Exam 1: The Scope and Method of Economics

List and describe four fields of economics.

If a good is scarce, does that imply that there is a shortage of it?

Some politicians have recently suggested changing the income tax system in the U.S. to a flat tax system where all taxpayers would pay the same percentage of their income in tax to the federal government. Explain how such a change can be analyzed in terms of efficiency. Do you believe that this tax will have equity effects as well?

Suppose that you buy Internet service from Friendly ISP Corporation. You are charged a monthly fee of $3.50 and must also pay an hourly charge of $1.00 for every hour you use the Internet. Draw a diagram of the relationship between your monthly bill from Friendly ISP and the number of hours you use the Internet. What is the slope of the line drawn?

Evaluate the following statement - "Economists are fond of saying that there are positive statements and normative ones but the truth is that all questions are really normative".

Consider the following scenario. Assume the price of gold in London is selling for $1400 an ounce while in New York it is fetching a price of $1450 an ounce. What would an economist say about the efficiency of this market? What would an economist predict about what would happen next?

Why would a company be more enthusiastic in providing more training to its workers during an economic downturn than during an economic boom (assuming that they do not layoff their workers and can keep them when the economy recovers)?

A globe is a model. However, it lacks much of the detail that one would find on a map. Does that make the globe an inferior model? Why not?

Explain the difference between microeconomics and macroeconomics.

The following table shows how the unit costs of producing cotton rugs varies with daily output for a given factory: Plot the points and trace a curve through them. Describe the relationship between cost per rug and the number of rugs produced daily.

Your younger brother likes to yell at the dinner table so the rest of the family will give him what he wants. Assume that this has proved quite successful for him time and again. Let's say that you are from a family of eight and every member of your family starts to adopt the same strategy. Would this work? Why or why not? Explain.

Explain what is meant by the term opportunity cost.

Assume that the research team of a major company is building a model of consumer demand that contains approximately 250 variables. Can you think of a principle that might be violated here that was discussed in chapter 1? Explain.

For each of the following, list whether the topic is microeconomic or macroeconomic in nature: (a.) The price of gasoline. (b.) The national unemployment rate. (c.) The quantity of new cars sold each year. (d.) The wage rate paid to steel workers. (e.) The amount of national output in an economy.

For each of the following, note whether the statement is an example of positive economic analysis or an example of normative economic analysis: (a.) An increase in the minimum wage will lead to a higher rate of teenage unemployment. (b.) If the government reduces the tax on tobacco, more individuals will start smoking. (c.) The government should lower taxes because tax rates are too high for the average U.S. family. (d.) Wealthy senior citizens can afford to buy their own health insurance and therefore should not be given Medicare coverage. (e.) If the price of apples increases, people will buy more bananas.

Most economists will argue that the minimum wage causes unemployment. Even politicians will recognize this when pressed. However, typically liberals will tout the benefits of the minimum wage while conservatives will decry the disruption that it causes in the labor market. Which economic objective seems to be more important for liberals and which is more important to conservatives if this general observation is correct? Which side is right?

Define the concept used in economics known as Ockham's Razor.

Review the following statement. "He who has choice has pain." What is meant by this?

Graph the following equation and then calculate the slope. If variable X increases by 5, what will happen to variable Y? Y = 45 - 5X

Explain the concept of marginalism as it is used in economics.