EC 102 Homework 1

Indicate whether each item describes a primary goal of macroeconomic policy. A. Low unemployment B. Eliminating political conflict C. To set the optimal price for a pound of peaches D. Low inflation E. To calculate how much urban residents are willing to pay to protect biodiversity F. Rising living standards

A. Primary macroeconomic policy goal B. Not a primary macroeconomic policy goal C. Not a primary macroeconomic policy goal D. Primary macroeconomic policy goal E. Not a primary macroeconomic policy goal F. Primary macroeconomic policy goal

Please select the economic term that is best described by each statement. 1. People have limited resources. a. Scarcity b. Business cycle c. Margins d. Tradeoffs e. Recession f. Entrepreneurship 2. Everything you do requires giving up something (time, money, etc.). a. Scarcity b. Tradeoffs c. Margins d. Budgeting e. Financial capital f. Recession

1. A. Scarcity 2. B. Tradeoffs

Determine if the items represent an example of positive economics or normative economics. 1. The richest 1% of Americans should pay more taxes than the rest of the 99%. 2. A decrease in the supply of coconut will increase the price of German chocolate cake, a good which requires coconut shavings as a key ingredient. 3. As minimum wage increases, the prices of all goods and services also tends to increase. 4. Social welfare spending in Sweden occupies too large a portion of the national budget.

1. Normative economics 2. Positive economics 3. Positive economics 4. Normative economics

During the summer, the largest computer game retailer has a massive sale. As prices for computer games fall, consumers purchase more games, ceteris paribus. 1. What does the term ceteris paribus mean in this context? a. That the basic concepts of economics do not apply b. Holding all else equal (unchanged) c. That it is an easy to understand statement and does not require complex analysis d. Allowing all economic variables to change 2. Why, if at all, is the ceteris paribus condition important in economic analysis? a. It allows the analysis of how changes in every economic variable at once affects an economic environment. b. It is not important. c. It allows the analysis of how a single change affects an economic environment.

1. b. Holding all else equal (unchanged) 2. c. It allows the analysis of how a single change affects an economic environment.

Suppose the University Health Center receives flu vaccinations at the beginning of each flu season, and that they offer these vaccines for the market price of $20.00 each. Assume that college students have varying budgets. Some have some money to spare, some are on a very tight budget. Keep in mind that some students have pre‑existing conditions, such as asthma and diabetes, that place them at high risk for the flu. 1. Who will receive the vaccines if the University Health Center sells them for the $20.00 market price? a. The students who most want them b. The students who will pay $20.00 for them c. The students who most need them 2. Suppose the school sells all of its vaccines at the market price of $20.00. What has it managed to maximize? a. Fairness b. Social interest c. Efficiency 3. Suppose now that the school wishes to make sure no students with diabetes or asthma go without the drug because they cannot afford it. Because it does not know the budget of each student, the Health Center decides to offer vaccines free to students who can provide a doctor's note stating they have a pre‑existing condition. The school is now seeking a greater degree of a. Fairness. b. Self‑interest. c. Efficiency.

1. b. The students who will pay $20.00 for them 2. c. Efficiency 3. a. Fairness.

The day-to-day living conditions of modern Americans are very different from what they were in the 20th century. While doing research for an economics project, Charlie discovers that more households today, as compared to households 100 years ago, have electricity, air conditioning, and a car. 1. Which of the following explains why modern Americans enjoy a higher standard of living than Americans 100 years ago? a. Americans have prospered and earned more money due to a complete lack of recessions. b. The invisible hand has guided all nations around the world to this prosperity. c. There has been economic growth in our society. d. Market failures are nonexistent. 2. In which field do researchers focus on investigating the phenomena described? a. Political Science b. Economics c. Business d. Sociology

1. c. There has been economic growth in our society. 2. b. Economics

Each scenario illustrates a principle of economics. Classify each scenario according to the principle that best fits it. A. An educational software company wants to expand the number of economics questions that it offers and is considering hiring another economist. The company compares how much adding another worker will improve the product to the additional cost. B. Ava finds that there is not enough time after work to have dinner, exercise, and watch TV, and she must make choices about how to use her limited time. C. On Black Friday, there are huge sales for electronics at many retail stores. David must decide between buying a camera at one store or a flat screen TV at another store, and buying one means losing out on the ability to purchase the other.

A. Marginal Decisions B. Resource Scarcity C. Opportunity Cost

Determine which economic principle is illustrated by each scenario. A. The owner of a snow cone trailer realizes that the demand for snow cones is low during the winter, and closes shop until the temperature warms back up near summertime. B. The local river has so much pollution that three-eyed fish are forming. The government responds by regulating the amount of chemicals that can be dumped into the river. C. At a high-end restaurant, the restaurant owner has one chef at a meat station, one chef at a vegetable station, and one chef, who has an artistic eye, plate the food she is given. The result is increased service speed, and the kitchen is able to serve more customers in an evening. D. During the summer, a bumper crop of oranges in Florida causes a surplus in the supply of oranges nationwide. As a result, prices fall to compensate for the surplus and consumers enjoy the fruits of the farmers' labor.

A. Market Efficiency B. Government Intervention C. Specialization D. Equilibrium

Indicate whether each event described falls mainly in the field of microeconomics or that of macroeconomics. A. A tax on tires increases the price of tires paid by car owners. B. As a result of a severe recession, the total output, or gross domestic product, of a nation falls by 4 percent. C. Increased consumer spending causes the national unemployment rate to fall. D. Increased consumer spending causes the rate of inflation to rise. E. Optimism about future car sales leads General Motors to hire more auto workers. F. Robotic technology reduces the demand for auto workers.

A. Microeconomics B. Macroeconomics C. Macroeconomics D. Macroeconomics E. Microeconomics F. Microeconomics

Suppose that the video game company Ultravision releases a new game called "Call of Obligation: Modern Combat 3." This game can be analyzed using the tools of both microeconomics and macroeconomics. Classify each item below according to whether it represents an application of microeconomics or macroeconomics. A. Is Ultravision able to sell all of the "Call of Obligation" games it produces or does it need to produce more? B. How does Ultravision choose to market "Call of Obligation." C. How much will Ultravision pay the developers of the game? D. How much less economic output occurs countrywide because workers call in sick to stay home and play either "Call of Obligation" or another video game? E. How much will Ultravision charge for "Call of Obligation?" F. Have the millions of dollars that people have spent on video games worldwide affected the gross domestic Product (GDP) in their respective countries? G. Has the country's unemployment rate changed as Ultravision hired a huge team of workers to develop the game?

A. Microeconomics B. Microeconomics C. Microeconomics D. Macroeconomics E. Microeconomics F. Macroeconomics G. Macroeconomics

Which statement describes the equity-efficiency trade‑off? A. There is always a more equitable outcome that is also more efficient. B. Actions intended to make economic outcomes fairer may cause efficiency to decrease. C. Government intervention can increase efficiency in a market. D. The least efficient economic outcome is the fairest outcome.

B. Actions intended to make economic outcomes fairer may cause efficiency to decrease.

Megan has a 11 hr gap in her course load for the fall semester. There are two courses available for her to take at that time: reading piano sheet music and beginning rock climbing. She does not have any experience with piano or rock climbing. In the end, she decides to enroll in the rock climbing course, despite her fear of heights. Identify which activity exhibits a potential trade-off with enrolling in rock climbing. A. learning rock climbing skills B. learning to read piano sheet music C. overcoming her fear of heights D. none of the above

B. learning to read piano sheet music

Fergie, Jewel, Geddy, and Sheila are trying to form a band. They each have some basic skills on most instruments, so their current plan is for each of them to rotate among vocals, guitar, bass, and drums. After a year of practice and rehearsals the band still sounds awful. Fergie cannot keep a steady beat when on bass or drums, Geddy sounds terrible on everything except the bass, nobody except Jewel can remember all the chords on guitar, and even Sheila's own mother thinks her singing sounds like a dying cow. At their current rate, they expect it will be several years before they are good enough to land their first paid performance. None of them have enough money saved up to last that long. They all know you are taking economics and ask your advice. What would you say to them? A. Continue with the current plan, as economies of scale should eventually kick in. B. Abandon the band, as continued practice is doomed to suffer diminishing marginal returns. C. Have each member specialize in the role that they are best in to take advantage of benefits from specialization. D. Invest their remaining savings in new instruments, as they are at a point where the marginal product of capital exceeds the marginal product of labor. E. Change the rotation to be random rather than equal to take advantage of heteroskedasticity.

C. Have each member specialize in the role that they are best in to take advantage of benefits from specialization.

Which scenario would least likely change an individual's behavior? A. The city of Saskatoon chooses to give its residents a penny for each soda can they recycle in an effort to promote environmental awareness. B. A basketball team manages to sign a trio of famous basketball stars who then clamor for other players to come join their team to win a guaranteed championship. C. In an effort to make people eat healthier, the city of Bakersville tells its residents to eat wheat bread instead of white bread. D. The country of Ravamolk enacts a policy to fine companies 20% of their earnings if the safety standards in their factories do not reach acceptable work conditions.

C. In an effort to make people eat healthier, the city of Bakersville tells its residents to eat wheat bread instead of white bread.

Which demonstrates a scenario with no opportunity cost? A. It's Friday night and you stay up late talking and hanging out with your friends. B. The chemistry club is giving out free pizza for lunch to all who come to their table to get it. C. Naomi, age 8, is at a bookstore and chooses to buy a book about a young wizard instead of buying a math textbook that she would probably never open. D. All of these scenarios have an opportunity cost.

D. All of these scenarios have an opportunity cost.