Assignment 1

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  • Topic: Economics, Production-possibility frontier, Comparative advantage
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Department of Economics, School of Business and Management American University of Sharjah Principles of Macroeconomics

Practice Assignment 1 (chapters 1 &2)

Instructor: Dr. Javed Younas

Name: ___________________________________

AUS e-mail id: ________________

1. Amira is thinking about going to the movies tonight. A ticket costs $7 and she will have to cancel her baby-sitting job that pays $30. The cost of seeing the movie is: a. $7 b. $30 c. $37 d. $37 minus the benefit of seeing the movie. 2. Alaa received a four-year scholarship to attend a university that covered tuition and fees, room and board, and books and supplies. As a result a. attending the university for four years is costless for Alaa. b. Alaa has no incentive to work hard while at the university. c. the cost of attending the university is the amount of money Alaa could have earned working for four years. d. the cost of attending the university is the sum of the benefits Alaa would have had attending each of the four other schools to which Alaa had been admitted 3. If the government wanted to use the incentive principle to discourage smoking, it would: a. b. c. d. publicize the health risks associated with second-hand smoke. increase taxes on cigarettes, raising the price of a pack. subsidize hospitals for treating lung disease. invest more money in health research.

Table 1

You own a pizza shop called "Pizza's' Us". Currently you are paying your cooks an hourly wage of $20. You sell a medium pizza for $10 a pie. By hiring more cooks, you can increase your pizza production as shown in the following table. 4. a. b. c. d. 5. a. b. c. d. Refer to Table 1. If you operate one hour every day what is the marginal cost of the 3rd cook? 10$ 20$ 40$ 60$ Refer to Table 1. How many cooks should you hire to maximize your net benefit? 1 3 4 5

6. Mike has spent $500 purchasing and repairing an old fishing boat, which he expects to sell for $800 once the repairs are complete. Mike discovers that, in addition to the $500 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $800 to potential buyers. He can sell the boat as it is now for $300. What should he do? a. He should sell the boat as it is now for $300. b. He should keep the boat since it would not be rational to spend $900 on repairs and then sell the boat for $800. c. He should complete the repairs and sell the boat for $800. d. It does not matter which action he takes; the outcome is the same either way. 7. Amira earns $25,000 per year (after taxes), and Amira's husband, Abbas, earns $35,000 (after taxes). They have two pre-school children. Childcare for their children costs $12,000 per year. Amira has decided to stay home and take care of the children. Amira must a. b. c. d. value spending time with the children by more than $25,000. value spending time with the children by more than $12,000. value spending time with the children by more than $13,000. value spending time with the children by less than $13000.

8. College-age athletes who drop out of or leave college to play professional sports a. are not rational decision makers. b. are well aware that their opportunity cost of attending college is very high. c. are concerned more about present circumstances than their future. d. underestimate the value of a college education. Amr and Badr comprise a two-person economy. Their hourly rates of production are shown below. Table 2

9. Refer to Table 2. The opportunity cost of making an extra calculator for Amr is ______ and for Badr it is ______. a. b. c. d. 0.10 computers; 0.05 computers 10 computers; 6 computers 1 computer; 0.5 computers 0.6 computers; 1.2 computers

Figure 1

10. Refer to the Figure 1. For Fadil, the opportunity cost of removing one bag of trash is a. b. c. d. 25 bulbs not planted. 5 bulbs not planted. 10 bulbs not planted. one-fifth of a bulb not planted.

11. a. b. c. d.

Having a comparative...
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