Chapter 1 SB Macro Economics

If it costs Sam $150 to grow 300 tomatoes in his garden, then his average cost of growing a tomato is:

$0.50 (=$150÷300).

If Sam gets $450 worth of benefit from growing 300 tomatoes in his garden, then his average benefit of growing a tomato is:

$1.50 (=$450÷300)

The Incentive Principle is a _____ economic principle

positive

Suppose Anaya owns a small business knitting scarves. The table below shows the number of scarves that Anaya can can knit each week along with her total cost. If she knits 3 scarves per week, then her average costs is $____ per week. Quantity of scarves=3, Total Cost ($)=$30

$10 (=$30÷3)

You are considering whether to go to see a movie. The movie lasts 2 hours and tickets are $15 each. Assuming there are no other costs associated with going to a movie, your opportunity cost of going to the movie is

$15 plus the value of whatever else you would have done for those 2 hours.

If it costs Sarah $400 to make 200 Christmas cookies, then her average cost of making a Christmas cookie is

$2 Reason: Average cost is the total cost of undertaking n units of an activity divided by n (=$400÷200).

If it costs Sarah $400 to make 200 Christmas cookies, then her average cost of making a Christmas cookie is

$2 (=$400÷200)

Suppose a parking garage charges a fee of $1 plus an additional 50 cents for every hour you park there. If you park in the garage for 4 hours, then you will pay a total of ____ dollars.

$3

Suppose you plan to buy a new pair of running shoes. To buy them online, the pair costs $9. However, the value you had placed on the buying the shoes online is $12. Based on this information, your economic surplus from buying the shoes online is _____.

$3 Reason: The benefit of buying the shoes online is $12, and the cost is $9. Thus, economic surplus is $12 - $9 = $3.

Chris is a potter who specializes in making mugs. When he makes 10 mugs a day his total cost is $90, and when he makes 11 mugs a day, his total cost is $121. Thus, his marginal cost of making the 11th mug is $____

$31

You are either going to spend the evening studying at the library (an activity you value at $18) or you are going to go out to dinner with your friends (where you will spend $16 on food). What is your opportunity cost of going out to dinner?

$34 Reason: The explicit cost of going out to dinner is $16, and the implicit cost is $18, so the total opportunity cost is $16 + $18 = $34.

Suppose the table below shows the total benefit (measured in dollars) that Mariana receives from baking cakes each week. If she bakes 2 cakes per week, then her average benefit is $____ per week. Quantity of cakes = 2, Total benefit ($) = 18

$9 (18÷2)

Suppose you are considering whether to spend an additional hour studying for your economics midterm tomorrow. If you do not study you can either surf the web, which you value at $5, or you can talk to your roommate, which you value at $4. Your opportunity cost of studying for an additional hour is:

$5 Reason: The opportunity cost of an action is the value you place on the next best alternative.

You earn $12 an hour at your job, and you earn $20 per week from your investments. If you work 40 hours per week, then your total weekly earnings will be equal to ____ dollars.

$500 (=12x40 + 20)

You are considering whether to take a few days off work to visit your best friend who lives in New York. You estimate that airfare plus other travel expenses will cost $575. In addition, you will have to use two vacation days, which you value at $100 each. Assuming there are no other costs associated with your trip, what is the opportunity cost of visiting your friend?

$775

You are considering whether to go to lunch with a friend. Lunch will take about an hour and will cost $9. Assuming there are no other costs associated with going to lunch, the opportunity cost of going to lunch is:

$9 plus the value of the hour you spend at lunch.

If the equation C = 1 + 0.50H is graphed with C on the vertical axis and H on the horizontal axis, then the vertical intercept will be:

1

What is the vertical intercept of the line pictured in the graph?

1

What is the slope of the line pictured in the graph?

10

Kimberley is studying for her math exam. If she studies for 5 hours she knows she'll get an 80, and if she studies for 6 hours, she knows she'll get a 90. Thus, the marginal benefit of the 6th hour of studying is

10 points

The table below shows how the annual fee, F, to use your local pool depends on the number of days, D, you use the pool each year. If the annual fee is a linear function of the number of days you use the pool, and if you graph this line with the annual fee on the vertical axis and days on the horizontal axis, then the vertical intercept will be _____ and the slope will be _____.

15; 1.5 Reason: To graph the line, you must find both the slope and the vertical intercept. The slope is found, for example, by noting that as D increases from 10 to 20, F increases from 30 to 45, implying that the slope is (45-30)/(20-10) or 1.5. Thus, for every day you use the pool, your annual fee increases by $1.50. The vertical intercept, a, is found, for example, by noting on the second row that 45 = a + 1.5(20), implying that a = 15.

If the equation F = 15 + 2N is graphed with F on the vertical axis and N on the horizontal axis, then the slope will be:

2

What is the slope of the line pictured in the graph?

2

What is the slope of the line pictured in the graph?

2 Reason: From the beginning to the end of the line, the rise is 75 - 15 = 60, and the run is 30 - 0 = 30, so the slope is 60/30 = 2.

Suppose there are two parking garages next door to each other. Let H be the number of hours you park, and let C be the total dollar cost of parking in the garage. At the first garage, your total cost is computed as C = 1 + H, and at the second garage your total cost is computed as C = 2 + 0.5H. How many hours of parking would lead to the same cost at both garages?

2 hours

If the equation M = 20 + 12H is graphed with M on the vertical axis and H on the horizontal axis, then the vertical intercept will be

20

What is the vertical intercept of the line shown in the accompanying graph?

50

Suppose you need to buy a new cell phone charger. You can buy one at a nearby store for $10, or you can buy one online for $8.50, but it'll take 2 days to arrive. If the cost to you of waiting two days to get the charger is $1, then your economic surplus from buying the charger online instead of at the store is:

50 cents Reason: The benefit of buying the charger online is that it's cheaper, and the cost is that you'll have to wait 2 days. Economic surplus is the benefit of buying the charger online minus the cost, or $1.50 - $1 = 50 cents.

The table below shows how your weekly income, M, depends on the number of hours, H, you work each week. If there is a linear relationship between the number of hours you work each week and your weekly income, and if you graphed this line with income on the vertical axis and hours on the horizontal axis, then the vertical intercept would be _____ and the slope would be _____.

50; 10

While on vacation, you decide to rent a bike. Let C be the total dollar cost of renting a bike, and let H be the number of hours you use the bike. One bike rental company computes the cost of renting a bike as C = 10 + 10H, while the other computes the cost as C = 40 + 5H. If you use the bike for _____ hours, then the cost of renting the bike will be the same at either company.

6

Learning more about economic models A. is only useful to the extent that people consciously use economic models to make decisions. B. can help us make better decisions even if most people don't consciously use economic models to make decisions.

B. can help us make better decisions even if most people don't consciously use economic models to make decisions.

The shift from the "Old" to the "New" line in the accompanying graph represents A. an increase in the slope B. an increase in the vertical intercept C. a decrease in the slope D. a decrease in the vertical intercept

A. an increase in the slope

When deciding whether to take an action, one common decision pitfall is to A. ignore the implicit cost of the action B. ignore sunk costs C. measure costs and benefits in absolute dollar amounts D. consider the marginal cost and marginal benefit of the action

A. ignore the implicit cost of the action

In standard economic models, a rational person A. makes choices by weighing the extra benefits of an action against its extra costs. B. only considers the explicit costs of an action, without regard to its implicit costs. C. will take any action that is financially feasible. D. undertakes activities whenever the extra benefit of the activity is greater than zero.

A. makes choices by weighing the extra benefits of an action against its extra costs.

Economists believe that people A. never have enough time, money, or energy to do everything or have everything they want. B. can do everything and have everything they want with sufficient planning and hard work. C. should want less out of life, both in terms of what they are able to do and what they are able to have.

A. never have enough time, money, or energy to do everything or have everything they want.

Economic models are _____ if people do not consciously weigh costs and benefits when making decisions. A. useful even B. are wrong C. of little value

A. useful even Even when people do not consciously weigh costs and benefits, people often do so unconsciously, often learning through trial and error which choices lead to the best outcomes. As a result, economic models are still useful in predicting behavior.

Which economic principle states that a person (or a firm or society) is more likely to take an action if its benefit rises, and less likely to take an action if its cost rises? A. Normative Economic Principle B. Incentive Principle C. Positive Economic Principle D. Cost-Benefit Principle

B. Incentive Principle

When assessing the costs and benefits associated with taking an action, it is generally best to consider costs and benefits A. as neither proportions nor absolute dollar amounts. B. as absolute dollar amounts rather than proportions. C. as proportions rather than absolute dollar amounts.

B. as absolute dollar amounts rather than proportions.

You're trying to decide whether to go for a run. If you don't go for a run, you'll either watch TV or do your homework. Your opportunity cost of going on a run is A. either the value you place on watching TV or the value you place on doing homework, whichever is smaller. B. either the value you place on watching TV or the value you place on doing homework, whichever is larger. C. the sum of the value you place on watching TV and the value you place on doing homework, since you have to give up doing both. D. zero since watching TV and doing homework are free.

B. either the value you place on watching TV or the value you place on doing homework, whichever is larger.

The Scarcity Principle applies to A. consumers who are poor. B. everyone. C. consumers who are rich. D. business owners who are going out of business.

B. everyone.

One common decision pitfall is to A. take into consideration the implicit costs of taking an action B. measure costs and benefits as proportions rather than absolute dollar amounts C. consider the marginal cost and marginal benefit of taking an action

B. measure costs and benefits as proportions rather than absolute dollar amounts

When making a decision, sunk costs A. should only be ignored when sunk costs are less than sunk benefits B. should be ignored C. are equal to zero by definition D. should not be ignored

B. should be ignored

The table below shows how your daily parking charges, C, depend on the number of hours, H, you park each day. If your daily parking charges are a linear function of the number of hours you park, then which equation describes the relationship between C and H?

C = 1 + 0.5H

Which of the equations below corresponds to the line pictured in the graph? C = 1 + 0.5H C = 1 + 2H H = 1 + 0.5C C = 2 + H H = 2 + C

C = 1 + 0.5H

Which of the equations below corresponds to the line pictured in the graph? C = 2 + H H = 2 + C H = 1 + 0.5C C = 1 + 2H C = 1 + 0.5H

C = 1 + 0.5H

A sunk cost is A. any out-of-pocket expense. B. the value of what must be foregone to undertake an activity. C. a cost that is beyond recovery at the time a decision is made. D. a cost that could have been avoided if the Cost-Benefit Principle had been applied.

C. a cost that is beyond recovery at the time a decision is made.

If you graph the equation Y = a + bX with Y on the vertical axis and X on the horizontal axis, a(n) _____ will lead to a decrease in the slope. A. increase in b B. decrease in a C. decrease in b D. increase in a

C. decrease in b

In the graph of a straight line, the vertical intercept is the value taken by the: A. dependent variable when the independent variable is equal to one. B. independent variable when the dependent variable is equal to one. C. dependent variable when the independent variable is equal to zero. D. independent variable when the dependent variable is equal to zero.

C. dependent variable when the independent variable is equal to zero.

In the graph of a line, a(n) _______ will lead the line to a parallel shift upward. A. increase in the slope B. decrease in the vertical intercept C. increase in the vertical intercept D. decrease in the slope

C. increase in the vertical intercept

The Incentive Principle asserts that a person A. will take an action whenever the marginal benefit of the action exceeds the marginal cost of the action B. should take an action if the extra benefits from taking the action are at least as great as the extra costs C. is more likely to take an action if its benefit rises, and less likely to take an action if its cost rises

C. is more likely to take an action if its benefit rises, and less likely to take an action if its cost rises

Suppose you plan to buy a new pair of running shoes. It's easier to buy them online, but the pair you want is $9 more expensive online than at the mall. According to the Cost-Benefit Principle, you should buy them A. online if the convenience of buying them online is worth less than $9 to you. B. at the mall because they're cheaper at the mall. C. online if the convenience of buying them online is worth more than $9 to you.

C. online if the convenience of buying them online is worth more than $9 to you.

Costs that are beyond recovery at the moment a decision is made A. should be set to zero before making the cost--benefit calculation B. should factor into the cost--benefit calculation C. should not factor into the cost--benefit calculation

C. should not factor into the cost--benefit calculation

An individual (or a firm or a society) should only take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs. This describes ______.

Cost-Benefit Principle

In the graph of a line, a decrease in the vertical intercept will lead to A. a decrease in the slope B. an upward parallel shift C. an increase in the slope D. a downward parallel shift

D. a downward parallel shift

Economists believe that scarcity is A. never a problem for people provided they make prudent decisions. B. only a problem for some people. C. has little impact of how people choices in developed countries. D. a fundamental fact of life for everyone.

D. a fundamental fact of life for everyone.

The shift from the "Old" to the "New" line in the accompanying graph represents ______. A. a decrease in the slope B. a decrease in the vertical intercept C. an increase in the slope D. an increase in the vertical intercept

D. an increase in the vertical intercept

When making decisions, people sometimes make mistakes because they A. do not have any implicit costs B. ignore sunk costs C. take implicit costs into consideration D. fail to consider implicit costs

D. fail to consider implicit costs

If someone is rational, then they A. fail to take into account the implicit costs of taking an action. B. do not follow the Cost-Benefit Principle because costs and benefits are difficult to measure. C. will only take actions that they think will increase their net worth. D. have well-defined goals that they try to fulfill as best they can.

D. have well-defined goals that they try to fulfill as best they can.

C = 1 + 0.5HIf you graph the equation Y = a + bX with Y on the vertical axis and X on the horizontal axis, a(n) _____ will lead to an increase in the slope. A. decrease in a B. decrease in b C. increase in a D. increase in b

D. increase in b

A principle that predicts how people will behave is called a(n): A. negative economic principle. B. normative economic principle. C. emotional economic principle. D. positive economic principle.

D. positive economic principle.

The study of how people make choices under conditions of scarcity and the results of those choices for society as a whole is called ______.

Economics

The table below shows how the annual fee, F, to use your local pool depends on the number of days, D, you use the pool each year. If the annual fee is a linear function of the number of days you use the pool, then which equation describes the relationship between F and D?

F = 15 + 1.5D

In order to use your local pool, you have to pay $15 per year, plus an additional $2 every time you go. If N is the number of times you use the pool each year, and F is the total dollar amount you pay to use the pool each year, then which of the following equations best describes this situation?

F = 15 + 2N

Which of the equations below corresponds to the line pictured in the graph? N = 15 + 2F N = 30 + 2.5F F = 15 + 3N F = 15 + 2N F = 15 + 2.5N

F = 15 + 2N

Suppose that each police officer hired by the City of Gotham generates an average benefit to the community of $500 per week, and the average salary of police officers is $600 per week. Should the City of Gotham hire more or fewer police officers?

It's impossible to say. Reason: Whether the City of Gotham should hire more or fewer police officers depends on the marginal benefit and marginal cost of an additional police officer, but the question only gives information on average benefit and average cost.

Suppose Sean makes 10 tables a month, each of which he can sell for $200. Given that the average cost of making each table is $150, should Sean make more or fewer tables each month?

It's impossible to tell. Reason: Sean should base his decision on the marginal cost and marginal benefit of making another table. The average cost of the table is not the same as the marginal cost of making a table. Thus, there's not enough information to determine what Sean should do.

Suppose you pay $75 to buy a ticket to see one of your favorite bands next month. When the day of the concert rolls around, should the cost of the ticket figure into your decision about whether to go to the concert (assume you have no way to sell your ticket to anyone else)?

No Reason: On the date of the concert, the $75 you paid for the ticket is a sunk cost (regardless of whether you go to the concert, the $75 is gone). So the cost of the ticket should not enter into your decision about whether to go.

You earn is $12 an hour at your job, and you earn $20 per week from your investments. If H is the number of hours you work each week, and M is your total weekly earnings in dollars, then which of the following equations best describes this situation? H = 20 + 12M H = 12 + 20M M = 20 + 12H M = 12 + 20H

M = 20 + 12H

You are considering whether to fill out a mail-in rebate form for an item you just purchased. The total cost of filling out and mailing in the form is $8, and the rebate is worth $20. Should your decision about whether to send in the rebate form depend on whether the price of the item you purchased was $20 or $2000?

No Reason: Although the rebate is 100 percent of the purchase price if the item was $20 and only 1 percent of the purchase price if the item was $2000, the benefit of mailing in the rebate is greater than the cost of mailing in the rebate ($20>$8), so you should mail in the rebate.

Suppose you pay $35 to reserve a camp site at a local state park. The rules specify that you can only receive a refund if you cancel your reservation 2 weeks before your trip. Several days before your trip, you learn that it's supposed to rain the whole time you had planned to camp, and you are having second thoughts about going. Should the $35 you paid for the camp site factor into your decision about whether to go camping?

No Reason: Several days before your trip, the $35 you paid for the camp site is a sunk cost (regardless of whether you go camping, the $35 is gone). So the $35 you paid for the camp site should not factor into your decision about whether to go camping.

Suppose you're trying to decide what to cook for dinner. Both the chicken and the salmon you have in your fridge are about to go bad, and whichever one you don't eat tonight, you'll have to throw away. In deciding which one to cook, should it matter to you that the salmon was slightly more expensive than the chicken?

No Reason: The amount you spent on the food is a sunk cost and shouldn't factor into your decision. You should just cook whichever one sounds better to you!

Suppose you've decided to go out to eat with some friends. If you take the time to go online, you know you can download a $5 dollar off coupon for the restaurant. Should your decision about whether to download the coupon depend upon the amount you expect to pay for your meal?

No Reason: The benefit of the coupon is $5, and the cost is the value of the time it would take you to download the coupon. Since neither of these depends upon the price of the meal, the price of the meal should not factor into your decision.

Economic ______ is the benefit of taking an action minus its cost.

Surplus

Which of the following is a normative economic principle?

The Cost-Benefit Principle

Suppose you plan to buy a new pair of cleats and a new pair of shin guards at your local sporting goods store. You have a 10% off coupon for the cleats and a 50% off coupon for the shin guards. If soccer cleats are $70 and shin guards are $10, and the store will only accept one coupon per customer, then what should you do?

Use the 10% off coupon for the cleats because it's a bigger dollar savings.

For Buzz, the benefit of drinking an additional cup of coffee is $3. If a cup of coffee costs $1.50, and if Buzz has to use $1 worth of his time to go buy the coffee, should Buzz drink another cup of coffee?

Yes

The shift from the "Old" to the "New" line in the accompanying graph represents

a decrease in the slope

The shift from the "Old" to the "New" line in the accompanying graph represents

a decrease in the vertical intercept.

People sometimes apply the Cost-Benefit Principle incorrectly because they evaluate costs and benefits

as proportions rather than absolute dollar amounts.

The total cost of carrying out n units of an activity divided by n is the activity's ______ cost.

average

In the textbook, opportunity cost includes

both explicit costs and implicit costs

A quantity that is fixed in value is known as a(n) ______.

constant

A(n) _____ variable is a variable in an equation whose value is determined by the value taken by another variable in the equation.

dependent

A mathematical expression that describes the relationship between two or more variables is a(n) ______. independent variable dependent variable equation parameter

equation

The Scarcity Principle captures the notion that although we have boundless needs and wants, the resources available to us are limited, so

having more of one good thing usually means having less of another.

Economics is best defined as the study of

how people make choices under conditions of scarcity and the results of those choices for society.

A(n) _____ variable is a variable in an equation that determines the value taken by another variable in the equation.

independent

Microeconomics is the study of:

individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets

If undertaking an activity includes both explicit and implicit costs, then, according to the textbook, the opportunity cost of that activity ______.

is the sum of its explicit and implicit costs.

The increase in total cost that results from carrying out one additional unit of an activity is its ______ cost.

marginal

The increase in total benefit that results from carrying out one additional unit of the activity is called

marginal benefit

The study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets is known as

microeconomics

A ______economic principle is one that says how people should behave.

normative

The Cost-Benefit Principle is a _____ economic principle

normative

An economic principle that says how people should behave is known as a

normative economic principle

The Cost-Benefit Principle is a _____ economic principle, while the Incentive Principle is a _____ economic principle

normative; positive

The value of what must be foregone in order to undertake an activity is the ______ cost of that activity.

opportunity

The value of what must be foregone in order to undertake an activity is known as

opportunity cost

A positive economic principle

predicts how people will behave

The slope of a straight line is often calculated as the

rise ÷ run

A normative economic principle

says how people should behave.

Along a straight line, the _____ is the ratio of the vertical distance the straight line travels between any two points to the corresponding horizontal distance.

slope

If you graph the line Y = a + bX with Y on the vertical axis and X on the horizontal axis, then b represents the:

slope

A cost that is beyond recovery at the moment a decision is made is a(n)

sunk cost

The economic surplus of an action is

the benefit of taking an action minus its cost.

The Cost-Benefit Principle states that an individual or society should take an action if, and only if

the extra benefits from taking the action are at least as great as the extra costs.

The average cost of carrying out an activity is

the total cost of undertaking n units of an activity divided by n.

A quantity that is free to take on different values is a(n):

variable

If you graph the line Y = a + bX with Y on the vertical axis and X on the horizontal axis, then a represents the:

vertical intercept

In the graph of a straight line, the value taken by the dependent variable when the independent variable is equal to zero is known as the

vertical intercept