EC120 Lecture Notes - Lecture 2: Opportunity Cost, Perfect Competition

The above table lists the incomes for the 5 people who live on the remote island nation of Richland.

1. Refer to Table 21.1. If Martha's income doubled to $220,000 while the incomes of the other four residents did not change, what would happen to the original median income on​ Richlandia?

A.It would increase by $22,000.

B.It would increase by $44,000.

C.It would not change.

D.It would double.

2.When we compare shares of income earned by U.S. households over the past 40 years, which of the following statements about the distribution of income is​ true?

A.The percentage of total income represented by each quintile has decreased.

B.Lower income households gained at the expense of higher-income households.

C.The largest gain in income percentage is in the top 5% of households.

D.The percentage of total income represented by each quintile has increased.

3.From 1970 to 2012, the Gini coefficient in the United States has

A.dramatically decreased.

B.remained is relatively unchanged.

C.steadily increased.

D.more than doubled.

4.Income distribution in the United States over the past 40 years has become more equal.

True

False

5.Income inequality in the United States has increased in part due to technological change. How does technological change contribute to income​ inequality?

A.It is responsible for a majority of new products on the market, and these products are only affordable to higher-income households.

B.It reduces the cost of producing goods and therefore lowers the value of labor services.

C.It allows manufacturers to produce products with less​ labor, and this reduction in the demand for labor lowers wages at all skill levels.

D.It has created many higher-income jobs for skilled and trained​ workers, leaving the income of less-skilled workers relatively unchanged by comparison.

6.Income inequality in the United States has increased in part due to globalization. How does globalization contribute to income​inequality?

A.It allows domestic firms to hire low skilled workers anywhere in the world, putting U.S. workers in competition with foreign workers. This has caused the wages of low skilled workers to fall relative to the wages of other workers.

B.It increases the demand for a wide variety of products which in turn increases prices beyond the reach of average income

households.

C.It allows producers to exploit workers and reduce the wages they are willing to pay those workers.

D.It reduces the cost of producing goods and therefore lowers the value of labor services.

7.Rachel, a large pineapple producer in Hawaii, lobbies Congress to limit imports of pineapples to be able to sell her pineapples at a higher price and greatly increase her income. This possible source of income inequality is due to

A.technology changes.

B.rent seeking.

C.globalization.

D.productivity differences.

8.If growing income inequality results from changes in technology that, as a whole, make society better off, this will

A.decrease the size of the economic pie because of income inequality.

B.increase the size of the economic pie.

C.not change the size of the economic pie because the positive technology changes will be offset by the increases in income inequality.

D.result incomplete income inequality as technology continues to change in the future.

9.The belief that having more of something makes you happier but in successively smaller increments is called

A.utilitarianism.

B.diminishing marginal utility.

C.the benefits received principle.

D.transcendentalism.

10.The results of a survey conducted by Dan Ariely and Michael Norton found that Americans

A.show absolutely no preference for the amount of equality in wealth distribution in the nation.

B.have a preference for much less equality in wealth distribution than currently exists.

C.have a preference for roughly the amount of equality in wealth distribution that currently exists.

D.have a preference for much greater equality in wealth distribution than currently exists.

11.In the United States, the highest quintile of income earners contribute ________ of all federal tax dollars received, and the lowest quintile of income earners contribute ________ of all federal tax dollars received

A. 24%; 1.5%

B. 20%; 20%

C. 68.8%; 0.4%

D. 29.4%; 11.5%

12.The question "Is the U.S tax system disproportionate enough?" is a ________ question, and the question "How would higher taxes make the rich behave?" is a ________ question.

A. normative; positive

B. positive; normative

C. positive; positive

D. normative; normative

21. The English word that comes from the Greek word for "one who manages a household" is

A- market
B- consumer
C- producer
D- economy

A- assumptions and theories.
B- true statements and false statements.
C- specific statements and general statements.
D- positive statements and normative statements.

1. Scarcity in economics means: we do not have sufficient resources to produce all the goods and services we want. the wants of people are limited. there must be poor people in rich countries. shortages exist in nearly all markets. You like to read Vogue and Sports Illustrated. You have only $5 to spend, so you only buy Sports Illustrated. The statement that best represents this economic concept is: resources are scarce. the real cost of something is what you must give up to get it. positive economics explains how the economy actually works. economic models are used to answer “what if” questions. . If the state government allocates additional spending on education, the opportunity cost is: zero. the dollar amount of the additional spending. considered only if additional taxes need to be raised to fund the spending. measured in terms of the best alternative use for that money. For a student that owns his or her own home and doesn't plan to live in the dorm the cost of going to college is: tuition and the cost of housing. tuition, the cost of housing, and the cost of books. tuition, the cost of books, and forgone income. forgone income only. Keynesian economics stressed: the importance of total spending. the self-correcting power of free markets. the long run. that the Depression should run its course to bring down the high cost of living. The economic policy that uses changes in government spending and taxes to affect the overall spending in the economy is known as: a tax-and-spend policy. monetary policy. fiscal policy. free-trade policy. When building a model, economists: simplify reality in order to highlight what really matters. attempt to duplicate reality in all of its complexity. ignore the facts and instead try to determine what the facts should be. are careful to avoid the scientific method. Which is a normative statement? The minimum wage has not kept pace with inflation. The minimum wage is an important tool in fighting poverty and should be increased. The minimum wage can create higher unemployment for teens and unskilled workers. A higher minimum wage is expected to increase the price of a fast-food cheeseburger. Which is an example of a positive statement? The poverty rate should be 4%. A high rate of economic growth is a more important economic goal than a low rate of unemployment. The federal government pays for 46% of U.S. health care costs. Everyone in the country should be covered by national health insurance. Economists may disagree about policies because they: may approach the issue using the same sets of values. may use different economic models. enjoy disagreeing with each other. only consider issues in positive economics.