QUIZ 1

Using all his resources, Lorenzo can make 15 pizzas a day or 25 colas a day. The opportunity cost of producing 1 pizza is:

1.67 colas

Ted's annual salary is $35,000 and he pays his last year tax $5,000. While Gaby's salary is $45,000, and she pays tax of $7,500. Based on these two persons, we can say that the "average" tax rate is (use the concept of SLOPE):

25% The slope = change in tax / change in salary = (7500-5000)/(45K-35K) . 100% = 25%

Which of the following is a normative statement?

A camera makes a good wedding gift.

Which of the following statements is true?

All countries can gain from trade if they all specialize in production according to comparative advantage

A tax cut was passed by Congress, and your parent increased your weekly allowance; the principle underlying this situation is:

Government policies have impact on spending

You decide how many cups of coffee to drink for studying the night before exam, and consider how much more work you can do by having another cup versus how jittery it will make you feel.

Marginal analysis (always look at specific units of benefits and costs.)

More people choose to do their own home repairs when the economy is slow and hourly wages are down.

Opportunity Cost

Assume that we have a PPF. Point A lies inside (to the left) of the frontier. Point B and C are located along the frontier, and Point D is located outside (to the right) the frontier. Which points represent efficient production points?

Points B and C are efficient

If an economist argues that everyone gains from trade, what reasoning is most likely underlying her argument?

That production according to the principle of comparative advantage lowers overall costs and therefore allows everyone to have a higher standard of living.

The price of houses in Bellevue area has been increasing by 10% since last year, according to Zillow.com

This is a positive statement

Most individuals choose careers in which they specialize in producing only one type of good or service, yet as consumers they have access to a wide variety of goods and services. What principle allows for this?

Trade off

If a PPF has an increasing opportunity cost, the curve looks like:

bowed-out curve

Scarcity of resources could be reduced if:

productivity increases and people consume less goods

In reality, the relationship between tax rate and tax revenue turns out to be:

non-linear

By taking summer courses, you can graduate a semester early; the principle underlying this is:

opportunity cost

Consumers buy more frozen yogurt when the price of ice cream goes up. If we graph this situation, the correlation will be:

slope upward

If two variables are positively correlated, the line will:

slope upward

In his book, The Wealth of Nations, Adam Smith used the example of pin-making to illustrate the advantages of:

specialization

As an economy moves from point to point along its PPF, what is changing?

the allocation of resources within the economy

Economists typically depict the PPF as a bowed out curve rather than as a straight line in order to show that:

the opportunity cost of producing a good rises as more is produced (increasing opportunity cost) It takes more time and effort to SWITCH resources from producing one good to another good.