ECON 202-505, FALL 2011
Principles of Microeconomics
Homework 1
Instructor: Sung Ick Cho
1) In economics, choices must be made because we live in a world of
A) unemployment.
B) scarcity.
C) greed.
D) unlimited resources.
Answer:
B
Comment:
Recurring
Diff: 1 Page Ref: 4/4
Topic:
Scarcity
Objective: LO1: Explain these three key economic ideas: People are rational. People
respond to incentives. Optimal decisions are made at the margin.
AACSB:
Reflective Thinking
Special Feature:
None
Table 1-1
Total
Hours
Revenue
Open
(dollars)
1
$35
2
60
3
80
4
92
5
100
6
105
1
Eva runs a small bakery in the village of Roggerli. She is debating whether she should
extend her hours of operation. Eva figures that her sales revenue will depend on the
number of hours the bakery is open as shown in the table above. She would have to
hire a worker for those hours at a wage rate of $12 per hour.
2) Refer to Table 1-1. Using marginal analysis, determine how many hours should
Eva extend
her bakery's hours of operations?
A) 2 hours
B) 3 hours
C) 4 hours
D) 5 hours
E) 6 hours
Answer:
C
Comment:
Recurring
Diff: 3 Page Ref: 7/7
Topic:
Optimal Decisions Are Made at the Margin
Objective: LO1: Explain these three key economic ideas: People are rational. People
respond to incentives. Optimal decisions are made at the margin.
AACSB:
Analytic Skills
Special Feature:
None
3) Refer to Table 1-1. What is Eva's marginal benefit if she decides to stay open for
two hours instead of one hour?
A) $25
B) $36
C) $60
D) $95
Answer:
A
Comment:
Recurring
Diff: 2 Page Ref: 7/7
Topic:
Optimal Decisions Are Made at the Margin
2
Objective: LO1: Explain these three key economic ideas: People are rational. People
respond to incentives. Optimal decisions are made at the margin.
AACSB:
Analytic Skills
Special Feature:
None
4) Refer to Table 1-1. What is Eva's marginal cost if she decides to stay open for two
hours instead of one hour?
A) $12
B) $24
C) $36
D) $71
Answer:
A
Comment:
Recurring
Diff: 2 Page Ref: 7/7
Topic:
Optimal Decisions Are Made at the Margin
Objective: LO1: Explain these three key economic ideas: People are rational. People
respond to incentives. Optimal decisions are made at the margin.
AACSB:
Analytic Skills
Special Feature:
None
Figure 1-1
5) Refer to Figure 1-1.
Using the information in the figure above, calculate the
percentage change in sales of alcoholic beverages between 2006 and 2008.
A) 23.8%
3
B) 40%
C) 42.9%
D) 73.3%
Answer:
A
Diff: 1 Page Ref: 32/32
Topic:
Skill:
Formulas
Graphing
Objective: Appendix: Review the use of graphs and formulas
AACSB:
Analytic Skills
Special Feature:
None
Figure 1-4
6) Refer to Figure 1-4. Which of the following statements is true?
A) The slope of the tangent at E is positive and the slope of the tangent at F is
negative.
B) The slope of the tangent at E is negative and the slope of the tangent at F is
positive.
C) The slope of the tangent at E and the slope of the tangent at F are negative.
D) The slope of the tangent at E and the slope of the tangent at F are positive.
Answer:
A
Comment:
Recurring
Diff: 1 Page Ref: 31/31
4
Topic:
Skill:
Slope
Graphing
Objective: Appendix: Review the use of graphs and formulas
AACSB:
Analytic Skills
Special Feature:
None
Figure 2-2
Figure 2-2 above shows the production possibilities frontier for Vidalia, a nation that
produces two goods, roses and orchids.
7) Refer to Figure 2-2. What is the opportunity cost of one dozen orchids?
A) 0.4 dozen roses
B) 2.5 dozen roses
C) 7.25 dozen roses
D) 16 dozen roses
Answer:
B
Diff: 2 Page Ref: 40/40
Topic:
Skill:
Opportunity Cost
Graphing
Objective: LO1: Use a production possibilities frontier to analyze opportunity costs
and trade-offs.
AACSB:
Analytic Skills
5
Special Feature:
Solved Problem: Drawing a Production Possibilities Frontier for
Rosie's Boston Bakery
8) Refer to Figure 2-2. What is the opportunity cost of one dozen roses?
A) 0.4 dozen orchids
B) 2.5 dozen orchids
C) 7.25 dozen orchids
D) 16 dozen orchids
Answer:
A
Diff: 2 Page Ref: 40/40
Topic:
Skill:
Opportunity Cost
Graphing
Objective: LO1: Use a production possibilities frontier to analyze opportunity costs
and trade-offs.
AACSB:
Analytic Skills
Special Feature:
Solved Problem: Drawing a Production Possibilities Frontier for
Rosie's Boston Bakery
9) Refer to Figure 2-2. Suppose Vidalia is currently producing 20 dozen orchids per
period. How many roses is it also producing, assuming that resources are fully
utilized?
A) 30 dozen roses
B) 50 dozen roses
C) 100 dozen roses
D) 150 dozen roses
Answer:
D
Diff: 2 Page Ref: 40/40
Topic:
Skill:
Opportunity Cost
Graphing
Objective: LO1: Use a production possibilities frontier to analyze opportunity costs
and trade-offs.
AACSB:
Analytic Skills
6
Special Feature:
Solved Problem: Drawing a Production Possibilities Frontier for
Rosie's Boston Bakery
10) Refer to Figure 2-2.
The linear production possibilities frontier in the figure
indicates that
A) Vidalia has a comparative advantage in the production of orchids.
B) Vidalia has a comparative disadvantage in the production of roses.
C) the tradeoff between roses and orchids is constant.
D) it is progressively more expensive to produce orchids.
Answer:
C
Diff: 2 Page Ref: 40/40
Topic:
Skill:
Opportunity Cost
Graphing
Objective: LO1: Use a production possibilities frontier to analyze opportunity costs
and trade-offs.
AACSB:
Analytic Skills
Special Feature:
Solved Problem: Drawing a Production Possibilities Frontier for
Rosie's Boston Bakery
Figure 2-7
Figure 2-7 shows the production possibilities frontiers for Costa Rica and Guatemala.
Each country produces two goods, pineapples and coconuts.
11) Refer to Figure 2-7. What is the opportunity cost of producing 1 ton of coconuts in
Costa Rica?
7
A) 3/8 of a ton of pineapples
B) 2/3 of a ton of pineapples
C) 1 1/2 tons of pineapples
D) 100 tons of pineapples
Answer:
B
Comment:
Recurring
Diff: 2 Page Ref: 46-47/46-47
Topic:
Skill:
Opportunity Cost
Graphing
Objective: LO2: Understand comparative advantage and explain how it is the basis
for trade.
AACSB:
Analytic Skills
Special Feature:
None
12) Refer to Figure 2-7. What is the opportunity cost of producing 1 ton of coconuts
in Guatemala?
A) 1/2 of a ton of pineapples
B) 1 1/3 tons of pineapples
C) 2 tons of pineapples
D) 90 tons of pineapples
Answer:
A
Comment:
Recurring
Diff: 2 Page Ref: 46-47/46-47
Topic:
Skill:
Opportunity Cost
Graphing
Objective: LO2: Understand comparative advantage and explain how it is the basis
for trade.
AACSB:
Analytic Skills
Special Feature:
None
13) Refer to Figure 2-7. What is the opportunity cost of producing 1 ton of pineapples
in Costa Rica?
A) 3/8 of a ton of coconuts
8
B) 2/3 of a ton of coconuts
C) 1 1/2 tons of coconuts
D) 100 tons of coconuts
Answer:
C
Comment:
Recurring
Diff: 2 Page Ref: 46-47/46-47
Topic:
Skill:
Opportunity Cost
Graphing
Objective: LO2: Understand comparative advantage and explain how it is the basis
for trade.
AACSB:
Analytic Skills
Special Feature:
None
14) Refer to Figure 2-7. What is the opportunity cost of producing 1 ton of pineapples
in Guatemala?
A) 1/2 of a ton of coconuts
B) 1 1/3 tons of coconuts
C) 2 tons of coconuts
D) 180 tons of coconuts
Answer:
C
Comment:
Recurring
Diff: 2 Page Ref: 46-47/46-47
Topic:
Skill:
Opportunity Cost
Graphing
Objective: LO2: Understand comparative advantage and explain how it is the basis
for trade.
AACSB:
Analytic Skills
Special Feature:
None
15) Refer to Figure 2-7. Which country has a comparative advantage in the
production of coconuts?
A) Guatemala
B) They have equal productive abilities.
9
C) Costa Rica
D) neither country
Answer:
A
Comment:
Recurring
Diff: 2 Page Ref: 46-47/46-47
Topic:
Skill:
Comparative Advantage
Graphing
Objective: LO2: Understand comparative advantage and explain how it is the basis
for trade.
AACSB:
Analytic Skills
Special Feature:
None
16) Refer to Figure 2-7. Which country has a comparative advantage in the
production of pineapples?
A) Guatemala
B) They have equal productive abilities.
C) Costa Rica
D) neither country
Answer:
C
Comment:
Recurring
Diff: 2 Page Ref: 46-47/46-47
Topic:
Skill:
Comparative Advantage
Graphing
Objective: LO2: Understand comparative advantage and explain how it is the basis
for trade.
AACSB:
Analytic Skills
Special Feature:
None
17) Refer to Figure 2-7. 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 both pineapples and coconuts?
A) Guatemala
B) neither country
10
C) Costa Rica
D) cannot be determined
Answer:
B
Comment:
Recurring
Diff: 2 Page Ref: 46-47/46-47
Topic:
Skill:
Absolute Advantage
Graphing
Objective: LO2: Understand comparative advantage and explain how it is the basis
for trade.
AACSB:
Analytic Skills
Special Feature:
None
Table 3-1
Kona Coffee
Price per lb.
(dollars)
Ravi's
Quantity
Quantity
Demanded
Demanded
(lb.)
(lb.)
3
0
23
9
3
32
7
68
$10
8
6
14
5
18
12
4
22
18
18) Refer to Table 3-1.
Rest
Luke's
Market
Quantity
Demanded
(lb.)
of
Market
Quantity
Demanded
(lb.)
85
110
The table above shows the demand schedules for Kona coffee
of two individuals (Luke and Ravi) and the rest of the market. At a price of $6, the
quantity demanded in the market would be
A) 36 lb.
B) 68 lb.
C) 89 lb.
D) 123 lb.
11
Answer:
C
Comment:
Recurring
Diff: 2 Page Ref: 66/66
Topic: Demand Schedules
Objective: LO1: Discuss the variables that influence demand.
AACSB:
Analytic Skills
Special Feature:
None
19) Refer to Table 3-1. The table above shows the demand schedules for Kona coffee
of two individuals (Luke and Ravi) and the rest of the market.
coffee rises from $4 to $5, the market quantity demanded would
A) decrease by 35 lb.
B) increase by 115 lb.
C) increase by 35 lb.
D) decrease by 115 lb.
Answer:
A
Comment:
Recurring
Diff: 2 Page Ref: 66/66
Topic: Demand Schedules
Objective: LO1: Discuss the variables that influence demand.
AACSB:
Analytic Skills
Special Feature:
None
Figure 3-3
12
If the price of Kona
20) Refer to Figure 3-3. The figure above shows the supply and demand curves for
two markets: the market for original Michelangelo sculptures and the market for Ray
Ban sunglasses. Which graph most likely represents which market?
A) Graph B represents the market for original Michelangelo sculptures and Graph A
represents the market for Ray Ban sunglasses.
B) Graph A represents the market for original Michelangelo sculptures and Graph B
represents the market for Ray Ban sunglasses.
C) Graph A represents both the market for original Michelangelo sculptures and Ray
Ban sunglasses.
D) Graph B represents both the market for original Michelangelo sculptures and Ray
Ban sunglasses.
Answer:
A
Comment:
Recurring
Diff: 2 Page Ref: 78/78
Topic:
Skill:
Market Equilibrium
Graphing
Objective: LO3: Use a graph to illustrate market equilibrium.
AACSB:
Reflective Thinking
Special Feature:
None
Figure 3-8
13
24) Refer to Figure 3-8.
The graph in this figure illustrates an initial competitive
equilibrium in the market for motorcycles at the intersection of D1 and S1 (point A).
If the price of motorcycle engines increases, and the wages of motorcycle workers
increase, how will the equilibrium point change?
A) The equilibrium point will move from A to E.
B) The equilibrium point will move from A to B.
C) The equilibrium point will move from A to C.
D) The equilibrium will first move from A to B, then return to A.
Answer:
B
Comment:
Recurring
Diff: 3 Page Ref: 84/84
Topic:
Skill:
Shifts in Supply
Graphing
Objective: LO4: Use demand and supply graphs to predict changes in prices and
quantities.
AACSB:
Analytic Skills
Special Feature:
None
25) Refer to Figure 3-8.
The graph in this figure illustrates an initial competitive
equilibrium in the market for motorcycles at the intersection of D1 and S1 (point A).
If there is a surplus of motorcycles how will the equilibrium point change?
A) The equilibrium point will move from A to B.
B) The equilibrium point will move from A to C.
C) There will be no change in the equilibrium point.
D) The equilibrium point will move from A to E.
Answer:
B
Comment:
Recurring
Diff: 2 Page Ref: 84/84
Topic:
Surplus
Skill:
Graphing
Objective: LO4: Use demand and supply graphs to predict changes in prices and
quantities.
AACSB:
Analytic Skills
14
Special Feature:
None
26) Refer to Figure 3-8.
The graph in this figure illustrates an initial competitive
equilibrium in the market for motorcycles at the intersection of D2 and S1 (point C).
Which of the following changes would cause the equilibrium to change to point B?
A) A positive change in the technology used to produce motorcycles and decrease in
the price of motorcycle insurance, a complement to motorcycles.
B) An increase in the wages of motorcycle workers and a decrease in the price of
motorcycle insurance, a complement to motorcycles.
C) An increase in the number of motorcycle producers and an increase in the number
of consumers who prefer riding motorcycles.
D) An increase in the wages of motorcycle workers and an increase in the price of
motorcycle insurance, a complement to motorcycles.
Answer:
B
Comment:
Recurring
Diff: 3 Page Ref: 84/84
Topic:
Skill:
Shifts in Demand and Supply
Graphing
Objective: LO4: Use demand and supply graphs to predict changes in prices and
quantities.
AACSB:
Analytic Skills
Special Feature:
None
27) Refer to Figure 3-8.
The graph in this figure illustrates an initial competitive
equilibrium in the market for motorcycles at the intersection of D1 and S1 (point A).
If there is an increase in the wages of motorcycle workers and an increase in the price
of motorcycle insurance, a complement to motorcycles, the equilibrium could move
to which point?
A) A
B) B
C) C
D) E
Answer:
D
15
Diff: 3 Page Ref: 84/84
Topic:
Skill:
Shifts in Demand and Supply
Graphing
Objective: LO4: Use demand and supply graphs to predict changes in prices and
quantities.
AACSB:
Analytic Skills
Special Feature:
None
Table 2-5
Digital
Wheat (bushels)
Camera
China
100 hours
5 hours
South
90 hours
3 hours
Korea
28) Refer to Table 2-5.
This table shows the number of labor hours required to
produce a digital cameras and a bushel of wheat in China and South Korea.
a. Which country has an absolute advantage in the production of digital cameras?
b. Which country has an absolute advantage in the production of wheat?
c. What is China's opportunity cost of producing one digital camera?
d. What is South Korea's opportunity cost of producing one digital camera?
e. What is China's opportunity cost of producing one pound of wheat?
f. What is South Korea's opportunity cost of producing one pound of what?
g. If each country specializes in the production of the product in which it has a
comparative advantage, who should produce digital cameras?
h. If each country specializes in the production of the product in which it has a
comparative advantage, who should produce wheat?
Answer:
a. South Korea has an absolute advantage in the production of digital
cameras.
b. South Korea has an absolute advantage in wheat production.
16
c. China's the opportunity cost of producing one digital camera is 20 bushels of
wheat.
d. South Korea's opportunity cost of producing one digital camera is 30 bushels of
wheat
e. China's opportunity cost of one bushel of wheat is 0.05 units of a digital camera.
f. South Korea's opportunity cost of one bushel of wheat is 0.03 units of a digital
camera.
g. China should specialize in producing digital cameras.
h. South Korea should specialize in producing wheat.
Comment:
Recurring
Diff: 3 Page Ref: 45/45
Topic:
Specialization
Objective: LO2: Understand comparative advantage and explain how it is the basis
for trade
AACSB:
Analytic Skills
Special Feature:
None
Table 3-2
Price
Bushel
$3
per
Quantity
Quantity
Demanded
Supplied
(bushels)
(bushels)
30,000
0
6
26,000
4,000
9
22,000
9,000
12
18,000
12,000
15
15,000
15,000
18
12,000
22,000
21
8,000
28,000
24
4,000
36,000
17
29) Refer to Table 3-2.
The table contains information about the corn market.
Use
the table to answer the following questions.
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 22,000 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?
Answer:
a. Equilibrium price = $15; Equilibrium quantity = 15,000 bushels.
b.
There is a shortage.
c.
Shortage = 22,000 - 9,000 = 13,000 bushels.
d.
Quantity sold = 9,000 bushels.
e.
Price must rise.
f.
At $9 per bushel.
g.
There is a surplus.
h.
Surplus = 28,000 - 8,000 = 20,000 bushels.
i.
Quantity sold = 8,000 bushels.
j.
Price must fall.
Comment:
Recurring
Diff: 2 Page Ref: 79/79
Topic:
Market Equilibrium
Objective: LO3: Use a graph to illustrate market equilibrium.
AACSB:
Analytic Skills
Special Feature:
None
18
30) In each of the following situations, list what will happen to the equilibrium price
and the equilibrium quantity for a particular product, which is a normal good.
a. The population increases and the price of inputs increase
b. The price of a complement increases and technology advances
c. The number of firms in the market increases and income increases
d. Price is expected to increase in the future
e. Consumer preference increases and the price of a substitute in production
decreases
Answer:
a. Price increases; Quantity may increase or decrease
b. Price decreases; Quantity may increase or decrease
c. Quantity increases; Price may increase or decrease
d. Price increases; Quantity may increase or decrease
e. Quantity increases; Price may increase or decrease
Comment:
Recurring
Diff: 3 Page Ref: 83/83
Topic:
Shifts in Demand and Supply
Objective: LO4: Use demand and supply graphs to predict changes in prices and
quantities.
AACSB:
Analytic Skills
Special Feature:
None
19