Econ Exam #1

How do you find the net benefit?

Total benefit-total cost

The fundamental reason firms outsource is that:

hiring low-wage workers overseas reduces firms' costs.

the concept that as you continue to increase production of one good, the opportunity cost of producing that next unit increases.

Increasing Opportunity Cost

How to find opportunity cost

divide what you'll sacrifice by what you stand to gain if you choose one opportunity over the other

Comparative advantage (does or does not) require absolute advantage

does not

16. Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should:

drink a third glass of soda if the extra (not total) benefit of doing so is positive.

12. The extra benefit that results from carrying out one additional unit of an activity is the ______ of the activity.

marginal benefit

On a graph of a production possibilities curve, if a point is attainable, then it:

might or might not be efficient.

One thing that distinguishes normative economic principles from positive economic principles is that:

normative principles tell us how people should behave, and positive principles tell us how people will behave.

An example of ____________ would be if funds and resources were allocated to one project, but could have been allocated to a second project instead.

Constant Opportunity Cost

Take an action if and only if the extra benefits are at least as great as the extra costs

Cost Benefit Principle

Which principles state how people SHOULD behave

Cost-Benefit Principle and Normative Principle

Measuring costs and benefits as proportions instead of absolute amount

Pitfalls

Which principles tell us people WILL behave?

Positive economic principle and Incentive Principle

A person has a __________________ at a particular task if his or her opportunity cost of performing the task is lower than the other person's opportunity cost

comparative advantage

If a nation has the lowest opportunity cost of producing a good, that nation has a(n) ______ in the production of that good

comparative advantage

When you have a lower opportunity cost, you have a ___________ advantage

comparative advantage

A steady potential price to a business that occurs when a company does not take advantage of a feasible chance to earn profits

constant opportunity cost

The extra cost that results from carrying out one additional unit of an activity is the _____ of the activity.

marginal cost

What is the study of individual choice and its implications for the behavior of prices and quantities in individual markets?

microeconomics

4. The Scarcity Principle tells us ______, and the Cost-Benefit Principle tells us ______.

that choices must be made; how to make good choices

5. 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.

wash clothes; bigger

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:

$0

20. 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. What is your opportunity cost of going to work on Saturday?

$35

If you have a total benefit of $160 for 2 units, what is the average benefit?

$80, divide total benefit by 2 to find average

What term describes being able to produce more in a given time period

Absolute Advantage

Your scholarship depends on your maintaining a 3.5 cumulative GPA. Your GPA for last semester was 3.6, which brought your cumulative GPA down. What must be true?

Last semester's grades were lower than your overall GPA

When an option is chosen from alternatives, the opportunity cost is the "cost" incurred by not enjoying the benefit associated with the best alternative choice OR the loss of potential gain from other alternatives when one alternative is chosen

Opportunity Cost

when a nation or individual concentrates its productive efforts on producing a limited variety of goods. It oftentimes has to forgo producing other goods and relies on obtaining those other goods through trade

Specialization

The Incentive Principle is an example of:

a positive economic principle.

If a nation can produce more computers per year than any other nation, that nation has a(n) ______ advantage in the production of computers.

absolute

3. Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is

an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.

Points that lie beneath the production possibilities curve are

attainable but inefficient

1.Economics is best defined as the study of:

how people make choices in the face of scarcity and the implications of those choices for society as a whole.

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:

only the entertainment value of the concert

Production possibilities curves for large economies are generally bow-shaped because:

opportunity costs tend to increase with increases in production.

2. An implication of scarcity is that:

people must make trade-offs

With ATMs, it is possible to retrieve cash from the bank at any time. One hundred years ago, one could only get cash from the bank during business hours, say, 9 am to 3 pm. The present availability of 24-hour service has arisen because:

the cost of providing 24-hour service is much lower today

If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because:

the costs will be understated

The Production Possibility Curve (PPC) shows

the maximum amount of one good that can be produced for every possible production level of the other good.

The opportunity cost of an activity includes the value of:

the next-best alternative that must be foregone.

Generally, on a linear two-good production possibilities curve, the opportunity cost of the good measured on the vertical axis is:

the reciprocal of the opportunity cost of the good measured on the horizontal axis.

8. 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:

the value she places on seeing the movie.

Economists use abstract models because:

they are useful for describing general patterns of behavior.