Econ110 L3/L4 Spring 2010, Problem Set 1 Answer Keys
Numbers in [ ] indicate the module objectives corresponding to each problem.
A. Chapter1, problem 1 (page14), [(1.1), (1.3)] Apple Computer Inc. decides to make
iTunes freely available in unlimited quantities.
How does Apple’s decision change the opportunity cost of a download?
Apple’s decision decreases the opportunity cost of a tune by removing the previous monetary
cost of 99¢ per tune
Does Apple’s decision change the incentives that people face?
Apple’s decision changes people’s incentives. For example, it increases people’s incentives to
buy an iPod in order to take advantage of the newly “free” music available on iTunes.
Is Apple’s decision an example of a microeconomic or a macroeconomic issue?
Apple’s decision is a microeconomic decision because it affects a single company and a single
B. Chapter1 Appendix, problem 6 (page30), [(1.6)]
The spreadsheet provides
data on oil and gasoline: Column A is the year, column B is the price of oil (dollars
per barrel), column C is the price of gasoline (cents per gallon), column D is U.S. oil
production, and column E is the U.S. quantity of gasoline refined (both in millions of
barrels per day). Use this spreadsheet to answer problems 7 and 8.
Draw a time-series graph of the quantity of gasoline refined.
Figure A1.11 shows the time-series of the
quantity of gasoline refined.
In which year(s) (i) was the quantity of
gasoline refined highest, (ii) was it lowest, (iii)
did it increase, (iv) did it decrease, (v) did it
increase most, and (vi) did it decrease most?
The quantity was the highest in 2006 and was the
lowest in 2000. From the preceding year, the
quantity increased in 2001, 2002, 2004, and 2006.
From the preceding year, the quantity decreased
in 2000, 2003, 2005, and 2007. The quantity
increased the most in 2002, 2004, and 2006 (in all
these years the quantity increased by 0.5 million
barrels per day). The quantity decreased the most
in 2000, 2005, and 2007 (in all these years the
quantity decreased by 0.3 million barrels per
What was the main trend in this quantity?
There was an upward trend in this variable.