Econ 102

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.

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?

$85

Quantity supplied refers to

A specific point on the supply curve, usually referenced when there has been a change in price of an item

Suppose you manage a convenience store. If macaroni and cheese is an inferior good, what do you suppose would happen to the price and quantity sold of macaroni and cheese as incomes fall during a recession?

Both the price and quantity would increase.

The demand curve for meals at a local Chick-fil-A will shift to the left if:

Chick-fil-A offers a free sandwich to people who sign up for their new rewards app.

Which statement BEST illustrates the law of demand?

Consumers buy more iPhones because prices have fallen.

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?

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

If drivers for ridesharing services like Uber and Lyft successfully negotiate for higher pay, and parking lot operators in the city raise parking rates, what can you conclude about the new equilibrium in the ridesharing market?

The equilibrium price will rise, but the impact on quantity is unclear.

Dental services are:

a normal good

In the market for organic beef, what would cause a price increase?

a rise in the prices of grass and organic corn

Which of the following is most consistent with a market experiencing a surplus?

We should expect price to fall

Consider the market for iPads. What happens if a fantastic new alternative tablet is developed by Samsung and, at the same time, a factory that makes iPads catches fire, destroying 3 million iPads?

The change in price is indeterminate, and quantity decreases.

In order for a purchase to be made...

The marginal benefit must exceed the marginal cost

You have paid $75 for a Costco membership and are trying to decide where to go grocery shopping today. You could go to Costco, but it will take 30 minutes longer than a trip to Vons. The prices for what you want to buy are about 10% lower at Costco. Which costs should you NOT consider when making your decision on where to 80?

The membership fee

Which of the following would cause the demand for housing to shift left?

The price of building materials increases

Paper producers can manufacture both printing paper and drawing paper. What effect would rising prices for printing paper have on the supply of drawing paper?

The supply of drawing paper will decrease.

Which of the following is NOT a reason why the supply curve is upward sloping?

There are diminishing marginal benefits in consumption

HelloFresh is a service that provides subscribers with recipes and all the necessary ingredients to prepare meals at home, delivered to their door once per week. Holding other things constant, what would happen if the company found a more efficient way to keep food fresh and safe during shipment?

There would be a movement down the market demand curve. (input costs decrease - causing a decrease in price for the goods)

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.

Why might you underestimate the increase in market quantity demanded when you lower your price?

You may not take into account potential new customers attracted by the lower price.

You're the manager of an independent coffee bar with a loyal customer base, and you have accurate information about your current customers' demand curves. You lower the price on your lattes, but the new total quantity demanded for your lattes far exceeds your estimate. What is the MOST likely explanation?

You neglected to factor in new customers entering your market due to the lower price.

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

In which scenario are you NOT part of a market transaction?

You take a photo of flowers in bloom in a city park.

Antonio has a cell phone, and his service provider is AT&T. When he calls his wife, Erika, who is also an AT&T customer, he does not have to pay for those minutes. The more AT&T customers there are in the market, the greater the benefit Antonio receives. This is:

a network effect.

For normal goods, an increase in income will result in:

an increase in the equilibrium price and equilibrium quantity.

Shifts in the market demand curve occur:

because of all the factors that shift individual demand curves, along with changes in the types and number of buyers.

The cost-benefit principle evaluates _____ costs and benefits, and willingness-to-pay considerations quantify _____ costs and benefits

both monetary and nonmonetary; only nonmonetary

A farmer finds that when he produces more pumpkins, he also has more pumpkins he can sell as decorations. To the farmer, pumpkins and decorative pumpkins are:

complements in production.

In employing the marginal principle, a seller may

decide whether to supply one more unit of a good or service.

If the price of paint rises, we can expect the:

demand for paintbrushes to decrease.

Over the past several years, sushi has become increasingly popular among consumers. This means that the _____ has _____.

demand for sushi; increased

As an equity analyst with an investment management company, you monitor market conditions in the dairy sector. Which of these would shift the market supply curve you've modeled for milk?

expectations of a future decline in the price of milk

Suppose the New York City housing market is in equilibrium. A recession causes local household incomes to decline. At the same time, construction of a series of new apartment buildings has just been completed. Given these two changes, and assuming that apartment housing is a normal good, we can predict that the price of apartments will _____, and the quantity of apartments bought and sold will _____.

fall; rise or fall

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?

five

The difference between a centralized economy and a market economy is that:

governments make production decisions in a centralized economy, and individuals make production decisions in a market economy.

The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is:

greater than or equal to the marginal cost.

When there is a shortage of highly skilled workers in a particular region:

highly skilled workers can negotiate higher salaries.

Facebook is subject to network effects because:

its value to an individual increases when the number of other people using it increases.

Following the Rational Rule, the maximum economic surplus occurs when:

marginal benefits equal marginal costs.

The _____ is the increase in output that is produced when a business hires an additional worker.

marginal product

The interdependence principle states that your best choice today depends on all of these EXCEPT:

past decisions you have made.

A shortage occurs when:

quantity demanded exceeds quantity supplied.

You run an electronics store that sells, among other items, big screen televisions. As the market price of big screen televisions decreases, the:

quantity of big screen televisions supplied decreases.

If the price of jet fuel rises, the:

quantity of jet fuel supplied will increase.

When plotting a supply curve, you measure:

quantity supplied on the horizontal axis.

A central and fundamental theme in economics is that:

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

Dependencies over time reflect the fact that:

resources can be spread across time.

At Trader Joe's, the price of chocolate chip cookies falls. As a result, you would expect to see a(n):

rise in the quantity demanded of chocolate chip cookies.

Diminishing marginal product leads to:

rising marginal costs for a seller.

The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of:

scarcity

An opportunity cost (something to consider when making a decision) must be

something that you will miss out on in the future, not something ALREADY bought. eg - payment for costco membership

Which of these items is a normal good?

steak

Henderson Lumber is a lumber mill that produces both boards used in construction and sawdust, a byproduct of the board production, used in agriculture. When the housing market collapses, causing house prices along with the prices of boards used to build houses to fall, Henderson Lumber's _____ will likely _____.

supply of sawdust; decrease

The marginal cost of an additional worker is:

the additional cost of hiring one more worker.

Recent research suggests that certain refillable plastic water bottles may leech cancer-causing particles into the containers with repeated usage. As a result of this research being made public, one would expect:

the demand for such containers to decrease.

In your media studies class, you learn that Westerns were once a staple of network television but are now less common. If the production costs per episode of Westerns are comparable to those of other scripted shows, the most likely explanation for their disappearance is that, over time:

the market demand curve for Westerns shifted to the left.

We expect that price will fall when:

the quantity supplied is greater than the quantity demanded.

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:

the ski lift ticket her parents have already purchased for her. -- SUNK COST

Supply of an item refers to

the supply curve as a whole, usually referenced when there is going to be a shift of the curve.

The opportunity cost of a good is:

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

In a typical week, Cheyenne buys four lattes at Starbucks. If the price of lattes doubles, what is the MOST likely number of lattes she will buy?

two

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

Which of these scenarios depicts a rational buyer?

Damien buys a sandwich for $5 when the marginal benefit of the sandwich to him is $7.

For Elandra, home-brewed coffee is an inferior good, and lattes from the coffee shop are a normal good. Recently, Elandra cut back on lattes and began brewing her own coffee at home. What may have caused this change?

Elandra's income fell.

How is the economic surplus generated by a decision calculated?

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

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?

No, because marginal cost would exceed marginal benefit.

The law of supply refers to the:

positive relationship between price and quantity supplied.

While attending college, you are also working as a freelance writer, writing product descriptions for catalogues for $40 per piece. You start each morning writing product descriptions when your mind is fresh. However, at a certain point, you recognize that the more product descriptions you write, the less quality time you can devote to your studies, worsening your grades and somewhat dampening your long-term income prospects. You should stop writing product descriptions when:

the perceived opportunity cost of writing another product description in terms of foregone long-term income rises above the $40 you could earn writing another product description.

An equilibrium in a market occurs:

when the quantity supplied equals the quantity demanded.

On a hot sweltering day, you feel thirsty and buy an ice-cold soft drink, which you gulp down. Whether you buy a second drink or not will depend on:

whether the marginal benefit of the second soft drink exceeds the price of the drink.

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; both Juan and Apple