EC 201, Midterm 1 Practice

A doctor has worked as a general practitioner for several years, earning an annual salary of $150,000. They are now deciding whether they want to open their own private practice or continue as a team member in the existing office. One-time start-up costs for the practice would be $100,000. If they open their own practice, they will receive a salary of $50,000 from the business annually until the practice is well-established. They anticipate the practice will take two years to become fully established. They paid $200,000 for medical school. They should open their own practice if the future benefits exceed: $300,000. $200,000. $500,000. $400,000.

$300,000.

A friend comes up to you and offers you a free ticket to a Dodgers game that night, and you decide to attend the game. The game takes five hours and costs you $25 for transportation. If you had not attended the game, you would have worked at your part-time job for $12 an hour. What is the cost to you of attending the game? The cost is zero—the ticket is free. $85 $60 $55

$85

Competing against other potential employees for a job is an example of the (first, second, third, fourth) set of interdependencies.

second

Juan is willing to pay $900 for a new iPad. He offers to pay $800 for an iPad at the Apple store. It costs Apple $700 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because _____ would be better off due to the transaction. will; neither Juan nor Apple will; both Juan and Apple will not; only Juan will not; only Apple

will; both Juan and Apple

Marah is deciding whether or not to open a lemonade stand. She expects to sell 20 cups of lemonade for $1 per cup. She already made a sign that cost her $10 and will have $15 worth of additional costs for cups and lemonade mix if she decides to open the stand. a. If Marah decides to open the lemonade stand, how much profit will she earn? $ b. Based on this information, Marah (should not, should) open the lemonade stand. c. The $10 spent on the sign represents a (lost, labor, sunk, necessary) cost.

-5 should sunk

The opportunity cost of a good is: smaller during periods of economic recession. equal to the monetary cost of the good. larger during economic booms. the value of the next best alternative given up to acquire the good.

the value of the next best alternative given up to acquire the good.

It is a rainy day, and you are considering taking an Uber one mile to meet some friends. You have decided you are willing to pay $20 to avoid getting wet from the rain. The trip would normally cost you $8, but due to the weather the surcharge is triple the regular cost. You should _____ because the benefit to you of taking the Uber is _____ than the cost. walk; less walk; more take an Uber; less take an Uber; more

walk; less

When applying the Opportunity Cost Principle, you consider -how other peoples' choices impact your best choice. -whether to purchase one more of an item. -the trade-offs of your decisions. -marginal benefit versus marginal cost.

the trade-offs of your decisions.

You are launching a new consulting business and you need to decide how many employees to hire. Applying the marginal principle, what question should you consider? -Should I hire one more employee? -What level of education should I require? -How many people have applied for the position? -How many employees can I afford?

Should I hire one more employee?

Which question uses the Opportunity Cost Principle to help make the best decision? -Should I look for a new job or should I go back to school? -Should I meet my friends for dinner tonight? -Should I save more money for retirement? -Should I start my own business after graduation?

Should I look for a new job or should I go back to school?

You are willing to pay full price for a new shirt, but you end up finding it half-off from an online retailer. Applying the cost-benefit principle, determine what has changed. -You receive a lesser benefit from the purchase because you got the shirt on sale. -You receive a greater benefit from the purchase because you got the shirt on sale. -Your cost has decreased, but your benefit remains the same. -Your cost and benefit have both decreased.

Your cost has decreased, but your benefit remains the same.

Edward charges $100 to landscape his neighbors' lawns. His neighbors should hire Edward if the marginal (cost, benefit) of having their lawn landscaped is (greater, less) than $100.

benefit greater

Following the Rational Rule, the maximum economic surplus occurs when: total benefits equal total costs. total benefits exceed total costs. marginal benefits equal marginal costs. marginal benefits exceed marginal costs.

marginal benefits equal marginal costs.

In the podcast, the authors use the interdependence principle to illustrate how an increase in interest rates can lead to -more parents returning to the labor market. -Google competing for workers. -an app to track changes in investment. -an increase in consumption of coffee.

more parents returning to the labor market.

A central and fundamental theme in economics is that: -for me to have something, someone else must be willing to give it up. -the United States is a rich country, but we are simply not aware of it. -resources are limited and cannot satisfy all the ways a society wants to use them. we can build as much as we want, since resources are unlimited.

resources are limited and cannot satisfy all the ways a society wants to use them.

Dependencies over time reflect the fact that: you have limited resources. society has limited resources. resources are spread across varying markets. resources can be spread across time.

resources can be spread across time.

The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of: inefficiency. equilibrium. inequity. scarcity.

scarcity.

You buy an expensive mattress on clearance which is nonreturnable. After a few weeks, you realize it's very uncomfortable and you are not getting a good night's sleep because of the mattress. Thinking like an economist, you should ignore the (marginal, sunk, opportunity) costs and get a new mattress.

sunk

Your expectations of the future -have no impact on your investment choices. -are always accurate. -are rarely accurate. -have a large impact on your investment choices.

have a large impact on your investment choices.

The Core Principles of Economics — End of Chapter Problem It is a beautiful afternoon, and Jose is considering taking a leisurely two-hour stroll through the park. There are several other activities Jose is considering doing instead. The value Jose receives from each of the activities is provided in the table. Alternative Activities Value Streaming a movie: $5 Taking a nap: $8 Chatting with his best friend: $13 Reading a new book: $15 What is Jose's cost of taking the stroll through the park? $

15

1.) in word doc there's a graph (Figure: Recliners and Couches) American Signature is a furniture company based in Columbus, Ohio. The graph represents American Signature's production possibility frontier for manufacturing couches and recliners. The sales team at American Signature has reported that sales of couches have increased. The company would like to increase manufacturing from 100,000 couches to 200,000 couches. As the company's economist, what is the opportunity cost of producing the 100,000 additional couches? 300,000 recliners 100,000 recliners 300,000 couches 100,000 couches

300,000 recliners

2.) View Problem + graph in word doc b. Suppose Jade spends the first two hours studying economics. The opportunity cost of spending the third hour studying economics is (3, 4, 5, 7) points on her (economics, astronomy) exam. c. Suppose Jade's goal is to maximize her combined exam scores. Calculate how many hours she should spend studying economics and how many hours she should spend studying astronomy. Jade should spend (0, 1, 2, 3, 4) hours studying economics and (0, 1, 2, 3, 4) hours studying astronomy. d. Suppose Jade's laptop dies and refuses to start up. All her notes and class materials (for both classes) are saved on its hard drive. Jade's production possibilities curve will (shift to the left, not change, shift to the right) , because studying (becomes more difficult, is not affected, becomes easier)

4 astronomy 3 1 becomes more difficult

1.) Question is in word doc

Video explanation under "Ch. 1 Problem Video Walkthrough: Core Principles (Completion-Based)"

You take a job driving for Lyft. It's a slow night and you are trying to decide whether to continue working or go home. You should -continue working as long as there are people looking for rides. -continue working until the marginal benefit you receive from working additional time equals your marginal cost of working additional time. -go home early. -set a daily revenue goal and stop working when you have achieved your goal.

continue working until the marginal benefit you receive from working additional time equals your marginal cost of working additional time.

Charles is a manager at a coffee shop, and he has to decide how many workers to hire. One worker can make 25 drinks that sell for $5 on average in one hour. A second worker can make another 20 drinks in one hour. The marginal benefit of each additional worker decreases by five drinks, with each additional hire. Given that workers are paid $15 per hour and have eight-hour shifts, how many employees should Charles hire for each hour? three four five six

five

The interdependence principle states that your best choice today depends on all of these EXCEPT: past decisions you have made. expectations about the future. other decisions you are currently making. decisions others are currently making.

past decisions you have made.

The marginal cost of an additional worker is: always equal to the cost from the first worker hired. always equal to the benefit of hiring the additional worker. the total cost of all workers hired. the additional cost of hiring one more worker.

the additional cost of hiring one more worker.

You are offered a position at FedEx. You should to take the job if -you are worried that you may soon be laid off at your current job. -the FedEx position offers a better work environment. -the FedEx position pays better than your current job. -the benefits of taking the job at FedEx are more than the costs of taking the job.

the benefits of taking the job at FedEx are more than the costs of taking the job.

One example cited in the podcast of a factor that may cloud your decision making is -the interdependence principle. -the cost-benefit principle. -the framing effect. -supply concerns.

the framing effect.

The Core Principles of Economics — End of Chapter Problem Use the cost-benefit principle to evaluate the following: a. You are about to buy a calculator for $10, and the sales-person tells you that the model you want to buy is on sale for $5 at the store's other branch, which is a 20 minute drive away. You should make the trip to the other branch if: (your cost of making the trip is less than $5., your cost of making the trip is more than $5.) b. You are about to buy a laptop for $1,000 and the sales-person tells you that the model you want to buy is on sale for $995 at the store's other branch, which is a 20 minute drive away. You should make the trip to the other branch if: (your cost of making the trip is more than $5., your cost of making the trip is less than $5.) Your choice in parts a and b should be (different, the same) in both scenarios. But some people may ignore costs and focus on the percentage saved because (sunk costs, framing effects, marginal costs) change how people view the decision.

your cost of making the trip is less than $5. your cost of making the trip is less than $5. the same framing effects

The Core Principles of Economics — End of Chapter Problem Jia is considering whether to go out to dinner at a restaurant with her friend. The meal is expected to cost $40, Jia typically leaves a 20% tip, and an Uber will cost $5 each way. Jia values the restaurant meal at $25. Jia enjoys her friend's company and is willing to pay $30 just to spend an evening with her. If Jia does not go out to the restaurant, she will eat at home, using groceries that cost her $8. a. Calculate Jia's costs associated with going out to dinner with her friend. $ b. Calculate Jia's benefits associated with going out to dinner with her friend. $ c. Based on the information, Jia should (go out to dinner with her friend., eat at home.)

58 63 go out to dinner with her friend.

The Core Principles of Economics — End of Chapter Problem Neal is a coffee drinker. At the local coffee shop, the price of a cup of coffee is $3. Neal's total benefits from drinking coffee are indicated in the accompanying table. Use this information to calculate Neal's marginal benefit of consuming each cup of coffee. Table Bellow Quantity of coffee (cups per day): Total benefits 1: $8 2: $14 3: $18 4: $20 5: $21 a. The marginal benefit of the first cup is $ b. The marginal benefit of the second cup is $ c. The marginal benefit of the third cup is $ d. The marginal benefit of the fourth cup is $ e. The marginal benefit of the fifth cup is $ f. Neil should consume 3 cups of coffee per day.

8 6 4 2 1 3

In this Decision Point, you explored your own willingness to pay and buying decisions. Use what you learned from that activity to answer the following questions. As part of a student work program, you intern at a marketing company who has been hired to do local market research for Samsung. One of your tasks is to survey fellow students on what they would be willing to pay for a mid-tier smartphone. You are able to survey five students today and the results of your survey are in the accompanying table. Student: Willingness to Pay Francisco: $200 Lily: $300 Amanda: $400 Julio: $100 Anthony: $500 a. Which students should purchase a smartphone if the price of the smartphone is $325? Select all that apply. Lily Julio Anthony Amanda Francisco

Anthony Amanda

The Core Principles of Economics — End of Chapter Problem Ivan has inherited his mother's 1963 Chevrolet Corvette, which he values at $45,000. He decides that he might be willing to sell it, so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000 for one, so they agree on a price of $55,000 for the car. a. (Only Ivan is, Ivan and Samantha are both, Only Samantha is, Neither Ivan nor Samantha is) willing to voluntarily engage in this exchange. b. How much economic surplus, if any, does Ivan gain from engaging in this exchange? $ c. How much economic surplus, if any, does Samantha gain from engaging in this exchange? $ d. How much total surplus, if any, is gained from this exchange? $

Ivan and Samantha are both 10000 17000 27000

An investor is franchising a new type of fitness studio that will be the first in the city and must determine how many locations to open. For each location, they will hire a manager for a salary of $4,000 per month and two part-time employees who will earn $2,000 each per month. The investor values their time spent overseeing each location at $7,500 per month. Additional operating costs, including rent and utilities, will be $6,000 per month at each location. The investor projects that when the business gains traction, the first location will have 1,000 members. The second location will bring in 900 members. The third and fourth locations will bring in 300 and 200 members, respectively. The monthly membership fee will be $70 per member. The investor has decided to definitely open two locations. Should they open a third location? Yes, because marginal benefit would exceed marginal cost. Yes, because marginal cost would exceed marginal benefit. No, because marginal cost would exceed marginal benefit. No, because marginal benefit would exceed marginal cost.

No, because marginal cost would exceed marginal benefit.

The Core Principles of Economics — End of Chapter Problem Consider your decision to read this textbook on economics. Identify which of the four core principles of economics is most relevant for each aspects of that decision. a. "Reading this textbook will help establish a solid foundation for understanding concepts you will learn in more advanced economics courses." This statement is related to the (marginal, cost-benefit, interdependence, opportunity cost) principle. b. "Reading this textbook will require time and effort, but doing so will help you improve your grade in this course." This statement is related to the (marginal, cost-benefit, interdependence, opportunity cost) principle. c. "The time you will spend reading this textbook can also be used to study for your chemistry exam." This statement is related to the (marginal, cost-benefit, interdependence, opportunity cost) principle. d. "Each page that you read and each practice problem that you complete will help you increase your understanding of the material." This statement is related to the (marginal, cost-benefit, interdependence, opportunity cost) principle.

interdependence cost-benefit opportunity cost marginal

How do you quantify the enjoyment you get from a purchase? -Determine how much you paid for the item last time your purchased it. -Find out how much the item costs. -Consider how much similar items cost. -Determine the maximum you are willing to pay for the item.

Determine the maximum you are willing to pay for the item.

You just moved into your new apartment, which has washer and dryer hookups, but your apartment complex doesn't provide washers and dryers. You don't want to go to a laundromat. You can rent a washer and dryer set from an appliance rental company for $30 per month. Alternatively, you could buy a set for $1,100, which you could sell after one year for $700, or $600 after two years. You plan to stay in this apartment for two years, since it's near your job. Should you buy or rent the set? You should rent the set because renting earns $40 worth of economic surplus. You should rent the set because renting earns $400 worth of economic surplus. You should buy the set because buying earns $220 worth of economic surplus. You should buy the set because buying earns $500 worth of economic surplus.

You should buy the set because buying earns $220 worth of economic surplus.

The cost-benefit principle evaluates _____ costs and benefits, and willingness-to-pay considerations quantify _____ costs and benefits. both monetary and nonmonetary; only nonmonetary only monetary; both monetary and nonmonetary only nonmonetary; only monetary both monetary and nonmonetary; only monetary

both monetary and nonmonetary; only nonmonetary

Vincent makes handcrafted dining tables, and he is trying to decide how many tables to produce. He can sell each dining table for $1,000. The cost of the first table is $900, for the second it's $1,100. For each additional table he produces, the marginal cost of each table increases by $200. How many dining tables should Vincent produce, and what is the total cost of his production? Vincent will not make any tables. He will produce one table at a cost of $900. He will produce two tables at a cost of $2,000. He will produce three tables at a cost of $3,300.

He will produce one table at a cost of $900.

How is the economic surplus generated by a decision calculated? It is the total benefits minus total costs arising from the decision. It is the total benefits plus total costs arising from the decision. It is the sum of benefits arising from the decision. It is the sum of costs arising from the decision.

It is the total benefits minus total costs arising from the decision.

The Core Principles of Economics — End of Chapter Problem Aliyah is preparing to expand her IT consulting company. The current market rate for IT professionals is $58,000 per year. Each employee she hires will also require a computer and equipment that costs $6,000 per employee annually. Hiring more employees means that Aliyah can provide consulting services to more clients each year. Each client Aliyah has will pay her $10,000 per year. The number of clients Aliyah can take on is dependent on the number of workers she hires and is depicted in the accompanying table. Use this information to calculate the marginal cost and the marginal benefit of hiring each worker. Table Bellow Number of workers: Clients per year 0: 0 1: 11 2: 20 3: 27 4: 32 a. The first worker's marginal cost is $ . b. The first worker's marginal benefit is $ . c. The second worker's marginal cost is $ . d. The second worker's marginal benefit is $ . e. The third worker's marginal cost is $ . f. The third worker's marginal benefit is $ . g. The fourth worker's marginal cost is $ . h. The fourth worker's marginal benefit is $ . i. Using the rational rule to maximize her economic surplus, Aliyah should hire (one, two

64000 110000 64000 90000 64000 70000 64000 50000 three

The Core Principles of Economics — End of Chapter Problem Consider the following statement: "Economists always put things into monetary terms; as a result, economics can most appropriately be called the study of money." Is this statement true or false? -False, even though economists use money as a form of measurement, economics is better described as the study of financial markets. -False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making. -False, even though economists use monetary terms often, economics is better described as a governmental approach to improving market outcomes. -True, financial markets are the primary focus of economics.

False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making.

You are a small business owner preparing to launch your first ad campaign to attract new customers, and must decide whether to learn about advertising yourself or hire a professional to launch the campaign. The campaign will last three months. If you hire a professional, you'll have to pay them a lump sum of $1,000 for the entire campaign. But if you decide to do it yourself, you'll take a course that costs $200 to introduce you to the skill. You'll also pay an employee $340 per month to work some of the hours you normally work while you manage the campaign. Would it be better to hire a professional rather than doing the campaign yourself? Yes, because your economic surplus is $220. Yes, because your full set of costs is only $540. No, because the benefit of not having to do it yourself is greater than the cost of the professional. No, because you can increase your economic surplus if you do it yourself.

Yes, because your economic surplus is $220.

The Core Principles of Economics — End of Chapter Problem Consider each decision in the context of the four core principles of economics. a. Gilberto is deciding whether to vote in the next election. The four core principles of economics -do not apply to this decision because there is no cost involved in voting. -apply to this decision because Gilberto should consider the costs and benefits associated with voting. -do not apply to this decision because voting behavior is studied in political science. -apply to this decision because Gilberto's vote is a marginal vote that could determine the outcome of the election. b. Lee watches a beautiful sunset from the back porch of his house. The four core principles of economics -do not apply because no money is involved. -apply because Lee could have been doing something else. -do not apply because no decision is being made. -apply because Janet is also watching the sunset. c. Lilia is deciding whether to major in economics or philosophy. The four core principles of economics -apply because economics majors earn higher salaries. -do not apply because Lilia may change her major later. -do not apply because both programs cost the same and t

apply to this decision because Gilberto should consider the costs and benefits associated with voting. apply because Lee could have been doing something else. apply because Lilia should choose the major that provides the greatest economic surplus. apply because Brendon and Jessica will have to give up something else to purchase the second vehicle.

The Core Principles of Economics — End of Chapter Problem Khaled is a preschool teacher working at a public school, but he is considering quitting his job to start a daycare facility of his own. Indicate which of the four types of interdependency is most relevant to each factor in Khaled's decision. Use the market for daycare facilities as Khaled's market of interest. a. Khaled knows there are few daycare facilities in the area, but many families looking for daycare. This scenario is an example of dependencies (between markets., through time., between people or businesses in the same market., between each of your individual choices.) b. An increase in graduation rates for teachers saturates the market for preschool teachers. This decreases the wages of teachers. This scenario is an example of dependencies (between markets., through time., between people or businesses in the same market., between each of your individual choices.) c. If Khaled opens his own facility, he will be responsible for taxes, insurance, licensing, and facility upkeep, among other things. However, as a teacher Khaled will only need to keep up his teaching license. In addition, Khaled will not be able to take

between people or businesses in the same market. between markets. between each of your individual choices. through time.

The Core Principles of Economics — End of Chapter Problem During the economic downturn of 2008-2009, the unemployment rate increased to nearly 10%. At the same time, the price of higher education tuition and the number of enrollees increased. a. Which statement best explains why more people enrolled in higher education institutions during this time period even as the price of tuition increased? More people enrolled because -of the social pressure people feel to go to college. Universities exploited this and increased the price of tuition without losing many students. -of the bandwagon effect. When something becomes popular or trendy, ever more people are willing to pay high prices for it. -if the next best option was unemployment, many individuals may have preferred to enroll in higher education and gain new skills in hopes of increasing their future employment prospects. -if the next best option was unemployment, many individuals may have preferred to enroll in higher education and live off of student loans while waiting for the job market to improve. b. The core principle that best explains this is the (cost-benefit principle., marginal principle., opportunity cost principle.)

if the next best option was unemployment, many individuals may have preferred to enroll in higher education and gain new skills in hopes of increasing their future employment prospects. opportunity cost principle.

Consider two things mentioned in the clip: the $1.00 menu for drinks and the perceived change in quality. How would you best describe the impact of these two factors? Lowering the price of drinks to $1.00 results in a (shift in, movement along) the demand curve for drinks. The improvement in customer's perception of the food quality results in a (shift in, movement along) the demand curve and a (shift in, movement along) the supply curve for food items.

movement along shift in movement along

The Core Principles of Economics — End of Chapter Problem Your friend remarks that longer movies are a better deal than shorter movies because the ticket price is the same in both cases. Therefore, the longer movie provides more benefit for the same cost as a shorter movie. Which of the following is the best argument against your friend's claim that longer movies provide more benefit than shorter movies? Based on the -opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives. -cost‑benefit principle, the benefits of a longer movie exceed the costs when compared to a shorter movie. -marginal principle, you should only continue to watch an additional movie if it is shorter than the first movie. -interdependence principle, longer movies are affected by the market for shorter movies.

opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives.

At one point in the video the guest suggests that the quality of the food at McDonald's has improved. The subsequent increase in sales indicates that there may have been a shift in demand due to a change in a variable that is held constant for a given demand curve. The most likely variable is preferences and quality expectations. income. the type and number of buyers. prices of related goods. congestion and network effects. expectations of future prices.

preferences and quality expectations.

The guest in the video refers to McDonald's "value menu" as a reason more customers are visiting the restaurant. If the $1.00 drinks mentioned actually did cause a shift in the demand curve for sandwiches, the demand shifter responsible for the shift is the type and number of buyers expectations of future prices income prices of related goods congestion and network effects tastes and preferences

prices of related goods

The Core Principles of Economics — End of Chapter Problem In 2016, the top-selling pharmaceutical drug in the world was AbbVie's Humira, which is used for the treatment of several common, chronic conditions. The majority of its profits are derived from treatment of the most common diseases, but AbbVie also develops drugs for rare conditions. Why might AbbVie develop drugs for rare diseases instead of investing all of its resources toward drugs for common diseases? It is possible that -the opportunity‑cost principle may encourage AbbVie to produce drugs for rare conditions, because the full benefits outweigh the costs. The company must be maximizing its total economic surplus. -the interdependence principle may be guiding AbbVie to develop and produce drugs for rare conditions. Common chronic and rare conditions are often experienced by the same people, so AbbVie can easily produce drugs for both. -framing effects may be enticing AbbVie to develop and produce drugs for rare conditions. Since these drugs are more expensive, AbbVie will make a large profit. -the marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developin

the marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs.

Rose's parents have booked and paid for a family trip to Aspen, Colorado, during her spring break. Rose's friends recently decided to drive to Destin, Florida, for spring break. Rose needs to decide whether to join her parents in Aspen or drive to the beach with her friends. The opportunity costs of joining her friends on the trip to Destin include each of these EXCEPT: her parents' anger if she skips the family trip to Aspen. her contribution to gas money for the drive to Destin. the ski lift ticket her parents have already purchased for her. the hotel costs she will split with her friends in Destin.

the ski lift ticket her parents have already purchased for her.