Problem Set 1 Chapter 1

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books via the Internet with next day delivery to his home 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. 17. Matt's benefit of buying his books at the bookstore is _____. A. $5 B. $9 C. $170 D. $175

A. $5

4. The scarcity principle applies to A. all decisions. B. only market decisions, e.g., buying a car. C. only non-market decisions, e.g., watching a sunset. D. only the poor.

A. all decisions.

7. The 7th glass of soda that Tim consumes will produce an extra benefit of 10 cents and has an extra cost of zero (Tim is eating at the cafeteria). The cost-benefit principle predicts that Tim will A. realize he has had too much soda to drink and go home. B. drink the 7th glass and continue until the marginal benefit of drinking another glass of soda is zero. C. volunteer to empty out the fountain. D. not drink the 7th glass.

B. drink the 7th glass and continue until the marginal benefit of drinking another glass of soda is zero.

11. The opportunity cost of an activity is the value of A. an alternative forgone. B. the next-best alternative forgone. C. the least-best alternative forgone. D. the difference between the chosen activity and the next-best alternative forgone.

B. the next-best alternative forgone.

5. Whether studying the size of the U.S. economy or the number of children a couple will choose to have, the unifying concept is that wants are A. limited, resources are limited, and thus tradeoffs must be made. B. unlimited, resources are limited, and thus tradeoffs must be made. C. unlimited, resources are limited to some but not to others and thus some people must make tradeoffs. D. unlimited, resources are limited, and thus government needs to do more.

B. unlimited, resources are limited, and thus tradeoffs must be made.

2. The logical implication of the scarcity principle is that A. one will never be satisfied with what one has. B. as wealth increases, making tradeoffs becomes less necessary. C. as wealth decreases, making tradeoffs becomes less necessary. D. choices must be made.

D. choices must be made.

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books via the Internet with next day delivery to his home 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. 20. Assume the minimum that Matt would be willing to accept to drive to the university campus is equal to the amount he saved on the concert ticket. What would be the amount of his economic surplus if he bought his text books at the university bookstore rather than via the Internet? A. $5 B. $1 C. $50 D. $20

B. $1

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books via the Internet with next day delivery to his home 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. 18. Matt's benefit was ____ from driving to campus to buy the concert ticket last week. A. $2 B. $4 C. $9 D. $16

B. $4

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered 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. 10. The opportunity cost of attending State College is A. $30,000 B. $20,000 C. $15,000 D. $10,000

C. $15,000

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered 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. 9. The opportunity cost of attending Elite U is A. $50,000 B. $10,000 C. $20,000 D. $15,000

C. $20,000

14. Suppose the most you would be willing to pay for a plane ticket home is $250, but you buy one online for $175. The economic surplus of buying the online ticket is: A. $175. B. $250. C. $75. D. $0.

C. $75.

16. Moe has a big exam tomorrow. He considered studying this evening, but decided to go out with Curly instead. Since Moe always chooses rationally, it must be true that A. the opportunity cost of studying tonight is less than the value Moe gets from spending time with Curly. B. the opportunity cost of studying tonight is equal to the value Moe gets from spending time with Curly minus the cost of earning a low grade on the exam. C. Moe gets more benefit from spending time with Curly than from studying. D. Moe gets less benefit from spending time with Curly than from studying.

C. Moe gets more benefit from spending time with Curly than from studying.

6. When a person decides to pursue an activity as long as the extra benefits are at least equal to the extra costs, that person is A. violating the cost-benefit principle. B. following the scarcity principle. C. following the cost-benefit principle. D. pursuing the activity too long.

C. following the cost-benefit principle.

1. Economics is best defined as the study of A. prices and quantities. B. inflation and interest rates. C. how people make choices under the conditions of scarcity and the results of the choices. D. wages and incomes.

C. how people make choices under the conditions of scarcity and the results of the choices.

Matt has decided to purchase his textbooks for the semester. His options are to purchase the books via the Internet with next day delivery to his home 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. 19. According to the cost-benefit principle: A. it would not be rational for Matt to drive to campus to purchase the books because the $5 saving is only two percent of the cost of the books, and that is much less than the 25 percent he saved on the concert ticket. B. it would be rational for Matt to drive to campus because it costs less to buy the books there than via the Internet. C. it would be rational for Matt to drive to campus because the $5 saving is more than he saved by driving there to buy the concert ticket. D. it would not be rational for Matt to drive to campus to purchase the books because the cost of gas and his time must certainly be more than the $5 he would save.

C. it would be rational for Matt to drive to campus because the $5 saving is more than he saved by driving there to buy the concert ticket.

13. Alex received a four-year scholarship to State U. that covered tuition and fees, room and board, and books and supplies. As a result A. attending State U. for four years is costless for Alex. B. Alex has no incentive to work hard while at State U. C. the cost of attending State U. is the amount of money Alex could have earned working for four years. D. the cost of attending State U. is the sum of the benefits Alex would have had attending each of the four other schools to which Alex had been admitted.

C. the cost of attending State U. is the amount of money Alex could have earned working for four years.

12. Economic surplus is A. the benefit gained by taking an action. B. the price paid to take an action. C. the difference between the benefit gained and the cost incurred of taking an action. D. the wage someone would have to earn in order to take an action.

C. the difference between the benefit gained and the cost incurred of taking an action.

8. Dean decided to play golf rather than prepare for his exam in economics that is the day after tomorrow. One can infer that A. Dean has made an irrational choice. B. Dean is doing poorly in his economics class. C. the economic surplus from playing golf exceeded the surplus from studying. D. the cost of studying was less than the cost of golfing.

C. the economic surplus from playing golf exceeded the surplus from studying.

3. Forest is a mountain man living in complete isolation in Montana. He is completely self-sufficient through hunting, fishing, and farming. He has not been in the city to buy anything in five years. One can infer A. the scarcity principle does not apply to Forest. B. Forest is not required to make choices. C. the scarcity principle still applies because more hunting means less fishing and farming. D. Forest is very satisfied.

C. the scarcity principle still applies because more hunting means less fishing and farming.

15. Economists use abstract models because A. every economic situation is unique, so it is impossible to make generalizations. B. every economic situation is essentially the same, so specific details are unnecessary. C. they are useful for describing general patterns of behavior. D. computers have allowed economists to develop abstract models.

C. they are useful for describing general patterns of behavior.