ECON 001 Quiz 2

1. It is said that the rational consumer will act according to their 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?

1. The rental of recreational vehicles for use in national parks is responsive to the price charged, but not to concerns of noise pollution.
2. Our time was very valuable at that moment, but we stopped to put out the fire before itspread.
3. The boat rental was worth the additional fish catch, regardless how little fish we left behind.

2. It is said that the rational consumer will act according to their 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?

1. The boat rental was worth the additional fish catch, regardless how little fish we left behind.
2. Even though the fish were big enough to eat, the man threw them back in the ocean.
3. Our time was very valuable at that moment, but we stopped to help the stranger anyway.

3. Self-interest can include more than a concern for oneself. To the extent that the happiness of others contributes significantly to the our own happiness, actions taken in our own self-interest may have benefits for

1. B humankind as a whole.
2. C close friends and family.
3. A strangers.

4. Making an economically rational decision requires

1. always considering the long-run.
2. equal consideration for your own and others’ welfare
3. considering all prospective marginal benefits and marginal costs to oneself.

5. Making an economically rational decision requires

1. considering all other people.
2. weighing prospective marginal benefits and marginal costs to oneself.
3. always considering the long-run.

6. Self-interest is not necessarily selfish, some say. In fact, self-interest likely includes an individual’s consideration for

1. A strangers.
2. B humankind as a whole.
3. C close friends and family.

7. The theory of rational behavior

1. assumes that people will behave in the best interest of society as a whole.
2. implies that people will always take the time to make perfectly informed decisions.
3. is an assumption that economists make to have a useful model for how decisions are made.

8. A rock star intentionally sets her ticket prices below what would be necessary to sell out her shows. How might this be justified by a manager whose goal is to maximize long-term profit?

1. The revenue sacrificed is worth the boost it gives to her image as lines form for tickets.
2. The revenue sacrificed represents a very small share of the show’s revenues.
3. The revenue sacrificed will help to make the audience more diverse.

9. 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

1. the marginal cost is greater than the marginal benefit of an additional encore.
2. the total enjoyment (benefit) of the concert was maximized.
3. the additional enjoyment of one more encore (the marginal benefit) is rising.

10. A filtration improvement has been proposed for the old water plant that serves the entire city. Water rates have been only 2 cents per gallon, but with the improvement, the rate would be 5 cents per gallon.

1. A rational debate for city residents at this time would be centered on which question?
2. Are the additional benefits of cleaner water worth paying 3 more cents per gallon?
3. Is it worth paying 5 cents per gallon to have a city water system?
4. ~ formative
5. Can people afford paying more than twice as much for the same amount of water?

11. Which of the following statements is/are reflecting decision-making on the margin?

1. One more day in this cottage will be nice, but how much will the cost of the rental rise?
2. If we double the order to a dozen doughnuts, we will pay only twenty percent more.
3. The total cost of the program is equal to the total benefits.

12. After cost overruns of the electric project, $20 million was already spent and unrecoverable. It was going to cost $12 million more in order to complete the project, and now society somehow needs to make the rational choice to

1. continue with the project provided that the additional electricity is worth more than $12 million.
2. continue with the project provided that the additional electricity is worth more than $32 million.
3. continue with the project provided that the additional electricity is worth more than $20 million.

13. Down at the water plant, there is a proposal for a new filtration system to serve the entire city’s needs. The cost of the new system will double water rates. A rational city council should deliberate which following question on behalf of the city’s residents?

1. Are the benefits of cleaner water greater than the additional costs of the new filtration system?
2. Are the total benefits of having a city water supply greater than the total cost?
3. Is it worth paying twice as much for the same amount of water?

14. Marginal benefit is

1. the additional benefit that one more unit of something will provide.
2. the average benefit that each unit of something provides.
3. the change in the total benefit that one more unit of something will provide.

15. After cost overruns of the solar project, $10 million was already spent and unrecoverable. It was going to cost $12 million more in order to complete the project, and now society somehow needs to make the rational choice to

1. continue with the project provided that the additional solar electricity is worth more than $10 million.
2. continue with the project provided that the additional solar electricity is worth more than $32 million.
3. continue with the project provided that the additional solar electricity is worth more than $22 million.

16. Marginal cost is necessary to consider in a rational decision, and should be compared to

1. marginal benefit.
2. total benefit.
3. opportunity cost.

17. Which of the following three statements are normative?

1. Retired professionals should work less and get out more.
2. Retired professionals are generous tippers.
3. Retired professionals spend less that working professionals.

18. Which of the following statements are positive?

1. Installing solar will provide a rate of return on investment of 5%.
2. Installing solar will be worth the investment.
3. Investing in electricity with photovoltaic cells is a growing trend.

19. Which of the following three statements are normative?

1. Congress gives certain business corporations tax breaks.
2. Congress gives too many tax breaks to corporations.
3. Tax breaks can change corporate behavior.

20. Which of the following statements are positive?

1. I am absolutely positive that there is a better way.
2. 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.
3. Social security benefits are not taxed.

21. Identify the positive statement(s) among the following statement(s).

1. The federal government spends too much.
2. The federal government budget deficit reached 4% of GDP last year.
3. The federal government spending is greater than revenue to the Treasury.

22. A positive statement is always

1. based upon what ought to be.
2. correct
3. devoid of value judgements.

23. Normative statements are based upon

1. what can be demonstrated to be true.
2. value judgements.

24. A positive statement is

1. based upon what can be demonstrated to be true.
2. a value judgement.
3. can be shown to be correct or incorrect.

25. An Uber driver faces costs for driving that include sunk costs like insurance that contribute to the average cost per mile of $.50. Yet when a rider offers to pay less than that for a ride, the driver agrees because

1. sunk costs like auto insurance (in this case) do not increase as driving increases.
2. the driver is irrational; this decision will cause a loss.
3. the driver needs to cover all sunk costs to be better off by accepting the offer.

26. Rational decision-making ignores any consideration of:

1. opportunity costs.
2. monetary costs.
3. sunk costs.

27. The house that Jeanne inherited from her mother can rent for $1500/month, but Jeanne decides to allow her brother to stay there for only $500 per month. This decision carried with it a

1. $1000 per month monetary and opportunity cost.
2. $500 per month monetary cost but a $1500 per month opportunity cost.
3. zero monetary cost but a $1000 per month opportunity cost.

28. The slope of a budget constraint line is influenced by

1. the size of the budget.
2. the relative prices of the two goods competing to satisfy wants.
3. the tastes and preferences of the decision-maker.

29. Scarcity is imposed on individual households in the form of

1. utilities
2. the prices of the goods that we may purchase.
3. income (budget) limitations.

30. A profit-maximizing decision must be made about whether to keep a bed & breakfast operating. Until the place sells, the mortgage of $3000/month must be paid, since it is a sunk cost. If the restaurant operates, costs rise by $4000 per month, but revenue will be only $6000 per month. Until the building can be sold,

1. it is best to keep the bed & breakfast operating because it is profitable.
2. it is best to ignore sunk cost and keep the bed & breakfast operating.
3. it is best to shut down the bed & breakfast since it is taking a loss.

31. Budget constraints impose scarcity, and are based upon

1. the limitation of the budget.
2. the prices of the items purchased.
3. how much utility one more unit of a good will provide.

32. The house that Jeanne inherited from her mother can rent for $2000/month, but Jeanne decides to allow her brother to stay there for only half of that. This decision carried with it a

1. $1000 per month monetary and $1000 per month opportunity cost.
2. $1000 per month monetary cost but a $2000 per month opportunity cost.
3. zero monetary cost but a $1000 per month opportunity cost.

33. In order to satisfy as many wants as possible, it is necessary to achieve PRODUCTIVE efficiency

1. since otherwise resources are idle.
2. since otherwise output may go to where it is less valued.
3. since it would be impossible to produce more of one thing without producing less of another.

34. The production possibilities model is illustrated with a negatively sloped line because

1. the opportunity cost of producing more of something will rise.
2. production of different types will compete for limited resources.
3. of diminishing returns.

35. How does a production possibilities model differ from a budget constraint model?

1. The production possibilities model depicts purchase choices.
2. The budget constraint model demonstrates diminishing returns.
3. The production possibilities model demonstrates diminishing returns.

36. A non-linear (“bending”) production possibilities model assumes that

1. the opportunity cost of producing more of something will remain constant.
2. technology can advance.
3. some land or labor is more productive in one use than another

37. Assuming there are only two types of outputs in Cuba: consumer goods and nuclear missiles. All else constant, as the nation produces more missiles

1. the greater is the opportunity cost of consumer wants satisfied.
2. every additional missile will reduce consumer goods production by more and more.
3. the opportunity cost of consumer wants satisfied is diminishing.

38. A non-linear production possibilities model assumes that

1. with rational resource allocation decisions, the opportunity cost of producing more will rise.
2. some resources are specialized to (more productive in) one use than another.
3. technology can advance.

39. Suppose that there are only two types of output in North Korea: nuclear missiles and consumer goods. All else constant, as the nation produces more missiles

1. the greater is the opportunity cost of consumer wants satisfied.
2. the opportunity cost of consumer wants satisfied is diminishing.
3. every additional missile will reduce consumer goods production by more and more.

40. The production possibilities model shows an inverse relationship between the amount of one thing that can be produced and the amount of something else because

1. of diminishing returns.
2. production of different types will compete for limited resources.
3. the opportunity cost of producing more of something will fall.

41. A restaurant chain sponsors a charity that provides for children with cancer to be treated with their parents present. How would the use of company funds for this purpose be justified by a business whose goal is to maximize profit?

1. The funds dedicated to this purpose represent a very small share of profits.
2. The money spent is worth the boost it gives to corporate image.
3. The money will be spent efficiently to cure cancer.

42. The agricultural extension agent told the farmer that one more crop-dusting will likely add a ton of additional wheat to the harvest. The rational farmer then calculated the selling price of a ton of wheat, since he would decide to crop-dust again if and only if

1. the marginal benefit is greater than the marginal cost of an additional crop-dusting.
2. the additional crops grown from one more crop-dusting (the marginal product) is rising.
3. the total benefits from all crop-dustings is greater than the the total cost of all crop-dustings.

43. Marginal cost is

1. on average, what each unit of output costs to produce or obtain.
2. the cost of obtaining or producing one more unit of something.
3. the only thing necessary to consider for making rational decisions.

44. Identify the normative statement(s) among the following statement(s).

1. College tuition is higher for out-of-state students than it is for in-state students.
2. College tuition is too high.
3. College tuition is not high enough.

45. In order to satisfy as many wants as possible, it is necessary to achieve ALLOCATIVE efficiency,

Group of answer choices

since otherwise output may go to where it is less valued.

since otherwise resources are idle.

since it would be impossible to produce more of one thing without producing less of another.

A budget constraint model differs from production possibilities model in that, typically

Group of answer choices

the production possibilities model demonstrates diminishing returns.

the budget constraint demonstrates diminishing returns.

the budget constraint depicts an inverse relationship, or a trade-off.