Microeconomics

Which of the twelve basic principles of economics is at work in the following situation? You decide how many cups of coffee to have when studying the night before an exam by considering how much more work you can do by having another cup versus how jittery it will make you feel. A. Resources should be used as efficiently as possible to achieve society's goals. C. Resources are scarce. D. "How much?" is a decision at the margin. B. The real cost of something is what you must give up to get it.

"How much?" is a decision at the margin.

Ed is taking off from work for 4 hours this afternoon and going to a baseball game. The ticket to the game costs $25 and it costs $15 to park at the stadium. Ed earns $15 an hour at his job. Ed's opportunity cost of going to the ball game is: $50. $25. $60. $100.

$100.

Abby received requests from three families to babysit a toddler for four hours on Friday night. She can only babysit for one of the three families. The Fleming family offered her $20, the Gilbert family offered her $30, and the Lewis family offered her $40. If Abby chooses to babysit for the Lewis family her opportunity cost of this decision is: $20. $40. $30. $50

$30. *it's the next-best option

Ed is taking off from work for 5 hours this afternoon and going to a baseball game. The ticket to the game costs $20 and it costs $15 to park at the stadium. Ed earns $10 an hour at his job. Ed's opportunity cost of going to the ball game is: $85. $20. $35. $50.

$85.

Suppose that in an hour Chip can gather 8 pounds of fruit or 4 pounds of nuts. In an hour, Monk can gather 9 pounds of fruit or 3 pounds of nuts. The opportunity cost of a pound of fruit for Chip is _____ pound(s) of nuts. 0.5 2 1 0.25

.5

(Problem 2c.) During the Reagan administration, economist Arthur Laffer argued in favor of lowering income tax rates in order to increase tax revenues. Like most economists, he believed that at tax rates above a certain level, tax revenue would fall because high taxes would discourage some people from working and that people would refuse to work at all if they received no income after paying taxes. This relationship between tax rates and tax revenue is graphically summarized in what is widely known as the Laffer curve. Answer the following question about the Laffer curve. The maximum possible income tax rate is 100%. What would total tax revenue, as a percentage of total income, be at a 100% income tax rate? A. 10% B. 20% D. 0 C. 100%

0

(Problem 10c.) Studies have found a relationship between a country's yearly rate of economic growth and the yearly rate of increase in airborne pollutants. It is believed that a higher rate of economic growth allows a country's residents to have more cars and travel more, thereby releasing more airborne pollutants. Now suppose that when the yearly rate of economic growth rose from 3.5% to 4.5%, the yearly rate of increase in airborne pollutants rose from 5.5% to 7.5%. What is the average slope of a nonlinear curve between these two points using the arc method? A. 2 B. -1/2 C. 1/2 D. -2

2

John is considering a purchase of a new Toyota that costs $25,000 at a local dealership. John estimates the annual cost of maintenance, registration, insurance, and gas to be about $1,000. After extensive internet research, John estimates that he can sell his Toyota in three years for $10,000. What is John's estimated cost of owning and driving the car for three years? $25,000 3x$1,000+$25,000=$28,000 $25,000-10,000=$15,000 3x$1,000+$25,000-$10,000=$18,000

3x$1,000+$25,000-$10,000=$18,000

Suppose that in a day a worker in the United States can produce 10 bushels of corn or 2 shirts. In Russia a worker can produce 9 bushels of corn or 3 shirts in one day. The opportunity cost of a shirt in the United States is ______ bushels of corn.

5 * (is bushels of corn)/(opportunity cost of...)

(Problem 10b.) Studies have found a relationship between a country's yearly rate of economic growth and the yearly rate of increase in airborne pollutants. It is believed that a higher rate of economic growth allows a country's residents to have more cars and travel more, thereby releasing more airborne pollutants. Suppose that in the country of Sudland, when the yearly rate of economic growth fell from 3.0% to 1.5%, the yearly rate of increase in airborne pollutants fell from 6% to 5%. What is the average slope of a nonlinear curve between these points using the arc method? B. 3/2 A. 2/3 C. -3/2 D. -2/3

A. 2/3

This morning you made the individual choice listed below. For this action, assess how your individual choices interacted with the individual choices made by others. Were other people left better off or worse off by your choices in each case? You typed your roommate's term paper, because you are a fast typist. In return, she will do your laundry for a month. B. Neither you nor your roommate are better off. C. You are better off, but your roommate is not. A. Both you and your roommate are better off. D. Your roommate is better off, but you are not.

A. Both you and your roommate are better off.

(Problem 10b.) A representative of the American clothing industry recently made the following statement: "Workers in Asia often work in sweatshop conditions earning only pennies an hour. American workers are more productive and as a result earn higher wages. In order to preserve the dignity of the American workplace, the government should enact legislation banning imports of low-wage Asian clothing." Is the policy that is being advocated consistent with the preceding statements about the wages and productivities of American and Asian workers? D. It is consistent. The statement about the productivity of American and Asian workers is about the absolute advantage that American workers have over Asian workers. C. It is consistent. The statement about the productivity of American and Asian workers is about the comparative advantage that American workers have over Asian workers. A. It is not consistent. The statement about the productivity of American and Asian workers is about the absolute advantage that American workers have over Asian workers. B. It is not consistent. The statement about the productivity of American and Asian workers is about the comparative advantage that American workers have over Asian workers.

A. It is not consistent. The statement about the productivity of American and Asian workers is about the absolute advantage that American workers have over Asian workers.

(Problem 8a.) An insurance company has found that the severity of property damage in a fire is positively related to the number of firefighters arriving at the scene. Draw a diagram that depicts this finding with number of firefighters on the horizontal axis and the amount of property damage on the vertical axis. What is the argument made by this diagram? A. It makes the argument that as the number of firefighters on the scene increases, the amount of damage increases. B. It makes the argument that as the number of firefighters on the scene decreases, the amount of damage increases. C. It makes the argument that as the amount of damage increases, the number of firefighters on the scene increases. D. It makes the argument that as the number of firefighters on the scene increases, the amount of damage decreases.

A. It makes the argument that as the number of firefighters on the scene increases, the amount of damage increases.

Which of the twelve basic principles of economics is at work in the following situation? At the student union, there is a bulletin board on which people advertise used items for sale, such as bicycles. Once you have adjusted for differences in quality, all the bikes sell for about the same price. A. Markets move toward equilibrium. C. Resources should be used as efficiently as possible to achieve society's goals. B. The real cost of something is what you must give up to get it. D. One person's spending is another person's income.

A. Markets move toward equilibrium.

Which of the twelve basic principles of economics is at work in the following situation? After a hurricane did extensive damage to homes on the island of St. Crispin, homeowners wanted to purchase many more building materials and hire many more workers than were available on the island. As a result, prices for goods and services rose dramatically across the board. B. Markets usually lead to efficiency. A. Overall spending sometimes gets out of line with the economy's productive capacity. C. Resources are scarce. D. One person's spending is another person's income.

A. Markets usually lead to efficiency.

Which of the twelve basic principles of economics is at work in the following situation? The student union provides a website on which departing students can sell items such as used books, appliances, and furniture rather than giving them away to their roommates as they formerly did. A. Markets usually lead to efficiency. D. Resources are scarce. B. One person's spending is another person's income. C. People usually exploit opportunities to make themselves better off.

A. Markets usually lead to efficiency.

Which of the twelve basic principles of economics is at work in the following situation? On your spring break trip, your budget is limited to $35 a day. B. Markets usually lead to efficiency. A. Resources are scarce. C. People usually exploit opportunities to make themselves better off. D. One person's spending is another person's income.

A. Resources are scarce.

(Problem 5b.) Peter Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. If the EU and the United States continue to trade, what do you think will characterize the goods that the EU exports to the United States and the goods that the United States exports to the EU? B. The EU will export those goods in which it has the absolute advantage and the United States will export those goods in which it has the comparative advantage. A. The EU will export those goods in which it has the comparative advantage and the United States will export those goods in which it has the comparative advantage. C. The EU will export those goods in which it has the absolute advantage and the United States will export those goods in which it has the absolute advantage. D. The EU will export those goods in which it has the comparative advantage and the United States will export those goods in which it has the absolute advantage.

A. The EU will export those goods in which it has the comparative advantage and the United States will export those goods in which it has the comparative advantage.

Problem 4a.) One year, the United States exported aircraft worth $1 billion to China and imported aircraft worth only $19,000 from China. During the same month, however, the United States imported $83 million worth of men's trousers, slacks, and jeans from China but exported only $8,000 worth of trousers, slacks, and jeans to China. Using what you have learned about how trade is determined by comparative advantage, answer the following question. Which country has the comparative advantage in aircraft production? In production of trousers, slacks, and jeans? A. The United States must have the comparative advantage in aircraft production, and China must have the comparative advantage in production of trousers, slacks, and jeans. B. The United States must have the comparative advantage in both aircraft production and in the production of trousers, slacks, and jeans. D. China must have the comparative advantage in both aircraft production and in the production of trousers, slacks, and jeans. C. China must have the comparative advantage in aircraft production, and the United States must have the comparative advantage in production of trousers, slacks, and jeans.

A. The United States must have the comparative advantage in aircraft production, and China must have the comparative advantage in production of trousers, slacks, and jeans.

(Problem 4b.) Answer each of the following questions by sketching a schematic diagram. Taking measurements of the slope of a curve at five points farther and farther to the right along the horizontal axis, the slope of the curve changes from 1.5, to 0.5, to 0, to -0.5, to -1.5, measured by the point method. Draw a schematic diagram of this curve. Does it have a maximum or a minimum? C. The curve has a minimum. D. The curve has both a maximum and a minimum. B. The curve has neither a maximum nor a minimum. A. The curve has a maximum.

A. The curve has a maximum.

(Problem 10a.) Studies have found a relationship between a country's yearly rate of economic growth and the yearly rate of increase in airborne pollutants. It is believed that a higher rate of economic growth allows a country's residents to have more cars and travel more, thereby releasing more airborne pollutants. Which variable is the independent variable? Which is the dependent variable? A. The growth rate is the independent variable and the rate of increase in airborne pollutants is the dependent variable. B. Either variable can be the independent variable. C. The growth rate is the dependent variable and the rate of increase in airborne pollutants is the independent variable.

A. The growth rate is the independent variable and the rate of increase in airborne pollutants is the dependent variable.

(Problem 7a.) The inhabitants of the fictional economy of Atlantis use money in the form of cowry shells. Draw a circular-flow diagram showing households and firms. Firms produce potatoes and fish, and households buy potatoes and fish. Households also provide the land and labor to firms. Identify where in the flows of cowry shells or physical things (goods and services, or resources) each of the following impacts would FIRST occur. Would it be in the markets for goods and services or the factor markets? A devastating hurricane floods many of the potato fields. B. Markets for goods and services and markets for factors would be affected at the exact same time. A. The impact would first be felt in the markets for goods and services. C. Neither the markets for goods and services nor the markets for factors would be affected. D. The impact would first be felt in the markets for factors.

A. The impact would first be felt in the markets for goods and services.

(Problem 7b.) The inhabitants of the fictional economy of Atlantis use money in the form of cowry shells. Draw a circular-flow diagram showing households and firms. Firms produce potatoes and fish, and households buy potatoes and fish. Households also provide the land and labor to firms. Identify where in the flows of cowry shells or physical things (goods and services, or resources) each of the following impacts would FIRST occur. Would it be in the markets for goods and services or the factor markets? A very productive fishing season yields a very large number of fish caught. D. The impact would first be felt in the markets for factors. A. The impact would first be felt in the markets for goods and services. B. Markets for goods and services and markets for factors would be affected at the exact same time. C. Neither the markets for goods and services nor the markets for factors would be affected.

A. The impact would first be felt in the markets for goods and services.

In the following situation, first consider in what sense the market is going wrong, then determine how government intervention could improve society's welfare by changing people's incentives. Pollution from auto emissions has reached unhealthy levels. C. The market has resulted in too much pollution. The government could tax fuel or cars that get low mileage, but should not subsidize cleaner fuels or newer technologies like hybrid cars. B. The market has resulted in too little pollution. The government could subsidize cleaner fuels or newer technologies like hybrid cars, but should not tax fuel or tax cars that get low mileage. A. The market has resulted in too much pollution. The government could tax fuel or tax cars that get low mileage, or it could subsidize cleaner fuels or newer technologies like hybrid cars. D. The market has resulted in too little pollution. The government could tax fuel or tax cars that get low mileage, or it could subsidize cleaner fuels or newer technologies like hybrid cars.

A. The market has resulted in too much pollution. The government could tax fuel or tax cars that get low mileage, or it could subsidize cleaner fuels or newer technologies like hybrid cars.

(Problem 10d.) Studies have found a relationship between a country's yearly rate of economic growth and the yearly rate of increase in airborne pollutants. It is believed that a higher rate of economic growth allows a country's residents to have more cars and travel more, thereby releasing more airborne pollutants. How would you describe the relationship between the two variables here? B. The slope is negative and decreasing. C. The slope is negative and increasing. D. The slope is positive and decreasing. A. The slope is positive and increasing.

A. The slope is positive and increasing.

(Problem 4b.) One year, the United States exported aircraft worth $1 billion to China and imported aircraft worth only $19,000 from China. During the same month, however, the United States imported $83 million worth of men's trousers, slacks, and jeans from China but exported only $8,000 worth of trousers, slacks, and jeans to China. Using what you have learned about how trade is determined by comparative advantage, answer the following question. Which country has the absolute advantage in aircraft production? In production of trousers, slacks, and jeans? B. China must have the absolute advantage in aircraft production, and the United States must have the absolute advantage in production of trousers, slacks, and jeans. D. The United States must have the absolute advantage in aircraft production, and China must have the absolute advantage in production of trousers, slacks, and jeans. A. This cannot be determined from the information provided. C. The United States must have the absolute advantage in both aircraft production and in the production of trousers, slacks, and jeans.

A. This cannot be determined from the information provided.

For the following situation, determine whether it describes an equilibrium. Every student enrolled in Economics 101 must also attend a weekly tutorial. This year there are two sections offered: section A and section B, which meet at the same time in adjoining classrooms and are taught by equally competent instructors. Section A is overcrowded, with people sitting on the floor and often unable to see the chalkboard. Section B has many empty seats. B. This might be an equilibrium. C. This is definitely an equilibrium. A. This is not an equilibrium.

A. This is not an equilibrium.

For the following situation, determine whether it describes an equilibrium. At the intersection of Main and Broadway are two gas stations. One station charges $3.00 per gallon for regular gas and the other charges $2.85 per gallon. Customers can get service immediately at the first station, but must wait in a long line at the second. B. This is not an equilibrium. C. This is definitely an equilibrium. A. This might be an equilibrium.

A. This might be an equilibrium.

Governments often adopt certain policies in order to promote desired behavior among their citizens. For the following policy, determine the incentive or the effect of the incentive provided by the government policy. The government pays parents $100 when their child is vaccinated for measles. B. This provides an incentive for fewer parents to have their children vaccinated. C. This will not affect the number of children vaccinated. A. This provides an incentive for more parents to have their children vaccinated.

A. This provides an incentive for more parents to have their children vaccinated.

In the following case, determine whether the situation is efficient or not. The enrollment for a particular course exceeds the spaces available. Some students who need to take this course to complete their major are unable to get a space while others who are taking it as an elective do get a space. B. There is not enough information to tell whether or not this situation is efficient. A. This situation is not efficient. C. This situation is efficient.

A. This situation is not efficient.

(Problem 1c.) Two important industries on the island of Bermuda are fishing and tourism. According to data from the Food and Agriculture Organization of the United Nations and the Bermuda Department of Statistics, in 2009 the 306 registered fishermen in Bermuda caught 387 metric tons of marine fish. And the 2,719 people employed by hotels produced 554,400 hotel stays (measured by the number of visitor arrivals). Suppose that this production point is efficient in production. Assume also that the opportunity cost of 1 additional metric ton of fish is 2,000 hotel stays and that this opportunity cost is constant (the opportunity cost does not change). If you drew a production possibilities frontier for Bermuda, with fish on the horizontal axis and hotel stays on the vertical axis, it would be: A. a straight line with a negative slope. B. vertical. D. concave. C. convex.

A. a straight line with a negative slope.

(Problem 2c.) According to data from the U.S. Department of Agriculture's National Agricultural Statistics Service, 124 million acres of land in the United States were used for wheat or corn farming in 2004. Of those 124 million acres, farmers used 50 million acres to grow 2.158 billion bushels of wheat and 74 million acres of land to grow 11.807 billion bushels of corn. Suppose that U.S. wheat and corn farming is efficient in production. At that production point, the opportunity cost of producing one additional bushel of wheat is 1.7 fewer bushels of corn. However, farmers have increasing opportunity costs, so that additional bushels of wheat have an opportunity cost greater than 1.7 bushels of corn. For each of the following production points, decide whether that production point is (i) feasible and efficient in production, (ii) feasible but not efficient in production, (iii) not feasible, or (iv) unclear as to whether or not it is feasible. Starting from the initial point in the question, farmers reduce their production of wheat to 2 billion bushels and increase their production of corn to 12.044 billion bushels. Along the production possibilities frontier, the opportunity cost of going from 11.807 billion bushels of corn to 12.044 billion bushels of corn is 0.666 bushel of wheat per bushel of corn. This production point is: B. feasible but not efficient in production. C. not feasible. A. feasible and efficient in production. D. unclear as to whether or not it is feasible.

A. feasible and efficient in production.

In the following example, state how the principle of marginal analysis is used to make a decision. Choose the correct answer to fill in the blank. People will eat more bags of chips if the benefit (hunger is satisfied) is ____ the cost (additional calories). A. greater than B. less than C. the same as

A. greater than

Use the concept of opportunity cost to determine the following. There are more parks in suburban areas than in urban areas because the opportunity cost of parkland in urban areas is ___ it is in suburban areas. B. lower than C. the same as A. higher than

A. higher than

In the following case, determine whether the situation is efficient or not. Electricity is included in the rent at your dorm. Some residents in your dorm leave lights, computers, and appliances on when they are not in their rooms. This situation: A. is not efficient. B. There is not enough information to tell whether or not this situation is efficient. C. is efficient.

A. is not efficient.

In the following example, state how the principle of marginal analysis is used to make a decision. Choose the correct answer to fill in the blank. A person will wait longer to do the laundry if the cost of having fewer clothes from which to choose is _____ the benefit of having the time to do other things. C. the same as A. less than B. greater than

A. less than

In the following example, state how the principle of marginal analysis is used to make a decision. Choose the correct answer to fill in the blank. A student will decide to skip a lecture of a class if the cost (getting further behind with the material and having to cram just before the exam) is ____ the benefit of having the time to do other things. A. less than B. greater than C. the same as

A. less than

Problem 10c.) A representative of the American clothing industry recently made the following statement: "Workers in Asia often work in sweatshop conditions earning only pennies an hour. American workers are more productive and as a result earn higher wages. In order to preserve the dignity of the American workplace, the government should enact legislation banning imports of low-wage Asian clothing." This policy would: A. make some Americans better off by making other Americans worse off. D. make some Americans better off without making any other Americans worse off. B. make all Americans worse off. C. be efficient from the viewpoint of all Americans.

A. make some Americans better off by making other Americans worse off.

(Problem 14e.) The mayor of Gotham City, worried about a potential epidemic of deadly influenza this winter, asks an economic adviser the following series of questions. Determine whether the question requires the economic adviser to make a positive assessment or a normative assessment. If the city charges $25 per shot, it will make a profit of $10 per shot, and that money will be used to pay for inoculating poor people. Should the city engage in such a scheme? A. normative B. positive C. cannot be determined from the information provided

A. normative

(Problem 2b.) According to data from the U.S. Department of Agriculture's National Agricultural Statistics Service, 124 million acres of land in the United States were used for wheat or corn farming in 2004. Of those 124 million acres, farmers used 50 million acres to grow 2.158 billion bushels of wheat and 74 million acres of land to grow 11.807 billion bushels of corn. Suppose that U.S. wheat and corn farming is efficient in production. At that production point, the opportunity cost of producing one additional bushel of wheat is 1.7 fewer bushels of corn. However, farmers have increasing opportunity costs, so that additional bushels of wheat have an opportunity cost greater than 1.7 bushels of corn. For each of the following production points, decide whether that production point is (i) feasible and efficient in production, (ii) feasible but not efficient in production, (iii) not feasible, or (iv) unclear as to whether or not it is feasible. From their original production point in the question, farmers transfer 40 million acres of land from corn to wheat production. They now produce 3.158 billion bushels of wheat and 10.107 bushels of corn. This production point is: B. feasible and efficient in production. D. unclear as to whether or not it is feasible. A. not feasible. C. feasible but not efficient in production.

A. not feasible.

The Hatfield family lives on the east side of the Hatatoochie River, and the McCoy family lives on the west side. Each family's diet consists of fried chicken and corn-on-the-cob, and each is self-sufficient, raising their own chickens and growing their own corn. Under which conditions would the following be true? The two families are made better off when the Hatfields specialize in raising chickens, the McCoys specialize in growing corn, and the two families trade. This is true if: A. the Hatfields (compared to the McCoys) are better at raising chickens and the McCoys (compared to the Hatfields) are better at growing corn. C. the Hatfields (compared to the McCoys) are better at growing corn and the McCoys (compared to the Hatfields) are better at raising chickens. B. the Hatfields (compared to the McCoys) are better at growing corn and the McCoys are as good as the Hatfields at raising chickens. D. the Hatfields (compared to the McCoys) are better at raising chickens and the McCoys are as good as the Hatfields at growing corn.

A. the Hatfields (compared to the McCoys) are better at raising chickens and the McCoys (compared to the Hatfields) are better at growing corn.

The benefits of specialization and the gains from trade were described in 1776 by _____ in _____. Thomas Jefferson; The Declaration of Independence Ben Franklin; Poor Richard's Almanac Adam Smith; The Wealth of Nations John Maynard Keynes; The General Theory of Employment, Interest, and Money

Adam Smith; The Wealth of Nations

(Problem 10a.) A representative of the American clothing industry recently made the following statement: "Workers in Asia often work in sweatshop conditions earning only pennies an hour. American workers are more productive and as a result earn higher wages. In order to preserve the dignity of the American workplace, the government should enact legislation banning imports of low-wage Asian clothing." Some parts of this quote are positive statements and some parts are normative statements. Which of the following is correct? A. "The government should enact legislation banning imports of low-wage Asian clothing" is a positive statement. C. "American workers are more productive and as a result earn higher wages" is a normative statement. D. "American workers are more productive" is a normative statement. B. "American workers are more productive" is a positive statement.

B. "American workers are more productive" is a positive statement.

Problem 9a.) Your dormitory roommate plays loud music most of the time; you, however, would prefer more peace and quiet. You suggest that she buy some earphones. She responds that although she would be happy to use earphones, she has many other things that she would prefer to spend her money on right now. You discuss this situation with a friend who is an economics major. The following exchange takes place: He: How much would it cost to buy earphones? You: $15. He: How much do you value having some peace and quiet for the rest of the semester? You: $30. He: It is efficient for you to buy the earphones and give them to your roommate. You gain more than you lose; the benefit exceeds the cost. You should do that. You: It just isn't fair that I have to pay for the earphones when I'm not the one making the noise. Parts of this conversation contain positive statements and parts contain normative statements. Which of the following is correct? C. "It just isn't fair" is a positive statement. A. "You should do that" (that is, buy the earphones) is a positive statement. B. "It is efficient for you to buy the earphones" is a positive statement. D. "It is efficient for you to buy the earphones" is a normative statement.

B. "It is efficient for you to buy the earphones" is a positive statement.

(Problem 1a.) Two important industries on the island of Bermuda are fishing and tourism. According to data from the Food and Agriculture Organization of the United Nations and the Bermuda Department of Statistics, in 2009 the 306 registered fishermen in Bermuda caught 387 metric tons of marine fish. And the 2,719 people employed by hotels produced 554,400 hotel stays (measured by the number of visitor arrivals). Suppose that this production point is efficient in production. Assume also that the opportunity cost of 1 additional metric ton of fish is 2,000 hotel stays and that this opportunity cost is constant (the opportunity cost does not change). If all 306 registered fishermen were to be employed by hotels (in addition to the 2,719 people already working in hotels), how many hotel stays could Bermuda produce? A. 774,000 B. 1,328,400 D. 1,108,800 C. 554,400

B. 1,328,400

(Problem 1b.) Two important industries on the island of Bermuda are fishing and tourism. According to data from the Food and Agriculture Organization of the United Nations and the Bermuda Department of Statistics, in 2009 the 306 registered fishermen in Bermuda caught 387 metric tons of marine fish. And the 2,719 people employed by hotels produced 554,400 hotel stays (measured by the number of visitor arrivals). Suppose that this production point is efficient in production. Assume also that the opportunity cost of 1 additional metric ton of fish is 2,000 hotel stays and that this opportunity cost is constant (the opportunity cost does not change). If all 2,719 hotel employees were to become fishermen (in addition to the 306 fishermen already working in the fishing industry), how many metric tons of fish could Bermuda produce? A. 387 B. 664.2 C. 277.2 D. 554.4

B. 664.2

In 2012, Hurricane Sandy caused massive destruction to the northeast United States. Tens of thousands of people lost their homes and possessions. Even those who weren't directly affected by the destruction were hurt because businesses failed or contracted and jobs dried up. Which one of the principles of economy-wide interaction can best explain how government intervention can help in this situation? B. Government policies can change spending. C. Overall spending sometimes gets out of line with the economy's productive capacity. A. One person's spending is another person's income.

B. Government policies can change spending.

(Problem 8b.) An insurance company has found that the severity of property damage in a fire is positively related to the number of firefighters arriving at the scene. In order to reduce its payouts to policyholders, should the insurance company therefore ask the city to send fewer firefighters to any fire? C. Yes; the statement implies that there is a causal link between the number of firefighters and the amount of property damage: more firefighters cause more property damage. A. Yes; the statement implies that there is a causal link between the amount of property damage and the number of firefighters: more property damage causes more firefighters. B. No; it is likely that there is a third, omitted, variable.

B. No; it is likely that there is a third, omitted, variable.

In August 2007, a sharp downturn in the U.S. housing market reduced the incomes of many who worked in the home construction industry. A Wall Street Journal news article reported that Wal-Mart's wire-transfer business was likely to suffer because many construction workers are Hispanics who regularly send part of their wages back to relatives in their home countries via Wal-Mart. Based on this information, which one of the principles of economy-wide interaction would help explain how reduced spending for U.S. home purchases is likely to affect the performance of the Mexican economy? A. Overall spending sometimes gets out of line with the economy's productive capacity. C. There are gains from trade. B. One person's spending is another person's income. D. Government policies can change spending.

B. One person's spending is another person's income.

(Problem 5a.) Peter Pundit, an economics reporter in the United States, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the United States will no longer benefit from trade with the EU. Do you think Peter Pundit is correct or not? If not, what do you think is the source of his mistake? A. Peter Pundit is correct. The United States will lose any comparative advantage it may have. C. Peter Pundit is not correct. The United States will still have an absolute advantage in producing some products. B. Peter Pundit is not correct. He confuses absolute and comparative advantage. D. Peter Pundit is correct. The United States will lose any absolute advantage it may have.

B. Peter Pundit is not correct. He confuses absolute and comparative advantage.

(Problem 4a.) Answer the following question by sketching a schematic diagram. Taking measurements of the slope of a curve at three points farther and farther to the right along the horizontal axis, the slope of the curve changes from -0.3, to -0.8, to -2.5, measured by the point method. Sketching a schematic diagram of this curve, which of the following describes the relationship illustrated in your diagram? A. The slope is positive and decreasing. C. The slope is negative and decreasing. B. The slope is negative and increasing. D. The slope is positive and increasing.

B. The slope is negative and increasing.

Governments often adopt certain policies in order to promote desired behavior among their citizens. For the following policy, determine the incentive or the effect of the incentive provided by the government policy. The government imposes a tax on the amount of air pollution that a company discharges. B. This provides an incentive for less pollution. A. This provides an incentive for more pollution. C. This will not affect the amount of pollution.

B. This provides an incentive for less pollution.

Which opportunity cost is associated with the following decision? Watch a movie instead of studying for an exam B. a lower grade on the exam A. the enjoyment of watching the movie D. a higher grade on the exam C. loss of time and convenience

B. a lower grade on the exam

(Problem 10d.) A representative of the American clothing industry recently made the following statement: "Workers in Asia often work in sweatshop conditions earning only pennies an hour. American workers are more productive and as a result earn higher wages. In order to preserve the dignity of the American workplace, the government should enact legislation banning imports of low-wage Asian clothing." Low-wage Asian workers would _____ such a policy. C. not be affected by B. be hurt by D. be either hurt or not hurt A. not be hurt by

B. be hurt by

(Problem 13.) Economists who work for the government are often called on to make policy recommendations. Their recommendations: A. contain only normative statements and it is important that the public be able to distinguish them from positive statements. C. contain only positive statements. B. contain both positive and normative statements and it is important that the public be able to distinguish between the two. D. contain only normative statements.

B. contain both positive and normative statements and it is important that the public be able to distinguish between the two.

In the following example, state how the principle of marginal analysis is used to make a decision. Choose the correct answer to fill in the blank. Students will do more library research before writing a term paper if the cost of not having the time to do other things is _____ the benefit gained (in terms of an improved paper). A. greater than C. the same as B. less than

B. less than

Which opportunity cost is associated with the following decision? Attend college instead of taking a job A. the joy of learning C. finding a better job with a higher income B. loss of income and on-the-job experience D. money saved by not commuting to work

B. loss of income and on-the-job experience

Which opportunity cost is associated with the following decision? Riding the bus instead of driving your car C. loss of income D. the quicker journey to your destination A. the book you get to read while commuting B. loss of time and convenience

B. loss of time and convenience

Use the concept of opportunity cost to determine the following. More people choose to do their own home repairs when the economy is slow, because the opportunity cost of doing the repairs is ____ it would be when the economy is booming. A. the same as B. lower than C. higher than

B. lower than

Use the concept of opportunity cost to determine the following. More people choose to get graduate degrees when the job market is poor, because the opportunity cost of going to graduate school is ____ it would be when the job market is strong. B. lower than C. higher than A. the same as

B. lower than

(Problem 14b.) The mayor of Gotham City, worried about a potential epidemic of deadly influenza this winter, asks an economic adviser the following series of questions. Determine whether the question requires the economic adviser to make a positive assessment or a normative assessment. If we offer to pay 10% more per dose to the pharmaceutical companies providing the vaccines, will they provide additional doses? A. normative B. positive C. cannot be determined from the information provided

B. positive

(Problem 14d.) The mayor of Gotham City, worried about a potential epidemic of deadly influenza this winter, asks an economic adviser the following series of questions. Determine whether the question requires the economic adviser to make a positive assessment or a normative assessment. If the city charges $25 per shot, how many people will pay? B. positive A. normative C. cannot be determined from the information provided

B. positive

(Problem 2b.) During the Reagan administration, economist Arthur Laffer argued in favor of lowering income tax rates in order to increase tax revenues. Like most economists, he believed that at tax rates above a certain level, tax revenue would fall because high taxes would discourage some people from working and that people would refuse to work at all if they received no income after paying taxes. This relationship between tax rates and tax revenue is graphically summarized in what is widely known as the Laffer curve. Answer the following question about the Laffer curve. What would total tax revenue, as a percentage of total income, be at a 0% income tax rate? C. 0 D. 20% A. 15% B. 10%

C. 0

(Problem 2d.) During the Reagan administration, economist Arthur Laffer argued in favor of lowering income tax rates in order to increase tax revenues. Like most economists, he believed that at tax rates above a certain level, tax revenue would fall because high taxes would discourage some people from working and that people would refuse to work at all if they received no income after paying taxes. This relationship between tax rates and tax revenue is graphically summarized in what is widely known as the Laffer curve. Answer the following question about the Laffer curve. Estimates now show that the maximum point on the Laffer curve is (approximately) at a tax rate of 80%. For tax rates less than 80%, how would you describe the relationship between the tax rate and tax revenue, and how is this relationship reflected in the slope? For tax rates higher than 80%, how would you describe the relationship between the tax rate and tax revenue, and how is this relationship reflected in the slope? Choose the correct statement below. C. For tax rates less than 80%, the Laffer curve has a positive slope and for tax rates higher than 80%, the Laffer curve has a negative slope. D. The Laffer curve is a vertical line. B. For tax rates less than 80%, the Laffer curve has a negative slope and for tax rates higher than 80%, the Laffer curve has a positive slope. A. The Laffer curve is a downward-sloping line.

C. For tax rates less than 80%, the Laffer curve has a positive slope and for tax rates higher than 80%, the Laffer curve has a negative slope.

During the Great Depression, food was left to rot in the fields, or fields that had once been actively cultivated were left fallow. Which one of the principles of economy-wide interaction can help explain how this could have occurred? B. Markets usually lead to efficiency. A. There are gains from trade. C. Overall spending sometimes gets out of line with the economy's productive capacity. D. "How much?" is a decision at the margin.

C. Overall spending sometimes gets out of line with the economy's productive capacity.

The Hatfield family lives on the east side of the Hatatoochie River, and the McCoy family lives on the west side. Each family's diet consists of fried chicken and corn-on-the-cob, and each is self-sufficient, raising their own chickens and growing their own corn. Under which conditions would the following be true? The two families are made better off when the McCoys specialize in raising chickens, the Hatfields specialize in growing corn, and the two families trade. A. The McCoys (compared to the Hatfields) are better at raising chickens and the McCoys are as good as the Hatfields at growing corn. B. The McCoys (compared to the Hatfields) are better at growing corn and the McCoys are as good as the Hatfields at raising chickens. C. The McCoys (compared to the Hatfields) are better at raising chickens and the Hatfields (compared to the McCoys) are better at growing corn. D. The McCoys (compared to the Hatfields) are better at growing corn and the Hatfields (compared to the McCoys) are better at raising chickens.

C. The McCoys (compared to the Hatfields) are better at raising chickens and the Hatfields (compared to the McCoys) are better at growing corn.

Problem 2a.) During the Reagan administration, economist Arthur Laffer argued in favor of lowering income tax rates in order to increase tax revenues. Like most economists, he believed that at tax rates above a certain level, tax revenue would fall because high taxes would discourage some people from working and that people would refuse to work at all if they received no income after paying taxes. This relationship between tax rates and tax revenue is graphically summarized in what is widely known as the Laffer curve. Answer the following question about the Laffer curve. Which is the independent variable? Which is the dependent variable? On which axis do you therefore measure the income tax rate? On which axis do you measure income tax revenue? Choose the correct statement below. D. The income tax rate is the dependent variable and so is measured on the vertical axis. B. The income tax rate is the independent variable and so is measured on the vertical axis C. The income tax rate is the independent variable and so is measured on the horizontal axis. A. The income tax rate is the dependent variable and so is measured on the horizontal axis.

C. The income tax rate is the independent variable and so is measured on the horizontal axis.

In the following situation, first consider in what sense the market is going wrong, then determine how government intervention could improve society's welfare by changing people's incentives. Everyone in Woodville would be better off if streetlights were installed in the town. But no individual resident is willing to pay for installation of a streetlight in front of his or her house, because it is impossible to recoup the cost by charging other residents for the benefit they receive from it. C. The market has resulted in too few streetlights. The government could pay for more streetlights from the taxes it collects. A. The market has resulted in too many streetlights. The government should tax homes and businesses with more than the needed amount of lights. B. The market has resulted in the correct number of streetlights. The government should not

C. The market has resulted in too few streetlights. The government could pay for more streetlights from the taxes it collects.

Which of the twelve basic principles of economics is at work in the following situation? You are better at performing lab experiments, and your lab partner is better at writing lab reports. So the two of you agree that you will do all the experiments, and she will write up all the reports. A. "How much?" is a decision at the margin. C. There are gains from trade. D. The real cost of something is what you must give up to get it. B. One person's spending is another person's income.

C. There are gains from trade

For the following situation, determine whether it describes an equilibrium. Many people regularly commute from the suburbs to downtown Pleasantville. Due to traffic congestion, the trip takes 30 minutes when you travel by highway, but only 15 minutes when you go by side streets. B. This is an equilibrium. C. This is not an equilibrium. A. This might be an equilibrium.

C. This is not an equilibrium

Governments often adopt certain policies in order to promote desired behavior among their citizens. For the following policy, determine the incentive or the effect of the incentive provided by the government policy. A tax of $5 per pack is imposed on cigarettes. A. This provides an incentive for more cigarettes to be consumed. B. This will not affect the number of cigarettes consumed. C. This provides an incentive for fewer cigarettes to be consumed.

C. This provides an incentive for fewer cigarettes to be consumed.

Governments often adopt certain policies in order to promote desired behavior among their citizens. For the following policy, determine the incentive or the effect of the incentive provided by the government policy. The government pays college students to tutor children from low-income families. C. This provides an incentive for more children to be tutored. B. This will not affect the number of children tutored. A. This provides an incentive for fewer children to be tutored.

C. This provides an incentive for more children to be tutored.

In the following case, determine whether the situation is efficient or not. Although they cost the same amount to prepare, the cafeteria in your dorm consistently provides too many dishes that diners don't like, such as tofu casserole, and too few dishes that diners do like, such as roast turkey with dressing. B. This situation is efficient. C. This situation is not efficient. A. There is not enough information to tell whether or not this situation is efficient.

C. This situation is not efficient.

In 2010, Tim Geithner, Treasury secretary at the time, published an article defending the administration's policies. In it he said, "The recession that began in late 2007 was extraordinarily severe. But the action we took at its height to stimulate the economy helped arrest the free fall, preventing an even deeper collapse and putting the economy on the road to recovery. Which two of the three principles of economy-wide interaction are at work in this statement? B. markets usually lead to efficiency, and government policies can change spending C. government policies can change spending, and one person's spending is another person's income D. markets usually lead to efficiency, and one person's spending is another person's income A. resources should be used as efficiently as possible to achieve society's goals, and markets usually lead to efficiency

C. government policies can change spending, and one person's spending is another person's income

Use the concept of opportunity cost to determine the following. Fewer students enroll in classes that meet before 10:00 A.M. because the opportunity cost is ____ it would be later in the day. A. the same as C. higher than B. lower than

C. higher than

(Problem 6.) The base of a right triangle is 10, and its area is 20. What is the height of this right triangle? B. 1/2 A. 2 C. 5 D. 4

D. 4

This morning you made the individual choice listed below. For this action, assess how your individual choice interacted with the individual choices made by others. Were other people left better off or worse off by your choice? You bought a bagel and coffee at the local café. A. The café owner is better off, but you are not. C. You are better off, but the café owner is not. D. Both you and café owner are better off. B. Neither you nor the café owner are better off.

D. Both you and café owner are better off.

(Problem 7c.) The inhabitants of the fictional economy of Atlantis use money in the form of cowry shells. Draw a circular-flow diagram showing households and firms. Firms produce potatoes and fish, and households buy potatoes and fish. Households also provide the land and labor to firms. Identify where in the flows of cowry shells or physical things (goods and services, or resources) each of the following impacts would FIRST occur. Would it be in the markets for goods and services or the factor markets? The inhabitants of Atlantis discover Shakira and spend several days a month at dancing festivals. B. Markets for goods and services and markets for factors would be affected at the exact same time. A. The impact would first be felt in the markets for goods and services. D. The impact would first be felt in the markets for factors. C. Neither the markets for goods and services nor the markets for factors would be affected.

D. The impact would first be felt in the markets for factors.

Assess the equity and efficiency of following policy: When people lose their jobs, the government provides unemployment benefits until they find new ones. A. The policy is efficient but may not be equitable. B. The policy is neither equitable nor efficient. D. The policy is equitable but may not be efficient. C. The policy is both equitable and efficient.

D. The policy is equitable but may not be efficient.

Assess the equity and efficiency of the following policy: The government pays the full tuition for every college student to study whatever subject he or she wishes. A. The policy is efficient but may not be equitable. B. The policy is neither equitable nor efficient. C. The policy is both equitable and efficient. D. The policy is equitable but may not be efficient.

D. The policy is equitable but may not be efficient.

Which of the twelve basic principles of economics is at work in the following situation? You realize that you can graduate a semester early by forgoing a semester of study abroad. A. "How much?" is a decision at the margin. D. The real cost of something is what you must give up to get it. B. Resources should be used as efficiently as possible to achieve society's goals. C. Resources are scarce.

D. The real cost of something is what you must give up to get it.

This morning you made the individual choice listed below. For this action, assess how your individual choices interacted with the individual choices made by others. Were other people left better off or worse off by your choices in each case? You drove to school in your car during rush hour. A. Neither you nor the other motorists are better off. C. Both you and the other motorists are better off. B. The other motorists are better off, but you are not. D. You are better off, but the other motorists are not.

D. You are better off, but the other motorists are not.

(Problem 8.) An economist might say that colleges and universities "produce" education, using faculty members and students as inputs. According to this line of reasoning, education is then "consumed" by households. Construct a circular-flow diagram to represent the sector of the economy devoted to college education: colleges and universities represent firms, and households both consume education and provide faculty and students to universities. What would happen in the diagram if the government decided to subsidize 50% of all college students' tuition? Households would ___ more education, and as a result, colleges and universities would ___ more faculty. D. demand; demand B. supply; supply C. supply; demand A. demand; supply

D. demand; demand

Suppose that in an hour Chip can gather 8 pounds of fruit or 4 pounds of nuts. In an hour, Monk can gather 9 pounds of fruit or 3 pounds of nuts. Which of the following statements is TRUE? Chip has the absolute advantage in gathering fruit. Monk has the absolute advantage in gathering fruit. Chip has the absolute advantage in both nuts and fruit. Monk has the absolute advantage in gathering nuts.

Monk has the absolute advantage in gathering fruit.

Which of the twelve basic principles of economics is at work in the following situation? You buy a used textbook from your roommate. Your roommate uses the money to buy songs from iTunes. C. Resources are scarce. B. Markets usually lead to efficiency. A. One person's spending is another person's income. D. Overall spending sometimes gets out of line with the economy's productive capacity.

One person's spending is another person's income.

Which of the twelve basic principles of economics is at work in the following situation? You choose to shop at the local discount store rather than paying a higher price for the same merchandise at the local department store. C. Markets usually lead to efficiency. A. One person's spending is another person's income. B. Resources are scarce. D. People usually exploit opportunities to make themselves better off.

People usually exploit opportunities to make themselves better off.

Which of the twelve basic principles of economics is at work in the following situation? There is limited lab space available to do the project required in Chemistry 101. The lab supervisor assigns lab time to each student based on when that student is able to come. B. Overall spending sometimes gets out of line with the economy's productive capacity. D. "How much?" is a decision at the margin. A. The real cost of something is what you must give up to get it. C. Resources should be used as efficiently as possible to achieve society's goals

Resources should be used as efficiently as possible to achieve society's goals.

True or False: The government can influence spending in the economy by controlling the amount of money in circulation. This is _____. False True

True

A computer manufacturer slashed prices of its products following a competitor's move. Most likely the competitor's move involved _____ in prices so that the market moved _____ the equilibrium a reduction; away from an increase; away from an increase; towards a reduction; to restore

a reduction; away from *it's changing consumer behavior via lower price incentive

According to the principle that one person's spending is another person's income, a decrease in consumer confidence can _____ spending on goods and services and therefore _____ incomes. decrease; lower increase; lower decrease; increase increase; have no effect on

decrease; lower

An economy operating on its production possibilities frontier is: Please choose the correct answer from the following choices, and then select the submit answer button. using too many resources. wasting resources. efficient. inefficient.

efficient.

True or False: When buyers have more market power than sellers, a market is in equilibrium. This is _____. True False

false

(Problem 2a.) According to data from the U.S. Department of Agriculture's National Agricultural Statistics Service, 124 million acres of land in the United States were used for wheat or corn farming in 2004. Of those 124 million acres, farmers used 50 million acres to grow 2.158 billion bushels of wheat and 74 million acres of land to grow 11.807 billion bushels of corn. Suppose that U.S. wheat and corn farming is efficient in production. At that production point, the opportunity cost of producing one additional bushel of wheat is 1.7 fewer bushels of corn. However, farmers have increasing opportunity costs, so that additional bushels of wheat have an opportunity cost greater than 1.7 bushels of corn. For each of the following production points, decide whether that production point is (i) feasible and efficient in production, (ii) feasible but not efficient in production, (iii) not feasible, or (iv) unclear as to whether or not it is feasible. Farmers use 40 million acres of land to produce 1.8 billion bushels of wheat, and they use 60 million acres of land to produce 9 billion bushels of corn. The remaining 24 million acres are left unused. This production point is: B. feasible and efficient in production. A. unclear as to whether or not it is feasible. C. not feasible. D. feasible but not efficient in production.

feasible but not efficient in production.

Use the concept of opportunity cost to determine the following. Convenience stores, which have higher prices than supermarkets, cater to busy people because the opportunity cost of time is ______. C. the same for busy people as it is for those who are not so busy B. higher for busy people A. lower for busy people

higher for busy people

By going to college and majoring in accounting, which of the following resources is Mary developing? human capital labor physical capital land

human capital

Too much spending in the economy leads to: . inflation. a surplus of labor. a recession. decreases in opportunity costs.

inflation.

A market is in equilibrium if: everyone pays the same tax rate on their income. all of the buyers and sellers are private firms. no individual would be better off doing something different. it is unregulated.

no individual would be better off doing something different.

(Problem 14c.) The mayor of Gotham City, worried about a potential epidemic of deadly influenza this winter, asks an economic adviser the following series of questions. Determine whether the question requires the economic adviser to make a positive assessment or a normative assessment. If there is a shortage of vaccine in the city, whom should we vaccinate first—the elderly or the very young? (Assume that a person from one group has an equal likelihood of dying from influenza as a person from the other group.) A. normative B. positive C. cannot be determined from the information provided

normative

Economists believe that the most effective way to change people's behavior is to: -provide a good argument for why changing their behavior is in society's best interest. -convince them that opportunity costs do not matter. -treat every decision as an either/or decision. -offer them incentives to do so.

offer them incentives to do so

(Problem 14a.) The mayor of Gotham City, worried about a potential epidemic of deadly influenza this winter, asks an economic adviser the following series of questions. Determine whether the question requires the economic adviser to make a positive assessment or a normative assessment. How much vaccine will be in stock in the city by the end of November? B. positive A. normative C. cannot be determined from the information provided

positive

Market failure means that: specialization and trade did not result in economic benefits. some buyers and sellers have chosen not to participate in the market. the individual pursuit of self-interest resulted in an inefficient outcome. equity has been achieved.

the individual pursuit of self-interest resulted in an inefficient outcome.

Which of the following is a source of economic growth? a decrease in the unemployment rate a decrease in the price of oil a natural disaster the number of college graduates doubles.

the number of college graduates doubles.

Which of the following is a factor of production? Please choose the correct answer from the following choices, and then select the submit answer button. cheese used to make a pizza wheat used to make flour for pizza dough the oven used to cook a pizza money

the oven used to cook a pizza *The factors of production are land, labor, capital, and human capital and the oven is capital.

During economic downturns the number of Americans without jobs increases. According to the principle that one person's spending is another person's income: the reduction in spending by the unemployed workers will further lower incomes. higher number of unemployed will increase enrollment into colleges. availability of workers will increase opportunities for new businesses. the reduction in the number employed will reduce cost of goods and services.

the reduction in spending by the unemployed workers will further lower incomes.