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

Accepted Answer

The cost-benefit principle states that costs and benefits are the incentives that shape decisions, so the best choice is A. Incomes and opportunity costs can be components of deciding costs and benefits, but they are not the main principle. Framing effects refer to the way choices are presented, which is not part of the cost-benefit principle itself.

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.

Accepted Answer

The cost-benefit principle states that a decision should be pursued only if the benefits are greater than the costs. This means that the benefits should outweigh the costs in order for the decision to be considered a good one. If the costs are greater than the benefits, then the decision would not make sense financially or otherwise. Therefore, choice A is correct.

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

Accepted Answer

The cost-benefit principle emphasizes the importance of considering both the costs and benefits of any decision. By evaluating these factors, individuals and organizations can determine whether the benefits outweigh the costs and make a more informed choice. Considering only one aspect, such as opportunity costs or economic surpluses, may not give a complete picture of the situation and could lead to suboptimal decisions.

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.

Accepted Answer

Economists convert costs and benefits into money equivalents by evaluating an individual's willingness to pay. This means that economists consider how much someone is willing to pay for a certain good or service, which helps determine the value of that good or service in monetary terms.

Question 5

Estimating willingness to pay quantifies _____ costs or benefits associated with a choice.
A)financial
B)nonfinancial
C)opportunity
D)marginal

Accepted Answer

Estimating willingness to pay is often used to quantify nonfinancial costs or benefits associated with a choice, such as the value of time saved, environmental benefits, or improvements in quality of life, which are not directly measured in financial terms.

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

Accepted Answer

Willingness to pay is a concept used to determine the maximum amount an individual is willing to spend to acquire a good or service or to avoid a cost.

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.

Accepted Answer

Money is a common measuring stick that allows economists to compare costs and benefits in a standardized way. It is a widely accepted medium of exchange and a unit of account that makes it easy to assign numerical values to goods, services, and opportunities. This allows for more precise and systematic analysis of economic decisions and outcomes. While A, B, and D may also be true statements, they do not fully capture the rationale for using money equivalents in economic analysis.

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

Accepted Answer

The cost-benefit principle involves weighing both the financial costs and the nonfinancial benefits of a decision. Therefore, the best choice is to consider both financial and nonfinancial aspects of the decision.

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

Accepted Answer

The cost-benefit principle evaluates both monetary and nonmonetary costs and benefits, while willingness-to-pay considerations evaluate only monetary costs and benefits.

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

Accepted Answer

The cost of Uber trips per week is $15 per trip * 2 trips per day * 5 days = $150. To save money compared to Uber, the cost of purchasing a car (including all associated costs) should be less than $150 per week.

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

Accepted Answer

The total annual cost of bus fare is $2 each way, 5 days a week, for 50 weeks, which equals $2 x 2 x 5 x 50 = $1,000. This is $20 per week. Therefore, Nerida should purchase a car if the cost is less than $20 per week to save money.

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.

Accepted Answer

The cost of continuing to take the bus is not a relevant cost when evaluating the cost-benefit of buying a car. The relevant costs are those associated with owning and maintaining a car, such as parking, car insurance, and repairs. Therefore, the cost of bus fare can be excluded from consideration.

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.

Accepted Answer

To calculate the cost of owning the car for the year, we need to add up the costs of purchase, gas, insurance, and maintenance and then subtract the amount that she can resell the car for at the end of the year.

Total cost of owning the car for the year:
$15,000 (purchase cost) + $1,200 (gas) + $800 (insurance) + $300 (maintenance/repairs) - $13,500 (resale value) = $3,800

Therefore, owning the car would cost Nerida $3,800 for the year. This is significantly cheaper than taking Lyft, which would cost her $4,000 for the year. Therefore, the best choice for Nerida is to buy the car.

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.

Accepted Answer

The cost-benefit principle is not limited to maximizing monetary costs and benefits or economic surplus, but can also account for unselfish motivations. By considering the wider implications of our actions, we can make decisions that benefit others, even if they may not directly benefit us financially. Therefore, choosing option A would lead us to make unselfish decisions by taking into account the interests of others.

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.

Accepted Answer

Economic surplus is calculated as the total benefits minus total costs arising from the decision. This represents the net gain or positive difference between the value received and the cost incurred as a result of a particular 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

Accepted Answer

Economic surplus is a measure of how much a decision has increased your well-being, reflecting the benefits received beyond what was paid or sacrificed.

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

Accepted Answer

Kevin's consumer surplus is the difference between his willingness to pay and the price he actually pays, which is $6 - $2 = $4. 
The economic surplus (or total surplus) is the difference between the price and the cost of production, which is $2 - $1 = $1. 
Therefore, Kevin gains a net economic surplus of $4 - $1 = $3. However, the question asks for only the economic surplus gained by Kevin, which is $4 - $2 = $2. So the correct answer is B.

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

Accepted Answer

The economic surplus for the coffee shop is the difference between the price Kevin pays ($2) and the cost to produce the latte ($1), which is $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

Accepted Answer

Amanda's consumer surplus is her willingness to pay minus the actual price she pays, which is $10 - $4 = $6. The economic surplus in this transaction is the difference between the total value (willingness to pay) and the cost of production, which is $10 - $1 = $9. However, the cafe captures $4 of this economic surplus as profit. Therefore, Amanda's individual surplus is $6 and the total economic surplus she receives is $6.

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

Accepted Answer

The economic surplus for the café is the difference between the price Amanda pays ($4) and the cost to produce the sandwich ($1), which is $3.

Quiz 1: The Core Principles of Economics

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

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

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

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

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

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

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

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

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

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.

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.

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

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

How is the economic surplus generated by a decision calculated?

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

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?

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?

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?

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?