Principles of Microeconomics (ECON 1P91) ECON1P91 Assignment 1 Answer key_2024.

1. Stan buys a 1966 Mustang, which he plans to restore and sell. He anticipates that the cost of the car and the repairs will be $15,000 and that he can sell it for $19,000. When he has spent $15,000, he discovers he needs to replace the engine, which will cost $4000. He can sell the car without the new engine for $9000. What should Stan do? a. He should complete the repairs and sell the car for $19,000. b. He should sell the car now for $9000. c. He should never try such an expensive project again. d. He should be totally indifferent between finishing the project and selling the car now. 2. Refer to figure below. Which combination is NOT possible for this economy to produce? a. 10 barrels and 14 bathtubs b. 20 barrels and 8 bathtubs c. 25 barrels and 10 bathtubs d. 30 barrels and 6 bathtubs 3. Which of the following is an example of a positive statement? a. Lower interest rates should lead to decreased savings. b. If the minimum wage increases, the world will be a better place. c. Inflation is more harmful to the economy than unemployment. d. The benefits to the economy of improved equity are greater than the costs of reduced efficiency. Downloaded by youn sam () lOMoARcPSD|. In economics, what does capital refer to? a. the finances necessary for firms to produce their products b. buildings and machines used in the production process c. the money households use to purchase necessities d. the value of stock market shares issued to investors 5. Refer to Table 2-1. What is the opportunity cost to Toyland of increasing the production of dolls from 0 to 250? a. 50 toy cars b. 100 toy cars c. 150 toy cars d. 200 toy cars 6. On a production possibilities frontier, when is production efficient? a. if the production point is on the frontier b. if the production point is outside the frontier c. if the production point is on or inside the frontier Downloaded by youn sam () lOMoARcPSD|6353920d. if the production point is inside the frontier 7. Refer to the above figure. What is the slope of the curve between point A and point B? a. 5/2 b. 2/5 c. –2/5 d. –5/2 8. What markets are depicted in the simple circular-flow diagram? a. the market for goods and services, the financial market, and the market for the factors of production b. the market for the factors of production and the financial market c. the market for goods and services and the financial market d. the market for goods and services and the market for factors of production 9. Which observation was made famous by Adam Smith in his book The Wealth of Nations? a. There is no such thing as a free lunch. b. People buy more when prices are low than when prices are high. Downloaded by youn sam () lOMoARcPSD|6353920c. People tend to spend more than they earn. d. Markets are guided by an invisible hand that leads to desirable outcomes. 10. What happens when a relevant variable that is not named on either axis changes? a. There will be a movement along the curve. b. The curve may or may not change depending on how the variables are related. c. The curve will be unaffected since only the variables on the axis affect the curve. d. The curve will shift. 11. In which situation would economists use the word equity? a. Each member of society has the same income. b. Society is getting the most it can from its scarce resources. c. Those in society who have the least will receive the most. d. The benefits of society’s resources are distributed fairly among society’s members. . If an externality is present in a market, what may enhance economic efficiency? a. government intervention b. increased competition c. better informed market participants d. more defined property rights 13. Refer to the above figure. At which point or points can the economy produce? a. points B, D, and E b. points A, B, D, and E c. points D and C d. point D 14. Which statement best characterizes the money held by households in the circular-flow diagram? a. It is earned from the sale of factors of production. b. It becomes profit to firms. c. It originates mainly from international trade. It is used to purchase factors of production. 15. What will be the probable outcome if Honduras chooses to engage in trade? a. It will only benefit if it trades with countries that produce goods it cannot produce. b. It cannot benefit if it trades with less developed countries. c. It will only benefit if it trades with countries that are geographically close to Honduras. d. It can benefit by trading with any other country. 16. Which statement best describes economic models? a. Economic models attempt to mirror reality exactly. b. Economic models are useful but should not be used for policymaking. c. Economic models omit many details to allow us to see what is truly important. d. Economic models cannot be used in the real world because they omit details. 17. To improve living standards, what should policymakers do? a. impose restriction on foreign competition formulate policies designed to increase productivity c. impose tougher immigration policies d. provide subsidized childcare to low-income families 18. What is the production possibilities frontier? a. a map that shows the frontier beyond which technological innovation is unprofitable b. a map that shows areas of the world in which capitalist production is highest c. a graph that shows the various combinations of resources that can be used to produce a given level of output d. a graph that shows the various combinations of output the economy can possibly produce given the available resources and technology 19. Henry decides to spend two hours swimming at the beach rather than working at his job, which pays $16 per hour. What is Henry’s tradeoff? a. the $32 he could have earned working for two hours b. nothing, because he enjoys going to the beach more than working c. the increase in skill he obtains from swimming for those two hours d. nothing, because he spent $32 on new swim shorts What is a characteristic of the circular-flow model? a. Firms are sellers in the resource market and the product market. b. Firms are buyers in the product market. c. Households are sellers in the resource market. d. Households are buyers in the resource market. 21. If the average income of a Norwegian is higher than the average income of a Belizean, what is the most likely reason? a. Productivity is higher in Norway than in Belize. b. Norway has a more industrial economy than Belize. c. There is more competition in Norway than in Belize. d. Labour unions are more aggressive in Norway than in Belize. 22. Refer to the above figure. What could have caused the movement from point B to point C? a. inflation b. a change in income c. a change in the price of roses d. a change in the cost of producing roses Refer to the above figure. What would you say about the relationship between coffee and hours without sleep? a. The less coffee a person drinks per day, the more time he can go without sleep. b. There is no relationship between how much coffee per day a person drinks and how long they can go without sleep. c. The more coffee a person drinks per day, the longer he can go without sleep. d. The relationship between cups of coffee per day and time without sleep is too unpredictable to consider. 24. A typical worker in France can produce 48 units of product in an eight-hour day, where a typical worker in Romania produces 50 units of product in a 10-hour day. What can we conclude? a. Worker productivity in Romania is higher than in France. b. The standard of living will be higher in France than in Romania. c. Productivity for the Romanian worker is six units per hour and five units per hour for the French worker. d. There will be no difference between the standard of living in France and Romania. 25. If Hank chooses to buy fewer burgers per month at each price, what will happen to his demand curve? a. It will shift inward. b. It will shift outward. It will not shift, but he will move along his demand curve from left to right. d. It will not shift, but he will move along his demand curve from right to left. 26. Refer to the above figure. How are the price of roses and the quantity of roses related? a. directly related, and therefore moving in the same direction b. directly related, and therefore moving in opposite directions c. inversely related, and therefore moving in opposite directions d. independent of each other 27. Refer to the above figure. What is the opportunity cost of moving from point A to point B? a. 8 bathtubs b. 20 barrels c. the difference between the 8 bathtubs you get and the 20 barrels you give up d. the difference between the 20 barrels you get and the 8 bathtubs you give up In what region of the production possibilities frontier can an economy produce? a. An economy can produce only on the production possibilities frontier. b. An economy can produce at any point inside or outside the production possibilities frontier. c. An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier. d. An economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier. 29. Which of the following is most likely to generate an externality? a. Children buy birthday presents for their friends. b. A couple vaccinates their young children. c. A newlywed couple buys furniture for their condo. d. A family purchases a van so they can easily get their kids to hockey practice. 30. When do you know an economist has crossed the line from scientist to policy adviser? a. when he explains just the facts b. when he makes positive statements c. when he makes normative statementsd. when he cannot reach a conclusion Which word comes from the Greek word for “one who manages a household”? a. market b. bank c. government d. economy 32. What do economists do when they attempt to simplify the real world and make it easier to understand? a. They make assumptions. b. They make uninformed judgments. c. They make predictions. d. They make evaluations. 33. What is a marginal change? a. a long-term trend b. a large, significant adjustment c. a change for the worse, and so is usually short term d. a small incremental adjustment 34. What is the term for what you give up to obtain an item? opportunity cost b. implicit cost c. applied cost d. variable cost 35. Approximately what percentage of the world’s economies experience scarcity? a. 30 b. 45 c. 60 d. 100 36. According to economists, what do people respond to? a. laws b. incentives c. threats more than rewards d. positives, but not negatives 37. What is market power? a. the power of a single person or group to influence market prices b. the ability of a person or group of people to successfully market new products c. the power of the government to regulate a market d. the relative importance of a market to the overall economy What is an externality? a. the impact of one person’s actions on the well-being of a bystander b. the impact of a person’s actions on that person’s well-being c. the impact of society’s decisions on the well-being of another society d. the impact of society’s decisions on the well-being of one person in the society 39. What are factors of production? a. positive or negative changes in inventory b. weather and social and political conditions that affect production c. the physical relationships between economic inputs and outputs d. inputs into the production process 40. What is another term for factors of production? a. inputs b. outputs c. goods d. services 41. For economists, what are the two types of statements about the world? positive statements and false statements b. true statements and false statements c. true statements and normative statements d. positive statements and normative statements 42. What would NOT be considered a factor of production? a. labour b. land c. capital d. stocks 43. What does a normative statement describe? a. how the world was in the past b. how the world is c. how the world will be in the future d. how the world ought to be 44. Which concept best defines efficiency? a. absolute fairness b. equal distribution c. minimum waste d. consumer satisfaction What is an increase in the overall level of prices in an economy called? a. economic growth b. inflation c. market power d. productivity 46. Refer to the above figure. What are the curves shown? a. supply curves b. demand curves c. preference curves d. income-consumption curves 47. Which statement about slope is NOT correct? a. Slope explains how much one variable responds to changes in another variable. b. Slope can be computed by delta x divided by delta y. c. Slope is positive if the two variables are moving in the same direction. d. Slope does not change if the line is linear. Refer to the above figure. What would be an efficient combination of bathtubs and barrels? a. 15 barrels and 6 bathtubs b. 10 barrels and 14 bathtubs c. 15 barrels and 10 bathtubs d. 25 barrels and 12 bathtubs 49. Refer to the above figure. What would happen if this economy moved from point F to point C? a. It still would not be producing efficiently. b. There would be no gain in either bathtubs or barrels. c. It would be producing more barrels and more bathtubs than at point C. d. It is not possible for this economy to move from point F to point C without additional resources. 50. Jay has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800. He discovers that he needs an additional repair, which will cost $400. He can sell the boat as it is now for $300. What should he do? a. He should take the $300. b. He should never sell something for less than its cost. c. He should complete the repairs and sell the boat. d. It doesn’t matter which action he takes; the outcome is the same either way.