Question 1

What typically happens to benefits as the amount of an activity is increased?
A)Total benefits remain constant.
B)Marginal benefit increases.
C)Marginal benefit remains constant.
D)Marginal benefit decreases.
E)The marginal benefit changes only if the marginal cost changes.

Accepted Answer

As the amount of an activity is increased, the additional benefit obtained from each additional unit of the activity (marginal benefit) tends to decrease due to diminishing marginal utility. This means that the total benefits may still increase, but at a decreasing rate as the activity is increased. Therefore, the marginal benefit decreases.

Question 2

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 benefits 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.

Accepted Answer

Comparing all the other activities implies that you are considering the benefits and costs of each option and making a decision based on the margin. Therefore, you are making a choice on the margin.

Question 3

Decision making on the margin involves
A)comparing the marginal cost and marginal benefits when making a decision.
B)comparing the total cost and the total benefit when making a decision.
C)eliminating the additional cost when making a decision.
D)determining the total benefits of a decision.
E)comparing the benefits from the social interest to the benefits from the person's self-interest.

Accepted Answer

Decision making on the margin involves comparing the additional or marginal cost and benefit of a decision. This is because when making a decision, the decision-maker considers the costs and benefits of taking one additional unit of action. Choosing the alternative with the greatest marginal benefit relative to its marginal cost generates the greatest net benefit or utility.

Question 4

An incentive is
A)a reward or a penalty that encourages or discourages an action.
B)when people make rational choices by comparing costs and benefits.
C)what you must give up to get something.
D)a choice is made on the margin.
E)a good or service that satisfies wants.

Accepted Answer

An incentive is a reward or a penalty that encourages or discourages an action. It drives people to make certain choices, which can be beneficial or detrimental for them. Therefore, A, that describes the meaning of an incentive, is the correct choice. Choice B describes rational choice theory, and C describes opportunity cost, which are related concepts but not incentives. Choice D describes marginal decision-making, which is often driven by incentives, but is not a definition of incentives itself. Choice E describes goods and services, which are outcomes of production and consumption and not incentives.

Question 5

As part of its proposal to win the 2012 Olympics, London developed a carbon offset plan to reduce the Games' impact on the environment. In 2011, the organizers decided to drop this plan to reduce emissions. We can conclude that
A)the marginal cost of reducing emissions exceeded the marginal benefits of reducing emissions.
B)the organizers are not making a rational decision.
C)the organizers are ignoring a sunk cost.
D)there are no incentives to reduce carbon emissions.
E)it is difficult to calculate the cost of reducing emissions.

Accepted Answer

The decision to drop the carbon offset plan suggests that the marginal cost of reducing emissions was deemed to be higher than the marginal benefits. The organizers likely weighed the benefits of reducing emissions against the costs, and determined that the costs outweighed the benefits.

Question 6

In order to make a rational choice, people must
A)only know what they want.
B)be able to afford the choice decided upon.
C)decide quickly without wasting time.
D)compare marginal costs and marginal benefits.
E)determine what is in the social interest.

Accepted Answer

In order to make a rational choice, people must compare the marginal costs and marginal benefits of their options. This means considering the additional costs and benefits of each choice and determining which option provides the greatest net benefit.

Question 7

In order to determine whether to major in economics, a rational individual compares the ________ of the decision.
A)marginal benefit and marginal cost
B)opportunity cost and the sunk cost
C)positive benefits and normative costs
D)normative benefits and positive costs
E)self-interest and social-interest

Accepted Answer

To make a rational decision about whether to major in economics, the individual should compare the marginal benefit (the additional benefits of studying economics) with the marginal cost (the additional costs of studying economics, such as tuition fees, time spent studying, and potential alternative opportunities forgone). This analysis allows the individual to assess whether the benefits of studying economics outweigh the costs, which is crucial in making an informed decision.

Question 8

The decision to go to graduate school is a rational one for a college student if the
A)cost is not too great.
B)marginal cost exceeds the marginal benefit of graduate school.
C)marginal benefit of graduate school exceeds the marginal cost.
D)opportunity cost of graduate school equals zero.
E)student carefully compared the social benefits of this decision.

Accepted Answer

The decision to go to graduate school is rational only if the marginal benefit of graduate school exceeds the marginal cost. This means that the benefits of going to graduate school, such as advanced education, job opportunities, and salary increases, should outweigh the costs of attending, such as tuition, fees, and opportunity costs. Therefore, a college student should carefully consider the potential benefits and costs of graduate school before making a decision.

Question 9

A choice made by comparing all relevant alternatives systematically and incrementally is
A)an opportunity cost.
B)a choice on the margin.
C)a benefit.
D)a sunk cost.
E)a choice made in the social interest.

Accepted Answer

A choice made on the margin involves comparing alternatives incrementally, weighing benefits and costs of each option. This allows for the selection of the option that provides the greatest net benefit.

Question 10

Your economics professor offers 10 points extra credit if you attend a review session before your next exam. This extra credit is an example of
A)a decrease in marginal benefit to attend the review session.
B)an increase in marginal cost to attend the review session.
C)a rational choice.
D)an incentive to attend the review session.
E)None of the above answers are correct.

Accepted Answer

The extra credit offered by the professor is an incentive to attend the review session, which is likely to increase students' motivation to attend. Making a rational choice would involve weighing the costs and benefits of attending the review session, and the offer of extra credit would be factored into the decision-making process. Therefore, the best answer is D, an incentive to attend the review session.

Question 11

A change in a marginal benefit or cost will
A)increase consumption.
B)decrease production.
C)cause an individual to make a rational choice.
D)increase sunk costs.
E)change incentives.

Accepted Answer

A change in marginal benefit or cost will change the incentives for making a decision. This could lead to either an increase or decrease in consumption or production, but the most certain outcome is a change in incentives. Sunk costs, by definition, are not affected by changing marginal benefits or costs, and while an individual may make a rational choice in response to the change, this is not the most general or comprehensive answer.

Question 12

Instead of studying for an additional two hours for the economics final, Leann decides to watch a movie. Leann is making
A)a decision that does not involve an opportunity cost.
B)a rational decision if her marginal cost from the movie is greater than her marginal benefit.
C)a rational decision if her marginal benefit from the movie is greater than her marginal cost.
D)an irrational decision because studying is more important than watching a movie.
E)a decision that is not on the margin because she will see the entire movie.

Accepted Answer

Leann is making a rational decision if her marginal benefit from the movie (enjoyment or relaxation) is greater than her marginal cost (the additional knowledge or grade improvement she could have gained from studying for an additional two hours). Therefore, it is a good decision only if the movie provides more happiness or relief than two hours of studying. However, if Leann would suffer more from the penalty of getting a lower grade, it would be better to choose studying.

Question 13

Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that
A)workers are irrational.
B)workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work.
C)the opportunity cost of working is negative.
D)the marginal cost of each additional work hour is not important to most workers.
E)workers make decisions based on the social interest.

Accepted Answer

The argument for cuts in income tax rates assumes that workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work. This is a rational economic decision-making model, in which individuals weigh the costs and benefits of each decision. Factors such as opportunity cost and marginal cost are important considerations in this model, which suggests that workers are rational in their decision-making. Therefore, option B is the best choice. Options A, C, D, and E do not reflect the assumptions underlying the argument in favor of tax cuts.

Question 14

To make a rational choice, a person
A)compares the extra benefits of one more unit to the extra costs of one more unit.
B)adds the total benefits and the total costs and then compares the two totals.
C)adds the total benefits 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 benefits and all opportunity costs, including both marginal costs and sunk costs.

Accepted Answer

To make a rational choice, a person should compare the extra benefits of one more unit to the extra costs of one more unit. This is known as marginal analysis and helps to ensure that the benefits outweigh the costs.

Question 15

Suppose you eat two hamburgers for lunch. The marginal benefit of the first burger is ________ of the second burger.
A)larger than the marginal benefit
B)smaller than the marginal benefit
C)equal to the marginal benefit
D)not related to the marginal benefit
E)equal to the marginal cost and the marginal benefit

Accepted Answer

The marginal benefit of the first burger is typically larger than the marginal benefit of the second burger due to the principle of diminishing marginal utility, which states that as a person consumes more of a good, the additional satisfaction (marginal benefit) gained from consuming an additional unit of that good decreases.

Question 16

An incentive is
A)an inducement to take a particular action.
B)the marginal cost of some course of action.
C)the marginal benefit of some course of action.
D)the net gain of some course of action.
E)a constraint that society imposes on those who make self-interested choices.

Accepted Answer

An incentive is an inducement, reward, or motivator that encourages someone to take a particular action. It is something that drives, inspires, or motivates an individual to act in a certain way. Incentives can be positive (rewards) or negative (punishments), and can be financial or non-financial. Therefore, option A is the best choice as it correctly defines an incentive.

Question 17

When Gabriel made a rational choice to spend his entire allowance on candy bars, he did so by comparing the
A)benefits of the candy bars to the desires he had for the candy bars.
B)marginal benefits of the candy bars to the marginal costs of the candy bars.
C)opportunity costs of the candy bars to the scarcity of the candy bars.
D)benefits of the candy bars to the scarcity candy bars.
E)self-interest to the social interest.

Accepted Answer

Gabriel made a rational choice by comparing the marginal benefits of the candy bars to the marginal costs of the candy bars. This means that he considered the additional satisfaction or pleasure he would get from each additional candy bar compared to the additional cost of each candy bar. By choosing to spend his entire allowance on candy bars, Gabriel determined that the marginal benefits of each candy bar were greater than the marginal costs, indicating that he would gain more satisfaction from buying the candy bars than from using the money for any other purpose.

Question 18

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 benefits, all opportunity costs, and all sunk costs.

Accepted Answer

Making choices on the margin means comparing all relevant alternatives systematically and incrementally. This involves weighing the additional benefits and costs of a decision as one moves from one option to another. It is an incremental decision-making process that helps individuals and firms maximize their gains and minimize their losses.

Question 19

Huey has eaten two hamburgers and is considering a third. The marginal benefit 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.

Accepted Answer

The marginal benefit is only from consuming the third hamburger. Huey has already experienced the pleasure from consuming the first two hamburgers, so the marginal benefit from those is no longer relevant to his decision. Option A is incorrect as it includes the pleasure from the first two hamburgers which are irrelevant to the decision making. Option B overstates the marginal benefit as it includes the pleasure from all three hamburgers. Option D is incorrect as it only includes the pleasure from the second hamburger, which is not relevant to the decision making. Option E is incorrect as it subtracts the pleasure from consuming zero hamburgers which is not a relevant factor for the decision making.

Question 20

Going skiing will cost Adam $80 a day. He also loses $40 per day in wages because he has to take time off from work. Adam still decides to go skiing.
A)His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost.
B)The $80 price of skiing is not an opportunity cost and so did not affect Adam's decision.
C)He loses a total of $120 per day, so his decision is irrational.
D)Adam's lost $40 per day in wages is not an opportunity cost and so did not affect his decision.
E)Adam is definitely making a decision that is in the social interest.

Accepted Answer

Adam's decision is rational if the marginal benefit he receives from skiing is greater than the combined cost of $120 ($80 for skiing and $40 for lost wages). This decision depends on Adam's personal preferences and how much he values skiing. Therefore, we cannot determine whether his decision is rational or not without considering his individual preferences.

Quiz 1: Getting Started

What typically happens to benefits as the amount of an activity is increased?

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

Decision making on the margin involves

An incentive is

As part of its proposal to win the 2012 Olympics, London developed a carbon offset plan to reduce the Games' impact on the environment. In 2011, the organizers decided to drop this plan to reduce emissions. We can conclude that

In order to make a rational choice, people must

In order to determine whether to major in economics, a rational individual compares the ________ of the decision.

The decision to go to graduate school is a rational one for a college student if the

A choice made by comparing all relevant alternatives systematically and incrementally is

Your economics professor offers 10 points extra credit if you attend a review session before your next exam. This extra credit is an example of

A change in a marginal benefit or cost will

Instead of studying for an additional two hours for the economics final, Leann decides to watch a movie. Leann is making

Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that

To make a rational choice, a person

Suppose you eat two hamburgers for lunch. The marginal benefit of the first burger is ________ of the second burger.

An incentive is

When Gabriel made a rational choice to spend his entire allowance on candy bars, he did so by comparing the

Making choices on the margin means

Huey has eaten two hamburgers and is considering a third. The marginal benefit in his decision is the pleasure from consuming

Going skiing will cost Adam $80 a day. He also loses $40 per day in wages because he has to take time off from work. Adam still decides to go skiing.