Glendale Community College » Economics » Econ 101 - Microeconomics » Winter 2022

Econ 101 - Microeconomics » Winter 2022 » Ch 1 Application Exercise Part 2

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Question #1

Suppose that we are analyzing the scenario where Joann pays the car off and has no car loan, and we need to ascertain the MB and MC associated with the no car loan scenario. The following information is provided: MB(No Car Loan) = (What Joann is willing to pay up to for the car) = ? MC(No Car Loan) = (Cost of the car) = ? Questions: What is the MB(No Car Loan) and MC(No Car Loan) ?

A. MB(No Car Loan) = $22,000; MC(No Car Loan) = $20,000

B. MB(No Car Loan) = $20,800; MC(No Car Loan) = $20,800

C. MB(No Car Loan) = $20,000; MC(No Car Loan) = $20,000

D. MB(No Car Loan) = $20,800; MC(No Car Loan) = $22,000

E. None of the available answers

Question #2

Suppose that we are again analyzing the scenario where Joann pays the car off and has no car loan. The following information is provided: Accounting Net Benefit(No Car Loan) = MB(No Car Loan) – MC(No Car Loan) = ? Question: What is the Accounting Net Benefit(No Car Loan) ?

A. Accounting Net Benefit(No Car Loan) = $22,000- $20,800= $1,200

B. Accounting Net Benefit(No Car Loan) = $20,800- $20,000= $800

C. Accounting Net Benefit(No Car Loan) = $20,000- $20,000= $0

D. Accounting Net Benefit(No Car Loan) = $22,000- $20,000= $2,000

Question #3

Suppose that we are now analyzing the scenario where Joann does not pay the car off and she takes a car loan out, and we need to ascertain the MB and MC associated with the car loan scenario. The following information is provided: MB( Car Loan) = (What Joann is willing to pay up to for the car) + (Amount Joann earned in her bank account) = ? MC(Car Loan) = (Cost of the car) + (Car loan interest paid over the year) = ? Questions: What is the MB(Car Loan) and MC(Car Loan) ?

A. MB(Car Loan) = $22,200; MC(Car Loan) = $20,800

B. MB(Car Loan) = $20,800; MC(Car Loan) = $22,200

C. MB(Car Loan) = $20,800; MC(Car Loan) = $20,800

D. MB(Car Loan) = $22,800; MC(Car Loan) = $20,800

Question #4

Suppose that we are again analyzing the scenario where Joann does not pay the car off and and takes out a car loan. The following information is provided: Accounting Net Benefit(Car Loan) = MB(Car Loan) – MC(Car Loan) = ? Question: What is the Accounting Net Benefit(Car Loan) ?

A. Accounting Net Benefit(Car Loan) = $20,800-$20,800= $0

B. Accounting Net Benefit(Car Loan) = $20,800-$22,000= -$1,200

C. Accounting Net Benefit(Car Loan) = $22,200-$22,200= $0

D. Accounting Net Benefit(Car Loan) = $22,200-$20,800= $1,400

Question #5

Suppose that we now want to analyze the scenario where Joann pays the car off and has no car loan. We are provided the following information: Economic Net Benefit(No Car Loan) = Accounting Net Benefit(No Car Loan) – Accounting Net Benefit(Car Loan) = ? Question: What is the Economic Net Benefit(No Car Loan) ?

A. Economic Net Benefit(No Car Loan) = $2,080-$2,000= $80

B. Economic Net Benefit(No Car Loan) = $1,400-$2,000= -$600

C. Economic Net Benefit(No Car Loan) = $1,400-$2,200= -$800

D. Economic Net Benefit(No Car Loan) = $2,000- $1,400=$600

Question #6

Suppose that we now want to analyze the scenario where Joann does not pay the car off and takes out a car loan. We are provided the following information: Economic Net Benefit(Car Loan) = Accounting Net Benefit(Car Loan) – Accounting Net Benefit(No Car Loan) Question: What is the Economic Net Benefit(Car Loan) ?

A. Economic Net Benefit(Car Loan) = $1,400-$2,800= -$1,400

B. Economic Net Benefit(Car Loan) = $2,600-$2,000= $600

D. Economic Net Benefit(Car Loan) = $2,000-$2,000= $0

E. Economic Net Benefit(Car Loan) = $1,400-$2,000= -$600

Question #7

Which scenario has a positive accounting net benefit?

A. The no car loan scenario has a negative accounting net benefit, while the car loan scenario has a positive accounting net benefit

B. Both scenarios have a positive accounting net benefit

C. None of the available answers

D. The car loan scenario has a negative accounting net benefit, while the no car loan scenario has a positive accounting net benefit

Question #8

If Joann decides to go with the “No Car Loan” scenario and pays the car off, what is the opportunity cost? (Name it and provide the amount)

A. Economic Net Benefit(No Car Loan) = $600

B. Economic Net Benefit(Car Loan) = -$600

C. Accounting Net Benefit(Car Loan) = $1,400

D. Accounting Net Benefit( No Car Loan) = $2,000

Question #9

If Joann decides to go with the “Car Loan” scenario and takes out a car loan, what is the opportunity cost? (Name it and provide the amount)

A. Economic Net Benefit(No Car Loan) = $600

B. Accounting Net Benefit(Car Loan) = $1,400

C. Accounting Net Benefit( No Car Loan) = $2,000

D. Economic Net Benefit(Car Loan) = -$600

Question #10

Which scenario has a positive economic profit?

A. The car loan scenario

B. The no car loan scenario

C. The car loan scenario has a positive economic profit, but the no car loan scenario has a negative economic profit

D. None of the available answers

Question #11

What is the amount of economic profit?

A. $2,400

B. -$600

C. $600

D. $1,200

Question #12

Which scenario should Joann choose? Why?

A. She should choose the no car loan scenario. This is because the Economic Net Benefit(No Car Loan)= $600, which means that she will gain an additional $600 if she pays the car off versus taking out a car loan.

B. She should do neither because it is always better to save instead of consuming items.

C. None of the available answers

D. She should choose the car loan scenario. This is because the Economic Net Benefit(Car Loan)= $600, which means that she will gain an additional $600 if she takes out a car loan versus paying the car off.

Question #13

What is the percentage point difference (spread) between the interest paid rate in the bank account and the car loan interest rate? Note: Spread= (interest rate paid in the bank account) - (car loan interest rate)

A. Spread= 2%-4%= -2%

B. Spread= 1%-4%= -3%

C. Spread= 5%-4%= 1%

D. Spread= 6%-4%= 2%

Question #14

Multiply the percentage point difference (spread) times the cost of the car. What figure do you get?

A. (Spread) x (Cost of the car)= -.02 x $20,000 = -$400

B. (Spread) x (Cost of the car)= -.03 x $20,000 = -$600

C. (Spread) x (Cost of the car)= .06 x $20,000 = $1,200

D. (Spread) x (Cost of the car)= .05 x $20,000 = $1,000

Question #15

What do you think is causing the Economic Net Benefit(Car Loan) to be negative?

A. None of the available answers

B. The percentage point difference (spread) between the interest paid rate in the bank account and the car loan interest rate

C. The difference between the Accounting Net Benefit(Car Loan) and the MB(Car Loan).

D. The difference between the Accounting Net Benefit(No Car Loan) and the MB(Car Loan).

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