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Principles of Economics - Problem Set 1 Conceptual Questions

This document contains a series of conceptual questions, problems, and other questions related to principles of economics. It begins with 5 conceptual questions about opportunity cost, the three main economic questions, Paretian efficiency, the difference between efficiency and equity, and why economists make assumptions. It then provides 2 sample problems involving the opportunity costs of fruit picking and attending graduate school. Finally, it lists 5 additional questions testing understanding of concepts like opportunity cost, positive vs normative analysis, micro vs macroeconomics, scarcity, and the scope of microeconomics.

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61 views

Principles of Economics - Problem Set 1 Conceptual Questions

This document contains a series of conceptual questions, problems, and other questions related to principles of economics. It begins with 5 conceptual questions about opportunity cost, the three main economic questions, Paretian efficiency, the difference between efficiency and equity, and why economists make assumptions. It then provides 2 sample problems involving the opportunity costs of fruit picking and attending graduate school. Finally, it lists 5 additional questions testing understanding of concepts like opportunity cost, positive vs normative analysis, micro vs macroeconomics, scarcity, and the scope of microeconomics.

Uploaded by

antialonso
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Universidad Carlos III de Madrid – Department of Economics

Principles of Economics - Problem Set 1

Conceptual Questions

Write down a short and concise answer. When you are asked to solve the question in class,
explain the concept clearly and give examples or pieces of evidence.

1. What is the opportunity cost? Give an example of a misunderstanding of opportunity


cost that someone not thinking as an economist might experience.

2. What are the three main economic questions that a society asks itself given the scarcity
of resources? How are the answers to these questions found?

3. What do we mean by Paretian efficiency or efficiency in the Paretian sense? Why the
Paretian efficiency is a useful goal for public policy? Provide examples.

4. Efficiency is not the same than equity. Why? Give an example in which an efficient
allocation has been achieved but it creates significant inequalities.

5. Explain why economists have to make assumptions to be able to formulate economic


models.

Problems

1. Jacinto and Carlota live in a hunter-gatherer society. Jacinto takes 20 minutes to


pick up a banana and 40 minutes to pick up an apple. Carlota picks up a banana in 10
minutes and an apple in 5 minutes.
a) What is the opportunity cost of a banana for Jacinto?
b) What is the maximum number of bananas that Jacinto is ready to give to Carlota in
exchange of an apple?
c) What is the opportunity cost of an apple for Carlota?
d) What is the minimum number of bananas that Carlota is willing to accept from
Jacinto in exchange of an apple?
e) What would be the benefit for Carlota and Jacinto of exchanging fruits with each
other? Explain in which of the two goods Carlota and Jacinto will specialize themselves.
f) What is the price at which Carlota and Jacinto would be keen to exchange apples
and bananas?

2. Manuel has been admitted to the Universidad Carlos III de Madrid to do a master
that lasts eight months, which costs 600 Euros. The books and the other material he needs
to buy cost 200 Euros. Total commuting costs are 150 Euros. He will be living in a hotel
that gives him room and board during the eight months for 6000 Euros. On the other hand,
he will get a 150 Euros scholarship per month. Just before enrolling in the master, Manuel
received a job offer from Coca-cola with a salary of 1000 Euros per month. Unfortunately,
he cannot work and study at the same time. If Manuel accepts the job, he won’t incur in the
commuting expenses but he still will have to pay the same costs for room and board.
Manuel, who studied Principles of Economics, knows that before accepting the job offer he

1
should be computing the opportunity cost of attending the course at the university. What is
this opportunity cost for Manuel?

Other questions

1. In an economy, only two goods are produced, video cameras and radios. Given
available resources, they can be produced according to the following combinations:

Video Cameras Radios


0 9
1 6
2 3
3 0

If we start from a situation in which only one video camera is produced, what is the
opportunity cost of producing one more unit of video camera?
a) One radio. b) Three radios. c) Six radios. d) Nine radios.

2. Which of the following statements is based on a positive economic analysis?


a) This year the rice harvest has been bad. This will raise the price of rice.
b) The rising price of rice is bad news for the poorest countries.
c) The government should intervene to prevent the increase of the rice price.
d) Rice is a necessary good and should not be subject to the law of supply and
demand.

3. The National Competition Commission fined the retailers "Petrampsa" and "Espetrol"
for increasing fuel prices simultaneously and coordinately in all Spanish gas stations.
a) This is a macroeconomic event because it affects many Spanish people.
b) It is a microeconomic event because two companies have been fined for a behavior
that violates the rights of consumers.
c) It is a microeconomic event because changes in gasoline prices affect the rest of the
market and end up with affecting the price level in the whole economy.
d) Actually I do not know if it's a Micro or Macro phenomenon. It depends on the
economic weight of both companies in the Spanish economy.

4. The fact that resources are scarce implies that:


a) There are people who live in poverty and lack basic goods.
b) Each resource has a unique and specific use in the production process.
c) The needs for criteria that help decide how to use the different resources.
d) Resources were plenty in the past but have been depleted over time.

5. Microeconomics deals with issues such as:


a) Why an omelet costs about the same as a squid sandwich.
b) Why and how the exports affect national product and employment.
c) The relevance of the share of national income spent by the public sector.
d) The incidence of taxes on production and employment levels.

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