Econ 2000 Exam 1 (HW and Quizzes)
Questions & Answers
When a society cannot produce all the goods and services people wish to have, it is
said that the economy is experiencing, - ANSWERSscarcity
Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a
new mp3 player to listen to music while working out. Both the amplifier and the mp3
player cost $120, so she can only buy one. This illustrates the basic concept that -
ANSWERSpeople face trade-offs.
Suppose the government taxes the wealthy at a higher rate than it taxes the poor and
then develops programs to redistribute the tax revenue from the wealthy to the poor.
This redistribution of wealth - ANSWERSis more equal but less efficient for society.
Consider Mandy's decision to go to college. If she goes to college, she will spend
$20,000 on tuition, $10,000 on room and board, and $2,000 on books. If she does not
go to college, she will earn $18,000 working in a store and spend $8,000 on room and
board. Mandy's cost of going to college is - ANSWERS42,000
Barb's aunt gave her $100 for her birthday with the condition that Barb buy herself
something. In deciding how to spend the money, Barb narrows her options down to four
choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally
she decides on Option B. The opportunity cost of this decision is - ANSWERSthe value
to Barb of the option she would have chosen had Option B not been available.
Bill is restoring a car and has already spent $4000 on the restoration. He expects to be
able to sell the car for $6200. Bill discovers that he needs to do an additional $2400 of
work to make the car worth $6200 to potential buyers. He could also sell the car now,
without completing the additional work, for $3800. What should he do? - ANSWERSIt
does not matter if Bill sells the car now or completes the work and then sells it at the
higher price because the outcome will be the same either way.
