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ECO 550 Week 2 Chapter 1, 2 Quiz 1
Question 1
1. When multiple facts about a sample set are known, a(n) _____ heuristic makes the choice on the
basis of the first category of facts in which the samples differ.
elimination
representative
recognition
availability
Question 2
1. Which of the following products can be sold through mass advertising?
A new electrocardiogram machine to be used by medical examiners
A mainframe computer installation
A new health insurance policy
A new brand of baby diapers
Question 3
1. A model of choice in economics starts by assuming that:
people try to minimize their losses.
people try to maximize their consumption.
people try to minimize their costs.
people try to maximize their utility.
Question 4
1. _____ is an online venue where businesses and individuals can hedge their uncertainty about
whether legislation that affects them will be enacted.
The American Civics Exchange
Tradesports
The Iowa Electronic Markets

2. The Gallup and Roper surveys
Question 5
1. _____ have the ability to recognize constraints and may choose to incur the costs of altering
them.
Economists
Rational people
Entrepreneurs
Research groups
Question 6
1. Assume that a cargo ship carrying the merchandise of a cloth merchant has been wrecked. Such a
setback will be accounted as the merchant’s:
sunk cost.
deadweight loss.
marginal cost.
opportunity cost.
Question 7
1. Publicly available data on production costs and box office revenues reflect that:
R-rated movies on an average collect higher revenues than G-rated movies.
revenue collected by PG-rated movies donot cover the production and distribution
costs.
G-rates movies help investors to make artistic or polictical statements.
family-rated movies are on average profitable.
Question 8
1. The different methods by which the sellers inform their potential buyers about the product is
called:
knowledge transfer.
advertising.
product offering.
information dissemination.

3. Question 9
1. The math and graphics used in economics help us better understand the logic of:
verbal reasoning.
rational choice.
hypothesis testing.
business forecasting.
Question 10
1. The assumption of rationality in economics implies that:
people perfectly understand their own preferences.
people can overcome economic obstacles in the best possible way.
people can make accurate calculations and they have a perfect foresight.
people make choices with an eye toward attaining objectives they have chosen.
Question 11
1. Which of the following is a root cause behind competition inherent in every society?
Unlimited wants of the people
People’s desire to acquire goods and services for free
Scarcity of goods and services
Genetic makeup of people
Question 12
1. The costs which can be avoided if we alter our decisions or choices are referred to as:
average costs.
opportunity costs.
marginal costs.
sunk costs.
Question 13
1. When a researcher evaluates the probability of an event by looking at how representative the
sample is of the population of interest instead of the entire population, he is using:
an elimination heuristic.
an availability heuristic.

4. a representative heuristic.
a recognition heuristic.
Question 14
1. Utility is a(n) _____ measure of wellbeing of a person.
objective
subjective
ordinal
cardinal
Question 15
1. Since people’s incomes are limited and their abilities to borrow differ they face _____
constraints.
psychological
financial
societal
contractual
Question 16
1.Which of the following is an example of market governance?
A firm vertically integrating backward to own the necessary inputs
A firm entering into a contract with input suppliers.
A school recruiting a part-time teacher to cover for a permanent employee who falls
very ill.
A school requesting its permanent employees to cover for a teacher who suddenly falls
ill.
Question 17

5. 1.The economic value which can be created by a transaction between two people, Ed (seller) and Luis
(buyer), is $50 as Ed’s opportunity cost of selling is $135 and Luis’ valuation of the good is $185. If each
gains $25 from this transaction, which of the following conclusions can be drawn?
Transaction costs are zero.
Luis has higher bargaining power than Ed.
Ed has higher bargaining power than Luis.
Transaction costs are positive.
Question 18
1. In the example of Ireland described in the text, the country’s production set shifted outward
over time because:
of technological advancements which improved its potato cultivation and overall
agricultural production.
it gained new resources over time which enabled it to specialize and gain comparative
advantage in software trade with the U.S. and Europe.
of new resources which allowed it to gain absolute advantage over many of its trading
partners.
of reduction in trade barriers with the European Union.
Question 19
1. When the slope of a country’s production set declines, it implies:Answer
the production set has shrunk.
the marginal cost of producing the good measured on the Y-axis has fallen.
the marginal cost of producing the good measured on the Y-axis has increased.
the marginal cost of producing the good measured on the X-axis has fallen.
Question 20
1. _____ determine the efficient pattern of specialization in production.Answer
Total costs
Opportunity costs
Marginal costs

6. Sunk costs
Question 21
1. Megan, an analyst in Ronald’s team called in sick on a day when 4 projects were due for
completion. Ronald divided Megan’s work between the remaining six team-members. Which form of
governance is being used here?
Etiquette
Hierarchy
Contract
Market
Question 22
1. Prices play a smaller role in _____, in contrast to other modes of governance like _____ and
_____.
hierarchies; markets; contracts
contracts; hierarchies; markets
markets; hierarchies; contracts
etiquette; markets; contracts
Question 23
1. If the production of 2,000 cars and 500 tons of corn during a year is economically efficient for a
country which produces only these two products, which of the following conclusions can be drawn?
It satisfies domestic demand completely.
The production of cars cannot be increased without reducing the production of corn.
The reallocation of resources to change the production level must reduce production of
both goods.
It is possible to increase the production of both if resources can be reallocated.
Question 24
1. If the transaction between you and the seller takes place at a price that equals your valuation of
the product, then:
you realize all the gains from this transaction.

7. the gains from this transaction are equally divided between the two of you.
the entire economic value created by the transaction goes to the seller.
the economic value created by this transaction is sub-optimal.
Question 25
1. The main reason Sears Roebuck became the largest retailer in the United States during the late
nineteenth century was that:
it reduced a host of transaction costs which allowed higher profits to shareholders and
lower prices to customers.
the railroad network improved substantially and charged higher rates for transporting
goods.
the lack of competition lowered the cost of advertising and increased profits for
shareholders.
his organization only interacted with the best wholesalers, distributors, and shippers in
the business.
Question 26
1. Trade between two parties is beneficial because:
it ensures that the standard of living in the poorer country matches its trading partner
eventually.
it enables each to consume a bundle of goods that it cannot produced domestically.
it has an immediate effect on an economy by increasing its production set.
it allows the economy of both trading partners to grow equally.
Question 27
1. The function of economic institutions is to:
determine the profit margin of producers.
determine how much an economy benefits from trade.
define the environment in which we can trade.
define the terms of trade between nations.
Question 28

8. 1. Fiona and Alicia divide their time equally between ironing shirts and cooking meals. Fiona can
iron 5 shirts and cook 2 meals in an hour. Alicia can iron 6 shirts and cook 1 meal in an hour. If they have
to iron 15 shirts and cook 5 meals, who should specialize in which activity?
Fiona should do all the work.
Alicia should do all the work.
Fiona should specialize in cooking meals and Alicia should specialize in ironing shirts.
Alicia should specialize in cooking meals and Fiona should specialize in ironing shirts.
Question 29
1. Reducing _____ the benefits available to the buyer and seller and might also enable them to
make exchanges that were previously impossible.
transaction costs decreases
transaction costs increases
marginal costs decreases
marginal costs increases
Question 30
1. The shares of the economic value of a particular transaction that accrues to the seller and the
buyer depend on:
the buyer’s opportunity cost.
the relative bargaining powers of the two parties.
the cost of production incurred by the seller while producing the good.
the lobbying techniques adopted by the two parties.