Lecture 1 Quiz

Model Answers Submitted By Students

  1. In three sentences or less, what do you hope to learn in this course?“I hope to learn a great deal about economics and what the future holds for us and our country.”  (Cara M.)

    “What I hope to learn from this course is more knowledge in economics.  I also hope that this course will help me be smarter with my money and my choosing of jobs or my own business in the future.”  (Anthony B.)

  2. Give two short examples each of “normative statements” and “positive statements.”Positive:            “An abortion occurs every ten seconds.”  (Kirstin L.)

    “People who eat at McDonalds a lot are overweight.”  (Chris R.)

    “Fish live in trees.”  (Joseph S.)

    Normative:       “Governments should not stop homeschooling.” (Chris R.)

    “People should not have abortions.”  (Kirstin L.)

    “Too much money is sucked into the public school system.”  (Mary Rose B.)

  3. Describe the transaction costs associated with going out and eating dinner at a good restaurant.“Transaction costs are expenses that you pay that don’t specifically pertain to the thing you want.  When you go to a restaurant you’re interested in getting food, but to get that food you will have to pay many other expenses.  Some examples are: tipping, sales tax, salaries of employees, parking fee, gas burned, and credit card fee.”  (Brandon M.)

    “ … and the opportunity cost of the time spent going to, eating at, and coming from the restaurant.”  (Ben S.)

  4. Suppose you bought a very expensive bicycle for $900.  Later, prices on those bikes fell to $400.  One day you collided with a skateboarder, and your bike needed fixing.  A repair shop quoted you a price of $405 for that job.  Do you fix it or throw it away and buy a new one?  What piece of information is irrelevant to your decision?“The original price of the bicycle is the irrelevant information.  Assuming that sales tax would be applied to both the new bike and the repair, the new bike would be cheaper.”  (Greg J.)

    “The purchase price of the bike is irrelevant because it does not reflect the current value of the bicycle.”  (Joseph S.)

  5. Prices are both a form of communication and an incentive.  Suppose you just heard that a hotel on Miami Beach costs $500 a night.  What communication and incentive does that price convey?“… [I]t is probably a very nice hotel, you would probably need a reservation, and everything else around the hotel is probably very expensive. …  The incentive this hotel would provide might be a negative or positive incentive.  If I was operating under a tight budget this hotel might discourage me from staying there or anywhere else close by since the prices are all going to be the same. However, if I really liked the hotel and I really wanted to stay there it might encourage me to go out and earn the money needed to stay there.”  (Chris B.)

    “The price of $500 conveys the communication that the hotel is probably extremely ritzy and fancy and the incentive to find another hotel that won’t bankrupt you on the first night.”  (Chris J.)

    “… [M]oney itself is its own form of communication, so staying there makes a statement to everyone else.”  (Alyssa G.)

  6. Suppose we quantified scarcity by defining it as the number of people who very much want a good but can’t afford it.  Suppose we call that quantity “x”.  Should the good with the biggest “x” be the most expensive good in the world?  Discuss.  What do you think is the most expensive good in the world?“The good with the biggest ‘x’ would not be the most expensive good in the world.  Suppose all people in America under the poverty level want a flat screen TV, a good, which they cannot buy.  Also suppose that all the multi-millionaires in America want the Hope Diamond, a good, which they cannot buy.  The ‘x’ will be much larger for the flat-screen TV than for the Hope diamond because more people want the flat screen TV than the Hope Diamond, which is probably the most expensive good in the world.”  (Kris T.)

    “The good with the biggest ‘x’ is probably not even close to the most expensive good in the world.  A satellite would cost hundreds of millions of dollars, and millions more to launch and operate, but how many people have their hearts set on the their own personal weather satellite?”  (Chris J.)

    “ …  The good with the biggest ‘x’ just represents the most popular or wanted yet unattainable good.  The most expensive good does not necessarily have anything to do with the number of people who want it. …”  (Rebecca B.)

    “The good with the biggest x should not be the most expensive in the world because there are lots of people who cannot afford a luxury car, but they are not the most expensive thing in the world.”  (Scott J.)

    “[T]here are factors other than the ‘x’.  These include rarity, level of difficulty in manufacturing, and others.  By weight, diamonds” are the most valuable. (Sarah S.)

    “I think the most expensive good in the world is the Mona Lisa painting, since it’s almost priceless.”  (Phyllis S.)

    “… I think the single most expensive good is a skyscraper.  BUT!!!!!!  Salvation is the single most expensive ‘good’.  It cost Jesus’ life.  THAT is PRICELESS! …”  (Kirstin L.)

    Most expensive good: “Space Shuttle” (Kevin H.)

  7. After reading “I, Pencil,” what do you think are the main reasons that the “invisible hand” is preferable to government dictating how a pencil should be made?  Rank your reasons in order of importance.“If we let the government control our system, our economy, even something as small as how a pencil is made, then we are opening ourselves up for corruption.”  (Sarah C.)

    “The invisible hand is the manifestation of economic law.  To believe that the government could manage the production of goods more efficiently than the invisible hand would be comparable to conjecturing that the government would be able to manage the weights of objects better than the law of gravity.  The government simply cannot take on such a complicated task and hope to successfully improve upon efficiency of the laws of economics.”  (Eric J.)

    “The invisible hand will lead to a solution that will benefit the economy and that person, whereas the government will try to improve the government.”  (Abby L.)

    “… (2) It would take away individual freedom and incentive if people could not choose what to do for an occupation. (3) It would undoubtedly cost more money to make a pencil.”  (Matt P.)

  8. Nobel laureate Milton Friedman emphasized “cooperation without coercion” in his essay.  Do you think monetary rewards are essential to ensure “cooperation without coercion”?  Explain, with examples.“People who don’t work as much or follow the law may have to have a monetary reward.”  (Jessica H.)

    “A great example is Jamestown on its brink of failure.  Its people would not work because they felt that there was nothing in it for them.  Once John Smith created the ‘He who does not work, will not eat’ rule, people began to work.”  (Michael N.)

    “It doesn’t necessarily have to be monetary.  I could be mowing an old lady’s lawn every Saturday for a jar of her famous strawberry-raspberry jam.  Jacob had to work 14 years in order to marry Rachel because her father was dishonest.  (Genesis 29:15-28)” (Alexandria S.)

    “Monetary rewards are not essential as is shown by such groups as the American Indians and the Amish, however it can certainly help motivation and the like. People are more likely to be energized by a monetary bonus than they are by a gift of a good.” (Joshua H.)

  9. Volunteer work can be more efficient and productive than hired labor.  Can you explain why?  Do you think volunteer work is guided by the “invisible hand”?  Explain.“[I]f you are using limited funds in your volunteer work, you will likely budget yourself being careful to use the money efficiently.  If you have a paying job, and are using company money then you will not be as careful to restrain yourself.”  (Rebecca B.)

    “… I do not think that volunteer work is guided by the invisible hand because doing volunteer work does not profit the worker.  Instead I think that volunteer work is guided by the invisible-guy’s other hand which is the force that guides people to do things to help other people even though they do not profit from it.  (Charity is also guided by the invisible guy’s other hand.)” (Tim S.)

    “… Volunteer work is guided by the ‘invisible hand’ because the ‘invisible hand’ encourages people to work to help themselves in a way that benefits society.”  (Anthony B.)

Extra credit (4 points each for questions 10 and 11; 6 points for question 12):

  1. Why do you think charitably motivated American colonies were more successful than for-profit colonies?  Explain.  If possible, draw an analogy with how charities were historically more successful in building schools and hospitals than for-profit companies.“ … [F]ree enterprise is based on moral code, something absolutely necessary and something that the charitable colonies were founded on: Christianity.  Most of the schools and hospitals that started out or remain charitable have become the most successful and sought after places of learning and medicine in the country.  This because of charity and the over-laying of free enterprise.”  (Kris T.)

    “Virginia was a for-profit colony and it only survived because it turned to slavery and tobacco.”  (Jessica H.)

  2. One often sees many car dealerships situated next to each other, but rarely are supermarkets located next to each other.  Why is that?  Can you think of other examples where companies like being next-door to their competitors?“Car dealers are close to each other so that the car dealers can feed off of each others’ customers ….”  (Scott J.)

    “The reason is that supermarkets sell the same thing. … [T]here is a big difference between a Mitsubishi Eclipse and Chevrolet Corvette. … Other business that tend to clump together are doctors’s offices and women’s clothing stores. … [D]octors get patients by referrals, not their prices.”  (Dan L.)

    “… [I]f one dealership is next to another, both dealers benefit because usually a customer will visit both while ‘shopping around’.  Clothing stores often find themselves next to one another.  Usually because once again, a person buying clothes is willing to ‘shop around’ to look at a lot of different styles before deciding.”  (Charles A.)

    “Car dealers have differing products.  Having several car dealerships next to one another is more like having one big store than having a group of [stores having] the same thing.”  (Lisa H.)

  3. American produces far more corn than it can consume, yet corn is still considered an economically scarce good.  Why?  What is the economic argument in favor of genetically modified corn that has greater output?  Can you think of an economic argument against it?“… [C]orn may be plentiful here but in Iceland they might not have a lot of corn.  Genetically modified corn would get more corn to more places that’s a good thing.  But it’s non-natural and it’s like playing God trying to grow crops in a laboratory, and it’s sort of like cheating the market.  Just like printing money.”  (Zak S.)

    “An economic argument against genetically engineered corn is … that America produces far more corn than it can consume.  What’s the point of producing genetically engineered corn when we already have too much of it – and there are many medical, biological, and environmental risks associated with genetic engineering?  If it turns out being as harmful as many experts believe it may, there would be complete economic disaster.  All the costs that went into making the corn, the research, the good and services that so many people would have contributed to grow and use the corn would be wasted.  Not to mention the lawsuits that are inevitable.”  (Sarah B.)