Question 1

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

Accepted Answer

Marginal analysis focuses on the additional costs or benefits that result from a decision. Therefore, the relevant costs for this analysis are the additional costs of a particular activity or product, which is represented by the marginal cost curve.

Question 2

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?

Accepted Answer

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

Question 3

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

Accepted Answer

If the marginal cost per passenger is $100 and the full ticket price is $500, then the airline company can afford to sell the remaining seats for any price between $100 and $500 and still make a profit. Therefore, the best choice would be to charge the stand-by passenger more than $100. However, charging more than $500 would not be reasonable as it is unlikely that anyone would be willing to pay more than the full fare. Choice D is the best option as it allows the airline to make additional revenue without selling the seat for less than the marginal cost.

Question 4

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

Accepted Answer

Standby passengers can benefit the airlines as long as the additional revenue from these passengers exceeds the marginal cost of filling the seats. This allows the airline to generate revenue that may have otherwise been lost if the seats remained empty, but only if the revenue is greater than the cost.

Question 5

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

Accepted Answer

The economic way of thinking suggests that Jim should go back for the fourth serving if and only if his marginal benefit of the additional serving is greater than zero. This means that the additional satisfaction or enjoyment that Jim will get from the fourth serving should exceed the cost of going back for it (which is essentially zero since it is an all you can eat buffet and he has already paid the $12). If his marginal benefit is zero or negative, then it is not worth it to go back for another serving.

Question 6

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

Accepted Answer

Marginal analysis involves comparing the additional benefit of an activity to the additional cost. In this case, the extra benefit from an additional hour of studying economics should be compared to the extra cost (such as the opportunity cost of not doing other activities). If the extra benefit outweighs the extra cost, then it would be rational to spend more time studying economics. Therefore, the best choice is B, which states that you should spend more time studying economics if the extra benefit outweighs the extra cost.

Question 7

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

Accepted Answer

Marginal analysis requires that Harry only adds fertilizer if the marginal benefit exceeds the marginal cost. The marginal benefit of adding a pound of fertilizer is $20 - $80 = $20. Therefore, Harry should only add fertilizer if the marginal cost is less than $20. The marginal cost of adding a pound of fertilizer is the cost of the fertilizer itself. Therefore, Harry should only add fertilizer if it costs less than $20 per pound. The correct answer is therefore choice B.

Question 8

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

Accepted Answer

The value meal offers three tacos and a medium drink for $3. This means that each taco and drink in this meal costs $1 each, which is a better deal than buying two tacos for $0.80 each and a drink for $0.90.

Since Jordan already bought two tacos and a drink, the marginal cost of the third taco is the additional cost of adding it to his order. If Jordan were to buy the value meal instead, the third taco would cost him $1, which is $0.20 more than the cost of each of the first two tacos. Thus, Jordan's marginal cost of adding a third taco to his original order would be $0.20, which is half of the cost of a taco in the value meal ($1/3 tacos = $0.33 per taco; $0.33 - $0.80 = $0.47; $0.47/2 = $0.235 ≈ $0.20). Therefore, the best choice is B) 50 cents.

Question 9

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

Accepted Answer

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

Question 10

Because information is costly to acquire,

Accepted Answer

Acquiring information often requires time, effort, and resources. Rational individuals will weigh the costs and benefits of acquiring information and may choose to make a decision with limited information rather than investing in acquiring complete information.

Question 11

Economic analysis is based on the premise that

Accepted Answer

Economic analysis seeks to understand and predict human behavior in response to changes in personal benefits or costs. This principle is known as the law of demand, which suggests that as the price of a good or service increases, the demand for it will decrease, and vice versa. This assumption is based on the idea that people will generally make choices that maximize their own self-interest, but also take into account the costs and benefits associated with different options. While it is true that not all human behavior is predictable, economic models are designed to identify predictable patterns and trends that can be used to make informed decisions about policies and strategies.

Question 12

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

Accepted Answer

Stuart is using marginal decision making by weighing the marginal benefit of attending class against the marginal benefit of playing video games. He is considering the opportunity cost of skipping class but ultimately making a decision based on the marginal benefit of each choice.

Question 13

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?

Accepted Answer

The value of the information provided by the consumer ratings magazine is much higher when it comes to buying a new car, as it is a much larger and more significant purchase than buying a pen or pencil. This makes it more worthwhile for people to seek out this information before making a decision.

Question 14

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

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 15

To say that people make marginal decisions means that

Accepted Answer

Making a marginal decision means that individuals weigh the additional costs and benefits of different activities before making a decision. They consider the marginal (additional) cost of an activity and compare it to the marginal (additional) benefit before making a decision.

Question 16

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

Accepted Answer

If Ralph buys 2 quarts of milk, he pays $2 for the milk and 75 cents for the cereal, so his total cost is $2.75. 
If Ralph buys 3 quarts of milk, he pays $3 for the milk and gets the cereal for free, so his total cost is $3. 
Therefore, the cost of the third quart of milk is $3 - $2.75 = 25 cents, which is the marginal cost. 
So the best choice is B, since that is the correct marginal cost of the third quart of milk.

Question 17

In economics, secondary effects refer to the

Accepted Answer

Secondary effects are the unintended consequences of a change that may not be immediately noticeable but may affect the economy in the long run. These effects can include changes in income distribution, changes in the balance of trade, and changes in the environment. It is important to consider these secondary effects when making economic decisions, as they can greatly impact the overall success or failure of a policy or action.

Question 18

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

Accepted Answer

Sally's decision involves comparing the marginal cost (the additional 25 cents for the fries) to the marginal benefit (the added value of having the fries with her meal). This is an example of marginal decision making.

Question 19

The decision makers described by economic analysis

Accepted Answer

Economic analysis assumes that decision makers face constraints, such as limited time and resources, so they must economize when seeking information. This means that they may not have perfect knowledge to make choices, but they will seek as much information as they can get within their constraints. However, they will also consider the cost of seeking information and will only gather information when the expected benefits exceed the expected costs.

Question 20

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

Accepted Answer

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

Quiz 1: The Economic Approach