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The Incentive Principle is a _______ economic principle

positive

You are considering whether to go see a movie. The movie lasts 2 hours and tickets are $15 each. Assuming there are no other costs associated with going to a movie, your opportunity cost of going to the movie is

$15 plus the value of whatever else you would have done for those 2 hours reason: both explicit and implicit costs (like the value of your time) should be considered when evaluating the opportunity cost of an activity.

You are considering whether to knit a sweater for your mom's birthday. You estimate that the cost of the yarn and other materials will be $20. In addition, you estimate that it will take you about 30 hours to knit the sweater. Given that you value your time at $5 per hour, what is the opportunity cost to you of knitting the sweater?

$170 reason: in this textbook, all costs, both explicit and implicit, are considered to be opportunity costs

Suppose the table below shows the total benefit (measured in dollars) that Mariana receives from baking cakes each week. If she bakes 2 cakes per week, then her average benefit is $__ per week Quantity of cakes: 1, 2, 3, 4, 5 Total benefit ($): 10, 18, 24, 28, 30

$9

If Sarah gets $600 worth of benefit from making 200 Christmas cookies, then her average benefit from making a Christmas cookie is:

$3 reason: average benefit is the total benefit of undertaking n units of an activity divided by n(=$600/200)

Suppose you are considering whether to spend an additional hour studying for your economic midterm tomorrow. If you do not study you can either surf the web, which you value at $5, or you can talk to your roommate, which you value at $4. Your opportunity cost of studying for an additional hour is:

$5 reason: the opportunity cost of an action is the value you place on the next best alternative

Suppose you are considering whether to spend an additional hour studying for your economics midterm tomorrow. If you do not study you can either surf the web, which you value at $5, or you can talk to your roommate, which you value at $4. Your opportunity cost if studying for an additional hour is

$5 reason: the opportunity cost of an action is the value you place on the next best alternative

You are considering whether to take a few days off work to visit your best friend who lives in New York. You estimate that airfare plus other travel expenses will cost $575. In addition, you will have to use 2 vacation days, which you value at $100 each. Assuming there are no other costs associated with your trip, what is the opportunity cost of visiting your friend?

$775 reason: in this textbook, all costs, both explicit and implicit, are considered opportunity costs

Aarav wants to read "The Wealth of Nations", by Adam Smith. He can either buy a copy at the bookstore near his house for $15, or bike across town and check it out from the public library. There is no charge to check books out of the library, but the hassle of biking across town would cost Aarav $7. What is Aarav's economic surplus from checking the book out of the library instead of buying it at the bookstore?

$8 reason: the benefit of checking out the book from the library instead of buying it at the bookstore is $15, and the cost is $7. Thus, economic surplus is $15-$7=$8.

You are considering whether to go to lunch with a friend. Lunch will take about an hour and will cost $9. Assume there are no other costs associated with going to lunch, the opportunity cost of going to lunch is

$9 plus the value of the hour you spend at lunch reason: both explicit and implicit costs (like the value of your time) should be considered when evaluating opportunity cost.

Kimberly is studying for her math exam. If she studies for 5 hours she knows she'll get an 80, and if she studies for 6 hours, she knows she'll get a 90. Thus, the marginal benefit of the 6th hour of studying is

10 points

Suppose Anaya owns a small business knitting scarves. The table below shows the number of scarves that Anaya can can knit each week along with her total cost. If she knits 3 scarves per week, then her average cost is $__ per week Quantity of scarves: 1, 2, 3, 4, 5 Total Cost ($): 8, 18, 30, 44, 60

10, $10, or ten

Suppose Anaya owns a small business knitting scarves. The table below shows the number of scarves that Anaya can knit each week along with her total cost. If she knits 4 scarves per week, then her average cost is $__ per week Quantity of scarves: 1, 2, 3, 4, 5 Total Cost ($): 8, 18, 30, 44, 60

11, or $11

Chris is a potter who specializes in making mugs. When he makes 10 mugs a day his total cost is $90, and when he makes 11 mugs a day, his total cost is $121. Thus, his marginal cost of making the 11th mug is $

31, thirty-one, $31, 31 dollars, or thirty-one dollars

Chris is a potter who specializes in making mugs. When he makes 10 mugs a day his total cost of $90, and when he makes 11 mugs a day, his total cost is $121. Thus, his marginal cost of making the 11th mug is $

31, thirty-one, 31 dollars, or thirty-one dollars

Suppose you need to buy a new cell phone charger. You can buy one at a nearby store for $10, or you can buy one online for $8.50, but it'll take 2 days to arrive. If the cost to you of waiting 2 days to get the charger is $1, then your economic surplus from buying the charger inline instead of at the store is

50 cents reason: the benefit of buying the charger online is that it's cheaper, and the cost is that you'll have to wait 2 days. Economic surplus is the benefit of buying the charger online minus the cost, or $1.50-$1=50 cents

Economic models are useful in explaining and predicting behavior only to the extent that people are considered aware of those models when making decisions.

False reason: even when people do no consciously weigh costs and benefits, people often do so unconsciously, often learning through trial and error which choices lead to the best outcomes. As a result, economic models are still useful in predicting behavior

Which of the following is a normative economic principle

The Cost-Benefit Principle

Which of the following is a normative economic principle?

The Cost-Benefit Principle

A sunk cost is

a cost that is beyond recovery at the time a decision is made

Economists believe that scarcity is

a fundamental fact of life for everyone

Economists view scarcity as

an unavoidable fact of life

When assessing the costs and benefits associated with taking an action, it is generally best to consider costs and benefits

as absolute dollar amounts rather than proportions

People sometimes apply the Cost-Benefit Principle incorrectly because they evaluate costs and benefits _______

as proportions rather than absolute dollar amounts

An activity's _____ benefit is the total benefit of carrying out n units of an activity divided by n.

average

The total cost of carrying out n units of an activity divided by n is the activity's _________ cost

average

In the textbook, opportunity cost includes

both explicit and implicit costs

In calculating opportunity cost, the textbook incluses

both implicit and explicit costs

The benefit of taking an action minus its cost is known as

economic surplus

The study of how people make choices under conditions as scarcity and the results of those choices for society as a whole is called

economics

You're trying to decide whether to go for a run. If you don't go for a run, you'll either watch TV or do your homework. Your opportunity cost of going on a run is

either the value you place on watching TV or the value you place on doing homework, whichever is larger reason: the opportunity cost of an action is the value you place on the next best alternative

The scarcity principle applies to

everyone

The scarcity principle captures the notion that although we have boundless needs and wants, the resources available to us are limited, so

having more of one good thing usually means having less of another

Economics is best defined as the study of

how people make choices under the conditions of scarcity and the results of those choices for society

When deciding whether to take an action, one common decision pitfall is to

ignore the implicit cost of the action

The marginal benefit of carrying out an activity is the

increase in total benefit that results from carrying out one additional unit of the activity

The marginal cost of carrying out an activity is the

increase in total cost that results from carrying out one additional unit of the activity

Microeconomics is the study of

individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets

According to the Incentive Principle, when the benefit of an action rises, a person

is more likely to take the action

Suppose that each police officer hired by the City of Gotham generates an average benefit to the community of $500 per week, and the average salary of police officers is $600 per week. Should the City of Gotham hire more or fewer police officers?

it's impossible to say reason: whether the city of gotham should hire more or fewer police officers depends on the marginal benefit and marginal cost of an additional police officer, but the question only gives information on average benefit and average cost.

Suppose Sean makes 10 tables a month, each of which he can sell for $200. Given that the average cost of making each table is $150, should Sean make more or fewer tables each month?

it's impossible to tell reason: sean should base his decision on the marginal cost and marginal benefit of making another table. The average cost of the table is not the same as the marginal cost of making a table. Thus, there's not enough info to determine what sean should do.

In standard economic models, a rational person

makes choices by weighing the extra benefits of an action against its extra costs

one common decision pitfall is to

measure costs and benefits as proportions rather than absolute dollar amounts

You are considering whether to fill out a mail-in rebate form for an item you just purchased. The total cost of filling out and mailing in the form is $8, and the rebate is worth $20. Should your decision about whether to send in the rebate form depend on whether the price of the item you purchased was $20 or $2000?

no reason: although the rebate is 100% of the purchase price if the item was $20 and only 1% of the purchase price if the item was $2000, the benefit of mailing in the rebate is greater than the cost of mailing in the rebate ($20>$8), so you should mail in the rebate

Suppose you pay $75 to buy a ticket to see one of your favorite bands next month. When the day of the concert rolls around, should the cost of the ticket figure into your decision about whether to go to the concert (assume you have no way to sell your ticket to anyone else)?

no reason: on the date of the concert, the $75 you paid for the ticket is a sunk cost (regardless of whether you got to the concert, the $75 is gone). So the cost of the ticket should not enter your decision about whether to go

Suppose you're trying to decide what to cook for dinner. Both the chicken and the salmon you have in your fridge are about to go bad, and whichever one you don't eat tonight, you'll have to throw away. In deciding which one to cook, should it matter to you that the salmon was slightly more expensive than the chicken?

no reason: the amount you spent on the food is a sunk cost and shouldn't factor into your decision. You should just cook whichever one sounds better to you!

Suppose you've decided to go out to eat with some friends. If you take the time to go online, you know you can download a $5 dollar off coupon for the restaurant. Should your decision about whether to download the coupon depend upon the amount you expect to pay for your meal?

no reason: the benefit of the coupon is $5, and the cost is the value of the time it would take you to download the coupon. Since neither of these depends upon the price of your meal, the price of the meal should not factor into your decision

A ______ economic principle is one that says how people should behave.

normative

An economic principle that says how people should behave is known as a

normative economic principle

The value of what must be foregone in order to undertake an activity is the _______ cost of that activity.

opportunity

The value of what must be forgone to undertake an activity is the _____________ cost of that activity.

opportunity

The value of what must be forgone to undertake an activity is known as

opportunity cost

Suppose you're trying to decide whether to look for free street parking or you pay $10 to park in a parking garage. You should

park in the parking garage if you'd be willing to pay at least $10 to avoid the hassle of finding street parking

A principle that predicts how people will behave is called a(n)

positive economic principle

A positive economic principle

predicts how people will behave

The Incentive Principle

predicts how people will behave

The Cost-Benefit Principle

says how people should behave

The Cost-Benefit Principle ___________

says how people should behave

When making a decision, sunk costs

should be ignored

A(n) ____ cost is a cost that is beyond recovery at the moment a decision is made.

sunk

A cost that is beyond recovery at the moment a decision is made is a(n)

sunk cost

Economic ______ is the benefit of taking an action minus its cost.

surplus

According to the Cost-Benefit Principle, an individual or society should

take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs

The economic surplus of an action is

the benefit of taking an action minus its cost

The Cost-Benefit Principle states that an individual or society should take an action if, and only if

the extra benefits from taking the action are at least as great as the extra costs

Macroeconomics is the study of

the performance of national economies and the policies that governments use to try to improve that performance

The average benefit of carrying out an activity is

the total benefit of undertaking n units of an activity divided by n

Opportunity cost is

the value of what must be forgone in order to undertake an activity

You are considering whether to spend the evening watching TV or studying for your economics course, Your opportunity cost of watching TV is

the value you place on studying for your economics course reason: both explicit and implicit costs (like the value you place on studying) should be considered when evaluating the opportunity cost of an activity

When people ignore the implicit cost of activities ______.

they tend to make the wrong choice

Economic models are ______ if people do not consciously weight costs and benefits when making decisions

useful even reasonL right! even when people do not consciously weigh costs and benefits, people often do so unconsciously, often learning through trial and error which choices lead to the best outcomes. As a result, economic models are still useful in predicting behavior.

A rational person is someone

with well-defined goals who tries to fulfill those goals as best as he or she can.

For Buzz, the benefit of drinking an additional cup of coffee is $3. If a cup of coffee costs $1.50, and if Buzz has to use $1 worth of his time to go buy the coffee, should Buzz drink another cup of coffee?

yes reason: the benefit to Buzz of drinking another cup of coffee is greater than the cost ($3>$2.50)


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