ECON 302 - study ch 2

The house that Jamalla inherited from her mother can rent for $2000/month, but Jamalla decides to allow her brother to stay there for $800. This decision carried with it a

$0 monetary cost with a $1200 per month opportunity cost

The local farmer's market offers 1 bag of cilantro for $3 or 2 bags for $5. What's the marginal cost of the second bag?

$2

Bianca, a small oil producer is talking to her chief engineer, Pete, about repairs and upgrades to an oil well. Pete: "...additional upgrades on the well would cost $5,000 but would allow increased production and revenue of more than $10,000 per year." Bianca: "I already spent $20,000 on this well, it is a money pit; we should not spend anymore on it." Based on the information given, what is the sunk cost?

$20,000 spent on prior repairs

Dawnell is a skilled dancer. She is currently teaching modern dance full time for three high schools and makes $44,000 a year. She is now giving up her work and joining a touring dance company for the next two years. She will make $24,000 a year dancing, but gain much more in experience and connections. Dawnell's decision will result in

2 yr opportunity cost of $40,000 The opportunity cost of 1 year is the earning she would be given up: ($44,000 - $24,000 = $20,000). So for 2 years, it would be $40,000

Juan has a monthly budget of $100 to spend on entertainment. A concert ticket costs $20 while a movie ticket costs $10. This month Juan has attended one concert and 5 movies so far. If Juan decides to only go to movies for the rest of the month. How many movie tickets can he afford to purchase and stay within his budget?

3 tickets

Stephanie is planning a cruise to the Caribbeans and has a budget for new evening wear of $500. She plans to purchase new shoes and dresses. The average price for a pair of shoes is $50 while the average price for an evening dress is $100. What is a combination of dresses and shoes that Stephanie could afford?

6 shoes + 2 dresses

Why might the MGI be diminishing for student studying 6+ hrs for a test?

One reason might be that too much studying in one night results in the student not getting enough rest, and so causes diminishing marginal learning.

A positive statement is

can be shown to be correct or incorrect

Self-interest is not necessarily selfish, some say. In fact, self-interest likely includes an individual's consideration for

close friends and family

Which of the following statements is normative?

congress gives too many tax breaks to corporations

The theory of rational behavior

is an assumption that economists make to have a useful model for how decisions are made

The following statement given at a political rally: 'Poverty should be eliminated given the size of our economy; and that's a fact." This is normative because

it's expressing someone's values and opinions

Scarcity is imposed on individual households in the form of

limited income and the price of goods that a person may purchase

To make an economically rational decision, marginal cost should be compared to

marginal benefit

Hal and Gavin are siblings who own a mattress recycling company. Demand has been increasing for their services and the brothers are contemplating whether to open up an additional mattress drop off site in the downtown area. They estimate it would add $1 million in expenses with their profit increasing by $150 thousand each year for the next 5 years (all other things equal). Hal and Gavin decide

not to open the additional store bc marginal costs are too high

Khloe is the owner of a wellness center in Los Angeles. Her business has been growing over three years and she is now considering expanding her business by adding a 'health cafe' in her center. Khloe is analyzing the estimated costs, projected potential revenue and costs and benefits of a cafe. Khloe is behaving rationally because

she is considering the cost and benefits for oneself and attempting to maximize self interest/benfits/profits

In order to satisfy as many wants as possible, it is necessary to achieve allocative efficiency,

since otherwise output may go to where it is less valued

Which of the following statements is positive?

social security benefits are not taxed

It is said that the rational consumer will act according to his or her self-interest, and that self-interest can include a concern for one's family and friends, but not often society as a whole. Which of the following illustrates this type of decision?

the added expense of the boat rental was worth it bc of the additional fish caught, regardless of how little fish were left behind

Marcus is considering which college major to choose. In taking a rational approach, Marcus should consider

the benefit each major will bring him and cost of the degree

Suppose that there are only two types of output in a country: nuclear missiles and consumer goods. All else being constant, as the nation produces more missiles,

the greater the opportunity cost will be of satisfying consumer wants

A keynote speaker was known for his many speaking engagements, but now he has limited time and a rational mind. Even he would eventually start to turn down speaking engagement when, by his judgement

the marginal cost is greater than the marginal benefit

The musician was known for multiple encore performances, but had limited stamina and a rational mind. Even she would eventually call it a night when, by her judgement

the marginal cost is greater than the marginal benefit of an additional encore

A local bank sponsors a charity run that raises funds for a non-profit building wells and schools in Mali, Africa. How would the use of the bank's funds for this fundraiser be justified when its goal is to maximize profit?

the money spent is worth the PR boost it gives to the bank's image

A restaurant chain sponsors a charity that provides support to the parents of children being treated for cancer. How would the use of company funds for this purpose be justified by a business whose goal is to maximize profit?

the money spent is worth the boost it gives to corporate image

The production possibilities model illustrates an inverse relationship between the quantity of two goods or services produced because

the production of different products will compete for limited resources *As you need more resources to produce more of product A, automatically you will have less to produce product B. Therefore, if the production of product A rise, then the production of product B has to fall.

Suppose that a family decides to spend all of their available money on a fancy vacation instead of purchasing a much needed new automobile. From an economist's perspective, which of the following statements about this decision is likely to be true?

their decision is rational in the sense that it acts in their own self interest/ family preference for vacations over new cars

Raj and Annie, owners of a trucking company, are discussing opening a new distribution center and are analyzing the estimated cost and potential benefits of the project. Raj and Annie are behaving rationally because

they are behaving in self interest

Indi and Indrani are sisters who own a software development company. Demand has been increasing for their products and services and the sisters are contemplating whether to open up a satellite office in Austin. They estimate it would add $7 million in expenses and a profit of $12.5 million in total over the next 5 years (all other things equal). Indi and Indrani decide

to open a new office bc the maginal benefit would be $12.5 m over 5yrs vs est marginal cost of $7m

Normative statements are based upon

value judgements