Micro

Choosing the 700 Mhz computer would be inefficient because A the marginal benefit is greater than the marginal cost. B the marginal benefit is equal to the marginal cost. C it is impossible to tell the difference compared to a 600 Mhz computer. D the marginal benefit is less than the marginal cost.

A

Jody has purchased a non-refundable $25 ticket to attend a Savage Garden concert on Friday evening. Subsequently, she is asked to go to dinner and dancing at no expense to her. If she uses cost-benefit analysis to choose between going to the concert and going on the date, she should A include only the entertainment value of the concert in the opportunity cost of going on the date. B include the cost of the ticket plus the entertainment value of the concert in the opportunity cost of going on the date. C include only the cost of concert ticket in the opportunity cost of going on the date. D include neither the cost of the ticket nor the entertainment value of the concert in the opportunity cost of going on the date.

A

Moe divides his time between studying Physics and studying Economics. He has discovered that he can earn grades as shown on this production possibilities curve. Both of Moe's professors require at least a 65 to pass and a 90 to earn an A. After looking at his PPC, Moe realizes that (FIGURE 9) A he can pass both classes. B he can pass economics, but only if he fails physics. C he can pass physics, but only if he fails economics. D he could earn an A in economics and still pass physics.

A

Suppose a person makes a choice that seems inconsistent with the cost-benefit principle. Which of the following statements represents the most reasonable conclusion to draw? A The person (explicitly or implicitly) over-estimated the benefits or under-estimated the costs or both. B The cost-benefit principle is rarely true. C The person does not grasp how decisions should be made. D The person is irrational.

A

Which of the following is evidence that the low-hanging-fruit principle applies to Moe's study habits? (FIGURE 9) A Earning the first 65 points in economics has a lower opportunity cost than earning the ten points that moves his score from 90 to 100 in economics. B Physics is easier to grasp than economics, so it is the "low hanging fruit" for Moe. C Economics is easier to grasp than physics, so it is the "low hanging fruit" for Moe. D The low-hanging-fruit principle applies only to production of goods and services, not to grades.

A

You had to pay $600 (non-refundable) for your meal plan for Fall semester which gives you up to 150 meals. If you eat only 100 meals, your average cost for a meal is A $6 B $5 C $4 D $0.25

A

Jenna decides to see a movie that costs $7 for the ticket and has an opportunity cost of $20. After the movie, she says to one of her friends that the movie was not worth it. Apparently, A Jenna failed to apply the cost-benefit model to her decision. B Jenna was not rational. C Jenna overestimated the benefits of the movie. D Jenna underestimated the benefits of the movie.

C

Large developed countries can produce more of practically everything compared to a small less developed country. Therefore, A the large country has no incentive to trade with the smaller country. B it would be impossible for the smaller country to have a comparative advantage in making any products that the larger country wants to buy. C trade will benefit both countries if each country has a comparative advantage in a traded product. D trade between the countries is more likely to benefit the small country and harm the larger country.

C

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. The opportunity cost of attending State College is A $30,000 B $20,000 C $15,000 D $10,000

C

Mike, a whitewater rafting instructor, pays a non-refundable $100 to ACE Adventure to reserve a raft for a group whitewater rafting trip in the New River. The raft has room for 5 people. Mike usually sells 4 rafting tickets at $25 each and goes on the trip for free. But this time, he could only sell 3 tickets at $25 each for a total of $75. These amounts will have to be refunded by Mike if he cancels the trip. Should Mike cancel this trip? A Yes, because he will lose his $100. B Yes if Mike values going on the trip at less than $25. C No, because losing $25 is better than losing $100 D Yes, because he will lose an additional $25 if he goes on the trip.

C

Most people make some decisions based on intuition rather than calculation. This is A irrational, because intuition is often wrong. B consistent with the economic model of decision-making, because calculating costs and benefits leads to decision-making pitfalls. C consistent with the economic model because people intuitively compare the relative costs and benefits of the choices they face. D inconsistent with the economic model but rational, because intuition takes into account non-financial considerations.

C

The production possibilities curve is A the boundary that divides all production combinations into efficient and inefficient ones. B a graph illustrating the production combinations society would like to choose. C the boundary that divides all production combinations into attainable ones and unattainable ones. D a graph illustrating supply curves for different combinations of output.

C

The production possibilities curve shows A the minimum production of one good for every possible production level of the other good. B how increasing the inputs used for one good increases the production of the other good. C the maximum production of one good for every possible production level of the other good. D how increasing the production of one good allows production of the other good to also rise.

C

The scarcity principle indicates that A no matter how much one has it is never enough. B compared to a hundred years ago, individuals have less time today. C with limited resources, having more of something means having less of something else. D because trade-offs must be made, resources are therefore scarce. E the wealthier a person is, the fewer the number of trade-offs he or she must make.

C

What is the opportunity cost of a small business investing $1 million in a new project that will pay back $1.5 million in one year? The firm's goal is to end the year with the most assets possible. Its other alternatives are: I. Leave $1 million in a bank account and earn $50,000 in interest. II. Invest $1 million in new equipment that will have a value of $1 million at the end of the year and have earned an additional $100,000 in profits during the year What is the opportunity cost of the new project? A.$1,000,000 B.$1,050,000 C.$1,100,000 D.$1,150,000

C

When a government increases the cost of international trade, it is A helping domestic consumers. B hurting all domestic producers. C reducing the total amount of output available to domestic consumers. D keeping all domestic prices artificially low.

C

When firms engage in outsourcing, ______ benefit(s) and ______ are harmed. A the firms; consumers B consumers; the firms C consumers; the firm's domestic employees D the firms; the firms' foreign employees

C

Which of the following graphs shows the change in the production possibilities frontier curve if all workers in a country become more productive (i.e. they are able to make more of any good they are asked to produce)? FIGURE 5 A Option A B Option B C Option C D None of them

C

Which of the following is true? (FIGURE 7) A Lou has both an absolute and comparative advantage over Alex in both tasks. B Alex has a comparative advantage over Lou in cleaning. C Lou has a comparative advantage over Alex in cleaning. D Lou has a comparative advantage over Alex in cooking 7

C

Explain why the concept of scarcity is important to the study of economics.

Consumers have unlimited wants. However, there are not enough resources on this planet to fulfill every want of every person. This is scarcity - the economic situation in which our resources fail to satisfy all our wants. Therefore, scarcity means making rational decisions as to where we should allocate resources in order to produce efficiently and satisfy as many consumer wants as possible. Rational decisions always involve a choice of one product or service over another.

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. This is A not an economic problem, because neither one costs money. B not an economic problem, because it's an hour that is wasted no matter what Chris does. C an economic problem because the tuition Chris pays covers both the gym and the library. D an economic problem, because the one-hour time limit means Chris must make a choice.

D

The concern expressed about the North American Free Trade Agreement (NAFTA) was that A prices to U.S. consumers would fall. B wages in Mexico would rise. C highly skilled workers in the United States would lose their jobs. D unskilled workers in the United States would lose their jobs.

D

The cost-benefit principle indicates that an action should be taken A if the total benefits exceed the total costs. B if the average benefits exceed the average costs. C if the net benefit (benefit minus cost) is zero. D if the extra benefit is greater than or equal to the extra cost.

D

The following table provides the different output levels that workers could produce. For example, if three workers are making handbags and two workers are making phones, 45 handbags and 30 phones will be made. A company has 6 workers with 3 workers making handbags and 3 workers making phones. What is the marginal benefit of phones if one worker is taken from handbag production and placed into phone production? (FIGURE 6) A 10 B 5 C 12 D 8

D

The key to resolving the apparent paradox of international trade increasing total output yet facing much political opposition is noting that A economists are mistaken about the increase in output. B only the wealthy benefit from trade. C no one benefits from trade. D everyone does not benefit equally from trade.

D

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. The sunk cost, once the movie set sank, was _______. A $10 million B $50 million C $60 million D $70 million E $180 million

D

The opportunity cost of producing one ton of agricultural products in Genovia is (FIGURE 8) A 1,000 fewer cars. B 1 fewer car. C 1/5 fewer car. D 1/50 fewer car.

D

Which of the following decisions would not be part of microeconomics? A How to make the largest profit. B Whether to study or watch TV tonight. C How an early freeze in California will affect the price of fruit. D Whether the federal budget should always be balanced.

D

Which of the following is the appropriate opportunity cost of spending a night with friends? A The movie I could have seen B The several hours of sleep I could have had C The better grade I could have earned with more study D All of the above E A, B, or C, but not all of them

E

A recent Wall Street Journal headline read, "Hot Job Market May Melt Teen's Plans for College." The article describes falling unemployment rates for teenagers and a "negative side-effect: Fewer kids may choose to attend college." Use the concept of opportunity cost to explain why.

If the probability of getting a job is greater, than the opportunity cost of the amount of income that one could earn if he or she did not go to college is greater. Thus, with a greater opportunity cost, some teenagers will be less likely to go to college. In fact, some colleges experience significant fluctuations in enrollment as unemployment rates change.

You want to watch a play, the ticket for which costs $100. You have just arrived at the theater to buy your ticket and discover that you have lost a $100 bill from your wallet. Do you buy a ticket and see the play anyway?

If you arrived at the ticket counter with the intention of watching the play after knowing the fact that the ticket will cost $100, it means that your marginal benefit from watching the play is at least $100. The marginal benefit represents the highest sum of money you are willing to give up to see the play. Having lost $100, you will be poorer and so you may now wish to spend less than $100 for the play. If so, you will go home. If not, you will buy another ticket and see the play.

Which of the points listed below are attainable and/or efficient? Hint: Use the graph above.28 dresses per day, 16 loaves per day.16 dresses per day, 32 loaves per day.18 dresses per day, 24 loaves per day.

If you plotted the graph on graph paper you can easily see that 28 dresses per day and 16 loaves of bread per day is outside the production possibilities curve (PPC) and is therefore an unattainable combination for Helen. The combination of 16 dresses per day and 32 loaves of bread per day is both attainable and efficient. Finally, 18 dresses per day and 24 loaves of bread per day is a combination that lies inside the production possibilities frontier (PPF), which makes it is attainable but inefficient. Helen would have time left over to sew more dresses or bake more loaves of bread per day.

Refer to the two-person economy described in previous problem.In light of their ability to buy and sell in world markets at the stated prices, show, on the same graph, all combinations of the two goods it would be possible for them to consume.

Tom and Susan earns $96 per day by selling their output. So the equation of the line that describes their possible purchases is given by PX X + PY Y = M, where X is the quantity of nuts purchased and PX is it's price; Y is the quantity of Coffee purchased and PY is it's price; and, M is the total amount that they have to spend.So PX = $2; PY = $2; and M = $96. So the equation is2X + 2Y = 96. The graph is given below. The kinked like is the economy-wide PPF and the straight line depicts the consumption possibilities for the economy.

According to Moe's PPF, moving from a grade of 80 in economics to a grade of 90 in economics (FIGURE 9) A is inefficient. B comes at a lower opportunity cost than moving from a 90 to a 100 in economics. C is not feasible. D comes at a higher opportunity cost than moving from a 90 to a 100 in economics.

B

An economic model makes it easier to understand complex economic problems by doing which of the following? A Programming all scenarios in a computer program to simulate the economy B Making simplifying assumptions C Using regression analysis in conjunction with large datasets D Looking for consistent patterns in economies

B

Assuming efficient production, If 500 cars are produced in Genovia (FIGURE 8) A 50,000 tons of agricultural products are being produced. B 25,000 tons of agricultural products are being produced. C 45,000 tons of agricultural products are being produced. D 40,000 tons of agricultural products are being produced.

B

In general, individuals and nations should specialize in producing those goods for which they have a(n) A absolute advantage. B comparative advantage. C absolute disadvantage. D absolute and comparative advantage. E comparative disadvantage.

B

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry maximizes his surplus by attending A Elite U, because $60,000 is greater than the benefit at the other schools. B State College, because the difference between the benefit and cost is greatest there. C NoName U, because Larry has a full scholarship there. D Elite U, because the opportunity costs of attending Elite U are the lowest.

B

Moe's PPC is bowed out because (FIGURE 9) A he is better at physics than at economics. B his studying is subject to the principle of increasing opportunity costs. C he is better at economics than at physics. D he has failed to take advantage of his comparative advantage.

B

Normative economics is concerned with how people _________ make decisions while positive economics is concerned with how people __________ make decisions. A in the real world; in models B should; do C in power; earning different amounts of money D in ordinary life; in power

B

Suppose 4 workers produce phones and 2 workers produce handbags. if another worker making handbags switches to making phones, what is the marginal cost of this change in terms of fewer handbags produced? (FIGURE 6) A 10 B 15 C 12 D 8

B

The incentive principle states that a person is more likely to do something if A the opportunity costs are high. B the benefits from doing it increase. C everyone else is doing the same thing. D he is paid to do it.

B

A company produces reuseable water bottles. If they hire one worker that worker will produce 10 water bottles in an hour, if they hire a second worker both workers will produce 16 total water bottles in an hour, and if they hire a third worker they will all produce 18 total water bottles. What is the marginal benefit of hiring the second worker? A 10 B 16 C 6 D 2

C

Amy is thinking about going to the movies tonight. A ticket costs $7 and she will have to cancel her dog-sitting job that pays $30. The total cost (money cost plus opportunity cost) of seeing the movie is A $7 B $30 C $37 D $37 minus the benefit of seeing the movie.

C

Alex and Lou have worked out an efficient arrangement. Under that arrangement, (FIGURE 7) A Alex and Lou each spend a half hour on cooking and a half hour on cleaning. B Alex spends all of his time on cleaning, while Lou does all the cooking. C Lou does all of the cleaning and half of the cooking. D Lou spends all of his time on cleaning, while Alex does all the cooking.

D

In general, rational decision making requires one to choose the actions that yield the A largest total benefit. B smallest total cost. C smallest net benefit. D largest economic surplus.

D

You want to watch a play, the ticket for which costs $100. Consider the two scenarios described above. Will you behave the same way or differently based on the two different scenarios above?

In both cases, you are $100 poorer than before. In both cases, the benefit of seeing the play, as measured by the maximum amount you are willing to pay, may therefore be slightly smaller, but this benefit is the same. In both cases, the additional cost you must incur to see the play is exactly $100. Since the relevant costs and benefits are the same in both cases, your decision should also be the same. If your ES (Economic Surplus) from the activity is greater than zero, you will see the play; if it is negative you will go home; and if zero you will be indifferent between seeing the play and going home.

Consider a society consisting only of Helen, who allocates her time between sewing dresses and baking bread. Each hour she devotes to sewing dresses yields 4 dresses and each hour she devotes to baking bread yields 8 loaves of bread.If Helen works a total of 8 hours per day, graph her production possibilities curve.

a. If Helen works a total of 8 hours per day, graph her production possibilities curve.

If Moe moved from Point A to Point C, his grade in Physics would go down by ________ his grade in economics. (FIGURE 9) A less than the increase in B more than the increase in C more than the decrease in D less than the decrease in

A

If the benefits (correctly defined) of a doing something are greater than the costs (correctly defined) of doing whatever it is, what should one do? A Always do it B Only decide to do it if the money cost is greater than the opportunity cost. C Only decide to do it if there is no opportunity cost

A

For Alex, the opportunity cost of cleaning one room is ________ meal(s); for Lou the opportunity cost of cleaning one room is ________ meal(s). (FIGURE 7) A 4; 4 B 1; 4/5 C 1; 5/4 D 3; 5

B

Sam and Adam are friends. Sam earns minimum wage at McDonalds and Adam earns $30 per hour as a machinist at a local factory. They both have Sundays off. They hang out together on Sundays and sometimes they watch a movie. A movie ticket costs $12 at the theater. Which of the following statements about the cost of the movie is correct? A The cost of the movie is the same for Sam and Adam because they both buy the $12 ticket. B Adam has a higher cost of watching the movie because his opportunity cost of time is greater. C Sam and Adam have the same cost of watching the movie because they bought the ticket for the same price and they don't work on Sundays. D Sam has a higher cost of watching the movie because he has to drive longer to work.

B

What is the per phone marginal cost of increasing phone production from 50 to 55 phones if there are 6 workers in the company? A 1/3 of a handbags B 3 handbags C 15 handbags D It depends on the wage of the worker

B

Which point represents a level of production in the economy that is not possible? (FIGURE 2) A Point A B Point B C Point C D Point D

B

If the economy is producing at a point inside the production possibilities frontier, which of the following must be true? A All resources are employed B The economy is as well off as it can be given its current resources C That point is unattainable D More of both goods can be produced

D

In a two-person, two-good economy, the benefits of labor specialization will be larger when A one person has an absolute advantage in both goods. B neither person has an absolute advantage. C the difference in their respective opportunity costs are small for both goods. D there is a large difference in their opportunity costs.

D

Suppose your parents inherit your grandparents' house. They decide to move into the house and sell your current house. They did so because the house was free. Good decision? A A good decision. They will save a lot of money. B Maybe a good decision if they want to spend what they could get for your current house. C Not a good decision. They are giving up the house you grew up in. D Not a good decision, based on the assumption that it is free. It is not free.

D

Which point represents the optimal mix of producing butter and shoes? (FIGURE 4) A Point B B Point C C A point between B and C D One cannot tell

D

You had to pay $600 (non-refundable) for your meal plan for Fall semester which gives you up to150 meals. If you eat only 100 meals, your marginal cost for the 100th meal is A $6 B $4 C $0.25 D $0

D

The total cost of a 700 Mhz computer is A $1,000. B $900. C $200. D $100.

A

Which point represents an economy that is not utilizing all of its resources for production? (FIGURE 3) A Point A B Point B C Point C D Point D

A

The marginal benefit of upgrading from a 600 Mhz computer to a 700 Mhz computer is (Refer to Figure 1) A $1,500. B $500. C $50. D $5.

B

The fundamental reason the production possibilities curve has a downward slope is A workers are inefficient. B resources are of low quality. C resources are fixed and therefore tradeoffs must be made. D it has empirical support but why it is so is still a mystery.

C

Application of the cost-benefit principle would lead one to purchase a _______ computer because _______ . A 900 Mhz; the total benefit exceeds the total cost B 700 Mhz; the marginal benefit is $500 and the marginal cost is $100 C 600 Mhz; it is certainly fast enough D 800 Mhz; the marginal benefits and marginal costs are equal

D

You paid $35 for a ticket (which is non-refundable) to see JAM, a local rock band, in concert on Saturday. (Assume that you would not have been willing to pay any more than $35 for this concert.) Your boss called and she is looking for someone to cover a shift on Saturday at the same time as your concert. You will have to work 4 hours and she will pay you time and a half, which is $9/hr. What is the opportunity cost of going to the concert? A $1 B $9 C $35 D $36

D

You want to watch a play, the ticket for which costs $100. Now consider a different scenario. Suppose you have just arrived at the theater and discover that you have lost the $100 ticket you purchased earlier that day. Do you buy another ticket and see the play anyway?

If you lost the ticket that you had purchased for $100, you are still poorer by $100. So the answer is the same as above.

In order for a country to be economically efficient and operate at a point beyond the production possibilities frontier curve, the country would have to do which of the following? A improve technology in the future B Reallocate its workers C Clamp down on immigration D Expand the military

A

Looking at the production of handbags and phones once again, if a firm has 6 workers with three workers producing handbags and three workers producing phones, what is the marginal cost of producing one additional phone if a worker changes from handbag production to phone production? (FIGURE 6) A 1.25 handbags B 0.80 handbags C 10 handbags D It depends on the wage of the worker

A

Moe needs to earn at least an 80 in both economics and physics to keep his scholarship. Given his current PPC, an 80 in both classes is ________. (FIGURE 9) A infeasible B attainable, but only if Moe is efficient C efficient D attainable, but inefficient

A

Refer to the two-person economy described in previous problem.Suppose that Susan and Tom could buy or sell coffee and nuts in the world market at a price of $2 per pound for coffee and $2 per pound for nuts. If each person specialized completely in the good for which he or she had a comparative advantage, how much could they earn by selling all they produce?

By specializing completely, they can produce 24 pounds of coffee and 24 pounds of nuts per day (the point at which the kink occurs in the PPF diagram for question 3e. If they sell this output in the world market at the stated prices, each will make $48 per day. So the total income for the economy will be $96 per day.

The incentive principle is an example of A an economic decision-making pitfall B over-estimating the benefits of an action. C a positive economic principle. D a normative economic principle.

C

The total benefit of an 800 Mhz computer is A $400. B $800. C $1,900. D $2,200.

C

On a graph with pounds of coffee per day on the vertical axis and pounds of nuts per day on the horizontal axis, show all the points you identified in parts a-d.

do it yourself tophat

Refer to the two-person economy described in previous problem.At these given prices, what is the maximum amount of coffee Susan and Tom could buy in the world market with the income they earned? What is the maximum amount of coffee they could buy? Would it be possible for them to consume 40 pounds of coffee and 8 pounds of nuts each day?

With $96 per day to spend, the maximum amount of coffee they could buy is 48 pounds per day, OR, they could buy 48 pounds of nuts per day. The combination of 40 pounds of coffee and 8 pounds of nuts would cost 40 × 2 + 8 × 2 =) $96. So Tom and Susan can consume 40 pounds of coffee and 8 pounds of nuts by selling their output in the world market and trading with others to buy what they wish to consume. Note, that left to themselves, they would not be able to produce 40 pounds of coffee and 8 pounds of nuts. The maximum amount of coffee they could produce by themselves is 36 pounds. So producing along lines of comparative advantage and trading with others to buy what they needed allowed them to consume beyond the PPF.

You paid $35 for a ticket (which is non-refundable) to see JAM, a local rock band, in concert on Saturday. (Assume that you would not have been willing to pay any more than $35 for this concert.) Your boss called and she is looking for someone to cover a shift on Saturday at the same time as your concert. You will have to work 4 hours and she will pay you time and a half, which is $9/hr. 10. What is your economic surplus if you go to work on Saturday? A $0 B $1 C $9 D $35

B

Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last semester was 3.6, which brought your cumulative GPA down. What must be true? A Your marginal grades (last semester's grades) were higher than your overall GPA. B Your marginal grades were lower than your overall GPA. C If this semester's grades are the same as last semester's, your overall GPA will stay the same. D If this semester's grades are the same as last semester's, you might lose your scholarship.

B

Alex received a four-year scholarship to State U that covered tuition and fees, room and board, and books and supplies. As a result A attending State U for four years is costless for Alex. B Alex has no incentive to work hard while at State U. C the cost of attending State U is the amount of money Alex could have earned working for four years. D the cost of attending State U is the sum of the benefits Alex would have received by attending each of the four other schools to which Alex had been admitted.

C

Once a month Mr. Smith purchases a case (24 cans) of cola and puts it in his refrigerator for his 4 kids to share. Mr. Jones does the same for his 4 children, except that he opens up the case and gives each child 6 cans of cola for personal consumption. The children use cost-benefit analysis to decide on whether to open a can and drink its contents. Would you expect the cola to last equally long in both households? Why?

At both houses, the cost of drinking a cola now is that it's not available to drink later. In the Smith household this cost for an individual child is low because of the possibility that a sibling may drink it before he or she can. This gives each Smith child a strong incentive to consume the colas now rather than later. By contrast, the Jones household eliminates this incentive by not allowing any child to drink more than 6 colas. As a result, the Jones children can consume their colas at a slower, more enjoyable pace.

Choosing the 1,000 Mhz computer would be inefficient because A the marginal benefit is more than the marginal cost. B the marginal benefit is equal to the marginal cost. C the marginal cost is more than the marginal benefit. D the total net benefit will rise if you choose a slower computer. E both C. and D. above are correct answers

C

Dean should play golf instead of preparing for tomorrow's exam in Economics if: A he is irrational. B the benefit of golfing is greater than the benefit of studying. C the economic surplus from playing golf is greater than the economic surplus from studying. D Dean can play golf for free.

C

Economics is best defined as the study of A prices and quantities. B inflation and interest rates. C how people make choices under the conditions of scarcity and the results of the choices. D wages and incomes.

C

Economists use abstract models because A every economic situation is unique, so it is impossible to make generalizations. B every economic situation is essentially the same, so specific details are unnecessary. C they are useful for describing general patterns of behavior. D computers have allowed economists to develop abstract models.

C

You and your friend Joe have identical tastes. At 2 p.m. you buy a non-refundable ticket to a basketball game through Ticketmaster. The price of the game ticket is $25 and the Ticketmaster surcharge is $5. The game will be played that night in Syracuse, which is a 50 mile drive from your home in Ithaca. Joe also wants to attend the game but decides to buy the ticket at the gate because he works during the day and cannot take time off to buy the tickets through Ticketmaster. Because there will be no Ticketmaster surcharge, his ticket cost will be $25. Although tickets through Ticketmaster are costlier, many people willingly pay the higher price because it offers them better seats because they booked their seats early. At 4 p.m. an unexpected snowstorm begins, making the prospect of driving to Syracuse much less attractive. At the same time, the snowstorm implies lower attendance at the game, making the chance of getting good seats higher.If both you and Joe are rational, is one of you more likely to attend the game than the other?

At the moment of deciding, therefore, the remaining costs Joe must incur to see the game are $25 higher than the remaining costs for you. And since you have identical tastes—that is, your respective benefits of attending the game are exactly the same, Joe will be less likely to make the trip.

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. Losses for the producers of Waterworld, if they finished the movie would be _____. If they did not finish the movie, losses would be _____. A $50 million; $50 million. B $50 million; $70 million. C $70 million; $50 million. D $70 million; $70 million.

B

Having a comparative advantage in a particular task means that A you are better at it than other people. B you give up more to accomplish that task than do others. C you give up less to accomplish that task than do others. D you have specialized in that task, while others have not.

C

The making of the movie Waterworld cost a total of $180 million. It generated a total of $130 million in revenues. $70 million was spent and then the set sank. An additional $60 million was spent to rebuild the set. An additional $50 million was spent to finish the movie. Should they have rebuilt the set and finished the movie? A No, it was not rational. B Yes, it was rational. C I cannot tell.

B

The marginal cost of upgrading from a 700 to an 800 Mhz computer is A $500. B $400. C $200. D $100.

B

The use of economic models, such as the cost-benefit principle, means that economists believe that A this is how people explicitly choose between alternatives every single time. B this is a reasonable abstraction of how people choose between alternatives most of the time. C those who make decisions this way make more money in life. D with enough education all people will learn to make decisions this way. E this is the way the world ought to make decisions.

B

Tonight I can either (1) go out to dinner and a movie, or (2) cook dinner for some friends, or (3) eat a hamburger at the baseball game. I prefer to do (1), then (2), and finally (3) if I can only do one. If these are my best choices and the dollar cost of each is the same, what would be the opportunity cost of my going out to dinner and a movie? A. hamburger at the baseball game B. Cooking dinner for some friends C. A hamburger at the baseball game and cooking dinner for some friends

B

Which points represent a production level that could be economically efficient? (FIGURE 2) A A and B B B and C C C and D D D and A

B

The Meal Plan at University A charges fixed sum of $600 per student per semester and allows the student to eat as much as they wish. The average student there eats 250 lbs. of food per semester. On the other hand, University B charges $600 per student per semester for a book of meal tickets that allows the student to eat up to 250 lbs. of food per semester. If a student eats more than 250 lbs. he or she must pay $2 per pound of food. Similarly if the student eats less than 250 pounds, he or she will be paid $2 per every pound of food not eaten. If the students are rational, at which university will students eat more? Why?

At University A, the marginal or extra cost for each additional pound of food is $0. So everybody will keep eating until the marginal benefit of an extra pound of food is driven to $0. At University B, however, the cost of eating an extra pound of food is $2. Therefore, people will stop eating when the marginal benefit of eating an extra pound of food falls to $2. Food consumption will thus be higher at University A.

In general, it is true that A more specialization is always better. B less specialization is always better. C specialization imposes costs as well as benefits. D more specialization is always worse.

C

You and your friend Joe have identical tastes. At 2 p.m. you buy a non-refundable ticket to a basketball game through Ticketmaster. The price of the game ticket is $25 and the Ticketmaster surcharge is $5. The game will be played that night in Syracuse, which is a 50 mile drive from your home in Ithaca. Joe also wants to attend the game but decides to buy the ticket at the gate because he works during the day and cannot take time off to buy the tickets through Ticketmaster. Because there will be no Ticketmaster surcharge, his ticket cost will be $25. Although tickets through Ticketmaster are costlier, many people willingly pay the higher price because it offers them better seats because they booked their seats early. At 4 p.m. an unexpected snowstorm begins, making the prospect of driving to Syracuse much less attractive. At the same time, the snowstorm implies lower attendance at the game, making the chance of getting good seats higher.If both you and Joe are rational, will Joe go to the game?

Joe, too, must weigh the opportunity cost of his time and the hassle of the drive in deciding whether to attend the game. But to that he must add the $25 he will have to spend for his ticket at the gate. He does not spend that money if he does not watch the game. Hence it is a marginal cost of attending the game. So Joe will attend the game if his marginal benefits exceed his marginal costs.

The U.S. government is evaluating a project to build a new lighthouse in South Carolina. The cost will be $5 million. The estimated value of all the benefits (including nonmonetary benefits) of the lighthouse is $8 million. Describe how you would use the concept of opportunity cost to determine whether the lighthouse should be built?

The benefits should be compared to the opportunity cost. The opportunity cost is the value of the best forgone alternative. The opportunity cost in this example is the value of the benefits to be gained by spending the $5 million on the next most desirable project. If those benefits are greater than $8 million, then the other project makes sense and it should be done before the lighthouse. If they are less than $8 million, then the lighthouse makes sense.

Use this new graph to iIndicate if the following points are attainable and/or efficient before and after the introduction of the sewing machine.16 dresses per day, 48 loaves per day.24 dresses per day, 16 loaves per day.

Since Helen can sew twice as many dresses per hour as before, she can now sew any given number of dresses in half as much time as before. With the time saved, she can bake additional loaves of bread. The slope of the new PPF is -1. So the equation of the straight line isy = -x + c. The point (0, 64) is on the graph. Therefore c = 64. So the equation of the PPF is now y = -x + 64. We need to check the position of the point (16, 48). Let us assume y = 48 and see what value of x will be on the PPF. So, 48 = - x + 64, implies, x = 16. So (16, 48) is on the graph and therefore attainable and efficient. You can follow the same process to see that the point (48, 16) is on the PPF. Therefore (24, 16) is within the PPF making it attainable but inefficient.

You and your friend Joe have identical tastes. At 2 p.m. you buy a non-refundable ticket to a basketball game through Ticketmaster. The price of the game ticket is $25 and the Ticketmaster surcharge is $5. The game will be played that night in Syracuse, which is a 50 mile drive from your home in Ithaca. Joe also wants to attend the game but decides to buy the ticket at the gate because he works during the day and cannot take time off to buy the tickets through Ticketmaster. Because there will be no Ticketmaster surcharge, his ticket cost will be $25. Although tickets through Ticketmaster are costlier, many people willingly pay the higher price because it offers them better seats because they booked their seats early. At 4 p.m. an unexpected snowstorm begins, making the prospect of driving to Syracuse much less attractive. At the same time, the snowstorm implies lower attendance at the game, making the chance of getting good seats higher.If both you and Joe are rational, will you go to the game?

Since you have already bought your ticket, the $30 you spent is a sunk cost. You cannot recover that money, irrespective of whether you go to the game or not. Therefore, to decide whether to attend the game, you should compare the benefit of seeing the game (as measured by the largest dollar amount you would be willing to pay to see it) to the additional costs you will incur to see the game (the opportunity cost of your time, and whatever cost you assign to driving through the snowstorm, etc., but NOT the $30 you paid for the ticket). You will go to the game if your marginal benefit exceeds your marginal cost.

Explain what is meant by the following statement: "An increase in productivity with respect to any one good increases our options for producing and consuming all other goods."

The upward rotation of Helen's PPC means that she is now able, for the first time, to produce at any of the points in the shaded region of the graph above. Note that her menu of opportunity increased with respect to dresses and with respect to bread as well. For example, she can now produce 32 dresses and 32 loaves of bread instead of 32 dresses and no loaves.

Susan can pick 4 pounds of coffee beans in an hour or gather 2 pounds of nuts. Tom can pick 2 pounds of coffee beans in an hour or gather 4 pounds of nuts. Each works 6 hours per day.Together, what is the maximum number of pounds of coffee beans the two can pick in a day? What is the maximum number of pounds of nuts the two can gather in a day?

The maximum possible coffee output is 36 pounds per day (12 from Tom and 24 from Susan). Their maximum possible output of nuts is also 36 pounds per day (24 from Tom and 12 from Susan).

Suppose that in the previous problem a sewing machine is intro¬duced that enables Helen to sew 8 dresses per hour rather than only 4.Show how this development shifts her production possibilities curve.

The new machine doubles the value of the vertical intercept of Helen's PPC, as shown in the graph below.

Is 30 pounds of coffee and 12 pounds of nuts per day an attainable combination? Is it an efficient point?

The point 30 pounds of coffee per day and 12 pounds of nuts per day can be produced by having Susan work full time picking coffee (24 pounds of coffee per day) while Tom spends 3 hours picking coffee (6 pounds of coffee). Tom should then devote the remaining time of 3 hours to gathering nuts yielding 12 pounds of nuts. So 30 pounds of coffee and 12 pounds of nuts is an attainable and an efficient production combination.

Would it be possible for Susan and Tom in total to gather 26 pounds of nuts and pick 20 pounds of coffee each day? If so, how much of each good should each person pick?

To gather 26 pounds of nuts per day, Tom should work full time gathering nuts (24 pounds per day) and Susan should spend one hour per day gathering nuts (2 pounds per day). Susan would still have 5 hours available to devote to picking coffee, so she can pick 20 pounds of coffee per day.

Now suppose Susan and Tom were gathering the maximum number of pounds of coffee when they decided that they would like to begin picking just 8 pounds of nuts per day. Who would pick the nuts, and how many pounds of each good would they still be able to gather between the two of them?

Tom should pick nuts since his opportunity cost (half a pound of coffee per pound of nuts) is lower than Susan's (2 pounds of coffee per pound of nuts). It would take Tom 2 hours to pick 8 pounds of nuts. So he can still devote 4 hours to picking coffee and he can pick (4 × 2 =) 8 pounds of coffee. Susan can still devote all her time to coffee and pick (6 × 4 =) 24 pounds of coffee. So the total production will be 8 pounds of nuts and (8 + 24 =) 32 pounds of coffee.