201M1Fall03key

201M1Fall03key - Answer-Key ECON 201 10/20/2003 Prof....

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Answer-Key ECON 201 Prof. Gordon 10/20/2003 Midterm I 1C, 2D, 3D, 4A, 5C, 6E, 7C, 8E 9) False Two variables can be correlated without either causing the other. Sometimes, both have a common cause. But that does not imply that one causes the other. 10) d as both i) and ii) are listed causes in the text 11) b as exchanges that make both parties better off are possible, thereby making the reasoning in a) faulty. 12) b saving always involves a tradeoff between future consumption and present consumption. Answer choice a) blindly ignores this tradeoff. 13) True If you value variety, your benefits of consuming a good will fall as you are "getting sick of it". 14) False Factors of production are capital, labor, land and "entrepreneurship", not the number of firms. 15) b Positive statements are statements about "what is" in the world. 16) c First note that the marginal cost is constant, i.e. the PPF is a straight line. So we can determine the marginal cost of guns by thinking about the opportunity cost of one more gun in units of butter. To produce one more gun, you need 10 hours of labor. Since each butter costs 2 hours, you have to decrease butter production by 5 units to get those 10 hours. Hence the marginal costs of guns in
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201M1Fall03key - Answer-Key ECON 201 10/20/2003 Prof....

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