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ECON 2105
Home Work #1
Chapters 1 – 4
You may work together on the homework, however, you must hand in your own answers.
Please type or print neatly on a separate sheet of paper. I will give no credit for
unreadable or ambiguous answers.
Part I (20 points): Matching
Match the correct definition to the word or phrase below
1.
2.
3.
4.
5.
Increase in total cost resulting from an action
Costs that cannot be recovered by changing a course of action
Economics that is concerned with how markets ought to work
Economics that describe the world as it is
Measures the maximum combination of outputs obtainable from a given amount of
inputs
6. The ability to produce a good at lower opportunity cost than another producer
7. The ability to produce more of a good than another producer
8. The price mechanism
9. The rate at which one currency is traded for another currency
10. What you must give up to pursue a course of action
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
Absolute advantage
Comparative advantage
Exchange rate
Invisible foot
Invisible hand
Marginal cost
Normative economics
Opportunity cost
Positive economics
Production possibilities frontier
Sunk Cost
Part II (25 points): True/False, Explain
State whether the following statements are true or false and explain your answer. No
points will be awarded for unsupported answers.
1. The government has no role to play in a free market economy.
2. Feudalism and Mercantilism relied on markets to solve the three main coordination
problems.
3. Trade is only beneficial when a country can produce more of a good than another
country.
4. Suppliers will supply more of a good when the price of that good rises because the
opportunity cost of not producing that good has risen.
5. Private property rights must be allocated and defended by government in order for a
capitalist economy to function.
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ECON 2105
Home Work #1
Chapters 1 – 4
Part III (30 points): Multiple Choice
Choose the best answer for each of the following questions.
1. Table 1 represents the choice faced by policy makers given the current set of U.S.
institutions and technology. What is the opportunity cost of reducing the rate of
inflation from 5 percent to 3 percent?
Table 1
Unemployment
Inflation
10
3
8
4
6
5
5
7
4
10
A) 4 percentage point of unemployment.
B) 2 percentage points of unemployment.
C) 4 percentage point of inflation.
D) 2 percentage points of inflation.
2. The principle of increasing marginal opportunity cost implies
A) goods become increasingly costly to produce because of specialization of
inputs.
B) goods become less desirable to produce because of decreasing marginal
utility.
C) goods become less costly to produce the more of them we produce.
D) goods become more costly to produce over time because of inflation.
3. Table 2 describes the production possibility frontiers of the countries Nutania and
Fruitopia. To maximize the available amount of coconuts and bananas available for
consumption:
Table 2
Nutania
Fruitopia
Coconuts
Bananas
Coconuts
Bananas
40
0
10
0
20
10
5
7.5
0
20
0
15
A) both countries should be self sufficient.
B) Nutania should specialize in producing bananas and Fruitopia should
specialize in producing coconuts.
C) Nutania should produce everything because it has an absolute advantage in
production.
D) Nutania should specialize in producing coconuts and Fruitopia should
specialize in producing bananas.
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ECON 2105
Home Work #1
Chapters 1 – 4
Part III (continued)
4. Economics is the study of
A) the institutional structure through which governments coordinate the wants
and desires of individuals.
B) the institutional structure through which individuals in a society coordinate
their diverse wants and desires.
C) how societies coordinate production so that all its participants' diverse wants
and desires are met.
D) how governments coordinate production so that all its participants' diverse
wants and desires are met.
5. Which of the following statements about the characteristics of a capitalist system is
false?
A) The questions of what, how, and for whom to produce are reflections of the
desires of individuals.
B) Distribution is to each individual according to his or her ability, effort, and
inherited property.
C) Market forces of supply and demand coordinate economic activity.
D) Political, social, and historical forces play no role in the coordination of
economic decisions.
6. Which of the following statements is an observation concerning the impact of social
forces (the invisible handshake) on markets?
A) A shortage of olive oil drives up the price of escargot at restaurants.
B) Tariffs reduce the number of Lamborghinis available in the U.S.
C) As are not for sale in college classes because it would devalue an earned A.
D) GC&SU could alleviate its parking problems by charging more for parking.
7. An economic theory is:
A) a generalizations about the workings of an abstract economy.
B) a physical or mental structure that significantly influences economic
decisions.
C) an action taken to influence the course of economic events.
D) an absolute truth concerning the workings of the real world.
8.
In theory a Socialist economy’s answers to the three fundamental economic questions
are based on the philosophical notion of
A)
Egoism
B)
Paternalism
C)
Altruism
D)
Religious Fundamentalism
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ECON 2105
Home Work #1
Chapters 1 – 4
Part III (continued)
9. Suppose the price of a pound of beef in the U.S. is $3 a pound and the exchange rate
between the dollar and the Japanese yen is 110 yen to the dollar. In the absence of
transportation costs and taxes, Japanese consumers who wish to buy three pounds of
American beef should expect to pay
A)
300 yen.
B)
330 yen.
C)
500 yen.
D)
990 yen.
10. Initial public offerings are a way for businesses to
A) finance the expansion of an existing privately held business.
B) finance the expansion of an existing publicly held business.
C) increase sales by brining in new customers.
D) consolidate the ownership of a company among a few stockholders.
Part IV (25 points): Using graphs
Table 3
Price of Ice
Quantity
Cream Bars
Demanded
0.10
1000
0.15
444
0.20
250
0.25
160
0.30
111
0.35
82
0.40
62
0.45
49
0.50
40
0.55
33
0.60
28
1. Graph the information in Table 3. Make sure you label your graph completely and
you use consistent scaling.
2. What is the slope of the demand curve for ice cream bars between the prices of $0.20
and $0.25?
3. What is the slope of the demand curve for ice cream bars between the prices of $0.35
and $0.50?
4. Describe the relationship between quantity demanded and the price of ice cream bars.
5. Identify one thing other than price that might impact the number of ice cream bars
demanded at each price. Describe how changes in the thing you have identified
would impact the demand for ice cream bars.
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