hw 1

DeShawn has spent $600 purchasing and repairing an old fishing boat, which he expects to sell for $900 once the repairs are complete. DeShawn discovers that, in addition to the $600 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the boat worth $900 to potential buyers. He can sell the boat as it is now for $400. What should he do? a. He should complete the repairs and sell the boat for $900. b. He should keep the boat since it would not be rational to spend $1,000 on repairs and then sell the boat for $900. c. He should sell the boat as it is now for $400. d. It does not matter which action he takes; the outcome is the same either way.

a. He should complete the repairs and sell the boat for $900

Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that a. people face trade-offs. b. trade can make everyone better off. c. rational people think at the margin. d. decisions made at the margin are not particularly important.

a. people face trade-offs

A rational decisionmaker a. takes an action only if the marginal benefit of that action exceeds the marginal cost of that action. b. ignores marginal changes and focuses instead on "the big picture." c. ignores the likely effects of government policies when he or she makes choices. d. takes an action only if the combined benefits of that action and previous actions exceed the combined costs of that action and previous actions.

a. takes an action only if the marginal benefit of that action exceeds the marginal cost of that action.

After much consideration, you have chosen Cancun over Ft. Lauderdale as your Spring Break destination this year. However, Spring Break is still months away, and you may reverse this decision. Which of the following events would prompt you to reverse this decision? a. The marginal cost of going to Cancun decreases. b. The marginal cost of going to Ft. Lauderdale decreases. c. The marginal benefit of going to Cancun increases. d. The marginal benefit of going to Ft. Lauderdale decreases.

b. The marginal cost of going to Ft. Lauderdale decreases.

People are likely to respond to a policy change a. only if the policy change changes the costs of their behavior. b. if the policy changes either the costs or benefits of their behavior. c. only if they think the policy is a good one. d. only if the policy change changes the benefits of their behavior.

b. if the policy changes either the costs or benefits of their behavior

Economists are particularly adept at understanding that people respond to a. punishments more than rewards. b. incentives. c. laws. d. rewards more than punishments.

b. incentives.

A rational decision maker takes an action only if the a. marginal benefit is less than the marginal cost. b. marginal benefit is greater than the marginal cost. c. marginal benefit is greater than both the average cost and the marginal cost. d. average benefit is greater than the average cost.

b. marginal benefit is greater than the marginal cost.

The adage, "There is no such thing as a free lunch," is used to illustrate the principle that a. households face many decisions. b. people face tradeoffs. c. goods are scarce. d. income must be earned.

b. people face tradeoffs.

The "invisible hand" works to promote general well-being in the economy primarily through a. the political process. b. people's pursuit of self-interest. c. altruism. d. government intervention.

b. people's pursuit of self-interest

You have eaten two bowls of ice cream at Sundae School Ice Cream store. You consider eating a third. As a rational consumer you should make your choice by comparing a. the benefits from eating one more bowl of ice cream to how much three bowls of ice cream costs. b. the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs. c. the benefits from eating all three bowls of ice cream to how much three bowls of ice cream costs. d. the benefits from eating all three bowls of ice cream to how much one more bowl of ice cream costs.

b. the benefits from eating one more bowl of ice cream to how much one more bowl of ice cream costs.

When computing the opportunity cost of attending a basketball game you should include a. the price you pay for the ticket, but not the value of your time. b. the price you pay for the ticket and 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.

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

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

b. what you give up to get it.

The opportunity cost of an item is a. the number of hours needed to earn money to buy the item. b. what you give up to get that item. c. the dollar value of the item. d. usually less than the dollar value of the item.

b. what you give up to get that item.

Consider Noah's decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah's cost of going to college is $121,000. b. $103,000. c. $108,000. d. $99,000.

c. $108,000

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless the marginal benefit of a corporate job decreased. b. cost of a corporate job increased. c. cost of teaching increased. d. benefit of teaching increased.

c. cost of teaching increased.

Melody decides to spend three 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. 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. d. 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

Economics is the study of how society manages its a. unlimited wants and unlimited resources. b. limited wants and unlimited resources. c. unlimited wants and limited resources. d. limited wants and limited resources.

c. unlimited wants and limited resources

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 tradeoffs" 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 can policy do? a. alter incentives b. alter trade-offs c. change opportunity costs d. All of the above are correct.

d. All of the above are correct.

Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate? a. Rational people think at the margin. b. Trade can make everyone better off. c. Markets are usually a good way to organize economic activity. d. People respond to incentives.

d. People respond to incentives.

What term refers to the property that society has limited resources and therefore cannot produce all the goods and services people wish to have? a. inequality b. market failure c. inefficiency d. scarcity

d. scarcity

A marginal change is a a. change for the worse, and so it is usually a short-term change. b. change that involves little, if anything, that is important. c. large, significant adjustment. d. small, incremental adjustment.

d. small, incremental adjustment.

You go to the movieplex where movies ordinarily cost $9. You are intending to see a movie for which you have a $3 off coupon good for only that movie at that time. However, when you get there you see a friend who asks if you would rather see a new release. Both movies start and end at the same time. If you decide to see the new release with your friend, what is your opportunity cost? a. $9 b. $3 c. the amount you value the first movie + $9 d. the amount you value the first movie + $3

d. the amount you value the first movie + $3

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

d. the wages given up to attend school.