AREC Ch. 1

You save $10 on gas every week because you take the bus to school. You have class5 days a week. What is your average benefit per day of taking the bus to school?

$2

The table below shows how total donations, average donations, total labor costs and average labor costs vary depending on the number of employees State U hires for its fundraising activities. The net benefit of hiring fundraisers is largest when _____ employees are hired.

2

Refer to the table below. According to the Cost-Benefit Principle, how many unitsof this activity should be carried out?

3

You are trying to decide whether to purchase the latest Harry Potter book online orborrow it from the library. There is no charge for borrowing a book from the library,but going to the library takes more time than ordering a book online. Regardless ofhow you get the book, its benefit to you is the same. If the cost of buying the bookonline is $13, then you should:

borrow the book from the library if the cost of doing so (in terms of the extra timeit takes) is less than $13.

Economics is the study of

choice in the face of limited resources

The fact that most people make some decisions based on intuition rather thancalculation is:

consistent with the cost-benefit model because most people intuitively weigh costsand benefits.

The Scarcity Principle applies to:

everyone

If a person takes an action if, and only if, the extra benefits from taking that actionexceed the extra costs, then that person is:

following the Cost-Benefit Principle.

The Scarcity Principle tells us ________, and the Cost-Benefit Principle tells us________.

hat choices must be made; how to make good choices

Microeconomics differs from macroeconomics in that microeconomics focuses on:

he choices made by individuals the implications of those choices.

Economists use abstract models because:

hey are useful for describing general patterns of behavior.

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of:

inconsistent reasoning; saving $20 is saving $20

A rational person:

makes choices based on added benefits and added costs.

The extra benefit that results from carrying out one additional unit of an activity isthe ________ of the activity.

marginal benefit

The Incentive Principle is an example of:

a positive economic principle.

The scarcity principle applies to

all decisions

Chris has a one-hour break between classes every Wednesday. Chris can either stayat the library and study or go to the gym and work out. The decision Chris mustmake is:

an economic problem because Chris has only

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 topay for a ticket. Your boss called, and she is looking for someone to cover a shift onSaturday at the same time as the concert. You would have to work 4 hours and shewould pay you $11/hr. The psychic cost to you of working is $2/hr. Your economicsurplus from going to work instead of seeing SPAM on Saturday is:

$1

A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam canassemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannotwork more than 4 hours day. Each computer consists of a motherboard, a hard drive,a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 percomputer. What is the marginal cost of producing the computers that Pam canassemble during her 2nd hour of work?

$1,840

Refer to the table below. The marginal benefit of the 5ht unit of activity is

$10

you have two options for how to spend the afternoon. you can either fo see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. What is your opportunity cost of seeing a movie this afternoon?

$12

Refer to the table below. the marginal benefit of the 6th unit of activity is

$2

Larry was accepted at three different graduate schools, and must choose one. Elite Ucosts $50,000 per year and did not offer Larry any financial aid. Larry valuesattending Elite U at $60,000 per year. State College costs $30,000 per year, andoffered Larry an annual $10,000 scholarship. Larry values attending State College at$40,000 per year. NoName U costs $20,000 per year, and offered Larry a full$20,000 annual scholarship. Larry values attending NoName at $15,000 per year.Larry's opportunity cost of attending State NoName U is:

$20,000

Suppose the marginal cost of the 1st hour of talking on the phone is $50, themarginal cost of the 2nd hour is $75, and the marginal cost of the 3rd hour is $105.In this case, the total cost of talking on the phone for 3 hours is:

$230

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 your concert. You will have to work 4 hours and she will pay you t$11/hr. The psychic cost to you of working $2/hr. What is your opportunity cost of going to work on Saturday?

$35

Larry was accepted at three different graduate schools, and must choose one. Elite Ucosts $50,000 per year and did not offer Larry any financial aid. Larry valuesattending Elite U at $60,000 per year. State College costs $30,000 per year, andoffered Larry an annual $10,000 scholarship. Larry values attending State College at$40,000 per year. NoName U costs $20,000 per year, and offered Larry a full$20,000 annual scholarship. Larry values attending NoName at $15,000 per year.Larry's opportunity cost of attending State College is:

$35,000

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:

$4

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books online with next day delivery at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week he drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16.Given that driving to campus to buy the concert ticket was rational for Matt, Matt should:

$4

The following table shows the relationship between the speed of a computer's CPUand its benefits and costs. Assume that all other features of the computer are thesame (that is, CPU speed is the only source of variation), and only the CPU speedslisted below are available for purchase.

$400

Refer to the table below. The average benefit of 2 units of activity is:

$80

Refer to the table below. The average benefit of 4 units of activity is:

$9

A firm pays Pam $40 per hour to assemble personal computers. Each day, Pam canassemble 4 computers if she works 1 hour, 7 computers if she works 2 hours, 9computers if she works 3 hours, and 10 computers if she works 4 hours. Pam cannotwork more than 4 hours day. Each computer consists of a motherboard, a hard drive,a case, a monitor, a keyboard, and a mouse. The total cost of these parts is $600 percomputer. If the firm sells each computer for $650, then how many hours a dayshould the firm employ Pam to maximize its net benefit from her employment?

4 hours

The last time gas prices increased drastically, sales of large Sport Utility Vehicles(SUVs) fell. Why?

Higher gas prices increased the cost of driving a SUV.

According to the incentive principle, people will be less likely to smoke if the government

Increases taxes on cigarettes, effectively raising the price.

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

Last semester's grades were lower than your overall GPA.

You classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your onlyalternative use for your frequent-flyer coupon is for your trip to Atlanta two weeksafter the break to attend your sister's graduation, which your parents are forcing youto attend. The Chicago-Atlanta round-trip airfares are $450. If you do not use thefrequent-flyer coupon to fly to Miami, should you go to Miami?

No, your benefit is less than your cost

Every time you go to the grocery store, you try to wait in the shortest line. But lines always seem to be roughly the same length. Why?

Other people are trying to choose the shortest line too.

Larry was accepted at three different graduate schools, and must choose one. Elite Ucosts $50,000 per year and did not offer Larry any financial aid. Larry valuesattending Elite U at $60,000 per year. State College costs $30,000 per year, andoffered Larry an annual $10,000 scholarship. Larry values attending State College at$40,000 per year. NoName U costs $20,000 per year, and offered Larry a full$20,000 annual scholarship. Larry values attending NoName at $15,000 per year.Larry maximizes his economic surplus by attending:

State College.

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 difference has arisen because:

The cost of providing 24-hour service is much lower today.

The number of U.S. households with access to the Internet is growing rapidly.Compared to 50 years ago, one would predict that when considering a majorpurchase, people today will gather:

The number of U.S. households with access to the Internet is growing rapidly.Compared to 50 years ago, one would predict that when considering a majorpurchase, people today will gather:

you have two options for how to spend the afternoon. you can either fo see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. Should you go to see movie or work as a math tutor?

You should work as a math tutor.

If individuals are rational, they should choose actions that yield the:

largest economic surplus.

A study that deals with the salaries of university professors would be considered:

microeconomics

By convention, there are two major divisions of economics, called

microeconomics and macroeconomics

The economic surplus of an action is:

the difference between the benefit and the cost of taking an action

According to the Cost-Benefit Principle, you should go see the latest Star Warsmovie with your friends this week-end if:

the extra benefits of seeing the movie are greater than the extra costs of seeing themovie.

Macroeconomics differs from microeconomics in that macroeconomics focuses on:

the performance of national economies and ways to improve that performance.

Economists recognize that because people have limited resources:

they have to make trade-offs.

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 bothtasks equally and they both take the same amount of time. Janie will thereforechoose to ________ because it generates a ________ economic surplus.

wash clothes; bigger

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. If the Chicago-Atlanta round-trip air fare is $350, should you go to Miami?

yes, your economic surplus would be $50