Problem Sets: Exam 1

Every society faces economic trade-offs because we live in a world of scarcity. Suppose a student-athlete has the opportunity to earn $800,000 next year playing for a minor league baseball team, $900,00 next year playing for a European professional football team, or 0$ returning to college for another year The opportunity cost of the student-athlete returning to college next year is:

$900,000

When economists speak of a shortage, they mean a situation in which

-the quantity demanded exceeds quantity supplied -some consumers are unable to make a purchase at the current price -the market price is below the equilibrium price

1. Which of the following is the textbooks definition of a supply schedule? 2. Which of the following is the textbooks definition of a supply curve.

1. a) a table the shows the relationship between the price of a product and the quantity of the product supplied 2. a) a curve that shows the relationship between the price of a product and the quantity of the product supplied

1. What does increasing marginal opportunity costs mean? 2. What are the implications of this idea for the shape of the production possibilities frontier?

1. c) Increasing the production of a good requires larger and larger decreases in the production of another good. 2. a) the production frontier will be bowed outward

1. A production possibilites frontier. 2. we can show economic inefficiency 3. The production possibilities frontier will shift outward

1. c) with points on the production possibilities frontier 2. b) with points inside the production possibilities frontier 3. d) if technological advances occur.

1. A production possibilities frontier: 2. We can show economic efficiency 3. We can show economic inefficiency

1. e) shows the maximum attainable combinations of two goods that may be produced with available resources 2. c) with points on the production possibilities frontier 3. b) with points inside the production possibilities frontier

Let D=demand, S=supply, P=equilibrium price, and Q=equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?

D increases, S no change, P and Q increase

If a market is in equilibrium, is it necessary true that all potential buyers and sellers are satisfied with the market price?

No

Let D=demand, S=supply, P=equilibrium, and Q=equilibrium quantity. What happens in the market in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?

S decreases, D no change, P increases, Q decreases

Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall. Holding everything else constant, how would this affect the market for Blu-ray players (a complement to LCD televisions)

The demand for for Blu-ray players would increase and the equilibrium price of Blu-ray players would increase

An increase in input costs in the production of electric automobiles to rise. holding everything else constant, how would this affect the market the market for gasoline-powered automobiles (a substitute for electric automobiles)

The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would increase.

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? a) $460 b)$400 c) $420 d) $60

a) $460

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 Marias opportunity cost of time increases to $80 per hour, the cost involved in taking the train is: a) $720 b) $320 c) $800 d) $970

a) $720

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

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

According to a news story about the International Energy Agency, the agency forecast that "the current slide in oil prices won't reduce global supply. Would a decline in oil prices ever cause a reduction in the supply of oil?

a) No, a decline in oil prices would reduce the quantity of oil supplied, not the supply of oil.

The grading system plays an important role in student learning. In their book Effective Grading: A Tool for Learned and Assessment in College, Barbara and Virginia state that "Grading infuses everything that happens in the classroom." They also argue that grading "needs to be acknowledged and managed from the first moment that the instructor begins planning a class." The grading system used by a teacher can affect the incentives of students to learn the course material by a) altering the payoffs to achieving success on the various components of the course. b) uniformly all course components c) doubling the points assigned to each component of the course d) none of the above since student performance is based on innate intelligence

a) altering the payoffs to achieving success on the various components of the course.

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: a) drive, as it will save her $120 b) drive, as it will give her a real savings of $150 c) travel by train, as it will save her $30 in travel time d) travel by train, because it is quicker

a) drive, as it will save her $120

Indicate which of the following statements represent positive analysis and which represent normative analysis. a) a 50-cent-per-pack tax on cigs will reduce smoking by teenagers by 12%. This represents--- b) the federal government should send more on AIDS research. This represents--- c) rising paper prices will increase textbooks. 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

Like many other cities, Denver experienced a sharp decline in constructions of new houses in the year following 2006. Many carpenters, roofers, and other skilled workers left the area or found jobs in other industries. In addition, builders stopped buying and preparing home lots for construction. According to an article in the Wall Street by 2014, as consumer increased their demand for new homes in Denver, "New home prices have surged over the last two years... amid a shortage of home lots and skilled construction workers." In the future, the price increased of new houses in Denver can be expected to be:

a) smaller because supply is more elastic over time.

What is the economic definition of utility? a) the enjoyment or satisfaction people from consuming goods and services. b) the change in enjoyment or satisfaction a person receives from consuming one additional unit of a good or services. c) the difference between the highest price a consumer is willing to pay and the price the consumer actually pays d) the decrease in additional satisfaction consumers receive as they consume more of a good or service during a given period of time. e) the sum of consumer and producer surplus Is it measurable?

a) the enjoyment or satisfaction people from consuming goods and services. No, it is not measureable.

In the past 30 years, the price of oil has been relatively unstable, fluctuating between $11.00 and well over $100 per barrel. Which of the following potentially contributes to oil-price instability?

a) the supply of oil is inelastic

Leonard Fleck, a philosophy professor at Michigan State Uni, has written, "When it comes to health care in America, we have limited resources for unlimited health care needs. We want everything contemporary medical technology can offer that will improve the length or quality of our lives as we age. But as presently healthy taxpayers, we want costs controlled." A market system prevents people from getting as many goods and services as they want due to which of the following?

a) their income Is it necessary for all economic systems to limit services such as healthcare? - Yes

According to the law of supply

a) there is a positive relationship between price and quantity supplied c) as the price of a product increases, firms will supply more of it to the market

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 assets that: "If only one poor person is helped with this method, then all of 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: a)ignores the fact that the costs of helping that one person has an opportunity cost of what those funds could have been used to help other people b) is the most logical because it is focused on helping even one person c)acknowledge the importance of considering all the alternatives d) recognizes the fact that since the organization is a charity, there is an opportunity cost based on the square root of other peoples needs.

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

A news story from 2017 about the oil market stated "crude oil fell...in part due to renew concerns about the global supply glut" a. In referring to a "global glut," the article describes the result of a significant b. this change resulted in a c. In response to the global glut of oil, the market price will d. The glut will start to shrink when crude oil producers

a. increase in supply of, relative to the demand for, crude oil. b. a surplus of oil such that there is a grater quantity supplied demanded for crude oil. c. all to a new, lower equilibrium price at which the quantity supplied. d. reduce the amount that they offer for sale, and buyers increase the amount they buy

Assume that cotton is a normal good. Which of the following would cause both the equilibrium price and equilibrium quantity of cotton to increase.

an increase in consumer income

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? a) $90 b) $340 c) $300 d) $250

b) $340

Which of the following illustrates the law of supply?

b) An increase in price causes an increase in the quantity, and a decrease in price causes a decrease in the quantity supplied.

Which of the following best describes scarcity? a) Prices of goods are very high b) Unlimited wants exceed the limit resources available c) markets cannot properly allocate resources d) wants cannot be fulfilled and thus all goods must be rationed. Scarcity is central to the study of economics because it implies that a) every choice involves an opportunity cost. b) economic agents are rational c) society must make decisions at the margin d) wants are unlimited.

b) Unlimited wants exceed the limit resources available a) every choice involves an opportunity cost.

In many cities, firms that own office buildings can renovate them for use was residential apartments. According to a news story, in many cities "residential rents are surpassing office rents." The response to an increase in residential rents would be

b) a decrease in the supply of office space, shifting it to the left

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? a) depends on the "going rate" of museum employees b) at least $80,000 c) the value he attributes to the joy of working at a museum d) 0 since he will no longer be earning a salary

b) at least $80,000

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? a) economics is a proven field of study, and it has already solved this problem b) economics has a lot of problems such as those that caused the Great Recession c) Economics does assume that consumers and firms always make the correct choices. d) economics assumes that consumers and firms are rational, not that they always make the right choice.

b) economics has a lot of problems such as those that caused the Great Recession

Utility refers to how much consumer utilize a product or service. a) true b) false

b) false

An omitted variable is a variable that:

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

Which of the following statements is true?

b) normative statements depend on personal preferences

(blank) occurs when the direction of cause and effect is mixed up in a study.

b) reverse causality

Lawrence Summers served as secretary of the treasury in the Clinton administration and as director of National Economic Council in the Obama administration. He has been quoted as giving the following moral defense of the economic approach. ​"There is nothing morally unattractive about​ saying: We need to analyze which way of spending money on health care will produce more benefit and which​ less, and using our money as efficiently as we can. I​ don't think there is anything immoral about seeking to achieve environmental benefits at the lowest possible​ costs." It would be more moral to reduce pollution,

b) taking the cost into account because pollution reduction is not available for other worthy activities.

From the list below, select the variable that will cause the supply curve to lift:

b) the cost the raw materials

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

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

Choco Fantasy is a firm that produces both dark chocolates as well as liquor chocolates. It can produce​ 10,000 bars of dark chocolate per month if all its resources are used to produce only this variety.​ Similarly, using all its resources in the production of liquor​ chocolates, the firm can produce​ 8,000 bars per month.​ However, during a given​ month, the firm produces both varieties. Which of the​ following, if​ true, would suggest that the firm is operating on its​ PPF?

c) Even though the demand for both liquor and dark chocolates has increased, the company can increase the production of only one variety.

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? a) Maria should choose to drive as it saves her $10 b) Maria should choose to travel by train as it saves her $150 c) Maria should choose to travel by train as it saves her $10 d) Maria should choose to drive as it saves her $150

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

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 major, you rightly conclude that a) Soo Jin did not have a choice, her roommate was a slob b) Soo Jin figures that the additional benefit of having her own place, as opposed to sharing, is at least $950 c) Soo Jin figures that the additional benefit of having her own place, as opposed to sharing, is at least $250 d) the cost of having owns own space outweighs the benefits

c) 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 identifies a difference between correlation and causation?

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

Which of the following statements is true? a) it is not necessary to consider the risks of a particular alternative while making an optimal decision. b) an individual does not require information to make optimal decisions c) rational economic agents maximize more than just monetary income d) the principle of optimization is only accurate when it comes to making monetary decisions

c) rational economic agents maximize more than just monetary income

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

c) relatively wealthy people tend to be relatively healthy

Economists assume that people are rational in the sense that: a) they generally make the correct choices b) they do not respond to economic incentives c) they use all available information as they take intended to achieve their goals d) they make decisions based on total, rather than marginal, variables.

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

Complete the following statement: "when there is shortage of a good (blank) the process continues until the market is finally in equilibrium"

consumers complete against one another by bidding the price upward

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, the cost of driving to destination A is: a) $480 b) $970 c) $800 d) $730

d) $730

Causation occurs when:

d) a change in one variable is the reason for the change in another variable

A production possibilites frontier (PPF) is

d) a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

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

d) a firm producing CFLs installs new machinery. The per-day production of CFLs increases.

Oil prices plummeted from over $100 per barrel in mid-2014 to under $30 early 2016. According to Reuters article, oil traders in 2015 and 2016 put massive amounts of oil storage (even on tankers at sea) anticipating higher prices in the future. The article noted that in early 2017, "traders are turning the spigots to drain storage tanks holding US crude stockpiles as strengthening markets make it unprofitable to store for future sale." Holding some oil in storage rather than selling it would

d) decrease the supply of oil, shifting it to the left.

In a paper written by Bentley College economists Patricia M. Flynn and Michael A.​ Quinn, the authors​ state: ​"We find evidence that Economics is a good choice of major for those aspiring to become a CEO​ [chief executive​ officer]. When adjusting for size of the pool of​ graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an​ S&P 500 CEO than any other​ major." A list of famous economics majors published by Marietta College includes business leaders Warren​ Buffet, Donald​ Trump, Ted​ Turner, and Sam​ Walton, as well as former presidents George H.W.​ Bush, Gerald​ Ford, and Ronald Reagan. Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in​ government? a) management and politics have more to do with public relations than economics b) economics is less of an issue as you climb the corporate ladder because you usually hire accountants to handle your money c) economics is just as valuable to a cashier as it is for a CEO d) economics teaches us how to look at the tradeoffs involved in every decision

d) economics teaches us how to look at the tradeoffs involved in every decision

On the diagram to the right, movement along the curve from points A to B to C illustrates

d) increasing marginal opportunity costs

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: a) the market b) rationality c) economics d) scarcity

d) scarcity

The three economic questions that every society must answer are

d) what goods will be produced, how will they be produced, and who will receive the goods Centrally planned economies allocate resources based on decisions by- government- while market economics answer these questions through decisions made by-households and firms.-

Microsoft charges a price of $599 for a copy of Windows 7. Is this pricing decision rational? a) we cannot assume that this pricing was rational because we do not have enough information to make an assumption b) Microsofts choice cannot be rational: the price is clearly more than people are willing and able to pay c) mircosofts choice was rational: the price will maximize profit d) when we assume the managers at microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.

d) when we assume the managers at microsoft have used all available information and have weighed all known benefits and costs, we are assuming rationality.

An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eye-surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments

decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.

An article in the Wall Street Journal notes that although US oil production has increased rapidly in recent years, the increase has still amounted to only 5% of word production. Still, that increase has been "enough to help trigger a price collapse." A small increase in supply can lead to a large decline in equilibrium price when

demand is relatively inelastic

What happens if a country produces a combination of goods that efficiently uses all of the resources available in the economy?

the country is operating on its production possibilities frontier.

Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that

the demand for tarot card readers has increased.

In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit

the supply curve shifted to the left resulting in an increase in the equilibrium price

The demand for grapes is highest during summer and lowest during winter. Yet grape prices are normally lower in summer than in winter. What must be happening to the supply of grapes, from winter to summer, for the equilibrium price to fall?

the supply increases more than the demand increases.

Consider the supply of oil. What would make the supply of oil more elastic? The supply of oil would become more elastic if

the time horizon becomes longer