Question 1

What is meant by the phrase, "There is no such thing as a free lunch"?

Accepted Answer

Markets are generally efficient, which implies that profit opportunities are eliminated quickly.

Question 2

Should economics be considered a science? Why or why not?

Accepted Answer

Yes. Economics uses models and theories to make predictions and then tests those predictions using empirical analysis.

Question 3

Consider the following scenario. Assume the price of gold in London is selling for $1400 an ounce while in New York it is fetching a price of $1450 an ounce. What would an economist say about the efficiency of this market? What would an economist predict about what would happen next?

Accepted Answer

An economist would argue that this market is currently not efficient. The reason is that there are still profit opportunities to be had. Market participants could buy gold in London and sell it in New York until there is no more incentive to do so, i.e. (when there are no more profit opportunities).

Question 4

Assume that you have heard news that a local radio station is hosting a luncheon at your school by offering hot dogs, chips and cola at no expense to the student body. Why would economists say that this lunch is not truly free?

Accepted Answer

The answer of Assume that you have heard news that...

Question 5

List the four criteria that are generally used to evaluate economic outcomes.

Accepted Answer

The answer of List the four criteria that are generally...

Question 6

A globe is a model. However, it lacks much of the detail that one would find on a map. Does that make the globe an inferior model? Why not?

Accepted Answer

The answer of A globe is a model. However, it...

Question 7

Explain what the fallacy of composition is and give an example.

Accepted Answer

The answer of Explain what the fallacy of composition is...

Question 8

Define the term economics.

Accepted Answer

The answer of Define the term economics....

Question 9

Explain what a graph is and how it can be used.

Accepted Answer

The answer of Explain what a graph is and how...

Question 10

What does the phrase "post hoc, ergo propter hoc" mean?

Accepted Answer

The answer of What does the phrase "post hoc, ergo...

Question 11

Explain what a model is.

Accepted Answer

The answer of Explain what a model is....

Question 12

Why would a company be more enthusiastic in providing more training to its workers during an economic downturn than during an economic boom (assuming that they do not layoff their workers and can keep them when the economy recovers)?

Accepted Answer

The answer of Why would a company be more enthusiastic...

Question 13

Use the Cartesian coordinate system (and putting income on the horizontal axis) to plot the following data:

Accepted Answer

The answer of Use the Cartesian coordinate system (and putting...

Question 14

List three key reasons to study economics.

Accepted Answer

The answer of List three key reasons to study economics....

Question 15

If crime rates in the United States fall, can incumbent lawmakers rightfully claim credit? Why or why not?

Accepted Answer

The answer of If crime rates in the United States...

Question 16

If a good is scarce, does that imply that there is a shortage of it?

Accepted Answer

The answer of If a good is scarce, does that...

Question 17

Explain how and why an all-volunteer army may actually be cheaper than an army staffed with drafted soldiers.

Accepted Answer

The answer of Explain how and why an all-volunteer army...

Question 18

Examine the following function: Y = 3x + 2. What is the slope of this function and why?

Accepted Answer

The answer of Examine the following function: Y = 3x...

Question 19

Assume that you are the new CEO of a major corporation that has five major product lines each run as separate corporations. You discover that if you invested the company's money outside of the firm that it could earn a 15% rate of return on the investment. You tell all the presidents of each of these subsidiary companies that in order for them to remain with the company that their return on capital must equal to or exceed 15% rate of return. Use two economic principles discussed in chapter 1 to explain why the CEO's advice is sound.

Accepted Answer

The answer of Assume that you are the new CEO...

Question 20

It is widely known among baseball enthusiasts that Babe Ruth actually performed quite well as a pitcher before leaving the Boston Red Sox for the New York Yankees. He was also of course a famously successful hitter. Why do you believe the Yankees chose not to use him as a pitcher? Explain using economic reasoning. Hint: pitchers typically only play every third or fourth game whereas other players in other positions play in nearly every game. Baseball has a season of 162 games.

Accepted Answer

The answer of It is widely known among baseball enthusiasts...

Exam 1: The Scope and Method of Economics