1) Below are six statements. Indicate whether each one pertains to microeconomics (MIC) or macroeconomics (MAC).
a) "Last year, IBM was the U.S. business with the most patents registered with the U.S. government."
b) "The U.S. economy grew at an annual rate of 4.2 percent last year."
c) "Snow in the northeast has reduced the number of holiday shoppers at clothing stores and clothing prices are falling."
d) "More workers are being hired by the nation's businesses."
e) "The U.S. economy imported more goods and services than it exported last year."
f) "New discoveries in medicine are leading to strong growth in the biotech industry."
2) Below are six statements. Identify whether each is a positive or normative statement.
a) The national economy grew at a 6.2 percentage rate in the last quarter as the economy continues to recovers from the past recession.
b) The unemployment rate fell to 5.7 percent this month, and is expected to fall to 5.5 percent next month.
c) The rate of inflation should be reduced to zero to maintain the value of the U.S. dollar.
d) The government should take action to reduce the prices of prescription drugs charged by drug companies.
e) Interest rates for home mortgages are at their lowest rate in thirty years.
f) The Federal government should increase income taxes on the wealthy to reduce the budget deficit.
3)
Suppose a consumer has a daily income of $48 and purchases just two goods, A and B. The price of A is $8 and the price of B is $6. In the graph below, draw the budget line for the consumer. Indicate the area of the below graph that is attainable given the income and the area that is unattainable.
4) The production possibilities curve below show the hypothetical relationship between the production of food and clothing in an economy.
Combination
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Food
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Clothing
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A
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0
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4
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B
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7
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3
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C
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13
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2
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D
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18
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1
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E
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22
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0
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a) What is the marginal opportunity cost of producing the second unit of clothing?
b) What is the total opportunity cost of producing the second unit of clothing?
c) What is the marginal opportunity cost of producing the third unit of clothing?
d) What is the total opportunity cost of producing the third unit of clothing?
5) Assume that a firm finds that its profits will be maximized (or losses minimized) when it produces $30 worth of product X. Each of these techniques shown in the following table will produce exactly $30 worth of X.
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Unit resource
prices
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Method #1
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Method #2
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Method #3
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Land
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$1
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6
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3
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4
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Labor
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2
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4
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3
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3
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|
Capital
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3
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3
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4
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6
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Entrepreneurship
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|
4
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2
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4
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|
1
|
a) Which method is most efficient? Why?
b) Given the above prices, will the firm adopt a new method which involves 10 units of land, 3 of labor, 2 of capital, and 2 of entrepreneurial ability?
c) Suppose the price of capital falls to $1 without any other prices changing. Which of the methods will the firm now choose? Why?