ULTIMATE CH 1 ECON ACHIEVE

It is a beautiful afternoon, and you are considering taking a leisurely stroll through the park. Your alternatives to walking are streaming a movie that you value at $5, taking a nap that you value at $7, or reading a new book that you value at $12. What is the opportunity cost to you of taking the stroll through the park? A. $0 B. $5 C. $7 D. $12

$12

The cost of your favorite coffee is $6.50 per cup at the coffee shop. The marginal cost of each cup you drink is _____. The first cup of coffee you drink gives you a marginal benefit of $8. The marginal benefit from the second cup is $6, $4 from the third, $2 from the fourth, and $0 from the fifth. You should drink _____ of coffee.

$6.50; 1 cup

The cost-benefit principle states that the full set of _____ should be evaluated when making any choice.

costs and benefits

What factors into the opportunity cost for a decision?

1. benefits from the best foregone alternative 2. actual financial cost of the decision 3. time spent due to the decision

Economists use money equivalents to compare costs and benefits because money is:

A common measuring stick

Diane is a student studying economics and currently working on her class schedule for next semester. When she considers taking another economics course rather than taking a math class in the same time slot, she is acknowledging that dependencies exist: A. between her own choices. B. between people or businesses in the same market. C. between markets. D. through time.

A. between her own choices.

Your friend remarks that longer movies are a better deal than shorter movies because the ticket price is the same in both cases. Therefore, the longer movie provides more benefit for the same cost as a shorter movie. Which of the following is the best argument against your friend's claim that longer movies provide more benefit than shorter movies? Based on the A. opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives. B. cost‑benefit principle, the benefits of a longer movie exceed the costs when compared to a shorter movie. C. marginal principle, you should only continue to watch an additional movie if it is shorter than the first movie. D. interdependence principle, longer movies are affected by the market for shorter movies.

A. opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives.

The interdependence principle states that your best choice today depends on all of these EXCEPT: A. past decisions you have made. B. expectations about the future. C. other decisions you are currently making. D. decisions others are currently making.

A. past decisions you have made.

Economic models do all of the following except A. portray reality in all its details. B. make economic ideas explicit and concrete. C. answer economic questions. D. simplify some aspect of economic life.

A. portray reality in all its details.

The marginal benefit from an additional worker is: A. the additional benefit from hiring one more worker. B. the total benefit from all workers hired. C. always equal to the benefit from the first worker hired. D. always equal to the cost of hiring the additional worker.

A. the additional benefit from hiring one more worker.

Decisions should reflect the _____ costs, rather than just the _____ costs.

opportunity; financial

Which of the following is the best definition of the opportunity cost of a decision? A. The sum of all benefits from all foregone alternatives. B. Benefits from the best foregone alternative. C. The difference between the benefits of the first and second best choices. D. Actual financial cost of a decision.

B. Benefits from the best foregone alternative.

Joshua is planning on studying late into the night for his economics exam. He is contemplating how many cups of coffee to buy tonight. Joshua should NOT buy an additional coffee during the evening if the marginal: A. benefit of purchasing one more coffee exceeds the marginal cost. B. benefit of purchasing one more coffee is less than the marginal cost. C. benefit of purchasing one more coffee is positive. D. cost of purchasing one more coffee is positive.

B. benefit of purchasing one more coffee is less than the marginal cost.

In 2016, the top-selling pharmaceutical drug in the world was AbbVie's Humira, which is used for the treatment of several common, chronic conditions. The majority of its profits are derived from treatment of the most common diseases, but AbbVie also develops drugs for rare conditions. Why might AbbVie develop drugs for rare diseases instead of investing all of its resources toward drugs for common diseases? It is possible that A. framing effects may be enticing AbbVie to develop and produce drugs for rare conditions. Since these drugs are more expensive, AbbVie will make a large profit. B. the opportunity‑cost principle may encourage AbbVie to produce drugs for rare conditions, because the full benefits outweigh the costs. The company must be maximizing its total economic surplus. C. the marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs. D. the interdependence principle may be guiding AbbVie to develop and produce drugs for rare conditions. Common chronic and rare conditions are often experienced by the same people, s

C. the marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs.

Harry is an engineering student taking an economics elective in his senior year. He has the option to work as a petroleum engineer or to design rollercoasters after college. He uses concepts from his economics course to help with this decision. When he considers the increasing popularity of electronic vehicles and a decrease in demand for petroleum in the future, he is acknowledging the dependencies that exist: A. between his own choices. B. between people or businesses in the same market. C. between markets. D. over time.

D. over time.

Carolyn is a junior in college studying economics. She has created a new software application that applies the four principles of economic decision making to any potential decision that a user may face. She is considering leaving school after this academic year to pursue further development of her app. Carolyn should ignore all of these costs when calculating the opportunity costs of leaving college EXCEPT the: A. time she will spend working on the app instead of studying. B. 90 credit hours she has already completed for her degree. C. tuition costs she has already paid to her college. D. skills she may gain from her final year of economics courses.

D. skills she may gain from her final year of economics courses.

The marginal cost of an additional worker is: A. always equal to the cost from the first worker hired. B. always equal to the benefit of hiring the additional worker. C. the total cost of all workers hired. D. the additional cost of hiring one more worker.

D. the additional cost of hiring one more worker.

Rose's parents have booked a family trip to Aspen, Colorado, during her spring break. They have agreed to pay for everything except her plane ticket. Rose's friends recently decided to drive to Destin, Florida, for spring break. Rose must now decide whether to join her parents in Aspen or drive to the beach with her friends. The opportunity costs of joining her parents in Aspen include each of these EXCEPT: A. the cost of her plane ticket to Aspen. B. memories she will miss with her friends. C. the stress of traveling via plane and navigating airports. D. the nonrefundable deposit her friends paid for the beach house in Destin.

D. the nonrefundable deposit her friends paid for the beach house in Destin.

Which demonstrates a scenario with no opportunity cost? A. It's Friday night and you stay up late talking and hanging out with your friends. B. The chemistry club is giving out free pizza for lunch to all who come to their table to get it. C. Naomi, age 8, is at a bookstore and chooses to buy a book about a young wizard instead of buying a math textbook. D. Chez Moi and Chez Nous, two premiere French restaurants with three Michelin stars, both offer you a full time sous chef job at the same salary. You are ecstatic because you know it is a win-win scenario and choose to work for Chez Nous. E. All of these scenarios have an opportunity cost.

E. All of these scenarios have an opportunity cost.

If Khaled opens his own facility, he will be responsible for taxes, insurance, licensing, and facility upkeep, among other things. However, as a teacher Khaled will only need to keep up his teaching license. In addition, Khaled will not be able to take a long vacation in the summer if he runs a daycare center. This scenario is an example of dependencies between...

Each of your individual choices

_____ is a measure of how much your decision has _____ your well-being. A. Willingness to pay; improved B. Willingness to pay; reduced C. Economic surplus; increased D. Economic surplus; decreased

Economic surplus; increased

Consider the following statement: "Economists always put things into monetary terms; as a result, economics can most appropriately be called the study of money." Is this statement true or false?

False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making.

some people may ignore costs and focus on the percentage saved because ________ change how people view the decision.

Framing effect

An increase in graduation rates for teachers saturates the market for preschool teachers. This decreases the wages of teachers. This scenario is an example of dependencies between....

Markets

Opportunity cost arises from the fundamental economic problem of:

Scarcity

Khaled is up for a raise in the next 6 months at his teaching job. This scenario is an example of dependencies...

Through time

You have a part time job that pays $8 per hour. Your manager has asked you to work four extra hours on Friday night, but you already have plans for dinner and a movie with a friend on Friday night. Under what conditions will you choose to work on Friday night? Consider the economic way of thinking in answering this question; also assume that you are rational (even if you do not think you are rational) and can afford dinner and a movie.

You value the extra pay more than the Friday night activities (in terms of marginal benefits, marginal costs, and your utility).

Use the cost-benefit principle to evaluate the following: a. You are about to buy a calculator for $10, and the sales-person tells you that the model you want to buy is on sale for $5 at the store's other branch, which is a 20 minute drive away. You should make the trip to the other branch if:

Your cost of making the trip is less than $5

Mateo works eight hours per day. Today he has to decide whether to work overtime and stay one more hour in the office, or go back home and spend that hour studying for his economics exam. His company pays him $80 per day if he works eight hours, and $100 per day if he works nine hours. If Mateo studies one more hour, his exam score increases from 75 to 80, what is Mateo 's rational decision?

a five point increase on his exam score less than $20.

Utility is

a measure of consumer satisfaction.

Instead of studying for an additional two hours for the economics final, Leann decides to watch a movie. Leann is making (rational/ irrational)

a rational decision if her marginal benefit from the movie is greater than her marginal cost.

Economics is the study of

choices and decisions under scarcity

How do economists measure utility?

do not measure utility. It is a hypothetical measure used for modeling behavior.

Marginal utility is the

extra satisfaction received from consuming one more unit of a product.

You have paid $100 for student season tickets to the football games at your university. It is halfway through the season, and the team has not won any games (this isn't happening at A&M!!). You are considering whether you will attend any future games this season. All of the following are costs or benefits you should consider when making this decision EXCEPT the

frustration experienced from watching the team lose in previous games.

An item has utility for a consumer if it

generates enjoyment or satisfaction

During the economic downturn of 2008-2009, the unemployment rate increased to nearly 10%. At the same time, the price of higher education tuition and the number of enrollees increased. a. Which statement best explains why more people enrolled in higher education institutions during this time period even as the price of tuition increased? More people enrolled because

if the next best option was unemployment, many individuals may have preferred to enroll in higher education and gain new skills in hopes of increasing their future employment prospects.

Economists assume that people's goals are to

make themselves as well off as possible.

Ron is buying jeans online and has to decide how many to buy. He should buy an additional pair if the:

marginal benefit of the next pair is at least as high as the price of the jeans.

When faced with a quantity decision, the economic surplus stops increasing when:

marginal benefits equal marginal costs

The opportunity cost principle states that the true cost of something is the:

next best alternative you have to give up to get it.

Estimating willingness to pay quantifies _____ costs or benefits associated with a choice.

nonfinancial

Scarcity results from the fact that

people's wants exceed the resources available to satisfy them.

The opportunity costs of attending college include the

potential income that could be earned working.

There are limited resources to satisfy all of society's wants.

scarcity

Amy can study for an hour or spend that hour sleeping or going out for dinner. If she decides to study for the hour, the opportunity cost of the hour spent studying is

sleeping or going out for dinner, whichever she would have preferred the most.

Dependencies between various people's choices reflect the fact that:

society has limited resources

Scarcity is

the economic problem of having limited resources to satisfy unlimited wants.

Utility is the measure of

the satisfaction a good or service gives to the consumer

The price of coffee at a local coffee shop is $2.50. Cheryl is willing to pay $8 for her first cup of coffee each day. The marginal benefit to her of each additional cup of coffee falls by $2. How many cups of coffee should Cheryl purchase?

three

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.

walk; less

When people make rational choices, they

weigh the costs and benefits of their options and act to satisfy their wants.

Juan is willing to pay $600 for a new iPad. Apple is selling its new iPad for $700. It costs Apple $400 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because _____ would be better off due to the transaction.

will not; only Apple

Economists convert costs and benefits into money equivalents by evaluating an individual's

willingness to pay

You are about to buy a laptop for $1,000 and the sales-person tells you that the model you want to buy is on sale for $995 at the store's other branch, which is a 20 minute drive away. You should make the trip to the other branch if:

your cost of making the trip is less than $5.

Your employer has asked you to start working overtime and has offered to pay $18 per hour for every hour you work beyond forty hours a week. The wage rate for each of the first forty hours will continue to be the usual $15 per hour. In terms of dollars, what is the marginal benefit of working each hour of overtime?

$18

Amanda goes to a local café and orders a sandwich. She is willing to pay $10 for it. The price of the sandwich is $4. The cost to the café to produce the sandwich is $1. How much economic surplus does the café receive when Amanda purchases the sandwich?

$3

Diane is remodeling an apartment that she will rent out to a college student. The renovation is estimated to cost $6,460. If Diane decides to install decorative crown molding in the apartment, the renovation is estimated to cost $7,060. Assuming Diane chooses to install the crown molding, what is the marginal cost of this choice?

$600

Economic models are typically based on the principle that people behave rationally. However, people do not always behave rationally. Which of the statements is NOT a reason why economists still consider their models valid, in spite of the irrationality of people? A. People typically behave rationally in general. B. Models are made to simplify understanding, and irrational behavior is more difficult to generalize. C. The existing models have been in place for so long, they are considered untouchable, the equivalent of an economic law. D. Despite the flaws, the models are still fairly accurate at predicting behavior.

C. The existing models have been in place for so long, they are considered untouchable, the equivalent of an economic law.

Which of the following best defines economics? A. Economics teaches how to limit our wants. B. Economics is concerned with prices and quantities of goods and services, both at the individual level and at the industry level. C. Economics studies how to make the best choice when coping with scarcity. D. Economics is about earning as much money as possible.

Economics studies how to make the best choice when coping with scarcity.

What do economists mean when they say behavior is "rational"?

Individuals making choices which help them reach their goals.

How is the economic surplus generated by a decision calculated?

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

Nerida can either commute to work using a bus or purchase a new car. The bus fare each way is $2. Nerida works five days a week for 50 weeks a year. Based solely on the benefit of avoiding the cost of her bus tickets, Nerida should purchase a car if the cost of the car is _____ than _____ per week.

Less; $20

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. If you did not go out to the restaurant, you would eat at home using groceries that cost you $10. You should _____ to dinner with your friends because the benefit of doing so is _____ than the cost.

Not go; less

Jonathan is deciding whether to study for his economics exam at a café or go to a concert with friends tonight. The cost of the concert ticket that he purchased yesterday is _____ in his opportunity cost and represents a _____ cost.

Not included; sunk

Jonathan is deciding whether to study for his economics exam at a café or go to a concert with friends tonight. The cost of the concert ticket that he purchased yesterday is _____ in his opportunity cost and represents a _____ cost. A. included; financial B. included; nonfinancial C. not included; financial D. not included; sunk

Not included; sunk

The opportunity costs of a decision may include each of these types of costs EXCEPT

Sunk costs

Unfortunately, you only have a few hours after work to do whatever you want this weekend. You would enjoy hanging out with friends at a concert they want to see, but you are not a fan of the band. You enjoy doing well in school and usually enjoy your studies, and so would rather study than go to the concert. There is a movie coming out this weekend that you would prefer to see instead of studying. What are the benefits and opportunity costs of these activities? 1. The benefit of going to the concert is ________ and the opportunity cost is ________ 2. The benefit of going to the movie is ________ and the opportunity cost is _________ 3. The benefit of studying is ________ and the opportunity cost is _________

The benefit of going to the concert is *enjoying the activity* and the opportunity cost is *missing the movie.* The benefit of going to the movie is *enjoying the activity* and the opportunity cost is *getting better grades.* The benefit of studying is *getting better grades* and the opportunity cost is *missing the movie*

_____ is assessed by asking: "What is the _____ I am willing to pay to get this benefit, or avoid that cost?"

Willingness to pay; most

Consider each decision in the context of the four core principles of economics. a. Gilberto is deciding whether to vote in the next election. The four core principles of economics (apply/ do not apply)

apply to this decision because Gilberto should consider the costs and benefits associated with voting.

Trinh quits his $80,000-a-year job to become a full-time volunteer at a museum. What is the opportunity cost of his decision?

at least $80,000

Kathleen is binge-watching her favorite show on Netflix. She is trying to decide how many more episodes to watch. Kathleen should continue watching episodes until the marginal:

benefit of watching another episode is equal to the marginal cost.

The cost-benefit principle states that a decision should be pursued only if the:

benefits are greater than the costs

The key to using the cost-benefit principle is to think about _____ aspects of a decision.

both financial and nonfinancial

Economists assume that rational behavior is useful in explaining choices people make

even though people may not behave rationally all the time.

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.

interdependence

Ivan has inherited his grandmother's 1963 Chevrolet Corvette, which he values at $50,000. He decides that he might be willing to sell it, so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000 for such a car. A voluntary economic exchange _____ between Ivan and Samantha because _____ positive economic surplus from the transaction. A. occurs; both Ivan and Samantha receive B. occurs; only Samantha receives C. does not occur; only Ivan receives D. does not occur; neither Ivan nor Samantha receives

occurs; both Ivan and Samantha receive

Khaled is a preschool teacher working at a public school, but he is considering quitting his job to start a daycare facility of his own. Indicate which of the four types of interdependency is most relevant to each factor in Khaled's decision. Use the market for daycare facilities as Khaled's market of interest. a. Khaled knows there are few daycare facilities in the area, but many families looking for daycare. This scenario is an example of dependencies between ________________

people or businesses in the same market

Comparing the benefits and costs of engaging in an activity.

trade-off