Econ 201 Exam #1

You paid $35 for a ticket (which is nonrefundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is themes you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. What is your opportunity. cost of going to work on Saturday? a) $35 b) $0 c) $9 d) $36

A) By going to work, you give up attending the concert, which you value at $35

According to the textbook, the evidence indicates that NAFTA has: a) not significantly reduced the employment of unskilled workers in the United States b) reduced the wages of skilled workers in the United States c) stopped illegal immigration from Mexico d) reduced the employment of unskilled workers in the United States significantly

A) most studies have failed to detect significant overall job loss due to NAFTA

Suppose a retail store was offering 10 percent off its list prices on all goods. The benefit of the 10 percent saving is: a) positively related to the list price of the good b) zero since cost and benefits shouldn't be measured proportionally c) unrelated to the list price of the good d) negatively related to the list price of the good

A) the higher is the the list price, the more you save

Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the cost-benefit Principle Tim should: a) Not drink a third glass of soda b) drink a third glass of soda if the extra benefit of doing so is positive c) drink a third glass of soda d) drink a third glass of soda if its total benefit from drinking soda is positive

B) According to the Cost-Benefit Principle, an individual should take an action if, and only if, the extra benefits of taking the action are at least as great as the extra costs

suppose there are tow parallel highways between two cities with approximately equal traffic. what would you expect to happen if the state began changing tolls to drive on one of those highways? a) traffic would decrease on both roads b) more drivers would drive on the non-toll road, making the toll road less congested c) traffic would remain evenly divided between the two roads as drivers continously sought the less congested route d) more drivers would drive on the toll road making the non-toll road less congested

B) applying the incentive principle, in response to higher costs on the toll road, we would expect fewer people to use the toll road

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus. a) mow the law; smaller b) wash clothes; bigger c) mow the lawn; bigger d) wash clothes; smaller

B) because both activities have the same cost (Janie's time and her dislike of the task), the activity with the greatest benefit will yield the greatest economic surplus

In deciding how many guitars to buy for his shop before the Christmas season, Mark is making a(n) ----- decision a) macroeconomics b) microeconomics c) normative d) irrational

B) microeconomics focuses on individual choices

One concern regarding the North American Free Trade Agreement (NAFTA) was that it would lead to: a) highly skilled workers in the United States to lose their jobs b) unskilled workers in the united states to lose their jobs c) the total value of goods and services produced by the United States to fall d) wages in Mexico to rise

B) since Mexico has a comparative advantage in the production of goods made by unskilled workers, many Americans feared that NAFTA would lead unskilled workers in the United States to lose their jobs to workers in Mexico

According to the principle of Increasing Opportunity Cost, in expanding the production of any good, we should start by utilizing the resources that: a) we have the most of b) have the lowest opportunity cost c) have the highest opportunity cost d) we have the least of

B) the principle of increasing opportunity cost states that in expanding the production of any good, we should first employ those resources that have the lowest opportunity cost, and only afterwards turn to resources with higher opportunity costs

Economists use abstract models because: a) every economic situation is essential the same, so specific details are unnecessary b) computers have allowed economists to develop abstract models c) they are useful for describing general patterns of behavior d) every economic situation is unique, so it is impossible to make generalizations

C) Economic models focus on the critical features of human behavior

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State college costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending Elite U is: a) $50,000 b) $15,000 c) $70,000 d) $20,000

C) If Larry attends Elite U, he not only has to pay $50,000 in out-of pocket expenses, but he also has to give up the value of his next-best option. To determine the value of his next best option, note that the value to Larry from attending state college is 40,000-20,000=20,000. And his value from attending NoName U is 15,000-0=15000. So going to State college is his next best option, and his opportunity cost of going to Elite U is $50,000 + $20,000= $70,000

Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her _________ would be ________. a) cost; $15,000 b) benefit; $12,000 c) economic surplus; $3000 d) economic surplus; $12,000

C) Mary's benefit from owning the truck is $15,000 and the cost is $12,000, so her economic surplus is $3000

Larry has a comparative advantage over his classmates over his classmates in writing term papers if he: a) can write term papers faster than his classmates b) always earns A on his term papers c) has a lower opportunity cost of writing term papers than his classmates d) has an absolute advantage in writing term papers

C) comparative advantage means having a lower opportunity cost

If a nation restricts imports, it will: a) increase the total value of goods and services produced in that nation b) harm each individual citizen in that nation c) decrease the total value of goods and services produced in that nation d) benefit each individual citizen in that nation

C) restricting imports lowers the value of goods and services produced by a nation, but individual citizens could be better or worse off

You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same Tim as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost of working is $2/hr. Your economic surplus from going to work instead of seeing SPAM on Saturday is: a) $35 b) $36 c) $1 d) $0

C) the benefit of working is 4 x (11-2) or $36.

The slope of a production possibilities curve is ______ because _____ a) negative; producing less of one good requires producing less of the other b) positive; producing more of one good requires producing less of the other c) negative; producing more of one good requires producing less of the other d) positive; producing more of one good requires producing more of the other

C) the downward slope of the production possibilities curve shows that having more of one good means having less of the other

The population possibilities curve shows: a) how increasing the resources used to produce one good increases the production of the other good b) the minimum amount of one good that can be produced for every possible production level of the other good c) the maximum amount of one good that can be produced for every possible production level of the one good d) how increasing the production of one good allows production of the other good to also rise

C) the production possibilities curve describes the maximum amount of one good that can be produced for every possible level of production of the other good

All else equal, relative to a person who earns minimum wage, a person who earns $30per hour has: a) the same opportunity cost of spending time on leisure activities b) a higher opportunity cost of working an additional hour c) a lower opportunity cost of driving farther to work d) a higher opportunity cost of taking the day off work

D) All else equal, giving up a day of work "costs" the person who can earn $30 per hour more than it does someone who earns minimum wage

Suppose it takes Paul 3 hours to bake a cake and 2 hours to mow the lawn, and suppose it takes t=Tom 2 hours to bake a cake and 1 hour to mow the lawn. Which of the following statements is correct? a) paul has the comparative advantage in mowing the lawn b) paul has the absolute advantage in mowing the lawn c) paul has the absolute advantage in baking cakes d) paul has the comparative advantage in baking cakes

D) For Paul, in the time it takes him to bake a cake, he could have mowed the lawn 1.5 times, and the time it takes him to mow the lawn , he could have made 2/3 of a cake. For Tom, in the time it takes him to bake a cake , he could have mowed the lawn 2 times, an din the time it takes him to mow the lawn, he could have baked 1/2 a cake.

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is: a) 41.67 b) 375 c) 125 d) 5

D) Marginal benefit is the increase in total benefit that results from carrying out one additional unit of activity. By watching the 3rd game, the total benefit increases from 120 to 125, so the marginal benefit is 5

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry maximizes his economic surplus by attending: a) NoName U because he has a full scholarship there b) Elite U c) NoName U because the annual cost is only $20,000 d) State College

D) To determine what Larry should do, determine the vale of each option as if it were his only choice. In this case, the value to Larry from attending Elite U is $60,000-$50,000=$10,000. His value from attending State College is $40,000-$20,000=$20,000. And his value from attending NoName U is $15,000-0=$15,000.

If Al has an absolute advantage over Beth in preparing meals, then: a) Al's opportunity cost of preparing a meal is lower than is Beth's b) it takes Al more time to prepare meal than Beth c) the problem with scarcity applies to Beth but not to Al d) Al can prepare more meals in a given time period than Beth

D) absolute advantage means being able to produce more in a given time period

The field of economics that would be most concerned with a recent fall in interest rates: a) marginal economics b) economic naturalism c) microeconomics d) macroeconomics

D) macroeconomics focuses on overall national economic growth and factors that affect the overall economy such as impact of changing the interest rates on total spending in the economy

Matt has decided to purchase his textbook for the semester. His options are to purchase the books online with next day delivery at the cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. The benefit to Matt of buying his books at the university bookstore instead of online is: a) $9 b) $175 c) $170 d) $5

D) matt saves $5 by purchasing the books at the university bookstore

Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is: a) the $12 she spent on the umbrella, food, and drinks b) only $0 because she would have spent $12 to go to the movie c) the value she places seeing the movie plus the $12 she spent on the umbrella d) the value she places on seeing the movie

D) opportunity cost is the value that most be forgone to undertake an activity

1) According to the incentive Principle a) it is irrational to perform volunteer services b) benefits are moreimgportant than costs in making a decision c) people will always take the highest-paying job they offered d) people tend to do more of something when its benefits are greater

D) the incentive principle states that a person is more likely to take an action if its benefit rises, and less likely to do something if its cost rises