Econ Exam 1
2. It is a beautiful afternoon and you are considering taking a leisurely stroll through thepark. There are several other activities you had considered doing instead. The valueyou would have received from each of the activities is provided in Table 1. What is the opportunity cost to you of taking a stroll in the park? Table 1: Opportunity Cost Question Alternative Activities Value Streaming a movie $5 Taking a nap $8 Chatting with your best friend $13 Reading a new book $15
$15. Opportunity cost is the cost of the next best alternative, not all alternatives added.
4. Consider Ron's demand for after school care for his children. The marginal benefitRon receives for every hour of child care is provided in Table 3. If an hour of childcare costs $24, how many hours would Ron purchase each day? What about for $18per hour? Table 3: Marginal Benefits Question Hours of After School Child Care Marginal Benefits (per hour) 1 $32 2 $30 3 $20 4 $14
2 hours, 3 @$18
1. You are considering whether you should out to dinner at a restaurant with your friend.The meal is expected to cost you $40, you typically leave a 20% tip, and an Uber willcost you $5 to get there. You value the restaurant meal at $20. You enjoy your friend'scompany and are willing to pay $30 just to spend an evening with her. If you did notgo out to the restaurant, you would eat at home using groceries that cost you $8. Howmuch are the benefits and costs associated with going out to dinner with your friend?Should you go out to dinner with your friend?
20+30 (benefits) +8(save from groceries) = 58 (total benefit. $40 (price of meal) 20% (tip = $8) $5 (car fare) 40 + 8 + 5= $53... So, yes you should eat with your friend
9. In each of the following examples, answer the following four questions:•Which curve moves?•In which direction does it move?•What happens to equilibrium price?•What happens to equilibrium quantity?(a) Ice Cream: Instagram influencers start posting photos of themselves enjoying icecream cones.(b) Apples: The price of apple seeds used by orchard farmers rises. (c) TVs: Incomes rise across the United States AND the technology used in producingTVs mysteriously declines.(d) Chess Sets: After "The Queen's Gambit" airs on Netflix, more people want tolearn about chess AND there is an increase in the price of wood used to makepieces.
A) Demand shifts right, price rises, quantity rises B) Supply shifts left, Q drops, P rises C) Demand shifts right, supply shifts left, price rises, ambiguous quantity D) Demand shifts right, supply shifts left, price rises, ambiguous quantity 😊
. Sean is a community college student and has been saving his tips from his job waitingtables at a restaurant for months to see Hamilton. He is willing to pay $1265 for a ticket. Anca has seen Hamilton five times already, but wants to see it again beforeheading to Europe for a month. She is willing to pay $1250 for a ticket. There is oneticket left, and the seller is charging $700. Does Sean or Anca buying the ticket leadto a more economically efficient outcome?
Anca
5. For each of the following pairs of goods, identify if they are substitutes or complementsand use a graph to illustrate how the change described impacts the market for bothgoods or services. •Books and bookmarks: The price of books falls. •Pizza and beer: The price of beer rises. •Cheerios and Great Value Brand "Toasted O's": The price of Cheerios falls.
Complements - demand shifts right FOR BOOKMARKS, does not change for books. Complements - demand shifts left FOR PIZZA, does not change for beer. Substitutes - demand shifts left for Toasted O's ☹
. Name the six forces that could shift the demand curve. Name the five forces that couldshift the supply curve.
Demand: Change in income, Tastes and preferences, Price of related goods/services, Buyers' expectations of product's price, buyer's expectations of their future income, number of buyers. Supply: Number of sellers, technology used in production, Price of raw materials, Natural and social factors, Expectations of future performance
You have recently been hired by Netflix to work in its strategy division. For each ofthe following, illustrate how Netflix's supply curve for streaming subscriptions will beaffected with a graph showing any changes:•Film and TV stars begin demanding higher pay in order to appear in Netflix'sprograms.•The technology behind Netflix's recommendations algorithm improves.•The price of costumes for period shows falls.
Leftward shift, cost of production has increased. Rightward shift. ☹ Rightward shift, cost of production has decreased.
16. Name five kinds of market failure.
Market Power, Externalities, Information problems, Irrationality, Excessive Gov't Regulation. 😊
3. Neal is a coffee drinker. At the local coffee shop, the price of a cup of coffee is $3. Neal'stotal benefits from drinking coffee is provided in Table 2. What is Neal's marginalbenefit of consuming each cup of coffee? How many cups should he consume each day? Table 2: Marginal Benefits Question Quantity of Coffee Total Benefits Marginal Benefits? 1 $8 $8 2 $14 $6 3 $18 $4 4 $20 $2 5 $21 $1
Neal should drink 3 cups. 😊
19. Renika has $60,000 in wealth, but the official poverty statistics count her as being inpoverty. Explain why this is. If Renika has quit her job in order to go to graduateschool, and $60,000 reflects her cash savings, do you agree that she is in poverty? Whatif Renika is elderly and the $60,000 reflects the value of her rural home?
No income/low income, 60k is in savings/assets. Student - Permanent income is high, so not in poverty. Elderly - in poverty.
20. One way to levy a tax on the things people buy is through a sales tax - a tax onpurchases that is typically a percentage of the purchase price. For example, in Michiganeveryone, regardless of their income pays a 6% sales tax on their purchases. Do youthink that this tax is progressive, regressive, or neither? Do you think that it has thesame impact on low-income and high-income families? Why or why not?
Regressive - sales taxes always are, as poorer citizens pay more of their income in to these taxes. It has far greater impact on low-income families for this reason. 😊
6. Consider the market demand curve for cups of coffee and assess whether each of thefollowing changes causes a rightward shift in the demand curve, a leftward shift, or nochange at all.•Average hourly wages increase in the United States.•The state government requires all coffee houses to post warnings to consumers ofthe cancer-causing components of coffee.•Coffee houses increase the price of coffee in order to pay their baristas more.
Rightward shift, as consumers have more money to spend Leftward shift, in theory? Would that actually deter coffee drinkers? Leftward shift. ☹
17. What is the main difference between the social safety net and social insurance?
Safety net is anything given to people economically at the bottom - EG food stamps, welfare. Social insurance is specifically insurance.
8. Briefly explain whether each of the following represents a shift in supply or a changein quantity supplied.•An increase in the use of corn in the production of ethanol has raised the cost ofcorn to farmers who use it as livestock feed.•Speculators in world steel markets push the price of steel up, leading Americansteel companies to expand production.
Shift in supply, as this represents a change in cost. Change in quantity supplied, as this represents a change due to the demand curve shifting. 😊
18. Your classmate David tells you that you don't need to worry about people in povertybecause most spells of poverty are short. Explain his possible misunderstanding ofpoverty
While most spells of poverty are short, most people who are in poverty tend to stay in poverty long term.
14. You are planning a move across town. Doing your research you find that the averagerate of a moving company is $250 per hour for two movers (moving truck included).The marginal benefit you receive from each hour of the two movers' time (and truck)is listed in Table 4.•For how many hours should you hire the movers? How much consumer surplusdo you receive?•Now suppose that instead of paying per hour, a moving company offers a flatrate of $1500 for two movers plus a truck for an 8-hour day. Would you hire themovers? How has your consumer surplus changed? Table 4: Consumer Surplus Question Hours of Movers' Time Marginal Benefits 1 $850 2 $620 3 $500 4 $260 5 $150 6 $100 7 $0
a 4 hours. (850-250)+(620-250)+(500-250)+(260-250)=600+370+250+10=$1230. b Yes. 1500 would previously cover the first three hours of use. Surplus has changed to $980 - sum of listed marginal benefits -1500. 😊
. Spongebob, Squidward, and Sandy are all in the market for new Levi's jeans. Themarginal benefit for each pair of jeans per year for each of them is provided in Table5. If the price of a pair of Levi's jeans is $50,•How many pairs of jeans will each person purchase? •How much consumer surplus does each of them receive from the last pair of jeanspurchased? •How much consumer surplus will each of them receive in total from their pur-chases? •How much consumer surplus do they receive combined? Table 5: Jeans 😊 Quantity Spongebob Squidward Sandy 1 $100 $75 $30 2 $49 $70 $20 3 $30 $65 $17 4 $10 $60 $14 5 $2 $40 $10
a Sponge - 1, Squid - 4, Sand - 0 b Sponge - $50, Squid - $10, Sandy bought zero c Sponge - $50, Squid - 25+20+15+0=$60
10. For each of the following observations, determine whether supply, demand, or bothshifted and in which direction.•Over the last decade, the price of hybrid electric vehicles decreased, while thenumber of hybrid vehicles sold increased. •From January through April in the United States, personal certified public ac-countants (CPAs) see a dramatic increase in their number of billable hours, butthe average hourly rate of a CPA remains the same.
a Supply shifts right ' b Demand shifts right c Both shifted, both shifted right
12. What is the difference between positive statements and normative statements? For thefollowing statements, tell me which are positive and which are normative:(a) "The Fed printed too much money last year."(b) "The government should introduce policies to address income inequality."(c) "The top 1% in the US owned 41% of total wealth in 2012."(d) "The unemployment rate in August 2018 was 3.9%"
a normative b normative c positive d positive
know the following terms: opportunity cost, positive statements, ? efficiency, allocative efficiency, productive efficiency, consumer surplus, producer surplus, deadweight loss, income inequality, wealth inequality, permanent income inequality, intergenerational mobility
a the true cost of something is the next best alternative you must give up to get it.
Law of Demand,
fundamental principle of economics that states that at a higher price consumers will demand a lower quantity of a good.
Law of Supply,
the microeconomic law that states that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa.
normative statements,
to determine people's desirability or the lack thereof to various economic programs,
