Problem 01.

1. In this problem, you are asked to consider cases in which "more is not better." For each of the following scenarios, draw an appropriate indifference curve map over different combinations of Brussels sprouts (X) and broccoli (Y). Put Brussels sprouts (X) on x-axis and broccoli (Y) on Y-axis. Draw 3 indifference curves for each scenario and labeled U1, U2 and U3, from the lowest to the highest utility level.

Hint: to determine the slope of the indifference curves, i.e. whether the indifference curves are upward sloping or downward sloping, start at an arbitrary point (on any indifference curve), reduce the amount of x and ask whether y would have to increase or decrease in order for the person to return to the same indifference curve, i.e., to be indifferent between the original bundle and the new bundle. You can refer to "four particular preferences" in the slides but don't expect the indifference curves to necessarily look like those depicted in slides.

a. I like Brussels sprouts, but I don't like broccoli (Brussels sprouts are an economic good and broccoli is an economic bad.)

b. I don't like Brussels sprouts, and I don't like broccoli.

c. Brussels sprouts are useless for me, and I don't like broccoli.

2. Alan always uses 2oz. of peanut butter and 2oz. of jelly in a PB&J sandwich, and these are the only two commodities he consumes. Assuming he has 2oz. of peanut butter and 2oz. of jelly, how many sandwiches could he make? What if he had 3oz. of peanut butter and 2oz. of jelly? 6oz. of peanut butter and 2oz. of jelly? 2oz. of peanut butter and 4oz. of jelly? Draw his indifference curve for peanut butter (x) and jelly (y) through (2,2). Similarly, draw his indifference curve through (4,4).

3.

Suppose Amy enjoys apple juice (A) and grape juice (G) according to U(A,G) = 4A+3G

a. What does her utility function say about her MRS of apple juice for grape juice?

(Hint: MRS equals the negative value of the slope of indifference curves)

b. Are apple juice and grape juice perfect substitutes or perfect complements? Why?

c. If apple juice costs 6 cents per ounce and grape juice costs 5 cents per ounce, and Amy has 30 cents to spend on these products, how much apple juice and grape juice should she buy to maximize her utility?

d. Draw the graph of her indifference map and her budget constraint, and show that the utility maximizing point occurs only on the A-axis where no grape juice is bought. Hint: to draw the indifference map, please sketch the indifference curves for U=18, and U=20, and give at least two examples of consumption bundles on each indifference curve.

e. Would Amy buy any grape juice if she had more money to spend?

f. How would her consumption change if the price of apple juice fell to 3 cents per ounce?

Part two.

answer the following questions appropriately.

29. Which of the following is not included in GDP? carrots grown in your garden and eaten by your family C. carrots purchased at a farmer's market and caten by your family carrots purchased at a grocery store and eaten by your family d. More than one of the above is not included in GDP. Suppose that twenty-five years ago a country had nominal GDP of $1,000, a GDP deflator of 200, and a population of 100. Today it has nominal GDP of $3,000, a GDP deflator of 400, and population of 150. What happened to the real GDP per person? It more than doubled. b. It increased, but it less than doubled. c. It was unchanged. d. It decreased. 31. Yves is an unpaid worker in his family's bakery. The Bureau of Labor Statistics counts Yves as a. unemployed and in the labor force. b. unemployed and not in the labor force. C. employed and in the labor force. d. employed and not in the labor force. Figure 7-14 Supply Demand 32. Refer to Figure 7-14. Which arca represents consumer surplus when the price is PI? a. A b. B C. C 33. The Bureau of Labor Statistics reported in 2005 that there were 28.19 million people over age 25 who had no high school degree or its equivalent, 11.73 million of whom were employed and 1.04 million of whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group? a. 41.6% and 3.7% b. 41.6% and 8.1%C. unaffected, Slovakian net exports increase, and Slovakian GDP increases. Egyptian investment decreases, Egyptian net exports increase, Egyptian GDP is d. unaffected, Slovakian net exports decrease, and Slovakian GDP decreases, Egyptian investment increases, Egyptian net exports do not change, Egyptian GDP increases, Slovakian net exports do not change, and Slovakian GDP is unaffected. 18. Between October 2001 and October 2002, the CPI in Canada rose from 116.5 to 119.8 and the CPI in Mexico rose from 93.2 to 102.3. What were the inflation rates for Canada and Mexico over this one-year period? a. 2.8 percent for Canada and 9.1 percent for Mexico b. 2.8 percent for Canada and 9.8 percent for Mexico c. 3.3 percent for Canada and 9.1 percent for Mexico d. 3.3 percent for Canada and 9.8 percent for Mexico 19. An important difference between the GDP deflator and the consumer price index is that a. the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers. b. the GDP deflator reflects the prices of all final goods and services produced domestically. whereas the consumer price index reflects the prices of goods and services bought by consumers. c. the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of all final goods and services bought by consumers. d. the GDP deflator reflects the prices of all final goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of all final goods and services bought by consumers, 20. Efficiency means that a. society is conserving resources in order to save them for the future. b. society's goods and services are distributed equally among society's members. c. society's goods and services are distributed fairly, though not necessarily equally, among society's members. d. society is getting the maximum benefits from its scarce resources. 21. Today's supply curve for gasoline could shift in response to a. a change in today's price of gasoline. b. a change in the expected future price of gasoline. c. a change in the number of buyers of gasoline. d. All of the above are correct. 22. Gross domestic product measures two things at once: a. the total spending of everyone in the economy and the total saving of everyone in the economy. b. the total income of everyone in the economy and the total expenditure on the economy's output of goods and services. c. the value of the economy's output of goods and services for domestic citizens and the value of the economy's output of goods and services for the rest of the world. d. the total income of households in the economy and the total profit of firms in the economy. 23. For the purpose of calculating GDP, investment is spending on stocks and bond only b. all financial assetsiple Choice rife the choice that best completes the statement or answers the question. 1. Ms. Take borrowed $1,000 from her bank for one year at an interest rate of 10 percent. During that year, the price level went up by 15 percent. Which of the following statements is correct? a. Ms. Take will repay the bank fewer dollars than she initially borrowed. b. Ms. Take's repayment will give the bank less purchasing power than it originally loaned her. C. Ms. Take's repayment will give the bank greater purchasing power than it originally loaned her. d. Ms. Take's repayment will give the bank the same purchasing power that it originally loaned her. 2. Which of the following is not among the four industries with the largest employment in the United States today? a. lumber b aircraft C. communications d. electrical components 3. Which of the following is not a function of prices in a market system? a. Prices have the crucial job of balancing supply and demand. b. Prices send signals to buyers and sellers to help them make rational economic decisions. Prices coordinate economic activity. d. Prices ensure an equal distribution of goods and services among consumers, Gina, a U.S. citizen, works only in Germany. The value of Gina's production is included in a. U.S. GDP and German GDP. b. U.S. GDP and German GNP. U.S. GNP and German GDP. d. U.S. GNP and German GNP. 5. The total sales of all firms in the economy for a year a. equals GDP for the year. b. is larger than GDP for the year. c. is smaller than GDP for the year. d. Any of the above is possible. . In the former Soviet Union, producers were paid for meeting output targets, not for selling products, Under those circumstances, what were the economic incentives for producers? a. to produce good quality products so that society would benefit from the resources used b. to conserve on costs, so as to maintain efficiency in the economy C. to produce enough to meet the output target, without regard for quality or cost d. to produce those products that society desires most After the terrorist attacks on September 11, 2001, governments within the United States raised expenditures to increase security at airports. These purchases of goods and services are a. not included in GDP since they do not represent production. b. not included in GDP since the government collects taxes to pay for them.included in GDP since government expenditures on goods and services are included in GDP. included in GDP only to the extent that the federal government, rather than state or local governments, paid for them. Table 23-6 The table below contains data for the country of Togogo. The base year is 1974. Year Nominal GDP GDP Deflator 1974 $2000 100 1975 $3000 120 1976 $3750 150 1977 56000 200 Refer to Table 23-6. Which of the following is not correct? a. This economy experienced growth from 1974 to 1975. b. This economy experienced growth from 1975 to 1976. C. This economy experienced growth from 1976 to 1977. d. This economy experienced inflation from 1974 to 1975, from 1975 to 1976, and from 1976 to 1977. Table 24-3 The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. Year Price of a Price of a Book Calculator 2006 $24 $8 2007 $30 $12 2008 532 $15 9. Refer to Table 24-3. The cost of the basket increased from 2006 to 2007 and increased from 2007 to 2008. b. increased from 2006 to 2007 and decreased from 2007 to 2008. c. decreased from 2006 to 2007 and increased from 2007 to 2008 d. decreased from 2006 to 2007 and decreased from 2007 to 2008. 10. Which of the following would cause price to decrease? a. a decrease in supply b. an increase in demand c. a surplus of the good d. a shortage of the good 11. Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 207 for 2007. Ruth's 1931 salary was equivalent to a 2007 salary of about a. $5,874.b. $1,089.474 C. $1,216,000. d. $16,560.000. 12. Recent entrants into the labor force account for about a 1/5 of those who are unemployed. b. 1/4 of those who are unemployed. 1/3 of those who are unemployed. d. 1/2 of those who are unemployed. Table 23-5 The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2006. Year Price Quantity Price Quantity of of of Waffles Waffles Pancakes Pancakes 2006 $2 120 $2 150 2007 $3 150 $3 200 2008 54 180 $3 220 13. Refer to Table 23-5. In 2008, Batterland's real GDP was a. $540. b. $800. C. $930. d. $1380. 14. Refer to Table 23-5. In 2006, Batterland's nominal GDP was a. $100. b. $390. C. $400. $540. 15. Refer to Table 23-5. In 2007, Batterland's real GDP was a. $540. b. $700. C. $810. d. $1050. 16. Refer to Table 23-5. From 2007 to 2008, Batterland's output grew a. 14.3%. b. 31.4%. C. 48.1%. d. 155.6%. 17. When an Egyptian firm purchases a cement mixer from Slovakia, a. Egyptian investment does not change, Egyptian net exports decrease, Egyptian GDP decreases, Slovakian net exports increase, and Slovakian GDP increases. b. Egyptian investment increases, Egyptian net exports decrease, Egyptian GDP isc. capital equipment, inventories, and structures d. None of the above 24. Coffee and tea are substitutes. Bad weather that sharply reduces the coffee bean harvest would increase the price of coffee and decrease the price of tea. b. increase the price of coffee and increase the price of tea. decrease the price of coffee and decrease the price of tea, d. decrease the price of coffee and increase the price of lea. 25. In 1969, Fritz bought a Ford Mustang for $2,500. If the price index was 36.7 in 1969 and the price index was 180 in 2006, then what is the price of the Ford Mustang in 2006 dollars? a $509.72 b. $6,866.49 c. $9.761.58 d. $12,261.58 26. Social Security payments are a, included in GDP because they represent payments for work performed in the past. b. included in GDP because they represent potential consumption. C. excluded from GDP because they are not private pensions. d. excluded from GDP because they do not reflect the economy's production. 27, In the actual economy, households a. spend all of their income, b. divide their income among spending, taxes, and saving. c. buy all goods and services produced in the economy. d. Both (a) and (c) are correct. Figure 6-4 10 20 30 60 50 28. Refer to Figure 6-4. Which of the following price controls would cause a surplus of 20 units of the good? a. a price ceiling of $4 b. a price ceiling of $5 c. a price floor of $7 d. a price floor of $8