ECON 003 Homework 1
In the past few years, the demand for Krispy Cream donuts has greatly increased. Why did this increase happen?
A change in consumer taste. Also, since the donuts are cheap the income effect is stronger.
The private sector creates the wealth because they have command over which resources?
All items listed above are necessary in the private sector in order to "create wealth."
Why is "Marginal Analysis" so important in the study of economics?
All of the above are correct and reasonable statements.
This should be a logical question. If the federal government leadership decided to raise taxes on business profits to 90 percent, if they decided to pass all types of harsh new environmental regulations which would raise the cost of doing business, and if the politicians in power started to demonize business people by calling them greedy and selfish, then what would be the logical outcome?
All of the above outcomes appear to be logical and correct.
In 2015, 60 percent of all new jobs created were part-time jobs. This is not normal for the U.S. economy. If income levels are having a hard time going up, then what will be the result of this?
All of the above statements are essentially correct.
Competition does what in an open-market economy?
All of the above.
Chapter 2 mentioned many positive aspects about private property rights. What is so great about private property rights?
All of the benefits listed above appear to be logical and correct.
When the price of a barrel of oil declines significantly, then price of gasoline usually declines as well. But what probably 'caused' this to happen?
An increase in the supply of oil and gasoline.
In Chapter 2, they showcased a 2012 study that listed nations that had a great deal of economic freedom versus those that didn't. The obvious conclusion is that nations that have the most liberty and freedom had far superior economic performance and living standards versus those that don't. Which set of countries listed below were rated as the worst nations in terms of economic performance?
Argentina, Iran, and North Korea.
The equilibrium describes what?
Both 'A' and 'B' are correct.
Chapter 2 told us about "Consumer Sovereignty." It said this is how society will determine what will be produced. How does this concept work?
Businesses will pay close attention to what consumers want and try to satisfy them because they control the dollars that will used to buy the goods and services produced by business.
Chapter 2 told us about "Consumer Sovereignty." They said this is how we can determine what will be produced. How does this concept work?
Consumers have the most economic power because they use their dollars to vote and buy the goods and services that serve their self-interests.
What does an economy need in order to keep prices low, offer consumers a wide variety of choices, and encourage innovation?
Encourage the use of competitive markets, flexible prices, private property rights, respectfor contract law, and individual liberty
In the class lecture, Professor Ed Torres mentioned one other great contribution that came from Adam Smith and his book. After he reviewed the misery, poverty, useless wars, political corruption, and the dismal lack of progress in 2000 years of human history, what else did Adam Smith conclude?
If nations would stop warring with each other and started to trade with each other, then the entire world would be much better off and living standards would rise.
A substantial decrease in the supply of oil will result if:
If the government establishes a price ceiling for oil at $15 per barrel
If the price of product K declines, then the demand for the 'complementary' product J will:
Increase.
A free market:
It is the activity in which buyers and sellers negotiate to satisfy their respective self-interests and set the appropriate price.
Chapter 2 told us that in 1776 Adam Smith published his book entitled, "The Wealth of Nations." He is also known as the Father of Modern Economics. What type of economic system did Adam Smith encourage that would create the most prosperous society?
Laissez-Faire Capitalist Model (i.e. the free market)
What are the four main sources of economic growth? (Chapter 1)
Land, labor, capital and the entrepreneurial spirit.
The relationship between quantity supplied and price is _____________. The relationship between quantity demanded and price is _____________.
Positive, inverse
The law of demand states that:
Price and quantity demanded are inversely related.
To prevent riots and revolution in the streets, many governments of poorer countries cap food prices for their people by setting up:
Price ceilings.
The demand curve shows the relationship between:
Price paid and quantity demanded.
What is the true source of all economic problems faced by all countries according to Chapter 1?
Primarily because of scarcity.
In Chapter 2, how did the nation of Argentina rank in terms of the Index of Economic Freedom?
Repressed.
In 2003 the price of 'home heating oil' substantially increased during the harsh winter. In the eastern U.S., many homes use home heating oil. Just like filling up a car with gasoline, home heating oil must be put into a special tank that generates the power to heat the home. Prices rose so much that people began using cheaper fire logs as a back-up plan to heat their homes. Based on this information, what can we can say about the relationship of home heating oil 'and' fire logs:
Substitute goods - the higher price of home oil increased the demand for fire logs.
Chapter 1 mentioned that economics follows the "scientific method." What does this mean?
That economics should use the same methods that are used in the hard sciences such as chemistry, biology, and physics and use methods like finding 'cause and effect' relationships and statistics to verify the theories and conclusions in order to be valid.
Chapter 1 mentioned "Purposeful Behavior." Economics has made some assumptions about how people behave using this concept. What is this concept trying to tell us?
That most people use rational self interest to make decisions and optimize the outcomes.
If the stock market always crashes before each economic depression or recession, then we can easily conclude that the stock market crashes are the cause of all economic downturns. Chapter 1 warns us against this type of casual thinking. Which concept in Chapter 1 is being violated by this type of inaccurate thought process?
The Post Hoc Fallacy
Socialism is what? (Chapter 2)
The government is heavily influential in economic matters
Laissez-faire economics means what? (Chapter 2)
The government plays an extremely limited role in economic matters
When the ticket price of going to a rock concert increases to $200, then the typical California teenager will consume less because many of them earn the minimum wage of $12.00 per hour. This microeconomic reaction describes:
The income effect.
In presenting the idea of the demand curve, economists presume that the most important variable in determining the 'quantity demanded' is:
The price of the product itself.
When the price of Coke rises, we see that consumers shift to purchase more Pepsi which is still cheaper. This statement describes:
The substitution effect.
Logically, when business taxes were reduced what do you think happened to the national economy in each case?
There were more jobs created, more potential entrepreneurs were incentivized to open up new businesses, existing businesses expanded investment in themselves, the national economy grew in each case, the stock market went up as profits increased, there was less poverty, and the government actually collected more tax revenues as profits, wages, and overall wealth increased because of the expanding economy.
What will be the effect on the economy when a national government uses too many "price ceilings" on a variety of goods and services?
There will be a shortage of goods and services.
Which of the following is most likely to be an inferior good?
Used clothing.
Chapter 1 warns us about the "Fallacy of Composition." What is that?
Whatever is good and correct for me must be good and correct for everyone else.
You have just been offered a great job that would pay you $200,000 per year. It will come with pre-paid travel and the company will also provide you a free house in Hawaii as long as you continue to work for the company. But you turned down the offer because you want to start your own business to possibly make $1 million during the next 12 months. What kind of economic choice did you make according to the concepts discussed in Chapter 1?
You made an 'opportunity cost' choice.
