Principles of Macroeconomics Spring 2025

Assignment #1 (Chapters 1-4) (30 points)

Name _______Andrew Chatterton________________________________________

GENERAL INSTRUCTION: Your assignment must be submitted as a word document by

9:30 am Thursday, February 6. No late assignments are accepted.

PART I. SHORT ANSWER QUESTIONS

INSTRUCTION: Read each question carefully and answer in the space provided. Please
highlight your answers (or use a different color or font) and show all work where
necessary. You will lose points if you do not show work where necessary.

1. Define Scarcity. Also list three effects of scarcity. The United States is considered a rich
country because Americans can choose from an abundance of goods and services. How can
there be scarcity in a land of abundance? [1 + (0.25x3) + 0.5 = 2.25 pts]

2. Define opportunity cost. Use the concept of opportunity cost to explain why some things are
not done. What is your opportunity cost of doing this homework assignment? [1+(0.5X2)=2
pts]

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3. State whether each of the following statements are positive or normative: [0.5x4=2 pts]
a) COVID-19 has resulted in the most significant damage to the U.S. economy.

b) The U.S.A. should provide a universal health care to all its citizens.

c) Northwest Missouri State University is the best university to attend.

d) Raising tax on alcoholic beverages will have a negative effect on alcohol consumption.

4. Categorize the following as microeconomic or macroeconomic questions: [0.5x4=2 pts]

a). Why are meat prices rising in the U.S.?

b). How will the minimum wage rate change affect your 17-year-old brother’s budget?

c). Why is the U.S. experiencing high rates of inflation?

d). Has the US economy fully recovered from the effects of COVID-19?

Figure 1. A PPF for a hypothetical economy that can produce books and/or rolls of paper towels
with the resources and technology it has available:

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5. Use the graph above- Figure 1- to answer the following questions. [0.5x5=2.5 pts]
a) What is the opportunity cost of choosing to produce at point C, instead of at point B?

b) What is the opportunity cost of 1 book when the economy moves from B to C?

c) What is the opportunity cost of 1 roll of paper towel when the economy moves from C to
B?

d) Give an example of something that might cause an economy to produce inside/ under its
PPF?

e) Does this economy experience constant or increasing opportunity costs? How can you
tell?

6. The table below gives changes that occur in the market for peanut butter. Fill in the table
below indicating whether the given change shifts the demand or supply curve and if that curve
shifts rightward or leftward. [0.25 x 10 = 2.5 pts]
Demand or Supply? Right or Left?
The price of peanuts (an input in
peanut butter) increases
Peanut butter is a normal good and
consumer income increases
Consumers expect the price of peanut
butter to increase dramatically next
month
Hormel Foods discontinues
production of Skippy brand peanut
butter
The price of jelly (a complement to
peanut butter) increases sharply

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7. The following table shows the monthly supply and demand schedules for bagels:
Price Quantity Demanded Quantity Supplied of
of Bagels Bagels
$1 600 0
$2 500 100
$3 400 200
$4 300 300
$5 200 400
$6 100 500
a) What is the equilibrium price and equilibrium quantity of bagels? [0.5x2= 1 pt]

b) If the market price of bagels is $5, is the market in a state of equilibrium, surplus, or shortage?
If there is a surplus or a shortage, how large is it (i.e. how many bagels)? [0.5x2= 1 pt]

8. Peanut butter is a normal good. What will happen to the equilibrium price and equilibrium
quantity of peanut butter if consumer income decreases? Explain and show your answer
graphically. (You can draw the graph on a piece of paper and then scan and paste it here).
[1 + (0.5x2) = 2 pts]

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9. Distinguish between the following terms:

a). Normal good vs Inferior good [0.5x2=1 pt]

b). Substitute goods vs complementary goods [0.5x2=1 pt]

10. Describe the situations where price ceilings and price floors have no effects or are not-
binding. [1 x 2 = 2 pts]

11. Explain how the price of a good can rise at the same time that it becomes relatively cheaper.
[1 x 2 = 2 pts]

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 PART II. MULTIPLE CHOICE QUESTIONS
INSTRUCTION: Identify the choice that best completes or answers the question and place
your answers in the table below. (0.75 x 9= 6.75 pts)
1 2 3 4 5 6 7 8 9

1. Productive inefficiency implies that

A. it is impossible to obtain gains in one area without losses in another.
B. it is possible to obtain gains in one area without losses in another.
C. there are too many resources.
D. there are too few resources.

2. Jose has one evening in which to prepare for two exams and can employ two possible
strategies:
Strategy Score in Economics Score in Statistics
A 94 79
B 77 90
The opportunity cost of receiving a 94 on the Economics exam in terms of the number of points
on the Statistics exam is
A. 11.
B. 17.
C. 79.
D. 90.

3. Table 1
Efficient Output Quantity of Pizzas Quantity of Calzones
Combination Produced Produced
A 48 0
B 36 15
C 24 30
D 12 45
E 0 60
Refer to table1 which shows efficient levels of production for a pizzeria that only produces
pizza and calzones. What is the opportunity cost of producing one more calzone when the
pizzeria moves from production level C to level D?
A. 0.80 pizzas
B. 1.25 pizzas
C. 12 pizzas
D. 15 calzones

4. “When the price of Toyota Corollas rises, ceteris paribus, the demand for Corollas falls”.
This sentence is ________
A. True.
B. False
C. It depends on a number of factors.

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 D. None of the above.
5. Which of the following illustrates the law of demand?
A. Jorge buys fewer pencils at $2 per pencil than at $1 per pencil, ceteris paribus.
B. Chen buys more ice cream at $4 per half-gallon than at $3 per half gallon, ceteris paribus.
C. Karissa buys fewer sweaters at $35 each than at $50 each, ceteris paribus.
D. A, B, and C
E. A and C

6. As the price of good X rises, ceteris paribus, the demand for good Y rises. Therefore, goods
X and Y are
A. substitutes.
B. normal goods.
C. complements.
D. inferior goods.
E. none of the above

7. Which of the following is true about the relationship between price and quantity supplied?
A. There is usually a direct relationship between price and quantity supplied.
B. There is always an inverse relationship between price and quantity supplied.
C. There is always a direct relationship between price and quantity supplied.
D. There is usually an inverse relationship between price and quantity supplied.
E. None of the above.

8. If the supply curve and the demand curve for lettuce both shift to the right by an equal
amount, what can we say about the resulting changes in equilibrium price and quantity?
A. The price will increase, but the quantity may increase or decrease.
B. The price will increase, and the quantity will increase.
C. The price will decrease, and the quantity will increase.
D. The price will stay the same, but the quantity will increase.
E. The price will stay the same, but the quantity will decrease.

9. If the price of good X is $90 and the price of good Y is $30, it follows that the relative price
of one unit of good X is ___________ unit(s) of good Y.
A. 0.33
B. 1.33
C. 3.00
D. 2.00
E. There is not enough information to answer the question.