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macroeconomics
Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
1. Why does scarcity force us to decide what to produce?
19. Imagine that you are trying to decide whether to cross a street without using the designated crosswalk at the traffic signal.What are the expected marginal benefits of crossing? The expected marginal costs? How would the following conditions change your benefit–cost equation?a. The street was
18. Prices communicate information about the relative value of resources. Which of the following would cause the relative value and, hence, the price of potatoes to rise?a. Fungus infestation wipes out half the Idaho potato crop.b. The price of potato chips rises.c. Scientists find that eating
17. People communicate with each other in the market through the effect their decisions to buy or sell have on prices. Indicate how each of the following would affect prices by putting a check in the appropriate space.a. People who see an energetic and lovable Jack Russell Terrier in a popular TV
16. Why is it important that the country or region with the lower opportunity cost produce the good? How would you use the concept of comparative advantage to argue for reducing restrictions on trade between countries?
15. Which region has a comparative advantage in the following goods:a. wheat: Colombia or the United States?b. coffee: Colombia or the United States?c. timber: Iowa or Washington?d. corn: Iowa or Washington?
14. Farmer Fran can grow soybeans and corn. She can grow 50 bushels of soybeans or 100 bushels of corn on an acre of her land for the same cost. The price of soybeans is $1.50 per bushel and the price of corn is $0.60 per bushel. Show the benefits to Fran of specialization. What should she
13. Throughout history, many countries have chosen the path of autarky, choosing to not trade with other countries. Explain why this path would make a country poorer.
12. Modern medicine has made organ transplants a common occurrence, yet the number of organs that people want far exceeds the available supply. According to CNN, 10 people die each day because of a lack of transplantable organs like kidneys and livers. Some economists have recommended that an organ
11. Which of the following are positive incentives? Negative incentives? Why?a. a fine for not cleaning up after your dog defecates in the parkb. a trip to Hawaii paid for by your parents or significant other for earning an A in your economics coursec. a higher tax on cigarettes and alcohold. a
10. Explain why following the rule of rational choice makes a person better off.
9. Should you go to the movies this Friday? List the factors that affect the possible benefits and costs of this decision.Explain where uncertainty affects the benefits and costs.
8. Which of the following activities require marginal thinking, and why?a. studyingb. eatingc. drivingd. shoppinge. getting ready for a night out
7. List the opportunity costs of the following:a. going to collegeb. missing a lecturec. withdrawing and spending $100 from your savings account, which earns 5 percent interest annuallyd. going snowboarding on the weekend before final examinations
6. List some things that you need. Then ask yourself if you would still want some of those things if the price were five times higher. Would you still want them if the price were 10 times higher?
5. McDonald’s once ran a promotion that whenever St. Louis Cardinal’s slugger Mark McGwire hit a home run into the upper deck at Busch Stadium, McDonald’s gave anyone with a ticket to that day’s game a free Big Mac. If holders of ticket stubs have to stand in line for 10 minutes, is the Big
4. The price of a one-way bus trip from Los Angeles to New York City is $150.00. Sarah, a school teacher, pays the same price in February (during the school year) as in July (during her vacation), so the cost is the same in February as in July.Do you agree?
3. The automotive revolution after World War II reduced the time involved for travel and shipping goods. This innovation allowed the U.S. economy to produce more goods and services since it freed resources involved in transportation for other uses. The transportation revolution also increased
2. Explain the difference between poverty and scarcity.
1. Which of the following goods are scarce?a. garbageb. salt water in the oceanc. clothesd. clean air in a big citye. dirty air in a big cityf. a public library
21. Kelly is an attorney and also an excellent typist. She can type 120 words per minute, but she is pressed for time because she has all the legal work she can handle at $75.00 per hour. Kelly’s friend Todd works as a waiter and would like some typing work (provided that he can make at least his
20. Which of the following statements is most consistent with the rule of rational choice?a. The Environmental Protection Agency should strive to eliminate virtually all air and water pollution.b. When evaluating new prescription drugs, the Food and Drug Administration should weigh each drug’s
19. Gallons of milk at a local grocery store are priced at one for $4 or two for $6. The marginal cost of buying a second gallon of milk equalsa. $6.b. $4.c. $3.d. $2.e. $0.
18. Which of the following best defines rational behavior?a. analyzing the total costs of a decisionb. analyzing the total benefits of a decisionc. undertaking an activity as long as the total benefit of all activities exceeds the total cost of all activitiesd. undertaking activities whenever the
17. Lance’s boss offers him twice his usual wage rate to work tonight instead of taking his girlfriend on a romantic date. This offer will likelya. not affect the opportunity cost of going on the date.b. reduce the opportunity cost of going on the date because giving up the additional work
16. The opportunity cost of an airplane flighta. differs across passengers only to the extent that each traveler pays a different airfare.b. is identical for all passengers and equal to the number of hours a particular flight takes.c. differs across passengers to the extent that both the airfare
15. The opportunity cost of attending college is likely to include all except which of the following?a. the cost of required textbooksb. tuition feesc. the income you forgo in order to attend classesd. the cost of haircuts received during the school terme. the cost of paper and pencils needed to
14. Which of the following statements is true?a. The opportunity cost of a decision is always expressed in monetary terms.b. The opportunity cost of a decision is the value of the best forgone alternative.c. Some economic decisions have zero opportunity cost.d. The opportunity cost of attending
13. An example of a capital resource isa. stock in a computer software company.b. the funds in a CD account at a bank.c. a bond issued by a company selling electric generators.d. a dump truck.e. an employee of a moving company.
12. Which of the following is true?a. Scarcity and poverty are basically the same thing.b. The absence of scarcity means that a minimal level of income is provided to all individuals.c. Goods are scarce because of greed.d. Even in the wealthiest of countries, the desire for material goods is
11. Which of the following is not true?a. Voluntary exchange is expected to be advantageous to both parties to the exchange.b. What one trader gains from a trade, the other must lose.c. If one party to a potential voluntary trade decides it does not advance his interests, he can veto the potential
10. If a driver who had no change and whose cell phone battery was dead got stranded near a pay phone and chose to buy a quarter and a dime from a passerby for a dollar bill,a. the passerby was made better off and the driver was made worse off by the transaction.b. both the passerby and the driver
9. If resources and goods are free to move across states, and if Florida producers choose to specialize in growing grapefruit and Georgia producers choose to specialize in growing peaches, then we could reasonably conclude thata. Georgia has a comparative advantage in producing peaches.b. Florida
8. Which of the following demonstrates marginal thinking?a. deciding to never eat meatb. deciding to spend one more hour studying economics tonight because you think the improvement on your next test will be large enough to make it worthwhile to youc. working out an extra hour per weekd. both b and
7. Which of the following would be likely to raise your opportunity cost of attending a big basketball game this Sunday night?a. A friend calls you up and offers you free tickets to a concert by one of your favorite bands on Sunday night.b. Your employer offers you double your usual wage to work
6. Say you had an 8 a.m. economics class, but you would still come to campus at the same time even if you skipped your economics class. The cost of coming to the economics class would includea. the value of the time it took to drive to campus.b. the cost of the gasoline it took to get to campus.c.
5. “If I hadn’t been set up on this blind date tonight, I would have saved $50 and spent the evening watching TV.” The opportunity cost of the date isa. $50.b. $50, plus the cost to you of giving up a night of TV.c. smaller, the more you enjoy the date.d. higher, the more you like that
4. Who would be most likely to drop out of college before graduation?a. an economics major who wishes to go to graduate schoolb. a math major with a B+ averagec. a chemistry major who has just been reading about the terrific jobs available for those with chemistry degreesd. a star baseball player
3. If a country wants to maximize the value of its output, each job should be carried out by the person whoa. has the highest opportunity cost.b. has a comparative advantage in that activity.c. can complete the particular job most rapidly.d. enjoys that job the least.
2. Ted has decided to buy a burger and fries at a restaurant but is considering whether to buy a drink as well. If the price of a burger is $2.00, fries are $1.00, drinks are $1.00, and a value meal with all three costs $3.40, the marginal cost to Ted of the drink isa. $1.00.b. $0.40.c. $1.40.d.
1. Which of the following is part of the economic way of thinking?a. When an option becomes less costly, individuals will become more likely to choose it.b. Costs are incurred whenever scarce resources are used to produce goods or services.c. The value of a good is determined by its cost of
19. Not only does the market determine what goods are going to be produced and in what quantities, but it also determines the distribution of output among members of society. True or False:
18. When the economy produces too little or too much of something, the government can potentially improve society’s wellbeing by intervening. True or False:
17. Government price controls can short-circuit the market’s information transmission function. True or False:
16. Voluntary trade directly increases wealth by making both parties better off, and it is the prospect of wealth-increasing exchange that leads to productive specialization. True or False:
15. Without the ability to trade, people would not tend to specialize in those areas where they have a comparative advantage.
14. People can gain by specializing in the production of the good in which they have a comparative advantage. True or False:
13. The safety issue is generally not whether a product is safe, but rather how much safety consumers want. True or False:
12. Positive incentives are those that either increase benefits or reduce costs, resulting in an increase in the level of the related activity or behavior; negative incentives either reduce benefits or increase costs, resulting in a decrease in the level of the related activity or behavior. True or
11. Good economic thinking requires thinking about average amounts rather than marginal amounts. True or False:
10. Most choices in economics are all or nothing. True or False:
9. In terms of the rule of rational choice, zero levels of pollution, crime, and safety would be far too costly in terms of what we would have to give up to achieve them. True or False:
8. The actual result of changing behavior following the rule of rational choice will always make people better off. True or False:
7. Scarcity implies that “there’s no such thing as a free lunch.” True or False:
6. If we had unlimited resources, we would not have to choose among our desires. True or False:
5. Increases in production could enable us to eliminate scarcity. True or False:
4. Even the wealthy individual who decides to donate all of her money to charity faces the constraints of scarcity. True or False:
3. Even intangible goods can be subjected to economic analysis. True or False:
2. Entrepreneurship is the process of combining labor, land, and capital together to produce goods and services. True or False:
1. In economics, labor includes physical and mental effort, and land includes natural resources. True or False:
30. In the case of market _____________, appropriate government policies could improve on market outcomes.
29. Sometimes a painful trade-off exists between how much an economy can produce _____________ and how that output is _____________.
28. _____________ can lead the economy to fail to allocate resources efficiently, as in the cases of pollution and scientific research.
27. The basis of a market economy is _____________ exchange and the _____________ system that guides people’s choices regarding what goods to produce and how to produce those goods and distribute them.
26. Market prices serve as the ____________ of the market system. They communicate information about the ____________ to buyers, and they provide sellers with critical information about the ____________ that buyers place on those products. This communication results in a shifting of resources from
25. Produce what we do _____________ best and _____________ for the _____________.
24. We trade with others because it frees up time and resources to do other things we do _____________.
23. The primary advantages of specialization are that employees acquire greater _____________ from repetition, they avoid _____________ time in shifting from one task to another, and they do the types of work for which they are _____________ suited.
22. If a person, a region, or a country can produce a good or service at a lower opportunity cost than others can, we say that they have a(n) _____________ in the production of that good or service.
21. People _____________ by concentrating their energies on the activity to which they are best suited because individuals incur _____________ opportunity costs as a result.
20. Because most people seek opportunities that make them better off, we can _____________ what will happen when incentives are _____________.
19. If the benefits of some activity _____________ and/or if the costs _____________, economists expect the amount of that activity to rise. Economists call these _____________ incentives. Likewise, if the benefits of some activity _____________ and/or if the costs _____________, economists expect
18. In acting rationally, people respond to _____________.
17. The rule of rational choice is that in trying to make themselves better off, people alter their behavior if the _____________ to them from doing so outweigh the _____________ they will bear.
16. Economists emphasize _____________ thinking because the focus is on additional, or ___________, choices, which involve the effects of ___________ or _____________ the current situation.
15. Many choices involve _____________ of something to do rather than whether to do something.
14. The cost of grocery shopping is the _______________ paid for the goods plus the _______________ costs incurred.
13. The highest or best forgone alternative resulting from a decision is called the _____________.
12. In a world of scarcity, we all face _____________.
11. Economics is the study of the choices we make among our many _____________ and _____________.
10. Because we all have different _____________, scarcity affects everyone differently.
9. Scarcity ultimately leads to _____________ for the available goods and services.
8. Scarce goods created from scarce resources are called _____________ goods.
7. _____________ are intangible items of value, such as education, provided to consumers.
6. _____________ goods include fairness, friendship, knowledge, security, and health.
5. Entrepreneurs are always looking for new ways to improve _____________ or _____________. They are lured by the chance of making a _____________.
4. Capital includes human capital, the _____________ people receive from _____________.
3. The scarce resources that are used in the production of goods and services can be grouped into four categories:_____________, _____________, _____________, and _____________.
2. Something may be rare, but if it is not ___________it is not scarce.
1. As long as human _____________ exceed available _____________, scarcity will exist.
6. Could a student who gets a C in one class but a D or worse in everything else have a comparative advantage over someone who gets a B in that class but an A in everything else? Explain this concept using opportunity cost.
5. If you have a current comparative advantage in doing the dishes, and you then become far more productive than before in completing yard chores, could that eliminate your comparative advantage? Why or why not?
4. If you can mow your lawn in half the time it takes your spouse or housemate to do it, do you have a comparative advantage in mowing the lawn?
3. Why does the combination of specialization and trade make us better off?
2. What do we mean by comparative advantage?
1. Why do people specialize?
5. Why can markets sometimes fail to allocate resources efficiently?
4. How do price controls undermine the market as a communication device?
3. What do market prices communicate to others in society?
2. How does a market system allocate resources?
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