microeconomics chapter 1

If undertaking an activity includes both explicit and implicit costs, then, according to the textbook, the opportunity cost of that activity ______.

is the sum of its explicit and implicit costs

One common decision pitfall is to ______.

measure costs and benefits as proportions rather than absolute dollar amounts

The study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets is known as

microeconomics.

An implication of scarcity is that

people must make trade-offs

Suppose a retail store was offering 10 percent off list prices on all goods. The benefit of the 10 percent savings is

positively related to the list price of the good.Correct

In economics, a(n) _____ individual is someone with well-defined goals who tries to fulfill those goals as best they can.

rational

A normative economic principle

says how people should behave.

Suppose Monique is willing to pay up to $16,000 for a used Ford pick-up truck. If she buys one for $12,500, her economic ______ would be ______.

surplus; $3,500

The economic surplus of an action is

the benefit of taking an action minus its cost.

Microeconomics differs from macroeconomics in that microeconomics focuses on

the choices made by individuals and the implications of those choices.

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 average benefit of carrying out an activity is ______.

the total benefit of undertaking n units of an activity divided by n

The average cost of carrying out an activity is

the total cost of undertaking n units of an activity divided by n.

Economic models are _____ if people do not consciously weigh costs and benefits when making decisions.

useful even Reason: Right! Even when people do not consciously weigh costs and benefits, people often do so unconsciously, often learning through trial and error which choices lead to the best outcomes. As a result, economic models are still useful in predicting behavior.

When making decisions, people sometimes make mistakes because they ______.

fail to consider implicit costs

A positive economic principle ______.

predicts how people will behave

The Cost-Benefit Principle ______.

says how people should behave

Costs that are beyond recovery at the moment a decision is made ______.

should not factor into the cost--benefit calculation

Although we have boundless needs and wants, the resources available to us are limited, so having more of one good thing usually means having less of another. This is called ______.

the Scarcity Principle

Economists believe that people

never have enough time, money, or energy to do everything or have everything they want.

The Cost-Benefit Principle is a _____ economic principle

normative

A principle that predicts how people will behave is called a(n):

positive economic principle.

When making a decision, sunk costs ______.

should be ignored

Normative economic principles are concerned with how people ______ make decisions while positive economic principles are concerned with how people ______ make decisions.

should; do

Suppose you are considering whether to go to your 8 am economics class. If you do not go to class you can either sleep an extra hour, which you value at $10, or you can go to the gym, which you value at $7. Your opportunity cost of going to class is ______.

$10 Reason: The opportunity cost of an action is the value you place on the next best alternative.

If it costs Sarah $400 to make 200 Christmas cookies, then her average cost of making a Christmas cookie is

$2 Reason: Average cost is the total cost of undertaking n units of an activity divided by n (=$400÷200).

Suppose you plan to buy a new pair of running shoes. To buy them online, the pair costs $9. However, the value you had placed on the buying the shoes online is $12. Based on this information, your economic surplus from buying the shoes online is _____. Multiple choice question.

$3 Reason: The benefit of buying the shoes online is $12, and the cost is $9. Thus, economic surplus is $12 - $9 = $3.

Suppose you plan to buy a new pair of running shoes. To buy them online, the pair costs $9. However, the value you had placed on the buying the shoes online is $12. Based on this information, your economic surplus from buying the shoes online is _____

$3 Reason: the benefit of buying the shoes online is $12, and the cost is $9. Thus, economic surplus is $12 - $9 = $3.

Lauren was accepted at three different graduate schools, and she must choose one. Elite U costs $50,000 per year and did not offer Lauren any financial aid. Lauren values attending Elite U at $60,000 per year. State College costs $30,000 per year and offered Lauren an annual $10,000 scholarship. Lauren values attending State College at $40,000 per year. NoName U costs $20,000 per year and offered Lauren a full $20,000 annual scholarship. Lauren values attending NoName at $15,000 per year. Lauren's opportunity cost of attending State College is

$35,000.

Chris is a potter who specializes in making mugs. When he makes 10 mugs a day his total cost is $90, and when he makes 11 mugs a day, his total cost is $121. Thus, his marginal cost of making the 11th mug is $_______.

31

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is

5

Suppose that each police officer hired by the City of Gotham generates an average benefit to the community of $500 per week, and the average salary of police officers is $600 per week. Should the City of Gotham hire more or fewer police officers? Multiple choice question.

It's impossible to say. Reason: Whether the City of Gotham should hire more or fewer police officers depends on the marginal benefit and marginal cost of an additional police officer, but the question only gives information on average benefit and average cost.

Suppose Sean makes 10 tables a month, each of which he can sell for $200. Given that the average cost of making each table is $150, should Sean make more or fewer tables each month?

It's impossible to tell. Reason: Sean should base his decision on the marginal cost and marginal benefit of making another table. The average cost of the table is not the same as the marginal cost of making a table. Thus, there's not enough information to determine what Sean should do.

Jackie wants to go to the football game this weekend, but she has a paper due on Monday. It will take her the whole weekend to write the paper. Jackie decides to stay home and work on the paper. According to the Scarcity Principle, the reason Jackie doesn't go to the game is that

Jackie can't go the game and finish the paper.

The Incentive Principle asserts that a person ______.

is more likely to take an action if its benefit rises, and less likely to take an action if its cost rises Reason: The Incentive Principle says that people generally respond to incentives.

Suppose you're trying to decide what to cook for dinner. Both the chicken and the salmon you have in your fridge are about to go bad, and whichever one you don't eat tonight, you'll have to throw away. In deciding which one to cook, should it matter to you that the salmon was slightly more expensive than the chicken?

No. Reason: The amount you spent on the food is a sunk cost and shouldn't factor into your decision. You should just cook whichever one sounds better to you!

Which of the following would not be studied in microeconomics?

Whether the federal budget should be balanced

When assessing the costs and benefits associated with taking an action, it is generally best to consider costs and benefits

as absolute dollar amounts rather than proportions.

People sometimes apply the Cost-Benefit Principle incorrectly because they evaluate costs and benefits ______.

as proportions rather than absolute dollar amounts

An activity's _______ benefit is the total benefit of carrying out n units of an activity divided by n.

average

The total cost of carrying out n units of an activity divided by n is the activity's ________ cost.

average

In the textbook, opportunity cost includes ______.

both explicit costs and implicit costs

Learning more about economic models

can help us make better decisions even if most people don't consciously use economic models to make decisions. Reason: Right! Even when people do not consciously weigh costs and benefits, people often do so unconsciously, often learning through trial and error which choices lead to the best outcomes. As a result, economic models are still useful in predicting behavior.

The fact that people do not always consciously weigh costs and benefits when making decisions

doesn't mean that economic models aren't useful for predicting behavior. Reason: Right! Even when people do not consciously weigh costs and benefits, people often do so unconsciously, often learning through trial and error which choices lead to the best outcomes. As a result, economic models are still useful in predicting behavior.

The study of how people make choices under conditions of scarcity and the results of those choices for society as a whole is called ______.

economics

if someone is rational, then they

have well-defined goals that they try to fulfill as best they can

When deciding whether to take an action, one common decision pitfall is to ______.

ignore the implicit cost of the action

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of

inconsistent reasoning; saving $20 is saving $20.

The marginal benefit of carrying out an activity is the

increase in total benefit that results from carrying out one additional unit of the activity.

For the fall semester, you had to pay a nonrefundable fee of $750 for your meal plan, which gives you up to 150 meals. If you eat 150 meals, your average cost per meal is

$5.00.

Kimberley is studying for her math exam. If she studies for 5 hours she knows she'll get an 80, and if she studies for 6 hours, she knows she'll get a 90. Thus, the marginal benefit of the 6th hour of studying is ______.

10 points

Suppose Anaya owns a small business knitting scarves. The table below shows the number of scarves that Anaya can knit each week along with her total cost. If she knits 4 scarves per week, then her average costs is $______ per week.

11

Suppose you need to buy a new cell phone charger. You can buy one at a nearby store for $10, or you can buy one online for $8.50, but it'll take 2 days to arrive. If the cost to you of waiting two days to get the charger is $1, then your economic surplus from buying the charger online instead of at the store is:

50 cents Reason: The benefit of buying the charger online is that it's cheaper, and the cost is that you'll have to wait 2 days. Economic surplus is the benefit of buying the charger online minus the cost, or $1.50 - $1 = 50 cents.

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 airfare is $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 $1,400. 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 airfare is $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.

A sunk cost is

a cost that is beyond recovery at the time a decision is made.

economists believe that scarcity is...

a fundamental fact of life for everyone

According to the Incentive Principle, when the benefit of an action rises, a person

is more likely to take the action.

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

$35.

Suppose you are considering whether to spend an additional hour studying for your economics midterm tomorrow. If you do not study you can either surf the web, which you value at $5, or you can talk to your roommate, which you value at $4. Your opportunity cost of studying for an additional hour is:

$5 Reason: The opportunity cost of an action is the value you place on the next best alternative.

Suppose you pay $35 to reserve a camp site at a local state park. The rules specify that you can only receive a refund if you cancel your reservation 2 weeks before your trip. Several days before your trip, you learn that it's supposed to rain the whole time you had planned to camp, and you are having second thoughts about going. Should the $35 you paid for the camp site factor into your decision about whether to go camping?

No Reason: Right! Several days before your trip, the $35 you paid for the camp site is a sunk cost (regardless of whether you go camping, the $35 is gone). So the $35 you paid for the camp site should not factor into your decision about whether to go camping.

Suppose the most you would be willing to pay to have a freshly washed car before going out on a date is $6. The smallest amount for which you would be willing to wash someone else's car is $3.50. You are going out this evening and your car is dirty. How much economic surplus would you receive from washing it?

The economic surplus would be $2.50

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

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

The benefit of taking an action minus its cost is known as

economic surplus

The Scarcity Principle applies to

everyone

economics is best defined as the study of...

how people make choices under conditions of scarcity and the results of those choices for society

The marginal cost of carrying out an activity is the

increase in total cost that results from carrying out one additional unit of the activity.

Microeconomics is the study of:

individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets

A ________ economic principle is one that says how people should behave.

normative

An economic principle that says how people should behave is known as a ______.

normative economic principle

Jody has purchased a nonrefundable $75 ticket to attend a Miley Cyrus concert on Friday night. Subsequently, she is asked to go to out dinner at no expense to her. If she uses cost-benefit analysis to choose between going to the concert and going out to dinner, the opportunity cost of going out to dinner should include

only the entertainment value of the concert.

The value of what must be foregone in order to undertake an activity is the ________ cost of that activity.

opportunity

The value of what must be foregone in order to undertake an activity is known as

opportunity cost

an implication of the Scarcity Principle is that

people must make trade-offs

Positive economic principles are those that

predict how people will behave

A(n) _______ cost is a cost that is beyond recovery at the moment a decision is made.

sunk