Professional Documents
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Microeconomics
Seventh Edition by Pindyck / Rubinfeld
Pearson Education
2009 8/12/2008
Contents
Chapter1 Chapter2 Chapter3 Chapter4 Chapter5 Chapter6 Chapter7 Chapter8 Chapter9 Preliminaries ........................................................................................................................1 TheBasicsofSupplyandDemand..................................................................................16 ConsumerBehavior...........................................................................................................55 IndividualandMarketDemand...................................................................................125 UncertaintyandConsumerBehavior ...........................................................................179 Production ........................................................................................................................236 TheCostofProduction ...................................................................................................273 ProfitMaximizationandCompetitiveSupply ............................................................327 TheAnalysisofCompetitiveMarkets ..........................................................................375
Chapter12 MonopolisticCompetitionandOligopoly ...................................................................528 Chapter13 GameTheoryandCompetitiveStrategy......................................................................565 Chapter14 MarketsForFactorInputs ..............................................................................................614 Chapter15 Investment,TimeandCapitalMarkets ........................................................................656 Chapter16 GeneralEquilibriumandEconomicEfficiency ...........................................................698 Chapter17 MarketswithAsymmetricInformation........................................................................743 Chapter18 ExternalitiesandPublicGoods......................................................................................787
Chapter1 Preliminaries
1) Microeconomicsisthebranchofeconomicsthatdealswithwhichofthefollowingtopics? A) Thebehaviorofindividualconsumers B) Unemploymentandinterestrates C) Thebehaviorofindividualfirmsandinvestors D) BandC E) AandC Answer: E
Diff:1 Section: 1.1
2) ARollingStonessonggoes:Youcantalwaysgetwhatyouwant.Thisechoesanimportant themefrommicroeconomics.Whichofthefollowingstatementsisthebestexampleofthis theme? A) Consumersmustmakethebestpurchasingdecisionstheycan,giventheirlimited incomes. B) Workersdonothaveasmuchleisureastheywouldlike,giventheirwagesandworking conditions. C) Workersinplannedeconomies,suchasNorthKorea,donothavemuchchoiceoverjobs. D) Firmsinmarketeconomieshavelimitedfinancialresources. Answer: A
Diff:1 Section: 1.1
3) Economicsisabouttheallocationofscarceresources.WhichofthefollowingisNOTan exampleofeconomicscarcity? A) IfStevegoestoseethemovieMasterandCommanderonSaturday,hewillnotbeableto affordbuyingicecream. B) IfJennystudiesforhereconomicsquizthisevening,shewillnothavetimetowalkher dog. C) IfGeneralMotorsincreasesitsproductionofSUVsthisyear,itwillhavetospendmore onadvertising. D) IfBordersBooksincreasesthenumberoftitlesitcarries,itwillhavetoreallocateshelf spacetoaccommodatethenewtitles. Answer: C
Diff:2 Section: 1.1
5) Usethefollowingtwostatementstoanswerthisquestion: I. Economictheoriesaredevelopedtoexplainobservedphenomenabydeducingfromaset ofbasicrulesandassumptions. II. Economictheoriesusevaluejudgmentstodeterminewhichpeopleoughttopaymore taxes. A) BothIandIIaretrue. B) Iistrue,andIIisfalse. C) Iisfalse,andIIistrue. D) BothIandIIarefalse. Answer: B
Diff:1 Section: 1.1
6) Whichofthefollowingisapositivestatement? A) ThePresidentoftheUnitedStatesoughttobeelectedbyadirectvoteoftheAmerican peopleratherthantheElectoralCollege. B) Afundamentalassumptionoftheeconomictheoryofconsumerbehavioristhat consumersalwayspreferhavingmoreofanygoodtohavinglessofit. C) Becausemanyadultscannotaffordtogotocollege,taxcreditsfortuitionshouldbe introduced. D) alloftheabove E) noneoftheabove Answer: B
Diff:1 Section: 1.1
7) Whichofthefollowingisanormativestatement? A) Thetaxespaidbythepoorshouldbereducedinordertoimprovetheincome distributionintheU.S. B) Stategovernmentsshouldnotsubsidizecorporationsbytrainingwelfarerecipients. C) Presidentialcandidatesshouldnotbegivenfundsfromthefederalgovernmenttorun campaigns. D) TheseaottershouldnotbeallowedtospreadintoSouthernCaliforniacoastalwaters, becauseitwillreducethevalueoffisheries. E) alloftheabove Answer: E
Diff:1 Section: 1.1
8) Whichofthefollowingisapositivestatement? A) Intermediatemicroeconomicsshouldberequiredofalleconomicsmajorsinorderto buildasolidfoundationineconomictheory. B) Theminimumwageshouldnotbeincreasedbecausethisactionwouldincrease unemployment. C) Smokingshouldberestrictedonallairlineflights. D) Allautomobilepassengersshouldberequiredtowearseatbeltsinordertoprotectthem againstinjury. E) noneoftheabove Answer: E
Diff:1 Section: 1.1
10) Whichofthefollowingstatementsisfalse?Aneconomicanalysisofcarbontaxescan: A) calculatetheincreaseincostsfacedbycoal- usingindustries. B) predicttheeffectonunemploymentinWestVirginiacoalminingcommunities. C) comparethelikelyreductionsinmedicalexpendituresondiseasescausedbysmog. D) presentatrade- offofthecostsandbenefitsofdifferentlevelsofcarbontaxes. E) concludethatsuchtaxesshouldbeimposedtobenefitfuturegenerations. Answer: E
Diff:1 Section: 1.1
11) Usethefollowingtwostatementstoanswerthisquestion: I. Inordertoanswernormativequestions,itisnecessarytomakevaluejudgments. II. Inordertoconductpositiveeconomicanalysis,itisalwaysnecessarytouseempirical evidenceinadditiontoeconomictheories. A) IandIIareincorrect. B) Iiscorrect,IIisincorrect. D) BothIandIIarecorrect. C) Iisincorrect,IIiscorrect. Answer: B
Diff:1 Section: 1.1
12) __________ questionshavetodowithexplanationandprediction, __________ questionshave todowithwhatoughttobe. A) Positive;negative. B) Negative;normative. C) Affirmative;positive. D) Positive;normative. E) Econometric;theoretical. Answer: D
Diff:1 Section: 1.1
15) Pleaseusethefollowingstatementstoanswerthisquestion: I. Theprocessoftestingandrevisingtheoriesiscentraltothedevelopmentofeconomicsas ascience. II. Theoryisimperfectandmaynotadequatelydescribeeconomicbehaviorinsomecases. A) IandIIaretrue. B) IistrueandIIisfalse. D) IandIIarefalse. C) IisfalseandIIistrue. Answer: A
Diff:1 Section: 1.1
17) Thetrade- offsfacingworkersincludeallofthefollowingEXCEPT: A) decisiontoworkorremainoutsidetheworkforce. B) decisiontoworkorseekadditionaleducation. C) decisiontoworkforalargecorporationorasmallfirm. D) decisiontoallocatetheirtimebetweenworkandleisure. E) Alloftheabovearetrade- offsfacingworkers. Answer: E
Diff:1 Section: 1.1
20) AninvestorcanacquiresharesofstockinAcmeCorporationeitherbypurchasingshareson thestockmarketorbypurchasingabondthatisconvertibleintosharesofAcmestock.After carefulstudy,theinvestordiscoversthatshecanprofitbypurchasingthebond,convertingit tosharesofstock,andsellingthestock.Thispracticeiscalled: A) sellingshort. B) arbitrage. C) profiteering. D) dumping. E) noneoftheabove Answer: B
Diff:1 Section: 1.2
21) Usethefollowingtwostatementstoanswerthisquestion: I. Amarketisacollectionofbuyersandsellersthat,throughactualorpotentialinteractions, determinethepriceforaproductorsetofproducts. II. Anindustryisacollectionofmarketsforsimilarorcloselyrelatedproducts. A) BothIandIIaretrue. B) Iistrue,andIIisfalse. C) Iisfalse,andIIistrue. D) BothIandIIarefalse. Answer: B
Diff:1 Section: 1.2
23) BoeingCorporationandAirbusIndustriesaretheonlytwoproducersoflong - range commercialaircraft.Thismarketisnotperfectlycompetitivebecause: A) eachcompanyhasannualsalesover$10billion. B) eachcompanycansignificantlyaffectprices. C) AirbusreceivessubsidiesfromtheEuropeanUnion. D) AirbuscannotsellaircrafttotheUnitedStatesgovernment. E) alloftheabove Answer: B
Diff:1 Section: 1.2
26) WashingtonD.C.smetrotrainsystemisbeingextendedfurtherintotheneighboringstatesof MarylandandVirginia,therebyreducingthecostofcommutingintotheUnitedStatescapital. Otherthingsbeingheldconstant,thiscanbeexpectedto: A) decreasetheextentofthemarketforhousingaroundWashingtonD.C. B) increasetheextentofthemarketforhousingaroundWashingtonD.C. C) havenoeffectontheextentofthemarketforhousingaroundWashingtonD.C.asthe actualgeographyremainsunchanged. D) havenoeffectontheextentofthemarketforhousingaroundWashingtonD.C.asthe rangeofhousesavailablehasnotchanged. E) havenoeffectontheextentofthemarketforhousingaroundWashingtonD.C.as propertytaxeshavenotchanged. Answer: B
Diff:2 Section: 1.2
30) Althoughtherearemanyreasonswhyamarketcanbenon - competitive,theprincipal economicdifferencebetweenacompetitiveandanon - competitivemarketis: A) thenumberoffirmsinthemarket. B) theextenttowhichanyfirmcaninfluencethepriceoftheproduct. C) thesizeofthefirmsinthemarket. D) theannualsalesmadebythelargestfirmsinthemarket. E) thepresenceofgovernmentintervention. Answer: B
Diff:1 Section: 1.2
32) Usethefollowingstatementstoanswerthisquestion: I. PoliticalcandidatesneedtoknowthegeographicalextentofthemarketforTV commercialsindetermininghowtoreachthetargetnumberofeligiblevoterswiththesmallest possibleexpenditure. II. ThegeographicalextentofthemarketforgasolineinTexaswilldeterminewhetheranoil companydrillsforoilthere. A) IandIIaretrue. B) Iistrue,andIIisfalse. C) Iisfalse,andIIistrue. D) IandIIarefalse. Answer: B
Diff:1 Section: 1.2
33) Whichofthefollowingassertions,ifproventrueinacourtoflaw,wouldhelp Archer- Daniels - Midland,amakerofcornsyrup,initsattempttoacquireanothercornsyrup producer,theClintonCornProcessingCompany? A) Archer- Daniels - Midlandisadominantproducerofcornsyrup. B) Therearenogoodsubstitutesforcornsyrupforanyofitsmajoruses. C) Archer- Daniels - MidlandandtheClintonCornProcessingCompanytogetherholdonly asmallshareofthemarketforsweetenersincludingcornsyrupandsugar. D) Archer- Daniels - Midlandproducesmanyotherdifferentagriculturalproducts,in additiontocornsyrup. Answer: C
Diff:1 Section: 1.2
34) Usethefollowingstatementstoanswerthisquestion: I. Iftheextentofamarketisbroader,itislesslikelythatfirmsinthemarketcaninfluence themarketprice. II. Indeterminingwhethertwodifferentproductsbelongtothesamemarket,itisnecessary toknowwhetherthetwoproductscanbeusedassubstitutesforeachother. A) IandIIarebothfalse. B) Iisfalse,andIIistrue. C) Iistrue,andIIisfalse. D) IandIIarebothtrue. Answer: D
Diff:2 Section: 1.2
35) Usethefollowingstatementstoanswerthisquestion: I. Thepriceforagivenproductmaydifferacrosssellersifthemarketisnotperfectly competitive. II. Asinglemarketpricedoesnotexistinimperfectlycompetitivemarkets. A) IandIIaretrue. B) IistrueandIIisfalse. D) IandIIarefalse. C) IIistrueandIisfalse. Answer: B
Diff:2 Section: 1.2
37) Toarbitrageapricedifferencebetweentwomarkets,youshould: A) sellinthelow- pricemarketandbuyinthehigh - pricemarket. B) buyinthelow- pricemarketandsellinthehigh- pricemarket. C) sellinbothmarketstocapturealoweraveragemarketprice. D) noneoftheabove Answer: B
Diff:2 Section: 1.2
46) Thenominalpriceofindustrialredpaintwas$12pergallonin1993.Toconvertthisvalueto therealpriceofpaintin2008dollars,weshouldusethe: A) ConsumerPriceIndex. B) ProducerPriceIndex C) Fedfundsrate. D) 30- dayT- billrate. Answer: B
Diff:1 Section: 1.3
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C) 47.9
D) 209.0
50) Usethefollowingstatementstoanswerthisquestion: I. Theinflationrate(therateofchangeinthegeneralpricelevel)calculatedfromaprice indexlikeCPIisthesameregardlessofthebaseyearweusetoformthepriceindex. II. AlthoughtheCPImayindicatethegeneralpricelevelincreasedby5%lastyear,thereare someconsumerproductsthatmayhaveexperiencedmoreorlessinflationinthepastyear. A) IandIIaretrue. B) IistrueandIIisfalse. C) IisfalseandIIistrue. D) IandIIarefalse. Answer: A
Diff:1 Section: 1.3
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53) WhichofthefollowingisNOTanexamplesofwaysinwhichmicroeconomicanalysiscan helpindesigningenvironmentalpolicy? A) Determiningtheoptimallevelofvehicletailpipeemissionsstandards B) Designinglawstoprovideincentivesforfirmstoimplementcleantechnologiesinnew vehicles C) Lobbyingconsumersandfirmstoreduceconsumptionofenergy D) Examiningthetradeoffsbetweenecologicalbenefitsofenvironmentallegislationandits impactsonconsumersstandardofliving Answer: C
Diff:1 Section: 1.4
56) SupposetheSocialSecurityAdministrationwouldliketoguaranteethepurchasingpowerof socialsecuritypaymentstotheelderlydoesnotdiminish.Thatis,therealvalueofthe paymentsdoesnotdecrease.TheCPIin1990was130.7andtheCPIin1998was163.0.How muchdoestheSocialSecurityAdministrationneedtoincreasepaymentsfrom1990to1998to accomplishthisobjective? Answer: Thechangeinthegeneralpricelevelis 100(163 - 130.7)/130.7 = 25%.Thus,thelevelof paymentsin1998needtobe P(1990) *(1+ 0.25).
Diff:1 Section: 1.3
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61) Thenominalpriceofa1990laptopwas$3,500andtheCPIthatyearwas130.7.Thenominal priceofalaptopin1998was$1,600andtheCPIthatyearwas163.0.Whatistherealpriceofa 1998laptopintermsof1990dollars?Bywhatpercenthastherealpriceoflaptopschanged? Answer: 130.7($1,600)/163=$1,283.Percentdeclineintherealvalueoflaptops: - 100($1,283- $3,500)/$3,500 =$2,217(100)/$3,500 =63.34%
Diff:2 Section: 1.3
62) ThepricetoattendaNBAbasketballgameinChicagois$55whiletheCPIinChicagois153. TheCPIinCharlotteis108whilethepricetoattendaNBAbasketballgameis$52.Whichcity offersasmallerrealcostofattendingaNBAbasketballgame? Answer: Chicagorealvalue[NBA(Charlotte)] = 153(52)/108 = $73.67. Therealvalueofagamein CharlotteexceedstherealvalueofagameinChicago.Chicagooffersasmallerrealcost ofattendingagame.
Diff:2 Section: 1.3
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63) ThefirstcolumnofthefollowingtabledescribesthepricemovementofAOLCorporation stockoverthelast5years.Thesecondcolumngivestheperiodsconsumerpriceindex. Calculatetherealvalueofthestockforeachtimeperiodusingyear5asthebaseyear.Ifyou purchased$1,000worthofAOLCorporationinyear1,whathashappenedtothepurchasing powerofyouroriginal$1,000investmentwhenyousellthestockinyear5? Year 1996 1997 1998 1999 2000 Answer: AOL $4.00 $3.84 $7.00 $37.00 $70.00 CPI 147.8 155.3 163.0 165.4 172.1 RealAOLStockPrice in2000Dollars $4.66 $4.26 $7.39 $38.50 $70.00
Therealvalueofayear1996dollarin2000is 172.1($1)/147.8 =$1.16.Iwouldhave bought250sharesofAOLat1996prices(ignoringtransactioncosts)withthe$1,000. Thevalueofthestockintheyear2000is (250($70)) =$17,500.Thechangeinmy purchasingpoweris($17,500- $1,160)/$1,160 =14.09. Thatis,mypurchasingpower frominvestinginthestockrisesby1,409%.
Diff:2 Section: 1.3
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65) ForeachcityacrosstheU.S.,economistsconstructapriceindexforasimilarbasketofgoods. InLosAngelestheindexis127.3andtheindexforDallasis94.8.Ifyouhavebeenoffered $137,000forajobinLosAngelesand$117,000forasimilarjobinDallas,whichjobaffordsyou thehighestpurchasingpowerofthebundleofgoodsinthepriceindex?UsetheLosAngeles valueasthebase. Answer: Realvalue[Dallas]=127.3($117,000)/94.8 = $157,111.Thisexceedsthereal$137,000 salaryforthejobinLosAngeles.TheDallasjobprovideshigherpurchasingpower.
Diff:2 Section: 1.3
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