Ch. 1: The Core Principles of Economics

You make a clay pot for $10 and sell it to a customer for $40. What is your economic surplus associated with the transaction? A. $0 B. $10 C. $30 D. $40

C. $30

Which of these best describes what people should base their decisions on? A. How the choice is framed B. Nonfinancial costs only C. Financial costs only D. Opportunity costs

D. Opportunity costs

What happens to the production possibility frontier when a technique is discovered that allows more outputs to be produced with the same amount of inputs?

It expands outward.

Angela owns a software company with 10 employees. Because she is not sure whether an 11th employee would improve her economic surplus, she hires another employee and notices that her total costs have increased by $1,250 and her total revenue has increased by $1,000. Which of these would be the best course of action for Angela?

Let the 11th employee go, or do not replace the next employee who quits.

Nasser owns a business that produces t-shirts, but he is struggling with the dilemma of how many shirts to produce, so he begins by asking himself if he should produce one more shirt. Which economic principle is exemplified by this situation?

The marginal principle

You have decided that you will buy pizza, but you are still trying to decide how many pieces of pizza you should buy. Which economic principle are you taking into account?

The marginal principle

The way the question below is phrased implies that which of the core principles of economics is being applied? "Should I go back to school or continue to work at my current job?"

The opportunity cost principle

When someone weighs the pros and cons of a particular decision, they are taking into account the _____ principle.

cost-benefit

Ayalon owns a fast food restaurant that is open 18 hours a day. He is considering the idea of having his restaurant remain open 24 hours a day, but he realizes that the success of this plan may be affected by the changing hours of his competitors. Ayalon is taking into account the _____ principle.

interdependence

Changes in prices and opportunities in one market affect the choices a person might make in another market. This is pointed out in the _____ principle.

interdependence

Since there are a limited number of hours in a day, an entrepreneur's decision about how much to produce may be affected by other decisions, such as how many workers to employ. This is an example of the _____ principle.

interdependence

When someone seeks to be aware of how a decision is affected by other decisions, they are taking into account the _____ principle.

interdependence

Evie, a receptionist at a car dealership, asks herself the question, "Should I go back to school, or should I continue to work at the dealership?" The fact that she is comparing the idea of going to school with her next best option indicates that she is applying the _____ principle.

opportunity cost

The _____ principle says that the true cost of something is the next best alternative that you must give up to get it.

opportunity cost

If a retail store has an item that is priced well above its other products in an effort to make the majority of its products seem inexpensive by comparison, this is an example of:

the framing effect.

Roshan is unsure about whether she should work more hours, so she gradually increases the hours that she works each week. When should she stop working more hours?

When an hour of her time is more valuable to her than her hourly pay

You are willing to pay $4 for a cheeseburger. According to the cost-benefit principle, when should you buy a cheeseburger?

When the cost is less than or equal to $4.

Your willingness to pay for a pair of jeans is $50. According to the cost-benefit principle, when should you avoid buying a pair of jeans and instead opt to keep your money?

When the price of the jeans exceeds $50.

In order to convert nonfinancial costs or benefits into their monetary equivalent, assess your:

willingness to pay