Question 1

When most economists wake up in the morning, their first decision is whether or not to hit the snooze bar on the alarm clock. What statement best represents their thought process as a rational decision-maker?

Accepted Answer

The answer of When most economists wake up in the...

Question 2

The government has been trying to mint dollar coins instead of printing paper dollar bills, but people have been reluctant to use coins instead of paper bills. How would an economist explain this reluctance?

Accepted Answer

The opportunity cost of carrying around large quantities of coins is too large, meaning that the inconvenience and physical burden of carrying coins as opposed to lighter paper bills or using digital payments outweigh the benefits of using coins for transactions.

Question 3

The term ________ means "additional."

Accepted Answer

The term "marginal" is often used in economics to mean "additional," such as the marginal cost or the marginal benefit of a certain action.

Question 4

How are changes in opportunity cost related to decision-making behavior?

Accepted Answer

Opportunity cost is the cost of choosing one option over another, and it involves weighing the benefits of one option against the benefits of another. A lower opportunity cost of doing an activity makes it more attractive compared to other activities, and hence more likely to be chosen. So, as the opportunity cost decreases, the likelihood of doing that activity increases.

Question 5

An activity's marginal benefit is ________ at the optimal quantity.

Accepted Answer

At the optimal quantity of an activity, the marginal benefit is equal to the marginal cost. This equilibrium point ensures that resources are allocated efficiently, maximizing the net benefit of the activity.

Question 6

Why would economists find it surprising if the CEO of a large company does his or her own housework?

Accepted Answer

Economists would find it surprising if the CEO of a large company does his or her own housework because the opportunity cost of the CEO's time is quite high due to the scarcity of time they have to spend on housework. CEOs of large companies typically have very demanding schedules and their time is extremely valuable. When they spend time on non-work-related tasks such as housework, they are not spending that time on their primary job responsibilities, which could include making high-level strategic decisions, networking, and leading the company, all of which have the potential to generate significant value for the company.
This is because the time they spend on housework could otherwise be used in more productive ways that are more aligned with their role and the high compensation they receive. It is often more cost-effective for CEOs to hire someone to do their housework, allowing them to focus on their core responsibilities that presumably have a much higher hourly value to the company.

Question 7

Economists believe that individuals compare the benefits and costs of various options when making a decision and in so doing act ________.

Accepted Answer

Economists assume individuals act rationally, meaning they weigh the potential benefits and costs of each option and choose the one that provides the greatest net benefit. This assumption is the foundation of economic analysis and helps predict how individuals will behave in different situations.

Question 8

Restaurants, bars, and convenience stores are often located near college campuses. These businesses frequently charge higher than normal prices. They are taking advantage of the fact that:

Accepted Answer

The businesses located near college campuses charge higher prices because students place a high value on their scarce time and are willing to pay higher prices than they would at locations farther from campus. As students have busy schedules, they may prefer to pay extra to have easy access to food or other necessities.

Question 9

The opportunity cost of working rather than going to school is:

Accepted Answer

The opportunity cost of working instead of going to school is the potential earnings that could be made with additional education. By choosing to work instead of furthering their education, the individual is giving up the possibility of earning higher wages in the future.

Question 10

Instead of deciding to finish high school, you could have decided to work full-time. How would an economist explain your decision to receive your high school degree?

Accepted Answer

According to economic theory, individuals make decisions by comparing the cost of an action to the benefit it provides. In this case, the decision to finish high school would have been made because the benefit of obtaining a high school degree (e.g. higher earning potential, better job opportunities, etc.) was greater than the benefit of working full-time without a high school degree. Thus, choice C is the best answer.

Question 11

Economists believe that optimal decisions are made up to the point where:

Accepted Answer

Economists believe that the optimal decision is reached when the additional benefit gained from an action is equal to the additional cost incurred from that action, meaning the marginal benefits are equal to the marginal costs. This allows for the greatest overall benefit to be obtained while minimizing any unnecessary costs.

Question 12

According to economists, one reason few professional athletes have PhD's is that the:

Accepted Answer

The opportunity cost of going to graduate school for professional athletes is too high because it involves giving up significant income and career advancement in their sports to pursue further education, which may not offer comparable benefits in their field.

Question 13

One way to promote a new business is to offer free items. If you were to open a new restaurant and offer free food, you likely would have a line out the door. How would an economist understand the behavior of those standing in line?

Accepted Answer

The answer of One way to promote a new business...

Question 14

I asked my neighbor to rake the leaves on his lawn because they are blowing into my yard. He responded that it wouldn't be rational for him to do so. Why would this be the case?

Accepted Answer

This answer suggests that the neighbor values his time at a high rate and knows that he can hire someone to do the job for much less. This choice makes more sense than the others which offer alternative explanations that may not be as rational or likely.

Question 15

When you chose a major, you likely thought about your skills. Let's say you don't enjoy dealing with numbers. How could you explain to your parents, using logic from economics, why you chose to major in English instead of mathematics?

Accepted Answer

By choosing a major in English, one can avoid the opportunity cost of spending time and effort on learning mathematics, which they may not enjoy and may struggle with. The opportunity cost of not pursuing a major in English may include missing out on the opportunity to develop critical thinking, writing, and communication skills, which are highly valued in many industries.

Question 16

Instead of taking an economics course, you could have taken a history course that meets at the exact same time. The total cost of taking the economics course would be:

Accepted Answer

The total cost of taking the economics course would include the tuition, the cost of the textbook and notebook required for the course, as well as the opportunity cost of not being able to take the history course at the same time. Therefore, option D is the correct answer.

Question 17

The government has been considering doing away with minting pennies because they are rarely used for purchases (with most people collecting them or throwing them away). How would an economist best explain this?

Accepted Answer

As prices have increased over time, carrying around large quantities of pennies has become less and less practical due to the opportunity cost. This makes it more likely for people to either collect pennies or simply throw them away, rather than use them for purchases.

Question 18

The opportunity cost for Elijah of going to a water park is:

Accepted Answer

The answer of The opportunity cost for Elijah of going...

Question 19

The trade-offs that are made because of scarcity:

Accepted Answer

Trade-offs are necessary because of limited resources, which means that when a decision is made to allocate resources in one area, it necessarily takes away resources that could be used elsewhere. The decision-maker must value one alternative over another and make a choice based on that. This is true regardless of whether the economy is developed or developing or whether the trade-off involves wants or needs. However, since these value judgments cannot be objectively quantified, they cannot be accurately made without considering the subjective preferences and priorities of the decision-maker.

Question 20

The opportunity cost of going to school rather than working is the cost of:

Accepted Answer

The opportunity cost of going to school rather than working is giving up the potential wages that could be earned if one was working instead. This means that by choosing to go to school, one is giving up the potential income that could be earned if they were working during that time. Therefore, the best choice is E.

Quiz 1: The Five Foundations of Economics