Deck 1: The Core Principles of Economics

Question 1

The cost-benefit principle states that _____ are the incentives that shape decisions.

A)costs and benefits
B)incomes
C)opportunity costs
D)framing effects

Answer 1

A

Question 2

The cost-benefit principle states that a decision should be pursued only if the

A)benefits are greater than the costs.
B)costs are greater than the benefits.
C)benefits are positive.
D)costs are negative.

Answer 2

A

Question 3

The cost-benefit principle states that the full set of _____ should be evaluated when making any choice.

A)opportunity costs
B)economic surpluses
C)costs and benefits
D)interdependencies

Answer 3

C

Question 4

Economists convert costs and benefits into money equivalents by evaluating an individual's

A)sunk costs.
B)marginal benefits.
C)opportunity costs.
D)willingness to pay.

Question 5

Estimating willingness to pay quantifies _____ costs or benefits associated with a choice.

A)financial
B)nonfinancial
C)opportunity
D)marginal

Question 6

_____ is estimated by asking: "What is the _____ I am willing to pay to get this benefit (or avoid that cost)?"

A)Willingness to pay; least
B)Willingness to pay; most
C)Opportunity cost; least
D)Opportunity cost; most

Question 7

Economists use money equivalents to compare costs and benefits because money is

A)critical to keeping an economy working smoothly.
B)what is used to measure opportunity costs.
C)a common measuring stick.
D)what economic agents are trying to maximize.

Question 8

The key to using the cost-benefit principle is to think about _____ aspects of a decision.

A)both financial and nonfinancial
B)only financial
C)only nonfinancial
D)neither financial nor nonfinancial

Question 9

The cost-benefit principle evaluates _____ costs and benefits, and willingness-to-pay considerations evaluate _____ costs and benefits.

A)both monetary and nonmonetary; only nonmonetary
B)only monetary; both monetary and nonmonetary
C)only nonmonetary; only monetary
D)both monetary and nonmonetary; only monetary

Question 10

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $15. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week.

A)less; $150
B)less; $75
C)greater; $150
D)greater; $75

Question 11

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.

A)less; $20
B)less; $10
C)greater; $20
D)greater; $10

Question 12

Nerida Kyle is thinking of buying a new car to avoid taking the bus to work. Each of the following is a cost she should consider when using the cost-benefit principle to evaluate this decision EXCEPT

A)parking.
B)car insurance.
C)bus fare.
D)repairs.

Question 13

Nerida Kyle is thinking of buying a car to avoid taking Lyft to work. She is using the cost-benefit principle to evaluate this decision and is calculating the costs and benefits to owning the car over the next year. She's gathered the following information to help her make her decision:
The car costs $15,000 to purchase, but she can resell it after a year of use for $13,500.
She thinks gas will cost her about $1,200 for the year.
The annual insurance premium for her car is $800.
Maintenance and repairs will cost about $300 for the year.
Using Lyft to get to work would cost her $4,000 for the year.
The cost of the car for the year is:

A)$1,500.
B)$4,000.
C)$3,800.
D)$7,800.

Question 14

The cost-benefit principle will lead you to make unselfish decisions if you

A)account for unselfish motivations.
B)maximize monetary costs and benefits.
C)pursue only decisions for which the benefits outweigh the costs.
D)maximize economic surplus.

Question 15

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 total benefits plus total costs arising from the decision.
C)It is the sum of benefits arising from the decision.
D)It is the sum of costs arising from the decision.

Question 16

_____ is a measure of how much your decision has _____ your well-being.

A)Willingness to pay; improved
B)Willingness to pay; reduced
C)Economic surplus; increased
D)Economic surplus; decreased

Question 17

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte?

A)$6
B)$4
C)$2
D)$1

Question 18

Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does the coffee shop receive when Kevin purchases the latte?

A)$6
B)$4
C)$2
D)$1

Question 19

Amanda Mendez goes to a local café and orders a sandwich. Her willingness to pay for that sandwich is $10. The price of the sandwich is $4. The cost to the cafe to produce that sandwich is $1. How much economic surplus does Amanda receive when she purchases the sandwich?

A)$10
B)$6
C)$4
D)$3

Question 20

Amanda Mendez goes to a local cafe and orders a sandwich. Her willingness to pay for that sandwich is $10. The price of the sandwich is $4. The cost to the cafe to produce that sandwich is $1. How much economic surplus does the café receive when Amanda purchases the sandwich?

A)$6
B)$4
C)$3
D)$1

Question 21

A trade-off involves weighing:

A)social costs.
B)private costs.
C)external costs.
D)costs and benefits.

Question 22

Gary Parker is willing to pay $700 for a new iPad. Apple (the producer of iPads) is selling a new iPad for $600. It costs Apple $400 to produce this iPad. How much economic surplus does Apple receive if Gary purchases this iPad?

A)$700
B)$600
C)$200
D)$100

Question 23

In a voluntary economic transaction between a buyer and a seller, _____ can earn economic surplus from the transaction.

A)only the buyer
B)only the seller
C)both the buyer and the seller
D)neither the buyer nor the seller

Question 24

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.

A)will; neither Juan nor Apple
B)will; both Juan and Apple
C)will not; only Juan
D)will not; only Apple

Question 25

Juan McDonald is willing to pay $800 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.

A)will; neither Juan nor Apple
B)will; both Juan and Apple
C)will not; only Juan
D)will not; only Apple

Question 26

Juan McDonald is willing to pay $650 for a new iPad. He offers to pay $600 for an iPad at the Apple store. It costs Apple $700 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because ____ would be better off due to the transaction.

A)will; neither Juan nor Apple
B)will; both Juan and Apple
C)will not; only Juan
D)will not; only Apple

Question 27

Juan McDonald is willing to pay $900 for a new iPad. He offers to pay $800 for an iPad at the Apple store. It costs Apple $700 to produce this iPad. A voluntary economic transaction between Juan and Apple _____ occur because ____ would be better off due to the transaction.

A)will; neither Juan nor Apple
B)will; both Juan and Apple
C)will not; only Juan
D)will not; only Apple

Question 28

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.

A)occurs; both Ivan and Samantha receive
B)occurs; only Samantha receives
C)does not occur; only Ivan receives
D)does not occur; neither Ivan nor Samantha receives

Question 29

Ivan has inherited his grandmother's 1963 Chevrolet Corvette, which he values at $60,000. Samantha is interested in buying the car and offers Ivan $55,000 for the car. Samantha is willing to pay up to $60,000 for such a car. A voluntary economic exchange _____ between Ivan and Samantha because _____ positive economic surplus from the transaction.

A)occurs; both Ivan and Samantha receive
B)occurs; only Ivan receives
C)does not occur; only Samantha receives
D)does not occur; neither Ivan nor Samantha receives

Question 30

Ivan has inherited his grandmother's 1963 Chevrolet Corvette, which he values at $60,000. Samantha is interested in buying such a car and is willing to pay up to $55,000. Ivan hears Samantha is looking for this particular car and offers to sell it to her for $70,000. A voluntary economic exchange _____ between Ivan and Samantha because _____ positive economic surplus from the transaction.

A)occurs; both Ivan and Samantha receive
B)occurs; only Samantha receives
C)does not occur; only Ivan receives
D)does not occur; neither Ivan nor Samantha receives

Question 31

According to the cost-benefit principle, framing effects or how a choice is described, should

A)affect a decision.
B)not affect a decision.
C)be considered costs.
D)be considered benefits.

Question 32

You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $15. You value the restaurant meal at $30 and the time spent with your friend at $50. You should ____ to dinner with your friend because the benefit of doing so is _____ than the cost.

A)go; greater
B)go; less
C)not go; greater
D)not go; less

Question 33

You are thinking of going out to dinner at a restaurant with your friends. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $20. You value the restaurant meal at $20, and the time spent with your friends at $30. If you did not go out to the restaurant, you would eat at home using groceries that cost you $10. You should ____ to dinner with your friends because the benefit of doing so is _____ than the cost.

A)go; greater
B)go; less
C)not go; greater
D)not go; less

Question 34

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 because of the weather the surcharge is twice the regular cost. You should _____ because the benefit to you of taking the Uber is _____ than the cost.

A)walk; less
B)walk; more
C)take an Uber; less
D)take an Uber; more

Question 35

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.

A)walk; less
B)walk; more
C)take an Uber; less
D)take an Uber; more

Question 36

Which principle tells you that the true cost of something is the next best alternative you have to give up to get it?

A)The cost-benefit principle.
B)The opportunity cost principle.
C)The marginal principle.
D)The interdependence principle.

Question 37

The opportunity cost principle states that the true cost of something is the

A)next best alternative you have to give up to get it.
B)least desired alternative you have to give up to get it.
C)economic surplus you give up to get it.
D)economic surplus you receive from getting it.

Question 38

Decisions should reflect the _____ costs, rather than just the _____ costs.

A)financial; marginal
B)opportunity; nonfinancial
C)opportunity; financial
D)nonfinancial; financial

Question 39

Opportunity cost arises from the fundamental economic problem of

A)interdependence.
B)marginal costs.
C)unlimited resources.
D)scarcity.

Question 40

The opportunity costs of attending college includes the

A)cost of tuition.
B)cost of room and board.
C)cost of clothes to wear at school.
D)time spent studying.

Question 41

The opportunity costs of attending college include the:

A)potential income that could be earned working.
B)cost of room and board.
C)cost of clothes to wear at school.
D)effort and hard work.

Question 42

The opportunity costs of a decision may include each of the following types of costs EXCEPT

A)out-of-pocket financial costs.
B)forgone financial costs.
C)sunk costs.
D)nonfinancial costs.

Question 43

Jonathan Mendez is deciding whether to study for his economics exam at a café or go to a concert with friends tonight. The cost of dinner at the fancy restaurant on the way to the concert is ____ in the calculation of his opportunity cost and represents a _____ cost.

A)included; financial
B)included; nonfinancial
C)not included; financial
D)not included; sunk

Question 44

Jonathan Mendez is deciding whether to study for his economics exam at a café down the street or go to a concert a few cities over. The time spent commuting to the concert is ____ in his opportunity cost calculations and represents a _____ cost.

A)included; financial
B)included; nonfinancial
C)not included; financial
D)not included; sunk

Question 45

Jonathan Mendez is deciding whether to study for his economics exam at a café or go to a concert with friends tonight. The cost of tuition for his economics course is _____ in his opportunity cost calculations for this decision and represents a _____ cost.

A)included; financial
B)included; nonfinancial
C)not included; financial
D)not included; sunk

Question 46

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?

A)$0
B)$5
C)$7
D)$12

Question 47

Sunk costs are costs that are incurred

A)regardless of which decision is made.
B)if a particular decision is made.
C)if a particular decision is not made.
D)only for some decisions.

Question 48

Sunk costs should ____ be considered as part of the opportunity costs of a decision.

A)always
B)never
C)sometimes
D)rarely

Question 49

Sunk costs are costs that

A)are potential costs associated with a particular decision.
B)are part of the opportunity costs of a decision.
C)are incurred in the past and cannot be reversed.
D)should be considered in any decision.

Question 50

Jonathan Mendez is deciding whether to study for his economics exam at a café or go to a concert with friends tonight. The cost of the concert ticket that he purchased yesterday is ____ in his opportunity cost and represents a _____ cost.

A)included; financial
B)included; nonfinancial
C)not included; financial
D)not included; sunk

Question 51

Rose Riley's parents have booked and paid for a family trip to Aspen, Colorado, during her spring break. Rose's friends recently decided to drive to Destin, Florida, for spring break. Rose needs to decide whether to join her parents in Aspen or drive to the beach with her friends. The opportunity costs of joining her friends on the trip to Destin include each of the following EXCEPT

A)her parents' anger if she skips the family trip to Aspen.
B)her contribution to gas money for the drive to Destin.
C)the ski lift ticket her parents have already purchased for her.
D)the hotel costs she will split with her friends in Destin.

Question 52

Rose Riley's parents have booked a family trip to Aspen, Colorado, during her spring break. They have agreed to pay for everything except her plane ticket. Rose's friends recently decided to drive to Destin, Florida, for spring break. Rose must now decide whether to join her parents in Aspen or drive to the beach with her friends. The opportunity costs of joining her parents in Aspen include each of the following EXCEPT

A)the cost of her plane ticket to Aspen.
B)memories she will miss with her friends.
C)the stress of traveling via plane and navigating airports.
D)the nonrefundable deposit her friends paid for the beach house in Destin.

Question 53

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 consider all of the following costs when calculating the opportunity costs of leaving college EXCEPT the

A)potential future job security from her college degree.
B)90 credit hours she has already completed for her degree.
C)potential memories from her senior year of college.
D)skills she may gain from her final year of economics courses.

Question 54

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

A)time she will spend working on the app instead of studying.
B)90 credit hours she has already completed for her degree.
C)tuition costs she has already paid to her college.
D)skills she may gain from her final year of economics courses.

Question 55

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 consider all of the following costs when calculating the opportunity costs of staying in college EXCEPT the

A)time she will spend studying instead of working on the app.
B)potential forgone profits from selling her app.
C)potential fame that could come from creating a useful app.
D)cost of supplies and the technology fees she paid during the first three years of college.

Question 56

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

A)time he spent cooking the dinner.
B)time it will take to walk, meet his friends, and walk back.
C)amount of money he will spend at the dining hall.
D)value he places on eating dinner with his friends.

Question 57

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

A)time it will take to go meet his friends and walk back.
B)amount of money he will spend at the dining hall.
C)money spent on the groceries he used to cook dinner.
D)value he places on not eating dinner alone.

Question 58

You are thinking of starting a tutoring service. You already have a part-time job on campus that pays $10 per hour. You think you can tutor fellow students for five hours each Saturday at $25 per hour. If you were not tutoring, you could work another five hours at your campus job. How much economic surplus will you generate each week if you start tutoring?

A)$125
B)$75
C)$65
D)$50

Question 59

You are thinking of starting a tutoring service. You already have a part-time job on campus that pays $20 per hour. You think you can tutor fellow students for five hours each Saturday at $25 per hour, and you have already printed $10 worth of flyers to hang on campus for advertising. If you were not tutoring, you could work another five hours at your campus job. How much economic surplus will you generate each week if you start tutoring?

A)$125
B)$100
C)$25
D)$15

Question 60

You have paid $100 for student season tickets to the football games at your university. It is halfway through the season, and the team has not won any games. You are considering whether you will attend any future games this season. All of the following are costs or benefits you should consider when making this decision EXCEPT the

A)cost of a hotdog and soda you will inevitably buy at a future game.
B)time spent at the game rather than studying.
C)frustration experienced from watching the team lose in previous games.
D)$5 you will earn per game by selling the remaining tickets.

Question 61

You have paid $100 for student season tickets to the football games at your university. It is halfway through the season, and the team has not won any games. You are considering whether you will attend any future games this season. All of the following are costs or benefits you should consider when making this decision EXCEPT the

A)$100 you spent on the season tickets.
B)time spent to go to the game instead of studying.
C)satisfaction you will get if your team wins a game.
D)$5 you can make per game by selling your remaining tickets.

Question 62

The __________ suggests, decisions about quantities are best made incrementally.

A)cost-benefit principle
B)opportunity cost principle
C)marginal principle
D)interdependence principle

Question 63

The marginal principle says that decisions about quantities are best made

A)incrementally.
B)arbitrarily.
C)all at once.
D)in total.

Question 64

The marginal benefit from an additional worker is

A)the additional benefit from hiring one more worker.
B)the total benefit from all workers hired.
C)always equal to the benefit from the first worker hired.
D)always equal to the cost of hiring the additional worker.

Question 65

The marginal cost of an additional worker is

A)always equal to the cost from the first worker hired.
B)always equal to the benefit of hiring the additional worker.
C)the total cost of all workers hired.
D)the additional cost of hiring one more worker.

Question 66

Joshua Murphy is planning on studying late into the night for his economics exam. How many cups of coffee should he buy tonight? Joshua should keep buying coffee throughout the evening until the marginal:

A)benefit of purchasing one more coffee equals the marginal cost.
B)benefit of purchasing one more coffee is less than the marginal cost.
C)benefit of purchasing one more coffee is positive.
D)cost of purchasing one more coffee is positive.

Question 67

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

A)benefit of purchasing one more coffee exceeds the marginal cost.
B)benefit of purchasing one more coffee is less than the marginal cost.
C)benefit of purchasing one more coffee is positive.
D)cost of purchasing one more coffee is positive.

Question 68

Kathleen Alvarado is binge-watching her favorite show on Netflix. She is attempting to decide how many more episodes to watch. Kathleen should continue watching episodes as long as the marginal:

A)benefit of watching another episode exceeds the marginal cost.
B)benefit of watching another episode is less than the marginal cost.
C)benefit of watching another episode is positive.
D)cost of watching another episode is positive.

Question 69

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

A)benefit of watching another episode exceeds the marginal cost.
B)benefit of watching another episode is equal to the marginal cost.
C)benefit of watching another episode is positive.
D)cost of watching another episode is positive.

Question 70

The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of:

A)inefficiency.
B)equilibrium.
C)inequity.
D)scarcity.

Question 71

When evaluating how much to produce, increase the quantity produced if the marginal benefit of an additional item is _____ the marginal cost of the additional item.

A)greater than or equal to
B)equal to
C)less than or equal to
D)less than

Question 72

The marginal principle breaks quantity decisions into iterative decisions that use the

A)cost-benefit principle.
B)opportunity cost principle.
C)interdependence principle.
D)sunk cost evaluation.

Question 73

The rational rule summarizes the marginal principle. It says that if something is worth doing, keep doing it until your marginal

A)benefits equal your marginal costs.
B)benefits exceed your marginal costs.
C)benefits are zero.
D)costs are less than your marginal benefits.

Question 74

The rational rule suggests you should continue with an activity until your _____ benefit _____ your marginal cost.

A)total; equals
B)total; exceeds
C)marginal; equals
D)marginal; is less than

Question 75

Ron is buying jeans online and has to decide how many to buy. He should buy an additional pair if the

A)marginal benefit of the next pair is less than the price of the jeans.
B)marginal benefit of the next pair is at least as high as the price of the jeans.
C)total benefit when purchasing one more pair is less than the total cost of the jeans.
D)total benefit when purchasing one more pair is at least as high as the total cost of the jeans.

Question 76

Taryn is buying shirts online and has to decide how many shirts to buy. She should buy another shirt if the

A)marginal benefit of the next shirt is less than the price of the shirt.
B)marginal benefit of the next shirt is at least as high as the price of the shirt.
C)total benefit when purchasing one more shirt is less than the total cost of the shirts.
D)total benefit when purchasing one more shirt is at least as high as the total cost of the shirts.

Question 77

Following the rational rule, the economic surplus is maximized when

A)total benefits equal total costs.
B)total benefits exceed total costs.
C)marginal benefits equal marginal costs.
D)marginal benefits exceed marginal costs.

Question 78

To maximize economic surplus, keep increasing output as long as

A)total benefits equal total costs.
B)total benefits exceed total costs.
C)marginal benefits equal marginal costs.
D)marginal benefits exceed marginal costs.

Question 79

When faced with a quantity decision, the economic surplus stops increasing when

A)total benefits equal to total costs.
B)total benefits exceed total costs.
C)marginal benefits equal marginal costs.
D)marginal benefits exceed marginal costs.

Question 80

When faced with a quantity decision, the economic surplus is always maximized by following the

A)Rational Rule.
B)framing effect.
C)opportunity cost principle.
D)interdependence principle.