Smartbook 1
The Incentive Principle is a _______ economic principle
positive
You are considering whether to go see a movie. The movie lasts 2 hours and tickets are $15 each. Assuming there are no other costs associated with going to a movie, your opportunity cost of going to the movie is
$15 plus the value of whatever else you would have done for those 2 hours reason: both explicit and implicit costs (like the value of your time) should be considered when evaluating the opportunity cost of an activity.
You are considering whether to knit a sweater for your mom's birthday. You estimate that the cost of the yarn and other materials will be $20. In addition, you estimate that it will take you about 30 hours to knit the sweater. Given that you value your time at $5 per hour, what is the opportunity cost to you of knitting the sweater?
$170 reason: in this textbook, all costs, both explicit and implicit, are considered to be opportunity costs
Suppose the table below shows the total benefit (measured in dollars) that Mariana receives from baking cakes each week. If she bakes 2 cakes per week, then her average benefit is $__ per week Quantity of cakes: 1, 2, 3, 4, 5 Total benefit ($): 10, 18, 24, 28, 30
$9
If Sarah gets $600 worth of benefit from making 200 Christmas cookies, then her average benefit from making a Christmas cookie is:
$3 reason: average benefit is the total benefit of undertaking n units of an activity divided by n(=$600/200)
Suppose you are considering whether to spend an additional hour studying for your economic 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 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 if studying for an additional hour is
$5 reason: the opportunity cost of an action is the value you place on the next best alternative
You are considering whether to take a few days off work to visit your best friend who lives in New York. You estimate that airfare plus other travel expenses will cost $575. In addition, you will have to use 2 vacation days, which you value at $100 each. Assuming there are no other costs associated with your trip, what is the opportunity cost of visiting your friend?
$775 reason: in this textbook, all costs, both explicit and implicit, are considered opportunity costs
Aarav wants to read "The Wealth of Nations", by Adam Smith. He can either buy a copy at the bookstore near his house for $15, or bike across town and check it out from the public library. There is no charge to check books out of the library, but the hassle of biking across town would cost Aarav $7. What is Aarav's economic surplus from checking the book out of the library instead of buying it at the bookstore?
$8 reason: the benefit of checking out the book from the library instead of buying it at the bookstore is $15, and the cost is $7. Thus, economic surplus is $15-$7=$8.
You are considering whether to go to lunch with a friend. Lunch will take about an hour and will cost $9. Assume there are no other costs associated with going to lunch, the opportunity cost of going to lunch is
$9 plus the value of the hour you spend at lunch reason: both explicit and implicit costs (like the value of your time) should be considered when evaluating opportunity cost.
Kimberly 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 can knit each week along with her total cost. If she knits 3 scarves per week, then her average cost is $__ per week Quantity of scarves: 1, 2, 3, 4, 5 Total Cost ($): 8, 18, 30, 44, 60
10, $10, or ten
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 cost is $__ per week Quantity of scarves: 1, 2, 3, 4, 5 Total Cost ($): 8, 18, 30, 44, 60
11, or $11
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, thirty-one, $31, 31 dollars, or thirty-one dollars
Chris is a potter who specializes in making mugs. When he makes 10 mugs a day his total cost of $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, thirty-one, 31 dollars, or thirty-one dollars
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 2 days to get the charger is $1, then your economic surplus from buying the charger inline 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
Economic models are useful in explaining and predicting behavior only to the extent that people are considered aware of those models when making decisions.
False reason: even when people do no 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
Which of the following is a normative economic principle
The Cost-Benefit Principle
Which of the following is a normative economic principle?
The Cost-Benefit Principle
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
Economists view scarcity as
an unavoidable fact of life
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 and implicit costs
In calculating opportunity cost, the textbook incluses
both implicit and explicit costs
The benefit of taking an action minus its cost is known as
economic surplus
The study of how people make choices under conditions as scarcity and the results of those choices for society as a whole is called
economics
You're trying to decide whether to go for a run. If you don't go for a run, you'll either watch TV or do your homework. Your opportunity cost of going on a run is
either the value you place on watching TV or the value you place on doing homework, whichever is larger reason: the opportunity cost of an action is the value you place on the next best alternative
The scarcity principle applies to
everyone
The scarcity principle captures the notion that 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
Economics is best defined as the study of
how people make choices under the conditions of scarcity and the results of those choices for society
When deciding whether to take an action, one common decision pitfall is to
ignore the implicit cost of the action
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
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
According to the Incentive Principle, when the benefit of an action rises, a person
is more likely to take the action
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?
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 info to determine what sean should do.
In standard economic models, a rational person
makes choices by weighing the extra benefits of an action against its extra costs
one common decision pitfall is to
measure costs and benefits as proportions rather than absolute dollar amounts
You are considering whether to fill out a mail-in rebate form for an item you just purchased. The total cost of filling out and mailing in the form is $8, and the rebate is worth $20. Should your decision about whether to send in the rebate form depend on whether the price of the item you purchased was $20 or $2000?
no reason: although the rebate is 100% of the purchase price if the item was $20 and only 1% of the purchase price if the item was $2000, the benefit of mailing in the rebate is greater than the cost of mailing in the rebate ($20>$8), so you should mail in the rebate
Suppose you pay $75 to buy a ticket to see one of your favorite bands next month. When the day of the concert rolls around, should the cost of the ticket figure into your decision about whether to go to the concert (assume you have no way to sell your ticket to anyone else)?
no reason: on the date of the concert, the $75 you paid for the ticket is a sunk cost (regardless of whether you got to the concert, the $75 is gone). So the cost of the ticket should not enter your decision about whether to go
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!
Suppose you've decided to go out to eat with some friends. If you take the time to go online, you know you can download a $5 dollar off coupon for the restaurant. Should your decision about whether to download the coupon depend upon the amount you expect to pay for your meal?
no reason: the benefit of the coupon is $5, and the cost is the value of the time it would take you to download the coupon. Since neither of these depends upon the price of your meal, the price of the meal should not factor into your decision
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
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 forgone to undertake an activity is the _____________ cost of that activity.
opportunity
The value of what must be forgone to undertake an activity is known as
opportunity cost
Suppose you're trying to decide whether to look for free street parking or you pay $10 to park in a parking garage. You should
park in the parking garage if you'd be willing to pay at least $10 to avoid the hassle of finding street parking
A principle that predicts how people will behave is called a(n)
positive economic principle
A positive economic principle
predicts how people will behave
The Incentive Principle
predicts how people will behave
The Cost-Benefit Principle
says how people should behave
The Cost-Benefit Principle ___________
says how people should behave
When making a decision, sunk costs
should be ignored
A(n) ____ cost is a cost that is beyond recovery at the moment a decision is made.
sunk
A cost that is beyond recovery at the moment a decision is made is a(n)
sunk cost
Economic ______ is the benefit of taking an action minus its cost.
surplus
According to the Cost-Benefit Principle, an individual or society should
take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs
The economic surplus of an action is
the benefit of taking an action minus its cost
The Cost-Benefit Principle states that an individual or society should take an action if, and only if
the extra benefits from taking the action are at least as great as the extra costs
Macroeconomics is the study of
the performance of national economies and the policies that governments use to try to improve that performance
The average benefit of carrying out an activity is
the total benefit of undertaking n units of an activity divided by n
Opportunity cost is
the value of what must be forgone in order to undertake an activity
You are considering whether to spend the evening watching TV or studying for your economics course, Your opportunity cost of watching TV is
the value you place on studying for your economics course reason: both explicit and implicit costs (like the value you place on studying) should be considered when evaluating the opportunity cost of an activity
When people ignore the implicit cost of activities ______.
they tend to make the wrong choice
Economic models are ______ if people do not consciously weight costs and benefits when making decisions
useful even reasonL 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.
A rational person is someone
with well-defined goals who tries to fulfill those goals as best as he or she can.
For Buzz, the benefit of drinking an additional cup of coffee is $3. If a cup of coffee costs $1.50, and if Buzz has to use $1 worth of his time to go buy the coffee, should Buzz drink another cup of coffee?
yes reason: the benefit to Buzz of drinking another cup of coffee is greater than the cost ($3>$2.50)
