Econ 613- Test One - Assignment Essays

question

Economic reasoning is based on the premise that:

a. all decisions or actions are costless.
b. only non-economic decisions or actions have a cost associated with them.
c. only economic decisions or actions have a cost associated with them.
d. all decisions and actions have a cost associated with them.

answer

question

If you are willing to sell your car business for $500,000 and someone offers you $420,000 for it, this transaction will generate:

a. There is no surplus created
b. $80,000 worth of seller surplus and unknown amount of buyer surplus
c. $40,000 worth of buyer surplus and $40,000 of seller surplus
d. $80,000 worth of buyer surplus and unknown amount of seller surplus

answer

Correct answer is A, we wrote D

question

Price floors are primarily targeted to help
a. No one
b. Consumers
c. Producers
d. Government

answer

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Price gouging
a. Outlaw trade at prices above a certain price level
b. Outlaw trade at prices below a certain price level
c. Is an act of charging a high price to take advantage of shortages created by natural disasters
d. None of the above

answer

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The difference between Capitalism and Socialism is that
a. Capitalism is concerned more about how to slice up the "pie"
b. Socialism is concerned with making the "pie" as large as possible
c. Capitalism is concerned with making the "pie" as large as possible
d. Both a and b

answer

The correct answer is C, we chose D

question

Economists argue that:
a. accounting costs consider all types of costs including implicit costs
b. there is an opportunity cost associated with all decisions.
c. economic decisions do not have opportunity costs but other decisions do.
d. economic decisions should consider sunk costs

answer

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Which of the following statements is true?
a. Economic profits ignore implicit costs and revenues.
b. Although implicit costs do not show up in accounting profits, they nevertheless affect managerial decisions.
c. Although explicit costs do not show up in accounting profits, they nevertheless affect managerial decisions.
d. Economists consider sunk costs in their decision making

answer

question

Scott used $4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store. After one year, Scott sold the business for $4,100,000. His accountant calculated his profit to be:

a. $300,000 b. $100,000 c. $80,000 d. $20,000

answer

question

Scott used $4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store. After one year, Scott sold the business for $4,100,000. An Economist calculated his profit to be:

a. $300,000 b. $100,000
c.-$100,000 d. -$200,000

answer

The correct answer is C, we chose B

question

A business incurs the following costs per unit: Labor - $5/unit; Materials $3/unit and rent - $5000/month. If the firm produces 1000 units a month, the total fixed costs equals
a. $5,000 b. $8,000 c. $13,000 d. $3,000

answer

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When the market is in equilibrium,
a)Total surplus is minimized
b)Total surplus is maximized without government intervention
c)Government maximizes total revenue
d)None of the above

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The difference between the minimum price the producer is willing to accept and the price the producer actually receives for a product is referred to as:
a)market surplus
b)market shortage
c)buyer surplus
d)seller surplus

answer

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If you are willing to sell your lawn mower business for $355,000 and someone offers you $420,000 for it, this transaction will generate:
a)There is no surplus created
b)$65,000 worth of seller surplus and unknown amount of buyer surplus
c)$30,000 worth of buyer surplus and $35,000 of seller surplus
d)$65,000 worth of buyer surplus and unknown amount of seller surplus

answer

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Taxes cause
:a)Market distortions
b)Reduce incentives to work
c)Decrease wealth creating transactions
d)All of the above

answer

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A price ceiling is binding when
a)the government sets price above market equilibrium price.
b)the equivalent of an implicit tax on producers and an implicit subsidy to consumers.
c)the government sets price below market equilibrium price.
d)Both b and c

answer

The answer is B, we chose D***

question

Social forces:
a)affect the price mechanism through cultural norms.
b)affect the price mechanism through the educational system.
c)affect the price mechanism through scarcity.
d)do not affect the price mechanism.

answer

The answer is A, we chose C

question

One lesson of business:
a)is tracing the consequences of a policy
b)promoting a policy change to eradicate inefficiencies
c)buy a low-valued assets and sell it to someone who values it higher.
d)None of the above

answer

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The difference between the maximum price the consumer is willing to pay and the price the consumer actually pays for a product is referred to as:
a)market surplus
b)market shortage
c)buyer surplus
d)seller surplus

answer

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Total surplus or gains created from trade equal
a) Seller surplus
b) Buyer surplus
c) The summation of seller and buyer surplus
d) Profits earned by a firm

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The biggest advantage of capitalism is that
a) It generates wealth with the help of government intervention
b) Prices hinder in moving assets from high-value to low-value uses
c) It forces involuntary exchanges
d) It creates wealth by letting a person follow his or her own self-interest

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The authors feel subsidies destroy wealth because
a) subsidies move assets from lower- to higher- valued uses
b) subsidies move assets from higher- to lower- valued uses
c) subsidies help producers only
d) subsidies help consumers only

answer

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Government can intervene in the market through
a) Price floors
b) Price ceilings
c) Taxes
d) All the above

answer

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Government intervention
a)provides incentives to conduct business in an illegal black market
b)plays no role in generating wealth
c) is the best way to eliminate poverty
d)does not enforce property rights

answer

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Wealth creating transactions are less likely to occur
a) Without private property rights
b) Without contract enforcement
c) Both a and b
d) None of the above

answer

The answer is D, we chose C****

question

An example of price floor is
a)Minimum wages
b)Rent controls in New York
c)Both a and b
d) None of the above

answer

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Price ceilings cause
a) Some suppliers to drop out of the market as they cannot charge the price they were earlier charging
b)A reduction in the quality of the product
c) The creation of black markets
d)All the above

answer

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A consumer values a car at $30,000 and a producer values the same car at $20,000. If the transaction is completed at $24,000, the transaction will generate:

a)No surplus
$b)4,000 worth of seller surplus and unknown amount of buyer surplus
c) $6,000 worth of buyer surplus and $4,000 of seller surplus
d)$6,000 worth of buyer surplus and unknown amount of seller surplus

answer

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A consumer values a car at $30,000 and a producer values the same car at $20,000. If the transaction is completed at $24,000, the transaction will not take place if:
a) The tax is equal to the seller surplus
b) The tax is smaller than the total surplus
c) The tax is larger than the total surplus
d)The tax is smaller than the buyer surplus

answer

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A consumer values a car at $30,000 and a producer values the same car at $20,000. If the transaction is completed at $24,000, what level of tax rate will result in unconsummated transaction?
a) 0%
b) 25%
c) 20%
d) 40%

answer

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A consumer values a car at $525,000 and a producer values the same car at $485,000. If the transaction is completed at $510,000, the transaction will generate:
a) No surplus
b) $25,000 worth of seller surplus and unknown amount of buyer surplus
c) $15,000 worth of buyer surplus and $25,000 of seller surplus
d) $25,000 worth of buyer surplus and unknown amount of seller surplus

answer

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A consumer values a car at $525,000 and a producer values the same car at $485,000. If the transaction is completed at $510,000, what amount of tax will result in unconsummated transaction?
a) A tax of $9,000
b) A tax of $14,000
c) A tax of $15,000
d) A tax of $18,000

answer

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A consumer values a car at $525,000 and a producer values the same car at $485,000. If the transaction is completed at $510,000, what level of tax rate will result in unconsummated transaction?
a) 1%
b) 5%
c) 3%
d) 2%

answer

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A consumer values a car at $525,000 and a producer values the same car at $485,000. If sales tax is 8% and is levied on the seller, then the sellers bottom line price is
a) $527,000
b) $523,800
c) $525,000
d) $500,000

answer

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A consumer values a car at $525,000 and a producer values the same car at $485,000. If sales tax is 8% and is levied on the buyer, then the buyers top dollar price is
a) $525,000
b) $523,800
c) $485,000
d) $486,111

answer

483000***

question

Some critics of capitalism argue that
a) There is too much government intervention in the economy
b) Involuntary trade generates no wealth
c) If one person makes money, someone else must be losing it
d)Voluntary trade ensures gains for both consumers and producers

answer

question

Price ceilings are primarily targeted to help
a) No one
b) Consumers
c)Producers
d) Government

answer

question

Rent controls
a) Is an example of price floors
b) Is an example of price ceilings
c) Destroy wealth by preventing the movement of apartments to higher-valued use.
d) Both b and c

answer

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An individual's value for a good or service is the
a) The amount of money he or she used to pay for a good
b) The amount of money he or she is willing to pay for it
c) The amount of money he or she has to spend on goods
d) None of the above

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You and two partners start a company. However, your partners play no role in running the company. You devote all our time and talent to run your own business rather than working for someone else. You incur an(a):
a) explicit cost.
b) marginal cost.
c) sunk cost
d) opportunity cost.

answer

question

A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the firm's accounting profit for the month equals:
a) $300,000
b) $60,000
c) $450,000
d) $240,000

answer

question

A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the economic profit for the month equals:
a) $300,000
b) $60,000
c) $450,000
d) $240,000

answer

question

The opportunity cost of an action: a) is equal to the marginal cost of an action
b) is equal to explicit cost
c) is equal to the next best alternative forgone
d) is the total cost of an action

answer

question

Economists argue that:
a) accounting costs consider all types of costs including implicit costs
b) there is an opportunity cost associated with all decisions.
c) economic decisions do not have opportunity costs but other decisions do.
d) economic decisions should consider sunk costs

answer

question

James used $250,000 from his savings account that paid an annual interest of 15% to purchase a hardware store. After one year, James sold the business for 320,000. His accountant calculated his profit to be:
a) $320,000
b) $70,000
c) $282,500
d) $32,500

answer

The answer is B, I chose D

question

James used $250,000 from his savings account that paid an annual interest of 15% to purchase a hardware store. After one year, James sold the business for 320,000. An economist calculated his profit to be:
a) $320,000
b) $70,000
c) $282,500
d) $32,500

answer

The answer is D, I had no idea

question

Variable costs are
a) costs that vary with output
b) equal marginal costs
c) not considered in decision-making
d) equal to total costs

answer

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Economic Value Added helps firms to avoid the hidden-cost fallacy
a) by ignoring the opportunity costs to using a capital
b) by differentiating between sunk and fixed costs
c) by taking all capital costs into account including the cost of equity d) none of the above

answer

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A manager invests $400,000 in a technology to reduce overall costs of production. The company managed to reduce their cost per unit from $2 to $1.85. After a year, the manager has an opportunity to outsource production to another company at a cost per unity of $1.75. If you are the manager, you

a) should consider the $400,000 as sunk cost and therefore it should not be relevant to the decision.
b) should base your decision upon economic profit and not accounting profit
c) should avoid the fixed-cost fallacy
d) all the above

answer

question

Which of the following statements is true?
a. Economic profits ignore implicit costs and revenues
b. Although implicit costs do not show up in accounting statements, they nevertheless affect managerial decisions
c. Although explicit costs do not show up in accounting statements, they nevertheless affect managerial decisions
d. Economists consider sunk costs in their decision making

answer

question

In the short-run:
a. All costs are variable
b. Some costs are fixed and some costs are variable
c. There are no fixed inputs
d. The firm is not constrained in its ability to vary output
done

answer

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All these curves are U-shaped except
a. Average fixed cost curve
b. Marginal cost curve
c. Average variable cost curve
d. Average total cos

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A firm experiencing constant economies of scale will have a long-run average cost curve that is: a) upward sloping
b) vertical
c) downward sloping
d) horizontal

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As table manufacturing company produces more tables, the average total cost of each table produced increases.
This is because:
a) Total fixed costs are decreasing as more tables are produced
b) There is economies of scale
c) There is diseconomies of scale
d) Total variable cost is decreasing as more clubs are produced.

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The ability to lower the average costs of production for one product is possible with
a) Economies of scale
b) Economies of Scope
c) Diseconomies of Scale
d) Diseconomies of Scope

answer

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Accounting profits are

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profit as shown on a company's financial statements

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economic profit is

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a measure of profit that includes recognition of implicit costs (like the cost of equity capital).
measure the TRUE profitability of decisions

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______ measures the true profitability of decisions

answer

economic profit

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explain the fixed cost fallacy

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consideration of costs that do not vary with the consequences of your decision (also known as sunk-cost fallacy). In other words, you consider irrelevant costs. A common example of this is to let overhead or depreciation costs influence short-run decisions.

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explain the hidden cost fallacy

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occurs when you ignore irrelevant costs (costs that do vary with the consequence of your decision). A common example is to ignore the opportunity cost of capital when making investment or shutdown decisions.

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implicit costs are

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additional costs that do not appear on the financial statements of a company. An example is the opportunity costs of capital.

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opportunity costs are

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the profit you would have received if you chosen the next best option

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relevant benefits/costs are

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all benefits/costs that vary with the consequence of a decision

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If a firm is earning negative economic profits, it implies:
a) that accounting profits are zero
b) that accounting profits are positive
c) that accounting profits are negative
d) more information is needed

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Opportunity costs arise due to
a) resource scarcity
b) interest rates
c) limited wants
d) unlimited scarcit

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After graduating college, Jim had three choices (listed in order or preference):
1) move to Florida from Philly
2) work in a car dealership in Philly
3) play soccer for a minor league in Philly
What is his opportunity cost if he moves to Florida?
a. The benefits he could have received from playing soccer
b. The income he could have earned at the car dealership
c. Both a and b
d. Cannot be determined from the given information

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When does the fixed cost fallacy occur?
a. A firm considers irrelevant costs
b. A firm ignores relevant costs
c. A firm considers overhead or depreciation costs to make short-run decisions
d. Both a and c

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Mr. D's BBQ of Pickwick produces 10,000 dry-rubbed rib slabs per year. Annually Mr. D's fixed costs are $50,000. The average variable cost per slab is a constant $2. The average total cost per slab is then:
a. $7
b. $2
c. $5
d. impossible to determine

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All the following are examples of variable costs, except:
a. labor costs
b. cost of raw materials
c. accounting fees
d. electricity cost

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The US government bought 112,000 acres of land in southeastern Colorado in 1968 for $17,500,000. The cost of using this land today exclusively for the reintroduction of the black-tailed prairie dog
a. is zero because they already own the land
b. is zero because the land represents sunk cost
c. is equal to the market value of the land
d. is equal to the total dollar value the land would yield if used for farming and ranching
e. depends on the value to society of black-tailed prairie dogs

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Accountants and Economists differ in their calculations of profits in that the former consider a) sunk costs
b) implicit costs only
c) explicit costs only
d) fixed costs

answer

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A business owner makes 50 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned $10 an hour. The item sells for $10 each. Production does not stop during weekends. If the explicit costs total $10,000 for 30 days, the accounting profit for the month equals:
a) $1,760
b) $2,240
c) $11,760
d) $5,000

answer

question

A business owner makes 50 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned $10 an hour. The item sells for $10 each. Production does not stop during weekends. If the explicit costs total $10,000 for 30 days, the economic profit for the month equals:
a) $2,600
b) $2,240
c) $11,760
d) $5,000

answer

question

17) Opportunity cost of an activity a) Is known to all parties
b) Can not be measured in dollar terms
c) May include both monetary costs and foregone incomes
d) Is known with all certainty

answer

1 of 73

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Correct answer is A, we wrote D

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Price floors are primarily targeted to help
a. No one
b. Consumers
c. Producers
d. Government

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The correct answer is C, we chose D

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The correct answer is C, we chose B

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When the market is in equilibrium,
a)Total surplus is minimized
b)Total surplus is maximized without government intervention
c)Government maximizes total revenue
d)None of the above

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answer

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Taxes cause
:a)Market distortions
b)Reduce incentives to work
c)Decrease wealth creating transactions
d)All of the above

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The answer is B, we chose D***

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The answer is A, we chose C

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Total surplus or gains created from trade equal
a) Seller surplus
b) Buyer surplus
c) The summation of seller and buyer surplus
d) Profits earned by a firm

answer

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answer

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question

Government can intervene in the market through
a) Price floors
b) Price ceilings
c) Taxes
d) All the above

answer

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answer

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Wealth creating transactions are less likely to occur
a) Without private property rights
b) Without contract enforcement
c) Both a and b
d) None of the above

answer

The answer is D, we chose C****

question

An example of price floor is
a)Minimum wages
b)Rent controls in New York
c)Both a and b
d) None of the above

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483000***

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Price ceilings are primarily targeted to help
a) No one
b) Consumers
c)Producers
d) Government

answer

question

Rent controls
a) Is an example of price floors
b) Is an example of price ceilings
c) Destroy wealth by preventing the movement of apartments to higher-valued use.
d) Both b and c

answer

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A business owner makes 1000 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the economic profit for the month equals:
a) $300,000
b) $60,000
c) $450,000
d) $240,000

answer

question

The opportunity cost of an action: a) is equal to the marginal cost of an action
b) is equal to explicit cost
c) is equal to the next best alternative forgone
d) is the total cost of an action

answer

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answer

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The answer is B, I chose D

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The answer is D, I had no idea

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Variable costs are
a) costs that vary with output
b) equal marginal costs
c) not considered in decision-making
d) equal to total costs

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answer

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In the short-run:
a. All costs are variable
b. Some costs are fixed and some costs are variable
c. There are no fixed inputs
d. The firm is not constrained in its ability to vary output
done

answer

question

All these curves are U-shaped except
a. Average fixed cost curve
b. Marginal cost curve
c. Average variable cost curve
d. Average total cos

answer

question

A firm experiencing constant economies of scale will have a long-run average cost curve that is: a) upward sloping
b) vertical
c) downward sloping
d) horizontal

answer

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answer

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The ability to lower the average costs of production for one product is possible with
a) Economies of scale
b) Economies of Scope
c) Diseconomies of Scale
d) Diseconomies of Scope

answer

question

Accounting profits are

answer

profit as shown on a company's financial statements

question

economic profit is

answer

a measure of profit that includes recognition of implicit costs (like the cost of equity capital).
measure the TRUE profitability of decisions

question

______ measures the true profitability of decisions

answer

economic profit

question

explain the fixed cost fallacy

answer

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explain the hidden cost fallacy

answer

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implicit costs are

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additional costs that do not appear on the financial statements of a company. An example is the opportunity costs of capital.

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opportunity costs are

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the profit you would have received if you chosen the next best option

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relevant benefits/costs are

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all benefits/costs that vary with the consequence of a decision

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answer

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Opportunity costs arise due to
a) resource scarcity
b) interest rates
c) limited wants
d) unlimited scarcit

answer

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answer

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All the following are examples of variable costs, except:
a. labor costs
b. cost of raw materials
c. accounting fees
d. electricity cost

answer

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Accountants and Economists differ in their calculations of profits in that the former consider a) sunk costs
b) implicit costs only
c) explicit costs only
d) fixed costs

answer

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answer

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A business owner makes 50 items a day. Each day he/she contributes 8 hours to produce those items. If hired, elsewhere he/she could have earned $10 an hour. The item sells for $10 each. Production does not stop during weekends. If the explicit costs total $10,000 for 30 days, the economic profit for the month equals:
a) $2,600
b) $2,240
c) $11,760
d) $5,000

answer

question

17) Opportunity cost of an activity a) Is known to all parties
b) Can not be measured in dollar terms
c) May include both monetary costs and foregone incomes
d) Is known with all certainty

answer

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