Question 1

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless
A)the marginal cost of teaching increased.
B)the marginal benefit of teaching increased.
C)the marginal cost of teaching decreased.
D)the marginal benefit of a corporate job decreased.

Accepted Answer

The answer of Your professor loves her work, teaching economics....

Question 2

In economics, the term marginal refers to
A)the change or difference between two alternatives.
B)man-made resources as opposed to natural resources.
C)the satisfaction a consumer receives from a good.
D)holding everything else constant in the analysis.

Accepted Answer

Marginal refers to the change or difference between two alternatives in economics. For example, marginal cost is the cost of producing one additional unit of a good or service.

Question 3

Economic analysis assumes that
A)people act only out of selfish motives.
B)people are motivated by a variety of forces; however, changes in personal benefits and costs affect behavior only when individuals are motivated by selfishness.
C)people are basically unselfish, and their actions are, therefore, difficult to predict.
D)changes in the personal benefits and costs associated with an activity will exert a predictable influence on the behavior of both those who are selfish and those who are unselfish.

Accepted Answer

Economic analysis assumes that changes in the personal benefits and costs associated with an activity will exert a predictable influence on the behavior of both those who are selfish and those who are unselfish. This is known as the principle of rational behavior, which states that individuals make choices based on a careful consideration of the costs and benefits of various alternatives. This principle holds true regardless of whether the individual is motivated by selfishness or not.

Question 4

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study
A)is positive.
B)outweighs the extra cost.
C)exceeds the benefits of the previous hour of study.
D)will raise your exam score.

Accepted Answer

Marginal analysis suggests that you should continue an activity as long as the marginal benefit exceeds the marginal cost. Therefore, you should spend more time studying economics if the extra benefit from an additional hour of study outweighs the extra cost.

Question 5

To say that people make marginal decisions means that
A)they usually wait until the last minute before making a decision to buy
B)they weigh the additional costs and additional benefits of various activities before they make a decision
C)most people just barely get by on the incomes they earn and live from day to day on the very edge of subsistence
D)they consider the total cost and benefit of various activities before they make a purchase

Accepted Answer

Making marginal decisions means weighing the additional costs and benefits of various activities or purchases before making a decision. It does not necessarily imply waiting until the last minute or living on the edge of subsistence. Option D is similar to option B but does not include the word "additional," which is important to the concept of marginal decision-making.

Question 6

A marginal change usually is a
A)change that involves little, if anything, that is important.
B)large, significant adjustment.
C)change for the worse, and so it is usually a short-term change.
D)small, incremental adjustment.

Accepted Answer

A marginal change refers to a small, incremental adjustment, rather than a large, significant one. It may not be immediately noticeable or impactful, but over time, these small changes can add up to a significant difference.

Question 7

Santiago wants to buy some milk and a box of cereal. If he buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Santiago, the marginal cost of the third quart of milk is
A)zero.
B)25 cents.
C)75 cents.
D)$1.

Accepted Answer

The marginal cost is the additional cost of consuming one more unit of a good. In this case, Santiago is considering whether to buy 2 or 3 quarts of milk.

If he buys 2 quarts of milk, he will spend $2 on milk and 75 cents on cereal, for a total of $2.75.

If he buys 3 quarts of milk, he will spend $3 on milk and get the cereal for free, for a total of $3.

Therefore, the marginal cost of the third quart of milk is the difference in total cost between buying 2 quarts and buying 3 quarts, which is $3 - $2.75 = 25 cents.

Question 8

A firm producing cans buys three tons of aluminum per day at $200 per ton. If it buys four tons per day, it receives a quantity discount on all units and pays only $175 per ton. The marginal cost of the fourth ton per day is
A)$100.
B)$175.
C)$700.
D)$225.

Accepted Answer

The answer of A firm producing cans buys three tons...

Question 9

If a decision maker uses marginal analysis, then the relevant costs are the
A)full costs of a particular activity or product.
B)fixed costs which do not vary with the extra activity or output.
C)profits obtained on the activity or product.
D)average costs for a particular activity or product.
E)additional costs of a particular activity or product.

Accepted Answer

Marginal analysis focuses on the additional or incremental costs and benefits of a particular activity or product. Therefore, the relevant costs in this approach are the additional costs of a particular activity or product, which is option E.

Question 10

Because information is costly to acquire,
A)people will rationally choose not to become fully informed when making decisions.
B)people will generally choose to become as fully informed as possible when making decisions.
C)people will generally choose to acquire no information that would be relevant to their decisions.
D)none of the above are true.

Accepted Answer

It is rational for individuals to weigh the costs and benefits of acquiring information when making decisions. The cost of information includes not only the monetary cost of obtaining it, but also the time and effort required to process and analyze it. Therefore, individuals may choose not to become fully informed because the cost of doing so outweighs the potential benefits.

Question 11

If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to
A)charge a stand-by passenger no less than the full fare of $500.
B)charge a stand-by passenger less than $100.
C)charge a stand-by passenger more than $500.
D)charge a stand-by passenger more than $100.
E)fill the seats at the last minute for any price.

Accepted Answer

The marginal cost per passenger is $100, so the airline needs to make sure to charge the stand-by passenger more than $100 to at least make a profit. However, they cannot charge them full fare of $500 as that may deter the stand-by passenger from buying the ticket. Therefore, charging them more than $100 but less than $500 would be the best option.

Question 12

A restaurant offers an "all you can eat" meal for $9. Tyrone has eaten three servings and is trying to decide whether or not to go back for a fourth. The economic way of thinking suggests that Tyrone should go back for the fourth serving if and only if
A)his marginal benefit of the additional serving is greater than zero.
B)his marginal benefit of the additional serving is at least $3.
C)his marginal benefit of the additional serving is $9 or more.
D)his total value from the meal exceeds $9.

Accepted Answer

The economic way of thinking suggests that individuals should continue to consume a product or service as long as the marginal benefit (the additional satisfaction or utility gained from each unit consumed) exceeds the marginal cost. In this case, the marginal cost of the fourth serving is $0, since it is included in the "all you can eat" meal for $9. Therefore, Tyrone should only go back for the fourth serving if his marginal benefit (the additional satisfaction he gains from consuming it) is greater than zero. Choice A is the only option that reflects this principle.

Question 13

A local restaurant offers an "all you can eat" buffet for $15. Mia eats four servings but leaves half of a fifth helping uneaten. Why?
A)Her marginal value of a serving of brunch has fallen below $15.
B)Her marginal value of a serving has fallen below $3 ($15 divided by 5 servings).
C)Her marginal value of food has fallen to zero.
D)The total value she places on the buffet exactly equals $15.

Accepted Answer

The answer of A local restaurant offers an "all you...

Question 14

People are willing to pay more for a diamond than for a bottle of water because
A)the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water.
B)the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water.
C)producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices.
D)water prices are held artificially low by governments, since water is necessary for life.

Accepted Answer

The marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water, which means that consumers believe that diamonds have a higher utility or satisfaction than water. Additionally, there may be a limited supply of diamonds, adding value to each individual diamond.

Question 15

While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Kayla notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Kayla, the marginal cost of the third taco would be
A)zero.
B)50 cents.
C)80 cents.
D)$1.

Accepted Answer

Kayla can buy two tacos and a medium drink for a total of $2.50 ($0.80 x 2 + $0.90). The value meal contains three tacos and a medium drink for $3. The cost of the third taco in the value meal would be $0.50 ($3 - $2.50). Therefore, the marginal cost of the third taco for Kayla would be 50 cents.

Question 16

Andre, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Andre should add fertilizer if it costs less than
A)$12.50 per pound.
B)$20 per pound.
C)$80 per pound.
D)$100 per pound.

Accepted Answer

The answer of Andre, a wheat farmer, is deciding whether...

Question 17

When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare
A)the benefits expected from two cars with the cost of both.
B)the additional benefits expected from a second car with the cost of the two cars.
C)the dollar cost of the two cars with the potential income that the cars will generate.
D)the additional benefits of the second car with the additional cost of the second car.

Accepted Answer

The answer of When deciding whether to buy a second...

Question 18

Isabella wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Isabella, the marginal cost of the tenth gallon of gasoline is
A)zero.
B)50 cents.
C)$1.
D)$1.50.

Accepted Answer

The cost of buying 9 gallons of gasoline is 9*$1.50 = $13.50. The additional cost of the tenth gallon is 50 cents because buying 10 gallons would cost $15 which includes a free car wash. Therefore, the marginal cost of the tenth gallon of gasoline is 50 cents. It is best for Isabella to buy 10 gallons of gasoline and get a free car wash to minimize her cost.

Question 19

While waiting in line to buy one cheeseburger for $1.50 and a medium drink for $1.00, Sally notices that she could get a value meal that contains both the cheeseburger and medium drink and also a medium order of fries for $2.75. She thinks to herself, "Is it worth the extra 25 cents to get the medium fries?" To an economist, Sally's decision is an example of
A)marginal decision making.
B)basing decisions on total, rather than marginal, value.
C)an unintended consequence.
D)the fallacy of composition.

Accepted Answer

Sally is considering the extra cost of 25 cents for the medium fries, which is an example of marginal decision making. She is comparing the marginal cost of the fries to the marginal benefit of having them, and deciding whether the additional cost is worth it.

Question 20

Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected?
A)They lose, because the standby passengers do not cover the full cost of the seats.
B)They gain, because the additional revenue covers the "fixed costs" of the flight.
C)They lose, because the gain of the passengers must necessarily come at the expense of the airline.
D)They benefit as long as the additional revenue from the passengers exceeds the marginal cost.

Accepted Answer

Standby passengers can benefit airlines by providing additional revenue, as long as the revenue from the passenger exceeds the marginal cost of adding another passenger on the flight. This means that the airline can still make a profit even if they offer standby passengers a lower rate.

Quiz 1: The Economic Approach

Your professor loves her work, teaching economics. She has been offered other positions in the corporate world that would increase her income by 25 percent, but she has decided to continue working as a professor. Her decision would not change unless

In economics, the term marginal refers to

Economic analysis assumes that

According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study

To say that people make marginal decisions means that

A marginal change usually is a

Santiago wants to buy some milk and a box of cereal. If he buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Santiago, the marginal cost of the third quart of milk is

A firm producing cans buys three tons of aluminum per day at $200 per ton. If it buys four tons per day, it receives a quantity discount on all units and pays only $175 per ton. The marginal cost of the fourth ton per day is

If a decision maker uses marginal analysis, then the relevant costs are the

Because information is costly to acquire,

If an airline company has several empty seats on a flight and the full price of an air ticket is $500 and the marginal cost per passenger is $100, then it will be profitable for the airline to

A restaurant offers an "all you can eat" meal for $9. Tyrone has eaten three servings and is trying to decide whether or not to go back for a fourth. The economic way of thinking suggests that Tyrone should go back for the fourth serving if and only if

A local restaurant offers an "all you can eat" buffet for $15. Mia eats four servings but leaves half of a fifth helping uneaten. Why?

People are willing to pay more for a diamond than for a bottle of water because

While waiting in line to buy two tacos at 80 cents each and a medium drink for 90 cents, Kayla notices that the restaurant has a value meal containing three tacos and a medium drink all for $3. For Kayla, the marginal cost of the third taco would be

Andre, a wheat farmer, is deciding whether or not to add fertilizer to his crops. If he adds 1 pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, Andre should add fertilizer if it costs less than

When deciding whether to buy a second car, the economic way of thinking indicates that the purchaser should compare

Isabella wishes to buy gasoline and have her car washed. She finds that if she buys 9 gallons of gasoline at $1.50 per gallon, the car wash costs $1, but if she buys 10 gallons of gasoline, the car wash is free. For Isabella, the marginal cost of the tenth gallon of gasoline is

Standby passengers on airlines who pay low rates for seats benefit from the low price. How are the airlines affected?