Questions and Problems

Check Your Understanding

  1. Question

    What is wrong with the statement “Economics is everything to do with money”?

    Prob 1 1. What is wrong with the statement “Economics is everything to do with money”?

  2. Question

    Does your going to college have anything to do with expanding choices or reducing scarcity? Explain.

    Prob 1 2. Does your going to college have anything to do with expanding choices or reducing scarcity? Explain.

  3. Question

    What is the difference between a positive question and a normative question?

    Prob 1 3. What is the difference between a positive question and a normative question?

  4. Question

    You normally stay at home on Wednesday nights and study. Next Wednesday night, your best friend is having his big 21st birthday party. What is the opportunity cost of going to the party?

    Prob 1 4. You normally stay at home on Wednesday nights and study. Next Wednesday night, your best friend is having his big 21st birthday party. What is the opportunity cost of going to the party?

  5. Question

    What is the incentive to spend four years of one’s life and tens of thousands of dollars to earn a college degree?

    Prob 1 5. What is the incentive to spend four years of one’s life and tens of thousands of dollars to earn a college degree?

  6. Question

    Why do markets typically lead to an efficient outcome for buyers and sellers?

    Prob 1 6. Why do markets typically lead to an efficient outcome for buyers and sellers?

Apply the Concepts

  1. Question

    In contrasting equity and efficiency, why do high-tech firms seem to treat their employees better (better wages, benefits, working environments, vacations, etc.) compared to how landscaping or fast-food franchises treat their employees? Is this fair? Is it efficient?

    Prob 1 7. In contrasting equity and efficiency, why do high-tech firms seem to treat their employees better (better wages, benefits, working environments, vacations, etc.) compared to how landscaping or fast-food franchises treat their employees? Is this fair? Is it efficient?

  2. Question

    Stores sometimes offer “mail-in rebates” to customers who purchase certain goods to get a portion of the purchase price refunded. Typically, a mail-in rebate requires proof of purchase (like a UPC from the actual product along with a store receipt) and a completed form to be mailed in for processing, with the rebate being mailed in the form of a check or a prepaid debit card six to eight weeks later. Why would some customers, but not all, take advantage of mail-in rebates?

    Prob 1 8. Stores sometimes offer “mail-in rebates” to customers who purchase certain goods to get a portion of the purchase price refunded. Typically, a mail-in rebate requires proof of purchase (like a UPC from the actual product along with a store receipt) and a completed form to be mailed in for processing, with the rebate being mailed in the form of a check or a prepaid debit card six to eight weeks later. Why would some customers, but not all, take advantage of mail-in rebates?

  3. Question

    The black rhinoceros is extremely endangered. Its horn is considered a powerful aphrodisiac in many Asian countries, and a single horn fetches many thousands of dollars on the black market, creating a great incentive for poachers. Unlike other stories of endangered species, this one might have a simple solution. Conservationists could simply capture as many rhinos as possible and remove their horns, reducing the incentive to poach. Do you think this will help reduce poaching? Why or why not?

    Prob 1 9. The black rhinoceros is extremely endangered. Its horn is considered a powerful aphrodisiac in many Asian countries, and a single horn fetches many thousands of dollars on the black market, creating a great incentive for poachers. Unlike other stories of endangered species, this one might have a simple solution. Conservationists could simply capture as many rhinos as possible and remove their horns, reducing the incentive to poach. Do you think this will help reduce poaching? Why or why not?

  4. Question

    Most amusement parks in the United States charge a fixed price for admission, which includes unlimited roller coaster rides for the day. Some people attempt to ride the roller coasters as often as possible in order to maximize the value of their admission. Why is riding a roller coaster at an amusement park over and over to “get your money’s worth” not considered thinking on the margin?

    Prob 1 10. Most amusement parks in the United States charge a fixed price for admission, which includes unlimited roller coaster rides for the day. Some people attempt to ride the roller coasters as often as possible in order to maximize the value of their admission. Why is riding a roller coaster at an amusement park over and over to “get your money’s worth” not considered thinking on the margin?

  5. Question

    With higher gasoline prices, the U.S. government wants people to buy more hybrid cars that use much less gasoline. Unfortunately, hybrids are approximately $4,000 to $5,000 more expensive to purchase than comparable cars. Because people follow incentives, what can the government do to encourage the purchase of hybrids?

    Prob 1 11. With higher gasoline prices, the U.S. government wants people to buy more hybrid cars that use much less gasoline. Unfortunately, hybrids are approximately $4,000 to $5,000 more expensive to purchase than comparable cars. Because people follow incentives, what can the government do to encourage the purchase of hybrids?

  6. Question

    Some colleges and universities charge tuition by the credit hour, while others charge tuition by the term, allowing students to take as many classes as they desire. How do these tuition structures affect the incentives students face when deciding how many classes to take? Provide an example of a beneficial effect and an example of a potentially harmful effect resulting from the incentives created with each system. How does marginal analysis affect the incentives with each system?

    Prob 1 12. Some colleges and universities charge tuition by the credit hour, while others charge tuition by the term, allowing students to take as many classes as they desire. How do these tuition structures affect the incentives students face when deciding how many classes to take? Provide an example of a beneficial effect and an example of a potentially harmful effect resulting from the incentives created with each system. How does marginal analysis affect the incentives with each system?
Page 17

In the News

  1. Question

    The New York Times reported on January 18, 2012, in an article titled “What the Top 1% of Earners Majored In,” that 8.2% of Americans who majored in economics for their undergraduate degree are in the top 1% of salary earners. Only those who majored in pre-med had a higher percentage in the top 1%. What might be some reasons why economics majors have done well in the job market?

    Prob 1 13. The New York Times reported on January 18, 2012, in an article titled “What the Top 1% of Earners Majored In,” that 8.2% of Americans who majored in economics for their undergraduate degree are in the top 1% of salary earners. Only those who majored in pre-med had a higher percentage in the top 1%. What might be some reasons why economics majors have done well in the job market?

  2. Question

    Ticketmaster, the largest event ticket seller in the country, recently expanded its use of paperless tickets that requires buyers to pick up tickets on the day of the event and show identification (Reuters, “Paperless Tickets: Is Ticketmaster Hurting Consumers?,” March 29, 2011) rather than mailing paper tickets weeks before the event. What are some reasons Ticketmaster is expanding this method of ticket delivery? How does this change the incentives in the secondary (resale) market?

    Prob 1 14. Ticketmaster, the largest event ticket seller in the country, recently expanded its use of paperless tickets that requires buyers to pick up tickets on the day of the event and show identification (Reuters, “Paperless Tickets: Is Ticketmaster Hurting Consumers?,” March 29, 2011) rather than mailing paper tickets weeks before the event. What are some reasons Ticketmaster is expanding this method of ticket delivery? How does this change the incentives in the secondary (resale) market?

Solving Problems

  1. Question

    Suppose your favorite band is on tour and coming to your area. Tickets are $100, and you take a day off from work for which you could have earned $60. What is your opportunity cost of going to the concert?

    Prob 1 15. Suppose your favorite band is on tour and coming to your area. Tickets are $100, and you take a day off from work for which you could have earned $60. What is your opportunity cost of going to the concert?

  2. Question

    Suppose you pay $10 to watch a movie at the local multiplex cinema, and then after-ward sneak into the next theater to watch a second movie without paying. What would be your marginal cost of watching the second movie?

    Prob 1 16. Suppose you pay $10 to watch a movie at the local multiplex cinema, and then after-ward sneak into the next theater to watch a second movie without paying. What would be your marginal cost of watching the second movie?

  1. According to By the Numbers, the average percentage of income spent on various items has changed since 1960.

    1. Question

      What percent of income did Food represent in 1960? In 2010? This represents a drop of approximately what percent? (Hint: it is not 8%.)

      Prob 1 17a.What percent of income did Food represent in 1960? In 2010? This represents a drop of approximately what percent? (Hint: it is not 8%.)

    2. Question

      What percent of income did Health Care represent in 1960? In 2010? This represents an increase of approximately what percent? (Hint: it is not 9%.)

      Prob 1 17b. What percent of income did Health Care represent in 1960? In 2010? This represents an increase of approximately what percent? (Hint: it is not 9%.)

  2. Question

    According to By the Numbers, about how many economics degrees were awarded to college graduates in 2011? How does this number compare to the number of nursing degrees? Communications degrees?

    Prob 1 18. According to By the Numbers, about how many economics degrees were awarded to college graduates in 2011? How does this number compare to the number of nursing degrees? Communications degrees?
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