chapter 1

Suppose you are considering whether take your car to a car wash or wash it at home. It's easier to take your car to a car wash, but it costs $12 more to go to a car wash than to wash your car at home. If the value you place on the convenience of going to the car wash is $10, then the economic surplus from taking your car to the car wash instead of washing it at home is:

$-2 correct Reason: Relative to washing your car at home, the benefit of going to the car wash is $10 and the cost is $12, so the economic surplus of going to the car was is $10 - $12 = $-2.

You are considering whether to go to 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.

Suppose you are considering whether to go to your 8am economics class. If you do not go to class you can either sleep an extra hour, which you value at $10, or you can go to the gym, which you value at 7$. Your opportunity cost of going to class is

10

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

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 of studying for an additional hour is:

5

Economic models are________if people do not consciously weigh costs and benefits when making decisions.

USEFUL EVEN

Having more of one thing usually means having less of another because

although we have boundless needs and wants, we have limited resources.

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.

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. According to the Cost-Benefit Principle, you should buy the cell phone charger Multiple choice question.

online if the cost to you of waiting 2 days is less than $1.50. correct Reason: The benefit of buying the charger online is $1.50. The cost is that you'll have to wait two days. If this cost is less than $1.50, then you should buy the charger online.

Economic _______is the benefit of taking an action minus its cost.

surplus

The economic surplus of an action is

the benefit of taking an action minus its cost.

Opportunity cost is

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

Although we have boundless needs and wants, the resources available to us are limited. As a result,

trade-offs are inevitable.

Economists believe that scarcity is

a fundamental fact of life for everyone.

Economists view scarcity as

an unavoidable fact of life.

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

as proportions rather than absolute dollar amounts.

In calculating opportunity cost, the textbook includes

both implicit and explicit costs.

The fact that people do not always consciously weigh costs and benefits when making decisions

doesn't mean that economic models aren't useful for predicting behavior. correct Reason: 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.

is study of how people make choices under conditions of scarcity and the implications of those choices for society.

economics

If someone is rational, then they

have well-defined goals that they try to fulfill as best they can.

The Cost-Benefit Principle states that an action should be taken if, and only if

its benefits exceed its costs.

Suppose you plan to buy a new pair of running shoes. It's easier to buy them online, but the pair you want is $9 more expensive online than at the mall. According to the Cost-Benefit Principle, you should buy them

online if the convenience of buying them online is worth more than $9 to you. correct Reason: The cost of buying the shoes online is $9, and the benefit of buying the shoes online is that it's easier. If benefit of buying them online is greater than the cost, then you should buy them online.

The value of what must be foregone in order to undertake an activity is known as

opportunity cost.

Suppose you're trying to decide whether to look for free street parking or 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.

When making a decision, sunk costs

should be ignored.

cost-benefit

Principle states that an action should be taken if, and only if, its benefits exceed its costs.

Economics is the study of

how people make choices under conditions of scarcity.

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

ignore the implicit cost of the action.

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 either going to spend the evening studying at the library (an activity you value at $18) or you are going to go out to dinner with your friends (where you will spend $16 on food). What is your opportunity cost of going out to dinner?

$34 Reason: The explicit cost of going out to dinner is $16, and the implicit cost is $18, so the total opportunity cost is $16 + $18 = $34.

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 correct 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.