EC 110- Ch. 1

Now suppose you had been planning to spend the day studying at the library. What is the cost of going skiing in this case? Check all that apply.

-The value of your time spent studying -The cost of a lift ticket -The rental of any ski equipment you need

You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. Which of the following are included in the true cost of going skiing?

-the wages you forgo by skiing -the cost of a lift ticket -the rental of any ski equipment you need

Governments may intervene in a market economy in order to

A. protect property rights. B. correct a market failure due to externalities. C. achieve a more equal distribution of income. D. all of the above Answer: D

If a nation has high and persistent inflation, the most likely explanation is

A. the central banking creating excessive amounts of money. B. unions bargaining for excessively high wages. C. the government imposing excessive levels of taxation. D. firms using their monopoly to enforce excessive price hikes. Answer: A

You are trying to decide whether to take a vacation. Most of the costs of the vacation (airfare, hotel, and forgone wages) are measured in dollars, but the benefits of the vacation are psychological. How can you compare the benefits to the cost?

Determine the benefits of what you give up by going on vacation, and compare them to the benefits of going on vacation

True or False: Labor unions are the primary reason the standard of living in the United States has changed over time. True False

False The increase in average income and thus the standard of living is mainly the result of increased productivity. In other words, an hour of work produces more goods and services than it used to in your grandparents' era. See Section: Principle 8: A Country's Standard of Living Depends on Its Ability to Produce Goods and Services

Yvette has opened a new startup company in web design. Within the first month of business, the startup agrees to maintain an accounting firm's website in exchange for someone doing their tax returns. Which of the following principles of economic interaction best describes this scenario?

Trade can make everyone better off.

If the United States government raises the income taxes on the wealthiest Americans, while increasing welfare payments to the poorest Americans, the result will likely be a ______ in efficiency and an _________ in equality in the United States.

decrease; increase

Suppose the large number of auto accidents in a small town results in new legislation that requires all citizens of the town to install new anti-lock brakes on their cars. These new brakes cut the time it takes a car to stop by 50%, allowing drivers to more easily avoid collisions with other cars and pedestrians. The new brakes ________ the probability that a vehicle will collde with another vehicle but also gives drivers an incentive to drive __________ , which could potentially _________the number of car accidents in the town.

decrease; more recklessly; increase

Economics is best defined as the study of

how society manages its scarce resources.

Which of the following government policies is least likely to increase the standard of living in the United States?

raising the minimum wage paid to workers

Adam Smith's phrase "invisible hand" refers to

the ability of free markets to reach desirable outcomes, despite the self-interest of market participants.

Explain whether each of the following government activities is motivated by a concern about equality or a concern about efficiency.

Regulating cable TV prices - Efficiency Providing some poor people with vouchers that can be used to buy food - Equality Prohibiting smoking in public places - Efficiency Breaking up Standard Oil (which once owned 90% of all oil refineries) into several smaller companies - Efficiency Imposing higher personal income tax rates on people with higher incomes - Equality Instituting laws against driving while intoxicated - Efficiency

You win $100 in a basketball pool. You have a choice between spending the money now or putting it away for a year in a bank account that pays 5% interest. Which of the following is included in the opportunity cost of spending $100 now?

The $105 you would have a year from now if you put it in the bank

Eileen is training for a triathlon, a timed race that combines swimming, biking, and running. Consider the following sentence: In order to swim for an hour, Eileen must take time away from work, where she earns $9 per hour. This is in addition to paying a $4 entrance fee for the pool. Which basic principle of individual choice do these statements best illustrate?

The cost of something is what you give up to get it

A 1996 bill reforming the federal government's antipoverty programs limited many welfare recipients to only 2 years of benefits. This change gives people the incentive to find a job ____ quickly than if welfare benefits lasted forever. The loss of benefits after 2 years will result in the distribution of income becoming ____ equal. In addition, the economy will be ____ efficient because of the change in working incentives.

This change gives people the incentive to find a job more quickly than if welfare benefits lasted forever. The loss of benefits after 2 years will result in the distribution of income becoming less equal. In addition, the economy will be more efficient because of the change in working incentives. This change in the government's antipoverty program reduces equality in the distribution of income, since those who cannot find a job will get no income at all however, the economy is more efficient given the increased incentive for the unemployed to find work and contribute to the nation's output.

A marginal change is one that

incrementally alters an existing plan.

You work as an assistant coach on the university basketball team and earn $13 per hour. One day, you decide to skip the hour-long practice and go to the local carnival instead, which has an admission fee of $9. The total cost (valued in dollars) of skipping practice and going to the carnival (including the opportunity cost of time) is

$22

Which of the following describe some of the trade-offs faced by a member of Congress deciding how much to spend on national parks?

-Congress can spend either a small amount on a lot of parks or a large amount on a single national park -money spent on national parks benefits park visitors, but alternatively the money could be spent on highways to benefit drivers

Which of the following describe some of the trade-offs faced by a family deciding whether to buy a new car?

-fuel-efficient cars are more expensive, but regular cars require spending more on gas -a larger vehicle means saving time by not having to make multiple trips somewhere, but a smaller vehicle is cheaper -an increase is the family's car payment means the family will be unable to afford a vacation

Which of the following describe some of the trade-offs faced by a recent college graduate deciding whether to go to graduate school?

-taking out more student loans means she may not be able to purchase the car she needs -if she goes to graduate school, she won't be able to spend as much time with her family -graduate school means fewer years of on-the-job experience

Which of the following describe some of the trade-offs faced by a company president deciding whether to open a new factory?

-the firm can either open a new factory or upgrade equipment -the firm can either pay out more of its profit shareholders or earn additional profit next year by increasing production

Which of the following describe some of the trade-offs faced by a professor deciding how much time to spend preparing for class?

-the more he prepares, the better his lectures, but the less he prepares, the more free time he can enjoy doing something else -the better the lecture, the better his chances of tenure, but time spent preparing the lecture decreases the time he has available to work on research

Teresa is a hard-working college sophomore. One Thursday, she decides to work nonstop until she has answered 100 practice problems for her physics course. She starts work at 8:00 AM and uses a table to keep track of her progress throughout the day. She notices that as she gets tired, it takes her longer to solve each problem. 8am: 0 9am: 40 10am: 70 11am: 90 noon: 100 The marginal, or additional, gain from Teresa's second hour of work, from 9:00 AM to 10:00 AM, is The marginal gain from Teresa's fourth hour of work, from 11:00 AM to noon, is Later, the teaching assistant in Teresa's physics course gives her some advice. "Based on past experience," the teaching assistant says, "working on 35 problems raises a student's exam score by about the same amount as reading the textbook for 1 hour." For simplicity, assume students always cover the same number of pages during each hour they spend reading. Given this information, in order to use her 4 hours of study time to get the best exam score possible, how many hours should she have spent working on problems, and how many should she have spent reading?

30;10 1 hour working problems; 3 hours reading

Which of the following statements support the reality that your standard of living is different from that of your parents or grandparents when they were your age? Check all that apply. Many families have at least two cars per household, whereas having a vehicle was a luxury in the early 20th century. A cutting-edge television comes with HD, 3D, and SmartTV technology, while your grandparents likely enjoyed a black-and-white television in the early years. In the United States, the average person's life expectancy was roughly 78 years old in 2010, but only 70 years old in 1960.

All Average income in the United States has roughly doubled every 35 years. Therefore, you are likely to have a better standard of living than your parents, and an even better standard of living than your grandparents. This includes having access to safer cars, better technology, and improved health care. See Section: Principle 8: A Country's Standard of Living Depends on Its Ability to Produce Goods and Services

Juanita is deciding whether to buy a dress that she wants, as well as where to buy it. Three stores carry the same dress, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $102 for the dress: Local Department Store: 15min;$102 Across Town:30min;$85 Neighboring City:60min;$76 Juanita makes $42 an hour at work. She has to take time off work to purchase her dress, so each hour away from work costs her $42 in lost income. Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling. Assume that Juanita takes opportunity costs and the price of the dress into consideration when she shops. Juanita will minimize the cost of the dress if she buys it from the

Local= 144 Across Town=148 Neighboring City=181 *Local

Suppose that the government believes the economy is not producing goods and services at its optimal level. In an attempt to stimulate the economy, the government increases the quantity of money in the economy by printing more money. This monetary policy_________the economy's demand for goods and services, leading to___________ product prices. In the short run, the change in prices induces firms to produce____________goods and services. This, in turn, leads to a__________ level of unemployment. In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to_______ unemployment.

increases; higher; more; lower lower

Bakers are _________ likely to supply pastries to the market if property rights are enforced. A manufacturing plant dumps chemical waste into a nearby river, poisoning the water supply for a small town downstream. A single grocery store is the only source of food in a small town, giving the store the ability to influence the price of food.

more; externality; market power

The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $3 million. If it would cost $1 million to finish development and make the product, you__________go ahead and do so. The most you should pay to complete development is ____million.

should; 3 mill

Your opportunity cost of going to a movie is

the total cash expenditure needed to go to the movie plus the value of your time.