Ch. 1 EOC Problems: Core Principles

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. What is Jose's cost of taking the stroll through the park?

$15

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 the statement true or false?

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

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 spend your time compared to other alternatives.

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 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.

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 ___ open the lemonade stand. c. The $10 spent on the sign represents a ___ cost.

a. $-5 b. Should c. Sunk

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

a. $58 b. $63 c. go out to dinner with her friend.

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. a. The first worker's marginal cost is. b. The first workers 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 workers.

a. $64,000 b. $110,000 c. $64,000 d. $90,000 e. $64,000 f. $70,000 g. $64,000 h. $50,000 i. Three

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. 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 consumer ___ cups of coffee per day.

a. $8 b. $6 c. $4 d. $2 e. $1 f. 3

Jade has midterms in economics and astronomy and her expected exam scores. a. Use the graph to plot the production possibilities frontier for Jade's study options b. Suppose Jade spends the first two hours studying economics. The opportunity cost of spending the third hour studying economics is ___ points on her ___ exam. c. Suppose Jades goal is to maximize her combined exam scores. Calculate how many hours she should spend studying economies and how many hours she should spend studying astronomy. Jade should spend ___ hours studying economics and ___ 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 ___, because studying ___.

a. (See Graph) b. 4 Astronomy c. 3 1 b. Shift to the left becomes more difficult

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: b. The core principle that best explains this is the:

a. 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. b. Opportunity cost principle.

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. ___ 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?

a. Ivan and Samantha are both b. $10,000 c. $17,000 d. $27,000

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: 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: c. Your choice in parts a and b should be ___ in both scenarios. But some people may ignore costs and focus on the percentage saved because ___ change how people view the decision.

a. Your cost of making the trip is less than $5. b. Your cost of making the trip is less than $5. c. The same Framing effects

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: b. Lee watches a beautiful sunset from the back porch of his house. The four core principles of economics c. Lilia is deciding whether to major in economics or philosophy. The four core principles of economics d. Brendon and Jessica are deciding whether to purchase a second vehicle. The four core principles of economics

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

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 ___. 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 ___.

a. between people or businesses in the same market b. between markets

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 economic courses." This statement is related to the ___ 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 ___ 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 ___ 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 ___ principle.

a. interdependence b. cost-benefit c. opportunity cost d. marginal

(continuation of the last question) 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 a long vacation in the summer if he runs a daycare center. This scenario is an example of dependencies ___. d. Khaled is up for a raise in the next 6 months at his teaching job. This scenario is an example of dependencies ___.

c. between each of your individual choices d. through time