Question 1

A college student is faced with a difficult decision of how to spend one hour tonight. She could babysit her professor's child at an hourly wage of $7; she could work at the college library at a wage of $6; or she could finish her economics homework assignment. If she chooses to complete her homework assignment, she has incurred an opportunity cost equal to:
A)$7.
B)$6.
C)$13.
D)$0.

Accepted Answer

The opportunity cost is the value of the next best alternative forgone. In this case, babysitting her professor's child for $7 is the highest-paying alternative she gives up to do her homework, making $7 the opportunity cost.

Question 2

If you decide to go to Cancún with your friends during spring break, you cannot go to Paris with your sister in the summer. This statement best represents this economic concept:
A)The real cost of something is what you must give up to get it.
B)"How much" is a decision at the margin.
C)People usually exploit opportunities to make themselves better off.
D)There are gains from trade.

Accepted Answer

This statement best represents the economic concept of opportunity cost, which is the real cost of something being what a person must give up to obtain it. The choice between going to Cancun during spring break with friends or going to Paris with a sister in the summer represents a trade-off, as each option has an associated opportunity cost. Choosing to go to Cancun means giving up the opportunity to go to Paris with the sister, which represents the real cost of choosing the alternative option.

Question 3

The BEST example of making a choice at the margin is whether to:
A)buy a new computer.
B)quit your job.
C)eat another slice of pizza.
D)attend college.

Accepted Answer

Making a choice at the margin means deciding whether the additional benefits of consuming one more unit of a good or service outweigh the additional costs. In the case of eating another slice of pizza, the decision is relatively low-stakes, and the incremental cost of consuming another slice is low compared to the immediate satisfaction of enjoying another slice. Consuming additional slices beyond a certain point, however, may lead to negative consequences such as discomfort, health issues, or financial strain. Therefore, deciding whether to eat one more slice of pizza is a good example of making a choice at the margin.

Question 4

The student center on campus has burritos, bagels, or burgers for lunch, and they all cost the same. You decide to have a burger today, but if they were out of burgers, you would have bought a bagel. Your opportunity cost of buying a burger is your enjoyment of the:
A)burger.
B)bagel.
C)burrito.
D)bagel and the burrito.

Accepted Answer

The opportunity cost of buying a burger is the satisfaction you would have received from purchasing a bagel if burgers aren't available. Therefore, if burgers are available, you should choose the burger. However, if burgers aren't available, you should choose the bagel. So, the best choice is to buy the burger if it's available, and if it's not, go for the bagel. Therefore, the correct answer is B.

Question 5

You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept:
A)Resources are scarce.
B)The real cost of something is what you must give up to get it.
C)"How much" is a decision at the margin.
D)There are gains from trade.

Accepted Answer

The statement best represents the concept of "how much" is a decision at the margin because the decision to eat one more slice of pizza is based on the marginal utility of eating an additional slice compared to the cost of consuming it (such as feeling too full or having to give up something else).

Question 6

Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study rather than tutor. Marla's choice indicates that she:
A)values an additional hour of studying more than the $10 she would earn tutoring.
B)values an hour of studying less than the $10 she would earn tutoring.
C)does not understand that there is no benefit from studying.
D)doesn't need the money.

Accepted Answer

Marla's decision to prioritize studying over earning $10 indicates that she values an additional hour of studying more than the money she would earn from tutoring.

Question 7

A choice made _____ is a choice whether to do a little more or a little less of something.
A)at the front end
B)in the beginning
C)at the margin
D)ceteris paribus

Accepted Answer

Making choices at the margin means deciding whether to increase or decrease an activity by a small amount. It helps to determine whether the benefits of doing a little more outweigh the costs of doing a little less. This type of decision-making is crucial in economics and helps individuals and organizations optimize their resources.

Question 8

For which of the following decisions would marginal analysis be most relevant?
A)Should I go to college or work after graduating from high school?
B)Should I eat another doughnut?
C)Should I use $20,000 as a down payment on a house or to buy a car?
D)Should I get married?

Accepted Answer

Marginal analysis is used to assess the additional benefits and costs of consuming or producing one more unit of something. The decision to eat another doughnut involves evaluating the marginal benefit and marginal cost of consuming one more doughnut.

Question 9

A new startup airline is offering free round-trip tickets to anywhere to the first 600 people who enter the office on the airline's first day of business. You arrive 24 hours before it is scheduled to open to be sure to get the free tickets, and you buy food from vendors while waiting in line. The cost of the tickets to you is:
A)zero.
B)the cost of food while you wait in line.
C)the cost of food while you wait in line and the opportunity cost of your time spent in line.
D)the actual value of the ticket.

Accepted Answer

While the ticket itself is free, there is an opportunity cost to your time spent waiting in line as well as the cost of the food you purchased while waiting. Therefore, the total cost to you is the cost of food while waiting in line and the opportunity cost of your time.

Question 10

You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of buying the chips is:
A)$1 plus the enjoyment you would have received from the candy bar.
B)$2 minus the enjoyment you received from the bag of chips.
C)$1.
D)the enjoyment you would have received from the candy bar.

Accepted Answer

The opportunity cost of choosing one option over another is the value of the opportunity lost. In this case, it's the enjoyment you would have received from the candy bar, since that's what you give up by choosing the bag of chips.

Question 11

Which of the following is the BEST example of making a choice at the margin?
A)buying a new car
B)quitting your job
C)drinking another cup of coffee
D)attending college

Accepted Answer

Making a choice at the margin involves deciding whether to do a little bit more or a little bit less of something, based on the additional benefits and costs. Drinking another cup of coffee is the best example of this, as it involves weighing the benefits of the extra caffeine boost against the costs of potential jitteriness or other negative effects. Buying a new car, quitting a job, and attending college are all significant decisions that involve many factors beyond margin analysis.

Question 12

Thinking in economic terms, when Mary Sweet-Tooth is deciding whether to eat another brownie, she:
A)considers only the price of the brownie.
B)considers only how much additional exercise she will need to do to work off the calories associated with eating another brownie.
C)compares all of the benefits and costs of eating another brownie.
D)considers whether she can do so without anyone else noticing.

Accepted Answer

In economic terms, Mary Sweet-Tooth will consider all the costs and benefits of eating another brownie. These costs and benefits may include the satisfaction of eating the brownie versus the potential negative health effects or the cost of having to work off the calories later. Therefore, option C is the best choice. Option A is too narrow, option B only considers one specific cost, and option D is not relevant to economic decision making.

Question 13

A choice made _____ is a choice whether to do a little more or a little less of something.
A)at the fringe
B)in the beginning
C)at the margin
D)after the fact

Accepted Answer

Choices made at the margin refer to decisions made about how much more or less of something to do. It involves analyzing the additional cost or benefit of doing more or less of an activity, and then determining whether or not to take that action. Choice A (at the fringe) refers to decisions made by outliers and is not applicable in this context. Choice B (in the beginning) suggests decisions made when starting a new activity or venture, and Choice D (after the fact) refers to decisions made after an event has already occurred, neither of which are relevant here.

Question 14

A friend comes up to you and offers you a free ticket to a professional baseball game that night. You decide to attend the game. The game takes five hours and costs you $15 for transportation. If you had not attended the game, you would have worked at your part-time job for $8 an hour. What is the cost to you of attending the game?
A)The cost is zero-the ticket is free.
B)$65
C)$40
D)$55

Accepted Answer

The answer of A friend comes up to you and...

Question 15

You decide to join the economics club, but this means you can't join the accounting club because it meets at the same time. This statement best represents this economic concept:
A)The real cost of something is what you must give up to get it.
B)"How much" is a decision at the margin.
C)People usually exploit opportunities to make themselves better off.
D)There are gains from trade.

Accepted Answer

This statement represents the concept of opportunity cost, which is the value of the next best alternative that must be sacrificed in order to obtain something. By choosing to join the economics club, the opportunity cost is the ability to join the accounting club.

Question 16

The concept of the margin deals with:
A)making incremental choices.
B)all or none of something.
C)engaging in unethical activities.
D)making difficult choices.

Accepted Answer

The concept of the margin deals with making incremental choices, meaning small and gradual decisions that can lead to significant changes. It involves evaluating the costs and benefits of the available options and making a choice based on what will have the greatest overall impact. This can apply to personal decisions, business decisions, or societal decisions.

Question 17

The university recently inherited a large mansion from a wealthy alumnus. The university plans to use the mansion for faculty parties and to house distinguished guests. The opportunity cost of the mansion to the university is:
A)zero, because it was a gift.
B)the original cost of building the mansion.
C)the amount the university would receive if it sold the mansion.
D)the cost of catering the parties at the mansion.

Accepted Answer

The opportunity cost of the mansion is the potential value or benefit that the university could have received if it had chosen an alternative use for the mansion, which in this case would be the amount the university could receive if it sold the mansion. It is not zero since there are costs such as maintenance and taxes associated with owning the mansion, and it is not the original cost or cost of catering parties, which are sunk costs that are irrelevant to the decision of how to use the mansion going forward.

Question 18

Zoe's grandparents are excited about finally paying off their mortgage, because, as they say, "Our cost of housing is now zero." Zoe should explain to them the economic principle of:
A)marginal analysis: if the additional cost of housing is zero, then their additional benefit is also zero.
B)opportunity cost: by living in the house, they are giving up the opportunity to sell the house, buy a smaller one, and pocket the difference.
C)efficiency: If their cost of housing is now zero, they should let Zoe move in without charging her any rent. Zoe is better off, and her grandparents aren't hurt.
D)equity: it is unfair that some people are still paying off their mortgage.

Accepted Answer

The economic principle being referred to here is opportunity cost. By stating that their cost of housing is now zero, Zoe's grandparents are overlooking the fact that they are giving up the opportunity to sell the house and use the proceeds for other purposes, such as investing in stocks, traveling, or donating to charity. While it is certainly satisfying to have a fully paid-off mortgage, it is worth considering the trade-offs involved in holding onto a larger asset than necessary.

Question 19

The economic way of thinking entails:
A)the analysis of benefits but not costs.
B)the analysis of costs but not benefits.
C)making choices at the margin.
D)making the distinction between microeconomics and macroeconomics.

Accepted Answer

The economic way of thinking involves making choices at the margin which means weighing the costs and benefits of each decision, evaluating the trade-offs, and making incremental adjustments. Choice A and B are incorrect because one cannot analyze benefits or costs exclusively. Choice D is incorrect because both microeconomics and macroeconomics are important aspects of the economic way of thinking.

Question 20

For a student who owns his or her own home and doesn't plan to live in the dorm, the cost of going to college is:
A)tuition and the cost of housing.
B)tuition, the cost of housing, and the cost of books.
C)tuition, the cost of books, and forgone income.
D)forgone income only.

Accepted Answer

The cost of going to college for a student who owns their home and doesn't plan to live in the dorm includes tuition, the cost of books, and the opportunity cost of forgone income from not working. Housing costs are not included since the student owns their home.

Quiz 1: First Principles

If you decide to go to Cancún with your friends during spring break, you cannot go to Paris with your sister in the summer. This statement best represents this economic concept:

The BEST example of making a choice at the margin is whether to:

The student center on campus has burritos, bagels, or burgers for lunch, and they all cost the same. You decide to have a burger today, but if they were out of burgers, you would have bought a bagel. Your opportunity cost of buying a burger is your enjoyment of the:

You decide whether to eat one more slice of pizza based on how hungry you feel. This statement best represents this economic concept:

Marla will make $10 by tutoring for an additional hour, but she will lose an hour of studying for her economics test. Marla decides to study rather than tutor. Marla's choice indicates that she:

A choice made _____ is a choice whether to do a little more or a little less of something.

For which of the following decisions would marginal analysis be most relevant?

You have $1 to spend on a vending machine snack. A bag of chips will cost you $1 and a candy bar will also cost you $1. If you choose the bag of chips, the opportunity cost of buying the chips is:

Which of the following is the BEST example of making a choice at the margin?

Thinking in economic terms, when Mary Sweet-Tooth is deciding whether to eat another brownie, she:

A choice made _____ is a choice whether to do a little more or a little less of something.

You decide to join the economics club, but this means you can't join the accounting club because it meets at the same time. This statement best represents this economic concept:

The concept of the margin deals with:

The university recently inherited a large mansion from a wealthy alumnus. The university plans to use the mansion for faculty parties and to house distinguished guests. The opportunity cost of the mansion to the university is:

Zoe's grandparents are excited about finally paying off their mortgage, because, as they say, "Our cost of housing is now zero." Zoe should explain to them the economic principle of:

The economic way of thinking entails:

For a student who owns his or her own home and doesn't plan to live in the dorm, the cost of going to college is: