Chapter 1 Homework: Four Core Principals

An employer offers a potential employee $60,000, even though the employee would be willing to work for $45,000. The employer will make $70,000 from the work that the employee does. Assuming that the employee takes the job for $60,000, what is the employer's economic surplus?

$10,000

If the marginal benefit of hiring an extra worker exceeds the marginal cost of the worker, then hiring the worker will boost the total benefit:

more than it boosts total cost.

In order to ensure that you are applying the opportunity cost principle correctly, when you pose a question, which word or phrase should always appear in the middle of the sentence?

or

When you confront a problem, which of the four economic principles should you consider last?

the interdependence principle

Matthew has been diagnosed with cancer and doctors estimate that he has roughly 5 months to live. From an economic standpoint, which BEST explains why Matthew might be more likely than a healthy person to take a risky experimental drug?

His opportunity cost is lower than that of healthy people.

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

There will only be either/or choices left.

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

economic surplus.

When applying the cost-benefit principle, any consequence of one of your decisions can be considered a cost or a benefit, as long as that consequence:

has meaning to you.

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

An employer offers a potential employee $40,000, even though the employee would be willing to work for $35,000. The employer will make $55,000 from the work that this employee does. Assuming that the employee takes the job for $40,000, what is the employer's economic surplus?

$15,000

Jenna is considering going to college for another year. She is creating a chart of the costs and benefits of this decision. She knows that tuition will cost $20,000, but she has a scholarship for $15,500. How much should she put for tuition in the cost column of her chart?

$4,500

_____ refer(s) to the problem that resources are limited.

Scarcity

Amancio is going into his fourth year of school when he is offered a prestigious position at a software company. Instead of applying the opportunity cost principle to see if he should quit school and take the job, he decides to stay in school, because he has already spent so much time and money on furthering his education. Amancio's hasty decision has been negatively affected by:

sunk costs.

Nasser owns a business that produces t-shirts, but he is struggling with the dilemma of how many shirts to produce, so he begins by asking himself if he should produce one more shirt. Which economic principle is exemplified by this situation?

the marginal principle

When applying the opportunity cost principle, why is it important to ask, "Or what?"

to determine your next best alternative

You are willing to pay $4 for a cheeseburger. According to the cost-benefit principle, when should you buy a cheeseburger?

when the cost is less than or equal to $4

When are out-of-pocket costs also opportunity costs?

when the out-of-pocket costs do not exist in the next best alternative