EC 210 Module 1
A student has two options: she can either surf the web or work part-time. Working part-time pays her $20 an hour. What is the student's opportunity cost of surfing the web for 5 hours?
$100
Assume that a firm wants to set up a factory. It has four different options. The rent of the factory in the four different locations and the time taken to transport the product from each location to the market is shown in the table below. The opportunity cost of time is $10 per hour. Factory Loc. Monthly Com Time Rent Very far 30 2,060 Far 25 2,100 Close 15 2,300 Very Close 5 2,500 If the firm decides to choose factory Far over Close, what is the marginal opportunity cost of transporting products to the market?
$100
If the total cost incurred in hiring ten workers by a firm is $45, and the total cost incurred when the eleventh worker is hired is $60, the marginal cost of hiring the eleventh worker is:
$15
If an alternative provides a benefit of $8 to an individual at a cost of $6, the net benefits of the alternative equal
$2
A consumer has $20 that he wants to spend on two goods: pens priced at $2 each and pencils priced at $1 each. Show his budget restraint.
$20=($2 x Quantity of pens) x ($1 x Quantity of pencils)
As the number of advertisements of a firm increases from 100 to 500, its sale increases from $1,000 to $10,000. If this information is plotted on a line chart, the slope of the line equals
$22.5
John is ready to pay $5 for an extra loaf of bread. Due to an ongoing discount in the store, he gets a loaf for $2. John's consumer surplus from the purchase is ____.
$3
The mean income of 25 employees working in a firm is $1,754 per month. What is the total income of all employees?
$43,850
Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. What is the total cost involved is Maria choose to travel by train?
$460
The monthly wages of five different individuals. Individual Monthly Wage ($) 1 200 2 450 3 640 4 700 5 800 What is the average monthly wage?
$558
Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour. If Maria's opportunity cost of time increases to $80 per hour, the cost involved in taking the train is:
$720
The following table shows the total benefit that Jenny derives from consuming different quantities of chocolate. Quantity Consumed Total Benefit 0 0 1 10 2 18 3 24 4 29 5 30 What is the marginal benefit that Jenny derives from the second unit of chocolate?
$8
If a particular choice that an individual faces give him a benefit of $20 but costs $30, the net benefit from making this choice equals:
-$10
When the price of wine is $10 per bottle, Thomas purchases 30 bottles every month. Later, the government introduces a 50% tax on all alcoholic beverages, which is to be completely borne by consumers. This reduces Thomas's consumption to 20 bottles of wine a month. Thomas's arc elasticity of demand for wine is:
-1
If the opportunity cost of time is _________, and an individual spends _________ commuting every month, his opportunity cost of commute is $100 every month.
10 per hour; 10 hours
Ryan wants to rent an apartment. The following table shows the monthly rent of five apartments and the monthly commuting time to work from each apartment. Ryan's opportunity cost of time is $15 per hour. Apartment Commuting Time Rent 1 40 1,500 2 20 1,750 3 10 2,000 4 4 2,210 5 1 2,250 The total cost per month is the lowest if Ryan chooses to rent Apartment ____.
2
Assume that a consumer can spend $20 on two goods- pens and pencils. If the price of one pen is $5 and the price of one pencil is $2, which of the following combinations of the two goods represents a point on the consumer budget constraint?
2 pens and 5 pencils
The table shows the marginal benefit that a consumer derives by consuming different quantities of juice and milk. Quantity Juice ($4/qt) Milk($2/qt) Mar. Benefits Mar. Benefits 0 - - 1 12 10 2 8 7 3 6 5 4 4 2 5 3 1 If the income of the consumer is $24, the optimal choice contains:
4 quarts of juice and 4 quarts of milk
Ryan wants to rent an apartment. The following table shows the monthly rent of five apartments and the monthly commuting time to work from each apartment. Ryan's opportunity cost of time is $15 per hour. Apartment Commuting Time Rent 1 40 1,500 2 20 1,750 3 10 2,000 4 4 2,210 5 1 2,250 If the opportunity cost of time increases to $60 per hour, renting which apartment will minimize Ryan's total cost every month?
5
An example of causation...
A firm producing CFLs installs new machinery. The per-day production of CFLs increases.
What is a property of a good economic question?
A good economic question can be answered.
Which of the following graphical representations can be used most appropriately to show the distribution of a household's income, in terms of percentages, among the various categories of expenses?
A pie chart
Data show that in 2012, the college enrollment in Lithasia increased. The relationship between college enrollment and the sale of hotdogs exhibits...
A postive correlation
What is an example of natural experiment?
A research on the effect of air pollution on lung disorders by observing the health conditions of people who stay close to industrial areas and those who stay away from industries.
Suppose the prices are a pair of jeans, a shirt, and a tie are $30, $20, and $10 respectively. The opportunity cost of buying _______ is 2 ties.
A shirt
a.) The subjects in the treatment group and the control group of an experiment are treated identically, except along ________.
A single dimension
Comparative statics
A tool that can be used in both optimization in levels and optimization in differences.
In a marketplace, prices:
Act as incentives that allow for the efficient allocation of resources.
What is an example of free riding?
An individual who sneaks inside a music concert.
Sarah has to choose between renting a hotel room for two days and renting a hotel room for three days. If Sarah is optimizing in differences, then... An optimizer will rent the hotel room for three days, if the benefit of staying for the third day exceeds the cost of staying for the third day.
An optimizer will rent the hotel room for three days, if the benefit of staying for the third day exceeds the cost of staying for the third day.
Similarity between optimization in levels and optimization in differences?
Both techniques require the conversion of all costs and benefits into a common unit of measurement.
Which is an example of a topic studied by microeconomists? a.) Measure to combat inflation b.) National income calculations c.) Price determined by a firm d.) Interest rate determination
C
A buyer is said to be a price taker if she:
Can purchase any amount of a good at a fixed price provided she has the money to pay for it.
The techniques of optimization in levels and optimization in differences...
Cannot be used to compare the same set of alternatives.
Data help in verifying ________.
Casual relationships
Incentives are designed to ________.
Change behavior
Optimization implies...
Choosing the best option from a set of alternatives.
A model is based on an assumption that an additional year of education increases a student's future wage by 20%. The hypothesis of the model is that:
College graduates will earn 107% more than high school graduates.
Marginal analysis
Compares the consequences of doing one more step of something.
Suppose that the government enacts a tax on Good X. In order to estimate the effect of the tax on the quantity demanded of a related good, Good Y, we can use the concept of the:
Cross-price elasticity of demand
If Project A has a cost of $5, and a provides a benefit of $10, and Project B has a cost of $2, and provides benefit of $4, then switching from Project A to Project B.
Decreases the net benefit by $3.
A government is an example of an __________.
Economic agent
Using a large data set will strengthen the force of _________.
Empirical argument.
If a 1% change in the price of a good causes a 1% change in the quantity demanded, the good has an elasticity of demand:
Equal to 1
What is a feature of experiments?
Experiments help determine cause and effect between variables.
Assume that a firm wants to set up a factory. It has four different options. The rent of the factory in the four different locations and the time taken to transport the product from each location to the market is shown in the table below. The opportunity cost of time is $10 per hour. Factory Loc. Monthly Com Time Rent Very far 30 2,060 Far 25 2,100 Close 15 2,300 Very Close 5 2,500 Which is the optimum location for the firm to set up its factory?
Far
A good is said to have a relatively elastic demand if the value of price elasticity is:
Greater than 1
Luxury goods have income elasticity:
Greater than one
An omitted variable is a variable that...
Has been left out, and if included, would explain why the variables considered in a study are correlated.
A model's predictions are referred to as..
Hypotheses
As a consumer spends a larger share of his income on a particular good, the price elasticity of demand for that good:
Increases
A model is based on an assumption that an additional year of education increases a student's future wage by 20%. A model's prediction....
Is an approximate relationship and may not hold for everyone.
In case of a linear negatively sloped demand curve, the price elasticity of demand:
Is different at different points on the curve.
Define "equilibrium".
It refers to a situation where all agents are simultaneously optimizing.
At all the points below the midpoint on a linear demand curve, the value of price elasticity of demand is:
Less than 1
Which of the following goods is likely to have the lowest price elasticity of demand?
Life-saving drugs
Consumer surplus
Measures difference between willingness to pay for a good and its price, whereas net benefits measure the overall satisfaction gained from consumption of a good.
Rational economic agents maximize more than just _______.
Monetary income
Higher price elasticity of demand means that a consumer's demand is:
More responsive to price changes.
The cross-price elasticity of demand between complements is ________.
Negative
When two variables move in opposite directions, they are said to be...
Negatively correlated
When optimizing in levels, if the _______ exceeds the ________, Project A is chose over Project B.
Net benefits of Project A; net benefits of Project B
Cost-benefit analysis can also be used for ______.
Normative economic analysis
As the rental prices of downtown apartments rise, only workers with the lowest ________ of time will be willing to rent them.
Opportunity cost
John has to choose between a camping holiday and a holiday in Las Vegas. If he evaluates the total net benefit of both alternatives before coming to a decision, he is using the technique of...
Optimization in differences
Economic agents who _______ attempt to choose the best feasible option, given the information that they have.
Optimize
Economics can be used to predict _______.
People's actions
A quantity of tea is measured on the horizontal axis and quantity of coffee is measured on the vertical axis, an increase in the price of coffee will cause the budget constraint to:
Pivot leftward along the vertical axis
________ recommends what people ought to do.
Positive economics
Equilibrium refers to a situation where all economic agents __________ after considering each other's actions.
Simultaneously optimize
A consumer has $40 that he wants to spend. He is faced with four options: a camera that costs $60, a cell phone that costs $150, a book that costs $10, and a Bluetooth speaker that costs $45. Which of the following is a feasible option for the consumer?
The book
What is an example of comparative statics?
The estimation of the supply of a good when the wage rate of labor changes from $30 to $10 per hour.
The Law of Demand is the reason behind:
The price elasticity of demand having a negative value.
If a good has a price elasticity of demand equal to 0, ________.
The quantity demanded is completely unaffected by a change in its price.
Elasticity is:
The ratio of the percentage change in two variables.
A correlation between two variables implies that...
There is a cause-effect relationship between the two variables.
Empirical evidence refers to..
a set of facts established by observation and measurement.
A model refers to...
a simplified description, or representation, of reality.
Economic reasoning implies that economic agents will make decisions...
by comparing the costs and benefits of various options.
The scientific method refers to the process by which economists and other scientists...
develop models of the world and test those models with data.
In economics, scarcity refers to the situation of...
having more wants than the amount of available resources.
Empiricism refers to the process of...
testing ideas using data.
