Question 1

A college student decides to spend his afternoon watching three movies rented from Redbox. The cost of each movie is $1. The student was willing to pay $4 to rent each of the first two movies and $2 to rent the third movie. What was the marginal benefit received by the student when renting the third movie?

Accepted Answer

The marginal benefit received by the student when renting the third movie is the additional satisfaction he gets from watching that movie. Since the student was willing to pay $2 for the third movie, the marginal benefit is equal to $2. Therefore, the student should rent the third movie as it provides a marginal benefit of $2 which is higher than the marginal cost of $1.

Question 2

Emir decides to sign up for a college accounting course. He pays the $500 tuition, but before the course starts he is offered a job that would conflict with the class time. The tuition is no longer refundable. In deciding whether to accept or decline the job offer, the $500 spent on the class is:

Accepted Answer

The $500 spent on the class is a sunk cost, meaning it's a cost that has already been incurred and cannot be recovered. Therefore, it should not be considered in the decision-making process of whether to accept or decline the job offer.

Question 3

Suppose that a policy maker knows there are currently 1,000 cars purchased each year in the city. In order to build a new park next year, which will cost $500,000, the policy maker decides to impose a tax of $500 on each car purchased. Which of the following scenarios is most likely to occur?

Accepted Answer

The $500 tax will increase the cost of purchasing a car, which will likely disincentivize people from buying cars. As a result, the number of cars purchased will likely decrease, and the amount raised from the tax will likely be less than $500,000.

Question 4

A car dealership advertises free satellite radio for one year with the purchase of a new car. This is an example of:

Accepted Answer

The dealership is offering an incentive to potential customers to purchase a new car by providing free satellite radio for one year. This is a form of promotion to encourage sales, and it is not misleading like bait and switch tactics. The promotion is also not related to marginal sales or voluntary exchange.

Question 5

A fast-food chain announces a "buy one get one free" offer on breakfast sandwiches bought before 9am. This is an example of:

Accepted Answer

This offer is an example of using incentives to encourage customers to buy breakfast sandwiches before 9am. The incentive of a free sandwich incentivizes customers to make a purchase earlier than they might have otherwise, which can increase sales and revenue for the fast-food chain.

Question 6

An Italian restaurant decreases the price of pizza relative to the price of spaghetti, so customers buy more pizza. This is an example of responding to:

Accepted Answer

Customers were provided with a lower price for pizza which acted as an incentive for them to buy more pizza.

Question 7

Applying for a loan in five-person groups is an example of:

Accepted Answer

Applying for a loan in five-person groups is an example of group responsibility, where individuals come together to secure a loan and share the responsibility of repaying it. This approach is commonly used in microfinance and community lending initiatives. It is not family and friends lending or party of five lending, which are not specific terms used in finance. Trade-off refers to making a difficult decision by sacrificing one thing for another.

Question 8

After paying $12 to enter an all-you-can-eat buffet, you can eat as much food as you desire. Which of the following statements is true?

Accepted Answer

The marginal benefit of consuming each additional plate of food will decrease as you become full. Therefore, the marginal benefit of your first plate of food is likely higher than your third plate of food.

Question 9

The additional cost associated with producing or consuming the next unit of a good or service is known as the:

Accepted Answer

The additional cost associated with producing or consuming the next unit of a good or service is known as the marginal cost. Variable cost refers to costs that vary with the level of production, utility cost refers to the cost of using a utility service, and sunk cost refers to a cost that has already been incurred and cannot be recovered. Therefore, the best choice is B) marginal cost.

Question 10

The extra benefit associated with producing or consuming the next unit of a good or service is known as the:

Accepted Answer

The extra benefit associated with producing or consuming the next unit of a good or service is known as the marginal benefit.

Question 11

Muhammad Yunus revolutionized banking in Bangladesh by issuing loans using group responsibility. This change to group responsibility:

Accepted Answer

Muhammad Yunus's approach of issuing loans based on group responsibility created a social incentive for repayment. Group members would encourage each other to repay their loans to ensure the group remained eligible for future loans, thus improving repayment rates without the need for traditional collateral.

Question 12

After paying $12 to enter an all-you-can-eat buffet, you can eat as much food as you desire. The marginal cost of an additional plate of food is:

Accepted Answer

The marginal cost of an additional plate of food is zero dollars because you have already paid the fixed cost of $12 to enter the buffet and can now consume as much food as you desire without any additional cost.

Question 13

Which of the following is an example of a positive incentive?

Accepted Answer

Option A is an example of a positive incentive because it encourages people to open a new credit card by offering a 0 percent balance transfer rate. This is a benefit that people can take advantage of if they choose to open a new credit card. Option B is not an incentive, it is a business decision. Option C is a personal decision and not an incentive for others. Option D is not an incentive, it is a negative consequence of competition.

Question 14

Muhammad Yunus, founder of the Grameen bank, was highly successful in his use of applying social incentives through group responsibility in order to maximize loan repayment rates. This success created an incentive for other banks to:

Accepted Answer

Muhammad Yunus' success with the Grameen bank and the use of group responsibility to maximize loan repayment rates created an incentive for other banks to offer similar loans to the poor. This approach has become known as microfinance and has been implemented by many other organizations and banks around the world.

Question 15

The deadline for your research paper is tomorrow and you anticipate you'll need a full day's worth of writing to complete the paper. Unfortunately, you are scheduled to work all day in the cafeteria. You can turn the paper in one day late for a 10 percent penalty or take the day off of work and turn the paper in by the deadline. Losing a day of wages will cost you $90. The marginal cost of turning the paper in on time is:

Accepted Answer

The marginal cost of turning the paper in on time is the $90 in forgone wages, as this is the direct cost you incur by taking the day off work to complete the paper.

Question 16

You and a friend decide to go see a movie at the theater, spending $15 each on the tickets. Halfway through the movie you're struggling to stay awake and your friend is scrolling through Facebook. You suggest leaving the movie to do something else, since you're both obviously bored. However, your friend declines, stating he doesn't want to waste the $15 he spent on the ticket. Your friend is considering the ______ of the movie.

Accepted Answer

Your friend is considering the sunk cost of the movie, which is the cost that has already been paid and cannot be recovered. Even though you both may be bored or uninterested in the movie, your friend is reluctant to leave because he feels like he would be losing the money he already spent on the ticket.

Question 17

Many theaters sell empty seats at a deep discount just before show time. What economic concept is displayed by this behavior?

Accepted Answer

This behavior exemplifies "thinking at the margin," where theaters evaluate the additional benefits and costs of selling tickets at a lower price just before showtime, rather than letting them go unsold.

Question 18

After paying the membership fee for a warehouse club like Costco, members are able to purchase items at a discounted price. Suppose the price of one pound of chicken is $4.99 at a typical grocery store but $2.99 at Costco. Also suppose the annual price of a Costco membership is $60. The marginal cost of your 5th pound of chicken purchased at Costco is:

Accepted Answer

The marginal cost refers to the cost of purchasing an additional unit of a good. In this case, the cost of buying an additional (or the 5th) pound of chicken at Costco is simply the price of one pound of chicken at Costco, which is $2.99. The membership fee is a sunk cost and does not affect the marginal cost of additional purchases.

Question 19

You have paid all expenses to travel to your favorite beach for a vacation. You made these payments early in order to receive a discount, and all payments are nonrefundable. Unfortunately, the weatherman is now predicting that a hurricane will hit the area during your vacation dates. As you decide whether or not to take the trip, you should not consider the:

Accepted Answer

The money already spent on the trip is a sunk cost and should not influence the decision to go on the trip or not.

Question 20

A university posts a notice that anyone who registers for classes after the deadline will be charged an additional $30 fee. This is an example of:

Accepted Answer

This notice serves as a disincentive to students who wait until after the deadline to register for classes, as they will be charged an additional fee.

Quiz 1: Economicsand Life