Econ 200H: David Reiley
Due Tuesday, September 5, 2006

Problem Set #1

Most of the following exercises come from the "Problems" section at the end of each chapter of the Taylor textbook. "Problem 1.2" refers to problem 2 at the end of chapter 1. Occasionally, questions may also come from outside sources that will be listed in a different format. Be careful to notice that some of the chapter appendices have their own separate review questions. Usually, I'm asking you to do the problems and questions at the end of the regular chapter, not the problems and questions in the chapter appendix. Appendix problems are denoted with a letter A; for example, "problem 2A.1" refers to problem 1 in the appendix to chapter 2.

Remember that although you may discuss these questions with your classmates as much as you like, you are responsible for preparing your own independent write-up, in your own words. Merely coping someone else's work constitutes plagiarism, and will be punished accordingly.

When constructing a graph, please make sure to label the axes and note what units you are using to measure each quantity. When you have to make calculations to arrive at an answer, please show your work. Finally, I value clarity in written explanations, so please avoid sloppiness in describing your reasoning.

  1. (10 points) Taylor, problem 1.5
  2. (10 points) Taylor, problem 1.7.
  3. (10 points) Taylor problem 1.10.
  4. (5 points) A person rents a house for which she pays the landlord $12,000 per year. The house can be purchased for $100,000, and the tenant has this much money in a bank account that pays 4 percent interest per year. Is buying the house a good deal for the tenant? Where does opportunity cost enter the picture?
  5. (5 points) Suppose that between 2000 and 2001 expenditures on cat food rose from $35 million to $70 million and the price of cat food doubled. What do these facts imply about the growth in the popularity of cat food?
  6. (5 points) Suppose that between 1990 and 2000 the US population went up 10 percent and that the number of silk neckties imported form Hong Kong rose from 3,000,000 to 3,100,000. What do these facts imply about the growth of the popularity of Hong Kong ties?
  7. (10 points) It is useful to learn to do economic research on the World Wide Web, which is a great source of up-to-date data. Using the WWW, please find estimates of the following three quantities. In your answer, please give the URLs (the http addresses where you found the information. (Hint: If you do not know where to begin, you may wish to start with a search engine like Google. It might take you a few tries to refine your search terms enough to find what you are looking for.)
    1. the U.S. population, as of the second quarter of 2005.
    2. The nominal U.S. GDP, as of the second quarter of 2005.
    3. The gross box-office revenue earned in the United States by Pirates of the Caribbean: Dead Man's Chest since its release this summer.
  8. (5 points) Look for a graph of some kind of economic data in a magazine or newspaper. (The graphs don't have to come from the financial page, as lots of other graphs involve economic data. Graphs from USA Today, for example, can be fun to critique.) Please attach a copy of the graph to your problem set.
    1. What does the graph show? What variables are being graphed?
    2. What appears to be the purpose of the graph? What does the author want to communicate to you or convince you of?
    3. Critique this graph. What does it do well, and what does it do poorly? If you see ways in which this graph is misleading, please identify the sources of potential confusion or of deliberate manipulation.

      For ideas on critiquing graphs, I suggest downloading the attached PDF handout on "The Art and Science of Graphical Presentations." (Gerald Keller and Brian Warrack, Statistics for Management and Economics, Fourth Edition, Duxbury Press: Belmont, CA, 1997. Chapter 3, pages 87-103, 5.3MB.) This handout draws on the work of Edward Tufte, a genius in the art of the visual presentation of information.
  9. (5 points) Taylor, problem 2.1.
  10. (5 points) Taylor, problem 2.2.
  11. (5 points) Taylor , problem 2.4.
  12. (10 points) Taylor, problem 2.6.
  13. (5 points) Taylor, problem 2A.1.
  14. (10 points) Taylor, problem 2A.3.
  15. (10 points) From 1990 to 1997 in the United States, the number of working men grew by 6.7 percent, and the number of working women grew by 11 percent. During this time, the average wages for men grew by 20 percent, while average wages for women grew by 25 percent. Which of the following two explanations seems more consistent with the data? Explain your answer.
    1. Women decided to work more, raising their relative supply (relative to men).
    2. Discrimination against women declined, raising the relative (to men) demand for female workers.
  16. (10 points) Taylor, problem 3.1.
  17. (10 points) Taylor, problem 3.2.
  18. (10 points) Taylor, problem 3.4.
  19. (10 points) Taylor, problem 3.7.
  20. (10 points) Taylor, problem 3.12.
  21. (10 points) Taylor, problem 3.14.
  22. (5 points) In 1981, when regulations were holding the price of natural gas below its free-market level, then-Congressman Jack Kemp of New York said the following in an interview with the New York Times: "we need to decontrol natural gas, and get production of natural gas up to a higher level so that we can bring down the price." Evaluate the Congressman's statement.
  23. (5 points) A rise in the price of a certain commodity from $15 to $20 reduces quantity demanded from 20,000 to 5,000 units. Calculate the price elasticity of demand.
  24. (10 points) Give three examples of commodities whose demand you would expect to be elastic and three commodities whose demand you would expect to be inelastic.
  25. (5 points) Taylor, problem 4.4.
  26. (10 points) Taylor, problem 4.6.
  27. (5 points) Taylor, problem 4.7.
  28. (5 points) Taylor, problem 4.9.
  29. (10 points) Taylor, problem 4.10.
  30. (10 extra-credit points) Provide a news article illustrating an example of the problem of scarcity and choice. Your article could describe a decision made by a consumer, an organization, or a government. Write a paragraph explaining what choice was made, and what was the opportunity cost of this choice.
  31. (10 extra-credit points) Provide a news article illustrating a change in the market price of a product. Draw a graph illustrating the underlying shift in supply or demand. Explain what happens to quantity as well as to price.