Question 1

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 for a decision maker using marginal analysis are the additional costs of the activity or product.

Question 2

Susan 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 Susan, 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 9 gallons of gasoline is (9 x $1.50) = $13.50. With the car wash added, the total cost is $14.50. 
The cost of 10 gallons of gasoline is (10 x $1.50) = $15. With the free car wash added, the total cost is $15. 
Therefore, the cost of the tenth gallon of gasoline is ($15 - $14.50) = $0.50. The marginal cost is the additional cost of producing one more unit, which in this case is the cost of the tenth gallon.

Question 3

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 paying low rates generate additional revenue for the airlines, which can benefit the airlines as long as the revenue exceeds the marginal cost of accommodating those passengers. This can help the airlines cover their fixed costs and increase their overall profitability. Therefore, option D is the correct answer.

Question 4

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 5

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

Accepted Answer

Since Jordan only wants two tacos and a medium drink, the cost would be $1.50. However, he notices that the value meal would give him an extra taco and cost only $3. Therefore, the marginal cost of the third taco would be the difference between the cost of the value meal and the cost of his original order, which is $3 - $1.50 = $1.50. Since the value meal comes with three tacos, the marginal cost of the third taco would be $1.50 divided by 3 tacos, which is 50 cents.

Question 6

Harry, 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, Harry 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

To determine the cost at which Harry should add fertilizer, we need to calculate the marginal benefit and marginal cost of doing so. The marginal benefit is the increase in crop value per pound of fertilizer, which is:

Marginal Benefit = Increase in crop value / Amount of fertilizer
Marginal Benefit = ($100 - $80) / 1 pound = $20

Next, we need to determine the cost of adding fertilizer. Since the problem does not provide this information, we cannot calculate the actual cost. However, we can use the marginal cost as a proxy for the actual cost. The marginal cost is the cost of producing one additional unit of output, and in this case, it is the cost of adding one additional pound of fertilizer per acre. Assuming that the cost of other inputs remains constant, the marginal cost of adding fertilizer is the cost of the fertilizer itself.

Therefore, Harry should add fertilizer if the cost of one pound of fertilizer is less than the marginal benefit of adding that pound of fertilizer. Using the numbers we calculated above, this means that Harry should add fertilizer if the cost of one pound of fertilizer is less than $20.

Of the choices given, only option B ($20 per pound) satisfies this condition, so that is the best choice.

Question 7

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

Acquiring information can come at a cost of time, effort, and resources. Therefore, not everyone can afford to become fully informed when making a decision. As a result, people will rationally choose to acquire only the necessary information that affects their decision in a significant way.

Question 8

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

Charging a stand-by passenger less than the marginal cost per passenger ($100) would result in a loss for the airline. Charging more than the full fare of $500 is unlikely to be feasible for a stand-by passenger. Therefore, the best option would be to charge a stand-by passenger more than $100, but less than the full fare of $500. This would enable the airline to cover its marginal cost and make a profit on the otherwise empty seats.

Question 9

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 before making a decision. It involves considering the marginal or incremental changes that result from a decision, rather than just the overall effect.

Question 10

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

The answer of According to marginal analysis, you should spend...

Question 11

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?
A) Her marginal value of a serving of brunch has fallen below $12.
B) Her marginal value of a serving has fallen below $2.40 ($12 divided by 5 servings).
C) Her marginal value of food has fallen to zero.
D) The total value she places on brunch today exactly equals $12.

Accepted Answer

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

Question 12

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's decision to consider whether the extra cost of the value meal's medium fries is worth the additional benefit is an example of marginal decision making. She is considering the marginal cost ($2.75 - $2.50 = $0.25) and the marginal benefit (the additional value of the medium fries) of choosing the value meal over the individual items.

Question 13

In economics, secondary effects refer to the
A) best alternative that must be forgone as the result of a choice.
B) unintended consequences of a change that are not immediately identifiable but are felt only with time.
C) immediate and visible intended consequences of a change.
D) impact of the scarcity of resources on the scarcity of the goods that are produced with those resources.

Accepted Answer

Secondary effects refer to unintended consequences of a change that may not be immediately identifiable but are felt only with time. These effects may be positive or negative and can impact a wide range of economic activities and sectors. It is important to consider secondary effects when analyzing the potential impacts of any economic policy or decision.

Question 14

Economic analysis is based on the premise that
A) people act only out of selfish motives.
B) people are always fully informed when making choices.
C) changes in the personal benefits or costs of an action influence behavior in a predictable way.
D) most human behavior is unpredictable.

Accepted Answer

Economic analysis assumes that changes in personal benefits or costs of an action will affect behavior in a predictable way. This forms the basis for the law of demand, which states that as the price of a good increases, the quantity demanded decreases, and vice versa. The other options are not accurate assumptions in economic analysis. People do not always act out of selfish motives (there are many examples of altruistic behavior), people are not always fully informed when making choices, and while some human behavior may be unpredictable, economic analysis relies on the assumption of predictable behavior.

Question 15

The decision makers described by economic analysis
A) economize when seeking information.
B) must have essentially perfect knowledge to make choices.
C) will seek as much information as they can get.
D) generally ignore the cost of seeking information.

Accepted Answer

Economic analysis assumes that decision makers have limited resources, including time and money, and therefore must economize when seeking information. They will seek the most useful information while considering its cost, rather than trying to attain perfect knowledge.

Question 16

Just before class, Jim tells Stuart, "Stuart, you shouldn't skip class today because you have paid tuition to enroll in the class." Stuart ignores Jim's advice, and instead makes the decision of whether to attend based on what he feels he'd be missing that day in class relative to his value of the extra time he could have to finish the video game he is playing. To an economist, Stuart is
A) using marginal decision making.
B) ignoring the total value of attending class.
C) ignoring the concept of opportunity cost.
D) committing the fallacy of composition.

Accepted Answer

Stuart is using marginal decision making by considering the additional value he would receive from attending class versus the additional value he would receive from playing his video game. He is weighing the marginal benefits and costs of each option to make his decision.

Question 17

People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil. Which of the following best explains this behavior?
A) Because the consumer ratings magazine must have a higher price for the issue reviewing pens and pencils.
B) Because the value of the information, in terms of avoiding a mistake on the purchase, is much higher for an automobile than for a pen or pencil, it is more worthwhile to gather this information.
C) Because people generally do not know which products are reviewed by these consumer magazines.
D) None of the above explain this behavior.

Accepted Answer

The value of the information for avoiding a mistake on the purchase of a high-priced item like an automobile is higher than that of a low-priced item like a pen or pencil, making it more worthwhile to gather information about it.

Question 18

Ralph wants to buy some milk and a box of cereal. If Ralph 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 Ralph, 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 of the third quart of milk is the additional cost incurred when buying the third quart. Since the box of cereal becomes free when buying 3 quarts, Ralph saves 75 cents on the cereal, making the effective additional cost of the third quart of milk $1 - $0.75 = 25 cents.

Question 19

A restaurant offers an "all you can eat" lunch buffet for $12. Jim 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 Jim 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 $12 or more.
D) his total value from the meal exceeds $12.

Accepted Answer

The economic way of thinking suggests that Jim should only go back for a fourth serving if the marginal benefit of the additional serving is greater than zero. This means that Jim should only continue consuming food up to the point where the additional satisfaction he gets from each additional serving is greater than the cost of that serving (which is essentially zero in this case since it's an all-you-can-eat buffet). Going back for the fourth serving would be irrational if the marginal benefit is zero or negative, as he would be consuming food that is not providing him with any additional satisfaction. Therefore, option A is the best choice.

Question 20

Which of the following is consistent with the implications of the economic guidepost that information is costly to acquire?
A) Most people do not know the names of their legislators in the U.S. Congress, but those same individuals are likely to know the names of all the cast members on a popular TV show.
B) In considering purchases, people are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a car, but are unlikely to purchase a consumer ratings magazine that reviews pens and pencils before buying a pen or pencil.
C) When shopping for something like a new calculator, people will generally not spend the time to do price comparisons at all of the stores in town that sell calculators.
D) All of the above are consistent with the economic way of thinking.

Accepted Answer

The answer of Which of the following is consistent with...

Quiz 1: The Economic Approach

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

Susan 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 Susan, 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?

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

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

Harry, 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, Harry should add fertilizer if it costs less than

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

To say that people make marginal decisions means that

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

A local restaurant offers an "all you can eat" Sunday brunch for $12. Susan eats four servings but leaves half of a fifth helping uneaten. Why?

In economics, secondary effects refer to the

Economic analysis is based on the premise that

The decision makers described by economic analysis

People are more likely to purchase a consumer ratings magazine that reviews new automobiles before buying a new car than they are to purchase a consumer ratings magazine that reviews pens and pencils before buying a new pen or pencil. Which of the following best explains this behavior?

Ralph wants to buy some milk and a box of cereal. If Ralph 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 Ralph, the marginal cost of the third quart of milk is

A restaurant offers an "all you can eat" lunch buffet for $12. Jim 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 Jim should go back for the fourth serving if and only if

Which of the following is consistent with the implications of the economic guidepost that information is costly to acquire?