Deck 2: The Key Principles of Economics

Question 1

Mark quit his job as a salesman where he made $43,000 per year to start his own t-shirt making business.His business expenses are $6,000 per year on rent,$12,000 per year on supplies,and $4,000 per year on part-time help.As for his personal expenses,his apartment costs him $4,800 per year and his personal bills are an extra $1,200 per year.What is Mark's opportunity cost of running the business?

A) $43,000
B) $57,000
C) $65,000
D) $71,000

Answer 1

$65,000

Question 2

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

A) the cost of bait and any other monetary expenses.
B) zero, because the person doesn't have a job.
C) 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 2

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

Question 3

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.

Answer 3

includes wages you lose by going to school instead of working.

Question 4

Jessica,aged three,decides to dress up like Sleeping Beauty for Halloween.What is her opportunity cost of this decision?

A) the cost of the costume
B) the fact that she can't dress up like Barbie, her second choice
C) zero, because three-year-olds do not have opportunity costs
D) impossible to say, because Jessica does not understand what an opportunity cost is

Question 5

Suppose a ticket to a concert costs $39,and parking costs $5.Further,in order to watch the concert,you must miss 2 hours of work where your hourly wage is $15 per hour.The total opportunity cost of watching a concert is

A) $74.
B) $44.
C) $39.
D) $30.

Question 6

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

A) It depends on what you would do if you had no math homework.
B) It depends on how much you like math.
C) zero, because an hour isn't long enough to go to a paying job
D) zero, because it doesn't cost any money to do your math homework

Question 7

The principle that states 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.

Question 8

Nancy and Melissa both have broken light fixtures in their living rooms.Nancy opts to hire an electrician,while Melissa spends two hours replacing the fixture herself.Which of the following is a possible explanation of this behavior?

A) Nancy dislikes electrical work more than Melissa.
B) Melissa is better at doing electrical work than Nancy.
C) The opportunity cost of Nancy's time is higher than her cost to hire an electrician.
D) All of the above are possible explanations of this behavior.

Question 9

Spending money on a fixed budget is an example of

A) the principle of opportunity cost.
B) how to survive with unlimited financial resources.
C) a bad thing to do because you run out of money.
D) living on the edge.

Question 10

Five years ago,Tammy always took a big envelope full of coupons to the grocery store.Now that she has a child in pre-school,she rarely brings coupons.Which of the following is NOT a possible explanation of this change in her behavior?

A) Fewer coupons appear in the newspapers than five years ago.
B) The opportunity cost of clipping coupons has risen above their monetary value.
C) Grocery prices have decreased.
D) The opportunity cost of grocery shopping has decreased.

Question 11

You rent a copy of a new action/adventure movie.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 of watching the movie a second time?

A) zero, because it won't cost you any money to keep the movie for another day
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 answer depends on what else you could do besides watching the movie.

Question 12

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 did not live there.
D) The opportunity cost is the cost of your monthly mortgage payment plus bills.

Question 13

Mark quit his job as a salesman where he made $43,000 per year to start his own t-shirt making business.His business expenses are $6,000 per year on rent,$12,000 per year on supplies,and $4,000 per year on part-time help.As for his personal expenses,his apartment costs him $4,800 per year and his personal bills are an extra $1,200 per year.Which of the following is NOT part of the opportunity cost of running his business?

A) his apartment costs
B) his personal bills
C) his part-time labor costs
D) his apartment costs and his personal bills

Question 14

Suppose that your tuition to attend college is $5,000 per year and you spend $5,000 per year on room and board.If you were working full time,you could earn $22,000 per year.What is your opportunity cost of attending college?

A) $13,000
B) $27,000
C) $30,000
D) $35,000

Question 15

Suppose that your tuition to attend college is $10,000 per year and you spend $4,000 per year on room and board.If you were working full time instead of attending college,you could earn $20,000 per year.What is your opportunity cost of attending college for one year?

A) $14,000
B) $24,000
C) $30,000
D) $34,000

Question 16

Pat claims to save a great deal of money on groceries by traveling to various supermarkets to make her purchases at their advertised sale prices.She might visit as many as five different stores in one day in order to complete her weekly shopping.Her savings are not as great as she may think they are if she does not consider the

A) cost of the gasoline in driving from one store to another.
B) mileage she is putting on her car driving from one store to another.
C) value of the time she is spending doing the shopping as opposed to other things.
D) all of the above

Question 17

When Bob has to give up lunch in order to have a fancy dinner,the economic principle that is highlighted by his situation is the

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

Question 18

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 19

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 20

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 does his neighbor, who must rent a parking spot.
B) The opportunity cost of using the parking 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 21

Figure 2.2
Figure 2.2 presents a production possibilities curve for a given curve for a country that can either produce highways or provide people with medical care.The opportunity cost of the third new highway built in a year is ________ people provided with medical care.

A) 10,000
B) 50,000
C) 90,000
D) 450,000

Question 22

Figure 2.2
Figure 2.2 presents a production possibilities curve for a given year for a country that can either produce highways or provide people with medical care.The reason why the production possibilities curve is shaped as it is (bowed outward)is because inputs for healthcare and highways are

A) used in precisely the same ratios.
B) substitutable, but not perfectly substitutable.
C) not substitutable at all.
D) perfectly substitutable.

Question 23

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 24

Table 2.1
A group of people has formed a house cleaning and yard maintenance business.The number of houses or yards that they can clean or maintain in any given day is depicted in Table 2.1.The opportunity cost of cleaning the third house in a day is

A) 1 yard maintained.
B) 2 yards maintained.
C) 3 yards maintained.
D) 15 yards maintained.

Question 25

Figure 2.1
On the production possibilities curve in Figure 2.1,as agricultural production increases by 200 tons per year from 200 tons to 400 tons and then to 600 tons,the opportunity cost in terms of tons of manufactured goods

A) rises.
B) falls.
C) is constant.
D) becomes negative.

Question 26

Figure 2.1
On the production possibilities curve in Figure 2.1,the gain from decreasing manufacturing production from 500 tons to 300 tons is ________ tons of agricultural products.

A) 700
B) 500
C) 200
D) 100

Question 27

Figure 2.1
Referring to Figure 2.1,if you increase the production of agricultural products,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 28

Figure 2.2
Figure 2.2 presents a production possibilities curve for a given year for a country that can either produce highways or provide people with medical care.The figure shows that as more highways are built,the opportunity cost of building each additional highway is

A) decreasing.
B) increasing.
C) constant.
D) decreasing and then increasing.

Question 29

Figure 2.2
Figure 2.2 presents a production possibilities curve for a given year for a country that can either produce highways or provide people with medical care.The opportunity cost of the fourth new highway built in a year is

A) less than the opportunity cost of the third new highway.
B) the same as the opportunity cost of the third new highway.
C) greater than the opportunity cost of the third new highway.
D) the sum of the opportunity costs of the first three highways built.

Question 30

The saying that "There is no such thing as a free lunch" refers to

A) the principle of reality in a modern world.
B) the price of fast food in today's economy.
C) the principle of diminishing returns.
D) the principle of opportunity cost.

Question 31

Figure 2.1
The production possibilities curve in Figure 2.1 illustrates the notion of

A) increased manufactured goods production.
B) increased agricultural production.
C) diminishing resources.
D) opportunity cost.

Question 32

Figure 2.1
On the production possibilities curve in Figure 2.1,the gain from decreasing manufacturing production from 700 tons to 500 tons is ________ tons of agricultural products.

A) 500
B) 400
C) 200
D) 100

Question 33

Table 2.1
A group of people has formed a house cleaning and yard maintenance business.The number of houses or yards that they can clean or maintain in any given day is depicted in Table 2.1.The opportunity cost of cleaning the second house in a day is

A) 1 yard maintained.
B) 2 yards maintained.
C) 3 yards maintained.
D) 18 yards maintained.

Question 34

Figure 2.1
On the production possibilities curve in Figure 2.1,the opportunity costs of increasing agricultural production from 400 tons to 600 tons is ________ tons of manufactured products.

A) 600
B) 500
C) 200
D) 100

Question 35

Table 2.1
A group of people has formed a house cleaning and yard maintenance business.The number of houses or yards that they can clean or maintain in any given day is depicted in Table 2.1.The opportunity cost of cleaning the first house in a day is

A) 0 yards maintained.
B) 1 yard maintained.
C) 2 yards maintained.
D) 20 yards maintained.

Question 36

Figure 2.2
Figure 2.2 presents a production possibilities curve for a given year for a country that can either produce highways or provide people with medical care.The opportunity cost of the fourth new highway built in a year is ________ people provided with medical care.

A) 30,000
B) 50,000
C) 70,000
D) 90,000

Question 37

Figure 2.1
On the production possibilities curve in Figure 2.1,the opportunity costs of increasing agricultural production from 200 tons to 400 tons is ________ tons of manufactured products.

A) 600
B) 500
C) 200
D) 100

Question 38

Figure 2.2
Figure 2.2 presents a production possibilities curve for a given year for a country that can either produce highways or provide people with medical care.The opportunity cost of the second new highway built in a year is ________ people provided with medical care.

A) 30,000
B) 40,000
C) 50,000
D) 500,000

Question 39

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 40

Figure 2.2
Figure 2.2 presents a production possibilities curve for a given year for a country that can either produce highways or provide people with medical care.The figure shows that the production possibilities curve is

A) bowed inward.
B) bowed outward.
C) a straight line.
D) bowed inward and then outward.

Question 41

Figure 2.3
In Figure 2.3,the movement from production possibility curve XV to production possibility curve YZ could be caused by

A) decreased unemployment.
B) more land, labor, or capital.
C) a decline in technology.
D) all of the above

Question 42

Figure 2.3
In Figure 2.3,the movement from production possibility curve YZ to production possibility curve XV could be caused by

A) increased unemployment.
B) more land, labor or capital.
C) a decline in technology.
D) all of the above

Question 43

Recall the Application about running a lawn-cutting business using solar-powered equipment to answer the following question(s).
Using figures from the Application,the opportunity cost of running your business

A) should only include the opportunity cost of the invested capital.
B) should include your invested capital.
C) should not include the invested capital.
D) should only include the opportunity cost of your time.

Question 44

Table 2.1
A group of people has formed a house cleaning and yard maintenance business.The number of houses or yards that they can clean or maintain in any given day is depicted in Table 2.1.As the group cleans more houses,the opportunity cost of cleaning houses

A) falls.
B) rises.
C) stays the same.
D) is the sum of the opportunity costs of cleaning all the houses prior to that one.

Question 45

Recall the Application about running a lawn-cutting business using solar-powered equipment to answer the following question(s).
According to the Application,the opportunity cost of your invested capital is

A) the interest you could get if you invested in a savings account.
B) zero.
C) the revenue you could get once the capital is used.
D) the sum of the value of all your equipment.

Question 46

The opportunity cost of getting a Master's degree in engineering equals the tuition plus the cost of books.

Question 47

Figure 2.3
In Figure 2.3,point A

A) implies unemployment of some resources.
B) is the optimum.
C) cannot be produced.
D) all of the above

Question 48

An increase in the benefit from undertaking an activity will result in an increase in the opportunity cost of that activity.

Question 49

Figure 2.3
In Figure 2.3,an efficient production point on production possibility curve XV is

A) point A.
B) point B.
C) point C.
D) none of the above

Question 50

Figure 2.3
In Figure 2.3,point B

A) implies unemployment of some resources.
B) is the optimum.
C) cannot be produced.
D) all of the above.

Question 51

Recall the Application about running a lawn-cutting business using solar-powered equipment to answer the following question(s).
Using figures from the Application,$5,000 (which is the market value of all your equipment)is the

A) invested capital.
B) opportunity cost of the invested capital.
C) the opportunity cost of running the business.
D) opportunity cost of your time.

Question 52

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

Question 53

Recall the Application about running a lawn-cutting business using solar-powered equipment to answer the following question(s).
According to the Application,if the interest rate rises,then the opportunity costs of running a business

A) rises.
B) falls.
C) is unchanged.
D) cannot be determined with the information given.

Question 54

In order to go to college,James incurs an opportunity cost even though all he gave up was a full time job as a clerk at Wally World.

Question 55

Opportunity cost is the difference between the benefit and cost of some action.

Question 56

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

Question 57

Figure 2.3
In Figure 2.3,an efficient production point on production possibility curve YZ is

A) point A.
B) point B.
C) point C.
D) none of the above

Question 58

Recall the Application about running a lawn-cutting business using solar-powered equipment to answer the following question(s).
According to the Application,the opportunity cost of your time should be ________ the opportunity cost of your invested funds.

A) added to
B) subtracted from
C) multiplied with
D) divided by

Question 59

An increase in the wages received by lawyers in general will result in an increase in the opportunity cost of law school.

Question 60

Table 2.1
A group of people has formed a house cleaning and yard maintenance business.The number of houses or yards that they can clean or maintain in any given day is depicted in Table 2.1.As the group cleans more houses,the opportunity cost of doing yard work

A) falls.
B) rises.
C) stays the same.
D) becomes equal to the opportunity cost of cleaning houses.

Question 61

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 62

If the government estimates that the marginal cost of building a bridge is $100 million,while the marginal benefit is $150 million,the marginal principle dictates that the government should

A) build the bridge.
B) never build the bridge.
C) wait until the marginal cost of building the bridge rises to above $150 million before building the bridge.
D) wait until the marginal benefit of building the bridge drops to below $100 million before building the bridge.

Question 63

When economists use the term "marginal," they usually refer to

A) small, incremental change.
B) large changes.
C) no changes.
D) average change.

Question 64

According to the marginal principle,a rational individual should undertake an economic activity as long as the

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 65

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

Question 66

Suppose that you lend $1,000 to a friend who pays you back $1,100 the next year.Suppose that prices that year rose by 8% and the real rate of return in the stock market was 4%.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 67

By making acquisitions,resources are used that could have been used to ________.

Question 68

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 69

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

Question 70

The notion of opportunity cost allows the measurement of trade-offs.

Question 71

The opportunity cost of something is what you sacrifice to get it.

Question 72

According to the marginal principle,an individual will do best by producing or consuming where

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

Question 73

The marginal principle states that "we should increase the level of an activity as long as

A) its marginal benefit exceeds it marginal cost."
B) its marginal cost exceeds its marginal benefit."
C) its total benefit exceeds its total cost."
D) its total cost exceeds its total benefit."

Question 74

What is the opportunity cost of your college degree?

Question 75

Suppose it costs a firm $200 million to produce and promote a sequel.If the firm follows the marginal principle and decides not to produce the movie,which of the following must be true?

A) The firm believes that the marginal benefit is less than $200 million.
B) The firm believes that the marginal cost is larger than $200 million.
C) The firm believes that the marginal benefit is larger than $200 million.
D) The firm believes that the marginal cost is less than $200 million.

Question 76

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 77

According to the marginal principle,a rational firm will introduce a movie sequel as long as

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 78

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 79

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

Question 80

According to the marginal principle,a rational individual should NOT undertake an economic activity if the

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.