Econ 120 Chapter 1

Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ______ because it generates a ______ economic surplus. a.) mow the lawn; bigger b.) wash clothes; bigger c.) mow the law; smaller d.) wash clothes; smaller

b

The opportunity cost of an activity includes the value of: a) all of the alternatives that must be forgone. b) the next-best alternative that must be foregone. c) the least-best alternative that must be foregone. d) the chosen activity minus the value of the next-best alternative.

b

Pat can either drive to work, which takes half an hour and uses $1.50 worth of gas, or take the bus, which takes an hour and costs $1.00. How should Pat get to work? a.) Pat should take the bus because it costs $0.50 less than driving. b.) Pat should drive because it saves half an hour relative to taking the bus. c.) Pat should drive if saving half an hour is worth $0.50 or more. d.) Pat should take the bus if saving half an hour is worth $0.50 or more.

c

Amy is thinking about going to the movies tonight. A movie ticket costs $15, and she'll have to cancel a $20 dog-sitting job that she would have been willing to do for free. The opportunity to Amy cost of going to the movies is: a.) $5 b.) $15. c.) $20. d.) $35

d

For the Fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat 100 meals, your marginal cost of the 100th meal is: a.) $6. b.) $4. c.) $0.25. d.) $0.

d

Jody has purchased a non-refundable $75 ticket to attend a Miley Cyrus concert on Friday night. Subsequently, she is asked to go to out 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.

a

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's opportunity cost of attending Elite U is: a.) $70,000 b.) $50,000 c.) $20,000 d.) $15,000

a

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: a.) 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.

b

Economics is best defined as the study of? a) inflation, interest rates and the stock market. b) supply and demand. c) how people make choices in the face of scarcity and the implications of those choices for society as a whole. d) the financial concerns of businesses and individuals.

c

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16.Given that driving to campus to buy the concert ticket was rational for Matt, Matt should: a.) not drive to campus to buy the books because the $5 he would save is only two percent of the cost of the books, and that is much less than the 25 percent he saved on the concert ticket. b.) drive to campus to buy the books because the books are cheaper at the bookstore than online. c.) drive to campus to buy the books because the $5 he would save is more than he saved by driving to campus to buy the concert ticket. d.) not drive to campus to buy the books because the cost of gas and his time must certainly be more than the $5 he would save.

c

Pat earns $25,000 per year (after taxes), and Pat's spouse, Chris, earns $35,000 (after taxes). They have two pre-school-aged children. Childcare for their children costs $12,000 per year. Given that Chris doesn't want to stay home with the kids, regardless of what Pat does, Pat should stay home with the kids if, and only if, the value of Pat spending more time with the kids is greater than: a.) $37,000 per year. b.) $25,000 per year. c.) $13,000 per year. d.) $12,000 per year.

c

Suppose Mary is willing to pay up to $15,000 for a 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

c

The economic surplus of an action is: a.) the benefit gained by taking an action. b.) the difference the explicit and implicit costs of taking an action. c.) the difference between the benefit and the cost of taking an action. d.) the money a person has left over after taking an action.

c

The marginal benefit of an activity is the: a.) same as the total benefit of an activity. b.) total benefit of an activity divided by the level of the activity. c.) extra benefit associated with an extra unit of the activity. d.) total benefit associated with an extra unit of the activity.

c

You won a free ticket to see the latest Star Trek movie this Friday night (which you can costlessly resell for its face value of $15). Your favorite band is also performing on Friday and is your only alternative activity. Friday is your last chance to see either the movie or the band. Tickets to see your favorite band cost $30, and on any given day, you would be willing to pay as much as $50 for a ticket. Based on this information, what is your opportunity cost of going to see the Star Trek movie on Friday? a.) $0 b.) $30 c.) $35 d.) $50

c

The Cost-Benefit Principle indicates that an action should be taken if, and only if: a) its benefits are positive. b) its costs are small. c) its benefits are a result of its costs. d) its benefits exceed its costs.

d