ECON Exam 1 Review

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is:

$35.

Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______.

economic surplus; $3,000

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.

Suppose the cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should:

drink a third glass of soda if the benefit of doing so is positive.

Alex received a four-year scholarship to State U. that covered tuition and fees, room and board, and books and supplies. If Alex becomes a full-time student, then:

the opportunity cost of attending State U. includes the money Alex could have earned working for four years.

The economic surplus of an action is:

the difference between the benefit and the cost of taking an action.

You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. Should you go to the concert instead of working Saturday?

No, the benefit of going to the concert is less than the cost. - Since you're willing to pay $35 for the concert. That means perceived benefit from going to concert is $35 - The cost of going to concert is the foregone value of working, which is 4*$11-4*2= $36

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. If you do not use the frequent-flyer coupon to fly to Miami, should you go to Miami?

No, your benefit is less than your cost. - If you don't use your frequent flyer number, your total cost would be $600+$900 = $1500

All else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has:

a higher opportunity cost of taking the day off work.

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is:

an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.

You are trying to decide whether to purchase the latest Harry Potter book online or borrow it from the library. There is no charge for borrowing a book from the library, but going to the library takes more time than ordering a book online. Regardless of how you get the book, its benefit to you is the same. If the cost of buying the book online is $13, then you should:

borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13.

Economics is the study of:

choice in the face of limited resources.

If all the world's resources were to magically increase one hundredfold, then:

people would still have to make trade-offs.

According to the Cost-Benefit Principle, you should spend an additional hour studying for an exam if, and only if:

the benefits of studying for an additional hour exceed the costs of studying for an additional hour.

If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because:

the costs will be understated.

Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is:

the value she places on seeing the movie.

Economists use abstract models because:

they are useful for describing general patterns of behavior.

Economists recognize that because people have limited resources:

they have to make trade-offs.

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, a unifying concept is that:

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

A rational person is someone:

with well-defined goals who tries to fulfill those goals as best as he or she can.