ECO333H1 Study Guide - Midterm Guide: Maternal Death, Opportunity Cost, Human Capital

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12 Mar 2014

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Question 1: a child"s number of years of schooling will depend on the cost for the family. The rate of interest in which the family can borrow at defines the monetary cost of spending on the child relative to the opportunity cost of earning interest on that money. If the interest rate is higher, the higher the cost for education because the opportunity cost is greater as it could be invested at the rate of interest instead and given to the child when they grow up. The cognitive ability of the child is the educational cost for that child. The higher the cognitive ability, the easier and more enjoyable it is for the child to be educated so that the child will have a larger number of years of schooling. If cognitive ability is low, then it is very costly to educate this child since they do not enjoy learning.

Related Questions

Problem #1: Estimating the Marginal Return to Schooling Suppose Carl's wage-schooling locus is given by the following schedule: Years of Schooling Real annual earnings 8 $10,000 9 $12,800 10 $16,000 11 $18,500 12 $20,350 13 $22,000 14 $23,100 15 $23,900 16 $24,000 Suppose that the only cost of schooling is the opportunity cost of not working and earning money. Also, assume that Carl's life is infinitely long (this is a good approximation when the time horizon is long).

1. Derive the marginal rate of return schedule. (This is, calculate Carl's internal rate of return to each additional year of schooling).

2. When will Carl quit school if his discount rate is 4 percent? Why?

3. What will Carl's optimal schooling choice be if his discount rate is 12 percent? Why?

4. Suppose the government imposes an income tax of 20 percent. What is the effect of this income tax on Carl's educational attainment? Why?

Problem #2: Schooling Nancy is deciding on an optimal schooling strategy. She currently has zero years of schooling and knows she will live for 60 more years. In any given year she can either choose to add to her current level of schooling or she can work. If she decides to work, she will have an annual salary of S, where S is her current level of schooling (measured in years of schooling). If she decides to go to school, she will not have any income during that year, but her schooling 1 level will increase by 1 year. Schooling is otherwise free. Nancy's discount rate is r = 0. Nancy's objective is to maximize lifetime income.

1. What is Nancy's lifetime income as a function of her level of schooling, S?

2. What is Nancy's lifetime income if she gets no schooling? What is it if she goes to school for all 60 remaining years of her life? In words, describe the âcostâ to Nancy of choosing to attend school for 1 additional year.

3. Determine Nancy's optimal schooling level (hint: you can do this with calculus or by graphing her lifetime income and finding the level of schooling that maximizes that income).

4. During which part of Nancy's remaining life will she get her schooling?

orchidrat294

Suppose that, instead of taking this test, you could either have worked and earned income or partied and had a pleasurable time. Your opportunity cost of taking the test is the

	a.	forgone working or partying, depending on which was your next best choice.
	b.	forgone work.
	c.	forgone working and partying.
	d.	test because you are taking it.

1 points

QUESTION 2

A trend is

	a.	a measure of closeness on a scatter diagram.
	b.	a general tendency for a variable to rise or fall.
	c.	the maximum value of a variable.
	d.	the difference between the maximum value of a variable and the minimum value of the variable.

1 points

QUESTION 3

A time-series graph measures

	a.	time on the y-axis and the variable or variables in which we are interested on the x-axis.
	b.	time on the x-axis and the variable or variables in which we are interested on the y-axis.
	c.	the value of one variable against the value of another variable.
	d.	the value of an economic variable for different groups in a population at a point in time.

1 points

QUESTION 4

Canada has nationalized health care, so that everyone, regardless of their ability to pay, has some access to health care. Based on this observation, Canada has decided that "everyone, regardless of their ability to pay" is the answer to what microeconomic question?

	a.	Why will we offer health care?
	b.	How will health care be produced?
	c.	For whom will health care be produced?
	d.	What type of health care will be produced and in what quantity?

1 points

QUESTION 5

As a shoe factory adds more workers, shoe production grows, reaches a maximum, and then shrinks. In a diagram that has the number of workers on the horizontal axis and the number of shoes on the vertical axis, the relationship between the number of workers and the number of shoes starts as ________ and then, after the maximum point, is ________.

	a.	positive; negative
	b.	negative; positive
	c.	linear; negative
	d.	positive; linear

1 points

QUESTION 6

Microeconomics includes the study of the

	a.	choices made by individuals and businesses.
	b.	recessions and inflation in the global economy.
	c.	aggregate effects on the national economy.
	d.	reasons why the government changes interest rates.

1 points

QUESTION 7

When Fresh Express Salads decides to mechanically pick all of its lettuce, it directly answers the ________ question.

	a.	when
	b.	for whom
	c.	how
	d.	what

1 points

QUESTION 8

Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that

	a.	the opportunity cost of working is negative.
	b.	the marginal cost of each additional work hour is not important to most workers.
	c.	workers are irrational.
	d.	workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work.

1 points

QUESTION 9

A choice made by comparing all relevant alternatives systematically and incrementally is

	a.	an opportunity cost.
	b.	a benefit.
	c.	a sunk cost.
	d.	a choice on the margin.

1 points

QUESTION 10

A normative statement

i. can be tested as to whether it is true or false.

ii. is considered negative.

iii. depends on a person's values.

	a.	i, ii, and iii
	b.	iii only
	c.	i and iii
	d.	ii and iii

1 points

QUESTION 11

Normative statements

i. describe how the world is.

ii. describe how the world ought to be.

iii. depend on people's values and cannot be tested.

	a.	iii only.
	b.	i only.
	c.	ii and iii.
	d.	ii only.

1 points

QUESTION 12

In order to determine whether to major in economics, a rational individual compares the ________ of the decision.

	a.	positive benefits and normative costs
	b.	normative benefits and positive costs
	c.	marginal benefit and marginal cost
	d.	opportunity cost and the sunk cost

1 points

QUESTION 13

If x increases whenever y decreases, then x and y are

	a.	positively related.
	b.	negatively related.
	c.	not related.
	d.	related but whether positively or negatively related depends on whether the x variable or the y variable is plotted on the vertical axis.

1 points

QUESTION 14

Rational choice

	a.	is what you must give up get what you want.
	b.	is made by comparing different incentives.
	c.	making the choice.
	d.	provides the answer to only the "how" question.

1 points

QUESTION 15

Scarcity results from the fact that

	a.	choices made in self-interest rare not always in the social interest.
	b.	not all goals are desirable.
	c.	people's wants exceed the resources available to satisfy them
	d.	we cannot answer the major economic questions.

1 points

QUESTION 16

When Delta decides to quit flying to Lithuania, it directly answers the ________ question.

	a.	what
	b.	why
	c.	for whom
	d.	how

1 points

QUESTION 17

A normative statement

	a.	says what is currently believed about the way the world operates.
	b.	depends on someone's values.
	c.	cannot use the word "should."
	d.	must be tested to determine if it is correct.

1 points

QUESTION 18

Which of the following statements best describes the study of economics? Economics studies how

	a.	to organize production so that scarcity does not occur.
	b.	to create incentives so that scarcity does not exist.
	c.	firms make profits.
	d.	we make choices in the face of scarcity.

1 points

QUESTION 19

Which of the following best defines economics?

	a.	Economics teaches how to limit our wants.
	b.	Economics is concerned with prices and quantities of goods and services, both at the individual level and at the industry level.
	c.	Economics helps you earn as much money as possible.
	d.	Economics studies how to choose the best alternative when coping with scarcity.

1 points

QUESTION 20

In economics, cost is ________, and benefit is ________.

	a.	the amount of money that you pay for something; the amount of money that someone else is willing to pay you
	b.	what you are willing to pay on the margin; what the government pays you when you are unemployed or retired
	c.	what you must give up to get something; what you are willing to give up to get it
	d.	the amount of money that you pay on the margin; the amount of money that you receive on the margin

1 points

QUESTION 21

If Jessie studies economics for two hours instead of going to the movies with her friends, then

	a.	the opportunity cost of studying is the missed movie.
	b.	Jessie is ignoring a sunk cost
	c.	Jessie is not responding to any incentives.
	d.	Jesse definitely is making a rational choice.

1 points

QUESTION 22

Going skiing will cost Adam $80 a day. He also loses $40 per day in wages because he has to take time off from work. Adam still decides to go skiing.

	a.	The $80 price of skiing is a sunk cost and so did not affect Adam's decision.
	b.	He loses a total of $120 per day, so his decision is irrational.
	c.	His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost.
	d.	Adam's lost $40 per day in wages is a sunk cost and so did not affect his decision.

1 points

QUESTION 23

If a curve falls and then rises, it

	a.	has a maximum.
	b.	has a linear relationship.
	c.	has a minimum.
	d.	has a constant slope relationship.

1 points

QUESTION 24

In 2003, Michael Jordan decided to retire from professional basketball. Which of the following was an opportunity cost of his decision?

	a.	the avoidance of pain and injury from playing one more year
	b.	the time he could spend with his family while retired
	c.	the lost salary from playing one more year
	d.	the value of new employment opportunities that would await him

1 points

QUESTION 25

Which of the following statements is a normative statement?

	a.	Military spending as a percent of government spending decreased by 5 percent in the 1990s.
	b.	Every American household should have health care insurance coverage.
	c.	Welfare reform has decreased the amount the government spends on welfare.
	d.	The price of computers fell last year.

greencat417

True or False

Pro Forma financial statements use the information contained in managementâs operating and capital budgets as well as managementâs projections of the revenue and expense conditions for the future to estimate the hospitalâs financial condition over time.

It is generally more expensive for hospital managers to make adjustments in the existing outlay of costs when they have more time to do so, i.e. in the long run, rather than in the short-run.

When comparing accounting vs. economic costs, the major disadvantage of using accounting costs is that they will always predict lower costs per surgery on those days when the number of surgeries is higher than expected. In reality this is not true, however, as every deviation from the planned level of operation raises costs, such as payment of overtime, extra expenses when hiring temps, cost of rush ordering of exhausted supplies, etc.

Increasing demand for long-term care is associated with macroeconomic and demographic trends as well as individual life style choices. For instance, higher workforce participation by women has raised the opportunity cost of care giving.

Home health care providers meet only functional and social needs of patients.

Medicare accounts for more than half of all nursing home funding.

Originally, Medicaid has been created to provide medical insurance for indigent women and children. Now, however, the majority of Medicaid expenditures are for the elderly.

Middle and low income taxpayers benefit from several federal tax incentives to buy long term care insurance.

More than 10% of U.S. health care spending goes to nursing homes.

In the market for nursing home services, after reaching the quantity where the private marketâs willingness-to-pay matches the Medicaid reimbursement rate, demand becomes essentially perfectly elastic at the Medicaid reimbursement rate, as all remaining beds can typically be filled with Medicaid patients.

ECO333H1 Study Guide - Midterm Guide: Maternal Death, Opportunity Cost, Human Capital

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