ECON 203 Assignment 1

Assignment 1 Questions 1. How can the production possibilities frontiers shift outward? a. Of there is an increase in technology 2. What markets are depicted in the simple circular-flow diagram? a. The market for goods and services and the market for factors of production 3. How do people make decisions at the margin? a. By comparing costs and benefits 4. Which statement best describes the way economists study the economy? a. Economists devise theories, collect theories, and then analysis the data to test the theories 5. How does a market economy reward people? a. According to their ability to produce things that other people are willing to pay for 6. Which statement best describes the relationship between inflation and unemployment? a. In the short run, reducing inflation is associated with rising unemployment 7. In a market economy, decisions are guided by individual self-interest. What impact does this have? a. There is still the ability to achieve desirab;e economic well-being for society as a whole 8. What is market power? a. The power of a single person or group to influence market prices 9. In economics, what is the cost of something? a. What you give up to obtain it 10. What is the business cycle? a. The irregular fluctuations in economic activity 11. What would unemployment cause an economy to do? a. Produce inside its PPF 12. What is meant by scientific method? a. The dispassionate development and testing of theories about how the world works 13. How good are markets at organizing economic activity? a. Markets are usually a good way to organize economic activity 14. After much consideration, you have chosen Cancun over Fort Lauderdale for your spring break trip this year. For this decision to change, what must occur? a. The marginal benefit of Fort Lauderdale must increase 15. What is a characteristic of a good theory? a. It is a theory that helps us understand how the world works 16. Why do taxes adversely affect the allocation of resources in society? a. Because they distort prices and thus the decisions of households and firms 17. What happens in the markets for factors of production? a. Households provide firms with labour, land, and capital 18. What have economists often observed while studying the effects of public policy changes? a. There is a difference between the long run and the short run 19. The average cost per seat on a train trip from Edmonton to Jasper is $140. Suppose no refreshments are served and three seats are empty. How could the train company increase its profit? a. If it charged any ticket price above $0 for the remaining seats 20. Which concert best defines efficiency?

a. Minimum waste 21. What does macroeconomics study? a. Economy-wide phenomena 22. What happens when society requires that firms reduce pollution? a. There is a trade off because of reduced incomes to the firms’ owners, workers, and customers 23. What is an externality? a. The impact of one person’s actions on the wel-being of a bystander 24. What is a circular-flow diagram? a. A visual model of how the economy is organized 25. Mallory decides to spend three hours working overtime rather than watching Netflix with her friends. She earns $9 an hour. What is her opportunity cost of working? a. The enjoyment she would have received had she watched Netflix 26. Monica has spent $120,000 purchasing and repairing an old cabin, which she expects to sell for $130,000. She discovers that she needs an additional repair, which will cost $20,000. She can sell the cabin as it is now for $115,000. What should she do? a. She should take the $115,000 27. What will happen if a copper refinery does NOT bear the entire cost of the smoke it emits? a. It will emit too much smoke 28. Why do economists make assumptions? a. To make the world easier to understand 29. What has been one effect of a government-imposed seat belt law? a. An increase in the number of accidents 30. What is likely to occur when the government implements programs such as progressive income tax rates? a. Equity is increased and efficiency is decreased Self-Assessment #1 1. What concept does economics primarily deal with? a. Scarcity 2. When is a good considered scarce in a society? a. When everyone in that society cannot have all they want of the good 3. How are goods and services allocated in a market economy? a. By the actions of all firms and consumers 4. Henry decides to spend two hours playing golf rather than working at his job, which pays $8 per hour. What is Henry’s tradeoff? a. The $16 he could have earned working for two hours 5. 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 enough to meet the output target, without regard for quality or cost 6. What is the effect of a trade between Canada and India? a. Benefits for both Canada and India 7. What does the term “market failure” refer to? a. Situation in which the market on its own fails to allocate resources efficiently

a. They allow economists to learn how the economy works 27. What are factors of production? a. Inputs into the production process 28. What is another name for goods and services produced by firms? a. Outputs 29. What are the four sectors in a more complex circular-flow diagram? a. Households, firms, government, and international trade 30. The country of Econoland produces two goods: textbooks and widgets. Last year, it produced 200 textbooks and 500 widgets. This year, it produced 250 textbooks and 600 widgets. Given no other information, which of the following could NOT explain the change? a. Econoland experienced a high level of emigration out of the country