EC 231 Ch. 2 Homework

Determine whether each of the following topics would more likely be studied in microeconomics or macroeconomics. 1) A consumer's optimal choice when buying a flat-screen TV. 2) The effect of government regulation on a monopolist's production decisions. 3) The effects of government tax policy on long-term economic growth.

1) Microeconomics 2) Microeconomics 3) Macroeconomics

The following table contains statements that provide some analysis of policies that address the minimum wage . Categorize each of these statements as either positive or normative. 1) All Americans should earn more than $25,000 per year. 2) Raising the minimum wage increases the rate of unemployment. 3) The minimum wage should be raised to $15 per hour. 4) Raising the minimum wage reduces the number of employment opportunities for low skilled workers.

1) Normative 2) Positive 3) Normative 4) Positive

The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs. (Image of diagram saved in EC231 folder) Based on this model, households earn income when (firms/households) purchase (factors/goods and services) in factor markets.

1) Firms 2) Goods and Services

Suppose Beth earns $650 per week working as a doctor for the Medical Clinic. She uses $9 to buy a box of aspirin at Pillmart Pharmacy. Pillmart Pharmacy pays Andrew $475 per week to work the cash register. Andrew uses $350 to purchase medical services from the Medical Clinic. Identify whether each of the following events in this scenario occurs in the factor market or the product market. 1) Andrew spends $350 to purchase medical services from the Medical Clinic. 2) Beth earns $650 per week working for the Medical Clinic. 3) Beth spends $9 to buy a box of aspirin.

1) Product Market 2) Factor Market 3) Product Market

Which of the elements of this scenario represent a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. Check all that apply. - The aspirin Beth receives - The $475 per week Andrew earns working for Pillmart Pharmacy - Beth's labor - The $350 Andrew spends to purchase medical services from the Medical Clinic

- Beth's labor - The $350 Andrew spends to purchase medical services from the Medical Clinic.

Suppose an economist believes that the price level in the economy is directly related to the money supply, or the amount of money circulating in the economy. The economist proposes the following relationship: - P = A x M - P = Price Level - M = Money Supply - A = A composite of other factors, including real GDP, that change very slowly over time. How might an economist gather empirical data to test the proposed relationship between money and the price level? - Economists do not usually develop theoretical models of the economy but only analyze summary statistics about the current state of the economy. - An economist would persuade the Federal Reserve to change the money supply to various levels, and observe the resulting changes in the price level. - An economist would look for data on past changes in the money supply, and note the resulting changes in the price level - Unlike researchers in the hard sciences, economists cannot study complex relationships using data.

An economist would look for data on past changes in the money supply, and note the resulting changes in the price level.

Suppose that Manuel, an economist from a university in Arizona, and Poornima, an economist from a university in Massachusetts, are arguing over saving incentives. The following dialogue shows an excerpt from their debate: Poornima: I think it's safe to say that, in general, the savings rate of households in today's economy is much lower than it really needs to be to sustain an improvement in living standards. Manuel: I think a switch from the income tax to a consumption tax would bring growth in living standards. Poornima: You really think households would change their saving behavior enough in response to this to make a difference? Because I don't. The disagreement between these economists is most likely due to (differences in scientific judgments/ differences in values/ differences between perception versus reality).

Differences in scientific judgments

Suppose Canada produces two types of goods: agricultural and capital. The following diagram shows its current production possibilities frontier for barley, an agricultural good, and airplanes, a capital good. Drag the production possibilities frontier (PPF) on the graph to show the effects of an immigration law that results in fewer workers entering the country. (Image of the graph saved in EC231 folder)

Image of the graph saved in EC 231 folder.

Suppose the United Kingdom produces only two goods: corn and blu rays. The following graph shows the United Kingdom's current production possibilities frontier, along with six output combinations represented by black points (plus symbols) labeled A to F. (Image of graph saved in EC231 folder) Complete the following table by indicating whether each point represents output combinations that are inefficient, efficient, or unattainable. Check all that apply. - Point A,B,C,D,E,F

Point A = Unattainable Point B = Unattainable Point C = Inefficient Point D = Inefficient Point E = Efficient Point F = Efficient

Despite their differences, with which proposition are two economists chosen at random most likely to agree? - Immigrants receive more in government benefits than they contribute in taxes. - Having a single income tax rate would improve economic performance. - Rent ceilings reduce the quantity and quality of available housing.

Rent ceilings reduce the quantity and quality of available housing.