Question 1

1. Microeconomics and macroeconomics Determine whether each of the following topics would more likely be studied in microeconomics or macroeconomics. Microeconomics Macroeconomics The effect of an increase in the money supply on the rate of inflation The effect of a fuel tax on the quantity of gasoline sold The effects of government tax policy on long-term economic growth 2. Understanding opportunity cost Suppose you are currently employed as an assistant coach on a college lacrosse team and earn an hourly wage of $21. One night you decide to miss an optional one-hour practice and go to the skating rink instead, which costs $12. The total dollar cost of missing work and going to the rink, including the opportunity cost of your time, is V Suppose that Ciana is deciding whether or not to buy a pair of sneakers that she has been researching online, and also the best place to make her purchase. Three different stores in the area sell the sneakers she likes, but some stores are more convenient for Ciana to reach than others. One option is her local shoe store located only 15 minutes away from where she works, where they charge a marked-up price of $112 for the sneakers: Travel Time Each Way Price of a Sneakers Store (Minutes) (Dollars per sneakers) Local Shoe Store 15 112 Different Neighborhood in Town 30 98 Rural Outlet 60 86 Ciana earns an hourly wage of $42 at her job. In order to purchase her sneakers she will have to take time off work, so each hour away from her job costs her $42 in lost income. Assume that Ciana's travel time is the same each way (to and from the store) and that it will take her 30 minutes once she reaches a store to complete her shopping. Assume throughout the question that Ciana incurs no additional costs other than the sneakers, such as gas. Complete the following table by computing the opportunity cost of Ciana's time and the total cost of shopping at each location. Opportunity Cost of Time Price of a Sneakers Total Cost Store (Dollars) (Dollars per sneakers) (Dollars) Local Shoe Store 1 12 Different Neighborhood in Town 98 Rural Outlet 86 Assume that Ciana considers both her opportunity costs and the price of sneakers when making her shopping decision. Ciana will minimize her cost of buying the sneakers if she shops at the V . 4. Equality versus efficiency All societies face a trade-off between efficiency and equality. If the government raises income taxes on Americans in the top one percent of earners, while increasing welfare payments to citizens with incomes below the federal poverty threshold, the most likely result is V in efficiency and V in equality in the United States. Match each denition to its appropriate concept. Definition Equality Efficiency When economic benefits are distributed uniformly across society When a society gets the most it can from its scarce resources Suppose that Bella is a diligent firstyear college student. One Sunday, she decides to start the day by working through 250 sample multiple choice problems to study for her statistics class. She starts work at 7:00 AM and uses a table to keep track of her progress throughout the day. She notices that as she the hours pass, it takes her more time to solve the problems. Time Total Problems Solved 7:00 AM 0 8:00 AM 100 9:00 AM 175 10:00 AM 225 11:00 AM 250 Use the table to answer the following questions. The marginal, or additional, gain from Bella's second hour spent working, from 8:00 AM to 9:00 AM, is problems. The marginal gain from Bella's fourth hour spent working, from 10:00 AM to 11 :00 AM, is problems. The following week, Bella's statistics faculty advisor gives her some advice. In all their years of teaching they claim to observe that working on 87.5 multiple choice questions boosts a student's test score by about the same amount as spending an hour reviewing lecture notes. For simplicity, assume students are able to review lecture notes at a constant pace during each hour spent studying. Given this information, in order to use her 4 hours of time spent studying to get the highest possible test score, how many hours should she have spent solving multiple choice problems, and how many hours should she have spent reviewing lecture notes? 0 hours working on problems, 4 hours reading 1 hour working on problems, 3 hours reading 2 hours working on problems, 2 hours reading 6. Scarcity, opportunity cost, and marginal analysis Shen is training for a biathlon, a winter racing sport that combines crosscountry skiing and rie shooting. Consider the following scenario: In order to ski for one hour, Shen must take that time off of work, where he earns an hourly wage of $15. Additionally, there is a $9 entrance fee to the skiing facility. Which basic principle of individual choice do these statements best illustrate? Trade can make everyone better off. The cost of something is what you give up to get it. People usually exploit opportunities to make themselves better off. Markets are usually a good way to organize economic activity. 7. Changes in incentives Suppose that a large influx of electric scooter rentals in a crowded downtown area results in a lot of new riders on the streets. For their safety, the mayor of the city decides to enact a law requiring helmets when renting scooters. These new helmets reportedly decrease the probability of injury by 29% in the event of a scooter crash. While the new helmets V the probability of injury resulting from a scooter accident, they also incentivize individuals to ride V recklessly, which could V the number of scooter collisions and therefore injuries to renters. 8. The interaction of individual choices Individuals living in the state of Illinois like to consume both soybeans and blueberries. While it is possible for farmers to grow both crops in Illinois, almost no farmers elect to use their land to grow blueberries. Instead, every year, Illinois exports soybeans and imports blueberries from nearby Michigan, where growers specialize in blueberries. Which of the following principles of economic interaction best describes this scenario? When markets do not achieve efficiency, government intervention can improve overall welfare. There is a tradeoff between equality and efficiency. Trade can make everyone better off. All costs are opportunity costs