Economics Chapter 3 Review

A rational decision benefits the decision maker as much as possible. To make a rational yes-or-no decision you should pick the option that has...

• the highest net benefit

• the lowest net benefit

• benefits that outweigh the costs

• costs that outweigh the benefits

Thinking like an economist would lead you to believe that for a gifted college football player, the most significant cost of remaining in college for another year rather than entering the NFL draft is...

• tuition

• books

• housing

• lost wages

A student operating on her budget line for shoes and shirts...

• would not be able to buy more shirts

• would not be able to buy more shoes

• would not be able to buy more shoes without buying more shirts

• would not be able to buy more shoes without buying fewer shirts

Which of the following would be considered a sunk cost?

• money you will spend to repair your car

• money you already spent to buy your car

• insurance premiums on your car for the coming six months

• the cost of gasoline to operate your car

The net benefit of a choice is...

• the benefit of the choice plus the cost of the choice

• the benefit of the choice minus the cost of the choice

• the benefit of the choice times the cost of the choice

• the benefit of the choice divided by the cost of the choice

Which of the following is the correct rule for making rational choices?

• Always buy the item with the lowest cost

• Always buy the item with the highest benefit

• Always buy the item with the lowest net benefit

• Always buy the item with the highest net benefit

The table above lists the benefit and cost of four different vacation destinations. Based on the information in the table, a rational consumer would pick...

• Six Flags because it is the least expensive

• the Grand Canyon because it has the highest net benefit

• Disney World because it has the highest benefit

• New Orleans because it has the lowest net benefit

Which of the following accurately describes the concept of marginal analysis?

• the total benefit derived from consuming all units of a good

• the total benefit derived from consuming all units of a good minus the total cost of consuming all units of the good

• the additional benefit of consuming the next unit of a good

• the net benefit of consuming the next unit of a good

All of the following are mistakes to avoid in making rational decisions except...

• letting sunk costs matter

• focusing exclusively on fairness

• making purchases using net benefit analysis

• sticking to the status quo

The branch of economics called behavioral economics combines economics and...

• psychology

• history

• sociology

• accounting