Econ 202 Test 1

Michael is going on a vacation. The four places he would like to visit are, from most to least preferred: China, Egypt, Spain, and Brazil. He prefers any of them to staying home. What is the opportunity cost of going to China, knowing that the trip there costs $2,000 and a trip to each of the other three destinations would cost $1,800?

$200 plus the satisfaction of going to Egypt

Sophie is a college student on a $40,000/year scholarship that pays for all of her college expenses (tuition, fees, textbooks and other materials, room and board). If Sophie were not in college this year, she would have taken a job in her hometown paying $30,000 and live for free in her parents' home. Sophie's opportunity cost of attending college for one year is:

$30,000

Katie is planning to sell her house. To make it more appealing to potential buyers, she started a renovation. The renovation will add $40,000 to the sale value of the house. She has already spend $30,000 but there has been a cost overrun and now the contractors are saying that she still needs to spend more to complete the renovation. If she does not complete the renovation, she will not get any of the $40,000. What is the most that Katie should be willing to pay to complete the renovation, if she thinks at the margin?

40,000

Which of the following statements is an example of a positive statement? A. Americans deserve a cleaner environment. Correct B. Reducing emissions reduces days missed from school due to asthma. C. All Americans are entitled to quality health care. D. Economic policies should focus on improving equality.

B. Reducing emissions reduces days missed from school due to asthma.

Which of the following is an example of a normative statement? A. The discount rate is the interest rate the Federal Reserve charges banks to borrow funds. B. The US income tax rate increases with the amount of income earned. C. The government should increase the tax on gasoline. D. The US unemployment rate increased to 10 percent in 2009.

C. The government should increase the tax on gasoline.

For which individual would the opportunity cost of going to college be highest? A. a promising young mathematician who will command a high salary once she earns her college degree B. a student with average grades who has never held a job C. a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree D. a student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball

C. a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree

If a statement can be proved false, then

If a statement can be proved false, then

According to a recent study of Chilean bus drivers, drivers who are paid by the number of passengers they transport have higher productivity than drivers who are paid by the hour. This result is an example of which principle of economics?

People respond to incentives.

One way to characterize the difference between positive statements and normative statements is as follows:

Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be.

The production possibilities frontier shows the various combinations of output that a a productive unit

can produce.

The average cost per seat on the 75-passenger Get-There-Safe Bus company's trip from Milwaukee to Minneapolis is $37. Minutes before a particular trip, three seats remain unsold. The bus company could increase its profit if it

charged any ticket price above $0 for the three remaining seats

Which of the following is a reason why specialization increases total production? a. Specialization facilitates learning. b. Specialization reduces time-waisting task switching. c. Specialization allows producers to focus on the goods in which they hold a comparative advantage. d. All of the above.

d. All of the above.

When a production possibilities frontier is bowed outward, the opportunity cost of producing an additional unit of a good

increases as more of the good is produced

Pollution regulations yield the benefit of a cleaner environment and improved health. But they come at the cost of reducing industrial production, or making it more expensive. This statement illustrates the principle that

people face tradeoffs

The movie theater at Anna's has two movies showing at 8PM tonight: a newly released blockbuster for which people have to pay $10, and a classic 1950s movie, for which the theater is charging $7. Anna would rather watch either movie than stay home. If she decides to watch the blockbuster, Anna's opportunity cost is

the enjoyment she would have obtained from watching the classic plus the $3 price difference

Denise decides to spend three hours working overtime instead of hanging out with her friends. She earns $10 an hour. Her opportunity cost of working is

the enjoyment she would have received from hanging out