test 1

A _____ absolute value of the price elasticity of supply means that the quantity is more responsive to _____ changes.

bigger; price

The price elasticity of supply may be _____ in the short run, but it is typically _____ over the long run.

quite small; much larger

The production possibility frontier shows:

the most that you can produce given your current resources.

The cost-benefit principle says that people should make choices based on _____ of the choice they face, rather than _____.

the underlying costs and benefits; how the choice is described

If a decision boosts a person's economic surplus, then it must be true that the decision boosted:

total benefits more than total costs.

When people follow the cost-benefit principle, every decision they make will:

yield larger benefits than costs

Which of these is NOT true of the marginal principle?

It is useful in making either/or decisions.

Which principle is sometimes best remembered by the conclusion that incentives matter?

The cost-benefit principle

When individuals have broken a decision into only either/or choices, which two economic principles should they apply?

The cost-benefit principle and the opportunity cost principle

Which of these is relevant when you face a decision with an either/or question?

The marginal principle

How do you know when you have broken a decision into its smallest components?

There will only be either/or choices left.

According to the cost-benefit principle, under what conditions should a business owner hire an additional worker?

When marginal benefit is greater than or equal to marginal cost

Elasticity

_____ allows you to forecast how much quantities will change under different market conditions.

economic surplus

_____ is a measure of how much a decision has improved the decision maker's well-being.

If buyers and sellers always follow the cost-benefit principle, it ensures that all transactions will yield:

economic surplus

Making good decisions is all about maximizing:

economic surplus

Ayalon owns a fast food restaurant that is open 18 hours a day. He is considering the idea of having his restaurant remain open 24 hours a day, but he realizes that the success of this plan may be affected by the changing hours of his competitors. Ayalon is taking into account the _____ principle.

interdependence

Changes in prices and opportunities in one market affect the choices a person might make in another market. This is pointed out in the _____ principle.

interdependence

Compared to terminally ill people, healthy people are _____ likely to try risky experimental drugs because their opportunity cost is _____.

less; higher

Because the opportunity cost of time is _____ during an economic downturn, people choose to see _____ movies.

lower;more

The _____ principle says that decisions about quantities are best made incrementally.

marginal

A decision _____ an out-of-pocket cost, and _____ an opportunity cost.

may or may not have; always has

Economists use a special method called the _____, which measures the percent change between any two points relative to the point _____ those two points.

midpoint formula; midway between

You can use willingness to pay to convert:

nonfinancial costs or benefits into their monetary equivalents.

The _____ principle says that the true cost of something is the next best alternative that you must give up to get it.

opportunity cost

When someone considers alternatives before making a decision, they are taking into account the _____ principle.

opportunity cost

When you pursue a choice of using a scarce resource, there is a(n):

opportunity cost

The _____ helps people make better decisions by forcing them to focus on the real trade-offs they face.

opportunity cost principle

The price elasticity of supply is a _____ number, because changes in price lead to changes in quantity in _____ along a supply curve.

positive; the same direction

If you rearrange the formula for price elasticity of demand mathematically (in order to express the equation in terms of another variable), the percent change in quantity demanded is equal to:

price elasticity of demand × percent change in price.

The _____ maps out the different sets of output that are attainable with the available resources.

production possibility frontier

_____ are ignored in good decision making.

sunk costs

With price-takers, suppliers:

take the market price as given and just follow along.