EC 252 Principles of Microeconomics Spring 2020 Homework 1 Due Date Wednesday January 29 2020 Name 1 Write down the ten principles of economics 1 2 The government often applies extra taxes to activities that society deems bad wrong inappropriate These are often termed sin taxes and include the high taxes many communities levy against cigarettes alcohol and strip clubs What is the ultimate goal of sin taxes To which of the ten principles of economics does this question most closely relate just provide the number Goal Principle 3 Draw a production possibilities frontier for a society that produces video games and television sets Show an example of an efficient point inefficient point and infeasible point on your graph Be sure to label your axes 2 4 Sev and Mary have the following valuations for a set of goods Item Bubble gum Chainsaw Volvo Snickers bar Sev s Valuation 5 7 40 3 Mary s Valuation 15 1 60 2 Sev and Mary are given the following baskets of goods Sev gets 3 bubble gum 0 chainsaws 1 Volvo and 5 Snickers bars Mary gets 1 bubble gum 2 chainsaws 5 Volvos and 1 Snickers bar a What is the total personal value of Sev s basket b What is the total personal value of Mary s basket c Propose a trade involving just one item on each side that would make both Sev and Mary better off Sev trades to Mary Mary trades to Sev 3 5 The baskets from problem 5 are changed Instead Sev receives 4 bubble gum 1 chainsaw 1 Volvo and 0 Snickers bars Mary gets 1 bubble gum 0 chainsaws 2 Volvos and 1 Snickers bar a What is the total personal value of Sev s basket b What is the total personal value of Mary s basket c Is this situation Pareto efficient Circle the correct answer below YES NO d If not what trade should happen to make at least one player better off without hurting the other one or improve both players Hint Consider trades more complex than 1 item for 1 item such as 5 items for 1 item 6 Machine 1 in the Ford factory can make one steering wheel per hour and one head rest every 15 minutes Machine 2 in the Ford factory can make one steering wheel every 2 hours and one head rest every 5 minutes 4 a How many steering wheels can machine 1 make in one 24 hour workday b How many steering wheels can machine 2 make in one 24 hour workday c Which machine has the absolute advantage in steering wheels d Which machine has the absolute advantage in head rests e What is the opportunity cost OC in terms of head rests for machine 1 in making one steering wheel f What is the OC in terms of head rests for machine 2 in making one steering wheel g Which machine has the comparative advantage in making steering wheels 5 7 John works at McDonald s He can spend his time there preparing burgers or chicken sandwiches In one hour if he spends all of his time and resources making burgers he can make 64 burgers In one hour if he spends all of his time and resources making chicken sandwiches he can make 16 chicken sandwiches Obviously he is also allowed to split his time during that hour making either burgers or chicken sandwiches Show John s PPF below Remember to label the axes and endpoints Also label the midpoint where John spends 30 minutes making burgers and 30 minutes making chicken sandwiches Labeling a point means listing its x and y coordinates 8 In problem 7 what is John s OC of making 4 chicken sandwiches 6 9 Draw the societal PPF for pens and paper that would combine the productions of Darrin Henry Frank and Tracy The table below shows their individual productions of each good separately assuming they spent all their time producing just that one good Be sure to label your axes each segment of the societal PPF by attaching a name to it endpoints and all middle points where the slope changes i e where a kink in the graph occurs I suggest you use Excel for this or at least graph paper If you draw it by hand please demonstrate a minimal artistic ability that at least includes drawing straight lines and marking off intervals on your graphs evenly Pens Paper Darrin 10 4 Henry 6 12 Frank 5 1 Tracy 3 15 Please circle the correct answer for the multiple choice questions that follow 7 1 Economic scarcity arises from Inefficient production a b Exploration c d Limited wants and limitless resources Limited resources and limitless wants 2 Economic scarcity is experienced by a Only the poor b Only the wealthy c Only producers d Everyone in society 3 Economics is a A physical science b A social science 4 Factors of production include all of the following EXCEPT Labor a b Land c Capital d Human capital e None of the above answers are correct because all of the above are factors of production 5 Which of the following statements is are correct I The alternative thing given up to get something else is a good definition of opportunity cost II Wealthy economies like the U S do not face tradeoffs III Scarcity creates opportunity costs IV None of our ten principles address opportunity cost a Statement I only b Statements II and IV only Statements I and III only c d Statements I II and III only e All of the above statements are correct 8 6 You have the choice of going to Disney World for the week going skiing for the week or working at your job for the week The opportunity cost of going to Disney World is a The combined value of working and skiing b Zero c The value of working or skiing depending on which you would have chosen instead of Disney World d The amount of money you spend on soda while at Disney World 7 Which of the following statements apply to economic models I An economic model makes assumptions II An economic model is simpler than the reality it explains III The production possibilities frontier is one example of an economic model a Statement I only b Statements II and III only c All of the above statements are correct 8 Which of the following is NOT illustrated by a PPF a Scarcity b Who gets the goods produced c Opportunity cost d Necessity of making tradeoffs 9 A country that must decrease production of one good in order to increase the production of another a Must be using resources inefficiently b Must be using resources efficiently c Must be producing inside its PPF d Must be producing outside its PPF 10 Suppose a country when operating on its PPF can produce 25 tons of corn and 60 tons of wheat OR 26 tons of corn and 55 tons of wheat At that point on the PPF the opportunity cost of 1 ton of corn is a 10 tons of wheat …