Chapter 1

Which of the following is correct concerning opportunity cost? a. Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway b. To compute opportunity costs, you should subtract benefits from costs c. Opportunity costs and the idea of trade-offs are not closely related d. Rational people should compare various options without considering opportunity costs

a. Except to the extent that you pay more for them, opportunity costs should not include the cost of things you would have purchased anyway

Which of the following examples does not illustrate the principle represented by the adage, "There ain't no such thing as a free lunch?" a. Melissa needs to pay her rent and her electric bill b. Kevin must choose between buying a new flat screen tv and buying his textbooks for this semester c. Robert must decide between studying for his psychology exam and working his part-time job d. Lisa can spend her money on a new smart phone or on a weekend trip

a. Melissa needs to pay her rent and her electric bill

The Get-There-Safe Bus company incurs an average cost of $45 for each passenger it carries on its trip from Atlanta to Chattanooga. In advance for a particular trip, four seats remain unsold. The bus company could increase its profit only if it a. charges any ticket price above $0 for the four remaining seats b. charged at least $11.25 for each of the four remaining seats c. charged at least $45 for each of the four remaining seats

a. charges any ticket price above $0 for the four remaining seats

Stephen is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5,800. Stephen discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do? a. he should sell the car now for $3,800 b. he should keep the car since it wouldn't be rational to spend $6,400 restoring a car and then sell it for only $5,800 c. he should complete the additional work and sell the car for $5,800 d. it does not matter which action he takes since the outcome will be the same either way

a. he should sell the car now for $3,800

It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company's cost will be $50,009 if it produces an additional pound of steak. If the company produces 5,001 pounds of steak then a. its average cost is greater than its marginal cost b. its average cost and its marginal cost are equal c. its average cost is less than its marginal cost d. there is insufficient information to compute average and marginal costs

a. its average cost is greater than its marginal cost

A bagel shop sells fresh baked bagels from 5 a.m. until 7 p.m. every day. The shop doesn't sell day-old bagels, so all unsold bagels are thrown away at 7 p.m. each day. The cost of making and selling a dozen bagels is $1.00; there are no costs associated with throwing bagels away. If the manager has 8 dozen bagels left at 6:30 p.m. on a particular day, which of the following alternatives is most attractive? a. lower the price of the remaining bagels, even if the price falls below $1.00 per dozen b. lower the price of the remaining bagels, but under no circumstances should the price fall below $1.00 per dozen c. throw the bagels away and produce 8 fewer dozen bagels tomorrow d. starting tomorrow, lower the price on all bagels so they will all be sold earlier in the day

a. lower the price of the remaining bagels, even if the price falls below $1.00 per dozen

Economics deal primarily with the concept of a. scarcity b. money c. poverty d. banking

a. scarcity

Suppose the cost of flying a 200-seat plane for an airline is $100,000 and there are 10 empty seats on a flight. If the marginal cost of flying a passenger is $200 and a standby passenger is willing to pay $300, the airline should a. sell the ticket because the marginal benefit exceeds the marginal cost b. sell the ticket because the marginal benefit exceeds the average cost c. not sell the ticket because the marginal benefit is less than the marginal cost d. not sell the ticket because the marginal benefit is less than the average cost

a. sell the ticket because the marginal benefit exceeds the marginal cost

When computing the opportunity cost of attending a basketball game you should include a. the price you pay for the ticket and the value of your time b. the price you pay for the ticket, but not the value of your time c. the value of your time, but not the price you pay for the ticket d. neither the price of the ticket nor the value of your time

a. the price you pay for the ticket and the value of your time

For most students, the largest single cost of a college education is a. the wages given up to attend school b. tuition, fees, and books c. room and board d. transportation, parking, and entertainment

a. the wages given up to attend school

Consider Mandy's decision to go to college. If she goes to college, she will spend $20,000 on tuition, $10,000 on room and board, and $2,000 on books. If she does not go to college, she will earn $18,000 working in a store and spend $8,000 on room and board. Mandy's cost of going to college is a. $32,000 b. $42,000 c. $50,000 d. $58,000

b. $42,000

Consider Frank's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Frank's cost of going to college is a. $33,800 b. $42,600 c. $49,800 d. $57,000

b. $42,600

The opportunity cost of going to college is a. the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses b. the value of the best opportunity a student gives up to attend college c. zero for students who are fortunate enough to have all of their college expenses paid by someone else d. zero, since a college education will allow a student to earn a larger income after graduation

b. the value of the best opportunity a student gives up to attend college

Rational people make decisions "at the margin" by comparing a. average costs and benefits b. total costs and benefits c. additional costs and benefits d. opportunity costs and benefits

c. additional costs and benefits

Cole is refinishing an antique china cabinet and has already spent $180 on the restoration. He expects to be able to sell the cabinet for $360. Cole discovers that he needs to do an additional $200 worth of work to make the cabinet worth $360 to potential buyers. He could also sell the cabinet now, without completing the additional work, for $100. What should Cole do? a. he should sell the cabinet now for $100 b. he should keep the cabinet since it wouldn't be rational to spend $380 restoring a cabinet and then sell it for only $360 c. he should complete the additional work and sell the cabinet for $360 d. it does not matter which action he takes since the outcome will be the same either way

c. he should complete the additional work and sell the cabinet for $360

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand? a. yes, because cutting hair is profitable b. no, because he may not be able to sell more service c. it depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients d. it depends on the average cost of serving more clients and the average revenue he will earn from serving more clients

c. it depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients

The word "economy" comes from the Greek word "oikonomos," which means a. environment b. production c. one who manages a household d. one who makes decisions

c. one who manages a household

Resources are a. scarce for households but plentiful for economies b. plentiful for households but scarce for economies c. scarce for households and scarce for economies d.plentiful for households and plentiful for economies

c. scarce for households and scarce for economies

Suppose after graduating from college you get a job working at a bank earning $30,000 per year. After two years of working at the bank earning the same salary, you have an opportunity to enroll in a one-year graduate program that would require you quit your job at the bank. Which of the following should not be included in a calculation of your opportunity cost? a. the cost of tuition and books to attend the graduate program b. the $30,000 salary that you could have earned if you retained your job at the bank c. the $45,000 salary that you will be able to earn after having completed your graduate program d. the value of insurance coverage and other employee benefits you would have received if you retained your job at the bank

c. the $45,000 salary that you will be able to earn after having completed your graduate program

You have driven 800 miles on vacation and then you notice that you are only 15 miles from an attraction you hadn't known about, but would really like to see. In computing the opportunity cost of visiting this attraction you had not planned to visit, you should include a. both the cost of driving the first 800 miles and the next 15 miles b. the cost of driving the first 800 miles, but not the cost of driving the next 15 miles c. the cost of driving the next 15 miles, but not the cost of driving the first 800 miles d. neither the cost of driving the first 800 miles nor the cost of driving the next 15 miles

c. the cost of driving the next 15 miles, but not the cost of driving the first 800 miles

Melody decides to spend 3 hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is a. the $60 she earns working b. the $60 minus the enjoyment she would have received from going to the park c. the enjoyment she would have received had she gone to the park d. nothing, since she would have received less than $60 worth of enjoyment from going to the park

c. the enjoyment she would have received had she gone to the park

In economics, the cost of something is a. the dollar amount of obtaining it b. always measured in units of time given up to get it c. what you give up to get it d. often impossible to quantify, even in principle

c. what you give up to get it

Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda a. can be thought of as the total benefit Bridget enjoys by drinking three sodas minus the total benefit she would have enjoyed by drinking just two sodas b. determines Bridget's willingness to pay for the third soda c. is likely different from the marginal benefit provided to Bridget by the second soda d. all of the above

d. all of the above

A society allocates its scarce resources to various jobs. These scarce resources include a. land b. people c. machines d. all of the above are correct

d. all of the above are correct

The principle that "people face trade-offs" applies to a. individuals b. families c. societies d. all of the above are correct

d. all of the above are correct

Which of the following statements best represents the principle represented by the adage, "There ain't no such thing as a free lunch?" a. Michelle can attend the concert only if she takes her sister with her b. Michael is hungry and homeless c. Andrea must repair the tire on her bike before she can ride it to class d. Dani must decide between going to Florida or Brazil for spring break

d. Dani must decide between going to Florida or Brazil for spring break

Which of the following is an example of something economists study? a. Mitch chooses to work overtime to earn extra income for his family b. Megan sells her textbook from last semester to her roommate for half the price of a new textbook c. The unemployment rate in the United States has fallen by two percentage points in the last few years d. all of the above are correct

d. all of the above are correct

The phenomenon of scarcity stems from the fact that a. most economies' production methods are not very good b. in most economies, wealthy people consume disproportionate quantities of goods and services c. governments restrict production of too many goods and services d. resources are limited

d. resources are limited

Which of the following is not an example of the opportunity cost of going to school? a. the money a student could have earned by working if he had not gone to college b. the nap a student could have enjoyed if he had not attended class c. the party a student could have enjoyed if he had not stayed in to study for his exam d. the money a student spends on rent for his apartment while attending school

d. the money a student spends on rent for his apartment while attending school

Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The marginal cost of flying a passenger is a. $50 b. $500 c. $50,000 d. this cannot be determined from the information given

d. this cannot be determined from the information given