Principles of Microeconomics

Semester A 2020-2021

Problem Set #1
This document contains 4 pages

Lecturer: Dr. Yael Hadass

Teaching Assistant: Avigayil Rabhan

Grader: Ira Friedman.

Part A: Open Questions

1. Read the article: The reality of Markets by Russel Roberts. Answer the following
questions (up to two paragraphs for each answer):
a. To what categories does the writer divide the world we experience?
b. To what category of world experiences does language belongs?
c. Why does the author give commuting as an example? refer to the phenomena
and the way to solve traffic jams
d. The author gives an example about the housing market. Why it he isn’t he mad
at the seller who asks a higher price in Washington D.C. then in St. Lewis?
e. Which markets do we study in economics? What is unique about them?
f. What is the role of prices in pencil production?
g. Why we can put a man on the Moon but we can’t eliminate poverty?
h. Why can’t we blame Walmart for the low pay that they are paying their
workers?

2. Watch the first 15 minutes of the conversation in The Body Market. What is your take? Do
you think that we should ban or allow the trade discussed?

1
 Read the following articles and answers the questions
2. Lyft Drivers Have a Profound Understanding of Opportunity Cost.
a. How did watching Netflix changed the understanding of the Lyft driver?
b. “There is a cost to every action and even non-action because of the passage of
time.” Explain this claim.
c. What do you give up when you are reading this article?
d. Explain the difference between the tradeoffs that the Lyft driver face and the life
of those on a 9-5 regiment?
e. What causes drivers to decide to leave their families and drive in strange hours at
night?
f. After reading this article give an example from your own life to an opportunity
cost that you faced.

Part B: Multiple Choice Questions

1. The phenomenon of scarcity stems from the fact that

a. Most economies’ production methods are not very good.
b. In most economies, wealthy people consume disproportionate quantities of
goods and services.
c. Governments restrict production of too many goods and services.
d. Resources are limited.

2. The adage, "There is no such thing as a free lunch," means

a. Even people on welfare have to pay for food.
b. The cost of living is always increasing.
c. People face tradeoffs.
d. All costs are included in the price of a product.

3. Which of the following statements best represents the principle of opportunity cost?
a. Melissa can attend the concert only if she takes her sister with her.
b. Greg is hungry and homeless.
c. Brian must repair the tire on his bike before he can ride it to class.
d. Kendra must decide between going to Colorado or Cancun for spring break.

2
4. The property of society getting the most it can from its scarce resources is called
a. Equity.
b. Efficiency.
c. Equality.
d. Efficacy.

5. If government taxes the wealthy at a higher rate than the poor, and develops programs to
redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth
a. is more efficient and more equal for society.
b. is more efficient but less equal for society.
c. is more equal but less efficient for society.
d. is less equal and less efficient for society.

6. High-school athletes who skip college to become professional athletes

a. Obviously do not understand the value of a college education.
b. Usually do so because they cannot get into college.
c. Understand that the opportunity cost of attending college is very high.
d. Are not making a rational decision since the marginal benefits of college outweigh
the marginal costs of college for high-school athletes.

7. A marginal change is a
a. Change that involves little, if anything, that is important.
b. Large, significant adjustment.
c. Change for the worse, and so it is usually a short-term change.
d. Small, incremental adjustment.

8. Senator Bright, who understands economic principles, is trying to convince workers in her
district that trade with other countries is beneficial. Senator Bright should argue that trade can
be beneficial
a. only if it allows us to obtain things that we couldn't make for ourselves.
b. because it allows specialization, which increases total output.
c. to us if we can gain and the others involved in the trade lose.

3
 d. in only a limited number of circumstances because others are typically self-
interested.

9. Because it is difficult for economists to use experiments to generate data, they

generally must
a. do without data.
b. substitute assumptions for data when data are unavailable.
c. rely upon hypothetical data that were previously concocted by other
economists.
d. use whatever data the world gives them.

10. Factors of production are

a. used to produce goods and services.
b. also called output.
c. abundant in most economies.
d. assumed to be owned by firms in the circular-flow diagram.

11. In economics, capital refers to

a. the finances necessary for firms to produce their products.
b. buildings and machines used in the production process.
c. the money households use to purchase firms' output.
d. stocks and bonds.

12. In the markets for the factors of production in the circular-flow diagram,
a. households are sellers and firms are buyers.
b. households are buyers and firms are sellers.
c. households and firms are both buyers.
d. households and firms are both sellers.