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Worksheetsbai 1.1
Total questions: 142
Worksheet time: 1hrs 11mins
The adage, "There is no such thing as a free lunch," means
even people on welfare have to pay for food
the cost of living is always increasing.
people face tradeoffs.
all costs are included in the price of a product.
The adage, "There is no such thing as a free lunch," is used to illustrate the principle that
goods are scarce
people face tradeoffs.
income must be earned.
households face many decisions
The phrase “no such thing as a free lunch” means
people must face tradeoffs
rational people think at the margin
people respond to incentives
trade can make everyone better off
Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"?
Michelle can attend the concert only if she takes her sister with her
Michael is hungry and homeless
Andrea must repair the tire on her bike before she can ride it to class.
Dani must decide between going to Florida or Brazil for spring break.
Which of the following examples does not illustrate the principle represented by the adage, "There is no such thing as a free lunch"?
Melissa needs to pay her rent and her electric bill.
Kevin must choose between buying a new flat screen television and buying his textbooks for this semester.
Robert must decide between studying for his psychology exam and working at his part-time job.
Lisa can spend her money on a new smart phone or on a weekend trip.
The principle that "people face tradeoffs" applies to
individuals.
families
societies
All of the above are correct
Candice is planning her activities for a hot summer day. She would like to go to the local swimming pool and see the latest blockbuster movie, but because she can only get tickets to the movie for the same time that the pool is open she can only choose one activity. This illustrates the basic principle that
people respond to incentives
rational people think at the margin.
people face tradeoffs
improvements in efficiency sometimes come at the expense of equality.
Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that
trade can make everyone better off
people face trade-offs
rational people think at the margin
decisions made at the margin are not particularly important
John is an athlete. He has $120 to spend and wants to buy either a heart rate monitor or new running shoes. Both the heart rate monitor and running shoes cost $120, so he can only buy one. This illustrates the principle that
trade can make everyone better off.
people face trade-offs
rational people think at the margin.
people respond to incentives.
Lawrence is a photographer. He has $230 to spend and wants to buy either a flash for his camera or a new tripod. Both the flash and tripod cost $230, so he can only buy one. This illustrates the principle that
trade can make everyone better off.
people face trade-offs
rational people think at the margin.
people respond to incentives
Guns and butter are used to represent the classic societal tradeoff between spending on
durable and nondurable goods.
imports and exports
national defense and consumer goods
law enforcement and agriculture
A tradeoff exists between a clean environment and a higher level of income in that
studies show that individuals with higher levels of income pollute less than low-income individuals.
efforts to reduce pollution typically are not completely successful.
laws that reduce pollution raise costs of production and reduce incomes.
employing individuals to clean up pollution causes increases in employment and income.
While pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms’ owners, workers, and customers. This statement illustrates the principle that
trade can make everyone better off
rational people think at the margin.
people face tradeoffs
people respond to incentives.
When society requires that firms reduce pollution, there is
a tradeoff because of reduced incomes to the firms' owners and workers.
a tradeoff only if some firms are forced to close.
no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements.
no tradeoff, since everyone benefits from reduced pollution
Economists use the word equality to describe a situation in which
each member of society has the same income
each member of society has access to abundant quantities of goods and services, regardless of his or her income
society is getting the maximum benefits from its scarce resources.
society's resources are used efficiently
Efficiency means that
society is conserving resources in order to save them for the future.
society's goods and services are distributed equally among society's members
society's goods and services are distributed fairly, though not necessarily equally, among society's members.
society is getting the maximum benefits from its scarce resources.
The property of society getting the most it can from its scarce resources is called
efficiency
equality
externality
productivity
Efficiency
and equality both refer to how much a society can produce with its resources.
and equality both refer to how fairly the benefits from using resources are distributed between members of a society.
refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society.
refers to how evenly the benefits from using resources are distributed between members of society. Equality refers to how much a society can produce with its resources
The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that
equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources
equality refers to maximizing benefits from scarce resources and efficiency refers to uniform distribution of those benefits
equality refers to everyone facing identical tradeoffs and efficiency refers to the opportunity cost of the benefits
equality refers to the opportunity cost of the benefits and efficiency refers to everyone facing identical tradeoffs
Which of the following phrases best captures the notion of efficiency?
absolute fairness
equal distribution
minimum waste
equitable outcome
Which of the following words and phrases best captures the notion of equality?
minimum waste
maximum benefit
sameness
efficiency
When society gets the most it can from its scarce resources, then the outcome is called
equitable
efficient.
normal
efficacious
A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between
guns and butter
efficiency and equality.
inflation and unemployment
work and leisure
When the government redistributes income from the wealthy to the poor,
efficiency is improved, but equality is not.
equality is improved, but efficiency is not
both efficiency and equality are improved
neither efficiency nor equality are improved
Which of the following is true?
Efficiency refers to the size of the economic pie; equality refers to how the pie is divided.
Government policies usually improve upon both equality and efficiency.
As long as the economic pie continually gets larger, no one will have to go hungry.
Efficiency and equality can both be achieved if the economic pie is cut into equal pieces.
As a result of a successful attempt by government to cut the economic pie into more equal slices,
the pie gets larger, and there will be more pie overall.
the pie gets smaller, and there will be less pie overall.
it increases the reward for working hard, resulting in people producing more goods and services.
those who earn more income pay less in taxes
When the government redistributes income from the wealthy to the poor,
efficiency is improved, but equality is not
both wealthy people and poor people benefit directly.
people work less and produce fewer goods and services.
the government collects more revenue in total.
When the government attempts to improve equality in an economy the result is often
an increase in overall output in the economy
additional government revenue since overall income will increase
a reduction in equality
a reduction in efficiency
When the government implements programs such as progressive income tax rates, which of the following is likely to occur?
equality is increased and efficiency is increased.
equality is increased and efficiency is decreased
equality is decreased and efficiency is increased.
equality is decreased and efficiency is decreased
A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies
enhance equality
reduce efficiency.
reduce the reward for working hard.
All of the above are correct
A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that those policies
enhance equality.
enhance efficiency
increase the reward for working hard
All of the above are correct.
Government policies designed to equalize the distribution of economic well-being include
(i)
the welfare system
(ii)
unemployment insurance
(iii)
progressive income tax
(i) only
(ii) only
(i) and (ii) only
(i), (ii), and (iii)
Government policies resulting in reduced efficiency include
(i)
the welfare system
(ii)
unemployment insurance
(iii)
progressive income tax
(i) only
(ii) only
(i) and (ii) only
(i), (ii), and (iii)
When government policies are enacted,
equality can usually be enhanced without an efficiency loss, but efficiency can never be enhanced without a reduction in equality.
efficiency can usually be enhanced without a reduction in equality, but equality can never be enhanced without an efficiency loss
it is always the case that either efficiency and equality are both enhanced, or efficiency and equality are both diminished.
None of the above are correct
Senator Brown wants to increase taxes on people with high incomes and use the money to help the poor. Senator Johnson argues that such a tax will discourage successful people from working and will therefore make society worse off. An economist would say that
we should agree with Senator Brown.
we should agree with Senator Johnson.
a good decision requires that we recognize both viewpoints.
there are no tradeoffs between equity and efficiency
A certain state legislature is considering an increase in the state gasoline tax. Representative Campbell argues that an increase in the gasoline tax would harm low-income drivers disproportionately. Representative Richards responds by saying that low-income drivers own smaller cars that use less gasoline, and that low-income drivers therefore would not be harmed disproportionately.
Representative Campbell’s argument is based primarily on efficiency, while Representative Richards’ argument is based primarily on equality.
Representative Campbell’s argument is based primarily on equality, while Representative Richards’ argument is based primarily on efficiency
Both representatives’ arguments are based primarily on efficiency
Both representatives’ arguments are based primarily on equality.
Senator Jackson argues that replacing the federal income tax with a national sales tax would increase the level of output. Senator Feldman objects that this policy would benefit the rich at the expense of the poor.
Both senators’ arguments are primarily about equality
Both senators’ arguments are primarily about efficiency.
Senator Jackson’s argument is primarily about equality, while Senator Feldman’s argument is primarily about efficiency
Senator Jackson’s argument is primarily about efficiency, while Senator Feldman’s argument is primarily about equality
Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth
is more efficient and more equal for society.
is more efficient but less equal for society
is more equal but less efficient for society.
is less equal and less efficient for society
The government has just passed a law requiring that all residents earn the same annual income regardless of work effort. This law is likely to
increase efficiency and increase equality.
increase efficiency but decrease equality
decrease efficiency but increase equality
decrease efficiency and decrease equality
The opportunity cost of an item is
the number of hours needed to earn money to buy the item.
what you give up to get that item
usually less than the dollar value of the item
the dollar value of the item.
In economics, the cost of something is
the dollar amount of obtaining it
always measured in units of time given up to get it.
what you give up to get it.
often impossible to quantify, even in principle
What you give up to obtain an item is called your
opportunity cost
explicit cost.
monetary cost.
direct cost.
Which of the following is correct concerning opportunity cost?
Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway.
To compute opportunity costs, you should subtract benefits from costs
Opportunity costs and the idea of trade-offs are not closely related.
Rational people should compare various options without considering opportunity costs.
High-school athletes who skip college to become professional athletes
obviously do not understand the value of a college education.
usually do so because they cannot get into college
understand that the opportunity cost of attending college is very high.
are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes.
Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is
$0
$15.
$305
$315
hen computing the opportunity cost of attending a basketball game you should include
the price you pay for the ticket and the value of your time.
the price you pay for the ticket, but not the value of your time
the value of your time, but not the price you pay for the ticket
neither the price of the ticket nor the value of your time
Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is
the $60 she earns working
the $60 minus the enjoyment she would have received from going to the park
the enjoyment she would have received had she gone to the park.
nothing, since she would have received less than $60 worth of enjoyment from going to the park.
Ramona decides to spend two hours taking a nap rather than attending her classes. Her opportunity cost of napping is
the value of the knowledge she would have received had she attended class.
the $24 she could have earned if she had worked at her job for those two hours.
the value of her nap minus the value of attending class.
nothing, since she valued sleep more than attendance at class
Hamid spends an hour studying instead of watching TV with his friends. The opportunity cost to him of studying is
the improvement in his grades from studying for the hour
the improvement in his grades from studying minus the enjoyment of watching TV
the enjoyment he would have received if he had watched TV with his friends.
zero. Since Hamid chose to study rather than to watch TV, the value of studying must have been greater to him than the value of watching TV.
For most students, the largest single cost of a college education is
the wages given up to attend school
tuition, fees, and books
room and board
transportation, parking, and entertainment
For most students, the earnings they give up to attend college are
a minor cost when compared to the costs of tuition, room and board, and the like.
the single largest cost of their education
about equal to the costs of room and board at college
not considered true costs by an economist
The opportunity cost of going to college is
the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses.
the value of the best opportunity a student gives up to attend college.
zero for students who are fortunate enough to have all of their college expenses paid by someone else.
zero, since a college education will allow a student to earn a larger income after graduation.
Which of the following is not an example of the opportunity cost of going to school?
The money a student could have earned by working if he had not gone to college.
The nap a student could have enjoyed if he had not attended class.
The party a student could have enjoyed if he had not stayed in to study for his exam.
The money a student spends on rent for his apartment while attending school
For a college student who wishes to calculate the true costs of going to college, the costs of room and board
should be counted in full, regardless of the costs of eating and sleeping elsewhere
should be counted only to the extent that they are more expensive at college than elsewhere
usually exceed the opportunity cost of going to college
plus the cost of tuition, equals the opportunity cost of going to college
When you calculate your true costs of going to college, what portion of your room-and-board expenses should be included?
Your full room-and-board expenses should always be included.
None of your room-and-board expenses should ever be included
You should include only the amount by which your room-and-board expenses exceed the income you earn while attending college.
You should include only the amount by which your room-and-board expenses exceed the expenses for rent and food if you were not in college.
Consider Frank’s decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Frank’s cost of going to college is
$33,800
$42,600
$49,800
$57,000.
Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you to quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost?
the cost of tuition and books to attend the graduate program
the $30,000 salary that you could have earned if you retained your job at the bank
the $45,000 salary that you will be able to earn after having completed your graduate program
the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank
For which of the following individuals would the opportunity cost of going to college be highest?
a promising young mathematician who will command a high salary once she earns her college degree
a student with average grades who has never held a job
a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree
a student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball
Consider Mandy’s decision to go to college. If she goes to college, she will spend $20,000 on tuition, $10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000 working in a store and spend $8,000 on room and board. Mandy’s cost of going to college is
$32,000.
$42,000
$50,000
$58,000
Consider Noah’s decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah’s cost of going to college is
$99,000.
$103,000
$108,000
$121,000
Consider Paul’s decision to go to college. If he goes to college, he will spend $90,000 on tuition, $15,000 on room and board, and $7,000 on books. If he does not go to college, he will earn $22,000 working at a construction job and he will spend $11,000 on room and board. Paul’s cost of going to college is
$96,000
$110,000
$114,000
$123,000
If Faith attends college, it will take her four years, during which time she will earn no income. She will pay $50,000 for tuition, $12,000 for room and board, and $5,000 for books. If she spends the four years working rather than attending college, she will pay $18,000 for room and board, pay no intuition, and buy no books. Based on this information, Faith’s economic cost of attending college would be $67,000 if, over the four years, she could earn
$12,000 instead of attending college
$14,000 instead of attending college
$16,000 instead of attending college
$18,000 instead of attending college
Maureen’s college raises the cost of room and board per semester. This increase raises Maureen’s opportunity cost of attending college
even if the amount she would have to pay for room and board if she didn’t attend college rose by the same amount. An increase in opportunity cost reduces Maureen’s incentive to attend college.
even if the amount she would have to pay for room and board if she didn’t attend college rose by the same amount. An increase in opportunity cost increases Maureen’s incentive to attend college.
only if the amount she would have to pay for room and board if she didn’t attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost reduces Maureen’s incentive to attend college
only if the amount she would have to pay for room and board if she didn’t attend college rose by less than the increase in the amount her college charges. An increase in opportunity cost increases Maureen’s incentive to attend college
When calculating the cost of college, which of the following should you probably not include?
The cost of tuition
The cost of books required for college classes
The income you would have earned had you not gone to college
The cost of rent for your off-campus apartment
When calculating the cost of college, which of the following should you probably include?
The cost of your meal plan for the cafeteria
The cost of books required for college classes
The income you earn at your part-time job
The cost of living in the dormitory
Suppose your college institutes a new policy requiring you to pay for a permit to park your car in a campus parking lot.
The cost of the parking permit is not part of the opportunity cost of attending college if you would not have to pay for parking otherwise
The cost of the parking permit is part of the opportunity cost of attending college if you would not have to pay for parking otherwise
Only half of the cost of the parking permit is part of the opportunity cost of attending college.
The cost of the parking permit is not part of the opportunity cost of attending college under any circumstances.
You have driven 800 miles on a vacation and then you notice that you are only 15 miles from an attraction you hadn’t known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include
both the cost of driving the first 800 miles and the next 15 miles
the cost of driving the first 800 miles, but not the cost of driving the next 15 miles.
the cost of driving the next 15 miles, but not the cost of driving the first 800 miles
neither the cost of driving the first 800 miles nor the cost of driving the next 15 miles
Barb’s aunt gave her $100 for her birthday with the condition that Barb buy herself something. In deciding how to spend the money, Barb narrows her options down to four choices: Option A, Option B, Option C, and Option D. Each option costs $100. Finally she decides on Option B. The opportunity cost of this decision is
the value to Barb of the option she would have chosen had Option B not been available
the value to Barb of Options A, C and D combined
the average of the values to Barb of Options A, C, and D
$100
College-age athletes who drop out of college to play professional sports
are not rational decision makers
are well aware that their opportunity cost of attending college is very high
are concerned more about present circumstances than their future
underestimate the value of a college education
A rational decisionmaker
ignores marginal changes and focuses instead on “the big picture.”
ignores the likely effects of government policies when he or she makes choices.
takes an action only if the marginal benefit of that action exceeds the marginal cost of that action
takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions
In the context of decisionmaking, the word “marginal” is most closely associated with the word
“unimportant.”
“slow.”
“edge.”
“irrational.”
A rational decision maker takes an action only if the
marginal benefit is less than the marginal cost
marginal benefit is greater than the marginal cost
average benefit is greater than the average cost
marginal benefit is greater than both the average cost and the marginal cost.
A rational decisionmaker takes an action if and only if
the marginal benefit of the action exceeds the marginal cost of the action.
the marginal cost of the action exceeds the marginal benefit of the action
the marginal cost of the action is zero
the opportunity cost of the action is zero
Rational people make decisions at the margin by
following marginal traditions
behaving in a random fashion
thinking in black-and-white terms
comparing marginal costs and marginal benefits
Rational people make decisions “at the margin” by comparing
average costs and benefits
total costs and benefits
additional costs and benefits
opportunity costs and benefits
Making rational decisions "at the margin" means that people
make those decisions that do not impose a marginal cost
evaluate how easily a decision can be reversed if problems arise
compare the marginal costs and marginal benefits of each decision.
always calculate the dollar costs for each decision
A marginal change is a
change that involves little, if anything, that is important
large, significant adjustment
change for the worse, and so it is usually a short-term change
small, incremental adjustment
People are willing to pay more for a diamond than for a bottle of water because
the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.
the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water
producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices
water prices are held artificially low by governments, since water is necessary for life
It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company’s cost will be $50,009 if it produces an additional pound of steak. If the company produces 5,001 pounds of steak then
its average cost is greater than its marginal cost
its average cost and its marginal cost are equal
its average cost is less than its marginal cost
there is insufficient information to compute average and marginal costs
The marginal benefit Kyra gets from eating a second sandwich is
the total benefit Kyra gets from eating two sandwiches minus the total benefit she gets from eating one sandwich
the same as the total benefit she gets from eating two sandwiches
less than the marginal cost of eating the second sandwich since she chose to eat the second sandwich.
the total benefit Kyra gets from eating three sandwiches minus the total benefit she gets from eating two sandwiches
The marginal benefit Susie gets from purchasing a third pair of gloves is
the same as the total benefit she gets from purchasing three pairs of gloves
more than the marginal cost of purchasing the third pair of gloves
the total benefit she gets from purchasing three pairs of gloves minus the total benefit she gets from purchasing two pairs of gloves
the total benefit she gets from purchasing four pairs of gloves minus the total benefit she gets from purchasing three pairs of gloves
A rational decision maker takes an action if and only if
the average benefit of the action exceeds the average cost
the average cost of the action exceeds the average benefit
the marginal benefit of the action exceeds the marginal cost.
the marginal cost of the action exceeds the marginal benefit
Ashley eats two bananas during a particular day. The marginal benefit she enjoys from eating the second banana
can be thought of as the total benefit Ashley enjoys by eating two bananas minus the total benefit she would have enjoyed by eating just the first banana
determines Ashley’s marginal cost of the first and second bananas.
does not depend on how many bananas Ashley has already eaten
cannot be determined unless we know how much she paid for the bananas
After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision?
The marginal benefit of going to Cancun increases
The marginal cost of going to Cancun decreases
The marginal benefit of going to Ft. Lauderdale decreases
The marginal cost of going to Ft. Lauderdale decreases
After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?
The marginal benefit of going to Spain increases
The marginal cost of going to Spain increases
The marginal benefit of going to Ireland increases
The marginal cost of going to Ireland decreases.
A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?
Yes, because cutting hair is profitable
No, because he may not be able to sell more services
It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients
It depends on the average cost of serving more clients and the average revenue he will earn from serving more clients
The Get-There-Safe Bus company incurs an average cost of $45 for each passenger it carries on its trip from Atlanta to Chattanooga. In advance of a particular trip, four seats remain unsold. The bus company could increase its profit only if it
charged any ticket price above $0 for the four remaining seats
charged at least $11.25 for each of the four remaining seats
charged at least $45 for each of the four remaining seats.
paid four people to occupy the four remaining seats
Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should
sell the ticket because the marginal benefit exceeds the marginal cost
sell the ticket because the marginal benefit exceeds the average cost
not sell the ticket because the marginal benefit is less than the marginal cost.
not sell the ticket because the marginal benefit is less than the average cost
Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The average cost per seat is
$50
$500
$50,000
This cannot be determined from the information given
Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is
$50
$500
$50,000
This cannot be determined from the information given
Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. The airline should sell a ticket to a standby passenger only if the passenger is willing to pay
more than $200
more than $300
more than $500
This cannot be determined from the information given
Stephen is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5800. Stephen discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do?
He should sell the car now for $3,800
He should keep the car since it wouldn’t be rational to spend $6,400 restoring a car and then sell it for only $5,800.
He should complete the additional work and sell the car for $5,800
It does not matter which action he takes since the outcome will be the same either way
Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $6200. Bill discovers that he needs to do an additional $2400 of work to make the car worth $6200 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do?
He should sell the car now for $3800
He should keep the car since it wouldn’t be rational to spend $6400 restoring a car and then sell it for only $6200
He should complete the additional work and sell the car for $6200.
It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because the outcome will be the same either way
Cole is refinishing an antique china cabinet and has already spent $180 on the restoration. He expects to be able to sell the cabinet for $360. Cole discovers that he needs to do an additional $200 worth of work to make the cabinet worth $360 to potential buyers. He could also sell the cabinet now, without completing the additional work, for $100. What should Cole do?
He should sell the cabinet now for $100
He should keep the cabinet since it wouldn’t be rational to spend $380 restoring a cabinet and then sell it for only $360.
He should complete the additional work and sell the cabinet for $360It does not matter which action he takes since the outcome will be the same either way
It does not matter which action he takes since the outcome will be the same either way
Katie is planning to sell her house, and she is considering making two upgrades to the house before listing it for sale. Replacing the carpeting will cost her $2,500 and replacing the roof will cost her $9,000. Katie expects the new carpeting to increase the value of her house by $3,000 and the new roof to increase the value of her house by $7,000.
She should make both improvements to her house
She should replace the carpeting but not replace the roof
She should replace the roof but not replace the carpeting
She should not make either improvement to her house
Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda
can be thought of as the total benefit Bridget enjoys by drinking three sodas minus the total benefit she would have enjoyed by drinking just two sodas
determines Bridget’s willingness to pay for the third soda
is likely different from the marginal benefit provided to Bridget by the second soda
All of the above are correct.
A construction company has built 30 houses so far this year at a total cost to the company of $7.5 million. If the company builds a 31st house, its total cost will increase to $7.76 million. Which of the following statements is correct?
For the first 30 houses, the average cost per house was $250,000
The marginal cost of the 31st house, if it is built, will be $260,000.
If the company can experience a marginal benefit of $275,000 by building the 31st house, then the company should build it
All of the above are correct
Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct
For the first 24 houses, the average cost per house was $205,000.
The marginal cost of the 25th house, if it is built, will equal $250,000
If the company can sell the 25th house for at least $202,000, then it should build it.
All of the above are correct
It costs a furniture company $8,750 to produce 25 tables. The company’s total cost will be $9,125 if it produces a 26th table. If the company produces 26 tables, then
its average cost is greater than its marginal cost
its average cost and its marginal cost are equal.
its average cost is less than its marginal cost
This cannot be determined from the information given.
Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should
rent the room because the marginal benefit exceeds the marginal cost
rent the room because the marginal benefit exceeds the average cost
not rent the room because the marginal benefit is less than the marginal cost
not rent the room because the marginal benefit is less than the average cost
Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. The marginal cost per room per night
is $40
is $80
is $120
cannot be determined from the information given
Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $40, the hotel manager should rent one of the empty rooms only if a customer is willing to pay
more than $40, as the average benefit will exceed the marginal cost.
more than $40, as the marginal benefit will exceed the marginal cost
more than $80, as the average benefit will exceed the marginal cost.
more than $80, as the marginal benefit will exceed the marginal cost
It costs a company $35,000 to produce 500 graphing calculators. The company’s cost will be $35,080 if it produces an additional graphing calculator. If the company produces 501 graphing calculators then
its average cost is greater than its marginal cost
its average cost and its marginal cost are equal
its average cost is less than its marginal cost
This cannot be determined from the information given
DeShawn has spent $600 purchasing and repairing an old fishing boat, which he expects to sell for $900 once the repairs are complete. DeShawn discovers that, in addition to the $600 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $900 to potential buyers. He can sell the boat as it is now for $400. What should he do?
He should sell the boat as it is now for $400
He should keep the boat since it would not be rational to spend $1,000 on repairs and then sell the boat for $900.
He should complete the repairs and sell the boat for $900
It does not matter which action he takes; the outcome is the same either way
Betty’s Bakery bakes fresh bread every morning. Any bread not sold by the end of the day is thrown away. A loaf of bread costs Betty $2.00 to produce, and she prices loaves of bread at $3.50 per loaf. Suppose near the end of one day Betty still has 12 loaves of bread on hand. Which of the following is correct?
Betty should only sell the remaining bread for $3.50 per loaf since that is the regular price.
Betty should only sell the remaining bread for $2.00 per loaf or more since that is what the bread costs to make.
Betty should be willing to sell the remaining bread for any price above $0 per loaf since she will have to throw it away if she does not sell it for something
Betty should just throw the bread away and change the price of her bread starting tomorrow to make sure she sells all of her bread each day
A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop does not sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive?
Lower the price of the remaining bagels, even if the price falls below $1.00 per dozen.
Lower the price of the remaining bagels, but under no circumstances should the price fall below $1.00 per dozen.
Throw the bagels away and produce 8 fewer dozen bagels tomorrow.
Starting tomorrow, lower the price on all bagels so they will all be sold earlier in the day
Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an alternative, he can spend an additional $3,000 replacing the engine. With a new engine the car would sell for $13,000. Rick should
complete the repairs and sell the car for $13,000
sell the car now for $10,000
never try such an expensive project again
be indifferent between (i) selling the car now and (ii) replacing the engine and then selling it.
Yvette buys and sells real estate. Two weeks ago, she paid $300,000 for a house on Pine Street, intending to spend $50,000 on repairs and then sell the house for $400,000. Last week, the city government announced a plan to build a new landfill on Pine Street just down the street from the house Yvette purchased. As a result of the city’s announced plan, Yvette is weighing two alternatives: She can go ahead with the $50,000 in repairs and then sell the house for $290,000, or she can forgo the repairs and sell the house as it is for $250,000. She should
keep the house and live in it
go ahead with the $50,000 in repairs and sell the house for $290,000
forgo the repairs and sell the house as it is for $250,000
move the house from Pine Street to a more desirable location, regardless of the cost of doing so.
You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should
compare the total cost of your education to the total benefits of your education
compare the total cost of your education to the benefits of staying one more semester.
compare the cost of staying one more semester to the benefits of staying one more semester
compare the total benefits of your education to the cost of staying one more semester
Kyle is planning to take a roadtrip. After he makes his plans, he has to make some unexpected auto repairs. Also, he sees the price of gas has gone up. Which of these two events should Kyle consider in deciding if it is still worthwhile to go on the trip?
the unexpected repairs and the increase in the price of gas
the unexpected increase for repairs, but not the increase in the price of gas
the increase in the price of gas, but not the unexpected repairs
neither the unexpected increase in the price of gas nor the unexpected repairs
You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a third. As a rational consumer you should make your choice by comparing
the benefits from eating all three bowls of ice cream to how much three bowls of ice cream costs.
the benefits from eating all three bowls of ice cream to how much one more bowl of ice cream costs.
the benefits from eating one more bowl of ice cream to how much three bowls of ice cream costs
the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs.
Olivia was accepted by Northwestern and by another university. She is trying to decide where to go. Which of the following should influence her decision?
how much she spent applying to Northwestern, and the difference between living expenses at Northwestern and the other university
how much she spent applying to Northwestern, but not the difference between living expenses at Northwestern and the other university
the difference between living expenses at Northwestern and her second choice, but not how much she spent applying to Northwestern
neither how much she spent applying to Northwestern nor the difference between living expenses at Northwestern and her second choice
You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3 off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost?
the amount you value the first movie + $3
the amount you value the first movie + $9
$3
$9
Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that
they should leave the price at $10.
it does not matter if they charge $10 or $15.
they would do better charging $15 than $10
they should raise the price even more
Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal
cost of teaching increased
benefit of teaching increased
cost of a corporate job increased
benefit of a corporate job decreased
Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has decided to take the job. For him, the marginal
cost of leaving was greater than the marginal benefit
benefit of leaving was greater than the marginal cost
benefit of teaching was greater than the marginal cost
All of the above are correct
Something that induces a person to act is called
a trade-off
a policy.
an incentive
an opportunity cost
Economists are particularly adept at understanding that people respond to
laws.
incentives
punishments more than rewards.
rewards more than punishments
A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?
People face tradeoffs
The cost of something is what you give up to get it.
Rational people think at the margin
People respond to incentives
People are likely to respond to a policy change
only if they think the policy is a good one
only if the policy change changes the costs of their behavior
only if the policy change changes the benefits of their behavior.
if the policy changes either the costs or benefits of their behavior
Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?
People respond to incentives
Rational people think at the margin
Trade can make everyone better off
Markets are usually a good way to organize economic activity
Government policies can change the costs and benefits that people face. Those policies have the potential to
alter people’s behavior
alter people’s decisions at the margin
produce results that policymakers did not intend
All of the above are correct
Ralph Nader's book Unsafe at Any Speed caused Congress to require
safety glass in all new cars
seat belts in all new cars
air bags in all new cars
stricter drunk driving laws in all states
Following the implementation of laws requiring automobiles to have seat belts, which of the following occurred?
An individual’s probability of surviving an auto accident rose
There was an increase in pedestrian deaths
There was an increase in automobile accidents
All of the above are correct
U.S. laws requiring that drivers wear seat belts have resulted in
a reduction in both driver deaths and pedestrian deaths
fewer accidents and fewer deaths per accident
fewer driver deaths, fewer accidents and fewer pedestrian deaths
little change in the number of driver deaths, but more accidents and more pedestrian deaths.
Evidence indicates that seat belt laws have led to
fewer pedestrian deaths
fewer automobile accidents
fewer deaths per automobile accident
All of the above are correct
. One effect of the government-imposed seat belt law in the U.S. has been
a dramatic decrease in the number of pedestrian deaths
safer driving
an increase in the number of accidents
a dramatic decrease in the number of driver deaths
Based on the available evidence, which of the following groups benefits most from mandatory seat belt laws?
automakers
pedestrians
drivers
owners of collision-repair shops
Which of the following can policy do?
alter incentives
alter trade-offs
change opportunity costs
All of the above are correct
Suppose the state of Illinois passes a law that bans smoking in restaurants. As a result, residents of Wisconsin who do not like breathing second-hand smoke begin driving across the border to Illinois to eat at restaurants there. Which of the following principles does this best illustrate?
People respond to incentives
Rational people think at the margin
Trade can make everyone better off
Markets are usually a good way to organize economic activity
In the former Soviet Union, producers were paid for meeting output targets, not for selling products. Under those circumstances, what were the economic incentives for producers?
to produce good quality products so that society would benefit from the resources used
to conserve on costs, so as to maintain efficiency in the economy
to produce enough to meet the output target, without regard for quality or cost
to produce those products that society desires most
Which of the following is not one of the four principles of individual decision making?
People face trade-offs
Trade can make everyone better off
People respond to incentives
Rational people think at the margin
Which of the following statements exemplifies a principle of individual decisionmaking?
Trade can make everyone better off
Governments can sometimes improve market outcomes
The cost of something is what you give up to get it.
All of the above are correct.
Which of the following is not an example of a group responding to an incentive?
Students attend class because of an attendance policy that reduces their grade for absences
Consumers buy more of a product when it is on sale at a reduced price
Universities offer fewer online classes when they generate more revenue than traditional classes.
Employees work harder to earn higher commissions
Michael is a college student. He can either buy a textbook for $100 or save up for a road trip he wants to take during the summer. This illustrates the principle that
trade can make everyone better off
people face trade-offs
rational people think at the margin
people respond to incentives
The balance between maximizing a society's income and an equal distribution of that income is an illustration of
scarcity
trade-offs
the forces of supply and demand
none of the above
The balance between efficiency and equality is an illustration of
scarcity
trade-offs
the forces of supply and demand
none of the above
Tim decides to spend four hours playing video games rather than attending his classes. His opportunity cost of playing games is
the value of the knowledge he would have received had he attended his classes.
the $50 he could have earned if he had worked at his job for those four hours
the value of his time playing video games minus the value of attending classes
nothing, since he valued playing video games more than attending classes
Jane decides to spend four hours working overtime rather than going to a family gathering. She earns $12.50 per hour for overtime work. Her opportunity cost of working is
the $50 she earns working
the $50 minus the enjoyment she would have received from going to the family gathering
the enjoyment she would have received had she gone to the family gathering
nothing, since she wanted to work more than she wanted to attend the family gathering
Consider Larry's decision to go to college. If he goes to college, he will spend a total of $120,000 on tuition, $30,000 on room and board, and $3,500 on books over four years. If he does not go to college, he will earn $30,000 annually working in a store and spend $7,000 on room and board each year. Larry's cost of going to college is
$123,500
$153,500
$190,500
$245,500
If Jane attends graduate school, it will take her two years, during which time she will earn no income. She will pay a total of $100,000 for tuition, $20,000 for room and board, and $2,000 for books. If she spends the two years working rather than attending college, she will pay a total of $18,000 for room and board, pay no intuition, and buy no books. Based on this information, Jane's economic cost of attending graduate school would be $175,000 if, over the two years, she could earn a total of
$53,000 instead of attending graduate school
$55,000 instead of attending graduate school.
$71,000 instead of attending graduate school
$73,000 instead of attending graduate school
Which of the following industries has a marginal cost that is close to zero?
automobile
aircraft
software
furniture
