Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
1.2 The Economic Way of Thinking
1) Rational choice
A) is a choice that uses the available resources to best achieve the objective of the person
making the choice.
B) is always eicient.
C) is what you must give up to get what you want.
D) is made by comparing diferent incentives.
E) provides the answer to only the "how" question.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
2) A rational choice is one that
A) always turns out for the best for the decision maker.
B) creates no costs for the decision maker.
C) must be made with perfect information.
D) uses the available resources to most efectively satisfy the wants of the person making
the choice.
E) is made in the social interest rather than the self-interest.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
3) What is NOT true about rational choice?
A) It can result in diferent decisions for diferent individuals.
B) It involves comparing costs and beneits.
C) It might turn out not to have been the best choice after the event.
D) It is a choice that uses the available resources to best achieve the objective of the
person making the choice.
E) It is the same for all individuals.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
21
4) In economics, cost is measured as ________, and beneit is measured as ________.
A) what you must give up to get something; what you are willing to give up to get it
B) what you are willing to give up to get it; what you must give up to get something
C) the amount of money that you pay for something; the amount of money that someone
else is willing to pay you
D) what you are willing to pay on the margin; what the government pays you when you are
unemployed or retired
E) the amount of money that you pay on the margin; the amount of money that you receive
on the margin
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
5) An opportunity cost is
A) the dollar amount that is paid.
B) anything the decision maker believes costs to be.
C) the beneits of the highest-valued alternative forgone.
D) whatever is paid out and cannot be reduced or reversed.
E) another term for all the sunk costs.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
6) Economists measure opportunity cost
A) only when it is on the margin.
B) as the best thing given up.
C) as the sum of all forgone opportunities.
D) as the same as marginal beneit.
E) as equal to the sum of all the sunk costs.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
22
7) The opportunity cost of a decision is measured in terms of
A) time.
B) the price of the alternative we choose.
C) the next best thing given up.
D) the price of a new opportunity that arises.
E) sunk cost.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
8) You have chosen to take a trip during spring break. If you had not gone, you would either
have worked at a temporary job or studied for exams. The opportunity cost of your trip is
A) the wages you would have earned from working.
B) the lower grade earned by not studying.
C) the wages you would have earned from working and the lower grade earned by not
studying.
D) the value of the trip.
E) We cannot determine what the opportunity cost is without knowing which alternative,
working or studying, you would have preferred.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
9) If Jessie studies economics for two hours instead of going to the movies with her friends,
then
A) the beneit of studying is the missed movie.
B) the opportunity cost of studying is the missed movie.
C) Jesse deinitely is making a rational choice.
D) Jessie is ignoring a sunk cost.
E) Jessie is not responding to any incentives.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
23
10) The value of the best thing that a person must give up when making a decision is
known as the ________ cost.
A) direct
B) beneit
C) opportunity
D) explicit
E) sunk
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
11) Ali decides to attend the one-hour review session for microeconomics instead of
working at his job. His job pays him $10 per hour. Ali's opportunity cost of attending the
review session is
A) the $10 he could have earned at his job.
B) the value of the session minus the $10 he could have earned at his job.
C) nothing, because the review session does not cost anything.
D) equal to the beneit he gets from the review session.
E) the one-hour review session.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Analytical thinking
12) Suppose that, instead of taking this test, you could either have worked and earned
income or partied and had a pleasurable time. Your opportunity cost of taking the test is
the
A) forgone work.
B) forgone party.
C) forgone working and partying.
D) forgone working or partying, depending on which was your next best choice.
E) test because you are taking it.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
24
13) The beneit from a good or service that you purchase is measured by
A) the dollar amount that is paid for the good or service.
B) the dollar amount you can get by selling the good or service.
C) what you are willing to give up to obtain the good or service.
D) how strong the incentives were that lead to buying the good or service.
E) None of the above answers is correct because there is no way to measure the beneit
you receive from purchasing a good or service.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
14) Suppose you take a trip during spring break. To determine the beneit of taking the
trip, you
A) calculate the opportunity cost of the trip.
B) measure what you are willing to give up to take the trip.
C) determine the sunk cost of taking the trip.
D) calculate the value of the next best alternative foregone.
E) must measure what the trip is worth to you and then subtract the cost of the trip.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
15) The cost of a one-unit increase in an activity is called the
A) opportunity beneit.
B) rational cost.
C) marginal cost.
D) marginal beneit.
E) margin.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
25
16) The opportunity cost of a one-unit increase in an activity
A) is greater than the marginal beneit.
B) is called rational cost.
C) decreases as you do more of it.
D) is called marginal cost.
E) is measured by what the person is willing to give up to get one more unit of the activity.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
17) Mothers Against Drunk Drivers (MADD) campaigned to increase the legal penalties of
drunk driving. This successful campaign ________ of drunk driving.
A) increased the marginal beneit
B) decreased the marginal beneit
C) increased the marginal cost
D) decreased the marginal cost
E) had no efect on the marginal cost or marginal beneit but did afect the total beneit
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
18) The marginal cost of an activity ________ as you do more of it.
A) increases
B) decreases
C) doesn't change
D) changes only if the marginal beneit of the activity does not change
E) changes only if the marginal beneit of the activity changes
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
26
19) A professor changes the penalty for cheating on exams from getting a 0 on the exam to
getting an F in the course. The professor has
A) increased the marginal cost of cheating.
B) decreased the marginal beneit of cheating.
C) made all the students act in the social interest.
D) recognized that students don't respond to incentives.
E) recognized that students don't make rational choices.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
20) The beneit of a one-unit increase in an activity
A) is called marginal cost.
B) is always greater than the opportunity cost of that activity.
C) decreases as you do more of it.
D) is measured by what you must give up.
E) is called rational-choice beneit.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
21) Huey has eaten two hamburgers and is considering a third. The marginal beneit in his
decision is the pleasure from consuming
A) the two previous hamburgers.
B) all three hamburgers.
C) just the third hamburger.
D) just the second hamburger.
E) the third hamburger minus the pleasure from consuming zero hamburgers.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Analytical thinking
27
22) What typically happens to beneits as the amount of an activity is increased?
A) Total beneits remain constant.
B) Marginal beneit increases.
C) Marginal beneit remains constant.
D) Marginal beneit decreases.
E) The marginal beneit changes only if the marginal cost changes.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
23) Suppose you eat two hamburgers for lunch. The marginal beneit of the irst burger is
________ of the second burger.
A) larger than the marginal beneit
B) smaller than the marginal beneit
C) equal to the marginal beneit
D) not related to the marginal beneit
E) equal to the marginal cost and the marginal beneit
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Analytical thinking
24) A choice made by comparing all relevant alternatives systematically and incrementally
is
A) an opportunity cost.
B) a choice on the margin.
C) a beneit.
D) a sunk cost.
E) a choice made in the social interest.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
28
25) Making choices on the margin means
A) scribbling on the edges of your notebook paper.
B) comparing all relevant alternatives systematically and incrementally.
C) making a decision based on emotions.
D) making decisions in the largest possible increments.
E) taking account of all marginal beneits, all opportunity costs, and all sunk costs.
Skill: Level 1: Deinition
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
26) Decision making on the margin involves
A) comparing the marginal cost and marginal beneits when making a decision.
B) comparing the total cost and the total beneit when making a decision.
C) eliminating the additional cost when making a decision.
D) determining the total beneits of a decision.
E) comparing the beneits from the social interest to the beneits from the person's self-
interest.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
27) In making your decision whether to take a trip during spring break, you compare all the
other activities you could undertake. As a result, you
A) are making a choice on the margin.
B) limit the cost and the beneits you can gain.
C) are not making a rational choice.
D) do not face an opportunity cost.
E) must have made a choice in the social interest.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
29
28) To make a rational choice, a person
A) compares the extra beneits of one more unit to the extra costs of one more unit.
B) adds the total beneits and the total costs and then compares the two totals.
C) adds the total beneits to determine if the total is large enough.
D) adds the total costs to determine if the total is small enough.
E) takes account of all beneits and all opportunity costs, including both marginal costs and
sunk costs.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
29) In order to determine whether to major in economics, a rational individual compares
the ________ of the decision.
A) marginal beneit and marginal cost
B) opportunity cost and the sunk cost
C) positive beneits and normative costs
D) normative beneits and positive costs
E) self-interest and social-interest
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
30) In order to make a rational choice, people must
A) only know what they want.
B) be able to aford the choice decided upon.
C) decide quickly without wasting time.
D) compare marginal costs and marginal beneits.
E) determine what is in the social interest.
Skill: Level 2: Using deinitions
Section: Checkpoint 1.2
Status: Old
AACSB: Relective thinking
30
