Econ 201
Fundamentals problem set
This problem set must be submitted via the “Quizzes” section on D2L on or before 11:59 p.m. on January
19, 2019.
Note: There are a couple questions that say: “Assume the only costs are monetary costs”. This means that
you only need to think about the financial costs of something. For example, if you are buying a pack of
cigarettes for $5.00, assume that the only cost for the cigarettes is $5.00, and not, for example, “$5.00 and
an increased risk of cancer”.
1) Economics is based on the principle that resources are scarce and people have unlimited desires. If
the federal government were to run the money‐printing presses at maximum speed and send billions
of dollars in cash to every American, would that result in every American being able to obtain
everything they desire?
A) Yes
B) No
2) Jake is considering vaping. One of his friends just quit vaping and has offered Jake his Juul for free, but
only if Jake is going to use it himself. If Jake does start vaping, he will spend $20 per week on Juul
pods. Additionally, Jake’s girlfriend will break up with him if he starts vaping. What is the opportunity
cost of vaping for Jake?
A) $20 per week
B) Zero, because he got the Juul for free
C) $20 per week and his girlfriend
3) The main reason why you cannot have everything you want is that:
A) Taxes are too high
B) Resources are scarce
C) Opportunity costs are equal to zero
4) Michigan State University decides fine everyone who leaves an electric scooter on a walkway 20
dollars. What would we expect to happen?
A) There is no change in the number of scooters left on walkways
B) Fewer scooters are left in walkways, but there are still some scooters left in walkways
C) No scooters are left in walkways.
5) You are interested in learning whether increasing sales taxes would benefit the economy of East
Lansing. This would be best described as:
A) Microeconomics
B) Macroeconomics
6) You are the fifteenth caller for a contest at your favorite radio station and win your choice of three
concert tickets: Post Malone, Taylor Swift, and the Jonas Brothers. You choose Post Malone, because
that is your favorite performer. Your second choice would have been the Jonas Brothers. What is the
opportunity cost of the concert tickets?
A) Zero, because they were free
B) The Jonas Brothers tickets
C) The Jonas Brothers tickets and the Taylor Swift tickets
7) Which of the following is definitely an example of someone not acting in their self‐interest?
A) A drug addict using heroin
B) A criminal robbing a bank
C) A person buying an expensive car
D) None of the above; each of these could be an instance where someone is acting rationally and
in their own best interest.
8) You are binge watching Stranger Things on Netflix and have one episode left in the first season. Which
of the following would be describe the marginal benefit of watching that last episode?
A) The enjoyment you get from watching the last episode
B) The total enjoyment you received from the first season
C) The hour that you could have spent studying economics (your best possible alternative use of
the time, of course)
9) To keep the local professional football team from leaving, the city of San Diego proposed a tax on
hotel rooms that would be used to fund a new football stadium. Many people are opposed to using
tax revenues to fund sports stadiums. The mayor argued that, because the tax would be paid by out‐
of‐town visitors, the new stadium would be “free” for residents. Which of the following statements is
most accurate?
A) The mayor is correct
B) The mayor is forgetting about the opportunity cost of having a football team instead of having
another sports team
C) The mayor is forgetting about the opportunity cost of spending the tax revenue on a new
stadium instead of on something else
D) The mayor is forgetting about the marginal benefits residents receive from the football
stadium
10) Jane subscribes to Netflix. She enjoys binge‐watching The Office, but finds that, because she has seen
every episode several times, she gets bored of them quickly. In fact, in a given binge‐watch session,
she enjoys each episode less than the one before it. Jane would subscribe to Netflix even if The Office
was not available. For Jane, watching The Office on Netflix has _____ marginal benefits and _____
marginal costs. (Assume the only costs are monetary costs.)
A) Decreasing; Increasing
B) Decreasing: Constant
C) Constant; Increasing
D) Increasing; Decreasing
11) This question is based a New York Times column (link). In it, a woman named Liza is deciding how
often to visit her boyfriend Will and how long to stay. When she visits him, she must pay to park:
Near his downtown apartment, parking was particularly nightmarish. If I got lucky and
scored a spot nearby, parking cost $3.50 per hour until 4 p.m., $1.50 per hour until 10 p.m.
and then nothing until morning, when, at 7, hourly rates shot up to $5.50.
Liza has decided that she values her time with Will at $20 per hour when Will is awake and $4
per hour when Will is asleep. Will sleeps until 8:00 a.m. every day and leaves for work at 9:00
a.m. Suppose Liza arrives at Will’s house at 1:00 p.m. About what time do we expect her to
leave his house?
A) 4:00 p.m.
B) 7:00 a.m.
C) 8:00 a.m.
D) 9:00 a.m.
Use the following information to answer the next 3 questions:
A field experiment at an all‐you‐can‐eat pizza restaurant shows that a 50% discount on the price
of the meal led customers to consume 27.9% less pizza. In other words, when people have to pay
a higher price for their meal, they want to “get their money’s worth” by eating more pizza.
(https://www.mitpressjournals.org/doi/abs/10.1162/REST_a_00057).
12) Suppose the regular price of the buffet is $10 and the discounted price is $5. Once a customer
has paid for the buffet, what is the marginal cost of eating another slice of pizza? (Assume the
only costs are monetary costs.)
A) $0
B) $5
C) $10
D) It depends on whether the customer is getting a discount.
13) This actually does not fit with what we have learned about rational decision making and how
people make decisions on the margins. Why?
A) The customers are not accounting for the opportunity cost of eating pizza instead of
another meal
B) The marginal cost of a slice of pizza is zero for all customers, so all customers (whether
or not they are receiving a discount) should consume until the point where the
marginal benefit of the last slice of pizza is zero. This means that the price paid should
not affect consumption
C) The marginal cost of a slice of pizza is greater for customers paying the higher price.
This means that marginal benefit will equal marginal cost at a lower quantity, so
consumers paying a higher price should eat less pizza.
D) All‐you‐can‐eat pizza restaurants have bad pizza, and rational people would never go
to that type of restaurant
14) After the researchers conducted this part of the experiment, they did another analysis. They
surveyed the customers after they ate and asked them to rate the taste of the pizza. Based
on what we have learned about diminishing marginal benefits, who would we expect to give
the pizza a higher rating?
A) Customers who paid the higher price, because the pizza is worth more to them
B) Customers who paid the lower price, because they didn’t eat as many slices and
therefore avoided the slices that gave a lower marginal utility
15) A farm can produce two products: beef and pork. The table below is the production
possibilities schedule for this farm.
Product
Option 1
Option 2
Option 3
Option 4
Beef
0
25
50
75
Pork
100
90
70
20
As the quantity of beef produced increases, the opportunity cost of beef in terms of pork:
A) Increases
B) Decreases
C) Remains Constant
Use the below table to answer the following 4 questions:
Philip is a farmer in Florida and Katie is a farmer in Kansas. They can grow either strawberries
or corn. The table below gives the production possibilities schedule for Philip and Katie.
Philip
Strawberries
100
75
50
25
0
Corn
0
10
20
30
40
Katie
Strawberries
20
15
10
5
0
Corn
0
20
40
60
80
16) What is Philip’s opportunity cost of corn?
A) 2 strawberries
B) 2.5 strawberries
C) 10 strawberries
D) 100 strawberries
17) What is Katie’s opportunity cost of corn?
A) ¼ strawberry
B) 1 strawberry
C) 4 strawberries
D) 20 strawberries
18) _______ has a comparative advantage at making strawberries and _______ has a comparative
advantage at making corn.
A) Philip; Katie
B) Katie; Philip
C) Katie; Katie
D) Philip; Philip
19) Which of the following “prices” of corn (in terms of strawberries) is an acceptable term of
trade for both Katie and Philip?
A) 1 strawberry
B) 3 strawberries
C) 1/20 strawberry
D) There are no terms of trade acceptable to both parties
Use the following information to answer the next two questions:
Ray is deciding how to spend the next four hours. He will use the time to play Fortnite or to
study for his math test, or to do some combination of the two.
20) Ray’s main goal in playing Fortnite is to gain lots of XP (Experience Points), which he earns by
playing the game well. The below table shows the total XP Ray earns playing Fortnite
Hours played
1
2
3
4
Total XP earned
1,000
1,750
2,000
2,200
What is the marginal benefit (in terms of XP) that Ray gets from the third hour of playing
Fortnite?
A) 250
B) 667
C) 1000
D) 2,000
21) Each hour that Ray studies will improve has score by 5 percentage points. Ray has decided he
is indifferent between a 5 percentage point score increase and 500 points of XP. How should
Ray spend his next 4 hours?
A) Spend 4 hours studying
B) Spend 1 hour playing Fortnite and 3 hours studying
C) Spend 2 hours playing Fortnite and 2 hours studying
D) Spend 3 hours playing Fornite and 1 hour studying
22) Maria is deciding how big of a house to build. She gets decreasing marginal benefits from
house size (so, the marginal benefit of the first square foot is greater than the marginal benefit
of the second square foot and so on). The builder charges $100 per square foot. Maria decides
to build a 1,700 square foot house. What if, instead, the builder offered a discount, where the
first 1,000 square feet were half price ($50 per square foot)? How big of a house would Maria
choose to build:
A) Less than 1,700 square feet
B) Still 1,700 square feet
C) More than 1,700 square feet
Use the following information to answer the next two questions:
For Ford Motor Company’s factory, the opportunity cost of producing 1 truck is 2 cars. If the
factory devotes all its resources to making cars, it will make 100 cars.
23) For this factory, producing 50 cars and 50 trucks is
A) Attainable and efficient
B) Attainable but not efficient
C) Not attainable
24) For this factory, producing 80 cars and 10 trucks is
A) Attainable and efficient
B) Attainable but not efficient
C) Not attainable
25) The kitchen at a local sports bar has the production possibilities frontier shown below. As the
number of pizzas produced increases, the opportunity cost of pizza in terms of hot wings:
A) Increases
B) Decreases
C) Stays the same