Econ module 1 - studying
Ron is buying jeans online and has to decide how many to buy. He should buy an additional pair if the total benefit when purchasing one more pair is less than the total cost of the jeans. total benefit when purchasing one more pair is at least as high as the total cost of the jeans. marginal benefit of the next pair is at least as high as the price of the jeans. marginal benefit of the next pair is less than the price of the jeans.
marginal benefit of the next pair is at least as high as the price of the jeans.
The opportunity cost principle states that the true cost of something is the economic surplus you receive from getting it. next best alternative you have to give up to get it. economic surplus you give up to get it. least desired alternative you have to give up to get it.
next best alternative you have to give up to get it.
is economics just all about money?
no! we use money as a measure because it is very common, but economics can be about weighing your choices, what resources we have, what decisions affect certain trends.
The price of coffee at a local coffee shop is $2.50. Cheryl is willing to pay $8 for her first cup of coffee each day. The marginal benefit to her of each additional cup of coffee falls by $2. How many cups of coffee should Cheryl purchase? Four Two One Three
three
It is a beautiful afternoon, and you are considering taking a leisurely stroll through the park. Your alternatives to walking are streaming a movie that you value at $5, taking a nap that you value at $7, or reading a new book that you value at $12. What is the opportunity cost to you of taking the stroll through the park? $12 $7 $0 $5
$12
Your employer has asked you to start working overtime and has offered to pay $18 per hour for every hour you work beyond forty hours a week. The wage rate for each of the first forty hours will continue to be the usual $15 per hour. In terms of dollars, what is the marginal benefit of working each hour of overtime? $3 $15 Depends on the opportunity cost of your time $18
$18
The cost of your favorite coffee is $6.50 per cup at the coffee shop. The marginal cost of each cup you drink is _____. The first cup of coffee you drink gives you a marginal benefit of $8. The marginal benefit from the second cup is $6, $4 from the third, $2 from the fourth, and $0 from the fifth. You should drink _____ cups of coffee. $6.50; one $0; five $6.50; five $1; six
$6.50; one
Diane is remodeling an apartment that she will rent out to a college student. The renovation is estimated to cost $7,230. If Diane decides to install decorative crown molding in the apartment, the renovation is estimated to cost $7,880. Assuming Diane chooses to install the crown molding, what is the marginal cost of this choice? $15,110 $7,230 $7,880 $650
$650
Marah is deciding whether or not to open a lemonade stand. She expects to sell 20 cups of lemonade for $1 per cup. She already made a sign that cost her $10 and will have $15 worth of additional costs for cups and lemonade mix if she decides to open the stand. a. If Marah decides to open the lemonade stand, how much profit will she earn? should she or should she not open the stand? The $10 she spent on the sign represents what kind of cost
-$5 should sunk
Which of the following statements is true?: A- Every person, no matter how rich or poor, is faced with situations that require trade-offs. B- Trade-offs do not apply when the consumers purchase a product for which there is excess supply, such as with a stock clearance sale. C- Economics studies the trade-offs we are forced to make because resources are unlimited.
A- Every person, no matter how rich or poor, is faced with situations that require trade-offs.
Economists use money equivalents to compare costs and benefits because money is A- a common measuring stick. B- what is used to measure opportunity costs. C- critical to keeping an economy working smoothly. D- what economic agents are trying to maximize.
A- a common measuring stick.
_____ is a measure of how much your decision has _____ your well-being. A- Willingness to pay; reduced B- Economic surplus; increased C- Willingness to pay; improved D- Economic surplus; decreased
B- Economic surplus; increased
The cost-benefit principle states that a decision should be pursued only if the A- benefits are positive. B- benefits are greater than the costs. C- costs are negative. D- costs are greater than the benefits.
B- benefits are greater than the costs.
In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction. A- only the buyer B- both the buyer and the seller C- only the seller D- neither the buyer nor the seller
B- both the buyer and the seller
Which of the following is the best definition of the opportunity cost of a decision? Actual financial cost of a decision. The difference between the benefits of the first and second best choices. The sum of all benefits from all foregone alternatives. Benefits from the best foregone alternative.
Benefits from the best foregone alternative.
The cost-benefit principle states that the full set of _____ should be evaluated when making any choice.: A- economic surpluses B- opportunity costs C- costs and benefits D- interdependencies
C- costs and benefits
What do economists mean when they say behavior is "rational"? Individuals making choices that do not harm others. Individuals making choices entirely using logic. Individuals making choices which help them reach their goals. Individuals caring more about their own outcomes than others' outcomes. Individuals making choices to maximize their wealth.
Individuals making choices which help them reach their goals.
Why is opportunity cost important when making decisions?
It forces you to consider the alternatives. You need to think about what you are giving up in order to do something in order to choose the best possible option.
what does it mean to make decisions on the margin?
It means to make decisions based on that extra thing. So you are thinking one step in advance and how that will affect you.
Economic models are typically based on the principle that people behave rationally. However, people do not always behave rationally. Which of the statements is NOT a reason why economists still consider their models valid, in spite of the irrationality of people? The existing models have been in place for so long, they are considered untouchable, the equivalent of an economic law. People typically behave rationally in general. Despite the flaws, the models are still fairly accurate at predicting behavior. Models are made to simplify understanding, and irrational behavior is more difficult to generalize.
The existing models have been in place for so long, they are considered untouchable, the equivalent of an economic law.
In economics, what is meant by "optimal decisions are made at the margin?" The idea of the margin is that all economic decisions are made at the very fringes of society. The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior. The idea of the margin does not help compare trade-offs and is not relevant to decision-making. The concept of the margin was initially developed in 2012 by Professor Marginus; research is still being done on how it can be used for decision-making.
The idea of the margin is related to making decisions while thinking about the benefits and costs of small changes in behavior.
Mateo works eight hours per day. Today he has to decide whether to work overtime and stay one more hour in the office, or go back home and spend that hour studying for his economics exam. His company pays him $80$80 per day if he works eight hours, and $100 per day if he works nine hours. If Mateo studies one more hour, his exam score increases from 75 to 80, what is Mateo 's rational decision? Mateo decides to work overtime only if he values getting a five point increase on his exam score less than $20. an 80 on his exam more than $100. a five point increase on his exam score more than $20. an 80 on his exam less than $100.
a five point increase on his exam score less than $20.
Instead of studying for an additional two hours for the economics final, Leann decides to watch a movie. Leann is making a rational decision if her marginal cost from the movie is greater than her marginal benefit. a rational decision if her marginal benefit from the movie is greater than her marginal cost. a decision that is not on the margin because she will see the entire movie. a decision based on stated preference, rather than revealed preference. an irrational decision because studying is more important than watching a movie.
a rational decision if her marginal benefit from the movie is greater than her marginal cost.
what is included in costs? what is included in benefits?
cost can be what you are giving up in order to have something and benefits can be what you are getting from giving up something.
Khaled is a preschool teacher working at a public school, but he is considering quitting his job to start a daycare facility of his own. Indicate which of the four types of interdependency is most relevant to each factor in Khaled's decision. Use the market for daycare facilities as Khaled's market of interest. a. Khaled knows there are few daycare facilities in the area, but many families looking for daycare. This scenario is an example of An increase in graduation rates for teachers saturates the market for preschool teachers. This decreases the wages of teachers. This scenario is an example of dependencies If Khaled opens his own facility, he will be responsible for taxes, insurance, licensing, and facility upkeep, among other things. However, as a teacher Khaled will only need to keep up his teaching license. In addition, Khaled will not be able to take a long vacation in the summer if he runs a daycare center. This scenario is an example of dependencies Khaled is up for a raise in the next 6 months at his teaching job. This scenario is an example of dependencies
dependencies between people or businesses in the same market. between markets between each of your individual choices through time
Marginal utility is the total satisfaction received from consuming a given number of units of a product. extra satisfaction received from consuming one more unit of a product. satisfaction achieved when a consumer has had enough of a product. average satisfaction received from consuming a product.
extra satisfaction received from consuming one more unit of a product.
The principle that your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future is known as the _____ principle. cost-benefit marginal interdependence opportunity cost
interdependence
Nerida Kyle can either commute to work using a bus or purchase a new car. The bus fare each way is $2. Nerida works five days a week for 50 weeks a year. Based solely on the benefit of avoiding the cost of her bus tickets, Nerida should purchase a car if the cost of the car is _____ than _____ per week. less; $20 greater; $20 less; $10 greater; $10
less; $20
Decisions should reflect the _____ costs, rather than just the _____ costs. nonfinancial; financial financial; marginal opportunity; nonfinancial opportunity; financial
opportunity; financial
What factors into the opportunity cost for a decision? the sum of all benefits from all foregone alternatives time spent due to the decision the difference between the benefits of the first and second best choices benefits from the best foregone alternative actual financial cost of the decision
options 2, 4, 5
Economic models do all of the following except simplify some aspect of economic life. answer economic questions. portray reality in all its details. make economic ideas explicit and concrete.
portray reality in all its details.
Carolyn Bates is a junior in college studying economics. She has created a new software application that applies the four principles of economic decision making to any potential decision that a user faces. She is considering leaving school after this academic year to pursue further development of her app. Carolyn should ignore all of the following costs when calculating the opportunity costs of leaving college EXCEPT the 90 credit hours she has already completed for her degree. tuition costs she has already paid to her college. skills she may gain from her final year of economics courses. time she will spend working on the app instead of studying.
skills she may gain from her final year of economics courses.
Dependencies between various people's choices reflect the fact that society has limited resources. you have limited resources. resources can be used across time. resources are spread across different markets.
society has limited resources.
The marginal cost of an additional worker is always equal to the cost from the first worker hired. the total cost of all workers hired. the additional cost of hiring one more worker. always equal to the benefit of hiring the additional worker
the additional cost of hiring one more worker.
Juan McDonald is willing to pay $600 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $700. It costs Apple $400 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because ____ would be better off due to the transaction. will; both Juan and Apple will not; only Apple will; neither Juan nor Apple will not; only Juan
will not; only Apple
Dependencies between your own choices reflect the fact that: resources can be spread across time. you have limited resources. resources are spread across varying markets. society has limited resources.
you have limited resources.
The cost-benefit principle will lead you to make unselfish decisions if you A- pursue only decisions for which the benefits outweigh the costs. B- maximize economic surplus. C- maximize monetary costs and benefits. D- account for unselfish motivations.
D- account for unselfish motivations.
In 2016, the top-selling pharmaceutical drug in the world was AbbVie's Humira, which is used for the treatment of several common, chronic conditions. The majority of its profits are derived from treatment of the most common diseases, but AbbVie also develops drugs for rare conditions. Why might AbbVie develop drugs for rare diseases instead of investing all of its resources toward drugs for common diseases? It is possible that Framing effects may be enticing AbbVie to develop and produce drugs for rare conditions. Since these drugs are more expensive, AbbVie will make a large profit. The marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs. The interdependence principle may be guiding AbbVie to develop and produce drugs for rare conditions. Common chronic and rare conditions are often experienced by the same people, so AbbVie can easily produce drugs for both. The opportunity‑cost principle may encourage AbbVie to produce drugs for rare conditions, because the full benefits outweigh the costs. The company must be maximizing its total economic surplus.
The marginal principle may be guiding AbbVie in determining if it is worth producing drugs for rare diseases. Since it is developing and producing treatments for rare diseases, the marginal benefits must exceed the costs.
It is a rainy day, and you are considering taking an Uber one mile to meet some friends. You have decided you are willing to pay $20 to avoid getting wet from the rain. The trip would normally cost you $8, but due to the weather the surcharge is triple the regular cost. You should _____ because the benefit to you of taking the Uber is _____ than the cost. walk; more take an Uber; more walk; less take an Uber; less
walk; less
Use the cost-benefit principle to evaluate the following: a. You are about to buy a calculator for $10, and the sales-person tells you that the model you want to buy is on sale for $5 at the store's other branch, which is a 20 minute drive away. You should make the trip to the other branch if: You are about to buy a laptop for $1,000 and the sales-person tells you that the model you want to buy is on sale for $995 at the store's other branch, which is a 20 minute drive away. You should make the trip to the other branch if: Your choice in parts a and b should be the same/different in both scenarios. But some people may ignore costs and focus on the percentage saved because framing effects/marginal costs/sunk costs change how people view the decision.
your cost of making the trip is less than $5 your cost of making the trip is less than $5 the same, framing effects
Brendon and Jessica are deciding whether to purchase a second vehicle. The four core principles of economics do not apply because there is good public transportation where Brendon and Jessica live. apply because Brendon and Jessica will have to give up something else to purchase the second vehicle. do not apply because Brendon and Jessica do not need a second vehicle. apply because Brendon and Jessica want a second vehicle.
apply because Brendon and Jessica will have to give up something else to purchase the second vehicle.
Diane Jacobs is a student studying economics and currently working on her class schedule for next semester. When she considers taking another economics course rather than taking a math class in the same time slot, she is acknowledging that dependencies exist between people or businesses in the same market. through time. between markets. between her own choices.
between her own choices.
During the economic downturn of 2008-2009, the unemployment rate increased to nearly 10%. At the same time, the price of college tuition and the number of college enrollees increased. Which statement best explains why more people enrolled in college during this time period even as the price of tuition increased? More people enrolled because if the next best option was unemployment, many individuals may have preferred to enroll in college and live off of student loans while waiting for the job market to improve. of the social pressure people feel to go to college. Universities exploited this and increased the price of tuition without losing many students. if the next best option was unemployment, many individuals may have preferred to enroll in college and gain new skills in hopes of increasing their future employment prospects. of the bandwagon effect. When something becomes popular or trendy, ever more people are willing to pay high prices for it. The core principle that best explains this is the:
if the next best option was unemployment, many individuals may have preferred to enroll in college and gain new skills in hopes of increasing their future employment prospects. Opportunity cost principle
what does it mean for an economist to say that people are rational?
means that people weighed the costs and benefits of a decision before making it and they know the decision will help them reach their goals.
Alan Patel is a college student living alone in a campus apartment. He finished cooking dinner when his friends text him to join them at the dining hall on campus for dinner. He now has to decide whether to eat the dinner he prepared or walk to campus to meet his friends at the dining hall. Alan should consider all the following costs when making this decision EXCEPT the time it will take to go meet his friends and walk back. amount of money he will spend at the dining hall. value he places on not eating dinner alone. money spent on the groceries he used to cook dinner.
money spent on the groceries he used to cook dinner.
what are sunk costs and how should they be treated in decision making?
sunk costs are costs that occurred in the past and cannot be reversed. these should not be considered when making decisions because they will be incurred regardless of the outcome of the choice.
Samia has decided that with the two hours in between classes she can do one of 3 things. She has ranked her choices, from highest to lowest as, (1) chat with her friends, (2) study economics or (3) take a nap. The opportunity cost of chatting with her friends is the value of studying economics, the next best use of time. the value of chatting with her friends. zero since she does not pay her friends to talk to her. the combined value of studying economics and taking a nap.
the value of studying economics, the next best use of time.
How is the economic surplus generated by a decision calculated? A- It is the total benefits minus total costs arising from the decision. B- It is the sum of costs arising from the decision. C- It is the total benefits plus total costs arising from the decision. D- It is the sum of benefits arising from the decision.
A- It is the total benefits minus total costs arising from the decision.
In addition to financial costs and benefits, assessing your willingness to pay allows you to convert _______ costs or benefits into their monetary equivalent.: A- nonfinancial B- fictional C- imaginary D- macroeconomic
A- nonfinancial
Scarcity results from the fact that: A- people's wants exceed the resources available to satisfy them. B- the population keeps growing. C- not all goals are desirable. D- there are no tradeoffs in human decision-making.
A- people's wants exceed the resources available to satisfy them.
Economists convert costs and benefits into money equivalents by evaluating an individual's A- willingness to pay. B- marginal benefits. C- opportunity costs. D- sunk costs.
A- willingness to pay.
Which demonstrates a scenario with no opportunity cost? It's Friday night and you stay up late talking and hanging out with your friends. The chemistry club is giving out free pizza for lunch to all who come to their table to get it. Naomi, age 8, is at a bookstore and chooses to buy a book about a young wizard instead of buying a math textbook that she would probably never open. Chez Moi and Chez Nous, two premiere French restaurants with three Michelin stars, both offer you a full time sous chef job at the same salary. You are ecstatic because you know it is a win-win scenario and choose to work for Chez Nous. All of these scenarios have an opportunity cost.
All of these scenarios have an opportunity cost.
Which of the following best defines economics?: A- Economics teaches how to limit our wants. B- Economics is concerned with prices and quantities of goods and services, both at the individual level and at the industry level. C- Economics studies how to make the best choice when coping with scarcity. D- Economics is about earning as much money as possible.
C- Economics studies how to make the best choice when coping with scarcity.
Consider the following statement: "Economists always put things into monetary terms; as a result, economics can most appropriately be called the study of money." Is this statement true or false? False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making. False, even though economists use monetary terms often, economics is better described as a governmental approach to improving market outcomes. False, even though economists use money as a form of measurement, economics is better described as the study of financial markets. True, financial markets are the primary focus of economics.
False, economists use monetary terms because they can be quantified and compared, but economics is better described as an approach to decision making.
You have a part time job that pays $8 per hour. Your manager has asked you to work four extra hours on Friday night, but you already have plans for dinner and a movie with a friend on Friday night. Under what conditions will you choose to work on Friday night? Consider the economic way of thinking in answering this question; also assume that you are rational (even if you do not think you are rational) and can afford dinner and a movie. You value the extra pay more than the Friday night activities (in terms of marginal benefits, marginal costs, and your utility). You think the Friday night dinner will be expensive. You have already seen the movie that has been chosen for Friday night. You value the Friday night activities more than the extra pay (in terms of marginal benefits, marginal costs, and your utility).
You value the extra pay more than the Friday night activities (in terms of marginal benefits, marginal costs, and your utility).
Lee watches a beautiful sunset from the back porch of his house. The four core principles of economics do not apply because no decision is being made. do not apply because no money is involved. apply because Lee could have been doing something else. apply because Janet is also watching the sunset.
apply because Lee could have been doing something else.
Lilia is deciding whether to major in economics or philosophy. The four core principles of economics do not apply because both programs cost the same and take the same amount of time to complete. do not apply because Lilia may change her major later. apply because economics majors earn higher salaries. apply because Lilia should choose the major that provides the greatest economic surplus.
apply because Lilia should choose the major that provides the greatest economic surplus.
Consider each decision in the context of the four core principles of economics. a. Gilberto is deciding whether to vote in the next election. The four core principles of economics do not apply to this decision because there is no cost involved in voting. apply to this decision because Gilberto's vote is a marginal vote that could determine the outcome of the election. apply to this decision because Gilberto should consider the costs and benefits associated with voting. do not apply to this decision because voting behavior is studied in political science.
apply to this decision because Gilberto should consider the costs and benefits associated with voting.
Joshua Murphy is planning on studying late into the night for his economics exam. He is contemplating how many coffees to buy tonight. Joshua should not buy an additional coffee during the evening if the marginal cost of purchasing one more coffee is positive. benefit of purchasing one more coffee is less than the marginal cost. benefit of purchasing one more coffee exceeds the marginal cost. benefit of purchasing one more coffee is positive.
benefit of purchasing one more coffee is less than the marginal cost.
Kathleen Alvarado is binge-watching her favorite show on Netflix. She is trying to decide how many more episodes to watch. Kathleen should continue watching episodes unless the marginal benefit of watching another episode is positive. cost of watching another episode is positive. benefit of watching another episode is equal to the marginal cost. benefit of watching another episode exceeds the marginal cost.
benefit of watching another episode is equal to the marginal cost
Kathleen Alvarado is binge-watching her favorite show on Netflix. She is trying to decide how many more episodes to watch. Kathleen should continue watching episodes unless the marginal benefit of watching another episode exceeds the marginal cost. benefit of watching another episode is equal to the marginal cost. benefit of watching another episode is positive. cost of watching another episode is positive.
benefit of watching another episode is equal to the marginal cost.
When faced with a quantity decision, the economic surplus stops increasing when total benefits exceed total costs. total benefits equal to total costs. marginal benefits exceed marginal costs. marginal benefits equal marginal costs.
marginal benefits equal marginal costs.
Ivan has inherited his grandmother's 1963 Chevrolet Corvette, which he values at $50,000. He decides that he might be willing to sell it, so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000 for such a car. A voluntary economic exchange _____ between Ivan and Samantha because _____ positive economic surplus from the transaction. occurs; only Samantha receives does not occur; only Ivan receives does not occur; neither Ivan nor Samantha receives occurs; both Ivan and Samantha receive
occurs; both Ivan and Samantha receive
Your friend remarks that longer movies are a better deal than shorter movies because the ticket price is the same in both cases. Therefore, the longer movie provides more benefit for the same cost as a shorter movie. Which of the following is the best argument against your friend's claim that longer movies provide more benefit than shorter movies? Based on the opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives. cost‑benefit principle, the benefits of a longer movie exceed the costs when compared to a shorter movie. marginal principle, you should only continue to watch an additional movie if it is shorter than the first movie. interdependence principle, longer movies are affected by the market for shorter movies.
opportunity cost principle, the length of the movie does not matter as long as watching a movie is the best way to spend your time compared to other alternatives.
Harry Watson is an engineering student taking an economics elective in his senior year. He has the option to work as a petroleum engineer or to design rollercoasters after college. He uses concepts learned from his economics course to help with this decision. When he considers the increasing popularity of electronic vehicles and a decrease in demand for petroleum in the future, he is acknowledging the dependencies that exist between markets. over time. between people or businesses in the same market. between his own choices.
over time.
