Chapter 1: The Core Principles of Economics

The cost-benefit principle states that _____ are the incentives that shape decisions. a) framing effects b) costs and benefits c) incomes d) opportunity costs

b) costs and benefits

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction. a) only the seller b) only the buyer c) both the buyer and the seller d) neither the buyer nor the seller

c) both the buyer and the seller

You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $15. You value the restaurant meal at $30 and the time spent with your friend at $50. You should ____ to dinner with your friend because the benefit of doing so is _____ than the cost. a) go; greater b) not go; greater c) not go; less d) go; less

a) go; greater

Joshua Murphy is planning on studying late into the night for his economics exam. How many cups of coffee should he buy tonight? Joshua should keep buying coffee throughout the evening until the marginal: a) cost of purchasing one more coffee is positive. b) benefit of purchasing one more coffee is positive. c) benefit of purchasing one more coffee is less than the marginal cost. d) benefit of purchasing one more coffee equals the marginal cost.

d) benefit of purchasing one more coffee equals the marginal cost.

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week. a) greater; $75 b) greater; $150 c) less; $75 d) less; $150

d) less; $150

Decisions should reflect the _____ costs, rather than just the _____ costs. a) nonfinancial; financial b) opportunity; financial c) opportunity; nonfinancial d) financial; marginal

b) opportunity; financial

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week. a. less; $150 b. less; $75 c. greater; $150 d. greater; $75

a. less; $150

It is a rainy day, and you are considering taking an Uber one mile to meet some friends. You have decided you are willing to pay $20 to avoid getting wet from the rain. The trip would normally cost you $8, but due to the weather the surcharge is triple the regular cost. You should _____ because the benefit to you of taking the Uber is _____ than the cost. a. walk; less b. walk; more c. take an Uber; less d. take an Uber; more

a. walk; less

According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is _____ the marginal cost of an additional item. a) greater than or less than b) greater than c) equal to d) less than

c) equal to

Dependencies between your own choices reflect the fact that: a) society has limited resources. b) resources are spread across varying markets. c) you have limited resources. d) resources can be spread across time.

c) you have limited resources.

Gary Parker is willing to pay $700 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $600. It costs Apple $400 to produce this iPad. How much economic surplus does Apple receive if Gary purchases this iPad? a. $700 b. $600 c. $200 d. $100

c. $200

How is the economic surplus generated by a decision calculated? a) It is the sum of benefits arising from the decision. b) It is the total benefits plus total costs arising from the decision. c) It is the sum of costs arising from the decision. d) It is the total benefits minus total costs arising from the decision.

d) It is the total benefits minus total costs arising from the decision.

Which principle tells you that the true cost of something is the next best alternative you have to give up to get it? a) The marginal principle b) The cost-benefit principle. c) The interdependence principle. d) The opportunity cost principle.

d) The opportunity cost principle.

The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle. a) interdependence b) marginal c) opportunity cost d) cost-benefit

a) interdependence

Marie Johnston is a manager at an electronics store, and she has to decide how many workers to hire. If she hires one worker, her revenue is $400 per day. If she hires another worker, she can make another $350 per day. The marginal benefit of hiring another worker decreases by $50 with each additional hire. Assuming that workers are paid $20 per hour and work eight hours, how many employees should Marie hire, and what will be the total revenue of her store? a. She will hire four workers and the revenue of the store will be $1,300. b. She will hire five workers and the revenue of the store will be $1,500. c. She will hire six workers and the revenue of the store will be $1,650. d. She will hire seven workers and the revenue of the store will be $1,750.

b. She will hire five workers and the revenue of the store will be $1,500.

Taryn is buying shirts online and has to decide how many shirts to buy. She should buy another shirt if the a. marginal benefit of the next shirt is less than the price of the shirt. b. marginal benefit of the next shirt is at least as high as the price of the shirt. c. total benefit when purchasing one more shirt is less than the total cost of the shirts. d. total benefit when purchasing one more shirt is at least as high as the total cost of the shirts.

b. marginal benefit of the next shirt is at least as high as the price of the shirt.

Marie Johnston is a manager at an electronics store and has to decide how many workers to hire. If she hires one worker, her revenue is $500 per day. If she hires another worker, she can make another $400 per day. The marginal benefit of hiring another worker decreases by $100 with each additional hire. Assuming that workers are paid $15 per hour and work eight hours, how many employees should Marie hire, and what will be the total revenue of her store? a. She will hire three workers and the revenue of the store will be $1,200. b. She will hire four workers and the revenue of the store will be $1,400. c. She will hire five workers and the revenue of the store will be $1,400. d. She will hire six workers and the revenue of the store will be $1,500.

b. She will hire four workers and the revenue of the store will be $1,400.

Sunk costs should ____ be considered as part of the opportunity costs of a decision. a. always b. never c. sometimes d. rarely

b. never

You are thinking of going out to dinner at a restaurant with your friends. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $20. You value the restaurant meal at $20, and the time spent with your friends at $30. You should ____ to dinner with your friends because the benefit of doing so is _____ than the cost. a. go; greater b. go; less c. not go; greater d. not go; less

d. not go; less

The opportunity costs of attending college include the: a) cost of room and board. b) potential income that could be earned working. c) cost of clothes to wear at school. d) effort and hard work.

b) potential income that could be earned working.

Consider your decision to attend class each day or skip it. Which of the four core principles of economics applies to the notion that by attending class you are not doing the next best activity you would prefer to do, such as napping or going to the gym? a. Cost-benefit principle b. Opportunity cost principle c. Marginal principle d. Interdependence principle

b. Opportunity cost principle

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte? a) $1 b) $2 c) $4 d) $6

c) $4

The key to using the cost-benefit principle is to think about _____ aspects of a decision. a) only nonfinancial b) only financial c) both financial and nonfinancial d) neither financial nor nonfinancial

c) both financial and nonfinancial

The __________ suggests, decisions about quantities are best made incrementally. a) interdependence principle b) opportunity cost principle c) cost-benefit principle d) marginal principle

d) marginal principle