Chapter1

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry maximizes his economic surplus by attending: Elite U. b. State College. c. NoName U because he has a full scholarship there. d. NoName U because the annual cost is only $20,000.

State College

An economic naturalist is someone who: a. uses economic arguments to protect the environment. b. has an innate talent for using economic concepts. c. applies economic insights to understand everyday life. d. studies the process of natural selection in a cost-benefit framework.

applies economic insights to understand everyday life.

If a person takes an action if, and only if, the extra benefits from taking that action exceed the extra costs, then that person is: a. not following the Cost-Benefit Principle. b. following the Scarcity Principle. c. following the Cost-Benefit Principle. d. not rational.

following the Cost-Benefit Principle.

Jen spends her afternoon at the beach, paying $1 to rent a beach umbrella and $11 for food and drinks rather than spending an equal amount of money to go to a movie. Her opportunity cost of going to the beach is: a. the $12 she spent on the umbrella, food and drinks. b. only $0 because she would have spent $12 to go to the movie. c. the value she places on seeing the movie. d. the value she places on seeing the movie plus the $12 she spent on the umbrella, food and drinks.

the value she places on seeing the movie.

If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because: a. the benefits will be overstated. b. the costs will be understated. c. the benefits will be understated. d. the costs will be overstated.

the costs will be understated.

The field of economics that would be most concerned with a recent fall in interest rates is: a. microeconomics. b. macroeconomics. c. economic naturalism. d. marginal economics.

macroeconomics

You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. Your economic surplus from going to work instead of seeing SPAM on Saturday is: a. $0 b. $1 c. $35 d. $36

$1

The table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities. Number of Employees Total Donations Average Donations Total Labor Costs Average Labor Costs 1 $30,000 $8,000 2 $42,426 $17,000 3 $17,321 $27,000 4 $60,000 $9,500 5 $13,416 $50,000 The marginal cost of the 4th employee is: a. $9,500. b. $10,750. c. $11,000. d. $13,000.

$11,000

Refer to the table below. The marginal cost of the 4th unit of activity is: Units of Activity Total Cost Total Benefit 0 $0 $0 1 $2 $12 2 $6 $22 3 $12 $30 4 $20 $36 5 $30 $40 6 $42 $42 7 $56 $43 a. $5 b. $6 c. $8 d. $10

$8

The last time gas prices increased drastically, sales of large Sport Utility Vehicles (SUVs) fell. Why? a. Higher gas prices lowered the benefit of driving an SUV. b. Higher gas prices increased the benefit of driving an SUV. c. Higher gas prices increased the cost of driving a SUV. d. Higher gas prices lowered the cost of driving a SUV.

Higher gas prices increased the cost of driving a SUV.

Suppose there are two parallel highways between two cities with approximately equal traffic. What would you expect to happen if the state began charging tolls to drive on one of those highways? a. More drivers would drive on the non-toll road, making the toll road less congested. b. More drivers would drive on the toll road making the non-toll road less congested. c. Traffic would remain evenly divided between the two roads as drivers continuously sought the less-congested route. d. Traffic would decrease on both roads.

More drivers would drive on the non-toll road, making the toll road less congested.

A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam can assemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9 computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannot work more than 4 hours day. Each computer consists of a motherboard, a hard drive, a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 per computer. What is the marginal cost of producing the computers that Pam can assemble during her 3rd hour of work? a. $5,400 b. $5,520 c. $1,200 d. $1,240

$1240

All else equal, relative to a person who earns minimum wage, a person who earns $30 per hour has: a. a higher opportunity cost of working an additional hour. b. a higher opportunity cost of taking the day off work. c. a lower opportunity cost of driving farther to work. d. the same opportunity cost of spending time on leisure activities.

a higher opportunity cost of taking the day off work.

Suppose Mary is willing to pay up to $15,000 for an used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______. a. benefit; $12,000 b. cost; $15,000 c. economic surplus; $3,000 d. economic surplus; $12,000

economic surplus; $3,000

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of: a. inconsistent reasoning; saving $20 is saving $20. b. the proper application of the Cost-Benefit Principle. c. rational choice because saving 40% is better than saving 4%. d. inconsistent reasoning because prices are sunk costs.

inconsistent reasoning; saving $20 is saving $20.

The Cost-Benefit Principle indicates that an action should be taken if: a. its total benefits exceed its total costs. b. its average benefits exceed its average costs. c. its net benefit (benefit minus cost) is zero. d. its extra benefit is greater than or equal to its extra cost.

its extra benefit is greater than or equal to its extra cost.

Which branch of economics is most likely to study differences in countries' growth rates? a. microeconomics b. normative economics c. macroeconomics d. experimental economics

macroeconomics

Jody has purchased a non-refundable $75 ticket to attend a Miley Cyrus concert on Friday night. Subsequently, she is asked to go out to dinner at no expense to her. If she uses cost-benefit analysis to choose between going to the concert and going out to dinner, the opportunity cost of going out to dinner should include: a. only the entertainment value of the concert. b. the cost of the ticket plus the entertainment value of the concert. c. only the cost of concert ticket. d. neither the cost of the ticket nor the entertainment value of the concert.

only the entertainment value of the concert.

According to the Incentive Principle: a. it is irrational to perform volunteer services. b. people will always take the highest-paying job they are offered. c. benefits are more important than costs in making a decision. d. people tend to do more of something when its benefits are greater.

people tend to do more of something when its benefits are greater.

Macroeconomics differs from microeconomics in that macroeconomics focuses on: a. individual choices and group behavior in individual markets. b. the performance of national economies and ways to improve that performance. c. production in specific markets. d. prices in specific markets.

the performance of national economies and ways to improve that performance.