Deck 1: Economic Methods and Optimization: Doing the Best You Can

Question 1

An individual rents an apartment for $200 per month. His monthly opportunity cost of commuting to work from this apartment is $50. After a year, he moves to an apartment closer to his place of work, but pays a rent of $250. Compared to the initial situation, after a year, his direct cost of renting the apartment________

A) increases, while the indirect cost of renting the apartment remains unchanged
B) increases, while the indirect cost of renting the apartment decreases
C) remains the same, while the indirect cost of renting the apartment decreases
D) remains the same, while the indirect cost of renting the apartment increases

Answer 1

increases, while the indirect cost of renting the apartment decreases

Question 2

-Refer to the scenario above. Which of the following statements is true?

A) Both optimization techniques will provide an efficient outcome, but optimization using total value will be faster to implement.
B) Both optimization techniques will provide an efficient outcome, but optimization using marginal analysis will be faster to implement.
C) Only optimization using marginal analysis can be used to arrive at an optimum choice. Optimization using total value will not be applicable in this case.
D) Only optimization using total value can be used to arrive at an optimum choice. Optimization using marginal analysis will not be applicable in this case.

Answer 2

Both optimization techniques will provide an efficient outcome, but optimization using marginal analysis will be faster to implement.

Question 3

-Refer to the scenario above. If Sarah is optimizing using marginal analysis, then which of the following statements is true?

A) She will rent the hotel room for 3 days if the benefit of staying for the third day exceeds the cost of staying for the third day.
B) She will rent the hotel room for 3 days if the benefit of staying for the third day exceeds the benefits of staying for the first 2 days.
C) She will rent the hotel room for 3 days if the net benefit of staying for 3 days exceeds the net benefit of staying for 2 days.
D) She will rent the hotel room for 3 days if the cost of staying for the first 2 days is less than the cost of staying for the third day.

Answer 3

She will rent the hotel room for 3 days if the benefit of staying for the third day exceeds the cost of staying for the third day.

Question 4

What is meant by the term ?marginal analysis?? Suppose an individual has to choose among renting four apartments at different distances from his place of work. The individual has to commute to work 5 days per week and would require different quantities of gasoline depending on the apartment he decides to rent. The monthly rents and expected gasoline consumption from each of the apartments is shown in the table below. If the price of gasoline is $5 per gallon, using marginal analysis, determine the optimum choice for the individual. Which principle is used for this optimization? What does it state?

Question 5

-The average income of 25 employees working in a firm is $1,754 per month. What is the total income of all the employees?

A) $40,000
B) $43,850
C) $56,225
D) $63,950

Question 6

A researcher wants to test the effects of daily meditation on the stress levels of individuals. She divides the participants randomly into a treatment group and a control group and conducts an experiment. She pays for meditation classes for half of the subjects, and the other half does not join the class. Which of the following statements is true of the two groups in this experiment?

A) The participants in the treatment group are assigned by chance, whereas the ones in the control group are assigned by choice.
B) The participants in the control group are assigned by chance, whereas the participants in the treatment group are assigned by choice.
C) The treatment group is the group of subjects that receives payment from the researcher for meditation classes; the control group is the group that does not.
D) The control group is the group of subjects that receives payment from the researcher to join the meditation class; the treatment group is the group that does not.