Microeconomics Fall 2011 Questions and Answers on Chapter 1

Dr. Hala Fares

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 1) Suppose you are working four nights per week at your courses and your grade point average is 3.5. You want a higher grade and decide to study an extra night each week. Your GPA now rises to 3.8. What is your marginal benefit from studying for one additional night a week? 2) Jerry is studying three nights per week and his grade point average is 3.1. He wants a higher GPA and decides to study an extra night each week. His GPA now rises to 3.5. Had Jerry not decided to study an extra night, he would have spent this night with his friends. What is Jerry's marginal benefit from studying for one additional night a week? What is his marginal cost of increasing the study time by one night per week? Why does Jerry decide to study an extra night? TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 3) Most income in the United States is earned by business owners as profit.

3) _______

4) Scarcity affects only those who are in need.

4) _______

5) The tools, instruments, machines, and buildings that people use to produce goods and services are called human capital.

5) _______

6) Microeconomics is the study of topics such as national production and unemployment.

6) _______

7) Macroeconomics is the study of aggregate variables such as national production and unemployment.

7) _______

8) Scarcity applies to both the rich and the poor.

8) _______

9) When I buy an $8.00 movie ticket rather than two paperback books, the opportunity cost of going to the movie is the two paperback books I did not buy.

9) _______

10) The tools, instruments, machines, and buildings that people use to produce goods and services are called human capital.

10) ______

1) Marginal benefit is the benefit that arises from an increase in an activity. Your marginal benefit is the 0.3 increase in your grade. It's not the 3.8 grade because you already have the benefit from studying for four nights a week and should not count this benefit as resulting from the decision you are now making. 2) Marginal benefit is the benefit that arises from an increase in an activity. Jerry's marginal benefit is the 0.4 increase in his grade. Marginal cost is the opportunity cost of an increase in an activity. Jerry's marginal cost is a night spent with his friends that he gives up. Jerry decides to stud an extra night because he values the marginal benefit from it (the 0.4 increase in his grade) more highly than its marginal cost (a night spent with his friends). 3) FALSE 4) FALSE 5) FALSE 6) FALSE 7) TRUE 8) TRUE 9) TRUE 10) FALSE