Econ 2 Chapter 3
Suppose your total benefit from eating slices of pizza (value in dollars) is 8x−x2, where x is the number of slices of pizza. Pizza is sold by the slice and costs $2 per slice, and so the total cost of pizza is 2x. Using optimization in levels, what is the optimal amount of pizza for you to eat? Your net benefit is maximized at (3) slices of pizza. (Enter your response as an integer.) 14=6
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Refer to the optimization analysis used to make a decision about the choice of an apartment. Suppose the government in a certain country wants to reduce urban sprawl. (Urban sprawl refers to the development of residential and commercial areas in the suburbs around the periphery of a city. One of the main problems with urban sprawl is that it leads to increased traffic congestion and air pollution as commuters travel to the city every day.) What measures could it take to ensure that people choose to live closer to the central business district? A. Stop taxing traffic moving in and out of the cityStop taxing traffic moving in and out of the city. B. Encourage employers to relocate to the suburbs. C. Increase property taxes on houses in the suburbsIncrease property taxes on houses in the suburbs. D. Strengthen building codes to regulate apartments being constructed. E. Enhance the public transportation system between the city and the suburbs.
C. Increase property taxes on houses in the suburbsIncrease property taxes on houses in the suburbs.
Suppose you have to give up a job that pays you $40,000 a year to attend business school. How would this affect your calculation of whether to attend business school? A. It will increase future earnings potential from additional education, making you more likely to attend business school. B. It will increase tuition payments for business school, making you less likely to attend business school. C. It will increase the indirect cost of your time, making you less likely to attend business school. D. It will decrease the direct benefits of business school, making you more likely to attend business school. E. It will not affect the direct cost of business school, leaving you equally likely to attend business school.
C. It will increase the indirect cost of your time, making you less likely to attend business school.
Suppose you have to give up a job that pays you $40,000 a year to attend business school. How would this affect your calculation of whether to attend business school? A. It will not affect the direct cost of business school, leaving you equally likely to attend business school. B. It will increase future earnings potential from additional education, making you more likely to attend business school. C. It will increase the indirect cost of your time, making you less likely to attend business school. D. It will decrease the direct benefits of business school, making you more likely to attend business school. E. It will increase tuition payments for business school, making you less likely to attend business school.
C. It will increase the indirect cost of your time, making you less likely to attend business school.
You are considering renting a city apartment with 1,000 square feet for $1,200 per month. The monthly rent on a larger, 1,500-square-foot city apartment is $1,600. The marginal cost of renting an apartment with 500 additional square feet is $_____ per square foot per month.
$0.80 1600-1200= 400 400/500= 0.80
Now suppose that you have a summer job that pays you $15 per hour. How would your analysis change? With a $15-per-hour summer job, (the opportunity cost of your time) would increase.
(the opportunity cost of your time)
You are a professor of economics at a university. You've been offered the position of serving as department head, which comes with an annual salary that is $5 comma 5005,500 higher than your current salary. However, the position will require you to work 200 additional hours per year. Suppose the next best use of your time is spending it with your family, which has value of $20 per hour. What is the difference in the net benefit from becoming the department head? The change in net benefit is $1500. To optimize, you (should) become a department head.
20*200= 4000 5500-4000=1500
A company mines 360,000 tons of coal per year in a rural county. The coal is worth $79 per ton. The average price for a 2,000-square-foot house with three bedrooms more than 20 km away from the mining site in this county is $220,000. The average price for a similar, 2,000-square-foot house with three bedrooms within 4 km of the mine is 8 percent lower. Using comparative statics, what is the effect of mining on home prices in this county? Mining changes the price of a 2,000-square-foot home (with three bedrooms) by $____
220,000*.08 =17600
suppose you are accepted at all of the three business schools to which you applied. Consider all the factors that could matter when it comes to choosing a business school. How would you go about making an optimal decision about which school to attend? A. By comparing the net benefits from attending the three schools. B. Summing the marginal costs from attending the three schools. C. Predicting which school among the three will provide the greatest future benefits. D. By considering the total benefits from attending the three schools. E. Identifying the school among the three with the lowest direct costs.
A. By comparing the net benefits from attending the three schools.
Determine if the following statements better describe optimization in levels or optimization in differences. John is attempting to decide on a movie. He determines that the new Batman movie provides him with $5 more of a net benefit than the new Spiderman movie. A. Optimization in differences, since he is calculating the change in net benefits between alternatives. B. Both typesBoth types of optimization, since he is not considering the net benefits of alternatives. C. Optimization in differencesdifferences, since he is not making marginal comparisons. D. Neither typeNeither type of optimization, since he is considering the total benefits of alternatives. E. Optimization in levels, since he is comparing the net benefits between alternatives.
A. Optimization in differences, since he is calculating the change in net benefits between alternatives.
Consider the total cost of traveling from point A to point B. The cost of traveling by car would include the cost of gasoline and the opportunity cost of time; the cost of hopping on a bus would include the bus ticket and the opportunity cost of time. Assume that the bus ticket costs less than the gasoline. Does this imply that using a bus to get to the destination involves lower total costs than getting there by car? What if the bus doesn't take the fastest route from point A to point B? A. The marginal cost of using a bus may be higher if it takes more time than by car. B. The marginal cost of using a bus will not be higher because time is not a marginal cost. C. The marginal cost of using a bus may be higher if buses cost more than cars. D. The marginal cost of using a bus will not be higher because time is not a direct cost. E. The marginal cost of using a bus may be higher if buses use less fuel than cars.
A. The marginal cost of using a bus may be higher if it takes more time than by car.
Economists mostly use optimization in differences, as opposed to optimization in levels, because ____________. A. comparing different features of alternatives is intuitive. B. contrasting the total benefit of alternatives is simplesimple. C. examining the net benefits of alternatives is counterintuitive. D. calculating cost-benefit ratios is complicated.
A. comparing different features of alternatives is intuitive.
There is a proverb "anything worth doing is worth doing well." Do you think an economist would agree with this proverb? A. No, because the marginal cost of extra effort may be greater than the marginal benefit. B. No, because doing something well has no next best alternatives with which to compare. C. Yes, because the marginal costcost of extra effort is typically increasingincreasing as effort increases. D. NoNo, because the total net benefit of extra effort is negativenegative by definition. E. Yes, because doing something to the best of your ability is optimizing behavior.
A. No, because the marginal cost of extra effort may be greater than the marginal benefit.
Reagan determined that the net benefit of taking the combination of two lecture courses and an online lecture course was $100. The same three courses online gave her a net benefit of $80, and all three in a lecture-based format gave her a net benefit of $90. A. Optimization in differences, since she is comparing total benefits between alternatives. B. Optimization in levels, since she is comparing the net benefits between alternatives. Your answer is correct.C. Optimization in levelslevels, since she is making marginal comparisons. D. Both typesBoth types of optimization, since she is not considering the net benefits of alternatives. E. Neither typeNeither type of optimization, since she is considering the total benefits of alternatives.
B. Optimization in levels, since she is comparing the net benefits between alternatives. Your answer is correct.
Refer to the optimization analysis used to make a decision about the choice of an apartment. Suppose the government in a certain country wants to reduce urban sprawl. (Urban sprawl refers to the development of residential and commercial areas in the suburbs around the periphery of a city. One of the main problems with urban sprawl is that it leads to increased traffic congestion and air pollution as commuters travel to the city every day.) What measures could it take to ensure that people choose to live closer to the central business district? A. Encourage employers to relocate to the suburbs. B. Tax traffic moving in and out of the cityTax traffic moving in and out of the city. C. Strengthen building codes to regulate apartments being constructed. D. Decrease property taxes on houses in the suburbsDecrease property taxes on houses in the suburbs. E. Enhance the public transportation system between the city and the suburbs.
B. Tax traffic moving in and out of the cityTax traffic moving in and out of the city.
The concept of opportunity cost would explain whether someone chooses to drive, take a cab, take a bus, or walk to school or work because someone with ___________. A. a part-time job is more likely to walk or take a bus to work because he has less income. B. a high wage is more likely to drive or take a cab to work because his time is worth more. C. higher income is more likely to drive or take a cab to work because these transportation modes are more expensive. D. less value for the future is more likely to walk or take a bus to work because these modes have higher discount rates. E. a high value for playing sports is more likely to walk or take a bus to work because of a greater value on leisure.
B. a high wage is more likely to drive or take a cab to work because his time is worth more
The concept of opportunity cost would explain whether someone chooses to drive, take a cab, take a bus, or walk to school or work because someone with ___________. A. less value for the future is more likely to walk or take a bus to work because these modes have higher discount rates. B. a high wage is more likely to drive or take a cab to work because his time is worth more. C. higher income is more likely to drive or take a cab to work because these transportation modes are more expensive. D. a high value for playing sports is more likely to walk or take a bus to work because of a greater value on leisure. E. a part-time job is more likely to walk or take a bus to work because he has less income.
B. a high wage is more likely to drive or take a cab to work because his time is worth more.
Since optimization is used to analyze people's choices and help them improve the outcomes of their choices, its A. normative only. B. both normative and positive. Your answer is correct.C. positive only. D. neither because it doesn't show people who don't optimize how to improve their well−being.
B. both normative and positive.
Since optimization is used to analyze people's choices and help them improve the outcomes of their choices, its A. positive only. B. both normative and positive. C. normative only. D. neitherneither because it describes preferences but not how to improve themdescribes preferences but not how to improve them.
B. both normative and positive.
Economists mostly use optimization in differences, as opposed to optimization in levels, because ____________. A. examining the net benefits of alternatives is counterintuitive. B. comparing different features of alternatives is simplesimple. .C. contrasting the total benefit of alternatives is intuitiveintuitive. .D. calculating cost-benefit ratios is complicated.
B. comparing different features of alternatives is simplesimple.
Optimization is the process that describes __________. A. how to obtain relevant data. B. the choices that firms make. C. how to maximize wealthwealth. D. the production of resources. E. the budgeting process for firmsfirms.
B. the choices that firms make.
Does the principle of optimization imply that people always make the best choices? A. Yes, because people make perfect calculations. B. Yes, it is a good approximation for the decisions people make. C. No, because people do not have full information. D. No, because people are irrational. E. It cannot be tested without more data.
B. Yes, it is a good approximation for the decisions people make.
Assume that your country's income tax structure has the following tax rates: if your income is $60 comma 00060,000 or less you pay no income tax; if your income is above $60 comma 00060,000, you pay 3030 percent of the amount above $60 comma 00060,000. And so, for example, someone who earns $120 comma 000120,000 would pay 3030%times×($120 comma 000120,000minus−$60 comma 00060,000)equals=$18 comma 00018,000. Your marginal tax rate is defined as the taxes you pay if you earn one more dollar. Your average tax rate is defined as the total taxes you pay divided by your income. And so, to continue with this example, someone who earns $120 comma 000120,000 would have a marginal tax rate of 3030 percent and an average tax rate of $ 18 comma 000 divided by $ 120 comma 000$18,000/$120,000equals=1515%. You have three alternatives. You could not work at all, you could work half time, or you could work full time. If you do not work at all, you will earn $0; if you work half time you will earn $60 comma 00060,000; and if you work full time, you will earn $120 comma 000120,000. Any time you do not work, you can spend surfing. You love to surf: surfing half time is worth $54 comma 00054,000 to you. As you are making your decision about how much to work, should you pay attention to your average tax rate or to your marginal tax rate? A. Average tax rate to isolate differences in alternatives. B. Marginal tax rate to compare levels of total net benefit. C. Marginal tax rate to identify marginal changes. D. Marginal tax rate to consider feasible options. E. Average tax rate to calculate comparative statics.
C. Marginal tax rate to identify marginal changes.
Nikki decided to take the first available parking space as she entered the student lot. She felt that the first available space had a $5 premium compared with all other possible spaces since she did not want to risk being late for her exam. A. Optimization in levels, since she is making marginal comparisons. B. Optimization in levels, since she is comparing the net benefits between alternatives. C. Optimization in differences, since she is calculating the change in net benefits between alternatives. Your answer is correct.D. Both typesBoth types of optimization, since she is considering the net benefits of alternatives. E. Neither typeNeither type of optimization, since she is not considering the total benefits of alternatives.
C. Optimization in differences, since she is calculating the change in net benefits between alternatives. Your answer is correct.
Marcia finds that the net benefit of flying from Chicago to Honolulu on a non-stop United Airlines flight is $400, and the net benefit for the same trip flying on a one-stop American Airlines flight is $200. A. Optimization in differences, since she is calculating the change in net benefits between alternatives. B. Neither typeNeither type of optimization, since she is not considering the total benefits of alternatives. C. Optimization in levels, since she is comparing the net benefits between alternatives. Your answer is correct.D. Optimization in levelslevels, since she is making marginal comparisons. E. Both typesBoth types of optimization, since she is considering the net benefits of alternatives.
C. Optimization in levels, since she is comparing the net benefits between alternatives. Your answer is correct.
Consider the total cost of traveling from point A to point B. The cost of traveling by car would include the cost of gasoline and the opportunity cost of time; the cost of hopping on a bus would include the bus ticket and the opportunity cost of time. Assume that the bus ticket costs less than the gasoline. Does this imply that using a bus to get to the destination involves lower total costs than getting there by car? What if the bus doesn't take the fastest route from point A to point B? A. The marginal cost of using a bus may be higher if buses cost more than cars. B. The marginal cost of using a bus will not be higher because time is not a marginal cost. C. The marginal cost of using a bus may be higher if it takes more time than by car. D. The marginal cost of using a bus will not be higher because time is not a direct cost. E. The marginal cost of using a bus may be higher if buses use less fuel than cars.
C. The marginal cost of using a bus may be higher if it takes more time than by car.
Economists mostly use optimization in differences, as opposed to optimization in levels, because ____________. A. contrasting the total benefit of alternatives is intuitiveintuitive. B. calculating cost-benefit ratios is complicated. C. comparing different features of alternatives is simplesimple. D. examining the net benefits of alternatives is counterintuitive.
C. comparing different features of alternatives is simplesimple.
Suppose you had information on the sales of similar homes just east and just west of the boundary between two school districts. Also suppose schools on one side of the school boundary are better than the schools on the other side in terms of test scores. You could estimate the average value that parents place on a one-point increase in test scores by ___________. A. multiplying the price of a home in either district by the difference in test scores between districts. B. dividing the difference in the prices of big and small homes in a district by the average test score in that district. C. dividing the difference in the prices of similar homes between districts by the difference in test scores between districts. D. dividing the difference in the prices of big homes in one district and small homes in the other district by the difference in test scores between districts. E. dividing the difference in the prices of similar homes between districts by the average test score for both districts combined.
C. dividing the difference in the prices of similar homes between districts by the difference in test scores between districts
You and your friend, Jim, have just moved out of your dorm and into a new apartment. Both of you decide that you need to get a couch. Jim thinks you should get a new one from a furniture store nearby. You feel that, given your budget, it is best to buy a used one. Your other options are to buy one online or get a couch custom-made at the same furniture store. How would you arrive at an optimal solution here? Assume that your opportunity cost of time is $5 per hour. You and Jim would need to consider ___________. A. only the price of each couch. B. the indirect costs of traveling to the furniture store and the opportunity cost of your time required to shop. C. the direct costs and the indirect opportunity cost of your time required to shop. D. only the marginal benefit of each couch. E. the direct costs of the price of each couch and the cost of having each couch moved to your apartment.
C. the direct costs and the indirect opportunity cost of your time required to shop.
What is meant by comparative statics? Explain with an example. A. The effect of the best feasible choice, such as savingsaving, on its marginal cost. B. Equilibria across multiple markets, such as labor markets, financial markets, and service markets. C. Changes in net benefits when a person switches from one alternative, such as savingsaving, to another, such as no savingsaving. D. A change in an outcome, such as savingsaving, that results from a change in a factor, such as the interest ratethe interest rate.
D. A change in an outcome, such as savingsaving, that results from a change in a factor, such as the interest ratethe interest rate
Suppose you are accepted at all of the three business schools to which you applied. Consider all the factors that could matter when it comes to choosing a business school. How would you go about making an optimal decision about which school to attend? A. Predicting which school among the three will provide the greatest future benefits. B. By considering the total benefits from attending the three schools. C. Summing the marginal costs from attending the three schools. D. By comparing the net benefits from attending the three schools. E. Identifying the school among the three with the lowest direct costs.
D. By comparing the net benefits from attending the three schools.
Determine if the following statements better describe optimization in levels or optimization in differences. John is attempting to decide on a movie. He determines that the new Batman movie provides him with $5 more of a net benefit than the new Spiderman movie. A. Neither typeNeither type of optimization, since he is considering the total benefits of alternatives. B. Optimization in levelslevels, since he is not making marginal comparisons. C. Both typesBoth types of optimization, since he is not considering the net benefits of alternatives. D. Optimization in differences, since he is calculating the change in net benefits between alternatives. Your answer is correct.E. Optimization in levels, since he is comparing the net benefits between alternatives.
D. Optimization in differences, since he is calculating the change in net benefits between alternatives. Your answer is correct.
There is a proverb "anything worth doing is worth doing well." Do you think an economist would agree with this proverb? A. Yes, because doing something to the best of your ability is optimizing behavior. B. NoNo, because the total net benefit of extra effort is negativenegative by definition. C. Yes, because the marginal costcost of extra effort is typically increasingincreasing as effort increases. D. No, because the marginal cost of extra effort may be greater than the marginal benefit. E. No, because doing something well has no next best alternatives with which to compare.
D. No, because the marginal cost of extra effort may be greater than the marginal benefit.
Some people choose to live close to the city center; others choose to live away from the city center and take a longer commute to work every day. Does this mean that those who stay away from the city center are being irrational? A. No, because people face the same living costs in and away from the city. B. Yes, because their direct commuting costs must be higher. C. Yes, because people have different preferences. D. No, because their opportunity cost of commuting must be lower. E. Yes, because people face direct and indirect commuting costs.
D. No, because their opportunity cost of commuting must be lower.
Optimization is the process that describes __________. A. the production of resources. B. how to obtain relevant data. C. how to maximize revenuerevenue. D. the budgeting process for peoplepeople. E. the choices that householdshouseholds make.
E. the choices that householdshouseholds make.
Optimization in levels examines ___________, while optimization in differences analyzes ____________. A. total benefits of alternatives; net benefits of alternatives. B. total benefits of alternatives; total costs of alternatives. C. total net benefits of feasible alternatives; total net benefits of infeasible alternatives. D. marginal benefits of alternatives; the change in marginal benefits. E. total net benefits of alternatives; the change in net benefits.
E. total net benefits of alternatives; the change in net benefits.
Optimization in levels examines ___________, while optimization in differences analyzes ____________. A. total benefits of alternatives; total costs of alternatives. B. total net benefits of feasible alternatives; total net benefits of infeasible alternatives. C. total benefits of alternatives; net benefits of alternatives. D. marginal benefits of alternatives; the change in marginal benefits. E. total net benefits of alternatives; the change in net benefits.
E. total net benefits of alternatives; the change in net benefits.
Suppose you have just landed a job near the center of a city and you now need to decide where to live. If you live close to the city center, your round-trip commute will be 15 minutes. If you live in the distant suburbs, your round-trip commute will be 60 minutes. There are lots of workers like you who work downtown. Since there are only a limited number of apartments near the city center, these apartments will be allocated based on ▼ both the costs and benefits only the costs only the benefits that you face. This process is known as ▼ optimization differentiation "more bang for your buck" .
both the costs and benefits; optimization
You have been invited to play a 4-hour round of golf that has a value to you of $90. The total price to play the round of golf is $35. The net benefit of the round of golf is $_____ Now assume that you have a job that pays you $6 per hour. Would you be optimizing to accept the invitation to play golf? To optimize, you should (Play) golf.
net benefit: 90-35= 55 (6*4)=24-