Chapter 1 - Macroeconomics

Economics is best defined as the study of:

how people make choices in the face of scarcity and the implications of those choices for society as a whole.

The opportunity cost of an activity includes the value of:

the next-best alternative that must be foregone.

Pat earns $25,000 per year (after taxes), and Pat's spouse, Chris, earns $35,000 (after taxes). They have two pre-school-aged children. Childcare for their children costs $12,000 per year. Given that Chris doesn't want to stay home with the kids, regardless of what Pat does, Pat should stay home with the kids if, and only if, the value of Pat spending more time with the kids is greater than:

$13,000 per year.

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. The benefit to Matt of driving to campus to buy the concert ticket last week was:

$4

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. What is Larry's economic surplus from attending State College instead of his next best alternative?

$5,000

The Scarcity Principle applies to:

all decisions.

The Incentive Principle states that a person:

is more likely to take an action if its benefit increases.

If individuals are rational, they should choose actions that yield the:

largest economic surplus.

A rational person:

makes choices based on added benefits and added costs.

The extra benefit that results from carrying out one additional unit of an activity is the ______ of the activity.

marginal benefit

The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.

marginal cost

In deciding how many guitars to buy for his shop before the Christmas season, Mark is making a(n) ______ decision.

microeconomic

Positive economic principles are those that:

predict how people will behave.

The Cost-Benefit Principle:

provides an abstract model of how people should choose between alternatives.

Average benefit formula:

total benefit / number of units

The average benefit of n units of an activity is the:

total benefit of n units divided by n.

Average cost formula

total cost / number of units

The cost-benefit model used by economists is:

useful because most people follow it most of the time.

Whether studying the output of the U.S. economy or how many classes a student will take, an unifying concept is that:

wants are unlimited and resources are scarce, so trade-offs have to be made.

The Scarcity Principle states that:

with limited resources, having more of one thing means having less of another.