Chapter 1

Denise decides to spend three hours working overtime rather than watching a video with her friends. She earns $10 an hour. Her opportunity cost of working is A. the $30 she earns working. B. the enjoyment she would have received had she watched the video. C. nothing, since she would have received less than $30 of enjoyment from the video. D. the $30 minus the enjoyment she would have received from watching the video.

B. the enjoyment she would have received had she watched the video.

Mitch has $100 to spend and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $100, so he can only buy one. This illustrates the basic concept that A. people face trade-offs. people face trade-offs. B. trade can make everyone better off. C. people respond to incentives. D. rational people think at the margin.

A. People face trade-offs

Suppose the state of Massachusetts passes a law that increases the tax on alcoholic beverages. As a result, residents in Massachusetts start purchasing their alcohol in surrounding states. Which of the following principles does this best illustrate? A. People respond to incentives. B. Rational people think at the margin. C. Trade can make everyone better off. D. Markets are usually a good way to organize economic activity.

A. People respond to incentives.

Which of the following statements best represents the principle represented by the adage, "There is no such thing as a free lunch"? A. Greg is hungry and homeless. B. Kendra must decide between going to Colorado or Cancun for spring break. C. Brian must repair the tire on his bike before he can ride it to class. D. Melissa can attend the concert only if she takes her sister with her

B. Kendra must decide between going to Colorado or Cancun for spring break.

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

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. average benefit is greater than the average cost. D. marginal benefit is greater than both the average cost and the marginal cost.

B. marginal benefit is greater than the marginal cost.

A typical society strives to get the most it can from its scarce resources. At the same time, the society attempts to distribute the benefits of those resources to the members of the society in a fair manner. In other words, the society faces a tradeoff between A. inflation and unemployment. B. work and leisure. C. efficiency and equality. D. guns and butter

C. efficiency and equality.

People are willing to pay more for a diamond than for a bottle of water because A. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. B. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. C. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. D. water prices are held artificially low by governments, since water is necessary for life.

C. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.

The marginal benefit Claire gets from purchasing a third pair of flip-flops is A. the total benefit Claire gets from purchasing four pairs of flip-flops minus the total benefit she gets from purchasing three pairs of flip-flops. B. the same as the total benefit of purchasing three pairs of flip-flops. C. the total benefit Claire gets from purchasing three pairs of flip-flops minus the total benefit she gets from purchasing two pairs of flip-flops. D. more than the marginal cost of purchasing the third pair of flip-flops.

C. the total benefit Claire gets from purchasing three pairs of flip-flops minus the total benefit she gets from purchasing two pairs of flip-flops.

High-school athletes who skip college to become professional athletes A. obviously, do not understand the value of a college education. B. usually do so because they cannot get into college. C. understand that the opportunity cost of attending college is very high. D. are not making a rational decision since the marginal benefits of college outweigh the marginal costs of college for high-school athletes.

C. understand that the opportunity cost of attending college is very high.

You are considering staying in college another semester so that you can complete a major in economics. In deciding whether or not to stay you should A. compare the total cost of your education to the total benefits of your education. B. compare the total benefits of your education to the cost of staying one more semester. C. compare the total cost of your education to the benefits of staying one more semester. D. compare the cost of staying one more semester to the benefits of staying one more semester.

D. compare the cost of staying one more semester to the benefits of staying one more semester.