EPF Q1 test

piotrowski. created 10/21/24.. aka the last time i will ever be late for this freaking class

Opportunity Cost

The value of the next best option sacrificed for a chosen option. The cost of not choosing the “best” alternative.

Trade-off

All the options given up when a decision is made.

Scarcity

Desirable items are in limited supply.

Choice

Deciding how best to use limited resources.

Marginal Cost

Cost incurred from one more item.

Marginal Benefit

Benefit gained from one more item.

Utility

Usefulness or value surrounding a decision.

Diminishing Marginal Return / Utility

Adding more reaches a point where the return becomes negative.

Factors of Production

The basic categories of inputs used to produce goods and services.

Land

Physical land to build production and distribution facilities.

Labor

Having a skilled/educated workforce to perform specific tasks.

Capital

Monetary resources to start, maintain and expand production.

Entrepreneurship

Having the desire, skills, and insight to start a business.

Competition

Rivalry among sellers in the same market to win customers.

Perfect Competition

Many producers supply identical products; prices determined by supply and demand.

Monopolistic competition

Market structure with many small sellers and varied products.

Oligopoly

Few producers dominate the market and produce similar goods.

Monopoly

Single producer supplies a product with no close substitutes.

Price

The amount of money needed to buy something.

Revenue

Income from normal business activities; (price * quantity).

Cost

Value a producer gives up to produce the good; (cost * quantity).

Profit

Total revenue minus total cost of producing a product.

Break Even Point

The point where revenue equals costs.

Supply

The amount of goods a producer makes available at a given price.

Demand

The amount of goods consumers are willing to buy at a given price.

Law of Demand

Inverse relationship between price and quantity demanded.

Law of Supply

Direct relationship between price and quantity supplied.

Equilibrium Price

Market price where quantity supplied equals quantity demanded.

Price elasticity

How price fluctuations impact demand.

Elastic Demand

When demand decreases significantly with a price increase.

Inelastic Demand

When demand hardly changes with a price increase.

Very Inelastic Demand

Significant drop in demand for non-essential items with price increase.

Productivity

Value of outputs produced by a given amount of input.

Standard of Living

Level of wealth and necessities available to a socioeconomic class.

Cost of Production

Total costs associated with producing goods.

Demand Shifters

Factors that cause the demand curve to shift.

Tastes/Preference

Changes in consumer tastes that shift the demand curve.

Income Effect

Change in consumer purchases based on income changes.

Expectations of Buyers

Consumer anticipations affecting demand.

Price of related Goods/Competition

Influence of other prices on demand.

Behavioral economics

Study of consumer choices and market events influenced by psychology.

Herd Mentality

The tendency to conform to the behaviors of those around you.

FOMO

Anxiety about missing out on interesting events happening elsewhere.

Loss Aversion

Tendency to regard losses as more significant than gains.

Confirmation bias

Seeking out information that confirms pre-existing beliefs.

Misinformation effect

Alteration of memory due to receiving incorrect information afterwards.

Overconfidence bias

Tendency to be overly confident in one's own abilities.

Halo effect

General impression of a person unduly influenced by a single characteristic.

You are at your part-time job at Chick-fil-A.  You are tired from a long day and in desperate need of some sleep.  You also have to finish your EPF project, due tomorrow.  Your manager asks you to stay an extra couple of hours to fill in for someone that has called in sick.  You decide to stay.  

What are the trade-offs, opportunity cost, and scarcity?

Trade-off: I won’t be able to finish my homework and I’ll be tired tomorrow. But I make more money. I build good will with my employer

Opportunity cost (depends on me): If I’m exhausted, I don’t get sleep. If I’m really behind, I could have gotten my work done for EPF.

Scarcity: My time.

Inventory is low at all car dealerships in the area.  Your car is old and you would like to upgrade.  Three cars you are looking at are very similar but differ in price.  Car X is $50,000, Car Y is $55,000 and car Z is $60,000, but has the most options and is your favorite.  Buying a new car may limit you from taking that long weekend trip you desperately need.

What are the trade-offs, opportunity cost, and scarcity?

Trade-off: If I buy my favorite car, I’ll have less money and won’t be able to take a trip on the weekend.

Opportunity cost: Car dealerships in the area have low inventory, and if I don’t buy a car now, I might not be able to buy one for a while.

Scarcity: My money.

How can someone be entrepreneurial without starting their own business?

They think differently and are willing to go above and beyond. They take risks and want to be in charge. They’re confident.

Your restaurant is open M-F from 10AM until 10PM and Saturdays from 12PM to 12AM

You have the following employees and wages:

• Cooks $15 hour

• Dishwasher $10 hour

• Host:  $12 hour

• Server: $7 hour (they also get tips)

• Bartender:  $7 hour (they also get tips)

On each day: (they are not all working at the same time) you need: 

1. 5 cooks working 6 hours per day, 5 days a week

2. 8 dishwashers working 6 hours a day, 4 days per week

3. 4 host’s working 6 hours a day, 4 days per week

4. 6 servers working 6 hours a day , working 3 days per week

5. 4 bartenders working 7 hours a day, working 4 days per week

What is your total labor cost for the week for these employees?

2250+ 1920+1150+756+784 = $6,860

The Kennedy Center has 2,500 seats.  For a performance in December, ticket prices are as follows:

Section 1 (500 seats) $300

Section 2 (800 seats) $225

Section 3 (1200 seats) $150

Total costs to produce the evening's performance is: $150,000

What is the average ticket price?

How many tickets must be sold to break-even? (round up)

Average ticket price:

• Total seats available: 2500

• Revenue for section 1: 500×300 = $150,000

• Revenue for section 2: 800×225= $180,000

• Revenue for section 3: 1200×150= $180,000

• 150k+180k+180k= $510,000

• $510,000/2,500 seats= $204 (average ticket price)

Break even:

• Total cost: $150,000

• Average ticket price: $204

• 150,000/204 = 736 tickets

Average ticket price formula

Add revenues in each section (price * tickets) / total tickets sold

Profit formula

Total revenue - total cost

Break even amount if using average ticket price

total cost / average ticket price

Break even amount if using tiered price

Total cost (fixed + variable) = ticket revenue from section sales.

Ticket revenue is calculated by adding all revenue in a section (price * tickets sold) to equal the total cost.

Current supply and demand numbers for the production and consumption of the new Tesla are as follows:

Supply:  $70,000 - 100 units, $65,000 - 75 units, $60,000 - 40 units

Demand:  $70,000 - 35 units, $45,000 - 65 units, $25,000 - 80 units.

Plot the supply and demand graph and tell me what the equilibrium price and units (approximately)

$60,698 at 46 units

Some things that can have an impact on demand are population, income, and competition.  Which of these things has the biggest impact on the demand for following businesses/brands/product types?  (explain your answer)

1. Netflix

2. McDonald’s

3. Smartphones

1. Netflix

   1. Competition. There are a lot of other streaming services that Netflix is competing with.

2. McDonald’s

   1. Competition. There are a lot of other fast food choices. Also taste/preference— not everyone wants fast food; McDonald’s has, sometimes, had to alter their menu in order to better market towards these tastes (i.e. selling salad)

3. Smartphones.

   1. Income. An Apple phone is less affordable than other brands.

What factors help a company to determine an appropriate price point?

1. Cost of production

2. Competitors

3. What people are willing to pay.

4. Brand image

What is the difference between Oligopoly and monopolistic competition?

A monopoly is when one business controls an industry. An oligopoly is where a few businesses control.

What does the break-even point tell a business?

Where they start making profit. If you have to sell 90% of your units to make a profit, something’s wrong.

The monetary resources needed to start, maintain and/or expand production of a good is known as: (one of the four factors of production)

Capital

In the Law of Supply, amount and price are in direct relations to each other….what does this mean?

You need to make supply at the highest profit possible— but then lower it to the point where people want to buy it.

How is the Law of demand different than the Law of Supply when it comes to amount and price?

Law of supply is a direct relation. Law of demand is an indirect relation.

Give an example of a product that is inelastic in it’s demand and one that is elastic….What does price elasticity actually mean?

Inelastic: Gas. Milk. People will continue to buy.

Elastic: Spa. Electronics.

How willing consumers are to purchase something if the price fluctuates.

What does productivity measure?

How much you can make in a given time frame.

Explain the Law of diminishing marginal return.

You can only add so much of something. For example, you’d be happy if you were given one cat, but if you were given thirty cats, you’d be overwhelmed. Adding something until the cost is greater than the benefit.

Many economies are “mixed”. What does that mean?

Like the US, we are mainly a market-driven economy, but the government has the power to regulate some aspects of industry. There are some aspects of other economic types, like socialism.

The U.S. and Canada are both mixed economies…how do they differ?

Canada is a little more socialist (they take more taxes but provide more national services)

Why does behavioral economics impact the shifting of demand?  

Companies try to play on cognitive biases to create demand for their products.

1. Give an example of the following cognitive bias’ as they relate to advertising:

   1. Herd Mentality

   2. FOMO

   3. Halo Effect

1. If everyone has a Stanley Cup…

2. If you don’t buy in the next ten minutes, you’ll miss out on this sale…

3. Beauty, celebrities, musicians— companies use them to connect with us to get us to purchase. Good enough for them, good enough for me.

Explain what loss aversion means?

We’re more likely to feel worse about our losses than better about our gains. We’d be happy if we found twenty dollars, but we’d be angrier if we lost twenty dollars.