Economics for Decision Making
Midterm Exam
Course Introduction
Economics for Decision Making introduces students to essential economic concepts and analytical tools that inform effective business and policy decisions. The course covers both microeconomic and macroeconomic principles, including supply and demand analysis, market structures, cost-benefit evaluation, and the role of incentives in shaping behavior. Emphasis is placed on applying economic reasoning to real-world situations, enabling students to critically assess choices faced by firms, consumers, and governments. Through case studies and problem-solving activities, learners develop practical skills to analyze data, forecast outcomes, and make sound decisions in a dynamic economic environment.
Recommended Textbook Microeconomics 2nd Edition by Dean Karlan
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23 Chapters
3122 Verified Questions
3122 Flashcards
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Chapter 1: Economics and Life
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Which of the following could be an example of a question that would be studied in microeconomics?
A) Why did our economic growth rate slow down during the 2000s?
B) How did the recession end in 2009 if unemployment continued to rise?
C) How will the legalization of marijuana in Colorado affect the market for cigarettes?
D) When should Congress raise taxes in order to tackle the debt crisis?
Answer: C
Q2) People frequently confuse facts with judgments that are based on beliefs.This means that people have trouble making the distinction between:
A) political statements and non-political statements.
B) rational statements and irrational statements.
C) macroeconomics and microeconomics.
D) positive statements and normative statements.
Answer: D
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3
Chapter 2: Specialization and Exchange
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139 Flashcards
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Sample Questions
Q1) Suppose that a worker in Country A can make either 25 bananas or 5 tomatoes each year.Country A has 200 workers.Suppose a worker in Country B can make either 18 bananas or 6 tomatoes each year.Country B has 400 workers.Two possible consumption bundles that Country B could produce are:
A) (7,200 bananas, 2,400 tomatoes) and (3,600 bananas, 1,200 tomatoes)
B) (7,200 bananas, 0 tomatoes) and (4,000 bananas, 1,200 tomatoes)
C) (3,600 bananas, 1,200 tomatoes) and (1,800 bananas, 1,600 tomatoes)
D) (1,800 bananas, 1,800 tomatoes) and (900 bananas, 2,200 tomatoes)
Answer: C
Q2) Suppose that a worker in Country A can make either 25 bananas or 5 tomatoes each year.Country A has 200 workers.Suppose a worker in Country B can make either 18 bananas or 6 tomatoes each year.Country B has 400 workers.For a worker in Country A,the trade-off of making one tomato is:
A) 2 bananas.
B) 3 bananas.
C) 4 bananas.
D) 5 bananas.
Answer: D
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Page 4
Chapter 3: Markets
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158 Flashcards
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Sample Questions
Q1) Darren loves to go to the movies,and he just learned that he can buy a ticket at a discounted price using his student ID.Darren now attends movies even more often.The change in Darren's behavior would be shown graphically by a:
A) rightward shift in his demand curve.
B) leftward shift in his demand curve.
C) movement down along his demand curve.
D) movement up along his demand curve.
Answer: C
Q2) The best example of a perfectly competitive market would be the market for:
A) grain.
B) shoes.
C) computers.
D) cameras.
Answer: A
Q3) The market clearing price refers to the:
A) equilibrium price that quantity supplied is the highest possible.
B) price where quantity demanded and quantity supplied are the same.
C) minimum price at which items could be sold.
D) maximum price where all suppliers are willing to sell all their production.
Answer: B
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Chapter 4: Elasticity
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Sample Questions
Q1) Assuming price elasticity of demand is reported as an absolute value,an elastic demand has an elasticity:
A) greater than one.
B) less than one.
C) exactly one.
D) greater than zero and less than one.
Q2) When price was 5,quantity demanded was 10.When price increased to 6,quantity demanded decreased to 9.Therefore,when price increased,total revenue
A) decreased from 54 to 50, indicating that demand is inelastic.
B) decreased from 54 to 50, indicating that demand is elastic.
C) increased from 50 to 54, indicating that demand is inelastic.
D) increased from 50 to 54, indicating that demand is elastic.
Q3) Different measurements of elasticity include:
A) income elasticity of demand, income elasticity of supply.
B) price elasticity of demand, price elasticity of supply.
C) cross-price elasticity of demand, income elasticity of supply.
D) preference elasticity of demand, cross-price elasticity of supply.
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Chapter 5: Efficiency
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Sample Questions
Q1) A market has four individuals,each considering buying a grill for his backyard.Assume that grills come in only one size and model.Abe considers himself a grill-master,and finds a grill a necessity,so he is willing to pay $400 for a grill.Butch is a meat-lover,honing his grilling skills,and is willing to pay $350 for a grill.Collin just met the girl of his dreams,and she loves a good grilled steak,so in his effort to impress her he is willing to pay $320 for a grill.Daniel loves grilled shrimp and thinks it might be cheaper in the long run if he buys a grill instead of eating out every time he wants grilled shrimp,so he is willing to pay $200 for a grill. If the market price of grills increases from $310 to $350,given the scenario described:
A) total consumer surplus would fall by $120.
B) total consumer surplus would fall by $90.
C) Collin and Butch would experience a decrease in consumer surplus, but Abe's consumer surplus would rise.
D) Collin would experience a decrease in consumer surplus, but Abe and Butch would experience a rise in consumer surplus.
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Chapter 6: Government Intervention Microeconomics
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156 Flashcards
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Sample Questions
Q1) For a price ceiling to have an impact on a market it:
A) must be set above the equilibrium price.
B) must be set below the equilibrium price.
C) must be set at the equilibrium price.
D) can lead more goods to be produced in a market.
Q2) Does a subsidy to buyers affect the supply curve?
A) Yes, it shifts supply up by the amount of the subsidy.
B) Yes, it shifts supply to the right by the amount of the subsidy.
C) No, the quantity supplied will increase, but the supply curve does not move.
D) No, the quantity supplied will decrease, but the supply curve does not move.
Q3) In evaluating policy effectiveness,economists rely on:
A) positive analysis.
B) normative analysis.
C) both normative and positive analysis.
D) Economists can never fully analyze any real-world policy effectiveness.
Q4) Positive analysis:
A) involves the formulation and testing of hypotheses.
B) involves value judgments concerning the desirability of alternative outcomes.
C) weighs the fairness of a policy.
D) examines if the outcome is desirable.
Page 8
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Chapter 7: Consumer Behavior
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Sample Questions
Q1) Sadie has just eaten a donut and says it gave her a utility of 6.If she chooses to eat another donut:
A) we can assume she will get an increase in utility of at least 6 from the additional donut.
B) we can assume she will get a decrease in utility from the additional donut.
C) we can assume she will get an increase in utility of less than 6 from the additional donut.
D) we can assume Sadie's total utility will fall because of diminishing marginal utility.
Q2) One baseline assumption that economists make about consumer behavior is that:
A) people are rational utility maximizers.
B) people will always choose short-term benefits to longer-term payoffs.
C) people will always choose what makes them happiest.
D) people are unpredictable.
Q3) Howard has just smoked a cigarette.If he chooses to smoke a second one:
A) he will experience a drop in total utility.
B) he is not acting rationally.
C) he will derive less marginal utility from it than his first.
D) None of these is true.
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Page 9
Chapter 8: Behavioral Economics: A Closer Look at Decision Making
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Sample Questions
Q1) Applying the idea of time inconsistency,we can say that,in general,a person's "future-oriented self":
A) has the same objectives as the person's present-oriented self, but articulates them differently.
B) tends to choose healthier options, whereas the present-oriented self gives into temptation more easily.
C) is less rational in decision-making, because that self rarely matches actual behavior.
D) is more rational in decision-making, because its choices are generally healthier or more altruistic.
Q2) Beverly spends $100 on a teeth whitening kit.After one application,her gums are inflamed and it feels like her mouth is on fire.Beverly is trying to decide whether to apply the treatment again,or throw the kit away.The opportunity cost of a second application is:
A) $100.
B) the pain and suffering involved with the second application.
C) $100 + the pain and suffering involved with the second application.
D) $100 + the pain and suffering involved with the first and second application.
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Page 10
Chapter 9: Game Theory and Strategic Thinking
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147 Flashcards
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Sample Questions
Q1) Strategies and incentives:
A) work the same whether games are played once or repeated.
B) often work quite differently when games are repeated.
C) do not change when the game is repeated.
D) None of these statements is true.
Q2) Which of the following is a subtle way for a company to reassure their competitors that it is committed to a tit-for-tat strategy?
A) Setting prices below cost
B) Price-matching guarantees
C) Collusion
D) Offering a commitment strategy
Q3) Backward induction is a useful tool for:
A) finding an optimal strategy in a sequential game.
B) analyzing the decisions in a prisoner's dilemma-type game.
C) finding an optimal strategy in a simultaneous game.
D) Backward induction is useful in any of these games.
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11
Chapter 10: Information
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141 Flashcards
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Sample Questions
Q1) Both screening and signaling:
A) are ways to decrease information asymmetry between two parties.
B) correct inefficiency in the market.
C) can increase surplus gained in a market.
D) All of these statements are true.
Q2) One way to avoid the principal-agent problem would be to have:
A) the employee constantly monitor the employer's activities.
B) the employer constantly monitor the employee's efforts.
C) the employer share all management choices with employees before making decisions.
D) the employee sign a waiver of release.
Q3) Information asymmetry is a problem when:
A) a buyer and seller have aligned incentives.
B) a buyer and seller have opposing incentives.
C) a market is highly efficient.
D) a market is highly inefficient.
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Chapter 11: Time and Uncertainty
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Sample Questions
Q1) Evaluating risk requires that:
A) we think about different possible outcomes.
B) we accept that our best guess about future costs and benefits could be wrong.
C) we consider uncertain costs or benefits of an event or choice.
D) All of these statements are true.
Q2) Which of the following is closest to the future value of a $4,000 deposit earning 2 percent interest annually after 10 years?
A) $4,122
B) $4,876
C) $5,025
D) $4,805
Q3) Risk is:
A) when the costs or benefits of an event or choice are uncertain.
B) why the changing value of money is such a challenge.
C) to always be avoided, at any cost.
D) None of these statements is true.
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Chapter 12: The Costs of Production
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142 Flashcards
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Sample Questions
Q1) The additional output produced by adding one more unit of an input is the:
A) marginal product.
B) average product.
C) total production.
D) slope of the marginal product curve.
Q2) The marginal product of any input into the production process:
A) is the increase in output that is generated by an additional unit of input.
B) is the decrease in input that is generated by an additional unit of output.
C) is the constant ratio of inputs to outputs.
D) None of these is true.
Q3) An example of an ongoing expense for a toy company would be buying:
A) a delivery truck, and would be included in total cost.
B) a new factory, and would be excluded from total cost.
C) advertising for their products, and would be included in total cost.
D) None of these is true.
Q4) Diminishing marginal product:
A) causes the variable cost curve to become flatter.
B) causes the variable cost curve to become steeper.
C) has no relation to the variable cost curve.
D) causes the fixed cost curve to become flatter.
Page 14
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Chapter 13: Perfect Competition
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Sample Questions
Q1) If the market price falls below the bottom of the firm's ATC curve:
A) there is no level of output at which the firm can make a profit.
B) the firm is earning profits.
C) the market price must be lower than the firm's AVC.
D) Total revenue must be higher than total cost.
Q2) If firms are producing at a profit-maximizing level of output where the price is equal to the average total cost:
A) average total cost must be minimized.
B) economic profits must be zero.
C) accounting profits must be positive.
D) All of these are true.
Q3) For firms that sell one product in a perfectly competitive market,the market price:
A) can be influenced by one firm's output decision.
B) is equal to the average total cost of a firm.
C) is taken as a constant by individual firms.
D) is higher than the marginal revenue of a firm
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Chapter 14: Monopoly
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Sample Questions
Q1) For a monopolist,at the profit-maximizing level of output:
A) price is greater than average revenue.
B) average revenue is greater than marginal cost.
C) marginal cost is greater than price.
D) total revenue is equal to total cost.
Q2) For a monopoly producing any output level greater than one,the average revenue curve:
A) lies below the demand curve.
B) lies above the marginal revenue curve.
C) is the same as the marginal revenue curve.
D) lies above the demand curve.
Q3) The most a monopolist can sell at any given price is:
A) the amount he alone can supply the market with.
B) the amount demanders are willing to buy at that price.
C) constrained by the availability of inputs.
D) less than if it were a perfectly competitive market.
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Chapter 15: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Oligopoly describes a market with:
A) many sellers.
B) one seller.
C) only a few sellers.
D) few or many sellers, but only one buyer.
Q2) Which of the following is not a characteristic of monopolistically competitive firms in the long run:
A) firms earns zero profits
B) each firm maximizes profits.
C) firms charge a price above marginal cost.
D) there is no deadweight loss.
Q3) If a monopolistically competitive firm is earning profits in the short run:
A) the entry of competing firms will shift the firm's demand to the right.
B) the entry of competing firms will shift the firm's demand to the left.
C) the entry of competing firms will cause price to drop, but not affect the firm's demand curve.
D) the entry of competing firms will cause price to rise, but not affect the firm's demand curve.
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Chapter 16: The Factors of Production
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Sample Questions
Q1) If the supply of another input used decreases,the marginal product of labor can:
A) increase, decreasing the demand for labor.
B) increase, increasing the demand for labor.
C) decrease, increasing the demand for labor.
D) increase, increasing the supply of labor.
Q2) Which of the following industries would be considered to have a capital intensive production process?
A) Auto manufacturing
B) Farming in a poor country
C) Writing a novel.
D) Art restoration.
Q3) If wages drop below the market equilibrium level in a competitive labor market:
A) firms will demand more labor than workers are willing to supply.
B) firms will have to offer higher wages to attract the workers they need.
C) there won't be enough workers willing to work at that wage.
D) All of these statements are true.
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18
Chapter 17: International Trade
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Sample Questions
Q1) An important determinant of comparative advantage is:
A) homogeneity of climate and natural resources between countries.
B) endowment of factors of production.
C) equal technology levels across nations.
D) well established governmental regulations on trade.
Q2) When a price-taking country joins the global market for some good,it:
A) shifts the world demand and supply to the right.
B) has a negligible effect on the world equilibrium.
C) shifts the world demand and supply to the left.
D) shifts the world demand to the right, and the world supply to the left.
Q3) Engaging in international trade has all of the following effects except:
A) altering prices in different countries.
B) influencing labor markets in different countries.
C) increasing number of goods and services we can consumer in different countries.
D) it makes use of resources less efficient.
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Chapter 18: Externalities
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Sample Questions
Q1) If a production process created pollution,then the social cost curve would be:
A) below the market supply curve.
B) the same as the original market supply curve.
C) above the market supply curve.
D) zero.
Q2) If a Pigovian tax is levied on producers,the supply curve will shift:
A) straight up, decreasing quantity.
B) straight down, decreasing quantity.
C) straight up, increasing quantity.
D) straight down, increasing quantity.
Q3) Social costs are:
A) private costs plus external costs.
B) network costs minus private costs.
C) external costs minus private costs.
D) those costs imposed without compensation on someone other than the person who caused them.
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Chapter 19: Public Goods and Common Resources
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Sample Questions
Q1) Traffic lights would be considered:
A) a common resource.
B) a private good.
C) a public good.
D) an artificially scarce good.
Q2) An example of a public good is:
A) health.
B) cleanliness.
C) radio signals.
D) All of these are public goods.
Q3) Public goods,when left to the private market will be:
A) undersupplied.
B) over consumed.
C) under consumed.
D) oversupplied.
Q4) Goods that are rival in consumption and excludable are:
A) a common resource.
B) a private good.
C) a public good.
D) an artificially scarce good.
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Chapter 20: Taxation and the Public Budget
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Sample Questions
Q1) The federal income tax _______________ compared to a state sales tax. A) has a higher administrative burden
B) has a lower administrative burden
C) is less complex
D) is administered basically the same as
Q2) If Jen earns $80,000 a year and pays $16,000 in taxes,and Gary earns $100,000 a year and pays $16,000 a year in taxes,the tax system must be:
A) flat.
B) proportional.
C) progressive.
D) lump-sum.
Q3) If Janice earns $50,000 a year and pays $500 in taxes,and Cam earns $100,000 a year and pays $20,000 in taxes,the tax system must be: A) regressive.
B) progressive.
C) proportional.
D) lump-sum.
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22
Chapter 21: Poverty, Inequality, and Discrimination
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Sample Questions
Q1) Retirement benefits are less like __________,and more like _____________
A) social insurance programs; social savings programs.
B) private insurance; collective savings program.
C) savings programs; private insurance.
D) None of these is true.
Q2) A program likely to make a big dent in chronic poverty is:
A) unemployment insurance.
B) health insurance.
C) job training.
D) none of the above are likely to be effective in reducing chronic poverty.
Q3) Programs that require people to pay into a common pool and are in turn eligible to draw on benefits under certain circumstances are called:
A) social insurance programs.
B) social benefit programs.
C) common insurance programs.
D) equitable payment programs.
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Chapter 22: Political Choices
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Sample Questions
Q1) In thinking about the criteria for an ideal voting system,needing no dictator means:
A) one person cannot have the power to enact his or her own preferences.
B) those in power must be forced to listen to the will of the people when enacting policy.
C) the presence of pure democracy is needed, so everyone gets a vote.
D) one person cannot have their preferences represented in what voters decide upon.
Q2) An unintentional consequence of using mail-in ballots in a small community is:
A) decreased costs associated with voting.
B) decreased pressure from others to fulfill their civic duty.
C) increased costs associated with tallying the votes.
D) increased pressure from government to vote.
Q3) The intent of the liberum veto was ___________,and the outcome was _____________.
A) complete consensus; often chaos and corruption
B) majority rule; complete consensus
C) efficiency; inefficiency
D) efficiency; efficiency
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Chapter 23: Public Policy and Choice Architecture
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Sample Questions
Q1) Suppose studies showed that 12 percent of all teens choose to participate in underage drinking.If policymakers wish to reduce the amount of underage drinking,they should:
A) not share that statistic, and let teens think that it's a huge problem with all teens.
B) Informing them will have no impact on their individual behavior.
C) let teens know that the great majority of teens currently do not drink.
D) The statistic is likely to influence their personal decision, but it is impossible to predict in what way without more information.
Q2) A person setting up automatic deductions through her employer so a portion of her pay goes into a "Christmas account" is an example of:
A) status quo bias.
B) the endowment effect.
C) positive framing.
D) a commitment device.
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