- An Uber driver faces costs for driving that include sunk costs like insurance that contribute $.50 to the average cost per mile. Yet when a rider offers to pay less than $0.50 per mile for a ride, the driver agrees because
SUNK COSTS LIKE AUTO INSURANCE (IN THIS CASE) DO NOT INCREASE AS DRIVING INCREASES.
HE DOES NOT UNDERSTAND THAT SUNK COST ARE THE MOST IMPORTANT TO CONSIDER.
THE DRIVER IS IRRATIONAL; THIS DECISION WILL CAUSE A LOSS.
THE DRIVER NEEDS TO COVER ALL SUNK COSTS TO BE BETTER OFF BY ACCEPTING THE OFFER.
2.Which of the following statements reflects marginal decision-making?
STAYING IN THIS RENTAL COTTAGE LONGER WOULD BE NICE, BUT THE COTTAGE NEXT DOOR IS MORE ATTRACTIVE.
THE TOTAL COST OF THE PROGRAM IS EQUAL TO THE TOTAL BENEFITS.
BOOKING THIS CONDO IN A BETTER LOCATION IS WORTH THE EXTRA $100.
IF WE DOUBLE THE ORDER TO A DOZEN DOUGHNUTS, WE WILL PAY ONLY 20 PERCENT MORE.
- It is said that the rational consumer will act according to his or her self-interest, and that self-interest can include a concern for one’s family and friends, but not often society as a whole. Which of the following illustrates this type of decision?
THE RENTAL OF RECREATIONAL VEHICLES FOR USE IN NATIONAL PARKS IS RESPONSIVE TO CONCERNS OF NOISE POLLUTION.
OUR TIME WAS VERY VALUABLE AT THAT MOMENT, BUT WE STOPPED TO PUT OUT THE FIRE BEFORE IT SPREAD.
MR. T. DECIDES NOT TO PURCHASE ANY CASE OF WATER BOTTLE SO THERE COULD BE MORE LEFT FOR OTHER CONSUMERS.
THE BOAT RENTAL WAS WORTH THE ADDITIONAL FISH CAUGHT, REGARDLESS OF HOW LITTLE FISH WE LEFT BEHIND.
- Dawnell is a skilled dancer. She is currently teaching modern dance full time for three high schools and makes $44,000 a year. She is now giving up her work and joining a touring dance company for the next two years. She will make $24,000 a year dancing, but gain much more in experience and connections. Dawnell’s decision will result in
A TWO YEAR OPPORTUNITY COST OF $40,000 AFTER LEAVING HER TEACHING POSITION.
A TWO YEAR OPPORTUNITY COST OF $88,000 AFTER LEAVING HER TEACHING POSITION.
A ONE YEAR OPPORTUNITY COST OF $44,000 AFTER LEAVING HER TEACHING POSITION.
A ONE YEAR OPPORTUNITY COST OF $24,000 AFTER LEAVING HER TEACHING POSITION.
- Marcus is considering which college major to choose. In taking a rational approach, Marcus should consider
MINIMIZING THE LENGTH OF TIME IT WILL TAKE TO COMPLETE THE DEGREE.
THE BENEFIT EACH MAJOR WOULD BRING AND THE COST OF THE DEGREE.
POTENTIAL EARNINGS ONLY.
SOLELY THE MONETARY COST OF THE COLLEGE DEGREE.
6.A budget constraint model differs from production possibilities model in that, typically
ONLY THE PRODUCTION POSSIBILITIES MODEL DEMONSTRATES DIMINISHING RETURNS.
THE BUDGET CONSTRAINT SHOWS HOW SCARCITY APPLIES TO PRODUCERS
ONLY THE BUDGET CONSTRAINT DEPICTS AN INVERSE RELATIONSHIP, OR A TRADE-OFF.
ONLY THE BUDGET CONSTRAINT DEMONSTRATES DIMINISHING RETURNS.
- WHICH ONE IS TRUE ?
THE AMOUNT OF BENEFIT A PERSON RECEIVES FROM A GOOD OR SERVICE REMAINS CONSTANT.
MARGINAL COST IS CONSTANT
IT IS THE DIFFERENCE (OR CHANGE) IN THE BENEFIT YOU RECEIVE FROM A DIFFERENT CHOICE.
MARGINAL COST IS THE DIFFERENCE (OR CHANGE) IN COST OF A DIFFERENT CHOICE.
- Suppose that there are only two types of output in a country: nuclear missiles and consumer goods. All else being constant, as the nation produces more missiles,
EVERY ADDITIONAL MISSILE WILL INCREASE CONSUMER GOODS PRODUCTION BY MORE AND MORE.
THE OPPORTUNITY COST OF CONSUMER WANTS BEING SATISFIED WILL DIMINISH.
THE GREATER THE OPPORTUNITY COST WILL BE OF SATISFYING CONSUMER WANTS.
IT WILL NEED TO GIVE UP FEWER AND FEWER CONSUMER GOODS.
- Indi and Indrani are sisters who own a software development company. Demand has been increasing for their products and services and the sisters are contemplating whether to open up a satellite office in Austin. They estimate it would add $7 million in expenses and a profit of $12.5 million in total over the next 5 years (all other things equal). Indi and Indrani decide
TO OPEN A NEW OFFICE BECAUSE THE EXPECTED MARGINAL BENEFIT ($12.5 MILLION OVER 5 YEARS) IS GREATER THAN THE ESTIMATED MARGINAL COST ($7 MILLION).
TO NOT OPEN A NEW OFFICE BECAUSE REVENUE WOULD NOT BE AS HIGH AS COMPETITORS
TO NOT OPEN A NEW OFFICE BECAUSE THE MARGINAL COSTS PROVED TO BE TOO HIGH.
10.A positive statement is
REFLECTS ONE’S OPINIONS.
CAN BE SHOWN TO BE CORRECT OR INCORRECT.
A VALUE JUDGMENT.
BASED UPON AN OPTIMISTIC JUDGMENT.
TO OPEN AN AUSTIN OFFICE BECAUSE THE MARGINAL COST OF THE NEW OFFICE IS LOW COMPARED TO OTHER SIMILAR PROJECTS.
- The theory of rational behavior
ASSUMES THAT PEOPLE WILL ALWAYS IGNORE OTHERS’ BEST INTEREST.
IMPLIES THAT PEOPLE WILL ALWAYS TAKE THE TIME TO MAKE CORRECT DECISIONS.
ASSUMES THAT PEOPLE WILL BEHAVE IN THE BEST INTEREST OF SOCIETY AS A WHOLE.
IS AN ASSUMPTION THAT ECONOMISTS MAKE TO HAVE A USEFUL MODEL FOR HOW DECISIONS ARE MADE.
- Which of the following statements is positive?
I AM ABSOLUTELY POSITIVE THAT THERE IS A BETTER WAY.
THERE IS A LIMIT TO THE INCOME EACH YEAR TO WHICH THE FICA TAX APPLIES, BUT THAT IS FAIR, SINCE THERE IS A LIMIT TO SOCIAL SECURITY BENEFITS.
SOCIAL SECURITY BENEFITS ARE NOT TAXED.
SOCIAL SECURITY PAYMENTS TO RETIREES SHOULD NOT BE TAXED.
- A keynote speaker was known for his many speaking engagements, but now he has limited time and a rational mind. Even he would eventually start to turn down speaking engagement when, by his judgement
THE MARGINAL COST IS GREATER THAN THE MARGINAL BENEFIT OF THE NEXT SPEAKING ENGAGEMENT.
THE COST OF THE NEXT ENGAGEMENT STARTS FALLING
THE TOTAL ENJOYMENT (BENEFIT) OF THE SPEAKING ENGAGEMENT WAS MAXIMIZED.
THE ADDITIONAL ENJOYMENT OF ONE MORE SPEAKING ENGAGEMENT (THE MARGINAL BENEFIT) IS RISING.
- The musician was known for multiple encore performances, but had limited stamina and a rational mind. Even she would eventually call it a night when, by her judgement
THE MARGINAL COST IS GREATER THAN THE MARGINAL BENEFIT OF AN ADDITIONAL ENCORE.
THE CROWD KEEPS REQUESTING ENCORES.
THE ADDITIONAL ENJOYMENT OF ONE MORE ENCORE (THE MARGINAL BENEFIT) IS RISING.
THE TOTAL ENJOYMENT (BENEFIT) OF THE CONCERT WAS MAXIMIZED.
- The production possibilities model illustrates an inverse relationship between two goods or services because
PRODUCTION OF DIFFERENT TYPES WILL COMPETE FOR LIMITED RESOURCES.
THE OPPORTUNITY COST OF PRODUCING MORE OF SOMETHING WILL RISE.
SOME GOODS ARE MORE DIFFICULT TO PRODUCE THAT OTHERS.
OF DIMINISHING RETURNS.
- A restaurant chain sponsors a charity that provides support to the parents of children being treated for cancer. How would the use of company funds for this purpose be justified by a business whose goal is to maximize profit?
The funds dedicated to this purpose represent a very small share of profits.
THE MONEY SPENT IS WORTH THE BOOST IT GIVES TO CORPORATE IMAGE.
THE MONEY WILL BE SPENT EFFICIENTLY TO CURE CANCER.
THERE IS A GROWING NEED FOR THIS KIND OF CHARITABLE WORK.
Graph of a production possibility frontier for country X showing watches daily production on the y-axis and MP3 player daily production on the x-axis. Point B is indicated at 10 MP3 players and 6 watches, point C at 15 MP3 players and 4 watches. Point G is outside of the curve at the point 15,7
Consider the Production Possibility Frontier for country X producing 2 groups of goods, MP3 players and watches. The opportunity cost of moving from the combination of MP3 players and watches B to C is
15 MP3 PLAYERS
5 MP3 PLAYERS
- Because of __ if a city government decides to spend money on beautifying its downtown and attracting tourism to its city when no money has been devoted to those efforts before, then gains in tourism may be significant.
the production possibility frontier.
THE LAW OF DIMINISHING RETURNS
BEAUTIFICATION IS A RELATIVELY LOW EXPENSE
THE OPPORTUNITY COST OF THE PRODUCTION POSSIBILITY TRADEOFF
- Hal and Gavin are siblings who own a mattress recycling company. Demand has been increasing for their services and the brothers are contemplating whether to open up an additional mattress drop off site in the downtown area. They estimate it would add $1 million in expenses with their profit increasing by $150 thousand each year for the next 5 years (all other things equal). Hal and Gavin decide
TO NOT OPEN A MATTRESS DROP OFF SITE DOWNTOWN BECAUSE THE MARGINAL COSTS PROVED TO BE TOO HIGH.
TO GO AHEAD WITH THE PROJECT BECAUSE IT BRINGS ADDITIONAL REVENUE
TO OPEN A MATTRESS DROP OFF SITE DOWNTOWN BECAUSE THE MARGINAL COST OF THE NEW LOCATION IS LESS THAN OTHER SIMILAR PROJECTS.
TO OPEN A MATTRESS DROP OFF SITE DOWNTOWN BECAUSE THE EXPECTED MARGINAL BENEFIT IS GREATER THAN THE ESTIMATED MARGINAL COST.
- Scarcity is imposed on individual households in the form of income and
THE PRICES OF THE GOODS THAT A PERSON MAY PURCHASE.