Module 2 Quiz Questions and Problem Set 2

​Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her​ $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs​ $250. Her opportunity cost of time is​ $15 per hour. Refer to the scenario above. If Maria borrows her​ parents' car and pays for only the​ gasoline, what is her total cost of driving to destination​ A?

$340

​Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her​ $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs​ $250. Her opportunity cost of time is​ $15 per hour. Refer to the scenario above. What is the total cost involved if Maria chooses to travel by​ train?

$460

Every society faces​ trade-offs because we live in a world of scarcity. Suppose a​ student-athlete has the opportunity to earn ​$400,000 next year playing for a minor league baseball​ team, ​$500,000 next year playing for a European professional football​ team, or​ $0 returning to college for another year. The opportunity cost of the​ student-athlete returning to college next year is

$500,000

​Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her​ $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs​ $250. Her opportunity cost of time is​ $15 per hour. Refer to the scenario above. If​ Maria's opportunity cost of time increases to​ $80 per​ hour, the cost involved in taking the train​ is:

$720

​Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her​ $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs​ $250. Her opportunity cost of time is​ $15 per hour. Refer to the scenario above. If​ Maria's opportunity cost of time increases to​ $80 per​ hour, the cost of driving to destination A​ is:

$730

​"grading infuses everything that happens in the​ classroom." They also argue that grading​ "needs to be acknowledged and managed from the first moment that an instructor begins planning a​ class." -The grading system used by a teacher can affect the incentives of students to learn the course material by: If teachers put too little weight in the grading scale on a certain part of the​ course, like readings outside the​ textbook, students might respond by ______ that part of the course.

-altering the payoffs to achieving success on the various components of the course. De-emphasizing

​McDonald's typically serves breakfast until only​ 10:30 a.m. on weekdays and​ 11:00 a.m. on weekends. In​ 2015, the company began to experiment with serving breakfast all day at various locations in San Diego. Several owners of​ McDonald's restaurants,​ however, point out that offering breakfast 24 hours a day presents two logistical​ problems: (1) Burgers and other meats need to be cooked at a higher temperature than​ eggs, so it would be difficult for employees to set the grill at the right temperature for both​ foods; and​ (2) scrambled eggs require employees to continually​ stir, while hamburgers​ don't require this attention. In​ addition, some customers might buy the cheaper breakfast than the more expensive lunch or dinner meals. 1. From an economics​ perspective, to determine whether to serve breakfast all​ day, McDonald's should 2. Would​ McDonald's decision have to be all or nothing- either serve breakfast only up to​ 10:30 A.M. or serve breakfast all​ day?

1. Compare the marginal revenue from serving breakfast all day with the marginal cost of serving breakfast all day. 2. No.​ McDonald's could evaluate serving items from the breakfast menu that could be cooked in better coordination with the dinner menu for a period after​ 10:30 A.M

Which of the following is most likely to be an example of causation?

A firm producing CFLs installs new machinery. The per-day production of CFLs increases.

Consider the following statements: a. Car owners purchase more gasoline from a gas station that sells gasoline at a lower price than other rival gas stations in the area. b. Banks do not take steps to increase security since they believe it is less costly to allow some bank robberies than to install expensive security monitoring equipment. c. Firms produce more of a particular DVD when its selling price rises. Which of the above statements demonstrates that economic agents respond to incentives?

A, B, and C

In a market system, how does society decide what goods and services will be produced?

Consumers, forms, and the government determine what goods and services will be produced by the choices they make.

Which of the following statements identifies a difference between correlation and​ causation?

Correlation implies a mutual relationship between two things, whereas causation occurs when one thing directly affects another

Consider the following​ statement: ​ "The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes​ mistakes." What is the most correct response to this​ statement?

Economics assumes that consumers and firms are rational, no that they always make the right decisions

Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in​ government?

Economics teaches us how to look at the trade offs involved in every decision.

Which of the following statements is true of the scientific method?

Empirical arguments are more credible when they are based on a large data set

Utility refers to how much consumers utilize a product or service.

False

Which of the following is a normative economic statement? (farmers)

Farmers should not be allowed to grow and sell genetically-modified crops

Which of the following is a positive economic statement? (beef)

If the price of beef falls, a larger quantity of it will be bought.

Which of the following is a positive economic statement? (iphones)

If the price of iPhones falls, a larger quantity of iPhones will be purchased.

​Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her​ $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs​ $250. Her opportunity cost of time is​ $15 per hour. Refer to the scenario above. If the opportunity cost of time increases to​ $80 per​ hour, which of the following statements is​ true?

Maria should choose to travel by train as it saves her $10

Which of the following is a normative economic statement?

Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable.

Which of the following claims is most likely to suffer from reverse​ causality?

Relatively wealthy people tend to be relatively healthy.

______________ occurs when the direction of cause and effect is mixed up in a study.

Reverse causality

Which of the following is a positive economic statement?

Scarcity necessitates that people make trade offs

Soo Jin shares a one- bedroom apartment with her classmate. Her share of the rent is​ $700 per month. She is considering moving to a studio apartment which she will not have to share with anyone. The studio apartment rents for​ $950 per month.​ Recently, you ran into Soo Jin on campus and she tells you that she has moved into the studio apartment. Soo Jin is as rational as any other person. As an economics​ student, you rightly conclude that

Soo Jin figures that the additional benefit of having her own place (as opposed to sharing) is at least $250

Which of the following statements is true?

Testing with data enables economists to distinguish between good model and bad models

Which of the following is a normative economic statement? (gasoline)

The price of gasoline is too high

Which of the following can be derived from other assumptions of economics

Trade offs and opportunity cost

Empirical arguments are more credible when they are based on a large data set.

True

Normative statements depend on personal preferences.

True

Consistency of models can be checked using data.

True.

Which of the following best describes scarcity? Scarcity is central to the study of economics because it implies that__

Unlimited wants exceed the limited resources available every choice involves an opportunity cost

The three economic questions that every society must answer are Centrally planned economies allocate resources based on decisions by ______, while market economies answer these questions through decisions made by ______.

What goods will be produced, how will they be produced, and who will receive the goods? government, households and firms

Microsoft charges a price of​ $599 for a copy of Windows 7. Is this pricing decision​ rational?

When we assume the managers at Microsoft have used all available information and have weighed all known benefits and​ costs, we are assuming rationality.

Causation occurs when:

a change in one variable is the reason for the change in another variable.

a. A​ 50-cent-per-pack tax on cigarettes will reduce smoking by teenagers by 12 percent. This represents b. The federal government should spend more on AIDS research. This represents c. Rising paper prices will increase textbook prices. This represents d. The price of coffee at Starbucks is too high. This represents

a.positive analysis b.normative analysis c. positive analysis d.normative analysis

Economists assume that individuals

are rational and respond to incentives

Trinh quits his ​$80,000-a-year job to become a full-time volunteer at a museum. What is the opportunity cost of his​ decision?

at least $80,000

Causation occurs when:

change in one variable is the reason for the change in another variable

Marginal utility is the

consuming one more unit of a product

​Scenario: Maria has to choose between driving and taking a train to destination A. Travelling by train will cost her​ $400 and will take 4 hours. Driving to destination A takes 6 hours and the required amount of gasoline costs​ $250. Her opportunity cost of time is​ $15 per hour. Refer to the scenario above. Maria should choose​ to:

drive, as it will save her $120

The opportunity cost of going to an outdoor music festival is

equal to the highest value of an alternative use of time and money spent on the festival

Economists assume that rational behavior is useful in explaining choices people make

even though people may not behave rationally all the time

Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."

false.

An item has utility for a consumer if it

generates enjoyment or satisfaction

An omitted variable is a variable that:

has been left out, and if included, would explain why the variables considered in a study are correlated.

An omitted variable is a variable that:

has been left out, and if included, would explain why the variables in a study are correlated

Consider an organization that exists to help the poor. The members of the organization are discussing alternative methods of aiding the​ poor, when a proponent of one particular method asserts​ that: ​"If only one poor person is helped with this​ method, then all our time and money would have been worth​ it." If you were a member of the​ organization, what reply best represents clear economic​ thinking? This attitude

ignores the fact that the cost of helping that one person has an opportunity cost of what those funds could have been used for to help other people

Economists assume that the goal of consumers is to

make themselves as well of as possible

In economics, the term ________ means "additional" or "extra."

marginal

The extra cost associated with undertaking an activity is called

marginal cost

Which of the following are assumptions needed for simple arithmetic

numbers exist and addition

The best alternative use of a resource is referred to as its:

opportunity cost

Suppose that some investors have decided that economic and financial uncertainty have made the prospect of investing in domestic stock markets more risky than investing in foreign stock markets, and therefore choose to invest in foreign markets. By using all available information as they act to achieve their goals, these investors are exemplifying the economic idea that

people are rational

Holding all other personal characteristics-such as age, gender, and income-constant, economists would expect that

people with health insurance are more likely to be obese than people without health insurance

Economic models do all of the following except

portray reality in all its minute details

Which of the following is a positive economic statement? (tax)

raising the tax on gasoline raises the selling price of gasoline

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.

rationally

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls

scarcity

What is an assumption of economics?

scarcity

By definition, economics is the study of

the choices people make to attain their goals, given their scarce resources

The principle of opportunity cost is that

the economic cost of using a factor of production is the alternative use of that factor that it given up

Utility is

the enjoyment or satisfaction people receive from consuming goods and services

Which of the following is a normative economic statement?

the price of wheat is too low

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals

"An increase in the price of gasoline will increase the demand for hybrid vehicles." This statement is an example of a positive economic statement.

true

Rational economic agents maximize more than just monetary income.

true

The additional cost to a producer of hiring an additional unit of labor is called the marginal cost.

true

When voluntary exchange takes place, both parties gain from the exchange.

true

Economists assume that rational people do all of the following except

undertake activities that benefit others and help themselves

Making optimal decisions "at the margin" requires

weighing the costs and benefits of a decision before deciding if it should be pursued

Using basic assumptions you can determine

why markets are efficient, when markets are efficient, and when government intervention helps or hurts economic performance

Is it necessary for all economic systems to limit services such as health care? A market system prevents people from getting as many goods and services as they want due to what?

yes their income