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ECO 201

Module 1 Assignment 4

Due Saturday, May 18.

1. Each scenario below is an example of a trade-off. What is being given up and what is being gained? 6

a) Shane buys a life insurance policy.

b) Laurie leaves work early to attend her son’s school play.

c) Rick votes to lower property taxes.

2. What is your total opportunity cost of taking Macroeconomics? What is your marginal opportunity cost of showing up for one class period?(4)

3. Why do we expect marginal opportunity cost to increase as we do more of something? Explain how the marginal opportunity cost of this course increases as you have to do more work. (4)

4. Which of the following is an example of a change in quantity supplied? Which is a change in supply? Explain your answers. (4)

a. Farmers produce more wheat in response to record high wheat prices.

b. Farmers produce less wheat due to adverse weather conditions.

5. Which of the following is an example of a change in quantity demanded? Which is a change in demand? Explain your answers. (4)

a. Consumers increase strawberry consumption in response to a newly discovered health benefits to eating strawberries.

b. Consumers purchase more strawberries as the price drops.

6. Use graph below to answer the following questions. (9)

a. . If the price is $16, quantity demanded will be____________ and quantity supplied will be ________.

b. This is a
surplus/shortage
of __________________ units. (Circle correct answer)

c. Firms will want to
raise/lower
prices.

d. The equilibrium price is ________ and the equilibrium quantity is _____________________.

7. Use the table to answer the following questions: (7)

150

200

100

Price	Quantity Supplied	Quantity Demanded
$2	50		200
$4			100	175
$6		150
$8	125
$10	250

a. If the price is $4, quantity demanded will be____________ and quantity supplied will be ________.

b. This is a
surplus/shortage
of __________________ units. (Circle correct answer)

c. Firms will want to
raise/lower
prices. (Circle correct answer)

d. The equilibrium price is _____________ and equilibrium quantity is _____________________.

8. The price of grapefruit falls. In the market for oranges: (5)

a. Will supply or demand change?

b. Which direction will the curve shift?

c. Is this an increase or a decrease?

d. Will equilibrium price increase or decrease?

e. Will equilibrium quantity increase or decrease?

9. Complete the table (6)

Population *		Labor Force		Number of Employed Persons		Number of Unemployed Persons		Labor Force Participation Rate		Unemployment Rate
2,500,000	1,875,000	1,762,500

*This refers to the civilian, adult, non-institutionalized population

10. In the previous problem, assume that, due to negative economic conditions, 25,000 unemployed workers stop looking for work altogether. Recalculate the table in #1 to reflect this change. (12)*

Labor Force

Number of Employed Persons

Number of Unemployed Persons

Labor Force Participation Rate

Unemployment Rate

Population

11. Identify each case as an example of structural, cyclical, frictional, or seasonal unemployment (6):

a. Businesses begin to see significantly reduced sales. Several close down and workers lose their jobs.

b. A student graduates from college and begins looking for a job.

c. Government policy results in lower employment and fewer jobs.

d. A worker at a vacation resort is only hired for the summer months.

e. A factory deploys a new computer system and lays off several employees it no longer needs.

f. A worker leaves his job to relocate where his spouse works.

12. What can the government do to reduce (8)

a. Cyclical unemployment?

b. Structural unemployment?

c. Frictional unemployment?

d. Which, if any of these, is the most important role for the government? Explain.

13. Economy A and economy B both have 8% unemployment rates. In economy A, unemployed workers are gaining jobs, while other workers are losing jobs. In economy B, the same workers remain unemployed for extremely long periods of time. Which economy will have a bigger problem with unemployment? Explain. (Hint: what effects will long-term unemployment have on the productivity of the workforce as a whole?) (3)

14. Complete the table below to answer the following questions. Round to the nearest dollar, or tenth of a percent.: (16)

100

Year	Price Index	Nominal Wage	Real Wage	Inflation Rate
2010	77	$30,000	————————-
2011	$40,000
2012	103	$41,000

a. What is the base year for this price index?

b. Morgan earned $40,000 in 2011. If her employer wishes to increase her salary
only to account for inflation
, what should her 2012 salary have to be?

c. Morgan’s nominal 2012 salary is given above. Is she making more or less than she made in 2011, adjusted for inflation?

15. What are two problems we associate with price indexes? How would these problems affect the measured inflation rate? (6)