ECON 102 - homework

DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. 1)What is DeShawn's marginal benefit if he sells a basic detailing package? 2)What is the marginal cost of adding the engine detailing to the basic detailing package?

1)$75 2)$20

"The distribution of income should be left to the market" is an example of a positive economic statement.

False

To increase gas mileage, automobile manufacturers make cars small and light. Large cars absorb more of the impact of an accident than small cars but yield lower gas mileage. These facts suggest that a negative relationship exists between safety and gas mileage.

True

Consider the following economic agents: a.the government b.consumers c.producers Who, in a market economy, decides what goods and services will be produced with the scarce resources available in that economy?

consumers and producers

Centrally planned economies allocate resources based on decisions by _________ (government / households / firms), while market economies answer these questions through decisions made by ________ (government / households and firms).

government; households and firms.

Without an increase in the supplies of factors of production, how can a nation achieve economic growth?

through technological advancement which enables more output with the same quantity of resources

A successful market economy requires

well-defined property rights and an independent court system to adjudicate disputes based on the law

Every society faces trade-offs because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn $1,000,000 next year playing for a minor league baseball team, $300,000 next year playing for a European professional football team, or $0 returning to college for another year. The opportunity cost of the student-althlete returning to college next year is ___.

$1,000,000

Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What is the marginal cost of completing the task?

$1,100

______ is the study of the choices people make to attain their goals, given their scarce resources.

Economics

For each bottle of wine that Italy produces, it gives up the opportunity to make 10 pounds of cheese. France can produce 1 bottle of wine for every 25 pounds of cheese it produces. Who has the comparative advantage in wine?

Italy

Julia Paul, an analyst at a research institute, lives very close to her office and walks to work every day. Meanwhile, her colleague, Amanda Jones, dislikes the fact that it takes her almost an hour to commute to work every day. As a result, when Julia devices to move to a suburb farther away, Amanda is very surprised. What would explain Julia's behavior?

Julia saves more in rent that she spends on commuting to work

Which of the following is microeconomics question?

Will the merger of American Airlines and US Airways increase or decrease airfares?

What is meant by a more equitable distribution of wealth?

a more fair distribution of wealth

An inward shift of a nation's production possibilities frontier can occur due to

a natural disaster like a hurricane or bad earthquake

What is the tradeoff in society?

efficiency vs. equity

In the circular flow model, producers

hire resources sold by household in the factor market

Economics is a social science because

it applies the scientific method to the study of the interactions among individuals, it considers human behavior-particularly decision-making behavior, and it is based on studying the actions of individuals.

What are the steps to building an economic model?

make assumptions to simplify the complex world, formulate a testable hypothesis, revise the model if it fails to explain the economic data, retain the revised model to help answer similar economic questions in the future

Which of the following is not a step economist follow when developing an economic model?

make value judgements to be proven or disproven

According to the U.S. Bureau of Labor Statistics, the amount of time men devote to housework has been increasing, while the amount of time women devote to housework has been decreasing. An economic explanation for this trend could be that as women have...

more employment opportunities, their opportunity cost of doing housework, relative to men's, has risen.

What are the two types of efficiency?

productive and allocative

What do economist mean by the market equilibrium?

A market outcome where quantity supplied is equal to quantity demanded.

For each surfboard that Australia produces, it gives up the opportunity to make 25 boomerangs. New Zealand can produce 1 surfboard for every 15 boomerangs it produces. Which of the following is true about the comparative advantage between the two countries?

Australia has the comparative advantage in boomerangs.

What is the largest component in Y=C+I+G

C

When there is a shortage of a good?

Consumers compete against one another by binding the price upward.

Demand curve to shift?

Consumers income, Price relative goods, and Population Demographics.

Components of GDP?

Consumption and Investment Consumption spending by household goods and services including spending on new houses.

What is GDP not adjusted for?

Crime, Pollution, Underground Government, and Household Products.

Damian shares a small food truck with his sister. His share of the expenses if $500 per month. He has decided to get his own, newer food truck which he will not have to share with anyone. His expenses for the newer truck are $1,400 per month. Damian is as rational as any other person. As an economics major, you rightly concluded that.

Damian figures that the additional benefit of having his own truck(as opposed to sharing) is at least $900

Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government?

Economics teaches us how to look at the tradeoffs involved in every decision.

Scarcity is central to the study of economics because it implies that?

Every choice involves an opportunity cost.

IN the circular flow of expenditures and income why must the total value of production in an economy equal the total value of income?

Every penny spent on a good or service must end up as someone's income.

If Sanjaya can shuck more oysters in one hour than Tatiana, then Sanjaya has a comparative advantage in shucking oysters.

False

If additional units of a good could be produced at a constant opportunity cost, the production possibility frontier would be bowed outward(concave).

False

Policies based on positive economic ideas tend to decrease economic efficiency and reduce equity.

False

In the 18th century Europe, governments gave guild legal authority to limit production of goods. Did this authority obstruct or improve the market mechanism and how?

It obstructed the market mechanism because the guild's actions prevented the forces of demand and supply from coordinating the self-interested decisions of producers and consumers.

The effect of higher income taxes on the total amount of consumer spending. This is a _____ issue.

Macroeconomic

Which of the following covers the study of topics such as inflation or unemployment?

Macroeconomics

The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a _____ issue

Microeconomic

When economist develop models designed to explain the choices people make they generally assume that?

People are rational.

______ is concerned with what is, and _____ is concerned with what ought to be. Economists is about _____, which measures the costs and benefits of different courses of action.

Positive analysis Normative analysis Positive analysis

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls?

Scarcity

When government imposes price floor and price ceiling?

Some people win and some people lose and here is a loss in the economy.

Which of the following is motivated by an equity concern?

Some states have transferred funds to food bank programs in order to increase benefits to lower-income families

Supply curve to shift?

The cost of raw materials, The number of firms in the market, and Technology and Productivity.

State of law of demand?

The law of demand is explained by substitutions and income effects. When the price increases quantity demanded will decrease.

What is the difference between the value of a firm's final product and the value added by the firm to the final product?

The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.

Which of the following correctly describes the relationship between economic efficiency and economic equity?

There is often a trade-off between the two

Economists assume that people are rational in the sense that?

They are all available information as they take actions intended to achieve their goals.

A college must decide if it wants to offer more Internet-based classes. This decision involves answering the economic question of "what to produce."

True

If it costs Danitra $225 to create 4 necklaces and $275 to create 5 necklaces, then $50 is the marginal cost of producing the 5th necklace.

True

Macroeconomics is most likely to include the study of

Unemployment

The three economic questions that every society must answer are

What (and how much of the) goods will be produced, how will they be produced, and who will receive the goods?

What are three questions that society asks when making choices?

What goods and services will be produced? How will the goods and services be produced? Who will receive the goods and services produced?

a.The minimum wage law causes unemployment b.A minimum wage law benefits some groups and hurts others c.In some cities such as San Francisco and New York, it would be impossible for low-skilled workers to live in the city without minimum wage laws d.The gains to winners of a minimum wage law should be valued more highly than the losses to losers because the latter primarily comprises businesses Which of the consequences above are positive statements and which are normative statements?

a and b are positive statements, c and d are normative statements

production possibilities frontier(PPF) is

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

Consider the following statements: a.Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b.Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring. c.Firms produce more for a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?

a,b, and c

Consider the following items: a.the novel "The DaVinci Code" by Dan Brown b.the "The Spirited Shipper", an innovative wine shipping box c.a Swiss chef's award-winning recipe d.an original fabric design for example, the fabric used for "Coach" bags and luggage Which of the items listed is an example of intellectual property?

all of the items listed

Voluntary exchange between buyers and sellers generates ___ in a market economy.

allocative efficiency

Economics assumes people and firms

are rational, respond to incentive, and make decisions by comparing marginal benefits with marginal costs

What are some things that a model needs?

assumptions, simplifications, testability, and economic variables

Arlene quits her $125,000 a year job to take care of her ailing parents. What is the opportunity cost of her decision?

at least $125,000

___ increases economic efficiency because it forces firms to produce and sell goods and services as long as the additional benefit to consumers is greater than the additional cost of production

competition

Markets promote

competition and voluntary exchange

Tesla Motors manufacturers its cars at a plant in Fremont, California. At this plant, Tesla is able to take advantage of the high level of technical training possessed by its American workers, but it also sacrifices the ability to pay lower wages had it chosen to open its plant in a low-wage country such as Mexico, India, or China. In deciding to open the Fremont plant, Tesla

faced a trade-off between higher cost and lower precision

What covers the study of topics such as inflation or unemployment?

macroeconomics

A grocery store sells a bag of potatoes at a fixed price of $2.30, What is the term used by economist to describe the money received from the sale of an additional bag of potatoes?

marginal revenue

Would an equitable distribution of wealth necessarily be the most efficient distribution of wealth?

no, an economically efficient distribution of wealth would not necessarily be equitable

The primary purpose of ___is to encourage the expenditure of funds on research and development to create new products.

patents and copyrights

What are the three key economic ideas?

people are rational, people respond to economic incentives, and optimal decisions are made at the margin

Economics is the ______ _______ that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the ______ that influence and reconcile our choices.

social science; incentives

Javier buys 800 square feet of wood flooring for his vacation home. What is this statement an example of in the circular flow model?

spending on goods and services

How are the fundamental economic decisions determined in North Korea?

the government decides because North Korea is a centrally planned economy

Suppose the extra cost to a doctor of keeping his office open on Saturdays is $1,200. Then, the doctor should stay open on Saturdays if keeping the office open brings in additional revenue of $1,200 or more.

true

What is being rational?

using all available info to achieve your goals

In your economics class, you scored a 67 on the first quiz, a 86 on the second quiz, and a 79 on the third quiz. Your average quiz is _____. On the fourth quiz, you scored an 82. Did the fourth quiz raise your average?

77.3 Yes

What is the four major components of GDP?

Consumption, Investment, Government, purchases, and Net Exports.

In the 1950s, the economist Bela Balassa compared 28 manufacturing industries in the United States and Britain. In every one of the 28 industries, Balassa found that the United States had an absolute advantage. In these circumstances, would there have been any gain to the United States from importing any of these products from Britain?

Even with an absolute advantage, the United States would have benefited from importing those products for which Britain had a comparative advantage.

Which of the following is NOT a step that economists use in developing a useful economic model?

Make a value judgement about the merits of the hypothesis.

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when?

Marginal benefit equals marginal cost.

A primary difference between macroeconomics and microeconomics is

Microeconomics examines individual markets while macroeconomics examines the economy as a whole.

Consumer and producer surplus measure __ benefit rather than the ___ benefit?

Net; Total

In the diagram to the right, the curve "S" is apparently _____, while the curve labeled "D" is apparently _____.

Nonlinear Linear

What type of economic analysis is concerned with the way things ought to be?

Normative Analysis

It is possible to have an absolute advantage in producing a good or service without having comparative advantage.

True

The basis for trade is comparative advantage, not absolute advantage.

True

Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational?

When we assume the managers at Microsoft have used all available information and have weighted all known benefits and costs, we are assuming rationality

How do market economies ultimately determine what goods and services are produced, how the goods and services will be produced, and who will receive the goods and services?

consumers determine what goods and services are produced, firms determine how to produce them, and markets determine who will receive them.

Alzuria is a developing economy. With trade and liberalization, the country has now seen substantial development in the private sector. However, government intervention in certain markets remains strong. The banking sector has a good mix of both private banks and those called "government undertakings," or public sector banks. Consumers are becoming increasingly aware of the difference in the quality of service provided by the private and the public sector banks. Competition among private banks has ensured that their employees adhere to high standards of customer service. Their public sector counterparts, however, do not appear to be making an effort to improve their customer service. What would explain the careless attitude of employees in public sector banks?

employees in the public sector have greater job security than those in the private sector

Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What should he do?

he should sell the machine now to make the most profit

Suppose that some teachers have decided that economic and financial uncertainty have made the prospect of retiring more risky, and therefore carry a higher cost than not retiring. By using all available information as they act to achieve their goals, these teachers are exemplifying the economic idea that

people are rational

Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that

people respond to economic incentives

Specializing in the production of a good or service in which one has a comparative advantage does not let a country.

produce a combination of goods that lie outside its own production possibilities frontier

Germany has a market economy. As such, Germany's economy(relative to centrally planned economies) tends to result in

productive efficiency and allocative efficiency but not necessarily equity

Mr.Peabody chooses to invest in companies that produce goods and services at the lowest possible cost. Mr.Peabody is investing in companies that are

productively efficient

Which of the following is a positive economic statement?

scarcity necessitates that people make trade-offs

A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of "Beds" it offers at its nursing homes. Given the changes to Medicare, if the marginal benefit of offering an additional bed is $5,000 and the marginal cost is $6,000 per bed, then the corporation __________ (should / should not) offer additional beds.

should not

The principle of increasing marginal opportunity cost states that the more resources devoted to any activity, the ___ the payoff to devoting additional resources to that activity.

smaller

Arlisha purchases a cotton candy machine for her concession stand at the state fair. What is this statement an example of in the circular flow model?

spending on factors of production