Exam 2: The Key Principles of Economics

Figure 2.3 -In Figure 2.3, the move from production possibility curve XV to production possibility curve YZ could be caused by:

Figure 2.2 -Figure 2.2 presents a production possibilities curve for a country that can either produce highways or provide people with medical care in a given year. The opportunity cost of the third new highway built in a year is:

Recall Application 4, "Fertilizer and Crop Yields" to answer the following questions: -According to the application, the corn production exhibited the principle of diminishing returns because:

Suppose your bank pays you 6% interest per year on your savings account, so that $100 grows to $106 over a one- year period. If prices increase by 3% per year over that time, approximately how much real value do you gain by keeping $100 in the bank for a year?

Recall Application 6, "Repaying Student Loans," to answer the following questions: -According to the application, if you are a debtor who owes student loans, you are helped in paying back your student loans by:

Suppose it costs a firm $200 million to produce and promote a sequel. If the firm follows the marginal principle and decides not to produce the movie, which of the following must be true?

Recall Application 2, "Why Not Walk Up an Escalator?," to answer the following questions: -According to the application, most people stand still while using the escalator because:

The economic reason why you voluntarily pay tuition to get into the university/college that you are in right now is because:

-Julianne runs a business and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that Julianne's marginal benefit of staying open per hour is $24. If she is following the marginal principle, how many hours should Julianne stay open?

When you voluntarily accept a job and exchange your labor for money,

Figure 2.4 -Joe runs a business and needs to decide how many hours to stay open. Figure 2.4 illustrates his marginal benefit of staying open for each additional hour. Suppose that we observe Joe staying open 5 hours per day. If he is following the marginal principle, what must his marginal cost be?

-The firm depicted in Table 2.3 is facing diminishing returns because:

When does voluntary exchange take place?

Figure 2.4 -Joe runs a business and needs to decide how many hours to stay open. Figure 2.4 illustrates his marginal benefit of staying open for each additional hour. Suppose that Joe's marginal cost of staying open per hour is $24. How many hours should Joe stay open?

Being self- sufficient in the production of everything we need is efficient.

As more and more of a variable input is combined with some fixed inputs, additions to the total output decline.

When Jimmy produces one guitar his costs total $250. When he produces two guitars his total costs are $400. This means that Jimmy's marginal cost of producing the second guitar is $200.

Table 2.2 -Julianne runs a business and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that Julianne's marginal benefit of staying open per hour is $20. If she is following the marginal principle, how many hours should Julianne stay open?

A "market" is an arrangement that enables people to exchange goods and services.

-Refer to Table 2.3. The marginal product of the 3rd worker is: