Macroeconomics Test 1: Chapter 2

How Fast to​ Drive? Suppose Duke is driving to a nearby town to attend a dance​ party, and must decide how fast to drive. The marginal benefit of speed is the extra dance time he will get by driving​ faster, and the marginal cost is the additional risk of a collision. The​ marginal-benefit curve is negatively​ sloped, and the​ marginal-cost curve is positively sloped. Suppose​ Duke's favorite dance​ partner, Daisy, is grounded for makeup violations. In the absence of​ Daisy, Duke's ??? from speeding ??? - marginal cost - marginal benefit - increases - decreases

marginal benefit, decreases

The ??? value of an amount of money is simply its face value. The ??? value of an amount of money is measured in terms of the quantity of goods the money can buy. Real or Nominal

nominal, real

Suppose you currently live and work in​ Cleveland, earning a salary of ​$80,000 per year and spending ​$10,000 for housing. You just heard that you will be transferred to a city in California where housing is 55 percent more expensive. In negotiating a new​ salary, your objective is to keep your real income constant. Your new target salary is ???

$85,500 $80,000 + 0.55(10,000) = $85,500

Your savings account pays 7 percent per​ year: Each​ $100 in the bank grows to $107 over a​ one-year period. If prices increase by 6 percent per​ year, by keeping​ $100 in the bank for a year you actually gain

$1

Consider a transaction in which a consumer buys a book for ​$20. The value of the book to the buyer is at least ??? and the cost of producing the book is no more than ???

$20, $20

Diminishing Returns and the Marginal Principle. ​Molly's Espresso Shop has become​ busy, and the more hours Ted​ works, the more espressos Molly can sell. The price of espressos is​ $2 and​ Ted's hourly wage is​ $11. Complete the following 3 hours for Ted and he has sold 172 espressos 4 hours for Ted and he has sold 184 Marginal Benefit for that hour? 5 hours for Ted and he has sold 190 ($12 marginal benefit) 6 hours for Ted and he has sold 194 ($6 marginal benefit) If Molly applies the marginal​ principle, how many hours should Ted​ work?

$24 184 - 172 = 12 x $2 = $24 5 hours

The Cost of a Flower Business. Jen left a job paying $80,000 per year to start her own florist shop in a building she owns. The market value of the building is $80,000. She pays ​$25,000 per year for flowers and other​ supplies, and has a bank account that pays 12 percent interest. What is the economic cost of​ Jen's business? ​(Enter your response rounded to the nearest​ dollar.)

$80,000 x 12% = $9,600 + $80,000 + $25,000 = $14,600 The economic​ cost, or total opportunity​ cost, of​ Jen's business includes all the costs of operating the​ business: These include forgone income​ (from the job she​ left), cost of supplies and​ inventory, and the forgone interest income​ (from the​ building).

How Many Pints of​ Blackberries? The pleasure you get from your first pint of freshly picked blackberries is​ $2.00. Your pleasure decreases by​ $0.20 for each additional pint​ ($1.80 for the​ second, $1.60 for the​ third, and so​ on). It takes you 12 minutes to pick the first​ pint, and each additional pint takes an additional 2 minutes​ (14 minutes for the second​ pint, 16 minutes for the third​ pint, and so​ on). The opportunity cost of your time is​ $0.10 per minute. Complete the following table by calculating the values of the marginal benefit and marginal cost associated with each additional pint of blackberries. ​ Number of pints Marginal benefit Marginal cost 1 pint Marginal Benefit: $2.00 Marginal Cost: ??? 2 pints Marginal Benefit: ??? Marginal Cost: $1.40 3 pints Marginal Benefit: ??? Marginal Cost: ??? 4 pints Marginal Benefit: ??? Marginal Cost: ??? How many pints of blackberries should you​ pick?

1 pint Marginal Benefit: $2.00 Marginal Cost: $1.20 2 pints Marginal Benefit: $1.80 Marginal Cost: $1.40 3 pints Marginal Benefit: $1.60 Marginal Cost: $1.60 4 pints Marginal Benefit: $1.40 Marginal Cost: $1.80 3 pints

Between 1970 and​ 1988, the average monthly welfare payment to single mothers increased from​ $160 to​ $360. Over the same​ period, the cost of a standard basket of consumer goods​ (a standard bundle of​ food, housing, and other goods and​ services) increased from​ $39 to​ $118. Number of baskets per month per year? The real value of welfare payments ??? over this period.

1970: 4.1 and 1988: 3.1 decreases

Xena has a small copy shop with one copying machine. Xena hires a​ worker, who increases output by 400 pages​ (from 0 to 400​). She adds a second​ worker, who increases output by only 300 pages​ (from 400 to 700​). If she added a third​ worker, holding the number of copiers​ fixed, her output would increase by fewer than nothing pages.

300

What is the economic cost of a pair of warships purchased by​ Malaysia? A. Safe drinking water for 5 million people who lack it. B. The cost of materials and labor plus interest on loans from the IMF. C. 200 tanks. D. None of the above.

A. Safe drinking water for 5 million people who lack it.

In​ role-playing games, such as World of Warcraft and EverQuest​, players use​ real-life auction​ sites, including eBay and​ Yahoo! Auctions, to buy products normally acquired in the game. A. True B. False

A. True

When to Use the Principle of Diminishing​ Returns? You are the manager of a firm that produces memory chips for mobile phones. a. In your decision about how much output to produce this​ week, would you use the principle of diminishing​ returns? A. Yes, because in the short run some inputs are fixed. B. No, because in the short run some inputs are variable. C. Only if I were free to vary all my inputs. D. No, because​ I'm flexible in choosing my inputs. b. In your decision about how much output to produce two years from​ now, would you use the principle of diminishing​ returns? A. No, because it is difficult to forecast 2 years into the future. B. No, because in the long run all inputs are variable. C. Yes, because it is difficult to forecast 2 years into the future. D. Yes, because in the long run some inputs are fixed.

A. Yes, because in the short run some inputs are fixed. B. No, because in the long run all inputs are variable.

Your student film society is looking for an auditorium to use for an all day Hitchcock film program and is willing to pay up to​ $200. Your college has a new auditorium that has a daily rent of​ $450, an amount that includes​ $300 to help pay for the cost of building the​ auditorium, $50 to help pay for​ insurance, and​ $100 to cover the extra costs of electricity and janitorial services for a​ one-day event. The college should rent the auditorium for A. any amount more than​ $100. B. no less than​ $200. C. no less than​ $150. D. any amount more than​ $50.

A. any amount more than​ $100.

Seat belts and other safety features in cars made bicycling more hazardous because A. people voluntarily wear seat belts. B. drivers drive faster. C. the cars are larger. D. there are fewer bike lanes.

B. drivers drive faster.

How Fast to​ Drive? Suppose Duke is driving to a nearby town to attend a dance​ party, and must decide how fast to drive. The marginal benefit of speed is the extra dance time he will get by driving​ faster, and the marginal cost is the additional risk of a collision. The​ marginal-benefit curve is negatively​ sloped, and the​ marginal-cost curve is positively sloped. Duke will drive at 40 mph if the intersection of the marginal benefit and the marginal cost curves occurs - at any point above - at any point below - at the point

At the point

A decrease in the market interest rate ??? the economic cost of holding a​$500 collectible for a year. A. Increase B. Decrease

B. Decrease

Interest Rates and ATM Trips. Kevin​, who lives in a country where interest rates are very​ high, goes to an ATM every day to get​ $10 of spending money. John​, who lives in a country with relatively low interest​ rates, goes to the ATM once a month to get​ $300 of spending money. Why does Kevin use the ATM more​ frequently? ​(Assume they both have interest bearing checking​ accounts.) A. High interest rates imply low banking fees. B. Kevin's opportunity cost of holding cash is higher. C. Kevin doesn't like to carry a lot of cash. D. John​'s opportunity cost of holding cash is higher.

B. Kevin's opportunity cost of holding cash is higher.

The production possibilities curve illustrates the notion of opportunity cost because A. points outside the production possibilities curve are unattainable. B. as more of one good is​ produced, less of the other can be produced. C. points inside the production possibilities curve are inefficient. D. if there are more​ resources, the curve will shift.

B. as more of one good is​ produced, less of the other can be produced.

Conservationists have a new strategy for preserving​ rainforests: ??? loggers and other developers for the​ land, paying as little as ??? per hectare per year. A. excluding B. bidding against C. cooperating with

B. bidding against, $1

Suppose that over a​ one-year period, the nominal wage increases by 4 percent and consumer prices increase by 8 The real wage decreased by ??? % A. increased B. decreased

B. decreased, 4%

When using the principle of opportunity cost to explore the cost of military​ spending, the policy question is A. how much will the war​ cost, and who is likely to win. B. whether the benefits of the war exceed the opportunity cost of war. C. which side is likely to win the war and how will that affect foreign policy. D. will it require that a military draft be used.

B. whether the benefits of the war exceed the opportunity cost of war.

When using the marginal principle to analyze emissions​ standards, the government should make the emissions standard stricter as long as the A. the cost of additional equipment and extra fuel used exceeds savings in​ health-care costs and recovered work time. B. the air is cleaner and people with respiratory ailments make fewer visits to doctors and hospitals. C. savings in​ health-care costs and recovered work time exceeds the cost of additional equipment and extra fuel used. D. consumers of cars want this feature.

C. savings in​ health-care costs and recovered work time exceeds the cost of additional equipment and extra fuel used.

According to the principle of voluntary​ exchange, A. exchange allows us to take advantage of differences in​ people's talents and skills. B. if participation in a market is voluntary and people are well​ informed, both people in a transaction will be better off. C. it is more sensible to​ specialize, doing what we do best and then buying products from other​ people, who in turn are doing what they do best. D. All of the above.

D. All of the above.

Solving a Tree Cutting Problem. Consider a hilly neighborhood where large trees provide shade but also block views. When a resident announces plans to cut down several trees to improve her​ view, her neighbors object and announce plans to block the tree cutting. One week​ later, the trees are​ gone, but everyone is happy. Use the principle of voluntary exchange to explain what could have happened. A. The resident paid her neighbors to let her cut down the trees. B. The resident paid for a block party for her neighbors. C. The resident bought her neighbors seedlings to plant in their yards. D. All of the above.

D. All of the above.

The Opportunity Cost of a Mission to Mars. The United States has plans to spend billions of dollars on a mission to Mars. Various resources will be used to execute the​ mission, and sacrifices will be made to use those resources. Which of the following are possible opportunity costs of the​ mission? A. Setting up a missile defense system. B. Colonizing the moon. C. Hiring 1.8 million additional teachers for one year. D. All of the above.

D. All of the above.

The opportunity cost of a college degree includes the A. the cost of​ college, the foregone income while in​ college, and the inability to go to another college. B. goods that a student cannot purchase because of spending on​ books, tuition,​ food, and housing and the foregone income that could have been earned while in college. C. the costs of​ food, housing,​ books, tuition that a student could have purchased. D. goods that a student cannot purchase because of spending on books and tuition and the foregone income that could have been earned while in college.

D. goods that a student cannot purchase because of spending on books and tuition and the foregone income that could have been earned while in college.

Diminishing marginal returns is applicable when a firm is ??? in choosing​ inputs, but does not apply when a firm is ??? in choosing its inputs. A. Flexible or B. Inflexible

Inflexible, flexible

When they design public​ programs, government officials use the​ real-nominal principle. When the change in wages is presented in terms of its buying​ power, it is describing the ??? wage. Social security payments are adjusted each year to keep the ??? payments constant. - Real - Nominal

Real, real

Repaying a Car Loan. Suppose you borrow money to buy a car and must repay​ $20,000 in interest and principal in 5 years. Your current monthly salary is​ $4,000. a. Complete the following table. ​(Enter your responses as integers.​) Change in prices and wages Stable: $4,000 Months to Repay Loan: 5 Inflation 25%: ??? Months to Repay Loan: ??? Deflation 50%: ??? Months to Repay Loan: ??? b. Which environment has the lowest real cost of repaying the​ loan?

Stable: $4,000 Months to Repay Loan: 5 Inflation 25%: $5,000 Months to Repay Loan: 4 Deflation 50%: $2,000 Months to Repay Loan: 10 Inflation

How Many Police​ Officers? In your​ city, each police officer has a budgetary cost of​ $40,000 per year. The property loss from each burglary is​ $4,000. The first officer hired will reduce crime by 40​ burglaries, and each additional officer will reduce crime by half as much as the previous one. The first officer will reduce property loss ??? The second officer will reduce property loss by ??? The third officer will reduce property loss by ​??? ​Finally, the fourth officer will reduce property loss by ​??? In this​ example, the marginal ??? is the reduction in property loss caused by the hiring of an additional officer. Which of the following describes the marginal cost​ curve? ​Hint: The number of police officers is shown on the horizontal axis and marginal cost on the vertical axis. A. The marginal cost curve is upward sloping with a slope equal to 40. B. The marginal cost curve is downward sloping with a slope equal to −40. C. The marginal cost curve is vertical with a horizontal intercept of​ $40,000. D. The marginal cost curve is horizontal with a vertical intercept of​ $40,000. How many officers should the city​ hire?

The first officer will reduce property loss by ​$160000 The second officer will reduce property loss by ​$80000 The third officer will reduce property loss by ​$40000 ​Finally, the fourth officer will reduce property loss by ​$20000 marginal benefit D. The marginal cost curve is horizontal with a vertical intercept of​ $40,000. 3 officers since benefit equals cost

A taxi company currently has nine cabs in its​ fleet, and its total daily cost is ​$4,800. If a taxi company adds a tenth​ cab, the​ company's total daily cost will increase to $5,000 and its total revenue will increase by $250 per day. Should the company add the tenth​ cab?

Yes

Between 1974 and​ 2011, the federal minimum wage increased from​ $2.00 to​ $7.25. Was the typical​ minimum-wage worker worse off in​ 2011?

Yes

Continental Airlines Goes Marginal. In the​ 1960s, Continental Airlines puzzled observers of the airline industry and dismayed its stockholders by running flights with up to half the seats empty. The average cost of running a flight was​ $4,000, a figure that includes fixed costs such as airport fees and the cost of running the reservation system. A​ half-full aircraft generated only​ $3,100 of revenue. a. Continental ran​ half-empty flights because A. the marginal cost of adding more flights was increasing. B. the marginal benefit was greater than the marginal cost. C. the average cost would be higher with full flights. D. they own the reservation system so they pay themselves for that. b. It will be sensible to run a​ half-empty flight if the marginal ??? of the flight is ??? than ???

a. B. the marginal benefit was greater than the marginal cost. b. cost, less, $3,100

Should a Heart Surgeon Do Her Own​ Plumbing? A heart surgeon is skillful at unplugging arteries and rerouting the flow of​ blood, and these skills also make her a very skillful plumber. She can clear a clogged drain in 6​ minutes, about 10 times faster than the most skillful plumber in town. Suppose the surgeon earns ​$30 per minute in heart surgery and the best plumber in town charges ​$50 per hour. a. Should the surgeon clear her own clogged​ drains? A. Yes, her opportunity cost is too high. B. No, her opportunity cost is too low. C. No, her opportunity cost is too high. D. Yes, her opportunity cost is too low. b. How much does the surgeon gain by hiring the plumber to clear a clogged​ drain?

a. C. No, her opportunity cost is too high. - In the time it will take her to clear the​ drain, she can earn more doing surgery than it will cost to have a plumber clear it.​ Hence, the surgeon should not clear her own drains because her opportunity cost is too high. b. $130 - 30(6) --> 180 - 50 = 130

When using the marginal principle to explore the decision of how many movie sequels to​ produce, the marginal benefit of movies in a series ??? while the marginal cost ??? Sequels should be made so long as the marginal benefit of the sequel ??? the marginal cost of the sequel.

decreases, increases, exceeds

How Fast to​ Drive? Suppose Duke is driving to a nearby town to attend a dance​ party, and must decide how fast to drive. The marginal benefit of speed is the extra dance time he will get by driving​ faster, and the marginal cost is the additional risk of a collision. The​ marginal-benefit curve is negatively​ sloped, and the​ marginal-cost curve is positively sloped. Suppose the normal country band is replaced by Adam Smith and the Invisible​ Hands, Duke's favorite punk band.​ Duke's utility from slam dancing is twice his utility from the​ two-step. The band replacement will ??? the ??? to Duke from speeding. - increase - decrease - marginal benefit - marginal cost

increase, marginal benefit

The current speed limit is set at 40 mph. Suppose the legal speed limit is changed to 35​ mph, and there is still a 50 percent chance that Duke will be caught if he speeds. The change in the legal speed limit will ??? ​Duke's ??? of speeding. - increase - decrease - marginal benefit - marginal cost

increase, marginal cost

As a farmer adds more and more fertilizer to the​ soil, the crop yield ??? but at a ??? rate. A. increases/increasing B. decreases/decreasing

increases, decreasing

The typical​ minimum-wage worker was ??? off in 2015 than in 1974 because the weekly income increased than the cost of the standard basket of goods. A. Worse B. Better A. more B. less

worse, less