Home Work 1 Solutions
Home Work 1 Solutions ECO108
Stony Brook U
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This 5 page Class Notes was uploaded by Shahaji Deshmukh on Sunday April 17, 2016. The Class Notes belongs to ECO108 at Stony Brook University taught by Eva Carceles-Poveda in Spring 2016. Since its upload, it has received 15 views. For similar materials see Introduction to Economics in Economcs at Stony Brook University.
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Date Created: 04/17/16
ECO 108: Introduction to Economics Problem Set 1 Chapter 1 Professor: Yair Tauman 1. Economics is best defined as the study of A. prices and quantities. B. inflation and interest rates. C. the way people make choices under scarcity and the outcome of their choices. D. wages and incomes. 2. The logical implication of the scarcity principle is that A. one will never be satisfied with what one has. B. as wealth increases, making tradeoffs becomes less necessary. C. as wealth decreases, making tradeoffs becomes less necessary. D. choices must be made. 3. Forest is a mountain man living in Montana in complete isolation. He is completely selfsufficient through hunting, fishing, and farming. He has not been in the city to buy anything in five years. One can infer A. the scarcity principle does not apply to Forest. B. Forest is not required to make choices. C. the scarcity principle still applies because more hunting means less fishing and farming. D. Forest is very satisfied. 4. The scarcity principle applies to A. all decisions. B. only market decisions, e.g., buying a car. C. only nonmarket decisions, e.g., watching a sunset. D. only the poor. 1 5. Whether studying the size of the U.S. economy or the number of children a couple will choose to have, the unifying concept is that needs are A. limited, resources are limited, and thus tradeoffs must be made. B. unlimited, resources are limited, and thus tradeoffs must be made. C. unlimited, resources are limited to some but not to others and thus some people must make tradeoffs. D. unlimited, resources are limited, and thus government needs to do more. 6. When a person decides to pursue an activity as long as the extra benefits are at least equal to the extra costs, that person is A. violating the costbenefit principle. B. following the scarcity principle. C. following the costbenefit principle. D. pursuing the activity too long. 7. The 7 glass of soda that Tim consumes will produce an extra benefit of 10 cents and has an extra cost of zero (Tim is eating at the cafeteria). The costbenefit principle predicts that Tim will A. realize he has had too much soda to drink and go home. B. drink the 7 glass and continue until the marginal benefit of drinking another glass of soda is zero. th C. drink the 7 glass and stop there. D. not drink the 7 glass. 8. Dean decided to play golf rather than prepare for his exam in economics that is the day after tomorrow. One can infer that A. Dean has made an irrational choice. B. Dean is doing poorly in his economics class. C. the economic surplus from playing golf exceeded the surplus from studying. D. the cost of studying was less than the cost of golfing. Use the following to answer questions 911: 2 Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. 9. The opportunity cost of attending Elite U is A. $50,000 B. $10,000 C. $20,000 D. $15,000 10. The opportunity cost of attending State College is A. $30,000 B. $20,000 C. $15,000 D. $10,000 11. The opportunity cost of an activity is the value of A. an alternative surplus forgone. B. the nextbest alternative surplus forgone. C. the leastbest alternative surplus forgone. D. the difference between the surplus of chosen activity and the nextbest alternative surplu forgone. 12. Economic surplus is A. the benefit gained by taking an action. B. the price paid to take an action. C. the difference between the benefit gained and the cost incurred of taking an action. D. the wage someone would have to earn in order to take an action. 13. Alex received a fouryear scholarship to State U. that covered tuition and fees, room and board, and books and supplies. As a result A. attending State U. for four years is costless for Alex. B. Alex has no incentive to work hard while at State U. C. the cost of attending State U. is the amount of money Alex could have earned working for four years. D. the cost of attending State U. is the sum of the benefits Alex would have had attending each of the four other schools to which Alex had been admitted. 3 14. Suppose the most you would be willing to pay for a plane ticket home is $250, but you buy one online for $175. The economic surplus of buying the online ticket is: A. $175. B. $250. C. $75. D. $0. 15. Economists use abstract models because A. every economic situation is unique, so it is impossible to make generalizations. B. every economic situation is essentially the same, so specific details are unnecessary. C. they are useful for describing and derive general patterns of behavior. D. computers have allowed economists to develop abstract models. 16. Moe has a big exam tomorrow. He considered studying this evening, but decided to go out with Curly instead. Since Moe always chooses rationally, it must be true that A. the opportunity cost of studying tonight is less than the value Moe gets from spending time with Curly. B. the opportunity cost of studying tonight is equal to the value Moe gets from spending time with Curly minus the cost of earning a low grade on the exam. C. Moe gets more benefit from spending time with Curly than from studying. D. Moe gets less benefit from spending time with Curly than from studying. Use this to answer questions 1720 Matt has decided to purchase his textbooks for the semester. His options are to purchase the books via the Internet with next day delivery to his home at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. 17. Matt's benefit of buying his books at the bookstore is _____. A. $5 B. $9 C. $170 D. $175 18. Matt's benefit was ____ from driving to campus to buy the concert ticket last week. A. $2 B. $4 C. $9 D. $16 4 19. According to the costbenefit principle: A. it would not be rational for Matt to drive to campus to purchase the books because the $5 saving is only two percent of the cost of the books, and that is much less than the 25 percent he saved on the concert ticket. B. it would be rational for Matt to drive to campus because it costs less to buy the books there than via the Internet. C. it would be rational for Matt to drive to campus because the $5 saving is more than he saved by driving there to buy the concert ticket. D. it would not be rational for Matt to drive to campus to purchase the books because the cost of gas and his time must certainly be more than the $5 he would save. 20. Assume the minimum that Matt would be willing to accept to drive to the university campus is equal to the amount he saved on the concert ticket. What would be the amount of his economic surplus if he bought his textbooks at the university bookstore rather than via the Internet? A. $5 B. $1 C. $50 D. $20 5
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