economic policy proposals by examining how they affect the consumer’s budget constraint. Topic: Using the Rational Choice Model to Answer Policy Questions |
| 26. | According to the analysis in your text, the school voucher program would
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Analyze the effect of economic policy proposals by examining how they affect the consumer’s budget constraint. Topic: Using the Rational Choice Model to Answer Policy Questions |
| 27. | Colin’s demand for golf at his local club each season is P = 50 – 2Q. If the golf course charges $26 dollars per round of golf, how much could it charge Colin in a membership fee before he would not play there?
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Use measures of consumer surplus to calculate the benefit from participation in specific markets and design optimal two-part pricing schedules. Topic: Consumer Surplus |
| 28. | If you had a windfall of $5,000 in the present time period and you save some of it, your saving behavior would likely be due to the fact that
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 29. | When a product depicted on the horizontal axis of a typical indifference curve model of behavior is taxed
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-01 Analyze the effect of economic policy proposals by examining how they affect the consumer’s budget constraint. Topic: Using the Rational Choice Model to Answer Policy Questions |
| 30. | If the demand function for city bus rides is P = 100 – 10Q and the present price of a ride is 50, then
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-04 Use price elasticity of demand to analyze the effects of changes in prices and taxes. Topic: Using Price Elasticity of Demand |
| 31. | Suppose your university decides to increase parking fees in order to deal with the shortage of parking spaces. Nevertheless, the president of your student body convinces the university to pay back the amount spent on higher parking fees to students in the form of a rebate at the end of the school year. Therefore, the increase in parking fees will
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-01 Analyze the effect of economic policy proposals by examining how they affect the consumer’s budget constraint. Topic: Using the Rational Choice Model to Answer Policy Questions |
| 32. | Say an individual demand curve was given by P = 50 – 5Q. When the price is $25, consumer surplus is around
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Use measures of consumer surplus to calculate the benefit from participation in specific markets and design optimal two-part pricing schedules. Topic: Consumer Surplus |
| 33. | Suppose an individual demand curve is given by P = 100 – 5Q, where P is the price of smoothies and Q is the quantity she consumes. Assuming her income per week is $1,000 and the current price of smoothies is $5 each, by how much will her consumer surplus decline if the price of smoothies increased to $10 each?
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-02 Use measures of consumer surplus to calculate the benefit from participation in specific markets and design optimal two-part pricing schedules. Topic: Consumer Surplus |
| 34. | Say the bus authority in your city increased the typical bus fare from $1.00 to $1.50 and that due to this increase total revenue increased by 20%. Based on this we know that the price elasticity of bus rides in your neighborhood is (assume demand curve is linear):
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-04 Use price elasticity of demand to analyze the effects of changes in prices and taxes. Topic: Using Price Elasticity of Demand |
| 35. | You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future period is 2 percent. What is the maximum amount you could consume in the future?
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 36. | You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future period is 2 percent. When you allocate consumption optimally between the two periods the marginal rate of time preference between the two periods is
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 37. | According to the Life-cycle hypothesis, if a person received a payment roughly equals to her current income her consumption would:
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 38. | An interest rate increase to 4 percent will cause you to
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 39. | Which of the following would be but best item for the local government to tax if its goal was to raise revenue?
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-04 Use price elasticity of demand to analyze the effects of changes in prices and taxes. Topic: Using Price Elasticity of Demand |
| 40. | If you get great pleasure from anticipating a fun event which of the following is true?
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 41. | Upon what is your current consumption dependent according to Milton Friedman?
|
| AACSB: Reflective Thinking Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 42. | Budget A consists mostly of food, health care and an apartment and Budget B is made up largely of Food, Entertainment, and Travel. If inflation is estimated by the consumer price index which includes all the items listed above and travel and healthcare had the biggest jump in prices, which of the following is true?
|
| AACSB: Analytic Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-03 Use the rational choice model to show how changes in prices and incomes affect consumer well-being and identify one source of bias in the consumer price index. Topic: Overall Welfare Comparisons |
Essay Questions
| 43. | This graph below shows a consumer facing a choice between a cash gift or merchandise of greater value.
Show, using a sketch graph, why a consumer prefers a cash gift rather than a larger gift of merchandise.
|
| AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-01 Analyze the effect of economic policy proposals by examining how they affect the consumer’s budget constraint. Topic: Using the Rational Choice Model to Answer Policy Questions |
| 44. | Describe in words why the consumer price index overestimates inflation.
The CPI assumes the consumer is unable to substitute away from the items in his basket that inflated the most. This makes it impossible for the consumer to fight off some of the inflation by substituting toward more inexpensive goods in the market. Since inflation never affects all goods the same, there will always be some substitutions that make inflation less burdensome. Also, the CPI does not measure quality improvements that might have taken place. |
| AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-03 Use the rational choice model to show how changes in prices and incomes affect consumer well-being and identify one source of bias in the consumer price index. Topic: Overall Welfare Comparisons |
| 45. | The graphs below show an economy of two people with identical incomes in two years. They have different preference patterns as shown.
Why is the market for loanable funds not in equilibrium? The supply of loanable funds exceeds the demand since neither person wants to borrow and one person wants to save money. |
| AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
| 46. | The graphs below show an economy of two people with identical incomes in two years. They have different preference patterns as shown.
What will happen in the market to bring about equilibrium? The interest rate will fall rotating the budget line counterclockwise around the bundle of money each person has until the person on the left borrows the exact amount that the person on the right chooses to save. This will require slight adjustments of the indifferences curves as well. |
| AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-05 Employ the rational choice model to examine choices between present and future consumption. Topic: The Intertemporal Choice Model |
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
