Chapter 1

Think about how and why goods and resources are scarce. Goods and resources can be scarce for reasons that are inherent to their nature at all times, temporary or seasonal, or that are artificially created. Separate the goods listed below into two groups; indicate which (if any) are artificially scarce (AS), and which (if any) are inherently scarce (IS). [LO 1.1] a. air of any quality b. land c. patented goods d. original Picasso paintings

You are looking for a new apartment in Manhattan. Your income is \(\$ 4,000\) per month, and you know that you should not spend more than 25 percent of your income on rent. You have come across the following listing for one-bedroom apartments on craigslist. You are indifferent about location, and transportation costs are the same to each neighborhood. [LO 1.1] \begin{tabular}{cc} Chelsea & \(\$ 1,200\) \\ Battery Park & 2,200 \\ Delancey & 950 \\ Midtown & 1,500 \\ \hline \end{tabular} a. Which apartments fall within your budget? (Check all that apply.) b. Suppose that you adhere to the 25 percent guideline but also receive a \(\$ 1,000\) cost-of-living supplement since you are living and working in Manhattan. Which apartments fall within your budget now?

Last year, you estimated you would earn \(\$ 5\) million in sales revenues from developing a new product. So far, you have spent \(\$ 3\) million developing the product, but it is not yet complete. Meanwhile, this year you have new sales projections that show expected revenues from the new product will actually be only \(\$ 4\) million. How much should you be willing to spend to complete the product development? [LO 1.2] a. \(\$ 0\). b. Up to \(\$ 1\) million. c. Up to \(\$ 4\) million. d. Whatever it takes.

Consider the following examples. For each one, say whether the incentive is positive or negative. \(\left[\mathrm{LO}_{1}, 3\right]\) a. Bosses who offer time-and-a-half for working on national holidays. b. Mandatory minimum sentencing for drug offenses. c. Fines for littering. d. Parents who offer their children extra allowance money for good grades.

Determine whether each of the following ques tionable statements is best explained by correlation without causation, an omitted variable, or reverse causation. [LO 1.5] a. In cities that have more police, crime rates are higher. b. Many retired people live in states where everyone uses air conditioning during the summer. c. More people come down with the flu during the Winter Olympics than during the Summer Olympics. d. For the last five years, Punxsutawney Phil has seen his shadow on Groundhog Day, and spring has come late.

For each of the pairs below, determine whether they are positively correlated, negatively correlated, or uncorrelated. [LO 1.5] a. Time spent studying and test scores b. Vaccination and illness c. Soft drink preference and music preference d. Income and education

Each statement below is part of an economic model. Indicate whether the statement is a prediction of cause and effect or an assumption. [LO 1.6] a. People behave rationally. b. If the price of a good falls, people will consume more of that good. C. Mass starvation will occur as population outgrows the food supply. d. Firms want to maximize profits.

From the list below, select the characteristics that describe a good economic model. [LO 1.6] a. Includes every detail of a given situation. b. Predicts that A causes B. C. Makes approximately accurate assumptions. d. Fits the real world perfectly. e. Predicts things that are usually true.

Determine whether each of the following statements is positive or normative. (Remember that a positive statement isn't necessarily cornect; it just makes a factual claim rather than a moral judgment.) [LO 1.7] a. People who pay their bills on time are less likely than others to get into debt. b. Hard work is a virtue. c. Everyone should pay his or her bills on time. d. China has a bigger population than any other country in the world. e. China's One-Child Policy (which limits families to one child each) helped to spur the country's rapid economic growth. f. Lower taxes are good for the country.

You just received your midterm exam results and your professor wrote the following note: "You received a 70 on this exam, the average score. If you want to improve your grade, you should study more." Evaluate your professor's note. [LO 1.7] a. Is the first sentence positive or normative? b. Is the second sentence positive or normative?