Exam 1: Economics: Foundations and Models

The Stogie Shop, a cigar store in the mall, sells hand-rolled cigars for $10.00 and machine-made cigars for $2.50 each. What is the opportunity cost of buying a hand-rolled cigar?

Which of the following is an example of an economic trade-off that a firm has to make?

A primary role of economists is to not only describe how choices are made and analyze the results of those choices, but also to advise on how better decisions can be made.

Which of the following is an example of an activity undertaken by an entrepreneur?

Which of the following is a problem inherent in centrally planned economies?

One example of human capital is the amount of skills that you have.

Which of the following statements about economic resources is false?

Which of the following contributed to the downfall of the Soviet Union in 1991?

You explain to your friend Haslina, who runs a catering service called "Meals in a Zip," about an economic theory which asserts that consumers will purchase less of a product at higher prices than they will at lower prices. She contends that the theory is incorrect because over the past two years she has raised the price of her catered meals and yet has seen a brisk increase in sales. How would you respond to Haslina?

Article Summary In a January, 2017 report, the World Economic Forum stated that the growing income gap has become one of the biggest threats to the global economy and cannot be remedied solely by higher economic growth. Although income inequality has fallen over the past 30 years on a global level, in high-income countries like the United States and the United Kingdom, the top 1% of income earners have benefitted disproportionately from economic growth. This has led a growing belief that the traditional model for economic growth does not result in a population-wide increase in income. According to the report, "The growing mood of anti-establishment populism suggests we may have passed the stage where [reviving economic growth] alone would remedy fractures in society: reforming market capitalism must also be added to the agenda." Source: Lauren Gensler, "Rising Income Inequality Is Throwing The Future Of Capitalism Into Question, Says World Economic Forum," Forbes, January 11, 2017. -Refer to the Article Summary. The article discusses income inequality and how economic growth alone is no longer resulting in a more equitable distribution of income. If governments increased equity by reducing the incomes of high-income people and increasing the incomes of the poor, would this necessarily increase efficiency?

Suppose the extra cost to a city of lowering the speed limits in all school zones by 10 mph is $10,000 per year. Then, the city should lower the school-zone speed limits by 10 mph if doing so results in an additional benefit of less than $10,000 per year.

Assume that a city can earn an additional $100,000 of revenue each year from using drones to catch speeding drivers. What must the additional cost of using drones to catch speeders be to make this economically rational?

In economics, the total amount received for selling a good or service is referred to as

If a straight line passes through the point x = 14 and y = 3 and also through the point x = 4 and y = 10, the slope of this line is

Economists spend much of their time

In economics, all of the following is counted as "capital" except

Pookie's Pinball Palace restores old Pinball machines. Pookie has just spent $300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000. What should he do?

Which of the following are positive economic statements and which are normative economic statements? a. An increase in the minimum wage causes unemployment. b. The government should raise the minimum wage above $7.25 per hour. c. The prolonged recession has caused the unemployment rate to reach a 30-year high. d. Interest rates need to be lower for the economy to emerge from the recession. e. Inflation has decreased since the onset of the recession. f. Once the recession has ended, interest rates should increase to assure that inflation does not go up.

Economists assume that individuals

Why is it necessary for all economic systems to not only provide people with goods and services, but also restrict them from getting as much of these goods and services as they wish?