Economic Decision-Making Vocabulary

Which statement best describes marginal analysis in decision-making?

• Comparing added benefits to added costs of one more unit

• Tracking sunk costs to avoid repeating past mistakes

• Balancing present satisfaction with future opportunities

• Comparing total income to total expenses overall

Marginal benefit (MB) is the:

• Added gain from consuming one additional unit

• Average satisfaction per unit of a good

• Expected gain after subtracting sunk costs

• Total gain from all units consumed

Match each cost concept with its correct description:

• Long-run average cost

• Total expense of producing all units

• Total cost

• Past expense that cannot be recovered

• Sunk cost

• Average expense per unit in the long run

• Marginal cost

• Added expense from producing one additional unit

Rational decision-making most directly means choosing actions when:

• Total benefits exceed total costs overall

• Sunk costs are fully recovered by future gains

• Marginal benefit is at least marginal cost

• Opportunity cost is equal to trade-off value

Which example best illustrates a trade-off?

• Keeping a ticket you already bought

• Receiving a bonus for extra work hours

• Choosing more study time instead of leisure

• Stopping when marginal cost rises

Opportunity cost is the (a)  

• Extra satisfaction from another sli
• Next best alternative you give up
• Past expense that cannot be recover
• Money spent on a purchased ticket

(a)   represents a sunk cost.

• Bonus earned for perfect attendance
• Price of the third slice of pizza
• Time lost to a different activity
• Ticket already bought and nonrefund

Diminishing marginal benefit suggests that:

• Average benefit equals marginal benefit at optimum

• Added satisfaction increases with each extra unit

• Added satisfaction often decreases with more units

• Total benefit stays constant as units rise

Utility in economics is best defined as:

• Satisfaction or value a person gets

• Government incentive for desired behavior

• Profit after subtracting all costs

• Market price set by supply and demand

An incentive is most closely described as a:

• Trade-off between time and money

• Past expense you cannot recover

• Average gain from multiple units

• Reason that motivates behavior