WorksheetsUnit 1: CFA 2 (Standard 2) Review
Total questions: 20
Worksheet time: 10mins
What is the definition of marginal benefit in economics?
The total benefit received from consuming all units of a good
The additional benefit received from consuming one more unit of a good
The total cost of producing a good
The additional cost of producing one more unit of a good
Which term describes the additional cost incurred from producing one more unit of a good?
Total cost
Marginal cost
Fixed cost
Sunk cost
What does it mean when marginal benefit equals marginal cost?
The action should not be taken
The action is irrational
The action is rational
The action is impossible
Which of the following is an example of a positive incentive for individuals?
A tax on cigarettes
A fine for littering
A scholarship for good grades
A penalty for late library books
Who can respond to incentives in predictable ways according to economic theory?
Only individuals
Only businesses
Only governments
Individuals, businesses, and governments
If the marginal cost of producing a product is 5 and the marginal benefit is 7, what should a rational business do?
Stop production
Increase production
Decrease production
Ignore the costs and benefits
A government offers a tax credit for installing solar panels. What type of incentive is this?
Negative incentive
Positive incentive
No incentive
Marginal incentive
A student is deciding whether to study for one more hour. The marginal benefit is a higher test score, and the marginal cost is less time to relax. If the student chooses to study, what does this indicate?
The marginal cost is greater than the marginal benefit
The marginal benefit is greater than or equal to the marginal cost
The student is acting irrationally
The student is ignoring incentives
Which of the following best illustrates a negative incentive for businesses?
A government grant for hiring new employees
A tax on pollution emissions
A bonus for meeting sales targets
A discount for early payment
A company is considering whether to produce an additional unit of a product. The marginal cost is 10 and the marginal benefit is 8. What is the rational decision?
Produce the additional unit
Do not produce the additional unit
Increase production significantly
Ignore marginal analysis
Suppose a government increases the tax on sugary drinks. Predict how consumers are likely to respond.
Increase their consumption of sugary drinks
Decrease their consumption of sugary drinks
Not change their behavior
Start producing sugary drinks
A business is offered a government subsidy for every unit of environmentally friendly product it produces. How might this positive incentive affect the business’s production decisions? Explain your reasoning.
The business will likely decrease production of the product
The business will likely increase production of the product
The business will stop producing the product
The business will ignore the incentive
A student is considering whether to take an extra class. The marginal benefit is improved college admission chances, and the marginal cost is less free time. If the student decides not to take the class, what does this suggest about their decision-making process?
The marginal cost is less than the marginal benefit
The marginal cost is equal to or greater than the marginal benefit
The student is not making a rational decision
The student is responding to a positive incentive
A government imposes a fine for illegal dumping. What is the expected response from individuals and businesses, and why?
Increase illegal dumping because of the fine
Decrease illegal dumping to avoid the fine
No change in behavior
Start legal dumping
A business is considering hiring an additional worker. The marginal benefit of hiring is 200 per day and the marginal cost is 180 per day. What is the rational decision, and what does this illustrate about marginal analysis?
Hire the worker; marginal benefit exceeds marginal cost
Do not hire the worker; marginal cost exceeds marginal benefit
Hire the worker; marginal cost is irrelevant
Do not hire the worker; marginal analysis is not useful
A government offers a $1,000 tax deduction for purchasing electric vehicles. How might this incentive affect consumer behavior, and why?
Consumers are less likely to buy electric vehicles
Consumers are more likely to buy electric vehicles due to the positive incentive
Consumers will not change their behavior
Consumers will buy fewer electric vehicles
A business faces the following scenario: The marginal benefit of producing one more unit is 20 and the marginal cost is 20. What is the rational decision, and why?
Produce the unit, because marginal benefit equals marginal cost
Do not produce the unit, because marginal cost is too high
Produce the unit, because marginal cost is irrelevant
Do not produce the unit, because marginal benefit is too low
A city increases parking fees downtown. Predict how this negative incentive might affect people's parking behavior.
More people will park downtown
Fewer people will park downtown to avoid higher fees
No change in parking behavior
People will park for longer periods
In the graph shown, at what quantity does the marginal cost curve intersect with the marginal benefit curve?
The idea that your additional satisfaction eventually decreases as you consume additional units of a good or service is called
the law of diminishing marginal utility
