EC 201 LC1 Ch.1

If an employer offers a potential employee $40,000, but the employee would be willing to work for $35,000, and the employer will make $55,000 from the work that the employee does. Assuming that the employee takes the job for $40,000, what is the employer's economic surplus?

15,000

Which of these would best be described as the foundation of all economic forces?

Choices

The difference between the benefits someone enjoys and the costs associated with those benefits is called:

Economic Surplus

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.

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

You are thinking about quitting your job to go back to school. Which of these is not associated with an opportunity cost? Costs of going to school Tuition costs $50,000 You quit your job Room and board cost $26,000 8 hours per day studying Costs of the next best alternative You won't pay tuition You earn $60,000 from your job Rent and meals cost $23,000 8 hours per day working

Time Spent

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

To determine your next best alternative.

When someone weighs the pros and cons of a particular decision, they are taking into account the _____ principle.

cost-benefit

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

economic surplus.

Hiring another worker is beneficial when the marginal benefit of hiring one more worker _____ the marginal cost, meaning that hiring another worker _____ economic surplus.

exceeds; increases

The phenomenon that occurs when small differences in how choices are described can lead people to make different decisions is known as the:

framing effect.

The framing effect causes people to make decisions based on:

how the decisions are described.

Evie, a receptionist at a car dealership, asks herself the question, "Should I go back to school, or should I continue to work at the dealership?" The fact that she is comparing the idea of going to school with her next best option indicates that she is applying the _____ principle.

opportunity cost

There are far fewer stay-at-home moms today than in 1975 in large part because women's wages have _____, causing the opportunity cost of being a stay-at-home mom to _____.

risen; rise

When properly applying the cost-benefit principle, you must calculate the costs and benefits of a decision relative to: Please choose the correct answer from the following choices, and then select the submit answer button.

the next best alternative.

Paul owns a bakery and has two employees. Because he is not sure whether he should hire a third worker, he would like to try hiring this worker and monitor his business. After hiring the third worker, Paul then notices that his total costs have increased by $1,100, and his total revenue has increased by $1,350. What decision should Paul make?

Keep the third worker and experiment by hiring a fourth worker

_____ is the extra benefit associated with one extra unit.

Marginal Benefit

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

Opportunity Cost Principle

Which best describes what economists mean when they use the term "costs"?

Opportunity costs

Which of these best describes what people should base their decisions on?

Opportunity costs

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

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.

Your friend asks you to check out his favorite store because there is a big sales event going on. As an economic student, when should you buy the product?

When the sale price is below or as much as your willingness to pay.

Hyunh has made a chart of the costs and benefits associated with buying a new car. Should she buy a new car? Why or why not? Costs $2,000 Cost of the car $300 Gas costs $2,000 Insurance $800 Repairs Benefits $5,500 transportation service savings

Yes, because the benefits of buying a car are greater than the costs.

Azmera currently rents an apartment for $900. He has made a chart of the costs and benefits associated with buying a new house. Should he buy a new house? Why, or why not? Costs $250 more in mortgage than rent $100 maintenance $50 home insurance $70 mortgage insurance $150 property tax Benefits $480 willingness to pay above the rent for the extra space $170 willingness to pay for not having noisy neighbors

Yes, because the benefits of buying a house are greater than the costs.