ECO2013-04 Fall 1997 Quiz 1 KEY

1. Suppose tuition and fees for an in-state student are $2,670 per academic year; books and supplies cost $500; and average earnings of an 18 year old high school graduate in nine months are $11,000. For a Tallahassee resident who just graduated from high school, what is the opportunity cost of being a full-time student [i.e. not employed] freshman year at FSU?

a. $2,670 b. $14,170 c. $3,170 d. Cannot say without knowing what they spend on board and lodging.

2. A few years ago, the going price for an AK47 in the Beira corridor was 10 kilograms of mealie meal; in Soweto, outside Johannesburg, the going price of an AK47 was about R300, and mealie meal cost about R1 a kilogram. Obviously, there were transport costs, transaction costs, and the trade was illegal, but would you expect the tendency to be:

a. Mealie meal moved from the Beira corridor to Soweto. b. AK47's moved from the Beira corridor to Soweto

c. No trade involving AK47's between Soweto and the Beira corridor d. Both AK47's and mealie meal moved from Soweto to the Beira corridor.

Opportunity cost of an AK47 is 10 kg mealiemeal in Beira, 300kg in Soweto; Beira is the low opportunity cost "producer" of AK47s, so will "export" them to Soweto. 49% right. 23% said d.; but if there are two goods, one person/place cannot have comparative advantage in both of them. Think of "moving" the goods; which way could you make a profit?

3. A theory or model must capture all the details of reality if it is to be useful a. false b. true

87% got it right. The rest need to listen better; nobody looks like the "funny face," but it conveys the idea "face."

4. Which of the following is a positive statement? [jargon meaning of positive]

a. economics is boring b. economics is fun

c. there are too many students in this class d. 222 students are registered for this class section

5. What is the jargon label for the other statements? a. negative b. normative c. theoretical d. ceteris paribus

Only 73% remembered this. Normative means involving an opinion or value judgement, therefore not provable wrong with facts.

6. "Beer sales in Tallahassee are higher in November and December than in June and July. Therefore, people drink more beer when the weather is colder" This is an example of:

a. a violation of the ceteris paribus assumption b. the fallacy of composition

c. Assuming association implies causation d. a. and c.

7. If, door-to-door, it takes 2 hours and expenditure of $450 for a state worker to fly to Miami, but 8 hours and $150 to drive, at what hourly wage does it just make sense for the State to pay for air travel?

a. $30 b. $40 c. $15 d. $50 e. $37.50 ?

Expenditure difference is 450-150 = $300; time difference is 8 - 2 = 6 hours. $300/6 = $50 per hour, so total cost -- expenditure on travel plus worker time cost -- is lower if the worker is paid $50 or more. 45% got it right.

8. If an economy is producing at a point inside its production possibilities curve (PPC), then

a. it could produce more of both kinds of output b. it is being inefficient

c. opportunity cost ideas would be irrelevant d. a. and b.

This is essentially the definitions of PPC and "efficiency." 61% got it right, most everybody else chose a. or b. but missed they are both true.

9. "In Florida, if a car hits a cow on the highway, the cow-owner owes the car-owner for any damage; in some other parts of the world, the car-owner would owe the cow-owner for damages." This is an example of

a. externalities b. opportunity costs c. variations in property rights d. stupidity.

93% of you got it; well done. If you did less well on this quiz than you would have liked to, consider spending more time working on the questions and problems in the Coursebook.