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?
The writer sorts into two main categories. Things that are the result of
human activity and intention or not. He also mentions that there is a
third subcategory which are things that are result of human action but
not of design

b. To what category of world experiences does language belongs?

Language belongs to the category of experience which relies on things
that are result of human action but not of design.

c. Why does the author give commuting as an example? refer to the phenomena
and the way to solve traffic jams
Commuting as a good analogy for the third phenoma, which are things
that are result of human action but not of design. This is due to the fact
commuting during hour is a cause of human activity however it is
designed on purpose that way.

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?
The markets we study I referred to in part a as the three different phenomena. In a
broader view, economist also focus on free markets as well as markets with
government intervention.
f. What is the role of prices in pencil production?
Due to specialization, the emergence of prices in the pencil production can be
argued to be inexpensive. The prices regulate the demand of the product.
g. Why we can put a man on the Moon but we can’t eliminate poverty?
The writer mentions that putting a man on the moon is a matter of
engineering and allocation of resources. However solving or elimanting
poverty is an economic problem. If there are little to no incentives an
impact on poverty is not likely, from a rational point of view.
h. Why can’t we blame Walmart for the low pay that they are paying their
workers?
Efficiency is key to thinking about the workers. As rational thinking
economists it is advantageous to pay minimum wage since this leads to
efficiency in the sale of products.

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?

There were a lot of discussed opinions, which are all correct in their own way. My take on the
matter is that there should be a market for selling kidneys, since the demand is so high.
Although I believe it shouldn’t be a free market due to there being many factors that come
into play when handling donors and patients. If there isn’t any government intervention
there would be too many people being coerced into selling their kidneys for financial gain.
There is also a degree of ethics in play therefore there has to be a governing body checking
over the sales. Overall, I think the idea of utility is also a determining factor of my
answer/take on the situation.

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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?

The Lyft driver had an eye-opening moment while watching Netflix, because he
thought to himself, he can be working and creating income.

b. “There is a cost to every action and even non-action because of the passage of
time.” Explain this claim.

This passage outlines how opportunity cost translates to everything you do (work) and
not do (in this context watching Netflix). In other words, in this context if you are
not working (watching Netflix) you are spending money on a product, whereas if
you decide to work (given there is demand) you would earn income.

c. What do you give up when you are reading this article?

The next best alternative for me would be watching Netflix or starting my marketing
assignment. If I haven’t yet completed this assignment within the next 30 minutes, the
opportunity cost would be higher than before since I would like to watch football.

d. Explain the difference between the tradeoffs that the Lyft driver face and the life of
those on a 9-5 regiment?

When working a normal 9-5 job, this causes you to think differently about your
tradeoffs, since you are given a regiment. If you meet that regiment you will be
paid. This is different compared to a Lyft driver who has a rather fluid idea of
work hours (more flexibility of work hours), so when they are not working, they
think about their opportunity cost constantly. Therefore, the tradeoffs for a
normal 9-5 job would be more linear i.e working at a higher paying job or
working at a job with less hours.

e. What causes drivers to decide to leave their families and drive in strange hours at
night?
The writer mentions that not the software is leading them to work longer hours, but
themselves and their realization of the opportunity cost of working less hours.
This realization causes them to leave their families sometimes during strange
hours (nighttime) so they can spend more time with them when they aren’t
working.
f. After reading this article give an example from your own life to an opportunity
 cost that you faced.
The most important opportunity cost I have probably faced until now is doing the
International Baccalaureate compared to the normal German schooling system.
The IB diploma allowed me to engage in an international learning
environment, where we were taught to be openminded alongside other
essential lifelong lessons. The IB also offers an advantage to other international
students when applying to certain universities. In a strict German school
system this is not the case. Although many of the same classes which are
offered in the IB are taught, their syllabus isn’t necessarily revolving around
critical thinking and other essential skills you will need in life. Therefore, I
believe the opportunity is quite low when compared to the German school
system.

Part B: Multiple Choice Questions

Anwes for multiple choice.

1)D 2)C 3)D 4)A 5)C 6)C 7)D 8)B 9)D 10)A 11)B 12)B

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.

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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.
 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.
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