1. Compared to other scholars, economists analyze economic behavior by examining _____.

• a. motive, means, and opportunity
• b. plot, character, setting, and dialog
• c. normality, neurosis, and psychosis
• d. objectives, constraints, and choices made

2. Economists analyze economic behavior by examining people's objectives, constraints, and choices made.

• a. True
• b. False

3. "Self-regarding preferences" are _____.

• a. the most noble
• b. a reasonable assumption at times
• c. an unrealistic assumption for a large majority of the population
• d. the only factual assumption regarding human decision-making

4. The text explains that our self-regarding preferences are, in the end, no different than our other-regarding preferences.

• a. True
• b. False

5. Compared to the ultimatum game, the dictator game changes what aspect of the game of sharing funds? The dictator game _____.

• a. eliminates the possibility of an unfair outcome for both players
• b. gives player B a 25% minimum, no matter what player A offers
• c. allows player A to keep his or her share, no matter what player B decides
• d. eliminates the possibility of player A being selfish

6. How do economists view rationality as a basis for explaining people's choices?

• a. They reject rationality as unsupportable.
• b. Economists consider rationality in theory, but rely mainly on irrationality as the better explanation.
• c. Economists reject rationality as an immoral approach to human choice.
• d. Rationality is central to economists' definition of how people choose the best ways to use resources.

7. Ockham's Razor expresses a preference in philosophy for simple theories over complex theories.

• a. True
• b. False

8. As a philosophical basis for judging theories, Ockham's Razor claims that _____.

• a. thinking is like shaving and we should be very careful when theorizing
• b. the razor's edge is thin, skin must be thick, and so a theory should describe events with thick reasoning
• c. theoreticians should shave away unnecessary detail
• d. Ockham dropped his razor one day and discovered an important philosophical idea, so we should drop our old theories to promote further discovery

9. Bounded rationality means _____.

• a. having more information than the normal bounds of knowledge
• b. having legal boundaries on decisions so as to keep them more logical
• c. making decisions with limited information and understanding
• d. binding yourself to wise rules beforehand so as to be able to choose only an optimal path when decisions are required

10. Bounded rationality assumes that people intend to choose optimally but that they choose based on incomplete data and rough guidelines that do NOT consider all that is known.

• a. True
• b. False

11. One test of how framing affects consumer preferences is to compare sales when we label meat "85% lean" with sales of meat that is "15% fat."

• a. True
• b. False

12. Market performance is assessed based on whether income per capita is becoming more equal.

• a. True
• b. False

13. On what basis do we assess market performance? We measure whether the _____.

• a. national output is maximized during the time under study
• b. average family consumption is equally distributed each year
• c. average family income is maximized in the current year
• d. choices that buyers and sellers make are mutually beneficial without harming others not involved

14. An efficient trade in a market makes at least one party better off and no one else worse off.

• a. True
• b. False

15. Even the most enthusiastic fans of market exchange know that markets do NOT always work perfectly.

• a. True
• b. False

Topic covered in 4.2 Report a problem

16. What term summarizes the problems of gathering market information and making agreements that will work?

• a. Inefficiency adjustments
• b. Costs of necessary bribes
• c. Transactions costs
• d. Logistical costs of transport

17. Market failures can occur when unusual transaction costs prevent buyers and sellers from concluding an otherwise beneficial exchange.

• a. True
• b. False

18. External costs of production generally involve _____.

• a. costs borne by third parties and not by a product's producers and buyers
• b. government officials, acting as a third party, imposing bribes on producers and buyers
• c. governments forcing producers to pay all costs of production
• d. producers selling first to a third-party dealer who then sells to the final buyer, charging a fee for the service

19. Public goods are known to allow producers to exclude users who won't pay, causing market failure.

• a. True
• b. False

Topic covered in 4.2 Report a problem

20. A known cause of market failure is when one company is the sole supplier of a product.

• a. True
• b. False