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Principles of Microeconomics Dr. Sauer

Chapter 1: 10 Principles of Economics 1. Phineas and Ferb are 10 year old twins fighting over a $200 gift card they jointly won in a raffle. The gift card is good at a store that sells MP3 players. The store sells 3 different types of MP3 players: ones for $150, $75, and $50. The gift card can only be used once and any remaining balance will be forfeited. Each twin wants their own MP3 player and of course wants the most expensive one. Their mother intervenes and tells them they will each be allowed to get a $75 player. Is this outcome efficient? Equitable? Explain.

____________________________________________________________________________________ 2. a. What did you do between 7pm and 8pm on Tuesday night?

b. List 5 other things you could have done between 7pm and 8pm on Tuesday night.

c. If you hadnt done what you wrote in part a, what activity from b would you have done?

___________________________________________________________________________________ 3. a. Describe a time when you made a rational decision.

b. Describe a time when you acted irrationally.

4. The Social Security System provides income for people 65 and older. If a recipient decides to work and earn some income, the amount they receive from Social Security is typically reduced. a. How does the existence of Social Security affect peoples incentive to save for retirement?

b. How does the reduction in benefits for working past 65 affect peoples incentive to work past 65?

____________________________________________________________________________________ 5. a. What are some goods/services that you choose to purchase, even though you could make them yourself?

b. Why do you buy them instead of making them?

____________________________________________________________________________________ 6. What was the last purchase you made in the market economy?

____________________________________________________________________________________ 7. Write down some ways that you notice government intervening in the marketplace.