Question 49: Vicky Volunteer rings bells for The Salvation Army during the holid

Question

Question 49: Vicky Volunteer rings bells for The Salvation Army during the holidays. At her current level of production, the marginal social benefit derived from Vicky's bell ringing is less than the marginal social cost incurred from Vicky's bell ringing. Based on this scenario, which of the following is most likely? 1) Vicky is producing the socially optimal level of bell ringing 2)Vicky is producing more bell ringing than is socially optimal 3) Vicky is producing less bell ringing than is socially optimal 4) Vicky's bell ringing is generating a negative externality Question 54: You have just finished a summer internship with CHS, Inc., and they have offered you a job that you can start after you graduate next year. If the salary offer is $50,000, the interest rate is 5%, and you start the job in one year, how much is the starting salary worth today? C 1) $50,000 C2) $50,000 (1.05$52,500 C 3) $50,000(1.05) - $50,001.05 4) $50,000/(1.05)= $47,619 Question 55: Suppose you get a $1000 gift for your graduation. If the interest rate is 5% and you invest the gift for two years, the future value of the gift is C 1 S1,000 (1.05) $1,050 2) $1,000/( 1.05)= $952 c 3) $1,000(1.05)2= $1,103 4) $1,000/(1.05)2 $907 Question 56: Luigi is contemplating a career change. He can become a coach and train other people to jump over flag poles. To become a coach he has to attend a $500 class. He should become a coach if C 1) the net present value of becoming a coach is positive. 2) the total benefit of becoming a coach is positive 3) the opportunity cost of becoming a coach is sufficiently lovw 4) The $500 is a sunk cost, so he should become a coach no matter what C

Explanation / Answer

49. The right answer is option 2. Vicky is producing more bell ringing than is socially optimal.

Explanation: At the current level of bell production, the marginal social cost is higher than marginal social benefit. This means, there is negative externality i.e. the production is higher than what is socially optimal. At the socially optimal level of output, the social cost of ringing bell equals the social benefits of ringing bell.

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