Chapter 1 Homework

3. Equality versus efficiency Match each definition to its appropriate concept. 1. When economic benefits are distributed uniformly across society. 2. When a society gets the most it can from its scarce resources. If the United States government lowers the income taxes on the wealthiest Americans, while decreasing welfare payments to the poorest Americans, the result will likely be ______________ in efficiency and _________ in equality in the United States.

1. Equality 2. Efficiency An increase, a decrease

9. Factors that influence standard of living Which of the following factors played the biggest role in the slow growth of average incomes in the United States during the 1970s and 1980s? A. Disinflation of the dollar B. Increased competition from India C. Slow growth in productivity D. Increased competition from Japan

C. Slow Growth in productivity

5. Changes in incentives Suppose the large number of auto accidents in a small town results in new legislation that requires all citizens of the town to install new anti-lock brakes on their cars. These new brakes cut the time it takes a car to stop by 50%, allowing drivers to avoid collisions with other cars and pedestrians more easily. The new brakes ________ the probability that a vehicle will collide with another vehicle but also give drivers an incentive to drive more __________, which could potentially ________ the number of car accidents in the town.

Decrease, recklessly, increase

10. Inflation and unemployment Suppose that, in an attempt to combat severe inflation, the government decides to decrease the amount of money in circulation in the economy. This monetary policy ________ the economy's demand for goods and services, leading to _____ product prices. In the short run, the change in prices induces firms to produce ____ goods and services. This, in turn, leads to a _____ level of unemployment. In other words, the economy faces a trade-off between inflation and unemployment: Lower inflation leads to _______ unemployment.

Decreases, Lower, Fewer, Higher Higher

8. Property rights and market failures Bakers are much ____ likely to supply pastries to the market if property rights are enforced. Classify the source of market failure in each case listed. 1. There is only one car dealership in a small town, giving the dealership the ability to influence the price of cars. 2. A manufacturing plant dumps chemical waste into a nearby river, poisoning the water supply for a small town downstream.

More 1. Market Power 2. Externality

4. A decision at the margin Jake is a hard-working college sophomore. One Saturday, he decides to work nonstop until he has answered 100 practice problems for his math course. He starts work at 8:00 AM and uses a table to keep track of his progress throughout the day. He notices that as he gets tired, it takes him longer to solve each problem. Time: Total Answered: 8:00 0 9:00 40 10:00 70 11:00 90 Noon 100 The marginal, or additional, gain from Jake's first hour of work, from 8:00 AM to 9:00 AM, is ______ problems. The marginal gain from Jake's third hour of work, from 10:00 AM to 11:00 AM, is _____ problems. Later, the teaching assistant in Jake's math course gives him some advice. "Based on past experience," the teaching assistant says, "working on 15 problems raises a student's exam score by about the same amount as reading the textbook for 1 hour." For simplicity, assume students always cover the same number of pages during each hour they spend reading. Given this information, in order to use his 4 hours of study time to get the best exam score possible, how many hours should he have spent working on problems, and how many should he have spent reading?

40, 20 3 hours working on problems, 1 hour reading

7. The interaction of individual choices People in the U.S. state of Iowa eat both corn and potatoes. It is technically possible for farmers to grow both corn and potatoes in Iowa, yet almost no farmers grow potatoes. Instead, every year, Iowa exports corn and imports potatoes from the U.S. state of Idaho, where farmers specialize in potatoes. Which of the following principles of economic interaction best describes this scenario? A. Trade can make everyone better off. B. When markets do not achieve efficiency, government intervention can improve overall welfare. C. There is a tradeoff between equality and efficiency. D. All costs are opportunity costs.

A. Trade can make everyone better off.

6. Scarcity, opportunity cost, and marginal analysis Ana is training for a triathlon, a timed race that combines swimming, biking, and running. Consider the following sentence: Because her pool sessions are helping her swim more quickly, Ana plans to reduce by 1 hour per week the time she spends training on the bike and increase by 1 hour the time she spends in the swimming pool; however, her husband says that she should stop doing any biking and running and spend all 20 hours per week in the pool. Which basic principle of individual choice does Ana's plan illustrate that her husband's advice does not? A. People usually exploit opportunities to make themselves better off. B. Many decisions are made on the margin. C. Resources are scarce. D. All costs are opportunity costs.

B. Many decisions are made at the margin.

2. Determining opportunity cost Juanita is deciding whether to buy a suit that she wants, as well as where to buy it. Three stores carry the same suit, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $114 for the suit: Assume that Juanita takes opportunity costs and the price of the suit into consideration when she shops. Juanita will minimize the cost of the suit if she buys it from the Store: OC Price Total Dept: 30 114 144 Across: 45 86 131 Neighbor: 75 60 135

Store across town.

1. Understanding Opportunity Cost Before you started applying for college, a job recruiter offered you a full-time cashier position at a doctor's office, earning an after-tax salary of $28,000 per year. However, you turn down this offer and attend your first year of college. The additional monetary cost of college to you, including tuition, supplies, and additional housing expenses, is $35,000. You decide to go to college, probably because...

You value a year of college at more than $63,000.