Macro ch. 1 : Ten Principles of Economics - problems

(PART 2) Later, the teaching assistant in Andrew's physics course gives him some advice. "Based on past experience," the teaching assistant says, "working on 52.5 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? A. 0 hours working on problems, 4 hours reading B. 1 hour working on problems, 3 hours reading C. 3 hours working on problems, 1 hour reading D. 4 hours working on problems, 0 hours reading

B. 1 hour working on problems, 3 hours reading - only one 1 hr of problems is above 52.5 (8am-9am) so after that it would be efficient to change the task to reading for 3 hrs

(PART 1) Assume that the rental cost of riding equipment is $50 and horse rental costs $95. If you go horseback riding, you would also wear the riding boots you purchased last year for $150. If you do not go horseback riding, you could either work at your part-time job, which would earn you $100, or study at the library, which you value at $40. Suppose that you were planning to spend Saturday working at your part-time job, but a friend asks you to go horseback riding. The opportunity cost of going horseback riding is $________?

$100 - part time job $50 - riding equipment $95 - horse rental ___________________ $245 TOTAL

(PART 1) Andrew is a hard-working college freshman. One Sunday, he decides to work nonstop until he has answered 150 practice problems for his physics 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. Total Problems Answered in the hour: 8:00 AM : 0 9:00 AM : 60 10:00 AM : 105 11:00 AM : 135 Noon : 150 1. The marginal, or additional, gain from Andrew's first hour of work, from 8:00 AM to 9:00 AM, is ______ problems 2. The marginal gain from Andrew's third hour of work, from 10:00 AM to 11:00 AM, is ________ problems

1. 60 problems 2. (135-105) = 30 problems

Define: 1. When a society gets the most it can from its scarce resources 2. When economic benefits are distributed uniformly across society Efficiency OR Equality ?

1. Efficiency 2. Equality

A 1996 bill reforming the federal government's antipoverty programs limited many welfare recipients to only two years of benefits. This change gives people the incentives to find a job(1. less? / 2. more?) quickly than if welfare benefits lasted forever. As a result of the change in working incentives led by the 1996 bill reform, the economy will be (1. less? / 2. more?) Efficient.

1. More 2. More

The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $4.5 million. If it would cost $3 million to finish development and make the product, you (1. should?/2. should not?) go ahead and do so. The most you should pay to complete development is $__________ million.

1. Should development costs $4.5 million

All societies face a trade-off between equality and efficiency. If the United States government raises the income taxes on the wealthiest Americans, while increasing welfare payments to the poorest Americans, the result will likely be (1. a decrease?/2. an increase?) in efficiency and an (3. a decrease?/4. an increase?) in equality in the United States.

1. a decrease 4. an increase

The market failure associated with cable TV arises from the (1. market power of? / 2. externality associated with?) the cable TV firm, which allows the firm to have a substantial influence on market prices.

1. market power of

Loggers are much (1. more/2. less) likely to supply wood to the market if property rights are enforced.

1. more

A. Suppose Americans decide to save less of their incomes, reducing the ability of banks to lend to businesses. With less funds available to businesses, workers will have (1. more?/2. less?) capital equipment with which to work. This leads to (3. faster?/4. slower?) growth in productivity. B. Workers will (5. lose?/6. benefit?) from the change in productivity growth because they will produce and earn (7. less?/8. more?). C. True or False: Society can receive a "free lunch" when it builds new factories.

2. Less 4. Slower 5. lose 7. less C. False

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 (1. increase/2. decrease) the probability that a vehicle will collide with another vehicle but also give drivers an incentive to drive more (3. recklessly /4. carefully) , which could potentially (5. decrease/6. increase) the number of car accidents in the town.

2. decrease 3. recklessly 6. increase

Which of the following describe some of the trade-offs faced by a family deciding whether to buy a new car? Select all that apply. A. An increase in the family's car payment means the family will be unable to afford a vacation. B. The vehicle is available in several colors. C. A newer model offers better protection and functions but is more expensive than an older model.

A. An increase in the family's car payment means the family will be unable to afford a vacation. Correct C. A newer model offers better protection and functions but is more expensive than an older model.

Which of the following describe some of the trade-offs faced by a member of Congress deciding how much to spend on national parks? Select all that apply. A. Congress can spend either a small amount on a lot of parks or a large amount on a single national park. B. Money spent on national parks benefits park visitors, but alternatively the money could be spent on highways to benefit drivers. C. The President likes white flowers and wants to see more in parks.

A. Congress can spend either a small amount on a lot of parks or a large amount on a single national park. B. Money spent on national parks benefits park visitors, but alternatively the money could be spent on highways to benefit drivers.

High inflation imposes various costs on society. What can policymakers do to keep inflation at a low level? A. Maintain a slow growth in the quantity of money. B. Expand welfare benefits and fund these expenses by printing money. C. Increase government expenditures to boost employment.

A. Maintain a slow growth in the quantity of money.

Which of the following government activities is motivated by a concern about efficiency? Select all that apply. A. Prohibiting smoking in public places B. Imposing higher personal income tax rates on people with higher incomes C. Instituting laws against driving while intoxicated D. Providing some poor people with vouchers that can be used to buy food E. Breaking up Standard Oil (which once owned 90% of all oil refineries) into several smaller companies F. Regulating cable TV prices

A. Prohibiting smoking in public places C. Instituting laws against driving while intoxicated E. Breaking up Standard Oil (which once owned 90% of all oil refineries) into several smaller companies F. Regulating cable TV prices

Which of the following represents an increase in living standards over the past century? Select all that apply. A. The purchasing power of a dollar has declined over time due to inflation. B. Medical breakthroughs allow people to enjoy better healthcare nowadays. C. Increased human activities have magnified the pollution of air and water.

B. Medical breakthroughs allow people to enjoy better healthcare nowadays.

You are trying to decide whether to take a vacation. Most of the costs of the vacation (airfare, hotel, and forgone wages) are measured in dollars, but the benefits of the vacation are psychological. If you do not take the vacation, you would spend the same amount of money on a new computer. Which of the following is true if you decide to take the vacation? A. The cost of going on the vacation is less than the cost of the computer. B. The benefits of going on the vacation exceed the benefits you would obtain from the new computer. C. The benefits of buying a new computer exceed the cost of buying the computer.

B. The benefits of going on the vacation exceed the benefits you would obtain from the new computer.

Which of the following describe some of the trade-offs faced by a professor deciding how much time to spend preparing for class? Select all that apply. A. He has taught the same subject for 4 years. B. The better the lecture, the better his chances of tenure, but time spent preparing the lecture decreases the time he has available to work on research. C. The more he prepares, the better his lectures, but the less he prepares, the more free time he can enjoy doing something else.

B. The better the lecture, the better his chances of tenure, but time spent preparing the lecture decreases the time he has available to work on research. C. The more he prepares, the better his lectures, but the less he prepares, the more free time he can enjoy doing something else.

Market Failures : Market Power or Externality? a. A manufacturing plant dumps chemical waste into a nearby river, poisoning the water supply for a small town downstream. b. A single grocery store is the only source of food in a small town, giving the store the ability to influence the price of food.

a. Externality b. Market Power

Immediately after an ice storm brought down power lines throughout the region, hardware stores were sold out of batteries and flashlights. However, within a couple of days, special deliveries brought in extra batteries and flashlights, and everyone who wanted to buy a flashlight or batteries was able to do so. Which of the following principles of economic interaction best describes this scenario? a. Markets allocate goods effectively. b. There are gains from trade. c. All costs are opportunity costs. d. When markets do not achieve efficiency, government intervention can improve overall welfare.

a. Markets allocate goods effectively

Hilary is training for a triathlon, a timed race that combines swimming, biking, and running. Consider the following sentence: In order to swim for an hour, Hilary must take time away from work, where she earns $10 per hour. This is in addition to paying a $5 entrance fee for the pool. Which basic principle of individual choice do these statements best illustrate? a. The cost of something is what you give up to get it b. People usually exploit opportunities to make themselves better off. c. Trade can make everyone better off d. Markets are usually a good way to organize economic activity

a. The cost of something is what you give up to get it

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. Increased competition from India b. Slow growth in productivity c. Disinflation of the dollar d. Increased competition from Japan

b. Slow growth in productivity

Suppose that, in an attempt to combat severe unemployment, the government decides to increase the amount of money in circulation in the economy. This monetary policy (1.increases/2.decreases) the economy's demand for goods and services, leading to (3.higher/4.lower) product prices. In the short run, the change in prices induces firms to produce (5. fewer/6.more) goods and services. This, in turn, leads to a (7.lower/8.higher) level of unemployment. In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to (9.higher/10.lower) unemployment.

1. increases 3.higher 6.more 7. lower 10. lower

(PART 2) Now suppose you had been planning to spend the day studying at the library. What is included in the opportunity cost of going horseback riding in this case? Select all that apply. A. The cost of horse rental B. The cost of the riding boots you purchased last year C. The rental of any riding equipment you need D. The wages you forgo by going horseback riding E. The value of your time spent studying

A. The cost of horse rental C. The rental of any riding equipment you need E. The value of your time spent studying

Which of the following describe some of the trade-offs faced by a company president deciding whether to open a new factory? Select all that apply. A. The firm can either open a new factory or upgrade existing equipment. B. The firm can either pay out more of its profit to shareholders or earn additional profit next year by increasing production. C. The firm currently employs 100 workers.

A. The firm can either open a new factory or upgrade existing equipment. B. The firm can either pay out more of its profit to shareholders or earn additional profit next year by increasing production.

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 $21,000 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 $32,000. You decide to go to college, probably because _____________. A. you value a year of college at more than $53,000 B. you value a year of college at $32,000. C. you value a year of college less than $32,000. D. you value a year of college at $21,000.

A. you value a year of college at more than $53,000

Which of the following describe some of the trade-offs faced by a recent college graduate deciding whether to go to graduate school? Select all that apply. A. She graduated college with distinction. B. If she goes to graduate school, she won't be able to start a new job and repay her existing student loans. C. She is currently studying biology.

B. If she goes to graduate school, she won't be able to start a new job and repay her existing student loans.

Incomes in the United States have historically grown about 2 percent per year after adjusting for changes in the cost of living. Which of the following is the primary reason for this increase in living standards? A. The imposition of minimum-wage laws B. The increase in productivity C. The rise of labor unions D. The decrease in competition from abroad

B. The increase in productivity

You have $20 in your wallet. You have a choice between using this amount to enter a baseball pool, which will give you the opportunity to win $80, and spending the money on buying something else. Which of the following is the opportunity cost of entering a baseball pool with $20? A. The opportunity of winning $80. B. The value you could obtain by spending the money on buying C. Nothing, because you would spend the money anyway.

B. The value you could obtain by spending the money on buying

(Part 1) Guaranteeing everyone in society the best healthcare possible will likely (1. increase?/2. decrease?) equality and (1. increase?/2. decrease?) efficiency. (Part 2) Paying laid-off workers unemployment benefits until they find a new job will likely (1. decrease?/2. increase ?) equality and (1. decrease?/2. increase ?) efficiency.

Part 1 : a. increase b. decrease Part 2: c. increase d. decrease

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 $102 for the suit: Store : Local Department Store (Travel Time Each Way: 15 min)($102) Across Town (Travel Time Each Way: 30)($90) Neighboring City (Travel Time Each Way: 60)($65) Juanita makes $62 an hour at work. She has to take time off work to purchase her suit, so each hour away from work costs her $62 in lost income. Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling. Opportunity Cost of Time : Local Department Store $_____? Across Town $_____? Neighboring City $_____? Total Cost : Local Department Store $_____? Across Town $_____? Neighboring City $_____?

Opportunity Cost of Time : - costs her $62 for 1 hour - $31 for 30 min - $15.5 for 15 min Local Department Store: 15 min get there $15.5 +15 min to drive back $15.5 + 30 min to shop $31= $62) Across Town: 30 min get there $31 + 30 min to shop $31 +30 min to get back $31 =$93) Neighboring City: 60 min get there $62+ 30 min to shop $31+ 60 min to get back $62= $155) Total Cost : Local Department Store ($62+$102)= $164 Across Town ($93+$90)= $183 Neighboring City ($155+$65)= $220