Name: ID:

ECO 2013: Principles of Economics (Macro)

Spring 2019
Homework 1 (Ch 1-4)
Due: 3/21/2019
Total Points: 100 (Add to Course: Out of 5)

Instructions: Write your name and id on top. You have to turn in your homework in class.

Section A: 25*1 =25

1) In an effort to serve consumers who have become more health conscious, a number of firms have
begun developing small electronic devices which allow people to monitor various health conditions.
These firms are reacting to which of the three key economic ideas?
A) people are rational
B) people respond to economic incentives
C) optimal decisions are made at the margin
D) firms attempt to maximize revenues

2) In economics, choices must be made because we live in a world of

A) unemployment. B) scarcity.
C) greed. D) unlimited resources.

3) Which of the following statements about scarcity is true?

A) Scarcity refers to the situation in which unlimited wants exceed limited resources.
B) Scarcity is not a problem for the wealthy.
C) Scarcity is only a problem when a country has too large a population.
D) Scarcity only arises when there is a wide disparity in income distribution.

4) By definition, economics is the study of

A) how to make money in the stock market.
B) how to make money in a market economy.
C) the choices people make to attain their goals, given their scarce resources.
D) supply and demand.

5) An economic ________ is a simplified version of some aspect of economic life used to analyze an
economic issue.
A) market
B) trade-off
C) variable
D) model

6) Where do economic agents such as individuals, firms, and nations interact with each other?
A) in public locations monitored by the government
B) in any arena that brings together buyers and sellers
C) in any physical location where people can physically get together for selling goods, such as shopping
malls
D) in any location where transactions can be monitored by consumer groups and taxed by the
government

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7) In economics, the term ________ refers to a group of buyers and sellers of a product and the
arrangement by which they come together to trade.
A) collective
B) cooperative
C) market
D) trade-off

8) Economists assume that individuals

A) behave in unpredictable ways.
B) will never take actions to help others.
C) prefer to live in a society that values fairness above all else.
D) are rational and respond to incentives.

9) Holding all other personal characteristics-such as age, gender, and income-constant, economists would
expect that
A) people with health insurance are less likely to be overweight than people without health insurance.
B) people with health insurance are more likely to be overweight than people without health insurance.
C) people with health insurance are equally likely to be overweight as people without health insurance.
D) there is no correlation between having health insurance and being overweight.

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

A) allocative
B) marginal
C) equity
D) optimal

11) A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of the following is a term
used by economists to describe the money received from the sale of an additional bag of potatoes?
A) marginal revenue
B) gross earnings
C) pure profit
D) marginal costs
E) net benefit

12) Economists reason that the optimal decision is to continue any activity up to the point where the
A) marginal benefit is zero.
B) marginal benefit is greater than the marginal cost.
C) marginal cost is zero.
D) marginal benefit equals the marginal cost.

13) The three fundamental questions that any economy must address are:
A) What will be the prices of goods and services; how will these goods and services be produced; and
who will receive them?
B) What goods and services to produce; how will these goods and services be produced; and who
receives them?
C) Who gets jobs; what wages do workers earn; and who owns what property?
D) How much will be saved; what will be produced; and how can these goods and services be fairly
distributed?

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14) The idea that because of scarcity, producing more of one good or service means producing less of
another good or service refers to the economic concept of
A) optimization.
B) efficiency.
C) trade-off.
D) equity.

15) The highest valued alternative that must be given up to engage in an activity is the definition of
A) economic equity.
B) marginal benefit.
C) opportunity cost.
D) marginal cost.

16) The decision about what goods and services will be produced in a market economy is made by
A) lawmakers in the government voting on what will be produced.
B) workers deciding to produce only what the boss says must be produced.
C) producers deciding what society wants most.
D) consumers and firms choosing which goods and services to buy or produce.
E) consumers dictating to firms what they need most.

17) Which of the following statements about the economic decisions consumers, firms, and the
government have to make is false?
A) Governments face the problem of scarcity in making economic decisions.
B) Only individuals face scarcity; firms and the government do not.
C) Both firms and individuals face scarcity.
D) Each faces the problem of scarcity which necessitates trade-offs in making economic decisions.

18) In a modern mixed economy, who decides what goods and services will be produced?
A) only the producers
B) only consumers
C) only the government
D) all of the above

19) All of the following are part of an economic model except

A) assumptions.
B) hypotheses.
C) data.
D) opinions.

20) Which of the following is a positive economic statement?

A) The standard of living in the United States should be higher.
B) If the price of iPhones falls, a larger quantity of iPhones will be purchased.
C) The government should revamp the health care system.
D) The U.S. government should not have bailed out U.S. auto manufacturers.

21) Which of the following is a normative economic statement?

A) The price of gasoline is too high.
B) The current high price of gasoline is the result of strong worldwide demand.
C) When the price of gasoline rises, the quantity of gasoline purchased falls.
D) When the price of gasoline rises, transportation costs rise.

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22) Which of the following is a microeconomics question?
A) How much will be saved and how much will be produced in the entire economy?
B) What will the level of economic growth be in the entire economy?
C) What factors determine the price of carrots?
D) What determines the average price level and inflation?

23) Microeconomics is the study of

A) how households and firms make choices.
B) the economy as a whole.
C) the global economy.
D) topics such as unemployment, inflation, and economic growth.

24) Which of the following is a macroeconomics question?

A) What determines the inflation rate?
B) What determines the production of DVDs?
C) What factors determine the price of carrots?
D) What determines the wage of auto workers?

25) Macroeconomics is the study of

A) how households make choices.
B) how firms make choices.
C) how households and firms make choices.
D) the economy as a whole.

Section B: 40*1 = 40

1) The production possibilities frontier shows the ________ combinations of two products that can be
produced in a particular time period with available resources.
A) minimum attainable
B) maximum attainable
C) only D) equitable

2) The production possibilities frontier model shows that

A) if consumers decide to buy more of a product, its price will increase.
B) a market economy is more efficient in producing goods and services than is a centrally planned
economy.
C) economic growth can only be achieved by free market economies.
D) if all resources are fully and efficiently utilized, more of one good can be produced only by producing
less of another good.

3) The production possibilities frontier model assumes which of the following?

A) Labor, capital, land, and natural resources are unlimited in quantity.
B) The economy produces only two products.
C) Production of any level of the two products that the economy produces is currently possible.
D) The level of technology is variable.

4) The attainable production points on a production possibilities curve are

A) the horizontal and vertical intercepts.
B) the points along the production possibilities frontier.
C) the points outside the area enclosed by the production possibilities frontier.
D) the points along and inside the production possibility frontier.

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5) The points outside the production possibilities frontier are
A) efficient.
B) attainable.
C) inefficient.
D) unattainable.

Figure 2-1

6) Refer to Figure 2-1. Point A is

A) technically efficient.
B) unattainable with current resources.
C) inefficient in that not all resources are being used.
D) the equilibrium output combination.

7) Refer to Figure 2-1. Point B is

A) technically efficient.
B) unattainable with current resources.
C) inefficient in that not all resources are being used.
D) the equilibrium output combination.

8) Refer to Figure 2-1. Point C is

A) technically efficient.
B) unattainable with current resources.
C) inefficient in that not all resources are being used.
D) is the equilibrium output combination.

9) In a production possibilities frontier model, a point ________ the frontier is productively inefficient.
A) along
B) inside
C) outside
D) at either intercept of

10) Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk
roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity
cost of producing an additional 10 silk roses?
A) 2.5 silk leaves
B) 10 silk leaves
C) 25 silk leaves
D) 55 silk leaves
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Figure 2-2

Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that
produces two goods, meat and vegetables.

11) Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables?
A) pound of meat
B) 1.2 pounds of meat
C) pounds of meat
D) 12 pounds of meat

12) Refer to Figure 2-2. What is the opportunity cost of one pound of meat?
A) pound of vegetables

B) pounds of vegetables
C) 1.6 pounds of vegetables
D) 16 pounds of vegetables

13) Refer to Figure 2-2. Suppose Mendonca is currently producing 60 pounds of vegetables per period.
How much meat is it also producing, assuming that resources are fully utilized?
A) 45 pounds of meat
B) 75 pounds of meat
C) 80 pounds of meat
D) 100 pounds of meat

14) Refer to Figure 2-2. If Mendonca chooses to produce 160 pounds of vegetables, how much meat can
it produce to maximize production?
A) 0 pounds of meat
B) 30 pounds of meat
C) 60 pounds of meat
D) 120 pounds of meat

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15) Refer to Figure 2-2. If Mendonca chooses to produce 120 pounds of meat, how much vegetables can
it produce to maximize production?
A) 0 pounds of vegetables
B) 60 pounds of vegetables
C) 100 pounds of vegetables
D) 160 pounds of vegetables

16) Refer to Figure 2-2. The linear production possibilities frontier in the figure indicates that
A) Mendonca has a comparative advantage in the production of vegetables.
B) Mendonca has a comparative disadvantage in the production of meat.
C) the tradeoff between meat and vegetables is constant.
D) it is progressively more expensive to produce meat.

17) A production possibilities frontier with a bowed-outward shape indicates

A) the possibility of inefficient production.
B) constant opportunity costs as more and more of one good is produced.
C) increasing opportunity costs as more and more of one good is produced.
D) decreasing opportunity costs as more and more of one good is produced.

18) Increasing opportunity cost is represented by a ________ production possibilities frontier.

A) linear
B) bowed in
C) bowed out
D) vertical

Table 2-1
Production choices for Tomaso's Trattoria
Quantity of Quantity of
Pizzas Calzones
Choice Produced Produced
A 48 0
B 36 15
C 24 30
D 12 45
E 0 60

19) Refer to Table 2-1. Assume Tomaso's Trattoria only produces pizzas and calzones. A combination of
24 pizzas and 30 calzones would appear
A) along Tomaso's production possibilities frontier.
B) inside Tomaso's production possibilities frontier.
C) outside Tomaso's production possibilities frontier.
D) at the horizontal intercept of Tomaso's production possibilities frontier.

20) Refer to Table 2-1. Assume Tomaso's Trattoria only produces pizzas and calzones. A combination of
36 pizzas and 30 calzones would appear
A) along Tomaso's production possibilities frontier.
B) inside Tomaso's production possibilities frontier.
C) outside Tomaso's production possibilities frontier.
D) at the horizontal intercept of Tomaso's production possibilities frontier.

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21) Refer to Table 2-1. Assume Tomaso's Trattoria only produces pizzas and calzones. A combination of
24 pizzas and 15 calzones would appear
A) along Tomaso's production possibilities frontier.
B) inside Tomaso's production possibilities frontier.
C) outside Tomaso's production possibilities frontier.
D) at the horizontal intercept of Tomaso's production possibilities frontier.

22) Refer to Table 2-1. Assume Tomaso's Trattoria only produces pizzas and calzones. Tomaso faces
________ opportunity costs in the production of pizzas and calzones.
A) increasing
B) decreasing
C) constant
D) negative

23) You have an absolute advantage whenever you

A) are better educated than someone else.
B) can produce more of something than others with the same resources.
C) prefer to do one particular activity.
D) can produce something at a lower opportunity cost than others.

Table 2-6
Serena Haley
Bracelets 8 9
Necklaces 16 12

Table 2-6 shows the output per week of two jewelers, Serena and Haley. They can either devote their
time to making bracelets or making necklaces.

24) Refer to Table 2-6. Which of the following statements is true?

A) Haley has an absolute advantage in making both products.
B) Serena has an absolute advantage in making both products.
C) Haley has an absolute advantage in making bracelets and Serena in making necklaces.
D) Haley has an absolute advantage in making necklaces and Serena in making bracelets.

25) Refer to Table 2-6. What is Haley's opportunity cost of making a bracelet?
A) 3/4 of a bracelet
B) 3 bracelets
C) 1 1/3 necklaces
D) 2 necklaces

26) Refer to Table 2-6. What is Haley's opportunity cost of making a necklace?
A) 3/4 of a bracelet
B) 3 bracelets
C) 1 1/3 necklaces
D) 2 necklaces

27) Refer to Table 2-6. What is Serena's opportunity cost of making a bracelet?
A) 2 necklaces
B) 1/2 of a bracelet
C) 1/2 of a necklace
D) 3/4 of a bracelet

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28) Refer to Table 2-6. What is Serena's opportunity cost of making a necklace?
A) 2 necklaces
B) 1/2 of a bracelet
C) 1/2 of a necklace
D) 3/4 of a bracelet

29) Refer to Table 2-6. Which of the following statements is true?

A) Haley has a comparative advantage in making both products.
B) Serena has a comparative advantage in making both products.
C) Haley has a comparative advantage in making bracelets and Serena in making necklaces.
D) Haley has a comparative advantage in making necklaces and Serena in making bracelets.

Figure 2-10

Figure 2-10 shows the production possibilities frontiers for Tahiti and Bora Bora. Each country produces
two goods, milk and honey.

30) Refer to Figure 2-10. What is the opportunity cost of producing one gallon of milk in Tahiti?
A) 1/2 of a gallon of honey
B) 5/6 of a gallon of honey
C) 1.2 gallons of honey
D) 1.5 gallons of honey

31) Refer to Figure 2-10. What is the opportunity cost of producing one gallon of milk in Bora Bora?
A) 2/3 of a gallon of honey
B) 0.8 gallons of honey
C) 1.125 gallons of honey
D) 1.5 gallons of honey

32) Refer to Figure 2-10. What is the opportunity cost of producing one gallon of honey in Tahiti?
A) 5/6 of a gallon of milk
B) 0.9 gallons of milk
C) 1.2 gallons of milk
D) 1 1/3 gallons of milk

33) Refer to Figure 2-10. What is the opportunity cost of producing one gallon of honey in Bora Bora?
A) 2/3 of a gallon of milk
B) 0.9 gallons of milk
C) 1 1/3 gallons of milk
D) 1.5 gallons of milk
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34) Refer to Figure 2-10. Which country has a comparative advantage in the production of milk?
A) Bora Bora B) They have equal productive abilities.
C) Tahiti D) neither country

35) Refer to Figure 2-10. Which country has a comparative advantage in the production of honey?
A) Bora Bora B) They have equal productive abilities.
C) Tahiti D) neither country

36) Refer to Figure 2-10. If the two countries have the same amount of resources and the same
technological knowledge, which country has an absolute advantage in the production of milk?
A) Bora Bora B) They have the same advantage.
C) Tahiti D) cannot be determined

37) Which of the following statements is true?

A) Individuals who have never been the best at doing anything cannot have a comparative advantage in
producing any product.
B) Individuals who have never been the best at doing anything can still have a comparative advantage in
producing some product.
C) Individuals who have never been the best at doing anything perform all tasks at a higher opportunity
cost than others.
D) Individuals who have never been the best at doing anything must have an absolute advantage in at
least ones task.

Figure 2-11

38) Refer to Figure 2-11. One segment of the circular flow diagram in the figure shows the flow of labor
services from market K to economic agents J. What is market K and who are economic agents J?
A) K = factor markets; J = households
B) K = product markets; J = households
C) K = factor markets; J = firms
D) K = product markets; J = firms

39) Refer to Figure 2-11. One segment of the circular flow diagram in the figure shows the flow of
wages and salaries from market K to economic agents M. What is market K and who are economic agents
M?
A) K = factor markets; M = households B) K = product markets; M = households
C) K = factor markets; M = firms D) K = product markets; M = firms

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40) Which of the following are separate flows in the circular flow model?
A) the flow of goods and the flow of services
B) the flow of costs and the flow of revenue
C) the flow of income earned from the sale of resources and the flow of expenditures on goods and
services
D) the flow of income received by households and the flow of tax revenues paid by households

Section C: Based on Chapter 4: Demand and Supply: 35 points

1. For each of the following pairs of products state which are complements, which are substitutes, and
which are unrelated. (5*1 =5)

a. Digital camera and memory stick

b. 7Up and Mountain Dew
c. Swimsuits and flip-flops
d. Tylenol and cat food
e. Photocopier and paper

2. Draw a demand curve and label it D1. On the graph, illustrate an increase in demand and a decrease
in demand, and label the curves D2 and D3, respectively. (5*2 =10)

a. an increase in income and the good is a normal good

b. an increase in income and the good is an inferior good
c. a decrease in the price of a substitute good
d. a decrease in the price of a complementary good
e. an increase in the expected future price of the good

3. Suppose we have the following information regarding seats at football games: (5*2 = 10)

Demand: P = 1900- (1/50) Qd

Supply: Qs = 90000

a. Find the equilibrium price and quantity of seats for a football game (using algebra and a graph)

b. Suppose the government prohibits tickets scalping (selling tickets above their face value), and the face
value of tickets is $50. This policy effectively places a price at $50. What will be the change in demand in
this case?

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4. Table 3-3
Price per Quantity Demanded Quantity Supplied
Bushel (bushels) (bushels)

$3 36,000 0

6 30,000 3,000

9 24,000 6,000

12 19,000 10,000

15 15,000 15,000

18 10,000 21,000

21 7,000 28,000

24 4,000 36,000

Refer to Table 3-3. The table contains information about the corn market. Use the table to answer the
following questions. (10*1 =10)
a. What are the equilibrium price and quantity of corn?
b. Suppose the prevailing price is $9 per bushel. Is there a shortage or a surplus in the market?
c. What is the quantity of the shortage or surplus?
d. How many bushels will be sold if the market price is $9 per bushel?
e. If the market price is $9 per bushel, what must happen to restore equilibrium in the market?
f. At what price will suppliers be able to sell 24,000 bushels of corn?
g. Suppose the market price is $21 per bushel. Is there a shortage or a surplus in the market?
h. What is the quantity of the shortage or surplus?
i. How many bushels will be sold if the market price is $21 per bushel?
j. If the market price is $21 per bushel, what must happen to restore equilibrium in the market?

Good Luck!!

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