Chapter 1 Review Answer Key PDF

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Chapter 1 Review Answer Key...

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Review Questions 1 with answers 1. Rational or purposeful self-interest behaviors for Alex and his neighbors, yes or no. Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Answer: Alex and his neighbors who reject or accept his service are all rational economic agents. Their behaviors are all to their self-interest based on how each value the MB and MC of Alex’s service. 2. Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." In economist’s opinion, did he lose any money? What is it called? Answer: Economists think that Joe forgets about the opportunity cost. Even though Joe’s investment doesn’t lose anything, he loses the chance to use his $1000 in alternative choices, such as deposit it to bank and earn interest rate. So, Joe loses. 3. Tom is facing the following situations. Tell what he needs to do with his consumption in order to improve his utility.

a. MB>MC; increase consumption b. MBMC; increase consumption MBMC; increase production MB...