Deck 2: The Key Principles of Economics

Question 1

An unemployed individual decides to spend the day fishing. The opportunity cost of fishing is

A) the cost of bait and any other monetary expenses.
B) zero, because the person doesn't have a job.
C) the cost of bait, any other monetary expenses, and the value of the individual's wages while he was working.
D) the cost of bait, any other monetary expenses, and the value of the best alternative use of the individual's time.

Answer 1

the cost of bait, any other monetary expenses, and the value of the best alternative use of the individual's time.

Question 2

The principle that the cost of something is equal to what is sacrificed to get it is known as the

A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) reality principle.

Answer 2

principle of opportunity cost.

Question 3

Suppose that your tuition to attend college is $14,000 per year and you spend $5,000 per year on room and board. If you were working full time, you could earn $26,000 per year. What is your opportunity cost of attending college?

A) $19,000
B) $31,000
C) $40,000
D) $45,000

Answer 3

$40,000

Question 4

According to the possible trade-off example between warships and drinking water in the text, the policy question that should be considered in Malaysia is

A) do the opportunity costs of the warships exceed their nominal costs?
B) do the nominal costs of the warships exceed their real costs?
C) do the benefits of the warships exceed their opportunity costs?
D) do the real costs of the warships exceed their nominal costs?

Question 5

Suppose that you own a house. What is the opportunity cost of living in the house?

A) There is no opportunity cost because you own the house.
B) There is no opportunity cost unless you could set up a business in the house.
C) The opportunity cost is the rent you could have received from a tenant if you didn't live there.
D) The opportunity cost is the cost of your monthly mortgage payment plus bills.

Question 6

The opportunity cost of something is

A) the cost of the labor used to produce it.
B) what you sacrifice to get it.
C) the price charged for it.
D) the search cost required to find it.

Question 7

Angelina, age seven, decides to dress up like Princess Fiona for Halloween. What is the opportunity cost of her decision?

A) the cost of the costume
B) the fact that she can't dress up like Dora the Explorer, her second choice
C) zero, because seven-year-olds don't have opportunity costs
D) the cost of the Lady Gaga costume which she did not want

Question 8

You rent a DVD of The Dark Knight Rises. The rental is for seven days and you watch the movie on the first day. You tell a friend about the film and your friend asks to come over and watch the movie with you before it is due back. What is your opportunity cost if you decide to watch the movie a second time instead of going to a football game?

A) the entire cost of the movie rental, since you have already watched the movie
B) one half the rental cost, because you have already watched the movie one time
C) The answer depends on how much you liked the movie in the first place.
D) the football game you forego by watching the movie again

Question 9

You have an hour between your economics and math classes. What is the opportunity cost of that time if you use it to complete your math homework instead of your economics homework?

A) the economics homework you could have completed
B) the math homework you chose to complete
C) the cost of your calculator and math textbook
D) zero, because it doesn't cost any money to do your math homework

Question 10

Table 2.1

Kaitlyn and Larissa have formed a dog bathing and grooming business business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. The opportunity cost of grooming the first dog in a day is bathing ________ dog(s).

A) 1
B) 2
C) 24
D) 25

Question 11

Table 2.1

Kaitlyn and Larissa have formed a dog bathing and grooming business business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. The opportunity cost of grooming the third dog in a day is bathing ________ dog(s).

A) 3
B) 4
C) 5
D) 18

Question 12

The sacrifices made by societies in order to engage in military spending represent

A) the nominal costs of military spending.
B) the real costs of military spending.
C) the opportunity costs of military spending.
D) the excessive costs of military spending.

Question 13

Steven lives in a big city where there is a shortage of parking. He has a parking spot in his driveway where he parks his car. Which of the following statements is most correct?

A) Steven has a lower opportunity cost of owning a car than his neighbor, who must rent a parking spot.
B) The opportunity cost of using the spot is zero, because Steven owns the house.
C) The opportunity cost of using the parking spot is the price he could charge someone else for using the spot.
D) The opportunity cost depends on how much Steven's mortgage payment is.

Question 14

Jacinda quit her job as a blackjack dealer where she made $42,000 per year to start her own florist business. Her business expenses are $14,000 per year on rent, $21,000 per year on supplies, and $9,000 per year on part time help. As for her personal expenses, her apartment costs her $12,000 per year and her personal bills are an extra $6,000 per year. What is Jacinda's opportunity cost of running the business?

A) $104,000
B) $86,000
C) $62,000
D) $44,000

Question 15

The opportunity cost of going to college

A) is zero if your parents pay your tuition.
B) is equal to the cost of tuition, room and board, and other expenses.
C) includes wages you lose by going to school instead of working.
D) is the same for all students at a particular school who pay full tuition.

Question 16

Spending money on a new car instead of a used car when you are on a fixed budget is an example of

A) the incursion of an opportunity cost.
B) isolating variables.
C) a bad thing to do because you run out of money.
D) living on the edge.

Question 17

Suppose that your tuition to attend college is $24,000 per year and you spend $8,000 per year on room and board. If you were working full time, you could earn $30,000 per year. What is your opportunity cost of attending college for one year?

A) $32,000
B) $38,000
C) $54,000
D) $62,000

Question 18

The trade-offs made by the U.S. government to fund the war in Iraq

A) prove that the government is spending too much on the war.
B) show that the government is justified in its war spending.
C) exceed the benefits derived from the war.
D) represent what was potentially sacrificed to engage in the war.

Question 19

The saying that "There's no such thing as a free lunch" refers to the

A) marginal principle.
B) spillover principle.
C) principle of opportunity cost.
D) reality principle.

Question 20

The principle of opportunity cost

A) is more relevant for firms than for individuals.
B) only refers to monetary payments.
C) is only relevant in economics.
D) is applicable to all decision-making.

Question 21

If an economy is fully utilizing its resources, it can produce more of one product only if it

A) doubles manufacturing of the product.
B) produces less of another product.
C) adds more people to the labor force.
D) reduces the prices of the most expensive products.

Question 22

Figure 2.1

The production possibilities curve in Figure 2.1 illustrates the notion of

A) increased factory goods production.
B) increased farm produce production.
C) diminishing resources.
D) opportunity cost.

Question 23

Figure 2.1

Referring to Figure 2.1,if you increase the production of farm goods, what other area is affected?

A) the price of produce
B) the production of manufactured goods
C) how much people can purchase
D) the wages earned by farm workers

Question 24

Table 2.1

Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. As they groom more dogs, the opportunity cost of grooming additional dogs

A) falls.
B) rises.
C) remains constant.
D) depends on the prices being charged.

Question 25

Opportunity cost is the difference between the nominal and real cost of some action.

Question 26

Figure 2.1

Refer to Figure 2.1. If you choose to produce only agricultural products, what is the maximum quantity you can produce per year?

A) 200 tons
B) 400 tons
C) 600 tons
D) > 600 tons

Question 27

Figure 2.1

Refer to Figure 2.1. What is the opportunity cost of increasing production of manufactured products from 500 tons to 600 tons per year?

A) 200 tons of agricultural products per year
B) 400 tons of agricultural products per year
C) 500 tons of agricultural products per year
D) 600 tons of agricultural products per year

Question 28

If an economy is represented by a point along its production possibilities curve,

A) it can produce more of one product even if it does not produce less of another product.
B) it can produce more of one product only if it produces less of another product.
C) it cannot produce more of one product unless it stops producing the other product entirely.
D) it cannot possibly produce more of one product, even if it produces less of another product.

Question 29

Points outside the production possibilities curve represent combinations of products that are

A) attainable only if the economy's resources are fully employed.
B) attainable only if the economy's resources are not fully employed.
C) attainable if the economy's resources are either fully employed or not fully employed.
D) unattainable.

Question 30

Table 2.1

Kaitlyn and Larissa have formed a dog bathing and grooming business business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. The opportunity cost of grooming the sixth dog in a day is bathing ________ dog(s).

A) 0
B) 5
C) 6
D) 7

Question 31

If you remove resources from factory production, the quantity of factory goods will

A) increase.
B) decrease.
C) remain the same but their price will decrease.
D) be diverted to other production.

Question 32

Recall the Application about running a lawn-cutting business using solar-powered equipment to answer the following question(s).
If you have $10,000 to start a lawn-cutting business, the interest rate is 4 percent, your cost of equipment is $3,000, and the earnings you sacrifice from working at another job are $32,000, your yearly cost of doing business would be

A) $13,000.
B) $13,400.
C) $35,400.
D) $45,000.

Question 33

Figure 2.1

Refer to Figure 2.1. If you are producing 600 tons of agricultural products per year, what is the maximum amount of manufactured products you can produce per year?

A) 300 tons
B) 500 tons
C) 600 tons
D) 700 tons

Question 34

The opportunity cost of something is the gain you receive as a result of your sacrifice.

Question 35

Recall the Application about running a lawn-cutting business using solar-powered equipment to answer the following question(s).
The current income you would sacrifice to start your own lawn-cutting business is part of the

A) opportunity cost of invested funds.
B) opportunity cost of starting a business.
C) cost of doing business.
D) present value of your initial investment.

Question 36

A principle is a self-evident truth that most people readily understand and accept.

Question 37

If an economy is represented by a point inside its production possibilities curve,

A) it can produce more of one product even if it does not produce less of another product.
B) it can produce more of one product only if it produces less of another product.
C) it cannot produce more of one product unless it stops producing the other product entirely.
D) it cannot possibly produce more of one product, even if it produces less of another product.

Question 38

The opportunity cost of something is the nominal price paid for the product.

Question 39

Recall the Application about running a lawn-cutting business using solar-powered equipment to answer the following question(s).
The time and invested funds involved in starting a lawn-cutting business address the economic concept of

A) the marginal principle.
B) opportunity cost.
C) the real-nominal principle.
D) the principle of diminishing returns.

Question 40

Table 2.1

Kaitlyn and Larissa have formed a dog bathing and grooming business. The number of dogs they can bathe or groom in any given day is depicted in Table 2.1. As they groom more dogs, the opportunity cost of bathing additional dogs

A) falls.
B) rises.
C) remains constant.
D) depends on the prices being charged.

Question 41

Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that we observe Joe staying open 5 hours per day. If he is following the marginal principle, what must his marginal cost per hour be?

A) $16
B) $24
C) $32
D) $40

Question 42

What is the opportunity cost of investing $10,000 of your own money in a business you wish to start?

Question 43

Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that we observe Joe staying open 3 hours per day. If he is following the marginal principle, what must his marginal cost per hour be?

A) $24
B) $32
C) $40
D) $48

Question 44

In order to get his bachelor's degree, Timothy gave up an offer for a full time job as a bartender. Therefore, Timothy incurred an opportunity cost.

Question 45

The extra benefit resulting from a small increase in an activity is called the

A) opportunity cost.
B) marginal benefit.
C) marginal cost.
D) diminishing returns of the activity.

Question 46

Table 2.2

Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that Krystal's marginal benefit of staying open per hour is $30. If she is following the marginal principle, how many hours should Krystal stay open?

A) 4 hours
B) 5 hours
C) 6 hours
D) 7 hours

Question 47

Tradeoffs involve an exchange of one thing for another because resources are limited and can be used in different ways.

Question 48

What is the opportunity cost of your college degree?

Question 49

The marginal principle implies that an individual should produce or consume where

A) marginal benefit exceeds marginal cost.
B) marginal benefit is less than marginal cost.
C) marginal benefit equals marginal cost.
D) total benefit equals total cost.

Question 50

The additional cost resulting from a small increase in some activity is called the

A) opportunity cost.
B) marginal benefit.
C) marginal cost.
D) diminishing returns of the activity.

Question 51

Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that Joe's marginal cost of staying open per hour is $24. How many hours should Joe stay open?

A) 3 hours
B) 4 hours
C) 5 hours
D) 6 hours

Question 52

The cost of a bachelor's degree in philosophy equals the tuition plus the cost of room and board.

Question 53

The principle that individuals and firms pick the activity level where the incremental benefit of that activity equals the incremental cost of that activity is known as the

A) marginal principle.
B) principle of opportunity cost.
C) principle of diminishing returns.
D) spillover principle.

Question 54

Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that Joe's marginal cost of staying open per hour is $32. How many hours should Joe stay open?

A) 4 hours
B) 5 hours
C) 6 hours
D) 7 hours

Question 55

The opportunity cost of going to a particular college is not the same for everyone.

Question 56

Joe runs a business and needs to decide how many hours to stay open. Figure 2.2 illustrates his marginal benefit of staying open for each additional hour. Suppose that we observe Joe staying open 6 hours per day. If he is following the marginal principle, what must his marginal cost per hour be?

A) $16
B) $24
C) $32
D) $48

Question 57

What is an opportunity cost?

Question 58

What do economists mean when they say that there is no such thing as a free lunch?

Question 59

The notion of opportunity cost allows the measurement of tradeoffs.

Question 60

Suppose that you lend $5,000 to a friend who pays you back $5,400 the next year. Suppose that prices that year rose by six percent and the real rate of return in the stock market was five percent. Your friend says that he or she was being more than fair by giving you more than the rate of inflation as a return. What do you think?

Question 61

When deciding whether to engage in an activity or how much to do, people should follow

A) the principle of microeconomics.
B) the principle of macroeconomics.
C) the marginal principle.
D) the law of supply and demand.

Question 62

Economists argue that individuals should continue to consume until total benefit equals total cost.

Question 63

Table 2.2

Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that we observe Krystal staying open 2 hours per day. If she is following the marginal principle, what must her marginal benefit be?

A) $6
B) $12
C) $15
D) $18

Question 64

Recall the Application about the best speed at which to sail an ocean cargo ship to answer the following question(s).
Saving time by driving faster is an example of a ________ of driving faster. Increasing the severity of injuries from a potential accident due to driving faster is a(n)________ of driving faster.

A) nominal cost; real cost
B) marginal cost; nominal cost
C) marginal benefit; marginal cost
D) normative benefit; opportunity cost

Question 65

What is a marginal cost?

Question 66

Table 2.2

Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that we observe Krystal staying open 4 hours per day. If she is following the marginal principle, what must her marginal benefit be?

A) $12
B) $18
C) $24
D) $30

Question 67

When applying the marginal principle, you should pick the level at which the activity's marginal benefit equals its marginal cost.

Question 68

Table 2.2

Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that Krystal's marginal benefit of staying open per hour is $18. If she is following the marginal principle, how many hours should Krystal stay open?

A) 3 hours
B) 4 hours
C) 6 hours
D) 7 hours

Question 69

Recall the Application about the best speed at which to sail an ocean cargo ship to answer the following question(s).
Weighing the benefits and costs of the different speeds at which to sail an ocean cargo ship addresses the economic concept known as

A) the principle of opportunity cost.
B) the marginal principle.
C) the principle of voluntary exchange.
D) the principle of diminishing returns.

Question 70

What is a marginal benefit?

Question 71

Basically, the marginal principle helps us to evaluate the factors involved in taking an action or if doing something is worth the effort.

Question 72

When Lonnie produces 1 pair of cowboy boots his costs total $300. When he produces 2 pairs of cowboy boots his total costs are $500. This means that Lonnie's marginal cost of producing the second pair of cowboy boots is $200.

Question 73

Considering how a change in one variable affects the value of another variable is called

A) the Peter Principle.
B) the marginal principle.
C) the principle of supply and demand.
D) functional decision making.

Question 74

Recall the Application about the best speed at which to sail an ocean cargo ship to answer the following question(s).
The use of seat belts and other automobile safety features making bicycling more hazardous can be explained by the economic concept known as

A) the real-nominal principle.
B) the marginal principle.
C) the principle of voluntary exchange.
D) the principle of diminishing returns.

Question 75

When referring to "marginal" changes, the economic focus is on

A) changes which affect only a few people or products.
B) large changes on the low end.
C) graduated changes on the high end.
D) small or incremental changes.

Question 76

When applying the marginal principle, you should pick the level at which the activity's marginal benefit is less than its marginal cost.

Question 77

Recall the Application about the best speed at which to sail an ocean cargo ship to answer the following question(s).
Sailing an ocean cargo ship slower to save on the expense of fuel as opposed to sailing it faster to save time and therefore allow it to make more deliveries makes sense if the ________ of sailing slower is less than the ________ of sailing slower.

A) marginal benefit; marginal cost
B) marginal cost; marginal benefit
C) marginal benefit; opportunity cost
D) marginal cost; opportunity cost

Question 78

Table 2.2

Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that we observe Krystal staying open 5 hours and her marginal benefit of staying open per hour is $36. If she is following the marginal principle, Krystal should

A) stay open 1 more hour.
B) stay open 2 more hours.
C) stay open 1 fewer hour.
D) stay open 2 fewer hours.

Question 79

If a company's total costs per day increase from $200 to $400 by adding another worker, but its additional benefits are $300, it is sensible to add that additional worker.

Question 80

Table 2.2

Krystal runs a nail salon and needs to decide how many hours to stay open. Table 2.2 illustrates her marginal costs of staying open for each additional hour. Suppose that we observe Krystal staying open 5 hours and her marginal benefit of staying open per hour is $18. If she is following the marginal principle, Krystal should

A) stay open 2 more hours.
B) stay open 3 more hours.
C) stay open 2 fewer hours.
D) stay open 3 fewer hours.