Question 1

When deciding whether or not to undertake an activity, economists compare:

Accepted Answer

Economists use the concept of marginal analysis to compare the additional cost of an activity to the additional benefits received from it. This helps to ensure that the activity is worth doing, as it only makes sense to continue if the additional benefits outweigh the additional costs.

Question 2

What is meant by the term "marginal revolution"?

Accepted Answer

The term "marginal revolution" refers to the shift in economic thought that occurred in the late 19th century when economists began to focus on the concept of marginal utility and marginal analysis, which emphasized the incremental changes in benefits and costs of a decision. This approach revolutionized economic thinking and had a major impact on the development of modern microeconomics. The other choices are not related to the concept of marginal revolution.

Question 3

In the 2 hours between classes a student can do one of three things, ranking them from most to least desirable as: (1) chat with friends, (2) study economics, or (3) eat lunch. This student's opportunity cost of chatting with friends is:

Accepted Answer

The opportunity cost of chatting with friends is the value of the next best alternative, which in this case is studying economics. Therefore, the best choice would be to study economics during the 2-hour break.

Question 4

What is thinking on the margin?

Accepted Answer

Thinking on the margin involves making choices by comparing the additional benefits and additional costs from doing a little bit more of some activity. This approach allows individuals to make more informed and efficient decisions by considering the incremental changes in costs and benefits. Therefore, the best choice is D.

Question 5

On June 13, 2011, writer Sebastian Anthony at Extreme Tech wrote, "During the two days that the Les Paul [Google] doodle was online, those 740 million visitors spent 26 seconds more on the Google home page than normal. That's a total of almost 10.7 million man-hours spent playing with the Les Paul Google Doodle. Assuming the average Google user earns $25/hour, the doodle cost companies around the world $268 million in lost productivity." Mr. Anthony's mistake is overestimating opportunity costs. He is doing this by assuming that:

Accepted Answer

Mr. Anthony is assuming that all the man-hours spent playing with the Les Paul Google Doodle would have been spent working if not for the doodle. This assumption is unrealistic as people have other leisure activities they could have been doing during that time. Therefore, the opportunity cost of lost productivity is not as high as $268 million.

Question 6

Air travel from Chicago to Los Angeles costs $800 and takes four hours. A bus ticket between the cities costs $100 and takes 104 hours. Other things constant, the minimum value of one's time that would induce a rational individual to fly rather than drive would be:

Accepted Answer

The answer of Air travel from Chicago to Los Angeles...

Question 7

Economists believe people make decisions by:

Accepted Answer

Economists believe people make decisions by comparing marginal costs with marginal benefits. This means they weigh the additional cost of an action against the additional benefit it will provide.

Question 8

Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is:

Accepted Answer

The answer of Susan quits her administrative job, which pays...

Question 9

You are given a ticket to a Bob Dylan concert with a face value of $50. You only value the ticket at $40, sell it to a friend for $40, and attend a U2 concert priced at $60. The opportunity cost of attending the U2 concert is:

Accepted Answer

The answer of You are given a ticket to a...

Question 10

Why is it less costly to attend college during a recession?

Accepted Answer

During a recession, the labor market shrinks and there are fewer job opportunities which in turn makes the opportunity cost of attending college lower. This means that more people may choose to attend college during a recession, increasing the demand for higher education. However, tuition costs may not necessarily be lower during a recession.

Question 11

Deciding whether to study an additional hour for an exam by comparing the additional benefits to the additional costs of an extra hour of study is an example of:

Accepted Answer

This is an example of marginal thinking, which involves comparing the additional benefits to the additional costs of a decision. By weighing the potential benefits of an extra hour of study (potentially higher grade on the exam) against the costs (less free time, potential loss of sleep), one can make a more informed decision about whether to study more.

Question 12

Fluctuations in graduate school enrollment correlate positively with fluctuations in unemployment. What is the most likely reason why?

Accepted Answer

When jobs are hard to find, the opportunity cost of going to grad school is lower because there are fewer job opportunities available. This means that people may be more willing to invest the time and money into further education since there are fewer immediate job prospects available. Therefore, fluctuations in graduate school enrollment tend to be more closely linked to fluctuations in unemployment.

Question 13

Manuel insists he places an infinite value on his life. Stefan is suspicious of this claim and points out to Manuel that he sometimes eats ice cream when broccoli would be much better for him. What Big Idea is Stefan using?

Accepted Answer

Stefan is making the point that Manuel is valuing the pleasure he receives from eating ice cream more than the potential health benefits he would receive from eating broccoli. This is an example of trade-offs - making a decision to prioritize one thing over another based on the costs and benefits of each option.

Question 14

In The Economics of Nonhuman Societies, economist Gordon Tullock describes the economics hidden in biology (e.g., ants and bees). One of the lessons of the book is opportunity cost. In what way does an animal, such as an ant, face opportunity costs?

Accepted Answer

An ant faces opportunity costs because searching for food in one direction means it cannot search in another direction. This means that the ant must weigh the potential benefits of continuing to search in one area versus the potential benefits of exploring a new area, knowing that it may not find food in either location. Additionally, by devoting resources to searching in one direction, the ant incurs an opportunity cost of not using those resources for other tasks, such as caring for the young or defending the colony. Therefore, the best choice would be D.

Question 15

What should happen to crime rates when the unemployment rate rises?

Accepted Answer

When the unemployment rate rises, it becomes more difficult for individuals to find legitimate employment, and the opportunity cost of crime (i.e., the foregone income from a legitimate job) decreases. This makes it more attractive for individuals to engage in criminal activity, leading to an increase in crime rates.

Question 16

How is the unemployment rate related to the opportunity cost of college?

Accepted Answer

The answer of How is the unemployment rate related to...

Question 17

The opportunity cost of committing a crime and spending 5 years in jail:

Accepted Answer

The opportunity cost of committing a crime and spending 5 years in jail would be higher for someone who is employed as they would be giving up their income, job security, and opportunities for career advancement during this time. However, for someone who is unemployed, the opportunity cost may be lower as they may not have a stable job or income to begin with.

Question 18

A student at a party deciding whether to stay a few more minutes is:

Accepted Answer

The student is thinking on the margin because they are considering whether the marginal benefit (enjoying a few more minutes at the party) outweighs the marginal cost (staying up later and potentially being tired the next day).

Question 19

Economists Jevons, Menger, and Walras are credited with:

Accepted Answer

Jevons, Menger, and Walras are known for starting the "marginal revolution," which emphasized the importance of considering marginal changes and their impact on economic decisions. This revolution transformed classical economic theory and influenced modern economics.

Question 20

Why might the FDA err on the side of "overtesting" pharmaceutical drugs compared with the level of testing that is economically efficient?

Accepted Answer

The FDA is responsible for ensuring the safety and efficacy of pharmaceutical drugs before they can be marketed and sold to the public. Therefore, it is important for the FDA to err on the side of caution and overtest pharmaceutical drugs to ensure that they are safe for consumer use. Dangerous side effects can have severe consequences for public health, and therefore it is more important to prioritize safety over economic efficiency.

Quiz 1: The Big Ideas