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| 1.
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The economic surplus of a particular action is |
| | A) | the value of the action. |
| | B) | the cost of the action. |
| | C) | the difference between the benefit and the cost of the action. |
| | D) | the average of the benefits and costs. |
| | E) | the ratio of the benefits to the costs. |
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| 2.
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Economic models claim to be a(n) |
| | A) | reasonable abstraction of how people make choices, highlighting the most important factors. |
| | B) | exact replication of the decision-making process people use. |
| | C) | interesting chalkboard exercise with little applicability to the real world. |
| | D) | exceptionally accurate method of predicting nearly all behavior of everyone. |
| | E) | absolutely correct description of the world. |
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| 3.
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If the total benefits of watching 1,2, and 3 baseball games on TV are 100, 120, and 125 then the marginal benefits are |
| | A) | 100,120, and 125. |
| | B) | 100, 20, and 5. |
| | C) | 100, 609, and 41.67. |
| | D) | 100, 240, and 375. |
| | E) | 100, 10, and -30. |
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| 4.
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Joe has decided to purchase his textbooks for the semester. His options are to purchase the books via the Internet with next day delivery to his home at a cost of $250, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $245. Last week he drove to campus to buy a concert ticket because they offered 20 percent off the regular price of $20. |
| | A) | It would not be rational for Joe to drive to campus to purchase the books because the $5 saving is only two percent of the cost of the books, and that is much less than the 20 percent he saved on the concert ticket. |
| | B) | It would be rational for Joe to drive to campus because it costs less to buy the books there than via the Internet. |
| | C) | It would be rational for Joe to drive to campus because the $5 saving is more than he saved by driving there to buy the concert ticket. |
| | D) | It would not be rational for Joe to drive to campus to purchase the books because the cost of gas and his time must certainly be more than the $5 he would save. |
| | E) | There is insufficient information to determine whether it would be rational or not for Joe to purchase the books via the Internet or on campus. |
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| 5.
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Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50 that it is a good offer but if he wants to buy something with a price of $500 it is not a good offer. This is an example of |
| | A) | inconsistent reasoning; saving $20 is saving $20. |
| | B) | the proper application of the cost-benefit principle. |
| | C) | rational choice because in the first case he saves 40% and in the second case he saves 4%. |
| | D) | marginal cost equals marginal benefit thinking. |
| | E) | opportunity costs. |
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| 6.
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Rajiv has estimated that the additional benefit of writing 100 more lines of computer programming code is $10 and the additional cost is $6. He should |
| | A) | not write the code because it would not be a rational choice. |
| | B) | write the code because it would be a rational choice and an optimal quantity. |
| | C) | write the code because it would be a rational choice but we cannot tell whether or not this is an optimal quantity. |
| | D) | not write the code because it would not be a rational choice but it would be an optimal quantity. |
| | E) | not write the code because it would not be a rational choice, nor would it be an optimal quantity |
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| 7.
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Sonya is employed at a stock brokerage firm where she earns $25 per hour. The office she works at is located downtown. To get to work each day, she must either ride a series of buses that takes one-and-a-half hours at a cost of $2, or take a cab that takes 30 minutes and costs $20. Assuming she goes to work, the opportunity cost |
| | A) | of riding the bus is $2, and taking the cab is $20. |
| | B) | of riding the bus is $37.50, and taking the cab is $12.50. |
| | C) | of riding the bus is $35.50, and taking the cab is -$5. |
| | D) | of riding the bus is $39.50, and taking the cab is $32.50. |
| | E) | of riding the bus is $27, and taking the cab is $20. |
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| 8.
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Jenna decides to see a movie that costs $7 for the ticket and has an opportunity cost of $20. After the movie, she says to one of her friends that the movie was not worth it. Apparently, |
| | A) | Jenna failed to apply the cost-benefit model to her decision. |
| | B) | Jenna was not rational. |
| | C) | the economic model of cost-benefit analysis failed. |
| | D) | Jenna overestimated the benefits of the movie. |
| | E) | this proves the limitations of economic models, specifically the cost-benefit principle. |
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| 9.
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For many students, the opportunity cost of taking an 8.00 am Monday, Wednesday, and Friday class is the value of one hour's worth of |
| | A) | studying. |
| | B) | dental work. |
| | C) | cleaning. |
| | D) | washing. |
| | E) | sleeping. |
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| 10.
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Dillon purchased his nonrefundable, nontransferable ticket to see the M.C. Hammer/Vanilla Ice Career Revival show for $30 last week, while Bob has yet to buy his ticket but wants to go. In deciding whether to go to the show, the price of the ticket is a ________ to Dillon and a _________ to Bob. |
| | A) | sunk cost; sunk cost |
| | B) | relevant cost; sunk cost |
| | C) | sunk cost; variable cost |
| | D) | fixed cost; variable cost |
| | E) | relevant cost; irrelevant cost |
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